Senseonics Holdings, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Senseonics develops and commercializes glucose-monitoring systems. Its Eversense continuous glucose monitoring system received European CE marking in May 2016; initial European shipments began in June. The U.S. product remained subject to FDA review.
Financial highlights
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $37,000 | — | $56,000 | $38,000 |
| Gross profit (loss) | $(77,000) | — | $(92,000) | $38,000 |
| Operating loss | $(10.5 million) | $(8.3 million) | $(33.0 million) | $(20.6 million) |
| Net loss | $(10.9 million) | $(8.6 million) | $(34.0 million) | $(21.5 million) |
| Operating cash used | Not presented | Not presented | $(27.8 million) | $(17.2 million) |
Q3 2016 gross margin was negative 206.1%; nine-month gross margin was negative 164%. Revenue was minimal and came from European Eversense shipments in 2016; the 2015 nine-month revenue was grant revenue. Basic and diluted loss per share was $(0.12) for Q3 and $(0.39) for the nine months in 2016. No income tax provision or benefit was recorded.
At September 30, cash and cash equivalents were $16.5 million and marketable securities were $9.2 million, totaling $25.7 million in cash, equivalents and securities. Current assets were $26.6 million and current liabilities $10.6 million. Total assets were $28.0 million; total liabilities were $23.8 million; stockholders’ equity was $4.2 million, versus a $9.7 million deficit at year-end 2015.
Operating cash use was funded principally by $50.0 million of financing cash flow, including public-offering proceeds and debt financing. Investing cash use was $9.6 million, primarily purchases of marketable securities. At September 30, reported note payable was $14.65 million net of discount, against $15.0 million principal outstanding.
Changes versus comparable periods
- Nine-month net loss increased by $12.5 million year over year, as operating expenses rose, particularly research and development and general and administrative costs.
- Nine-month R&D expense increased to $20.8 million from $13.5 million, driven by product development, staffing, manufacturing and trial costs. Sales and marketing rose to $2.0 million from $0.9 million as the European launch began.
- Q3 revenue began with European product shipments, but cost of sales exceeded revenue, producing negative gross profit.
- Cash and securities rose from $3.9 million at December 31, 2015 to $25.7 million, following the March–April public offering and June debt refinancing. Common shares outstanding increased to 93.4 million from 75.8 million.
Outlook, risks and notable items
- Management expected existing capital resources to fund operations through Q3 2017, assuming the company met conditions to borrow the remaining $15 million available under its debt facility. The filing cautions that these assumptions may prove incorrect and funding could be needed sooner.
- The $30 million secured loan facility provided $15 million initially; further tranches depend on milestones, including lender confirmation of positive U.S. pivotal-trial data and submission of a U.S. PMA application. The loan bears a minimum 6.95% floating rate, has a 9% final payment fee, and is secured by substantially all assets other than intellectual property. Covenants restrict specified activities.
- Management reported Precise II U.S. pivotal-trial MARD of 8.8% using two calibration points and 9.5% using one. The company submitted a PMA application and estimated FDA review could take six to 18 months. European sales were expected to expand in late 2016 and 2017 through Roche and Rubin.
- Management expected continued significant R&D, commercialization and public-company costs, ongoing losses, and a need for external financing. Product revenue was not expected to cover operating needs for several years, if ever.
- Key risks include FDA approval and commercialization uncertainty, dependence on third-party distributors, limited revenue, additional financing needs, potential dilution, debt-service and covenant risks, and competitive pressures. The company reported no material legal proceedings or off-balance-sheet arrangements and said disclosure controls were effective.
Investor verification points
- Confirm FDA review progress and the conditions and timing for accessing each remaining debt tranche.
- Track European distributor sales, customer demand, gross-margin improvement and whether commercialization meets management’s expectations.
- Assess cash burn against the Q3 2017 runway estimate, including the assumption of additional borrowing.
- Review loan covenants, interest and final-payment costs, scheduled repayments, and the potential effect of future financing or share sales on dilution.
- Reconcile reported offering proceeds: the filing describes approximately $44.8 million net proceeds in its notes and MD&A, while the cash-flow statement reports $45.7 million from common-stock issuance.