Senseonics(SENS) - 2022 Q3 - Quarterly Report

PART I: Financial Information This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis Financial Statements Presents unaudited condensed consolidated financial statements, highlighting improved net income from non-cash derivative gains Condensed Consolidated Balance Sheet Summary (in thousands) | Account | September 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $169,294 | $144,413 | | Total assets | $182,670 | $198,928 | | Total current liabilities | $57,648 | $18,394 | | Total liabilities | $197,735 | $384,463 | | Total stockholders' equity (deficit) | $(15,065) | $(185,535) | Condensed Consolidated Statements of Operations Summary (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $4,622 | $3,532 | $10,818 | $9,667 | | Gross profit (loss) | $756 | $(1,246) | $2,107 | $(328) | | Operating loss | $(17,569) | $(16,031) | $(49,766) | $(43,237) | | Net Income (Loss) | $(60,391) | $42,914 | $130,558 | $(386,907) | Condensed Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(48,925) | $(44,275) | | Net cash provided by (used in) investing activities | $19,532 | $(154,993) | | Net cash provided by financing activities | $31,416 | $227,274 | | Net increase in cash and cash equivalents | $2,023 | $28,006 | Notes to Unaudited Condensed Consolidated Financial Statements Details accounting policies, financial position, and key operational insights, such as revenue concentration and accumulated deficit - The company is a medical technology firm focused on developing and commercializing long-term, implantable continuous glucose monitoring (CGM) systems for people with diabetes[13] - The company has a history of substantial losses, with an accumulated deficit of $820.4 million as of September 30, 2022. Operations have been funded principally through the issuance of stock, convertible notes, and debt[15] - A single customer, Ascensia, accounted for 97% and 95% of total revenue for the three and nine months ended September 30, 2022, respectively[37] Revenue by Geographic Region (in thousands) | Region | Nine Months Ended Sep 30, 2022 | % of Total | Nine Months Ended Sep 30, 2021 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Outside of the United States | $6,910 | 63.9% | $7,771 | 80.4% | | United States | $3,908 | 36.1% | $1,896 | 19.6% | | Total | $10,818 | 100.0% | $9,667 | 100.0% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses business operations, product approvals, and financial performance, noting revenue growth, improved gross margin, and liquidity - The company focuses on developing and manufacturing long-term implantable glucose monitoring products, with its Eversense E3 system approved for up to six months of use[96] - In February 2022, the FDA approved the 180-day Eversense E3 CGM system. Ascensia Diabetes Care began commercializing it in the U.S. in Q2 2022 and in Europe in Q3 2022[96] - The company has a collaboration and commercialization agreement with Ascensia, granting Ascensia exclusive worldwide distribution rights for its Eversense CGM systems[109] - Management has concluded that based on current operating plans, existing cash, cash equivalents, and future cash flows will be sufficient to meet operating needs through 2023[147] Results of Operations Analyzes revenue, gross profit, operating expenses, and net income for the periods, highlighting key drivers of change Comparison of Operations for the Three Months Ended September 30 (in thousands) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Total revenue | $4,622 | $3,532 | $1,090 | | Gross profit (loss) | $756 | $(1,246) | $2,002 | | Research and development expenses | $10,985 | $7,200 | $3,785 | | Selling, general and administrative expenses | $7,340 | $7,585 | $(245) | | Operating loss | $(17,569) | $(16,031) | $(1,538) | | Net Income (loss) | $(60,391) | $42,914 | $(103,305) | Comparison of Operations for the Nine Months Ended September 30 (in thousands) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Total revenue | $10,818 | $9,667 | $1,151 | | Gross profit (loss) | $2,107 | $(328) | $2,435 | | Research and development expenses | $28,088 | $19,562 | $8,526 | | Selling, general and administrative expenses | $23,785 | $23,347 | $438 | | Operating loss | $(49,766) | $(43,237) | $(6,529) | | Net Income (loss) | $130,558 | $(386,907) | $517,465 | - The increase in revenue for both the three and nine-month periods was primarily due to the launch of Eversense E3 in the United States[123][130] - Gross margin improved significantly in 2022 due to the transition to the six-month product, favorable sales channel mix, lower inventory write-offs, and manufacturing efficiencies[124][131] - Research and development expenses increased by $8.5 million for the nine-month period due to investments in next-generation technologies, including clinical studies and increased personnel costs[132] Liquidity and Capital Resources Details the company's cash position, funding sources, and capital structure, including stock sales and convertible notes - The company has historically funded its operations through the issuance of stock, convertible notes, and debt. As of September 30, 2022, the company had cash, cash equivalents, and marketable securities of $163.0 million[135] - During the nine months ended September 30, 2022, the company received $34.4 million in net proceeds from the sale of common stock under its 2021 "at the market" (ATM) offering agreement with Jefferies[136][148] Summary of Outstanding Convertible Notes (as of Sep 30, 2022) | Note Series | Maturity Date | Aggregate Principal (in millions) | Conversion Price per Share | | :--- | :--- | :--- | :--- | | 2023 Notes | Feb 1, 2023 | $15.7 | $3.40 | | 2025 Notes | Jan 15, 2025 | $51.2 | $1.32 | | PHC Notes | Oct 31, 2024 | $35.0 | $0.54 | Quantitative and Qualitative Disclosures about Market Risk As a "smaller reporting company," Senseonics is not required to provide the information for this item - The company is considered a "smaller reporting company" and is therefore not required to provide quantitative and qualitative disclosures about market risk[172] Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2022, with no material changes to internal controls - The CEO and CFO concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective at the reasonable assurance level[173] - There were no changes in internal control over financial reporting during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[174] PART II: Other Information This section covers legal proceedings, risk factors, and other required disclosures not included in financial information Legal Proceedings The company faces a False Claims Act civil complaint and settled a data breach with the Italian Data Protection Authority - A qui tam complaint was filed against the company in May 2020, alleging its marketing practices violated the False Claims Act. The government declined to intervene. A motion to dismiss the amended complaint is currently before the court[177][179] - The company settled a matter with the Italian Data Protection Authority (Garante) regarding a data breach by paying a fine of EUR 22,500 and agreeing to update its European privacy notice[180] Risk Factors This section highlights new and updated risks, including geopolitical conflicts, energy crises, and macroeconomic headwinds - The ongoing military action by Russia in Ukraine could adversely affect the global economy, financial markets, and the company's business operations and ability to raise capital[182] - Surging natural gas and electricity costs in Europe pose a threat to the company's contract manufacturers' ability to maintain operations, which could disrupt the supply chain[184] - The business could be adversely affected by economic downturns, inflation, increases in interest rates, and other macroeconomic conditions that may negatively impact business and financial performance[187] Unregistered Sales of Equity and Securities and Use of Proceeds This item is not applicable for the reporting period Defaults Upon Senior Securities This item is not applicable for the reporting period Mine Safety Disclosures This item is not applicable for the reporting period Other Information There is no other information to report for this period Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including corporate governance documents and officer certifications Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q