Senseonics Holdings, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet comparisons are with December 31, 2015. Amounts are in U.S. dollars unless stated otherwise. Senseonics develops glucose-monitoring systems, including its implantable Eversense continuous glucose monitoring (CGM) system. It had not begun product sales by quarter-end.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $0 | $15,000 |
| Sales and marketing expense | $633,000 | $332,000 |
| Research and development expense | $6.416 million | $3.665 million |
| General and administrative expense | $3.879 million | $1.417 million |
| Operating loss | $10.928 million | $5.399 million |
| Net loss | $11.216 million | $5.693 million |
| Net loss per share, basic and diluted | $0.15 | $2.94 |
| Cash used in operating activities | $7.430 million | $5.033 million |
- Cash and cash equivalents were $37.362 million at March 31, versus $3.939 million at year-end. Q1 financing provided $40.890 million, primarily from the March public offering; investing cash use was $37,000.
- Current assets were $38.825 million and current liabilities $10.395 million. Total liabilities were $18.669 million; stockholders’ equity was $20.607 million, compared with a $9.697 million deficit at year-end.
- Oxford secured notes had $10.0 million of scheduled principal outstanding, bearing fixed interest at 6.95%. Principal-and-interest payments were scheduled to begin August 1, 2016, with principal amortized over 36 months; a $1.0 million final fee is due at maturity in 2019. The notes are secured by substantially all assets other than intellectual property and carry restrictive covenants.
- No meaningful product margin was reported because product revenue was zero. The filing does not provide a clear gross-margin figure. No income-tax provision or benefit was recorded.
Changes and notable items
- Revenue fell from $15,000 to zero. Operating expenses increased by $5.514 million, driving the net loss higher by $5.523 million. Management attributed expense growth to Eversense development and future product work, the U.S. pivotal trial, hiring for the planned European launch, and public-company legal, accounting, and administrative costs.
- The net loss per share comparison is not directly comparable without considering the substantial change in weighted-average shares outstanding: 77.3 million in Q1 2016 versus 1.9 million in Q1 2015. The filing also reflects the 2015 acquisition and related share exchange.
- The March offering sold 15.8 million shares at $2.85 each, generating approximately $40.9 million net proceeds. Underwriters later purchased another 1.439 million shares in April, adding approximately $3.9 million net; total net proceeds from the offering and partial option exercise were approximately $44.8 million. The April proceeds are subsequent to the quarter-end balance sheet.
- Stock-based compensation expense was $629,000. This included $387,600 recognized when a board member’s restricted stock award vested upon the offering. Under the related agreement, the board member was also entitled to estimated compensation of $785,000.
Outlook, risks, and contingencies
- Management estimated that available capital would fund operations through the first half of 2017, based on assumptions that could prove incorrect. It intended to seek a debt facility in Q2 2016 to extend anticipated funding through Q3 2017; this was a plan, not a completed financing.
- After the quarter, on May 10, 2016, Senseonics received CE Mark approval for Eversense and expected to begin commercialization in select European markets in Q2 2016, initially through a distributor in Scandinavia. The company had agreed to conduct post-market surveillance.
- The U.S. pivotal trial was fully enrolled with 90 participants at eight sites. If results were favorable, the company intended to apply for U.S. regulatory approval by Q4 2016; management estimated the PMA process could take six to 18 months.
- The company had accumulated losses of $172.0 million and expected continued significant spending and losses. It stated that the offering proceeds alleviated the going-concern doubt that existed at December 31, 2015, but additional capital would be needed before it became self-sustaining. Inability to raise funds could delay development, commercialization, or operations.
- Key risks include commercialization and regulatory execution, uncertain product demand and revenue, future financing and potential dilution, debt service and covenant compliance, competition, and the possibility that cash needs exceed estimates. Oxford debt covenants were reported as complied with at March 31, 2016. The company reported no material legal proceedings and no off-balance-sheet arrangements.
- Operating lease and other contractual obligations totaled $19.221 million, including $4.483 million of operating lease obligations, $2.409 million under a corporate development agreement, and Oxford principal and interest obligations. Disclosure controls were judged effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported.
Investor facts to verify
- Whether the European launch began on schedule and generated product revenue, and whether post-market surveillance requirements affected shipments.
- Progress and results of the U.S. pivotal trial, the timing of any PMA submission, and the regulatory review timetable.
- Actual cash burn versus the runway estimate, and whether the planned debt facility was secured on acceptable terms.
- Oxford note amortization, the $1.0 million final fee, covenant compliance, and any changes to debt or financing needs.
- The scope and timing of the board member’s estimated $785,000 compensation and the effects of outstanding equity awards and potential share sales on dilution.