Senseonics Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Senseonics develops and commercializes implantable continuous glucose monitoring systems, primarily Eversense. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $3.29 | $0.26 | $6.14 | $0.30 |
| Gross profit (loss) | $0.39 | $(1.14) | $0.92 | $(20.78) |
| Gross margin | 11.9% | (438.3%) | 15.0% | (6,995.6%) |
| Operating loss | $(15.89) | $(12.53) | $(27.21) | $(56.36) |
| Net loss | $(180.31) | $(7.52) | $(429.82) | $(50.11) |
| Operating cash used | Not presented quarterly | Not presented quarterly | $(30.41) | $(45.78) |
- At June 30, cash and cash equivalents were $69.8 million and marketable securities were $145.3 million, or $215.0 million combined. Current assets were $179.2 million versus current liabilities of $20.0 million.
- Notes payable had $107.7 million of principal outstanding and a $60.4 million carrying amount, net of discounts and issuance costs. Total liabilities were $547.8 million, including $367.4 million of derivative liabilities and a $104.7 million option liability. Stockholders’ deficit was $312.6 million.
- Financing provided $227.3 million of cash in the first half, largely from common-stock offerings and preferred-stock proceeds. Investing used $145.3 million, principally for marketable securities; cash, cash equivalents and restricted cash rose $51.5 million.
Changes versus comparable periods
- Q2 revenue rose $3.0 million year over year, mainly reflecting Ascensia’s distribution orders as it assumed more commercial responsibility. Ascensia accounted for 87% of Q2 revenue and 85% of first-half revenue, versus Roche at 17% in each 2020 comparable period.
- First-half gross loss improved substantially as 2020 included $15.1 million of inventory obsolescence/net realizable value charges and $2.0 million of scrap expense. Management attributed positive 2021 gross profit partly to orders fulfilled using inventory previously written off; the reported margin may therefore not reflect ongoing product economics.
- Sales and marketing expense declined to $3.3 million for the first half from $14.3 million, following the 2020 workforce reduction and transfer of commercialization activities to Ascensia. R&D rose to $12.4 million and G&A to $12.5 million.
- Net loss increased sharply, primarily because of non-cash fair-value losses: $305.3 million on embedded derivatives and $88.4 million on the Energy Capital option for the first half. The prior-year period included a $25.5 million gain on derivative fair value. These valuation changes substantially widened reported losses without corresponding operating cash outflows.
- Common shares outstanding increased to 445.1 million from 265.6 million at December 31, 2020, reflecting financings and conversions. The company reported 152.8 million potential anti-dilutive shares excluded from diluted loss per share.
Outlook, risks and notable items
- Management said cash, cash equivalents and expected operating cash flows should support current published operating plans through 2022. No revenue or earnings guidance was provided; management expects significant working-capital needs for commercialization, product development and regulatory work.
- The U.S. FDA supplement for the 180-day Eversense product was submitted in September 2020 and remained pending. U.S. marketing is contingent on approval. The company also described plans to seek authorization for a 365-day sensor trial, targeting enrollment in the first half of 2022 if an IDE is approved in time.
- Ascensia has exclusive distribution rights across territories as specified in the agreement, with certain transitional exceptions. The company depends on Ascensia for sales and market access while retaining product development, manufacturing and regulatory responsibilities. Revenue concentration in this related-party customer is material.
- Commercial adoption depends on regulatory approvals, insurance coverage and reimbursement. The company has a history of substantial losses, no significant product-sales revenue to date, and an accumulated deficit of $1.1 billion. COVID-19 effects and future financing needs remain uncertainties.
- PHC notes carry a 9.5% annual rate, are secured by substantially all company and subsidiary assets, and mature in October 2024; the rate may fall to 8% subject to U.S. 180-day product approval and other conditions. The notes include financial covenants and default provisions. The company did not expect to seek forgiveness of its $5.8 million PPP loan and expected payments to begin in Q3 2021.
- A relator-only False Claims Act and Texas Medicaid Fraud Prevention Law case alleges improper marketing practices. The government declined to intervene; Senseonics said it believes it has meritorious defenses.
Important facts for investors to verify
- Progress and timing of FDA review for the 180-day product, and the commercial implications if approval is delayed or denied.
- Ascensia’s sales performance, minimum revenue commitments, related-party terms and the company’s high customer concentration.
- Cash burn and runway against the stated through-2022 plan, including future capital needs and the terms and potential dilution of financing options and convertible securities.
- How much future gross margin depends on previously written-off inventory, and whether product sales can scale to cover operating costs.
- Drivers and future volatility of the large derivative and option valuations, which materially affect reported net income and liabilities but are largely non-cash.
- Status and potential exposure from the False Claims Act litigation, and compliance with PHC note covenants and debt maturities.