Senseonics Holdings, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Unaudited consolidated financial statements; amounts below are in millions of dollars unless stated otherwise. Senseonics develops and commercializes glucose-monitoring products, including its implantable Eversense continuous glucose monitoring system. European sales began in 2016.
Financial results and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $0.814 | $0.019 | $1.367 | $0.019 |
| Gross profit (loss) | $(0.900) | $(0.015) | $(1.392) | $(0.015) |
| Operating loss | $(11.641) | $(11.550) | $(24.038) | $(22.479) |
| Net loss | $(12.374) | $(11.861) | $(25.447) | $(23.078) |
| Basic and diluted loss per share | $(0.12) | $(0.13) | $(0.26) | $(0.27) |
- Gross margin was negative 110.6% in Q2 and negative 101.8% for the first half, versus negative 78.9% in both comparable 2016 periods. Product costs exceeded revenue.
- For the first half, operating cash used was $24.201 million, investing cash used was $0.877 million, and financing cash provided was $45.489 million. Cash and cash equivalents ended at $33.458 million.
- At June 30, cash, cash equivalents and marketable securities totaled $41.430 million. Current assets were $46.175 million and current liabilities $15.244 million.
- Debt principal outstanding was $25 million, with $5 million classified as current. Term loans mature June 2020; the agreement provides for a minimum 6.95% interest rate, interest-only payments initially, then principal amortization. Notes are secured by substantially all assets other than intellectual property.
- Accumulated deficit was $230.169 million. Common shares outstanding rose to 123.186 million from 93.570 million at year-end 2016. The May 2017 equity offering generated approximately $40.4 million net proceeds.
Material changes versus the prior comparable period
- Revenue increased with expanded Eversense shipments to distributors Roche and Rubin in Europe, but remained small relative to operating costs.
- Sales and marketing expense rose to $1.249 million in Q2 and $2.389 million for the first half, reflecting additional personnel and commercialization spending.
- Research and development expense declined to $5.604 million in Q2 and $12.602 million for the first half, mainly because the U.S. pivotal trial was completed in 2016; additional staffing partly offset the first-half decline.
- Interest expense increased to $0.767 million in Q2 and $1.451 million for the first half, primarily due to debt and related discount and financing-cost amortization. Net loss increased year over year for both periods.
- Inventory rose to $3.383 million from $0.477 million at year-end, including a $0.263 million valuation reserve. The filing attributes the increase in operating cash use partly to inventory buildup and other working-capital needs.
Outlook, risks and unusual items
- Management estimated existing cash and marketable securities would fund planned operations into the second quarter of 2018, but stated the company lacked resources to fund operations through August 2018 and concluded substantial doubt about its ability to continue as a going concern existed. Management expects to seek additional external capital; financing may be unavailable or dilutive.
- The company expected FDA PMA approval for Eversense by year-end 2017, while cautioning that timing was uncertain and approval was not assured. A further $5 million loan tranche depended on FDA approval and at least $4 million in trailing six-month revenue. Eversense XL CE marking was expected in Q3 2017, with European commercialization planned by year-end.
- Management expected continued losses and increased commercialization, research and development, and administrative spending. Product revenues were not expected to meet operating needs for several years, if ever.
- Risks include FDA review and commercialization execution, additional financing and debt-service needs, dependence on distributors and contract manufacturers, potential product and inventory costs, competition, and intellectual-property claims. A supplier had asserted that its employee should be a co-inventor on a related patent application; Senseonics disputed the assertion.
- The company reported approximately $1.8 million of future minimum payments under a supplier commitment at June 30, 2017. It also settled a previously accrued litigation matter for $43,237; no litigation liabilities were recorded at quarter-end.
Important facts for investors to verify
- Whether cash use, sales growth and access to financing support the stated runway, given the disclosed going-concern doubt.
- FDA PMA status and timing, any additional requirements, and whether the contingent loan tranche can be accessed.
- Whether European sales can scale and improve unit economics, given continuing negative gross margins and the inventory reserve.
- Debt terms, scheduled payments, covenant compliance and future dilution from equity financing or share-based awards.
- The loan is described as carrying a floating rate with a 6.95% floor, while the market-risk discussion calls its interest rate fixed; investors should clarify this discrepancy.