Senseonics Holdings, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Amounts below are in millions of dollars unless noted. Senseonics develops and commercializes implantable continuous glucose monitoring (CGM) products. Eversense was being sold in Europe; U.S. sales depended on FDA approval.
Financial results and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $2.10 | $0.04 | $3.46 | $0.06 |
| Gross profit (loss) | $(0.86) | $(0.08) | $(2.25) | $(0.09) |
| Gross margin | (41.0)% | Not stated | (65.0)% | Not stated |
| Operating loss | $(16.61) | $(10.51) | $(40.64) | $(32.99) |
| Net loss | $(17.38) | $(10.89) | $(42.83) | $(33.96) |
| Net loss per share | $(0.13) | $(0.12) | $(0.39) | $(0.39) |
At September 30, 2017, cash and cash equivalents were $29.8 million and marketable securities were $22.9 million, totaling $52.7 million. Current assets were $59.1 million and current liabilities $20.2 million. Total assets were $60.1 million; total liabilities were $37.9 million. Notes payable were $25.0 million principal, with $7.5 million classified current and $16.8 million reported net of discount as non-current. Accumulated deficit was $247.5 million.
For the first nine months, operating cash use was $39.5 million, investing cash use $15.9 million, and financing cash inflow $72.1 million. Financing was primarily $66.9 million net proceeds from the May and August 2017 stock offerings. Cash increased $16.7 million from year-end 2016. No positive operating cash flow or profitability was reported.
Material changes versus comparable periods
- Revenue rose from minimal levels as shipments to European distributors Roche and Rubin increased, but cost of sales exceeded revenue, leaving negative gross profit.
- Q3 net loss widened by $6.5 million year over year; nine-month net loss widened by $8.9 million. Higher operating expenses and interest expense contributed.
- Q3 sales and marketing expense increased $1.4 million, R&D increased $2.9 million, and general and administrative expense increased $1.1 million year over year.
- Shares outstanding increased from 93.6 million at December 31, 2016 to 136.7 million at September 30, 2017, principally reflecting equity offerings.
- Inventory increased to $2.4 million from $0.5 million, including a $0.2 million reserve for lower net realizable value.
Outlook, risks and unusual items
- Management estimated existing cash, cash equivalents, and marketable securities would fund planned operations into Q3 2018, but stated the company lacked sufficient funds to support operations through October 2018 and disclosed substantial doubt about its ability to continue as a going concern. Further financing is expected to be needed; availability and terms are uncertain.
- Management expected continued losses and rising R&D and administrative costs. Product revenue was not expected to meet operating needs for several years, if ever.
- The company anticipated U.S. Eversense PMA approval in the first half of 2018, but timing was uncertain and approval was not assured. Eversense XL received European CE Mark approval in September 2017, with launch in selected countries planned by year-end; European approval of the Eversense Now app was also expected by year-end.
- The loan facility carried a minimum 6.95% rate, matured June 2020, and was secured by substantially all assets other than intellectual property. The remaining $5 million tranche depended on FDA approval and at least $4 million trailing six-month revenue by the applicable measurement period. Debt covenants and default provisions could constrain the company.
- Contractual obligations totaled $35.3 million, including $25.0 million principal and $5.1 million interest on notes, $3.6 million operating leases, and $1.6 million of future minimum supplier payments. The company reported no material pending legal proceedings and no recorded litigation liabilities at September 30, 2017; a prior claim was settled for $43,237 in April.
- Other risks include regulatory and commercialization execution, dependence on distributors and contract manufacturers, potential dilution or unfavorable financing terms, patent disputes, and inventory obsolescence. The filing also states in one market-risk discussion that note interest is fixed, while the debt terms describe a floating rate; this discrepancy merits clarification.
Important facts for investors to verify
- Cash runway assumptions, actual cash burn, and timing and terms of additional financing.
- FDA PMA review status, any information requests, and the basis for the anticipated U.S. approval timing.
- European sales growth, distributor sell-through, product economics, and the drivers of negative gross margins.
- Eligibility for the final $5 million loan tranche, debt-service schedule, covenants, and the filing’s conflicting description of interest-rate terms.
- Potential dilution from future equity issuance and outstanding options and warrants.