Senseonics Holdings, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Senseonics develops and commercializes implantable continuous glucose monitoring systems, including Eversense and Eversense XL. Eversense was approved in the U.S. in 2018, and the company began U.S. commercialization that July.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $3.4 million | $2.9 million |
| Cost of sales | $6.7 million | $3.3 million |
| Gross loss / margin | $3.3 million / (96.7)% | $0.4 million / (12.3)% |
| Operating loss | $29.8 million | $15.9 million |
| Net loss | $29.4 million | $22.3 million |
| Basic and diluted loss per share | $0.17 | $0.16 |
| Cash used in operations | $30.2 million | $20.5 million |
Revenue was primarily from a related party. Cash and cash equivalents were $103.7 million at March 31, down from $136.8 million at year-end 2018. Total assets were $129.4 million and stockholders’ equity was $43.9 million. Inventory rose to $14.4 million from $10.2 million.
Debt included $12.5 million principal outstanding on secured Term Loans and $52.7 million principal on the 2023 convertible notes. The Term Loans mature June 2020; the notes mature February 2023, bear 5.25% interest, and are convertible at an initial price of approximately $3.40 per share. The balance sheet reports the 2023 Notes net of discount at $36.9 million and a separate $15.0 million derivative liability.
Changes versus prior year
- Revenue increased $0.5 million, or about 16%, primarily from U.S. sales following the 2018 launch.
- Cost of sales more than doubled, driven by U.S. sales, product-design-change write-offs, and contract-manufacturer yield losses; gross margin deteriorated materially.
- Sales and marketing expense rose $9.4 million to $12.8 million, mainly from added personnel and U.S. launch marketing. General and administrative expense increased $2.5 million to $6.5 million. Research and development expense declined $1.0 million to $7.1 million.
- Operating loss widened by $13.8 million. Net loss increased by $7.1 million; a $6.9 million year-over-year swing in derivative fair-value changes partly offset the higher operating loss.
- Operating cash use increased by $9.7 million. Cash declined $33.1 million during the quarter, including $2.5 million in Term Loan principal payments.
Outlook, commentary, and risks
- Management expects revenue from U.S. and European product sales to increase in 2019, and expects long-term gross-margin improvement as volume grows. These are expectations, not quantified guidance.
- The company expects continued significant expenses and losses, including increased commercialization, sales and marketing, research and development, and public-company costs.
- Management states that existing cash is not expected to fund operations through the first quarter of 2020 and concludes substantial doubt exists about the company’s ability to continue as a going concern through March 31, 2020. Additional external financing is expected to be necessary; it may not be available on acceptable terms or at all.
- The March 2019 Eversense Bridge Program provides eligible U.S. patients financial assistance. Reimbursement estimates for shipped but unsold products are based on limited experience and could change materially.
- Revenue and receivables are concentrated among a small number of customers: two customers generated a majority of revenue in both periods, and one accounted for 70% of Q1 2019 revenue. Most Q1 2019 revenue was outside the U.S. (76.2%).
- Roche’s distribution agreement was extended through January 2021 and expanded to 17 additional countries, subject to applicable approvals. The filing reports no material legal proceedings and no material change to the previously disclosed risk factors.
Key facts for investors to verify
- Cash runway assumptions and the timing, terms, and availability of additional financing, given the stated going-concern doubt.
- Whether U.S. and European adoption translates into sustained end-patient demand and higher distributor purchases.
- Causes and persistence of manufacturing yield losses, design-change write-offs, and negative gross margins.
- Customer concentration, receivable collection, and the financial effect of Bridge Program reimbursements.
- Debt repayment and conversion terms, including the 2020 Term Loan maturity and potential dilution from the convertible notes and equity awards.