Senseonics Holdings, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Unaudited financial statements; amounts below are in U.S. dollars. Senseonics develops and commercializes glucose-monitoring systems. Eversense, its implantable continuous glucose monitoring system, was being sold in Europe through distributors; U.S. commercialization depended on FDA approval.
Financial results and position
| Metric | Q1 2017 | Q1 2016 / prior period |
|---|---|---|
| Revenue | $553,000 | $0 |
| Cost of sales | $1.045 million | $0 |
| Gross profit (loss) / margin | $(492,000) / (89)% | No sales |
| Operating expenses | $11.905 million | $10.928 million |
| Operating loss | $(12.397) million | $(10.928) million |
| Net loss | $(13.073) million | $(11.216) million |
| Net loss per share | $(0.14) | $(0.15) |
| Net cash used in operating activities | $(11.616) million | $(7.430) million |
Cash and cash equivalents were $11.771 million at quarter-end, with $2.0 million of marketable securities, for total cash and marketable securities of $13.771 million. The company reported current assets of $15.421 million and current liabilities of $10.983 million (working capital of approximately $4.438 million). Total assets were $16.227 million versus liabilities of $33.069 million; stockholders’ deficit was $16.842 million. Accumulated deficit was $217.795 million.
Debt principal outstanding was $25 million; the balance sheet reported $24.077 million in note payable, net of discount, including the current portion. The secured loans mature June 1, 2020, bear a stated minimum annual rate of 6.95%, and initially require interest-only payments before scheduled principal amortization. A further $5 million tranche was potentially available subject to FDA approval and at least $4 million of trailing six-month revenue.
Material changes versus the prior comparable period
- Revenue began to be recognized from European Eversense shipments; however, cost of sales exceeded revenue, producing a negative gross margin.
- Net loss increased by $1.857 million, while operating cash use increased by $4.186 million year over year.
- Research and development expense rose to $6.998 million from $6.416 million, and sales and marketing expense rose to $1.140 million from $633,000. General and administrative expense declined slightly to $3.767 million from $3.879 million.
- Cash and cash equivalents declined by $1.276 million during the quarter. The company sold $5.291 million of marketable securities and borrowed $5 million under its loan facility.
Outlook, risks and other notable matters
- Going concern and funding: Management said existing cash, cash equivalents and marketable securities were expected to fund operations only into the third quarter of 2017. The company concluded substantial doubt existed about its ability to continue as a going concern because it lacked sufficient funding for operations through May 2018. Additional financing was necessary, with no assurance it could be raised on acceptable terms or at all.
- Commercial and regulatory outlook: Management expected European sales to increase as commercialization expanded during 2017 and into 2018. It anticipated U.S. FDA PMA approval by the end of 2017, while emphasizing timing was uncertain and approval was not assured. Management expected significant ongoing R&D and commercialization spending and did not expect product revenue to meet operating needs for several years, if ever.
- Debt and commitments: Debt is secured by substantially all assets other than intellectual property and includes restrictive covenants, default provisions and a final payment equal to 9% of funded principal. The company reported compliance with covenants at March 31, 2017. Contractual obligations totaled $37.232 million, including $25 million of loan principal, $6.069 million of stated interest payments, $3.904 million of operating lease obligations and $2.259 million under a corporate development agreement.
- Other items: Litigation accruals were approximately $40,000; the company reported no material legal proceedings and did not expect current claims to have a material effect. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was identified.
Important facts for investors to verify
- Whether the company obtained financing after the reported quarter and how its cash runway compared with the stated third-quarter 2017 expectation.
- FDA review progress, approval timing and any conditions affecting U.S. commercialization or the potential final loan tranche.
- European shipment growth, distributor demand, product costs and whether gross margins improved from the reported (89)%.
- Debt service capacity, covenant compliance and the terms or availability of any additional capital.
- The filing describes the loan interest rate as floating in its debt disclosure, but elsewhere calls the rate fixed in its market-risk discussion; verify the applicable rate terms.