Senseonics Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Senseonics develops and commercializes the implantable Eversense continuous glucose monitoring system. The unaudited results are interim and may not indicate full-year performance.
Financial results and liquidity
- Revenue: Q3 revenue was $3.5 million, up from $0.8 million a year earlier. Nine-month revenue was $9.7 million, versus $1.1 million. Growth primarily reflected orders from Ascensia, the company’s commercialization partner.
- Gross profit and margins: Q3 gross loss was $1.2 million, compared with gross profit of $0.8 million in Q3 2020; the approximate gross margin was negative 35%. Nine-month gross loss narrowed to $0.3 million from $19.9 million, an approximate negative 3% margin, principally because prior-period inventory write-downs were lower.
- Operating costs and results: Q3 operating loss increased to $16.0 million from $12.5 million. Nine-month operating loss improved to $43.2 million from $68.8 million, reflecting lower sales and marketing costs, partly offset by higher research and development and general and administrative costs.
- Net income/loss: Q3 net income was $42.9 million, versus a $23.4 million loss. This was driven mainly by non-cash fair-value gains on derivatives and the Energy Capital option, rather than operating profitability. Nine-month net loss widened to $386.9 million from $73.5 million, primarily because of non-cash fair-value losses on derivatives and the option.
- Cash flow: Nine-month operating cash use was $44.3 million, down from $59.2 million. Investing cash use was $155.0 million, largely for marketable securities; financing provided $227.3 million, mainly from common-stock offerings and preferred-stock proceeds. Cash, cash equivalents and restricted cash ended the period at $46.2 million.
- Liquidity: Cash, cash equivalents and marketable securities totaled $201.1 million at September 30, 2021. Management stated that existing resources and expected operating cash flows should support current plans through 2022.
- Debt and balance sheet: Notes payable had $107.0 million aggregate principal outstanding and approximately $62.3 million carrying value, including $5.1 million of current term loans and $57.2 million of long-term debt. The company reported $317.3 million of derivative liabilities and a separate $91.1 million Energy Capital option liability. Total liabilities were $486.3 million, and stockholders’ deficit was $266.6 million.
Material changes and operating developments
- Ascensia accounted for 92% of Q3 revenue and 88% of nine-month revenue; the corresponding largest customer in 2020 was Roche. This transition and concentration make results dependent on a limited number of commercial partners.
- Nine-month sales and marketing expense fell to $5.7 million from $17.5 million, reflecting the 2020 workforce reduction and transfer of commercial responsibilities to Ascensia. R&D expense rose to $19.6 million from $15.7 million.
- Q3 cost of sales included inventory and related-asset impairment charges and write-offs tied to potential expiry concerns. The company also reported a $1.7 million nine-month impairment charge related to the PHC option.
- Common shares outstanding increased from 265.6 million at December 31, 2020 to 445.6 million at September 30, 2021, following significant equity financing and conversions. A November 2021 ATM agreement permits up to $150 million of additional share sales; none had occurred by the filing date.
Outlook, risks and contingencies
- U.S. marketing of the 180-day Eversense product depends on FDA approval. The filing describes a pending PMA supplement and a potential 365-day sensor study, targeted to begin enrollment in the first half of 2022 subject to FDA developments and timely IDE approval.
- Management expects substantial working-capital needs for commercialization, reimbursement access, product development and regulatory work. Additional capital may be pursued if needed or considered beneficial.
- The PHC Notes carry a 9.5% interest rate, may be paid in cash or in kind, and are secured by substantially all company and subsidiary assets. They include financial covenants, including minimum revenue and liquidity targets, and customary default provisions.
- Commercial adoption depends on patient and provider uptake and insurance coverage and reimbursement. COVID-19 impacts, foreign-exchange exposure on euro-denominated sales, product performance, inventory expiry and customer concentration are relevant risks.
- A relator-only False Claims Act and Texas Medicaid Fraud Prevention Law suit alleges improper marketing practices. The company moved to dismiss; the motion was pending. The filing states risk factors had not materially changed from the 2020 Form 10-K.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level as of September 30, 2021, with no material change in internal control over financial reporting identified during the quarter.
Investor facts to verify
- Whether Ascensia sustains orders and meets its commercial obligations, and whether the company can reduce reliance on this partner.
- FDA timing and requirements for the 180-day product, and progress toward any 365-day clinical study.
- Cash burn and runway versus management’s stated through-2022 liquidity expectation, including covenant compliance and financing needs.
- The assumptions and potential earnings volatility behind the large Level 3 derivative and option valuations; Q3 reported profit included substantial non-cash fair-value gains.
- Inventory quality, expiry exposure and the path to positive gross margins as sales scale.
- Potential dilution from the new $150 million ATM facility, convertible notes, options and warrants, and the status of the pending litigation.