Senseonics(SENS) - 2020 Q4 - Annual Report

PART I Item 1. Business Senseonics develops and commercializes long-term, implantable continuous glucose monitoring systems, Eversense and Eversense XL, for diabetes management, shifting to a distribution partnership with Ascensia in 2020 - Senseonics develops and commercializes long-term, implantable continuous glucose monitoring (CGM) systems, Eversense and Eversense XL, designed for 90 and 180 days respectively, significantly longer than other non-implantable systems (7-14 days)[19] - The Eversense CGM system received CE mark in June 2016, Eversense XL in September 2017, and U.S. FDA approval for Eversense in June 2018. In June 2019, FDA approved a non-adjunctive indication, allowing it to replace fingerstick blood glucose measurements for treatment decisions[19] - A PMA supplement application for the 180-day Eversense CGM System was submitted to the FDA on September 30, 2020, following PROMISE trial results showing 8.5%-9.6% MARD with reduced calibration (one per day). FDA review is anticipated by April 15, 2021, with approval expected no earlier than H2 2021, potentially delayed by COVID-19 resource reallocation[20] - In August 2020, Senseonics entered an exclusive worldwide distribution agreement with Ascensia Diabetes Care Holdings AG for its 90-day and 180-day Eversense systems, with Ascensia handling sales, marketing, and customer support, while Senseonics retains product development and manufacturing[24][28][30] - The COVID-19 pandemic led to temporary suspension of U.S. commercial sales to new patients in Q1 2020, a 60% workforce reduction (over half sales personnel), and reduced access to clinics for sensor insertions, impacting insertion volumes[25][26][27] - The Eversense XL received regulatory approval in Europe in April 2020 to be MRI-safe, a first for the CGM category, eliminating the need for sensor removal during MRI scans[23] Overview Senseonics develops long-term implantable CGM systems, Eversense and Eversense XL, with 90 and 180-day sensors, having received FDA approval for the 90-day system and pursuing approval for longer durations - Senseonics' Eversense and Eversense XL CGM systems offer 90-day and 180-day implantable sensors, respectively, providing longer duration, superior accuracy, wireless communication, on-body vibratory alerts, and data sharing capabilities[19] - The Eversense CGM system received CE mark in June 2016, Eversense XL in September 2017, and U.S. FDA approval for Eversense in June 2018. A non-adjunctive indication was approved in June 2019, allowing it to replace fingerstick blood glucose measurements for treatment decisions[19] - The PROMISE trial for the 180-day Eversense product showed performance matching the 90-day product (MARD 8.5%-9.6%) with reduced calibration (one per day). A PMA supplement was submitted to the FDA on September 30, 2020, with approval anticipated no earlier than H2 2021 due to FDA resource reallocation for COVID-19[20] - Feasibility data for a 365-day sensor is being gathered from a subgroup of PROMISE trial participants, with plans to seek Investigational Device Exemption (IDE) from the FDA in H2 2021 for a clinical trial, including a pediatric population, targeting enrollment in H1 2022[21] 2020 and Significant Recent Developments In 2020, Senseonics faced COVID-19 disruptions, leading to workforce reductions and a strategic shift to an exclusive distribution partnership with Ascensia for global commercialization - The COVID-19 pandemic led to a global health emergency, impacting Senseonics' operations, including a shift to remote work and reduced access to clinics for sensor insertions, with insertion volumes remaining below pre-COVID-19 levels[25][26] - In Q1 2020, Senseonics temporarily suspended U.S. commercial sales and marketing to new patients and reduced its workforce by approximately 60% (over half sales personnel) to focus resources on supporting existing users and developing the 180-day Eversense product[27] - An exclusive worldwide distribution agreement was signed with Ascensia Diabetes Care Holdings AG in August 2020, transferring sales, marketing, and customer support responsibilities to Ascensia, while Senseonics maintains product development and manufacturing[28][30] - Ascensia began U.S. sales support for the 90-day Eversense product on October 1, 2020, with full commercial responsibilities transitioning in Q2 2021. Ascensia also assumed commercial responsibilities for Eversense XL in key European markets starting February 1, 2021[30] Background Diabetes is a growing global health crisis, and CGM systems like Eversense, with their non-adjunctive FDA label, offer superior glucose monitoring and expanded access for patients, including Medicare beneficiaries - Diabetes affects an estimated 463 million people worldwide, projected to grow to 700 million by 2045, driven by Type 2 diabetes, aging populations, and increased prevalence in younger individuals[31] - CGM systems offer advantages over traditional fingerstick monitoring by providing continuous, real-time glucose data, improving glycemic control, and aiding in hypoglycemia avoidance[32] - In June 2019, the Eversense CGM system received a non-adjunctive label from the FDA, allowing its use as a therapeutic CGM to replace fingerstick glucose testing for treatment decisions, including insulin dosing, and expanding access to Medicare patients[33] - CMS finalized a national payment rate for Eversense in November 2019, making it the first CGM technology reimbursed through the Part B Medical Services benefit for Medicare beneficiaries. In December 2020, CMS established national payment amounts for CPT Category III codes for implantable interstitial glucose sensor procedures (insertion, removal, removal/insertion) as a medical benefit[35] Commercial Strategy Senseonics is transitioning to an exclusive global commercial partnership with Ascensia, focusing on product development while Ascensia handles sales, marketing, and customer support, having secured coverage for over 200 million U.S. lives - Senseonics is transitioning to an exclusive global sales model through Ascensia, moving from a direct sales and distributor network, with Ascensia assuming full commercial responsibilities in the U.S. by Q2 2021 and in select European markets from February 2021[36][38][42] - In Q1 2020, Senseonics temporarily suspended U.S. commercial sales to new patients and reduced its direct sales organization to focus on supporting existing users and developing the 180-day Eversense product[37] - The company achieved coverage for over 200 million covered lives in the U.S. through positive insurance payor decisions in 2020. The Eversense Bridge Program, which provided financial assistance to eligible U.S. patients, ended on December 31, 2020, with Ascensia expected to initiate a new patient assistance program[39] - Net revenues are derived from sales of the Eversense CGM system, sold in two kits: the disposable Sensor Pack and the durable Smart Transmitter Pack[43] Distribution Agreement with Roche Diabetes Care Senseonics' exclusive distribution agreement with Roche Diabetes Care for EMEA and other countries expired on January 31, 2021, with amendments in 2019 and 2020 facilitating the transition to Ascensia - Senseonics had an exclusive distribution agreement with Roche Diabetes Care for EMEA (excluding Scandinavia and Israel) and 17 other countries, which expired on January 31, 2021[44][47] - The agreement was amended in December 2019 to lower minimum volumes for 2020 and increase pricing, and again in November 2020 to facilitate the transition to Ascensia[45][46] Collaboration and Commercialization Agreement with Ascensia Diabetes Care Holdings AG Senseonics granted Ascensia exclusive worldwide distribution rights for its Eversense CGM systems in August 2020, with Ascensia managing commercial activities and Senseonics focusing on product development and manufacturing - Senseonics granted Ascensia exclusive worldwide distribution rights for its 90-day and 180-day Eversense CGM systems, with initial exceptions for existing distribution agreements[48] - Ascensia began U.S. sales support for the 90-day Eversense product on October 1, 2020, with full commercial responsibilities expected in Q2 2021. The 180-day product will be marketed upon FDA approval[48] - Ascensia receives a portion of net revenue (mid-teens to mid-forty's percentages) and is obligated to achieve minimum annual revenue targets and sales/marketing spend to maintain exclusivity[48] - Senseonics remains responsible for product development, manufacturing, and regulatory submissions, while Ascensia handles sales, marketing, market access, patient/provider onboarding, and first-level customer support[48] Clinical Development and Regulatory Pathway Senseonics completed pivotal trials for its 90-day and 180-day Eversense systems, submitted a PMA supplement for the 180-day product, and is gathering data for a 365-day sensor, while Eversense XL received MRI-safe approval in Europe - The Eversense XL CGM system received a CE mark in Europe in September 2017 and is commercially available in overseas markets[50] - The PRECISE II U.S. pivotal trial for the 90-day Eversense system was completed in 2016, leading to FDA PMA approval in June 2018 with a MARD of 8.5% (using an updated algorithm)[50][56] - The PROMISE pivotal trial for the U.S. 180-day Eversense system completed enrollment in September 2019, showing MARD of 8.5%-9.6% with one calibration per day. A PMA supplement was submitted to the FDA on September 30, 2020[51][59][60] - A subgroup of PROMISE trial participants continued for 365 days to gather feasibility data for a 365-day sensor. Senseonics plans to seek Investigational Device Exemption (IDE) in H2 2021 for a clinical trial, including a pediatric population, targeting enrollment in H1 2022[61] - In April 2020, Eversense XL received regulatory approval in Europe for MRI compatibility, meaning the sensor does not need to be removed during MRI scanning, a first for the CGM category[62] Our Technology Senseonics' Eversense CGM system offers accurate, long-duration glucose monitoring via an implantable sensor, smart transmitter, and mobile app, with future plans for extended sensor life and combined CGM/FGM functionalities - The Eversense system consists of a small, subcutaneously inserted sensor, an external removable smart transmitter providing vibratory alerts, and a mobile app for real-time glucose readings and data management[64] - Key advantages of Eversense include exceptional accuracy (especially in low glucose range), longest sensor duration (90-180 days), convenience (water-resistant, rechargeable, removable transmitter, wireless communication, remote monitoring, meal/workout tracking), on-body vibe alerts, and 24/7 support[66] - The sensor uses a micro-fluorometer and glucose-indicating hydrogel to measure glucose levels, communicating data wirelessly via NFC to the smart transmitter. The sensor is remotely powered by the transmitter every five minutes[66][68] - Future product development focuses on reducing calibration to once daily/weekly, extending sensor duration to 365 days, and developing a 'Freedom' product combining CGM and Flash Glucose Monitoring (FGM) in an implantable sensor[72] Sales and Marketing Senseonics focuses on Eversense adoption among diabetes patients and providers, establishing a CES network, with Ascensia now managing global sales, marketing, and customer support through a strategic partnership - Senseonics focuses on driving awareness and adoption of its CGM system among intensively managed patients and healthcare providers, emphasizing the need for a strong network of trained proceduralists[73][75] - The Certified Eversense Specialist (CES) network was launched in 2019 to provide alternative proceduralists (e.g., dermatologists, plastic surgeons) for endocrinologists who prescribe Eversense but prefer to refer the insertion procedure[75] - Healthcare providers value Eversense's accuracy and sensor duration, and the insertion process is generally considered simple or feasible[76] - As a result of the strategic partnership, Ascensia is now responsible for sales, marketing, market access, patient and provider onboarding, and first-level customer support, with joint committees for collaboration[77] Reimbursement Securing third-party payor coverage and adequate reimbursement is critical for Eversense's market acceptance, with ongoing efforts to overcome 'experimental' designations and ensure consistent payment for the device and procedures - Access to coverage and adequate reimbursement from third-party payors (commercial and government) is essential for Eversense's market acceptance and sales[78] - Approximately 200 million people in the U.S. may have coverage and access to Eversense through commercial or government (Medicare) payors[78] - Some commercial payors initially denied coverage, deeming Eversense 'experimental,' despite real-world data supporting its clinical benefits. Inconsistent payment for sensor placement by healthcare providers remains a challenge[79] - The Eversense Bridge Program, a patient access program providing financial assistance, ended on December 31, 2020, with Ascensia expected to initiate a new patient assistance program[39][79] - Outside the U.S., coverage for CGM systems varies by country and region, with third-party distributors (now Ascensia) responsible for securing these approvals[80] Manufacturing and Quality Assurance Senseonics outsources all Eversense manufacturing to contract manufacturers in North America and Europe, maintains ISO 13485:2016 certification, and manages supply chain risks from single-sourced critical materials - All components of the Eversense system are manufactured by contract manufacturers in North America and Europe, a strategy expected to continue[82] - Senseonics holds ISO 13485:2016 certification for its quality system, which includes design control requirements[83] - Suppliers are periodically audited for conformity with specifications and regulatory requirements (FDA, state, foreign agencies). While most raw materials are multi-sourced, some critical materials are single-sourced, with inventory maintained to prevent supply interruptions[84] Competition The highly competitive CGM market pits Senseonics against well-capitalized rivals like Dexcom, Medtronic, and Abbott, who offer advanced features, necessitating Eversense to compete on accuracy, duration, and convenience despite competitors' greater resources - The CGM market is competitive, with key players including Dexcom, Medtronic, and Abbott, all of whom have FDA-approved CGM systems[85] - Competitors like Dexcom (G6) and Abbott (Freestyle Libre) offer factory calibration (no user calibration required) and have received iCGM indications for interoperability with other diabetes tech devices like insulin pumps[85][86] - Senseonics also competes with providers of traditional Self-Monitoring Blood Glucose (SMBG) systems (Roche, Abbott, Ascensia) and companies developing real-time intermittent, low-cost transcutaneous, fully implantable, and non-invasive CGM systems[87][88] - Key competitive factors for Eversense are accuracy, duration, convenience, alert functionality, and customer support. However, many competitors have significantly greater financial resources, R&D expertise, and established market positions[89][90] Intellectual Property Senseonics protects its intellectual property through patents, trademarks, and trade secrets, holding approximately 519 patents as of December 31, 2020, but faces risks of patent litigation and infringement claims in the medical device industry - Senseonics relies on patents, trademarks, copyrights, and trade secrets to protect its intellectual property[91] - As of December 31, 2020, the company held approximately 519 issued patents and pending patent applications related to its CGM system, with patents expiring between 2021 and 2043[92] - The medical device industry is characterized by numerous patents and frequent litigation. Senseonics is aware of third-party patents that may relate to its technology and acknowledges the risk of infringement assertions[94] - Adverse determinations in intellectual property litigation could lead to significant liabilities, licensing requirements, or restrictions on manufacturing and sales[95][97] - Senseonics also protects trade secrets through non-disclosure and assignment of invention agreements with employees and third parties[99] Government Regulation Senseonics' Class III medical devices are subject to extensive FDA and international regulations, requiring Premarket Approval, compliance with QSR and MDR, and adherence to evolving rules like the EU Medical Device Regulation - The Eversense System is a Class III medical device, subject to extensive regulation by the FDA in the U.S. and other international regulatory bodies[100][101] - Premarket Approval (PMA) is required for marketing in the U.S., and PMA supplements are needed for significant modifications to approved devices[101][103] - Compliance with FDA's Quality System Regulation (QSR) for manufacturing, Medical Device Reporting (MDR) for adverse events, and strict rules against 'off-label' promotion are ongoing requirements[104][105][106] - In the EU, devices must comply with directives (e.g., Active Implantable Medical Device Directive) to bear the CE mark, which is essential for commercial distribution. The EU Medical Device Regulation (MDR) is replacing existing directives, imposing stricter requirements[108][112] - Non-compliance with regulations can lead to severe enforcement actions, including fines, injunctions, product recalls, suspension of production, withdrawal of approvals, and criminal prosecutions[104][117] Health Insurance Portability and Accountability Act of 1996 and Similar Foreign and State Laws and Regulations Affecting the Transmission, Security and Privacy of Health Information Senseonics is subject to stringent federal, state, and foreign data privacy laws like HIPAA, HITECH, GDPR, and CCPA, with non-compliance risking significant fines and reputational damage, as evidenced by a recent data disclosure incident - Senseonics is subject to HIPAA and HITECH in the U.S., which impose requirements on the privacy, security, and transmission of individually identifiable health information, with direct applicability to business associates and their subcontractors[119] - The EU Medical Devices Regulation (EU) 2017/745, effective from May 2020 (postponed by COVID-19), will establish a uniform regulatory framework for medical devices in the EEA, strengthening rules on market placement, surveillance, traceability, and manufacturer responsibilities[123][124] - The European General Data Protection Regulation (GDPR), effective May 25, 2018, imposes stringent operational requirements and significant fines (up to €20 million or 4% of global turnover) for non-compliance with personal data processing[125] - California's Consumer Privacy Act (CCPA), effective January 1, 2020, creates new individual privacy rights and increased obligations for entities handling personal data[126] - In February 2021, an unintended disclosure of user email addresses in Italy was self-reported to GDPR authorities, highlighting potential adverse reactions and regulatory implications[323] Fraud and Abuse Laws Senseonics is subject to federal and state fraud and abuse laws, including the Anti-Kickback Statute, Stark Law, False Claims Act, and HIPAA, with violations carrying severe criminal, civil, and administrative penalties - The federal Anti-Kickback Statute prohibits offering or providing remuneration to induce referrals or purchases reimbursable by federal healthcare programs. Violations can result in imprisonment, fines up to $100,000 per violation, and exclusion from federal healthcare programs[130][131] - The Stark Law prohibits physicians from referring Medicare/Medicaid patients to entities providing 'designated health services' (e.g., durable medical equipment) in which the physician has a financial interest. Violations can lead to payment denials, disgorgement of reimbursements, and civil penalties[132] - The federal False Claims Act allows the government and private parties ('qui tam' lawsuits) to sue for knowingly presenting false or fraudulent claims to the federal government, with penalties including significant civil monetary penalties and treble damages[136] - HIPAA established federal crimes for healthcare fraud and false statements, prohibiting schemes to defraud healthcare benefit programs or making false statements related to healthcare matters, punishable by felony charges, fines, and imprisonment[138] - The Civil Monetary Penalties Law authorizes substantial penalties for various prohibited conduct, including presenting false claims or offering remuneration to beneficiaries[139] - Many states have similar anti-kickback, anti-referral, and false claims laws, some applying regardless of payment source and without the same exceptions as federal laws[140] - The federal Physician Payment Sunshine Act requires medical device manufacturers to annually report financial arrangements and transfers of value to physicians and teaching hospitals, with reporting expanding to other healthcare providers in 2022[143] Healthcare Reform Ongoing federal and state healthcare reforms, including the PPACA and new Biden administration measures, aim to contain costs, creating uncertainty for medical device reimbursement and industry impact - Healthcare reforms, such as the PPACA, aim to contain costs and may lead to decreased reimbursement for medical devices, increasing pressure on pricing[144] - Key PPACA provisions, including the individual mandate, medical device tax, and 'Cadillac' tax, have been repealed or eliminated by subsequent legislation[144] - Ongoing legal challenges to the PPACA's constitutionality and the Biden administration's reform measures create uncertainty about the future healthcare landscape and its impact on Senseonics' business[144] Brexit and the Regulatory Framework in the United Kingdom Brexit introduces regulatory uncertainty and potential divergence in UK medical device laws, impacting Senseonics' operations and manufacturing, despite a trade agreement outlining approval procedures - Brexit introduces legal uncertainty and potential divergence in national laws and regulations for medical devices in the UK, which could adversely affect Senseonics' business[145] - The UK and EU agreed on a trade and cooperation agreement outlining procedures for medical product approval, but the long-term regulatory impact on medical devices in the UK is still unclear[145] - Brexit could create logistical complications for product movement and delivery, especially since several contract manufacturers are located in the UK[145] U.S. Foreign Corrupt Practices Act The U.S. FCPA prohibits corrupt payments to foreign officials and mandates accurate record-keeping, with violations leading to severe criminal and civil penalties - The FCPA prohibits corrupt payments to foreign government officials by U.S. corporations and requires accurate financial record-keeping and internal accounting controls[148] - Violations of the FCPA can lead to criminal and civil fines, imprisonment, disgorgement, and debarment from government contracts[148] UK Bribery Act and other anti-corruption laws Senseonics is subject to the UK Bribery Act 2010 and other global anti-corruption laws, prohibiting improper payments and imposing liability for failing to prevent bribery, with non-compliance leading to severe penalties - The UK Bribery Act 2010 and other anti-corruption laws prohibit improper payments to government officials or other persons to gain business advantages[149] - Under the UK Bribery Act, companies can be liable for failing to prevent bribery by associated persons[149] - Failure to comply with anti-corruption and trade control laws can lead to criminal and civil penalties, disgorgement, and other sanctions[150] Employees and Human Capital Resources As of December 31, 2020, Senseonics had 82 employees, primarily in operations and R&D, focusing on attracting and retaining skilled talent through competitive compensation, equity, and professional development in an inclusive culture - As of December 31, 2020, Senseonics had 82 employees, with over half holding Ph.D., M.D., master's, or other post-graduate degrees, primarily in operations and R&D[151] - The company's success depends on attracting and retaining highly skilled employees, management, and technical personnel in the competitive medical technology industry[152] - Senseonics offers competitive pay, bonuses, equity ownership opportunities, professional development, and comprehensive benefits to promote employee well-being and foster an inclusive culture[152][153] Corporate Information Senseonics Holdings, Inc., reincorporated in Delaware in 2015, has its principal offices in Germantown, Maryland, and its common stock is listed on the NYSE American under 'SENS' - Senseonics Holdings, Inc. was reincorporated in Delaware in December 2015, following the acquisition of Senseonics, Incorporated[155][156] - The company's common stock is listed on the NYSE American under the symbol 'SENS'[157] Available Information Senseonics Holdings, Inc. provides free access to its annual, quarterly, and current reports, including amendments, on its website and the SEC's website after filing - Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments are available free of charge on the company's website (www.senseonics.com) and the SEC's website (www.sec.gov)[158](index=158&type=chunk) Item 1A. Risk Factors Senseonics faces significant risks including operating losses, reliance on Ascensia, COVID-19 impacts, intense competition, reimbursement challenges, product defects, and financial instability from debt and stock volatility - Senseonics has incurred significant operating losses since inception, with net losses of $175.2 million in 2020, and does not expect profitability for several years, leading to an accumulated deficit of $648.5 million as of December 31, 2020[163] - The company's future revenue is substantially dependent on the success of its collaboration and commercialization agreement with Ascensia, and failure by Ascensia to perform satisfactorily could adversely affect financial results[165] - The COVID-19 pandemic has materially affected operations, including clinical trials, supply chain, and regulatory reviews (e.g., delaying 180-day Eversense approval), and its long-term impact on business and financial performance is uncertain[171][174][175][181][182] - Failure to secure or retain adequate coverage and reimbursement for Eversense and its insertion/removal procedures by third-party payors is a critical risk to market acceptance and financial results[197] - The CGM market is highly competitive, with established players like Dexcom, Medtronic, and Abbott having greater resources and advanced product features (e.g., factory calibration, iCGM indications), posing a significant competitive threat[209][213] - The company's stock price has been highly volatile, experiencing extreme fluctuations and trading volumes unrelated to operating performance, which may continue and be influenced by various market and company-specific factors[343][346] Summary of Risks Affecting Our Business Senseonics faces substantial risks from operating losses, reliance on Ascensia, COVID-19 impacts, regulatory hurdles, intense competition, reimbursement challenges, manufacturing issues, stock volatility, and regulatory compliance - Senseonics has incurred significant operating losses since inception and profitability is not assured[161] - Future revenue is substantially dependent on the collaboration and commercialization agreement with Ascensia, and their performance is critical[161] - The COVID-19 pandemic has materially affected operations, clinical trials, and regulatory reviews, with unpredictable long-term impacts[161] - Failure to secure or retain adequate reimbursement for Eversense and related procedures by third-party payors could adversely affect the business[161] - The market is highly competitive, with primary competitors pursuing new technologies that could render Eversense less competitive or obsolete[161] - The company has limited operating history as a commercial-stage company and faces difficulties inherent in rapidly evolving markets[161] - The stock price has been highly volatile and may continue to be so, often unrelated to operating performance[161] - Risks associated with outsourced manufacturing, loss of key suppliers, and disruptions to facilities could negatively affect operating results[161] - Failure to comply with extensive foreign, U.S. federal, state, and local laws and regulations could harm the business and incur significant compliance expenditures[161] Risks Relating to our Business and our Industry Senseonics faces business risks from operating losses, reliance on Ascensia, COVID-19 disruptions, commercialization challenges, product defects, intense competition, and supply chain vulnerabilities - Senseonics has incurred significant net losses ($175.2 million in 2020, $115.5 million in 2019, $94.0 million in 2018) and has an accumulated deficit of $648.5 million as of December 31, 2020, with no expectation of profitability for several years[163] - Future success is heavily dependent on the collaboration with Ascensia; if Ascensia fails to effectively market and sell Eversense, commercialization efforts and financial results will be adversely affected[165] - The COVID-19 pandemic has disrupted operations, clinical trials, and regulatory reviews (e.g., delaying 180-day Eversense FDA approval), impacting productivity, supply chain, and sales[171][174][175][176][177][181] - Successful commercialization requires timely regulatory approvals, reliable suppliers, market acceptance, adequate reimbursement, and effective education of healthcare providers and patients[183] - The company is dependent on its single product, Eversense, and its success relies on continuous development of enhanced product offerings (e.g., reduced calibration, longer duration sensors) to remain competitive[191][195] - Undetected errors or defects in Eversense could harm reputation, decrease market acceptance, and lead to product liability claims, which are costly to defend and may exceed insurance coverage[241][242][243] - Reliance on third-party manufacturers and a limited number of suppliers for components creates risks of quality defects, supply interruptions, and inability to meet demand, potentially affecting gross margins and operating results[227][229][230][231] Risks Related to our Financial Results and Need for Financing Senseonics requires significant sales for profitability, but faces fluctuating operating results, substantial debt obligations with restrictive covenants, and financial stability threats from economic conditions and foreign exchange risks - Senseonics needs to generate significant sales to achieve profitability, and its operating expenses are expected to increase with commercialization and R&D efforts[255] - Operating results are subject to significant fluctuations due to factors like regulatory approvals, Ascensia's sales performance, product pricing, reimbursement policies, manufacturing interruptions, and changes in fair value of derivative instruments[256][257][259] - Covenants under the PHC Note Purchase Agreement and convertible note indentures impose financial restrictions (e.g., minimum revenue/liquidity targets, limitations on indebtedness, mergers) that could accelerate debt or limit business operations[261][262][263] - Servicing existing debt requires significant cash flow, and the company may need to sell assets, restructure debt, or obtain additional equity, which may be dilutive or unavailable[266] - Prolonged negative economic conditions, pressure on healthcare spending, and foreign currency exchange risks (especially for Euro-denominated sales) could adversely affect financial condition[268][269][270] - The company does not intend to pay cash dividends in the foreseeable future, as all available funds will be retained for business operations and expansion[369] Risks Related to Development of our Products Product development at Senseonics is lengthy and uncertain, with modifications requiring potentially delayed regulatory approvals and clinical trials for new versions facing costly, unpredictable outcomes that could hinder market introduction - Modifications or upgrades to the Eversense system require additional regulatory approvals (e.g., PMA supplements), which may be delayed or denied, preventing the sale of modified products[271][272] - Medical device development is a lengthy, expensive, and uncertain process, with clinical trials for new versions (e.g., 365-day sensor) potentially incurring additional costs or delays[273] - Failure to successfully complete clinical trials or unfavorable results could prevent marketing approval, lead to post-marketing testing, or even removal of products from the market[274] Risks Related to our Employee Matters and Managing our Growth Senseonics' success depends on retaining key personnel and managing growth, facing risks from staff loss, challenges in expanding systems, and potential employee misconduct leading to penalties and reputational harm - Senseonics is highly dependent on key executives and qualified scientific, clinical, manufacturing, and sales/marketing personnel. The loss of these individuals could impede R&D and commercialization objectives[275][276] - Anticipated growth in employees and operations requires implementing improved systems and recruiting/training additional personnel, which may be difficult to manage effectively due to limited financial resources and management experience[278] - Employees, contractors, and distributors may engage in misconduct or non-compliance with regulatory standards (e.g., FDA regulations, healthcare fraud laws), leading to significant civil/criminal penalties, exclusion from healthcare programs, and reputational harm[280] - The company is exposed to potential product liability claims inherent in medical device design, manufacture, testing, and sale, which could result in substantial damages, litigation costs, and reputational harm, potentially exceeding insurance coverage[281][282] Risks Related to our Intellectual Property Senseonics' intellectual property protection through patents, trademarks, and trade secrets is uncertain, facing risks of patent litigation, infringement claims, and trade secret misappropriation in the medical device industry - Senseonics relies on patents, trademarks, and trade secrets to protect its proprietary technologies, holding approximately 519 issued patents and pending applications as of December 31, 2020[283] - Patent applications may not result in issued patents, and existing patents may not protect commercially important aspects of technology or may be challenged, invalidated, or circumvented by competitors[286] - The medical device industry is characterized by frequent patent litigation. Competitors may assert infringement claims, forcing Senseonics to incur significant legal expenses, pay damages, redesign products, or obtain licenses, which may not be available on reasonable terms[291][292][294] - Failure to comply with procedural requirements for patent maintenance can lead to loss of patent rights. Foreign patent laws may offer less protection or make enforcement difficult[290][297] - Reliance on trade secrets is vulnerable to unauthorized disclosure or independent discovery. Claims of wrongful use of competitors' trade secrets or challenges to patent inventorship could also arise[288][295][296] Risks Related to our Legal and Regulatory Environment Senseonics faces significant legal and regulatory risks from extensive FDA and international oversight, with non-compliance leading to severe enforcement actions, costly and uncertain regulatory clearance, and exposure to off-label promotion and anti-corruption laws - Senseonics' products and operations are subject to extensive and complex governmental regulations by the FDA and international authorities, covering product design, development, manufacturing, labeling, marketing, and post-market surveillance[299][302] - Non-compliance can result in severe enforcement actions, including fines, civil penalties, injunctions, warning letters, product recalls, delays in market introduction, and suspension or withdrawal of approvals[303] - The FDA regulatory clearance process is expensive, time-consuming, and uncertain. Delays in approval, such as for the 180-day Eversense product due to COVID-19 resource reallocation, can prevent revenue generation[304][307][311] - Failure to comply with FDA's good manufacturing practice (QSR) regulations by Senseonics or its third-party suppliers could impair marketability and lead to enforcement actions[312] - Product recalls or serious safety issues can have a significant negative impact on reputation, financial condition, and operating results[313][314][315] - Global operations expose the company to anti-corruption laws (U.S. FCPA, UK Bribery Act) and trade/economic sanctions. Violations can lead to severe criminal/civil penalties and other liabilities[316][318][319] - Senseonics is subject to federal, state, and foreign healthcare fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA), and non-compliance could result in significant penalties and operational restructuring[320][324][325] - The company may be liable for off-label promotion of its products, leading to regulatory actions and product liability claims. Off-label use by patients could also result in claims and regulatory intervention[328][332] - Legislative or regulatory healthcare reforms, such as the PPACA, can make it more difficult and costly to obtain regulatory approvals and impact reimbursement levels, adversely affecting business and sales[334][335][337][338][342] Risks Related to our Common Stock Senseonics' common stock faces extreme volatility, dilution from future issuances, substantial influence from preferred stockholders, uncertain future funding, PPP Loan forgiveness risks, and GAAP operating result fluctuations from derivative instruments - Senseonics' stock price has been highly volatile, with extreme fluctuations and trading volumes often unrelated to operating performance, and this volatility is expected to continue[343][344][346] - Issuance of additional common stock or securities convertible into common stock (e.g., from financings, acquisitions, equity incentive plans) will result in substantial dilution to existing stockholders[347] - Holders of convertible preferred stock rank senior to common stock upon liquidation and can exert substantial influence over company decisions, including board elections and significant corporate transactions[348][349][354][355][356] - Future funding from agreements with PHC and Energy Capital for convertible preferred stock is contingent on certain conditions (e.g., FDA approval for 180-day product) and is not guaranteed, potentially forcing the company to seek less advantageous capital[357][359] - Forgiveness of the $5.8 million PPP Loan is uncertain due to workforce reductions and SBA review, potentially requiring full repayment and causing reputational damage[360][361] - GAAP operating results can fluctuate substantially due to changes in the fair value of liability options and embedded derivatives in convertible notes, which are remeasured each reporting period[362][364][365][367] - Provisions in corporate charter documents and Delaware law (e.g., staggered board, restrictions on stockholder actions) may prevent or frustrate attempts by stockholders to change management or acquire a controlling interest[370][372][373] - The company does not intend to pay cash dividends in the foreseeable future, retaining all funds for business operations and expansion[369] Item 1B. Unresolved Staff Comments Senseonics Holdings, Inc. has no unresolved staff comments from the SEC - There are no unresolved staff comments[388] Item 2. Properties Senseonics' principal offices in Germantown, Maryland, occupy 33,000 square feet under a 2023 lease, with additional sub-leased space vacated in Q4 2020 due to COVID-19 - Senseonics' principal offices are in Germantown, Maryland, occupying approximately 33,000 square feet under a lease expiring in 2023, with a five-year renewal option[389] - An additional 30,500 square feet of sub-leased office space, commencing in September 2019 and expiring in 2023, was vacated in Q4 2020 due to COVID-19[389] - The company believes its current facilities are suitable and adequate for its needs and plans to expand as employees are added[389] Item 3. Legal Matters Senseonics faces ordinary course litigation, including a February 2021 civil complaint under the False Claims Act alleging improper marketing, which the company is reviewing with belief in meritorious defenses - Senseonics is subject to litigation and claims arising in the ordinary course of business[390] - In February 2021, a civil complaint was filed under the federal False Claims Act and the Texas Medicaid Fraud Prevention Law, alleging improper marketing practices for the Eversense CGM System[391] - The government declined to intervene in the False Claims Act case, which is being pursued by a relator. Senseonics believes it has meritorious defenses[391] - Except for the described complaint, there are no other material legal proceedings pending or threatened against the company[393] Item 4. Mine Safety Disclosures Senseonics Holdings, Inc. reports that this item is not applicable - This item is not applicable[394] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Senseonics' common stock, listed on NYSE American as 'SENS', has never paid dividends and exhibits extreme volatility, with 377.9 million shares outstanding as of February 26, 2021 - Senseonics' common stock is listed on the NYSE American under the symbol 'SENS'[395] - The company has never declared or paid cash dividends and intends to retain all future earnings for business operations and expansion. Dividend payments are also restricted by debt agreements[395][369] - As of February 26, 2021, there were 377,883,267 shares of common stock outstanding, held by 183 holders of record[396] - The company's stock price has been highly volatile since March 18, 2016, with extreme fluctuations and trading volumes often unrelated to operating performance[398][343] Market Information for Common Stock Senseonics' common stock is traded on the NYSE American under the ticker symbol 'SENS' - The common stock of Senseonics Holdings, Inc. is listed on the NYSE American under the symbol 'SENS'[395] Dividend Policy Senseonics has never paid cash dividends and plans to retain all future earnings for business operations and expansion. The ability to pay dividends is further restricted by existing debt agreements - Senseonics has never declared or paid cash dividends on its common stock[395] - The company intends to retain all available funds and future earnings for business operations and expansion, and does not anticipate paying cash dividends in the foreseeable future[395] - The ability to pay dividends is limited by restrictions in the company's debt agreements[395] Stockholders As of February 26, 2021, Senseonics had 377,883,267 common shares outstanding, held by 183 record holders - As of February 26, 2021, 377,883,267 shares of common stock were outstanding, held by 183 holders of record[396] Performance Graph A performance graph compares Senseonics' common stock performance since March 18, 2016, against the Nasdaq Composite and Nasdaq Healthcare Indices, noting historical data is not indicative of future results - A performance graph compares the company's common stock performance since March 18, 2016, against the Nasdaq Composite Index and the Nasdaq Healthcare Index[398] - The comparison assumes a $100 investment and reinvestment of dividends, with historical stockholder return not necessarily indicative of future performance[398] Recent Sales of Unregistered Securities Senseonics Holdings, Inc. reports no recent sales of unregistered securities - No recent sales of unregistered securities[400] Item 6. Selected Consolidated Financial Data Senseonics Holdings, Inc. reports that this item is not applicable - This item is not applicable[401] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews Senseonics' financial condition and operations, detailing 2020 net losses driven by decreased sales and debt-related expenses, strategic shifts to Ascensia partnership, and recent financings - Senseonics is a medical technology company focused on developing and commercializing long-term, implantable continuous glucose monitoring (CGM) systems, Eversense and Eversense XL[403] - The company's net revenues are derived from sales of the Eversense CGM system, comprising disposable sensor packs and durable smart transmitter packs[404] - Sales are highly dependent on patient access to coverage and adequate reimbursement from third-party payors or government agencies[405] - In 2020, Senseonics transitioned to a strategic partnership with Ascensia for global distribution, allowing the company to focus on product development and regulatory submissions[406][415][417] - The COVID-19 pandemic significantly disrupted operations, leading to temporary suspension of U.S. commercial sales to new patients and workforce reductions, impacting insertion volumes[420][421][424] - Net loss increased significantly in 2020 to $175.2 million (from $115.5 million in 2019), primarily due to decreased revenue, increased loss on fair value adjustment, loss on extinguishment of debt, and loss on debt issuance[440][448] - In January 2021, Senseonics completed public and registered direct offerings, raising approximately $106.1 million and $46.1 million in net proceeds, respectively, to support its liquidity and operating plans[460][462][463][723][724] Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | | :--------------------------------------- | :---------------------- | :---------------------- | :---------------------- | | Revenue, net | $1,368 | $4,924 | $2,039 | | Revenue, net - related parties | $3,581 | $16,377 | $16,874 | | Total revenue | $4,949 | $21,301 | $18,913 | | Cost of sales | $22,315 | $40,749 | $27,059 | | Gross profit (loss) | $(17,366) | $(19,448) | $(8,146) | | Sales and marketing expenses | $20,550 | $49,555 | $27,730 | | Research and development expenses | $20,413 | $38,430 | $31,863 | | General and administrative expenses | $20,801 | $23,229 | $19,839 | | Operating loss | $(79,130) | $(130,662) | $(87,578) | | Total other (expense) income, net | $(96,038) | $15,113 | $(6,393) | | Net loss | $(175,168) | $(115,549) | $(93,971) | Net Loss Comparison (2020 vs. 2019 vs. 2018) | Metric | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | :------------------ | | Total revenue | $4,949 | $21,301 | $18,913 | | Cost of sales | $22,315 | $40,749 | $27,059 | | Gross profit (loss) | $(17,366) | $(19,448) | $(8,146) | | Operating loss | $(79,130) | $(130,662) | $(87,578) | | Total other (expense) income, net | $(96,038) | $15,113 | $(6,393) | | Net loss | $(175,168) | $(115,549) | $(93,971) | Overview Senseonics develops and commercializes long-term implantable CGM systems, Eversense and Eversense XL, with 90 and 180-day sensors, generating revenue from kit sales and relying on third-party reimbursement, shifting to a strategic partnership model in 2020 - Senseonics develops and commercializes long-term, implantable CGM systems (Eversense and Eversense XL) for 90 and 180 days, respectively, to improve diabetes management[403] - The Eversense system received CE mark in 2016, Eversense XL in 2017, and U.S. FDA approval for Eversense in 2018, with a non-adjunctive indication in 2019 allowing it to replace fingerstick measurements for treatment decisions[403] - Net revenues are derived from sales of disposable Eversense Sensor Packs and durable Eversense Smart Transmitter Packs[404] - Sales are highly dependent on patients obtaining coverage and adequate reimbursement from third-party payors or government agencies[405] - In 2020, Senseonics initiated strategic partnerships and distribution agreements for global marketing and promotion of its CGM systems[406] United States Development and Commercialization of Eversense Senseonics completed PRECISE II and PROMISE trials for its 90-day and 180-day Eversense systems, submitted a PMA supplement, and shifted U.S. commercialization to Ascensia in 2020, while securing payor coverage - The PRECISE II pivotal clinical trial for the 90-day Eversense system was completed in 2016, leading to FDA PMA approval on June 21, 2018, with a MARD of 8.5%[407] - The PROMISE pivotal clinical trial for the 180-day Eversense system completed enrollment in September 2019, showing MARD of 8.5%-9.6% with one calibration per day. A PMA supplement was submitted to the FDA on September 30, 2020[410] - In June 2019, FDA approved the non-adjunctive indication for Eversense, allowing it to replace fingerstick blood glucose measurement for treatment decisions[412] - A subgroup of PROMISE trial participants continued for 365 days to gather feasibility data for a 365-day sensor, with plans to seek IDE from the FDA in H2 2021 for a clinical trial[413] - In August 2020, Senseonics entered a collaboration and commercialization agreement with Ascensia, granting exclusive worldwide distribution rights for Eversense systems. Ascensia began U.S. sales support on October 1, 2020, with full commercial responsibilities transitioning in Q2 2021[415][417] - The Eversense Bridge Program, a patient access program providing financial assistance, was terminated in December 2020, with Ascensia expected to implement a new patient assistance program[411] European Commercialization of Eversense Eversense XL received CE mark in September 2017, began European commercialization in Q4 2017, and its distribution transitioned from Roche Diabetes Care to Ascensia in February 2021 - Eversense XL received CE mark in September 2017 and began commercialization in Europe in Q4 2017[418] - The distribution agreement with Roche Diabetes Care for EMEA and 17 other countries expired on January 31, 2021, with Ascensia assuming commercialization activities in select countries from February 1, 2021[419] COVID-19 The COVID-19 pandemic significantly impacted Senseonics' operations in 2020, leading to reduced sensor insertions, a 60% workforce reduction, and temporary suspension of U.S. commercial sales to new patients - The COVID-19 pandemic, declared a global health emergency in January 2020, led to stay-at-home orders and reduced access to clinics for sensor insertions, impacting Senseonics' operations[420] - Insertion volumes remained below pre-COVID-19 levels in the latter half of 2020, and the longevity and severity of the pandemic's impact on the business are difficult to predict[421] - In Q1 2020, Senseonics made significant cost reductions, including a 60% workforce reduction, and temporarily suspended U.S. commercial sales to new patients to focus on existing users and 180-day Eversense product development[422][424] Critical Accounting Policies and Use of Estimates Senseonics' U.S. GAAP financial statements rely on significant management estimates for revenue, warranties, inventory, and derivative liabilities, which are based on assumptions and can materially impact reported financial results - Preparation of consolidated financial statements requires management to make estimates and assumptions that materially impact reported amounts, including revenue, warranty obligations, inventory obsolescence, and embedded derivatives[426] - Estimates are based on historical experience and reasonable assumptions, but actual results may differ[427] - Revenue from product sales is recognized when customers obtain control, with variable consideration (discounts, reimbursements from programs like Eversense Bridge) treated as a reduction in revenue[429][430] - Warranty obligations for smart transmitters and system components are estimated at shipment and charged to cost of sales, based on product performance data and historical replacement experience[431] - Inventory is valued at the lower of cost or net realizable value, with adjustments for obsolescence or excess based on demand forecasts and product shelf life[432] - Derivative financial instruments, such as embedded conversion options and redemption features in convertible notes (2023, 2025, PHC Notes) and options related to financing agreements (Highbridge, Masters, Energy Capital), are bifurcated and remeasured at fair value each reporting period, with changes recorded in other income (expense)[433][434][435][437][438][439] Results of Operations Senseonics' 2020 total net revenue declined to $4.9 million, resulting in a $17.4 million gross loss and a $175.2 million net loss, driven by decreased sales, workforce reductions, and increased other expenses from derivative liabilities and debt Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | Year Ended Dec