Senseonics Holdings, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing also reports unaudited fourth-quarter results. Senseonics is a medical-technology company developing and commercializing implantable continuous glucose monitoring systems, principally Eversense and Eversense XL. Products were commercially available in Europe; Eversense was not yet approved for sale in the United States.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $6.373 million | $0.332 million |
| Cost of sales | $9.758 million | $0.660 million |
| Gross loss / margin | $(3.385) million / (53.1)% | $(0.328) million / (101)% |
| Operating loss | $(56.313) million | $(42.433) million |
| Net loss | $(59.101) million | $(43.930) million |
| Basic and diluted loss per share | $(0.51) | $(0.49) |
| Cash used in operating activities | $(55.739) million | $(38.016) million |
- Revenue rose by $6.041 million as European distributor shipments increased, but remained concentrated: two customers generated all FY 2017 revenue, with Roche accounting for $5.844 million (92%) and Rubin Medical $0.517 million. Roche is a related party.
- Operating expenses increased to $52.928 million, including research and development of $30.735 million, sales and marketing of $6.857 million, and general and administrative expenses of $15.336 million.
- At year-end, cash and cash equivalents were $16.150 million, marketable securities $20.300 million, working capital $21.775 million, total assets $45.944 million, and stockholders’ equity $7.267 million. Cash and cash equivalents increased $3.103 million during 2017, principally reflecting financing proceeds.
- Year-end notes payable were $25.0 million principal under the secured Oxford/Silicon Valley Bank facility, collateralized by substantially all assets. The filing reports $24.414 million net of discount, including the current portion. The notes bear a floating rate with a 6.95% floor, mature June 2020, and began principal amortization in January 2018.
- After year-end, the company issued $53.0 million principal of 5.25% convertible senior subordinated notes due 2023, receiving approximately $50.9 million net proceeds. The notes are convertible initially at approximately $3.40 per share and are subordinated to specified senior debt.
Fourth-quarter 2017
Revenue was $2.909 million, gross loss was $1.133 million, operating loss was $15.670 million, and net loss was $16.275 million. Fourth-quarter loss per share was $(0.12). Revenue increased sequentially from $2.097 million in Q3, while net loss was the largest quarterly loss of 2017.
Material changes versus the prior year
- Revenue grew substantially from a small base, but sales remained below cost of sales and gross losses widened in dollars to $3.385 million.
- Net loss increased $15.171 million year over year; operating expenses and interest expense also increased.
- Operating cash use rose by $17.723 million. The company raised $66.861 million net from common-stock issuance and received $4.896 million net from notes during 2017; share count increased to 136.883 million at year-end from 93.570 million.
- In September 2017, Senseonics received European CE Mark approval for the 180-day Eversense XL and began European commercialization in Q4.
Outlook, risks, and unusual items
- The FDA panel review of the U.S. Eversense PMA was scheduled for March 29, 2018. Management anticipated a possible FDA decision two to four months afterward but emphasized that timing and approval were uncertain. A U.S. launch was planned promptly after approval; no numerical revenue or earnings guidance was provided.
- Management expected European revenue to increase as commercialization expanded and anticipated higher sales and R&D spending. It expected available resources, including the subsequent notes proceeds, to fund operations into Q1 2019, but warned the estimate depended on assumptions and additional capital might be needed.
- The auditor’s report included a going-concern explanatory paragraph citing recurring losses, a working-capital deficiency, and substantial doubt about the company’s ability to continue as a going concern. The filing’s liquidity discussion is not fully consistent: one passage says resources were expected to last into Q1 2019, while the financial-statement note says available resources would not be sufficient through March 2019. The company planned to seek additional financing.
- Key risks include dependence on Eversense, pending U.S. regulatory approval, uncertain reimbursement and market adoption, negative gross margins, significant cash burn, concentrated distributor/customer exposure, reliance on third-party manufacturing and suppliers, competition, and potential dilution from equity issuance or convertible-note conversion.
- Product use initially required twice-daily fingerstick calibration and confirmatory blood testing before treatment decisions under the expected U.S. adjunctive label. The company intended to pursue a non-adjunctive label, reduced calibration requirements, and future product extensions.
- No material legal proceedings were reported. The company reported a $226,000 inventory valuation provision and $813,000 accrued product-warranty liability at year-end.
Important facts for investors to verify
- FDA review outcome, approval timing, permitted label, and any additional clinical, manufacturing, or post-approval requirements.
- Actual cash runway and financing needs, particularly given the going-concern paragraph and inconsistent Q1 2019 liquidity statements.
- Debt reconciliation: the filing reports $76.3 million of total consolidated indebtedness following the notes offering, while describing $25 million of secured-loan principal and $53 million of convertible-note principal.
- European sales growth, gross-margin improvement, distributor performance, and the extent of revenue and receivables concentration with Roche.
- Reimbursement coverage, provider adoption, and the costs and execution of a planned U.S. direct-sales launch.
- Potential dilution and note-conversion terms, including the initial conversion price, interest make-whole provisions, and debt covenants.