Senseonics Holdings, Inc. — Q2 2023 Form 10-Q
Business context and reporting period
Senseonics develops and manufactures implantable continuous glucose monitoring systems, including Eversense E3, approved in the U.S. for up to 180 days of use. This unaudited filing covers the quarter and six months ended June 30, 2023. Ascensia is the company’s commercialization partner and principal customer.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $4.1m | $3.7m | $8.3m | $6.2m |
| Gross profit | $0.4m | $0.8m | $0.8m | $1.4m |
| Gross margin | 10.1% | 22.2% | 10.0% | 21.8% |
| Operating loss | $(19.9)m | $(17.0)m | $(39.6)m | $(32.2)m |
| Net income (loss) | $(20.4)m | $104.2m | $(19.1)m | $190.9m |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(37.8)m | $(34.3)m |
- Revenue increased 11% in Q2 and 33% for the first half, primarily reflecting Eversense E3 commercialization outside the U.S. However, cost of sales rose faster than revenue, reducing gross profit and margin.
- Research and development expense increased to $12.8m in Q2 and $25.2m for the half, mainly due to clinical studies and next-generation product development. SG&A declined to $7.5m and $15.2m, respectively.
- Prior-year net income included large noncash fair-value gains: derivative and option gains totaled $124.8m in Q2 2022 and $231.0m for the first half of 2022. The 2023 first-half results included an $18.8m net gain related to exchanging PHC notes. These items make headline net income comparisons less indicative of operating performance.
- At June 30, cash and cash equivalents were $28.6m; marketable securities were $96.5m, for combined cash and securities of $125.1m, down from approximately $156.3m at December 31, 2022. Current assets were $138.2m and current liabilities $15.9m.
- Notes payable had $51.2m principal outstanding, all due in 2025, with a $39.1m carrying amount after discounts and issuance costs. The 2023 Notes were repaid in January; PHC’s $35m notes were exchanged for a pre-funded warrant in March. The company reported $6.9m of lease liabilities after extending its headquarters lease through May 2033.
- Common shares outstanding were 492.8m at June 30, versus 479.6m at year-end. PHC’s pre-funded warrants for approximately 84.0m shares were included in weighted-average basic shares because of their nominal exercise price.
Material changes, outlook, and risks
- Management expects existing cash, cash equivalents and future operating cash flows to fund current operating plans into 2025, while warning that further losses and significant working-capital needs are expected. This outlook depends on commercialization, adoption, reimbursement, and product development.
- In June, Senseonics received a positive UnitedHealthcare coverage decision for Eversense E3, effective July 1, 2023. The company reported approximately 300m U.S. covered lives through positive payer coverage decisions. The ENHANCE study for the 365-day system was enrolling pediatric patients; management expected study data in the second half of 2023.
- After quarter-end, holders agreed to exchange up to $30.8m principal of 5.25% 2025 Notes for $7.5m cash and newly issued common shares, subject to a share cap of 10% of shares outstanding as of August 10. Closing was expected around September 5, 2023. The company said the exchange could reduce debt and remove restrictive covenants, but warned of dilution, potential share-price pressure from resale, and the possibility that lower share prices could limit the amount exchanged.
- Senseonics terminated its Jefferies ATM agreement on August 7 and entered an agreement with Goldman Sachs for a potential ATM offering of up to $106.6m. The registration statement was not yet effective as of the filing, so no sales could yet be made. Equity issuance could materially dilute shareholders.
- Ascensia generated 89% of Q2 revenue and 91% of first-half revenue, creating significant customer concentration. Lower gross margins were attributed to a higher Ascensia revenue-share percentage, sales-channel mix, and increased manufacturing and logistics costs.
- A False Claims Act and Texas Medicaid fraud case was dismissed with judgment for Senseonics in March 2023; the relator appealed, and appeal briefing was ongoing. Management stated ordinary-course legal matters were not expected to have a material adverse effect, while noting litigation can involve material costs and management resources.
- Management concluded disclosure controls were effective at the reasonable-assurance level; no material change in internal control over financial reporting was identified during the quarter.
Most important facts for investors to verify
- Whether the 2025 Notes exchange closed, how much principal was exchanged, the cash paid, shares issued, and remaining debt and covenants.
- Whether the Goldman Sachs registration statement became effective and whether the ATM was used, including proceeds, pricing, and dilution.
- Cash and marketable securities relative to operating cash burn, and whether the stated runway into 2025 remains supportable.
- Progress in revenue growth, gross-margin recovery, payer coverage, and adoption of Eversense E3, alongside dependence on Ascensia.
- ENHANCE 365-day study results and subsequent regulatory or commercialization milestones, plus the status of the False Claims Act appeal.