Senseonics Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Senseonics develops and manufactures implantable continuous glucose monitoring systems, including Eversense; Ascensia is its commercialization partner. Financial amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $4.1 million | $2.5 million |
| Gross profit / margin | $0.4 million / 10.0% | $0.5 million / 21.2% |
| Research and development | $12.4 million | $7.8 million |
| Selling, general and administrative | $7.7 million | $7.9 million |
| Operating loss | $19.7 million | $15.2 million |
| Net income | $1.3 million | $86.7 million |
| Net cash used in operating activities | $19.8 million | $20.2 million |
Revenue increased 67% year over year, primarily reflecting Eversense E3 launches in the U.S. and international markets. Gross margin fell as a result of sales-channel mix and higher manufacturing and logistics costs. R&D spending increased mainly with clinical studies and next-generation development.
Q1 2023 net income included an $18.8 million net gain related to exchanging PHC notes and a $5.8 million gain from changes in fair value of derivatives. Q1 2022 net income was also substantially affected by large noncash fair-value gains. Operating performance remained loss-making in both periods; headline net income is therefore not a clear measure of operating profitability.
Financial position, debt and liquidity
- Cash and cash equivalents were $45.1 million; marketable securities were $91.5 million, for total cash, cash equivalents and securities of approximately $136.6 million at March 31, 2023.
- Operating cash outflow was $19.8 million for the quarter. Cash and cash equivalents increased $9.3 million, mainly because investment maturities and sales generated $39.7 million and PHC’s warrant placement provided $15.0 million, while the company repaid $15.7 million of 2023 Notes.
- Following the March exchange of PHC’s $35.0 million principal notes and accrued interest for a pre-funded warrant, the principal debt reported outstanding was $51.2 million of 2025 Notes, due January 2025. Their balance-sheet carrying amount, net of discounts and costs, was $37.5 million. Current liabilities were $14.3 million.
- Management said existing cash, cash equivalents and expected operating cash flows should fund current operating plans through 2024. The company nevertheless expects further losses and significant working-capital needs.
- Accumulated deficit was $807.5 million. Total stockholders’ equity was $64.5 million, including $37.7 million of temporary equity.
Material changes, outlook and risks
- On March 31, PHC exchanged its $35.0 million notes plus accrued interest for a pre-funded warrant to purchase up to 68.5 million shares. Separately, PHC paid $15.0 million for a warrant covering 15.4 million shares. Both warrants were unexercised at quarter-end; their nominal exercise price is $0.001 per share. The filing includes the warrant shares in basic weighted-average shares for EPS purposes.
- Revenue concentration increased: Ascensia generated 92% of Q1 revenue, compared with 88% a year earlier. The filing identifies customer concentration and dependence on successful commercialization and reimbursement as important business considerations.
- Management’s commercial and development priorities include expanding insurance coverage and adoption, and developing the 365-day Eversense system. The ENHANCE pivotal study had completed enrollment; the company expected data in the second half of 2023. It received approval to enroll a pediatric cohort and began enrollment in Q2 2023.
- No specific revenue or earnings guidance was provided. Management noted that growth and profitability depend on adoption, reimbursement, future product development and regulatory approvals, and that additional capital may be sought if appropriate.
- A relator’s False Claims Act and Texas Medicaid fraud case was dismissed, with judgment for Senseonics on March 30, 2023; the relator appealed on April 28, 2023. Management reported no material change to the risk factors in its 2022 Form 10-K. Disclosure controls were assessed as effective.
Investor verification priorities
- Track cash burn against management’s stated funding horizon through 2024 and the timing or terms of any additional financing.
- Assess whether revenue growth can improve gross margin, given Q1’s 10.0% margin and higher manufacturing and logistics costs.
- Monitor Ascensia’s commercialization, reimbursement coverage, and the company’s 92% revenue concentration in that partner.
- Review dilution and PHC ownership implications from warrants covering approximately 83.95 million shares, as well as the separate equity-plan reserves.
- Verify 365-day product study results, regulatory progress, and the outcome of the relator’s appeal.