Senseonics Holdings, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; the filing was dated February 23, 2017. The company develops and commercializes glucose-monitoring systems, with Eversense as its sole product. Eversense is an implantable continuous glucose monitoring (CGM) system designed for sensor use of up to 90 days. The company began European sales in 2016; it had not yet received U.S. marketing approval.
Financial performance and position
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $0.332 million | $0.038 million |
| Cost of sales / gross profit (loss) | $0.660 million / $(0.328) million | $0 / $0.038 million |
| Gross margin | (101)% | Not meaningful on grant revenue |
| Research and development | $26.347 million | $18.251 million |
| Sales and marketing | $2.736 million | $0.792 million |
| General and administrative | $13.022 million | $9.807 million |
| Operating loss | $(42.433) million | $(28.812) million |
| Net loss | $(43.930) million | $(29.877) million |
| Net loss per share | $(0.49) | $(4.32) |
| Cash used in operating activities | $(38.016) million | $(25.465) million |
2016 revenue was from European Eversense product sales to distributors; 2015 revenue was grant revenue. Fourth-quarter 2016 revenue was $276,000, with a gross loss of $236,000 and net loss of $9.965 million.
At year-end, cash and cash equivalents were $13.047 million and marketable securities were $7.291 million, or $20.338 million combined. Working capital was $9.806 million. Total assets were $22.271 million and total liabilities were $27.148 million, leaving a stockholders’ deficit of $4.877 million. Notes payable had a net carrying value of $19.066 million; the company reported $20 million principal outstanding.
Material changes versus prior year
- Revenue increased from $38,000 to $332,000 as European product shipments began, but cost of sales exceeded product revenue and gross profit turned negative.
- Operating loss widened by $13.621 million and net loss by $14.053 million, as R&D, commercial-launch, staffing and public-company costs increased.
- Operating cash use increased by $12.551 million. Financing provided $54.894 million, including public-offering proceeds and new debt; cash and cash equivalents rose to $13.047 million from $3.939 million.
- Debt increased following $20 million of Oxford Finance/Silicon Valley Bank term loans. The loans are secured by substantially all assets other than intellectual property and include restrictive covenants and milestone-dependent additional borrowing.
Outlook, commentary and key risks
- Regulatory and product: The company submitted a U.S. premarket approval (PMA) application in October 2016 and estimated FDA review could take 6–18 months. It planned a U.S. launch after approval. The U.S. pivotal study enrolled 90 adults; reported mean absolute relative difference was 8.8% with two calibration points and 9.5% with one, versus YSI reference measurements. The company expected the initial U.S. label to be adjunctive, requiring confirmatory fingerstick testing before treatment decisions.
- Commercial plans: Eversense received European CE Mark approval in May 2016 and was launched through distributors in selected European markets. Management expected to expand European sales in 2017 and anticipated European approvals for a 180-day sensor and second-generation transmitter. These are plans, not assured outcomes.
- Funding and going concern: Management and the auditor reported substantial doubt about the company’s ability to continue as a going concern. The company said existing resources, together with potential milestone-based loan proceeds, were expected to fund operations through the third quarter of 2017. Additional financing was expected to be needed; it might not be available on acceptable terms or at all.
- Debt conditions: Additional $5 million tranches depended on specified milestones, including a second-generation transmitter commercial sale, FDA PMA approval and revenue targets. The loans bear interest at a floating rate subject to a 6.95% floor, and principal repayment timing depends partly on milestone achievement.
- Principal risks: Dependence on one product; uncertainty in FDA approval, reimbursement and market adoption; limited commercialization experience; competition from established CGM and diabetes-device companies; reliance on third-party manufacturers and distributors; and continuing losses and financing needs. U.S. coverage for Eversense and insertion/removal procedures was not yet established.
- Unusual items: The company recorded a gross loss while launching product sales. It also issued the board chairman 300,000 fully vested shares in 2016 to settle compensation obligations under a prior agreement. No material legal proceedings were reported; the financial statements included approximately $40,000 of accrued litigation liabilities.
Important facts for investors to verify
- FDA PMA decision, timing, approved indications and labeling, including whether the product remains adjunctive.
- European and any U.S. sales growth, customer retention, realized pricing and progress toward positive gross margins.
- Reimbursement coverage and payment for both the device and clinician insertion/removal procedures.
- Actual cash runway, operating cash burn, additional financing needs, and whether loan milestones are met without triggering unfavorable terms or dilution.
- Manufacturing capacity, product quality and safety, and performance of the exclusive distribution arrangements.