Senseonics(SENS) - 2023 Q3 - Quarterly Report

PART I: Financial Information This section provides an overview of the company's financial performance and position, including statements and detailed notes ITEM 1: Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive income (loss), statements of changes in stockholders' equity (deficit), and statements of cash flows, along with detailed notes explaining the company's financial position, performance, and accounting policies for the periods ended September 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2023 (Unaudited) (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------------- | :-------------------------- | | Assets | | | | Cash and cash equivalents | $55,759 | $35,793 | | Short term investments, net | $69,648 | $108,222 | | Total current assets | $146,140 | $161,200 | | Total assets | $154,065 | $177,673 | | Liabilities | | | | Total current liabilities | $17,302 | $31,471 | | Long-term debt and notes payables, net | $40,485 | $56,383 | | Derivative liabilities | $245 | $52,050 | | Total liabilities | $64,344 | $142,593 | | Stockholders' Equity (Deficit) | | | | Total stockholders' equity (deficit) | $52,065 | $(2,576) | - Total assets decreased from $177.7 million at December 31, 2022, to $154.1 million at September 30, 2023. Total liabilities decreased significantly from $142.6 million to $64.3 million, primarily due to a reduction in derivative liabilities and long-term debt. Stockholders' equity shifted from a deficit of $2.6 million to a positive $52.1 million[8] Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This section outlines the company's revenues, expenses, and net income or loss over specific reporting periods Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenue | $6,097 | $4,622 | $14,360 | $10,818 | | Gross profit | $1,172 | $756 | $2,002 | $2,107 | | Operating loss | $(19,022) | $(17,569) | $(58,599) | $(49,766) | | Total other (expense) income, net | $(5,081) | $(42,822) | $15,397 | $180,324 | | Net (Loss) Income | $(24,103) | $(60,391) | $(43,202) | $130,558 | | Basic net (loss) income per common share | $(0.04) | $(0.13) | $(0.08) | $0.28 | | Diluted net loss per common share | $(0.04) | $(0.13) | $(0.08) | $(0.10) | - For the three months ended September 30, 2023, total revenue increased by $1.5 million to $6.1 million, and net loss decreased significantly from $(60.4) million to $(24.1) million, primarily due to a substantial reduction in other expenses, net. For the nine months ended September 30, 2023, total revenue increased to $14.4 million, but the company reported a net loss of $(43.2) million, a significant shift from the $130.6 million net income in the prior year, mainly due to changes in fair value adjustments of options and derivatives[11] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) This section details changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) (in thousands) | Metric (in thousands) | Balance, Dec 31, 2022 | Balance, Sep 30, 2023 | | :------------------------------------ | :-------------------- | :-------------------- | | Common Stock (Shares) | 479,637 | 528,176 | | Common Stock (Amount) | $480 | $528 | | Additional Paid-In Capital | $806,488 | $903,665 | | Accumulated Deficit | $(808,866) | $(852,069) | | Total Stockholders' Equity (Deficit) | $(2,576) | $52,065 | - The company's total stockholders' equity shifted from a deficit of $2.6 million at December 31, 2022, to a positive $52.1 million at September 30, 2023. This improvement was driven by an increase in additional paid-in capital by $97.2 million, primarily from the issuance of common stock, warrants, and the exchange of 2025 Notes, despite an increase in accumulated deficit[14] Unaudited Condensed Consolidated Statements of Cash Flows This section reports cash inflows and outflows from operating, investing, and financing activities over specific periods Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(55,096) | $(48,925) | | Net cash provided by investing activities | $53,518 | $19,532 | | Net cash provided by financing activities | $21,544 | $31,416 | | Net increase in cash, cash equivalents | $19,966 | $2,023 | | Cash, cash equivalents, at ending of period | $55,759 | $35,484 | - Net cash used in operating activities increased to $55.1 million for the nine months ended September 30, 2023, from $48.9 million in the prior year. However, net cash provided by investing activities significantly increased to $53.5 million (from $19.5 million), and net cash provided by financing activities was $21.5 million (down from $31.4 million), resulting in a net increase in cash and cash equivalents of $19.9 million, compared to $2.0 million in the prior year[15] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements 1. Organization and Nature of Operations This note describes the company's primary business as a medical technology firm focused on continuous glucose monitoring systems - Senseonics Holdings, Inc. is a medical technology company focused on developing and manufacturing long-term, implantable continuous glucose monitoring (CGM) systems to improve diabetes management[17] 2. Liquidity and Capital Resources This note discusses the company's financial resources, funding strategies, and ability to meet short-term and long-term obligations - The company has incurred substantial losses and negative cash flows from operations since inception, with an accumulated deficit of $852.1 million as of September 30, 2023. Operations have been funded primarily through preferred stock, common stock, warrants, convertible notes, and debt[19] Key Liquidity Metrics (in millions) | Metric | Sep 30, 2023 | | :-------------------------------- | :----------- | | Cash, cash equivalents, and marketable securities | $125.4 | - On September 8, 2023, the company entered into a Loan and Security Agreement for up to $50.0 million in senior secured term loans, with an initial $25.0 million funded. Additionally, in August 2023, the company exchanged $30.8 million of 2025 Notes for $7.5 million cash and 35.1 million common shares[20][21] - The company also entered into an Equity Distribution Agreement with Goldman Sachs & Co. LLC in August 2023 to sell up to $106.6 million of common stock in an 'at the market' offering, with no sales made as of September 30, 2023. The previous 2021 Sales Agreement with Jefferies LLC was terminated in August 2023, after generating $7.4 million in net proceeds from common stock sales in 2023[22][24][25] 3. Summary of Significant Accounting Policies This note outlines the key accounting principles and estimation methods used in preparing the financial statements - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information, with certain disclosures condensed or omitted as permitted by SEC rules. The company operates in one segment: glucose monitoring products[30][31] - The company adopted ASU 2016-13 (Credit Losses) as of January 1, 2023, which did not have a material impact on the financial statements. Management uses estimates for various items, including stock-based compensation, derivative liabilities, and inventory obsolescence[32][33][35] 4. Revenue Recognition This note details how and when the company recognizes revenue from its product sales and related agreements - Revenue is generated from sales of the Eversense system and components to Ascensia, third-party distributors, and strategic fulfillment partners. Revenue is recognized when customers obtain control of the product, with some revenue recognized through a consignment program when the product is consumed by a patient[37][150] Net Revenue by Geographic Region (in thousands) | Region | Three Months Ended Sep 30, 2023 | % of Total (3M) | Three Months Ended Sep 30, 2022 | % of Total (3M) | | :---------------------- | :------------------------------ | :-------------- | :------------------------------ | :-------------- | | United States | $3,930 | 64.5% | $1,934 | 41.8% | | Outside of the United States | $2,167 | 35.5% | $2,688 | 58.2% | | Total | $6,097 | 100.0% | $4,622 | 100.0% | | Region | Nine Months Ended Sep 30, 2023 | % of Total (9M) | Nine Months Ended Sep 30, 2022 | % of Total (9M) | | :---------------------- | :------------------------------ | :-------------- | :------------------------------ | :-------------- | | United States | $7,885 | 54.9% | $3,908 | 36.1% | | Outside of the United States | $6,475 | 45.1% | $6,910 | 63.9% | | Total | $14,360 | 100.0% | $10,818 | 100.0% | - Ascensia accounted for 93% and 97% of total revenue for the three months ended September 30, 2023 and 2022, respectively, and 92% and 95% for the nine months ended September 30, 2023 and 2022, respectively, indicating a high concentration of revenue from this single customer[41][154] 5. Net Income (Loss) per Share This note presents the calculation of basic and diluted net income or loss per common share for the reporting periods Net (Loss) Income Per Common Share | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic net (loss) income per common share | $(0.04) | $(0.13) | $(0.08) | $0.28 | | Diluted net loss per common share | $(0.04) | $(0.13) | $(0.08) | $(0.10) | | Basic weighted-average shares outstanding | 592,452,262 | 472,475,747 | 552,703,546 | 464,244,736 | | Diluted weighted-average shares outstanding | 592,452,262 | 472,475,747 | 552,703,546 | 608,345,713 | - Basic and diluted net loss per common share for the three and nine months ended September 30, 2023, were $(0.04) and $(0.08), respectively, an improvement from $(0.13) for the three months ended September 30, 2022, but a decline from $0.28 basic net income per share for the nine months ended September 30, 2022. The increase in weighted-average shares outstanding reflects recent equity issuances and warrant exchanges[46] - In periods of net loss, all potentially dilutive common shares are excluded from diluted EPS calculation as their effect would be anti-dilutive[44] 6. Marketable Securities This note provides details on the company's marketable securities, including their fair value and changes over time Marketable Securities Available for Sale (in thousands) | Type | Sep 30, 2023 (Estimated Market Value) | Dec 31, 2022 (Estimated Market Value) | | :-------------------------- | :------------------------------------ | :------------------------------------ | | Commercial Paper | $26,281 | $41,503 | | Corporate debt securities | $7,920 | $32,142 | | Government and agency securities | $35,447 | $38,570 | | Total | $69,648 | $120,475 | - The total estimated market value of marketable securities decreased from $120.5 million at December 31, 2022, to $69.6 million at September 30, 2023. Unrealized losses on available-for-sale securities were not significant and were primarily due to changes in interest rates, not increased credit risk[47] 7. Inventory, net This note details the composition of the company's inventory, including finished goods, work-in-process, and raw materials Inventory, net (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :--------------- | :----------- | :----------- | | Finished goods | $2,440 | $1,697 | | Work-in-process | $5,981 | $4,057 | | Raw materials | $1,305 | $1,552 | | Total | $9,726 | $7,306 | - Total inventory, net, increased from $7.3 million at December 31, 2022, to $9.7 million at September 30, 2023, driven by increases in finished goods and work-in-process. The company charged less than $0.1 million to cost of sales for inventory obsolescence for the three and nine months ended September 30, 2023, a decrease from $0.5 million in the prior year[48][49] 8. Prepaid Expenses and Other Current Assets This note outlines the company's prepaid expenses and other current assets, including contract manufacturing and tax credits Prepaid Expenses and Other Current Assets (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Contract manufacturing | $4,577 | $4,097 | | Tax credits receivable | $1,793 | $0 | | Insurance | $340 | $1,243 | | Clinical and Preclinical | $180 | $924 | | Total prepaid expenses and other current assets | $7,557 | $7,428 | - Total prepaid expenses and other current assets remained relatively stable at $7.6 million as of September 30, 2023, compared to $7.4 million at December 31, 2022. A notable change is the recognition of $1.8 million in tax credits receivable (refundable employee retention credits) in 2023[50] 9. Accrued Expenses and Other Current Liabilities This note details the company's accrued expenses and other current liabilities, categorized by type of service or obligation Accrued Expenses and Other Current Liabilities (in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Research and development | $4,168 | $3,502 | | Professional and administrative services | $3,947 | $1,053 | | Compensation and benefits | $3,569 | $4,699 | | Contract manufacturing | $1,396 | $2,480 | | Sales and marketing services | $242 | $2,050 | | Total accrued expenses and other current liabilities | $14,633 | $15,453 | - Total accrued expenses and other current liabilities decreased slightly from $15.5 million at December 31, 2022, to $14.6 million at September 30, 2023. Significant changes include an increase in professional and administrative services accruals and decreases in compensation and benefits, contract manufacturing, and sales and marketing services accruals[51] 10. Leases This note describes the company's lease arrangements, including its corporate headquarters, and related assets and liabilities - The company leases approximately 33,000 square feet for its corporate headquarters. In May 2023, the lease was amended and extended through May 31, 2033, resulting in a $2.5 million increase to the Right-of-Use (ROU) asset and a $3.8 million increase to the lease liability[52] Operating Lease Assets and Liabilities (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Operating lease ROU assets | $5,261 | $3,032 | | Non-current operating lease liabilities | $6,312 | $2,689 | | Total operating lease liabilities | $6,725 | $3,414 | - Operating lease expense for the nine months ended September 30, 2023, was $0.6 million, up from $0.5 million in the prior year[53] 11. Product Warranty Obligations This note explains the company's product warranty policy and the associated reserve for estimated replacement costs - The company provides a one-year warranty on its smart transmitters and may replace Eversense system components. Estimated replacement costs are recorded as a charge to cost of sales at the time of shipment[55] Warranty Reserve (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Balance at end of the period | $517 | $781 | | Provision for warranties during the period (9M/12M) | $136 | $166 | | Settlements made during the period (9M/12M) | $(400) | $(108) | 12. Notes Payable, Preferred Stock and Stock Purchase Warrants This note details the company's debt instruments, preferred stock, and warrants, including terms and recent transactions - On September 8, 2023, the company entered into a Loan and Security Agreement for up to $50.0 million in senior secured term loans, with an initial $25.0 million funded. The loans mature on September 1, 2027, bear interest at prime rate plus 1.40% (or 9.90%), and are secured by substantially all company assets[57][58][60] - In connection with the Tranche 1 Loan, the company issued warrants to lenders to acquire 832,362 common shares at $0.6007 per share, recorded in equity as a debt discount[64] - In March 2023, the company exchanged $35.0 million of PHC Notes for a pre-funded warrant to purchase 68,525,311 common shares, resulting in a net gain on exchange of $18.8 million. Additionally, PHC purchased a pre-funded warrant for 15,425,750 common shares for $15.0 million[27][29][93] - In August 2023, the company exchanged $30.8 million of 2025 Notes for $7.5 million cash and 35.1 million common shares, resulting in a $4.6 million extinguishment loss. Approximately $20.4 million of 2025 Notes remain outstanding[99][100][101] Notes Payable Carrying Amounts (in thousands) | Note Type | Sep 30, 2023 (Carrying Amount) | Dec 31, 2022 (Carrying Amount) | | :-------------------------- | :----------------------------- | :----------------------------- | | 2025 Notes | $16,605 | $35,918 | | Loan and Security Agreement | $23,880 | $0 | | 2023 Notes | $0 | $15,579 | | PHC Notes | $0 | $20,465 | | Total | $40,485 | $71,962 | Interest Expense Related to Notes Payable (in thousands) | Note Type | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | | 2023 Notes | $189 | $1,640 | | 2025 Notes | $6,770 | $6,104 | | PHC Notes | $2,230 | $6,053 | | Loan and Security Agreement | $199 | $0 | | Total | $9,388 | $13,803 | 13. Stockholders' Equity (Deficit) This note provides an overview of the components of stockholders' equity, including common stock and capital transactions - During the nine months ended September 30, 2023, the company received $7.4 million in net proceeds from the sale of 9,944,663 common shares under the 2021 Sales Agreement, which was terminated in August 2023. A new Equity Distribution Agreement with Goldman Sachs & Co. LLC allows for the sale of up to $106.6 million of common stock, with no sales as of September 30, 2023[108][109] 14. Stock-Based Compensation This note describes the company's equity incentive plans and the accounting for stock-based compensation expenses - The company has several equity incentive plans: the Amended and Restated 2015 Plan (28.97 million shares available), the Inducement Plan (172,256 shares available), and the 2023 Commercial Equity Plan (7.06 million shares available). The 2016 Employee Stock Purchase Plan (ESPP) had 17.62 million shares available, with 222,312 shares purchased in 2023[111][114][115][116] 15. Fair Value Measurements This note details the fair value hierarchy used for financial assets and liabilities, including derivative instruments Fair Value Hierarchy of Financial Assets and Liabilities (in thousands) | Category | Sep 30, 2023 (Total) | Dec 31, 2022 (Total) | | :------------------------------------ | :------------------- | :------------------- | | Assets | | | | Money market funds | $52,696 | $34,658 | | Commercial paper | $26,281 | $41,503 | | Corporate debt securities | $7,920 | $32,142 | | Government and agency securities | $35,447 | $38,570 | | Liabilities | | | | Embedded features of the 2025 Notes | $245 | $7,859 | | Embedded features of the PHC Notes | $0 | $44,191 | | Embedded features of the 2023 Notes | $0 | $20 | - The fair value of embedded features of the PHC Notes and 2023 Notes decreased to $0 at September 30, 2023, due to their exchange and repayment, respectively. The embedded features of the 2025 Notes decreased from $7.9 million to $0.2 million. Level 3 fair value measurements for embedded features use unobservable inputs like stock price volatility, conversion probabilities, and credit spread[121][122] 16. Income Taxes This note explains the company's income tax position, including deferred tax assets and the valuation allowance - The company has not recorded any tax provision or benefit for the nine months ended September 30, 2023 or 2022, due to a full valuation allowance against its net deferred tax assets, as realization of future benefits is not considered more-likely-than-not[123] 17. Related Party Transactions This note discloses transactions and balances with related parties, primarily PHC and its subsidiary Ascensia - PHC, a noncontrolling owner with board representation, and its subsidiary Ascensia, are related parties. Revenue from Ascensia was $13.2 million for the nine months ended September 30, 2023, up from $10.3 million in the prior year. The company also purchases medical supplies from Ascensia[124] Related Party Balances (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Amount due from Ascensia | $2.7 | $2.3 | | Amount due to Ascensia | $0.5 | $0.9 | 18. Subsequent Events This note reports on events occurring after the balance sheet date that may require disclosure or adjustment - The company evaluated subsequent events through the filing date of the Form 10-Q and found no events requiring recognition or disclosure[126] ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key business developments, financial performance for the three and nine months ended September 30, 2023, and an assessment of liquidity and capital resources Overview This section provides a high-level summary of the company's business, product development, and commercialization efforts - Senseonics is a medical technology company developing long-term implantable continuous glucose monitoring (CGM) systems, Eversense, for diabetes management. The Eversense E3 CGM system, with a six-month sensor life, received FDA approval in February 2022 and CE mark in June 2022[129] - The company is in early commercialization, focusing on driving awareness among intensively managed patients and healthcare providers. Reimbursement is crucial, with approximately 300 million covered lives in the U.S. through positive insurance payor decisions, including UnitedHealthcare effective July 1, 2023[131][132][134] - The ENHANCE pivotal study for the Eversense 365-day system completed adult cohort enrollment in Q3 2023, with data expected by end of 2023 to support an FDA submission in early 2024. Pediatric patient enrollment began in Q2 2023[133][143] United States Development and Commercialization of Eversense This section details the regulatory approvals and commercialization strategy for Eversense CGM systems in the U.S. market - The 90-day Eversense CGM system received FDA PMA approval in June 2018 and non-adjunctive indication (dosing claim) in June 2019, allowing it to replace fingerstick blood glucose measurements for treatment decisions. The 180-day Eversense E3 CGM system was FDA approved in February 2022[135][136][138][142] - In August 2020, the company entered into an exclusive collaboration and commercialization agreement with Ascensia for worldwide distribution of Eversense CGM systems. Ascensia assumed commercial responsibilities for the 90-day Eversense product in the U.S. during Q2 2021 and began commercializing Eversense E3 in Q2 2022[141][142] - The Eversense XL received MRI approval in the EEA in April 2020, a first for the CGM category, meaning the sensor does not need to be removed during MRI scanning[140] European Commercialization of Eversense This section outlines the regulatory approvals and commercialization efforts for Eversense CGM systems in European markets - The Eversense XL CGM system received CE mark in September 2017 for up to 180-day sensor life and began commercialization in Europe in Q4 2017. The Eversense E3 CGM system received CE mark in June 2022, with Ascensia commencing commercialization in European markets in H2 2022[144][148] - A distribution agreement with Roche, which covered EMEA and other regions, concluded on January 31, 2021, transitioning distribution to Ascensia[145][147] Financial Overview This section summarizes the company's financial performance, including revenue recognition and customer concentration Revenue This section explains the sources and recognition policies for the company's product revenue, including variable consideration - Product revenue is generated from sales of the Eversense system to Ascensia, third-party distributors, and strategic fulfillment partners. Revenue is recognized when customers obtain control of the product, or when consumed by a patient under consignment[149][150] - Variable consideration, such as discounts and revenue share (for Ascensia), is included in revenue to the extent that a significant reversal is improbable. Contract assets consist of unbilled receivables related to the Ascensia Commercialization Agreement[151][153] Concentration of Revenue and Customers This section highlights the company's reliance on key customers for a significant portion of its total revenue - Ascensia remains the primary customer, accounting for 93% and 97% of total revenue for the three months ended September 30, 2023 and 2022, respectively, and 92% and 95% for the nine months ended September 30, 2023 and 2022, respectively[154] Revenue by Geographic Region This section breaks down the company's net revenue by geographic region, showing market performance trends Net Revenue by Geographic Region (in thousands) | Region | Three Months Ended Sep 30, 2023 | % of Total (3M) | Three Months Ended Sep 30, 2022 | % of Total (3M) | | :---------------------- | :------------------------------ | :-------------- | :------------------------------ | :-------------- | | United States | $3,930 | 64.5% | $1,934 | 41.8% | | Outside of the United States | $2,167 | 35.5% | $2,688 | 58.2% | | Total | $6,097 | 100.0% | $4,622 | 100.0% | | Region | Nine Months Ended Sep 30, 2023 | % of Total (9M) | Nine Months Ended Sep 30, 2022 | % of Total (9M) | | :---------------------- | :------------------------------ | :-------------- | :------------------------------ | :-------------- | | United States | $7,885 | 54.9% | $3,908 | 36.1% | | Outside of the United States | $6,475 | 45.1% | $6,910 | 63.9% | | Total | $14,360 | 100.0% | $10,818 | 100.0% | - U.S. revenue significantly increased its share of total revenue, reaching 64.5% for the three months and 54.9% for the nine months ended September 30, 2023, compared to 41.8% and 36.1% in the prior year periods, respectively. This indicates a shift towards stronger U.S. market performance[155] Results of Operations for the Three Months Ended September 30, 2023 and 2022 This section analyzes the company's financial performance for the three-month periods, including revenue, expenses, and net loss Summary of Operations (Three Months Ended September 30, in thousands) | Metric | 2023 | 2022 | Period-to-Period Change | | :------------------------------------ | :----- | :----- | :---------------------- | | Total revenue | $6,097 | $4,622 | $1,475 | | Gross profit | $1,172 | $756 | $416 | | Research and development expenses | $12,769 | $10,985 | $1,784 | | Selling, general and administrative expenses | $7,425 | $7,340 | $85 | | Operating loss | $(19,022) | $(17,569) | $(1,453) | | Total other (expense) income, net | $(5,081) | $(42,822) | $37,741 | | Net (Loss) Income | $(24,103) | $(60,391) | $36,288 | - Total revenue increased by $1.5 million (32%) to $6.1 million, primarily due to higher shipments of Eversense E3 in the U.S. Gross profit increased by $0.4 million (55%) to $1.2 million, with gross margin improving from 16.4% to 19.2%[158][159] - Research and development expenses increased by $1.8 million (16%) to $12.8 million, driven by investments in next-generation technologies and personnel costs. Selling, general and administrative expenses remained relatively stable[160][161] - Net loss significantly decreased by $36.3 million, from $(60.4) million to $(24.1) million, primarily due to a $37.7 million increase in other income, net, largely from changes in fair value adjustments of options and derivatives[156][162] Results of Operations for the Nine Months Ended September 30, 2023 and 2022 This section analyzes the company's financial performance for the nine-month periods, including revenue, expenses, and net loss Summary of Operations (Nine Months Ended September 30, in thousands) | Metric | 2023 | 2022 | Period-to-Period Change | | :------------------------------------ | :----- | :----- | :---------------------- | | Total revenue | $14,360 | $10,818 | $3,542 | | Gross profit | $2,002 | $2,107 | $(105) | | Research and development expenses | $38,003 | $28,088 | $9,915 | | Selling, general and administrative expenses | $22,598 | $23,785 | $(1,187) | | Operating loss | $(58,599) | $(49,766) | $(8,833) | | Total other (expense) income, net | $15,397 | $180,324 | $(164,927) | | Net (Loss) Income | $(43,202) | $130,558 | $(173,760) | - Total revenue increased by $3.5 million (32.7%) to $14.4 million, driven by higher Eversense E3 shipments in the U.S. Gross profit decreased by $0.1 million (5%) to $2.0 million, with gross margin declining from 19.5% to 13.9% due to increased revenue share percentage to Ascensia, sales channel mix, and higher manufacturing/logistics costs[164][165][166] - Research and development expenses increased by $9.9 million (35.3%) to $38.0 million, primarily due to a $6.1 million increase in clinical studies and $3.8 million in personnel/support services for next-generation technologies. Selling, general and administrative expenses decreased by $1.2 million (5%) due to reduced personnel and other G&A costs[167][168] - The company reported a net loss of $(43.2) million, a significant decrease of $173.8 million from the $130.6 million net income in the prior year. This change was primarily driven by a $145.7 million change in fair value of derivatives and a $41.3 million change in fair value of options, partially offset by a $14.2 million net extinguishment loss on notes exchange[163][169] Liquidity and Capital Resources This section assesses the company's ability to generate and manage cash, detailing funding sources and future requirements Sources of Liquidity This section identifies the primary means by which the company obtains cash to fund its operations and investments - The company has incurred substantial losses and cumulative negative cash flows from operations since inception, with an accumulated deficit of $852.1 million as of September 30, 2023. Operations have been funded primarily through preferred stock, common stock, warrants, convertible notes, and debt[170] Key Liquidity Metrics (in millions) | Metric | Sep 30, 2023 | | :-------------------------------- | :----------- | | Cash, cash equivalents, and marketable securities | $125.4 | - Recent financing activities include a $25.0 million initial term loan from Hercules Capital (part of a $50.0 million facility), exchange of $30.8 million of 2025 Notes for cash and common stock, and a new Equity Distribution Agreement with Goldman Sachs & Co. LLC for up to $106.6 million in common stock sales[171][174][175] - The company also exchanged $35.0 million of PHC Notes for a pre-funded warrant to purchase 68,525,311 common shares and sold a Purchase Warrant to PHC for $15.0 million to maintain beneficial ownership[181][182] Indebtedness This section details the company's outstanding debt obligations, including term loans and convertible notes - The company's indebtedness includes the Term Loan Facility from Hercules Capital, with an initial $25.0 million funded, maturing September 1, 2027. The PPP Loan of $5.8 million was fully repaid in April 2022[184][186] Outstanding Convertible Notes (as of Sep 30, 2023) | Note Type | Coupon | Issuance Date | Aggregate Principal (in millions) | Maturity Date | Initial Conversion Rate per $1,000 Principal Amount | Conversion Price per Share | | :-------------------------- | :----- | :------------ | :-------------------------------- | :------------ | :-------------------------------------------------- | :------------------------- | | 2025 Notes | 5.25% | July 1, 2019 | $20.4 | January 15, 2025 | 757.5758 | $1.32 | - A series of exchange agreements in August 2023 converted $30.8 million of 2025 Notes into cash and common stock[187] Funding Requirements and Outlook This section discusses the company's future capital needs and its strategy for securing necessary funding - The company's ability to grow revenues and achieve profitability depends on successful commercialization, adoption of Eversense CGM systems, future product development, and regulatory approvals. These activities require significant working capital[188] - Existing cash, cash equivalents, and future cash flows are expected to be sufficient to meet operating plans into 2025. The company will continue to monitor its capital structure and may seek additional funding through debt and equity markets[189] Cash Flows This section provides a summary of cash inflows and outflows from operating, investing, and financing activities Summary of Cash Flows (Nine Months Ended September 30, in thousands) | Cash Flow Activity | 2023 | 2022 | | :------------------------------------ | :--------- | :--------- | | Net cash used in operating activities | $(55,096) | $(48,925) | | Net cash provided by investing activities | $53,518 | $19,532 | | Net cash provided by financing activities | $21,544 | $31,416 | | Net increase in cash and cash equivalents | $19,966 | $2,023 | Net cash used in operating activities This section details the cash generated or consumed by the company's core business operations - Net cash used in operating activities increased to $55.1 million for the nine months ended September 30, 2023, from $48.9 million in the prior year. This was primarily due to a net loss of $43.2 million and a $14.2 million net loss from the partial exchange of 2025 Notes, partially offset by non-cash adjustments and stock-based compensation[192][194] Net cash provided by investing activities This section outlines cash flows related to the purchase and sale of long-term assets and investments - Net cash provided by investing activities significantly increased to $53.5 million for the nine months ended September 30, 2023, from $19.5 million in the prior year. This was mainly driven by $122.2 million in proceeds from the sale and maturity of marketable securities, exceeding $68.5 million in purchases[195][196] Net cash provided by financing activities This section describes cash flows from debt, equity, and dividend transactions with investors and creditors - Net cash provided by financing activities was $21.5 million for the nine months ended September 30, 2023, down from $31.4 million in the prior year. Key inflows included $7.4 million from common stock issuance, $14.7 million from PHC Warrants, and $24.5 million from the Loan and Security Agreement. Outflows included $15.7 million for 2023 Notes repayment and $7.5 million for partial 2025 Notes repayment[197][198] Contractual Obligations This section summarizes the company's commitments under various contracts and agreements - As of September 30, 2023, there were no material changes in contractual obligations and commitments from those disclosed in the Annual Report on Form 10-K filed on March 16, 2023[199] ITEM 3: Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Senseonics Holdings, Inc. is not required to provide quantitative and qualitative disclosures about market risk in this Quarterly Report on Form 10-Q - The company is exempt from providing quantitative and qualitative disclosures about market risk in this Form 10-Q due to its status as a 'smaller reporting company'[201] ITEM 4: Controls and Procedures This section details the management's evaluation of the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting during the quarter ended September 30, 2023 Evaluation of Disclosure Controls and Procedures This section assesses the effectiveness of the company's controls for ensuring timely and accurate financial disclosures - Management, with the assistance of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023[202] Changes in Internal Control over Financial Reporting This section reports any material changes to the company's internal controls during the reporting period - There were no changes in internal control over financial reporting during the quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[203] PART II: Other Information This section includes additional disclosures not covered in the financial statements, such as legal matters and risk factors ITEM 1: Legal Proceedings This section outlines the legal proceedings the company is involved in, specifically detailing a False Claims Act lawsuit and its current status - The company is subject to a civil complaint filed under the federal False Claims Act and Texas Medicaid Fraud Prevention Law, alleging violations related to marketing practices for its Eversense CGM system. The court dismissed the amended complaint in March 2023, and the relator filed an appeal to the Fifth Circuit, which is currently awaiting a decision[206][207] ITEM 1A: Risk Factors This section updates the risk factors, specifically addressing the potential dilution and stock price decline resulting from recent exchange agreements involving the company's 2025 Notes - Recent exchange agreements for $30.8 million of 2025 Notes, which resulted in the issuance of 35.1 million common shares, will cause additional dilution to common stockholders. The immediate resale eligibility of these shares could increase market supply and potentially cause the stock price to decline[209] ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds This section details the unregistered sales of equity securities, specifically the issuance of common stock in exchange for 2025 Notes, and confirms the exemption under the Securities Act of 1933 - On August 10, 2023, the company exchanged up to $30.8 million in 2025 Notes for $7.5 million cash and 35.1 million newly issued common shares. These shares were offered and sold under the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as a transaction not involving a public offering[210][212] ITEM 3: Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - This item is not applicable[213] ITEM 4: Mine Safety Disclosures This item is not applicable to the company for the reporting period - This item is not applicable[214] ITEM 5: Other Information This item is not applicable to the company for the reporting period - This item is not applicable[215] ITEM 6: Exhibits This section lists all exhibits filed or incorporated by reference as part of this Quarterly Report on Form 10-Q, including organizational documents, agreements, and certifications - The exhibits include various corporate documents such as the Amended and Restated Certificate of Incorporation, Bylaws, and Certificates of Designation for preferred stock. Key agreements listed are the Form of Exchange Agreement (August 10, 2023), Loan and Security Agreement (September 8, 2023), and Form of Warrant Agreement[216][217] - Certifications by the Principal Executive Officer and Principal Financial Officer under Sections 302 and 906 of the Sarbanes-Oxley Act are also included[217][219] SIGNATURES This section contains the required signatures, confirming the due authorization and filing of the report - The report is signed by Rick Sullivan, Chief Financial Officer (Principal Financial Officer), on behalf of Senseonics Holdings, Inc., dated November 9, 2023[223][224]