Senseonics Holdings, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed March 15, 2019. The company develops and commercializes implantable continuous glucose monitoring (CGM) systems. Eversense received U.S. FDA approval in June 2018, and U.S. shipments began in July. Eversense XL, designed for up to 180 days of use, was available in Europe; U.S. approval remained pending.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $18.9 million | $6.4 million |
| Cost of sales | $27.1 million | $9.8 million |
| Gross loss / margin | $8.1 million / (43.1)% | $3.4 million / (53.1)% |
| Operating loss | $87.6 million | $56.3 million |
| Net loss | $94.0 million | $59.1 million |
| Net loss per share | $0.60 | $0.51 |
| Cash used in operations | $90.8 million | $55.7 million |
At December 31, 2018, cash and cash equivalents were $136.8 million, working capital was $129.2 million, total assets were $160.0 million, and total liabilities were $88.7 million. The company reported $67.7 million of debt principal: $15.0 million of secured term loans and $52.7 million of 5.25% convertible notes due 2023. The term loans mature in June 2020 and are secured by substantially all assets. The notes are convertible at an initial price of about $3.40 per share. The balance sheet also included a $17.1 million derivative liability related to the convertible notes.
FY 2018 financing provided $192.0 million of net cash, principally from a $149.0 million common-stock offering and $50.7 million of net proceeds from convertible notes, partly offset by $10.0 million of term-loan principal payments. The company had 176.9 million shares outstanding at year-end and 176.96 million as of March 14, 2019.
Material changes versus the prior period
- Revenue rose $12.5 million, or about 197%, primarily from greater distributor shipments to Roche and Rubin; U.S. sales contributed $1.4 million.
- Gross margin improved from (53.1)% to (43.1)%, but cost of sales still exceeded revenue.
- Sales and marketing expense increased to $27.7 million from $6.9 million, reflecting U.S. launch staffing and marketing. R&D was $31.9 million, up modestly; general and administrative expense rose to $19.8 million.
- Operating cash use increased to $90.8 million from $55.7 million, while year-end cash increased substantially following financing.
- Revenue remained highly concentrated: Roche accounted for $16.2 million, or 86% of FY 2018 revenue. Roche has a noncontrolling ownership interest in the company.
For Q4 2018, revenue was $7.2 million, gross loss was $5.0 million, operating loss was $28.6 million, and net loss was $7.3 million. The filing presents no separate Q4 cash-flow figure.
Outlook, commentary, and risks
- Management expected 2019 revenue to increase as U.S. and European commercialization ramped up, but provided no quantified revenue or earnings guidance. It expected continued significant losses and higher commercial, R&D, and administrative expenses.
- The auditor highlighted substantial doubt about the company’s ability to continue as a going concern. Management said existing cash was not expected to fund operations through the first quarter of 2020 without additional financing. No sufficient committed additional capital was identified.
- Management began enrollment in the U.S. 180-day pivotal trial in December 2018. It expected enrollment to finish in Q3 2019 and data through 180 days in the first half of 2020; timing and outcomes were uncertain. A U.S. non-adjunctive dosing claim and other product enhancements also required regulatory review.
- U.S. reimbursement remained uneven. Positive decisions covered approximately 60 million people, but some payors had denied coverage or characterized Eversense as experimental; Medicare coverage was not available under the current adjunctive label. The planned March 2019 Bridge Program offered assistance to eligible patients, but could increase utilization without corresponding recognized revenue.
- Key risks include reliance on Eversense, limited commercialization experience, negative gross margins, reimbursement uncertainty, dependence on a small number of distributors and suppliers, strong competition, regulatory and clinical risk, and the need for further financing. Equity financing may dilute shareholders; debt agreements impose covenants.
Important facts for investors to verify
- Cash burn, financing plans, and whether available capital can support operations beyond the disclosed first-quarter 2020 runway estimate.
- Revenue concentration and actual end-user demand versus distributor shipments, particularly for Roche.
- Progress toward positive gross margins and whether production costs decline as volume increases.
- Coverage and reimbursement consistency, including procedure payments, appeals, and the effects of the Bridge Program.
- 180-day trial enrollment and results, regulatory milestones, and the timing and conditions for any U.S. Eversense XL approval.
- Potential dilution and debt obligations arising from convertible-note conversion, the embedded derivative, and secured term loans.