UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 001-37717
Senseonics Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 3841 | 47-1210911 |
20451 Seneca Meadows Parkway
Germantown, MD 20876-7005
(301) 515-7260
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Common Stock, $0.001 par value | SENS | NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 463,263,499 shares of common stock, par value $0.001, outstanding as of May 6, 2022.
TABLE OF CONTENTS
2
Senseonics Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
March 31, | December 31, |
| |||||
2022 | 2021 | ||||||
(unaudited) | |||||||
Assets |
|
| |||||
Current assets: | |||||||
Cash and cash equivalents | $ | 39,011 | $ | 33,461 | |||
Short term investments, net | 102,755 | 96,445 | |||||
Accounts receivable, net | 232 | 205 | |||||
Accounts receivable, net - related parties | 3,797 | 1,768 | |||||
Inventory, net | 7,153 | 6,316 | |||||
Prepaid expenses and other current assets |
| 7,629 |
| 6,218 | |||
Total current assets |
| 160,577 |
| 144,413 | |||
Option | 269 | 239 | |||||
Deposits and other assets |
| 786 |
| 1,086 | |||
Long term investments, net | 25,145 | 51,882 | |||||
Property and equipment, net |
| 1,320 |
| 1,308 | |||
Total assets | $ | 188,097 | $ | 198,928 | |||
Liabilities and Stockholders’ Deficit | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 2,089 | $ | 1,204 | |||
Accrued expenses and other current liabilities |
| 8,742 |
| 10,667 | |||
Accrued expenses and other current liabilities- related parties | 3,674 | 3,597 | |||||
Note payable, current portion, net | 14,534 | — | |||||
Derivative liability, current portion | 1,713 | — | |||||
Term Loans, net | 732 | 2,926 | |||||
Total current liabilities |
| 31,484 |
| 18,394 | |||
Long-term debt and notes payables, net | 48,035 | 59,798 | |||||
Derivative liabilities |
| 150,010 |
| 236,291 | |||
Option | 47,700 | 69,401 | |||||
Other liabilities | 337 | 579 | |||||
Total liabilities |
| 277,566 |
| 384,463 | |||
Commitments and contingencies | |||||||
Stockholders’ deficit: | |||||||
Common stock, $0.001 par value per share; 900,000,000 shares authorized; 463,229,779 and 447,282,263 shares and as of March 31, 2022 and December 31, 2021 |
| 463 |
| 447 | |||
Additional paid-in capital |
| 775,172 |
| 765,215 | |||
Accumulated other comprehensive loss | (837) | (212) | |||||
Accumulated deficit |
| (864,267) |
| (950,985) | |||
Total stockholders' deficit |
| (89,469) |
| (185,535) | |||
Total liabilities and stockholders’ deficit | $ | 188,097 | $ | 198,928 | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Senseonics Holdings, Inc.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except share and per share data)
Three Months Ended | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Revenue, net | $ | 292 | $ | 487 | ||
Revenue, net - related parties | 2,189 | 2,359 | ||||
Total revenue | 2,481 | 2,846 | ||||
Cost of sales | 1,954 | 2,320 | ||||
Gross profit | 527 | 526 | ||||
Expenses: | ||||||
Sales and marketing expenses | 1,509 | 1,613 | ||||
Research and development expenses | 7,804 | 5,255 | ||||
General and administrative expenses | 6,374 | 4,974 | ||||
Operating loss | (15,160) |
| (11,316) | |||
Other income (expense), net: | ||||||
Interest income | 93 | 9 | ||||
Gain (Loss) on fair value adjustment of option | 21,701 | (52,675) | ||||
Gain on extinguishment of debt and option | — | 330 | ||||
Interest expense | (4,494) | (4,058) | ||||
Gain (Loss) on change in fair value of derivatives | 84,569 | (180,899) | ||||
Impairment cost, net | 30 | (782) | ||||
Other expense | (21) | (123) | ||||
Total other income (expense), net | 101,878 | (238,198) | ||||
Net Income (Loss) | 86,718 | (249,514) | ||||
Other comprehensive loss | ||||||
Unrealized loss on marketable securities | (625) | — | ||||
Total other comprehensive loss | (625) | — | ||||
Total comprehensive income (loss) | $ | 86,093 | $ | (249,514) | ||
Basic net income (loss) per common share | $ | 0.19 | $ | (0.68) | ||
Basic weighted-average shares outstanding | 455,942,886 | 364,274,433 | ||||
Diluted net income (loss) per common share | $ | (0.03) | $ | (0.68) | ||
Diluted weighted-average shares outstanding | 605,198,839 | 364,274,433 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Senseonics Holdings, Inc.
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit
(in thousands)
Additional | Accumulated | Total |
| Series A | |||||||||||||||||
Common Stock | Paid-In | Other | Accumulated | Stockholders' |
| Convertible | |||||||||||||||
| Shares |
| Amount |
| Capital |
| Comprehensive Loss | Deficit | Deficit |
| Preferred Stock Temporary Equity |
| |||||||||
Three months ended March 31, 2021: | |||||||||||||||||||||
Balance, December 31, 2020 |
| 265,582 | 266 | 504,162 | — | (648,511) | (144,083) | $ | 2,811 | ||||||||||||
Issuance of convertible preferred stock, net | — | — | 42,756 | ||||||||||||||||||
Conversion of preferred stock | 54,166 | 54 | 45,513 | — | — | 45,567 | (45,567) | ||||||||||||||
Issuance of common stock, net | 99,740 | 100 | 151,987 | 152,087 |
| — | |||||||||||||||
Exercise of stock options and ESPP purchases |
| 3,439 | 3 | 1,696 | 1,699 |
| — | ||||||||||||||
Exchange and conversion of convertible notes, net | 4,925 | 5 | 6,496 | 6,501 |
| — | |||||||||||||||
Stock-based compensation expense and vesting of RSU's | 63 | — | 1,844 | 1,844 | — | ||||||||||||||||
Net loss |
| (249,514) | (249,514) |
| — | ||||||||||||||||
Balance, March 31, 2021 |
| 427,915 | $ | 428 | $ | 711,698 |
| $ | — | $ | (898,025) | $ | (185,899) | $ | — | ||||||
Three months ended March 31, 2022: | |||||||||||||||||||||
Balance, December 31, 2021 | 447,282 | 447 | 765,215 | (212) | (950,985) | (185,535) | — | ||||||||||||||
Issuance of common stock |
| 3,077 | 3 | 8,001 | — | — | 8,004 | — | |||||||||||||
Exercise of stock options and warrants |
| 9,084 | 9 | 162 | — | — | 171 | — | |||||||||||||
Issuance of common stock for vested RSUs and ESPP purchase | 3,786 | 4 | 58 | — | — | 62 | — | ||||||||||||||
Stock-based compensation expense |
| — | — | 1,736 | — | — | 1,736 | — | |||||||||||||
Net income | — | — | — | — | 86,718 | 86,718 | — | ||||||||||||||
Other comprehensive loss |
| — | — | — | (625) | — | (625) | — | |||||||||||||
Balance, March 31, 2022 |
| 463,229 | $ | 463 | $ | 775,172 |
| $ | (837) | $ | (864,267) | $ | (89,469) | $ | — | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Senseonics Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended | |||||
March 31, | |||||
2022 | 2021 | ||||
Cash flows from operating activities |
|
| |||
Net income (loss) | $ | 86,718 | (249,514) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||
Depreciation and amortization expense |
| 263 | 316 | ||
Non-cash interest expense (debt discount and deferred costs) |
| 2,772 | 972 | ||
Change in fair value of derivatives | (84,569) | 180,899 | |||
(Gain) Loss on fair value adjustment of option | (21,701) | 52,675 | |||
Gain on extinguishment of debt and option | — | (330) | |||
Impairment of option, net | (30) | 782 | |||
Stock-based compensation expense |
| 1,736 | 1,740 | ||
Changes in assets and liabilities: | |||||
Accounts receivable | (2,056) | 1,301 | |||
Prepaid expenses and other current assets |
| (1,411) | (677) | ||
Inventory | (837) | (1,303) | |||
Deposits and other assets | 163 | (30) | |||
Accounts payable |
| 886 | (833) | ||
Accrued expenses and other liabilities | (2,031) | (3,411) | |||
Accrued interest | (62) | 1,155 | |||
Net cash used in operating activities |
| (20,159) | (16,258) | ||
Cash flows from investing activities | |||||
Capital expenditures |
| (137) | (11) | ||
Proceeds from sale and maturity of marketable securities | 19,803 | — | |||
Net cash provided by (used in) investing activities |
| 19,666 |
| (11) | |
Cash flows from financing activities | |||||
Issuance of common stock, net | 8,004 | 152,087 | |||
Proceeds from exercise of stock options, stock warrants and ESPP purchases | 233 | 1,804 | |||
Proceeds from issuance of Masters preferred stock, net |
| — | 22,783 | ||
Repayment of term loans | (2,194) | — | |||
Net cash provided by financing activities |
| 6,043 |
| 176,674 | |
Net increase in cash and cash equivalents |
| 5,550 |
| 160,405 | |
Cash and cash equivalents, at beginning of period |
| 33,461 | 18,205 | ||
Cash and cash equivalents, at ending of period | $ | 39,011 | $ | 178,610 | |
Supplemental disclosure of cash flow information | |||||
Cash paid during the period for interest | $ | 1,762 | $ | 1,927 | |
Supplemental disclosure of non-cash investing and financing activities | |||||
Issuance of common stock converted from preferred shares | — | 54,166 | |||
Issuance of common stock converted from notes payables | — | 4,925 | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Senseonics Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. | Organization and Nature of Operations |
Senseonics Holdings, Inc., a Delaware corporation, is a medical technology company focused on the development and commercialization of long-term, implantable continuous glucose monitoring (“CGM”) systems to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy.
Senseonics, Incorporated is a wholly owned subsidiary of Senseonics Holdings, Inc. and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997. Senseonics Holdings, Inc. and Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context otherwise requires.
2. | Liquidity and Capital Resources |
From its founding in 1996 until 2010, the Company has devoted substantially all of its resources to researching various sensor technologies and platforms. Beginning in 2010, the Company narrowed its focus to developing and refining a commercially viable glucose monitoring system. However, to date, the Company has not generated any significant revenue from product sales. The Company has incurred substantial losses and cumulative negative cash flows from operations since its inception in October 1996. The Company has never been profitable from operations, and its net losses were $302.5 million, $175.2 million, and $115.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of March 31, 2022, the Company had an accumulated deficit of $864.3 million. To date, the Company has funded its operations principally through the issuance of preferred stock, common stock, convertible notes and debt. As of March 31, 2022, the Company had cash, cash equivalents and marketable securities of $166.9 million.
In November 2021, the Company entered into an Open Market Sale Agreement, (the “2021 Sales Agreement”) with Jefferies LLC (“Jefferies”), under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $150.0 million through Jefferies as its sales agent in an “at the market” offering. Jefferies will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During the three months ended March 31, 2022, the Company received $8.0 million in net proceeds from the sale of 3,077,493 shares of its common stock under the 2021 Sales Agreement.
In November 2019, the Company entered into an Open Market Sale Agreement (the “2019 Sales Agreement”) with Jefferies, under which the Company could offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0 million through Jeffries as its sales agent in an “at the market” offering. In June 2021, the Company received $48.4 million in net proceeds from the sale of 12,830,333 shares of its common stock utilizing the full capacity under the 2019 Sales Agreement.
On January 21, 2021, the Company entered into an underwriting agreement, which was subsequently amended and restated on the same day (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC, as representative of the underwriters (the “Underwriters”), to issue and sell 51,948,052 shares of common stock, in an underwritten public offering pursuant to effective registration statements on Form S-3, including a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission (the “Offering”). The price to the public in the Offering was $1.925 per share of common stock. The Underwriters agreed to purchase the shares from the Company pursuant to the Underwriting Agreement at a price of $1.799875 per share and the Company also agreed to reimburse them for customary fees and expenses. The initial closing of the Offering occurred on January 26, 2021. Subsequent to the initial closing, the Underwriters exercised their option to purchase an additional 7,792,207 shares of common stock.
Total net proceeds from the Offering were $106.1 million after deducting underwriting discounts and commissions and estimated offering expenses.
7
On January 17, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional purchasers (the “Purchasers”), pursuant to which the Company sold to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 40,000,000 shares (the “Shares”) of common stock, $0.001 par value per share. The Shares were sold at a purchase price of $1.25 per share for aggregate gross proceeds to the Company of $50.0 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. The Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on November 27, 2019. The net proceeds to the Company from the Registered Direct Offering, after deducting fees and expenses and the estimated offering expenses payable by the Company, were approximately $46.1 million.
On November 9, 2020, the Company entered into an equity line agreement (the “Equity Line Agreement”) with Energy Capital, LLC, a Florida limited liability company (“Energy Capital”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital is committed to purchase up to an aggregate of $12.0 million of shares of the Company’s newly designated series B convertible preferred stock (the “Series B Preferred Stock”) at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including the Company has less than $8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company has the right, at its sole discretion, to present Energy Capital with a purchase notice (each, a “Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at a per share price (the “Purchase Price”) equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provides that the Company shall not affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital. In addition, beginning on January 1, 2022, since there have been no sales of the Series B Preferred Stock pursuant to Regular Purchases, Energy Capital has the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. There have been no issuances of Series B Preferred Stock as of March 31, 2022.
On August 9, 2020, the Company entered into a financing agreement with the parent company of Ascensia Diabetes Care Holdings AG (“Ascensia”), PHC Holdings Corporation (“PHC”), pursuant to which the Company issued $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due on October 31, 2024 (the “PHC Notes”), to PHC. The Company also issued 2,941,176 shares of common stock to PHC as a financing fee. The Company also has the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining approval for the 180-day Eversense product for marketing in the United States before such date.
Additionally, on August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters Special Solutions, LLC and certain affiliates thereof (“Masters”), pursuant to which the Company issued and sold to Masters 3,000 shares of convertible preferred stock, designated as Series A Preferred Stock (the “Series A Preferred Stock”), at a price of $1,000.00 per share in an initial closing. Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000.00 per share in subsequent closings, subject to the terms and conditions of the Stock Purchase Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds to the Company of $22.8 million. Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $1,000.00 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. All shares of Series A Preferred Stock have been converted to common stock.
8
3. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Although the Company considers the disclosures in these unaudited consolidated financial statements to be adequate to make the information presented not misleading, certain information or footnote information normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position at March 31, 2022, and December 31, 2021, results of operations, comprehensive income (loss), and changes in stockholder’s deficit for the three months ended March 31, 2022, and 2021 and cash flows for the three months ended March 31, 2022, and 2021 have been included. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 1, 2022. The interim results for March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, or for any future interim periods.
The consolidated financial statements reflect the accounts of Senseonics Holdings, Inc. and its wholly owned operating subsidiary Senseonics, Incorporated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. In the accompanying unaudited consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, derivative assets and liabilities, obsolete inventory, warranty obligations, variable consideration related to revenue, depreciable lives of property and equipment, and accruals for clinical study costs, which are accrued based on estimates of work performed under contract. The Company considered COVID-19 related impacts to its estimates, as appropriate, within its unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods due to the uncertainties surrounding the severity and duration of the COVID-19 pandemic. Actual results could differ from those estimates.
Segment Information
The Company views its operations and manages its business in one segment, glucose monitoring products.
Comprehensive Loss
Comprehensive income (loss) comprises of net income (loss) and other changes in equity that are excluded from net income (loss). For the three months ended March 31, 2022, the Company’s comprehensive income included $0.6 million of other comprehensive loss related to the unrealized loss on marketable securities. For the three months ended March 31, 2021, the Company’s net loss equaled its comprehensive loss.
9
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value. Cash and cash equivalents consisted of the following as of the dates set forth below (in thousands):
March 31, | December 31, | ||||||||||||||||
|
| 2022 |
| 2021 |
| ||||||||||||
Cash ⁽¹⁾ | $ | 1,338 | $ | 4,264 | |||||||||||||
Money market funds | 37,673 | 29,197 | |||||||||||||||
Cash and cash equivalents | $ | 39,011 | $ | 33,461 | |||||||||||||
| (1) | Includes overnight repurchase agreements |
Long-lived Assets
Management reviews long-lived assets, including property and equipment and right-of-use assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. There was no impairment recorded for the three months ended March 31, 2022. Management identified an indicator of impairment for a right of use asset and recorded an immaterial expense for the three months ended March 31, 2021.
Warranty Obligation
The Company provides a warranty of one year on its smart transmitters. Additionally, the Company may also replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs are recorded at the time of shipment as a charge to cost of sales in the consolidated statement of operations and are developed by analyzing product performance data and historical replacement experience, including comparing actual replacements to revenue.
At March 31, 2022, and December 31, 2021, the warranty reserve was $0.8 million and $0.7 million, respectively. The following table provides a reconciliation of the change in estimated warranty liabilities for the three months ended March 31, 2022 and for the twelve months ended December 31, 2021 (in thousands):
Revenue Recognition
The Company generates product revenue from sales of the Eversense system and related components and supplies to Ascensia, through a collaboration and commercialization agreement (the “Commercialization Agreement”), third-party distributors in the European Union and to strategic fulfillment partners in the United States (collectively, “Customers”), who then resell the products to health care providers and patients. The Company is paid for its sales directly to the Customers, regardless of whether or not the Customers resell the products to health care providers and patients.
10
Revenue from product sales is recognized at a point in time when the Customers obtain control of the Company’s product based upon the delivery terms as defined in the contract at an amount that reflects the consideration which the Company expects to receive in exchange for the product. Contracts with the Company’s distributors contain performance obligations, mostly for the supply of goods, and is typically satisfied upon transfer of control of the product. Customer contracts do not include the right to return unless there is a product issue, in which case the Company may provide replacement product. Product conformity guarantees do not create additional performance obligations and are accounted for as warranty obligations in accordance with guarantee and loss contingency accounting guidance.
The Company’s contracts may contain some form of variable consideration such as prompt-pay discounts, tier-volume price discounts and for the Ascensia commercial agreement, revenue share. Variable consideration, such as discounts and prompt-pay incentives, are treated as a reduction in revenue and variable consideration, such as revenue share, is treated as an addition in revenue when the product sale is recognized. The amount of variable consideration that is included in the transaction price may be constrained and is included in revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period, when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint requires the use of management judgment. Depending on the variable consideration, the Company develops estimates for the expected value based on the terms of the agreements, historical data, geographic mix, reimbursement rates, Ascensia’s ability to sell through the inventory and market conditions.
Contract assets consist of unbilled receivables from customers and are recorded at net realizable value and relate to the revenue share variable consideration from the Ascensia commercial agreement.
Concentration of Revenue and Customers
For the three months ended March 31, 2022 and 2021, the Company derived 88% and 81%, respectively, of its total revenue from one customer, Ascensia. Revenues for these corresponding periods represent purchases for sensors, transmitters and miscellaneous Eversense system components.
Revenue by Geographic Region
The following table sets forth net revenue derived from the Company’s two primary geographical markets, the United States and outside of the United States, based on the geographic location to which the Company delivers the product, for the three months ended March 31, 2022 and 2021:
March 31, 2022 | March 31, 2021 | |||||||||||
% | % | |||||||||||
(Dollars in thousands) | Amount | of Total | Amount | of Total | ||||||||
Revenue, net: | ||||||||||||
Outside of the United States | $ | 1,714 | 69.1 | % | $ | 2,533 | 89.0 | % | ||||
United States | 767 | 30.9 | 313 | 11.0 | ||||||||
Total | $ | 2,481 | 100.0 | % | $ | 2,846 | 100.0 | % | ||||
Marketable Securities
Marketable securities consist of commercial paper, corporate debt securities, asset backed securities and government and agency securities. The Company’s investments are classified as available for sale. Such securities are carried at fair value, with any unrealized holding gains or losses reported, net of any tax effects reported, as accumulated other comprehensive income or loss. Realized gains and losses and declines in value judged to be other-than-temporary, if any, are included in consolidated results of operations. A decline in the market value of any available for sale security below cost that is deemed to be other-than-temporary results in a reduction in fair value, which is charged to earnings in that period, and a new cost basis for the security is established. Dividend and interest income is recognized when earned. The cost of securities sold is calculated using the specific identification method. The Company classifies all available-for-sale marketable securities with maturities greater than one year from the balance sheet date as non-current assets. The Company does not generally intend to sell these investments, and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.
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Accounts Receivable
Accounts receivable consist of amounts due from the Company’s Customers and are recorded at net realizable value, which may include reductions for allowances for doubtful accounts at the time potential collection risk is identified or for promotional or prompt-pay discounts offered. The Company does not have a history of collectability concerns and no allowance for uncollectible accounts was recorded as of March 31, 2022 and December 31, 2021. Accounts receivable as of March 31, 2022 and December 31, 2021 included unbilled accounts receivable of $0.7 million and $1.8 million, respectively. The Company expects to invoice and collect all unbilled accounts receivable within 12 months.
Net Income (Loss) per Share
Basic net income per share attributable to common stockholders is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common share equivalents. Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period.
Potentially dilutive common shares consist of shares issuable from restricted stock units, warrants and the Company’s convertible notes. Potentially dilutive common shares issuable upon vesting of restricted stock units and exercise of stock options and warrants are determined using the average share price for each period under the treasury stock method. Potentially dilutive common shares issuable upon conversion of the Company’s convertible notes are determined using the if converted method. In periods of net loss, all potentially dilutive common shares are excluded from the computation of the diluted net loss per share for those periods, as the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted net income per share for the periods shown:
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For the three months ended March 31, 2021, the Company operated at a loss. Accordingly, all potentially dilutive shares were considered antidilutive, and basic and diluted EPS are the same.
Outstanding anti-dilutive securities not included in the diluted net income per share attributable to common stockholders calculations were as follows:
Recent Accounting Pronouncements
Recently Adopted
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contract in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). This new guidance is intended to reduce the complexity of accounting for convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments. Entities may adopt ASU 2020-06 using either partial retrospective or fully retrospective method of transition. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company has adopted this guidance as of January 1, 2022 and its adoption did not have a material impact on the consolidated financial statements and related disclosures.
Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The Company currently holds investments in available-for-sale securities. The Company has not historically experienced collection issues or bad debts with trade receivables. Accordingly, the Company does not expect this to have a significant impact on its consolidated financial statements and related disclosures at this time. Since the Company qualified as a smaller reporting company as of June 28, 2019, it maintains its status as a smaller reporting company for the adoption of this standard. As such, the Company will adopt this guidance on the effective date for smaller reporting companies, January 1, 2023.
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4. | Marketable Securities |
Marketable securities available for sale, were as follows (in thousands):
December 31, 2021 | ||||||||||||
Gross | Gross | Estimated | ||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||
| Cost |
| Gains |
| Losses |
| Value | |||||
Commercial Paper | $ | 57,369 | — | — | $ | 57,369 | ||||||
Corporate debt securities | $ | 39,825 | — | (77) | $ | 39,748 | ||||||
Asset backed securities | $ | 26,736 | — | (29) | $ | 26,707 | ||||||
Government and agency securities | $ | 24,609 | — | (106) | $ | 24,503 | ||||||
Total | $ | 148,539 | $ | — | $ | (212) | $ | 148,327 | ||||
The following are the scheduled maturities as of March 31, 2022 (in thousands):
2022 (remaining nine months) |
| $ | 77,905 |
2023 |
| 45,372 | |
2024 | 2,445 | ||
Thereafter | 3,015 | ||
Total |
| $ | 128,737 |
The Company periodically reviews its portfolio of debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns. For debt securities where the fair value of the investment is less than the amortized cost basis, the Company assesses at the individual security level, for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment. Unrealized losses on available-for-sale securities at March 31, 2022 were not significant and were primarily due to changes in interest rates and not due to increased credit risk associated with specific securities. The Company does not intend to sell these impaired investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.
5. Inventory, net
Inventory, net of reserves, consisted of the following (in thousands):
| March 31, |
| December 31, | |||
2022 |
| 2021 | ||||
Finished goods |
| $ | 1,203 |
| $ | 1,012 |
Work-in-process |
| 4,381 |
| 3,770 | ||
Raw materials |
| 1,569 |
| 1,534 | ||
Total | $ | 7,153 | $ | 6,316 | ||
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The Company charged less than $0.1 million to cost of sales for the three months ended March 31, 2022 to reduce the value of inventory for items that are potentially obsolete due to expiry, in excess of product demand, or to adjust costs to their net realizable value. There was no corresponding charge for the three months ended March 31, 2021.
6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| (1) | Includes deposits to contract manufacturers for manufacturing process. |
7. | Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities consisted of the following (in thousands):
8. | Notes Payable, Preferred Stock and Stock Purchase Warrants |
Term Loans
PPP Loan
On April 22, 2020, the Company received $5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) is evidenced by the PPP Note dated April 21, 2020 (the “PPP Note”) in the principal amount of $5.8 million with Silicon Valley Bank (“SVB”).
Under the terms of the PPP Note and the PPP Loan, interest accrues on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note is two years, though it may be payable sooner in connection with an event of default under the PPP Note. The Company began to make equal monthly payments of principal and interest, beginning in the third quarter of 2021. As of March 31, 2022, the outstanding balance, including accrued interest, of the PPP Note was $0.7 million.
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The PPP Note may be prepaid in part or in full, at any time, without penalty. The PPP Note provides for certain customary events of default, including (i) failing to make a payment when due under the PPP Note, (ii) failure to do anything required by the PPP Note or any other loan document, (iii) defaults of any other loan with SVB, (iv) failure to disclose any material fact or make a materially false or misleading representation to SVB or SBA, (v) default on any loan or agreement with another creditor, if SVB believes the default may materially affect the Company’s ability to pay the PPP Note, (vi) failure to pay any taxes when due, (vii) becoming the subject of a proceeding under any bankruptcy or insolvency law, having a receiver or liquidator appointed for any part of the Company’s business or property, or making an assignment for the benefit of creditors, (viii) having any adverse change in financial condition or business operation that the SVB believes may materially affect the Company’s ability to pay the PPP Note, (ix) if the Company reorganizes, merges, consolidates, or otherwise changes ownership or business structure without the SVB’s prior written consent, or (x) becoming the subject of a civil or criminal action that SVB believes may materially affect the Company’s ability to pay the PPP Note. Upon the occurrence of an event of default, SVB has customary remedies and may, among other things, require immediate payment of all amounts owed under the PPP Note, collect all amounts owing from the Company, and file suit and obtain judgment against the Company.
Convertible Preferred Stock and Warrants
On November 9, 2020, the Company entered into the Equity Line Agreement with Energy Capital, LLC, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital is committed to purchase up to an aggregate of $12.0 million of shares of the Company’s Series B Preferred Stock at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including the Company having less than $8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company has the right, at sole discretion, to present Energy Capital with a Regular Purchase Notice directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000.00 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at the Purchase Price equal to $1,000.00 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provides that the Company shall not affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital. In addition, beginning on January 1, 2022, since there have been no sales of the Series B Preferred Stock pursuant to Regular Purchases, Energy Capital has the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. There have been no issuances of Series B Preferred Stock as of March 31, 2022.
The Company accounted for the Equity Line Agreement as a put/call option (the “Energy Capital Option”). This put/call option is classified as a liability in accordance with ASC 480, Distinguishing liabilities from equity, on the Company’s balance sheet and was recorded at the estimated fair value of $4.2 million upon issuance. The put/call option is required to be remeasured to fair value at each reporting period with the change recorded in change in fair value of derivatives that is a component of other income (expense). In connection with the issuance of the Equity Line Agreement, the Company incurred $7.6 million in debt issuance costs in fiscal year 2020. The fair value as of March 31, 2022 and December 31, 2021 was $47.7 million and $69.4 million, respectively.
Concurrently with entry into the Equity Line Agreement, the Company issued a warrant to Energy Capital, exercisable beginning May 9, 2021, to purchase up to 10,000,000 shares of common stock at an exercise price of $0.3951 per share (the “Warrant”). The Warrant was exercised in full in February 2022.
On August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters, pursuant to which the Company issued and sold to Masters 3,000 shares of Series A Preferred Stock, at a price of $1,000.00 per share in an initial closing. Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000.00 per share in subsequent closings, subject to the terms and conditions of the Stock Purchase
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Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds of $22.8 million. Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $1,000.00 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. All 25,783 shares of Series A Preferred Stock have been converted to common stock. Masters’ option to purchase the remaining unissued shares of Series A Preferred Stock expired on January 11, 2021, resulting in a gain on extinguishment of $3.5 million.
Convertible Notes
Exchange Agreement with Highbridge
On April 21, 2020, the Company entered into a Note Purchase and Exchange Agreement with certain funds managed by Highbridge providing for the exchange of $24.0 million aggregate principal amount of the Company’s outstanding 2025 Notes for (i) $15.7 million aggregate principal amount of newly issued Second Lien Notes (the “Second Lien Notes”), (ii) 11,026,086 shares of common stock, (iii) warrants to purchase up to 4,500,000 shares of common stock at an exercise price of $0.66 per share, and (iv) $0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged (the “Exchange”). The Exchange closed on April 24, 2020. During 2020, Highbridge voluntarily converted all $15.7 million of outstanding principal amount of the Second Lien Notes for 42,776,936 shares of the Company’s common stock.
PHC Notes
On August 9, 2020, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with PHC, as the purchaser (together with the other purchasers from time to time party thereto, the “Note Purchasers”) and Alter Domus (US) LLC, as collateral agent. Pursuant to the Note Purchase Agreement, the Company borrowed $35.0 million in aggregate principal through the issuance and sale of the PHC Notes on August 14, 2020 (the “Closing Date”). The Company also issued 2,941,176 shares of its common stock, $0.001 par value per share to PHC as a financing fee (the “Financing Fee Shares”) on the Closing Date. The Financing Fee Shares are accounted for as debt discount in the amount of $1.5 million.
The PHC Notes are senior secured obligations of the Company and will be guaranteed on a senior secured basis by the Company’s wholly owned subsidiary, Senseonics, Incorporated. Interest at the initial annual rate of 9.5% is payable semi-annually in cash or, at the Company’s option, payment in kind. The interest rate decreased to 8.0% in April 2022 as a result of the Company having obtained FDA approval for the 180-day Eversense E3 system for marketing in the United States. The maturity date for the PHC Notes is October 31, 2024 (the “Maturity Date”). The obligations under the PHC Notes are secured by substantially all of the Company’s and its subsidiary’s assets.
The Note Purchasers are entitled to convert the PHC Notes to common stock at a conversion rate of 1,867.4136 shares per $1,000 principal amount of the PHC Notes (including any interest added thereto as payment in kind), equivalent to a conversion price of approximately $0.54 per share, subject to specified anti-dilution adjustments, including adjustments for the Company’s issuance of equity securities on or prior to April 30, 2022 below the conversion price. In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its PHC Notes in connection with such notice of redemption or corporate event. In certain circumstances, the Company will be required to pay cash in lieu of delivering make whole shares unless the Company obtains stockholder approval to issue such shares.
Subject to specified conditions, on or after October 31, 2022, the PHC Notes are redeemable by the Company if the closing sale price of the common stock exceeds 275% of the conversion price for a specified period of time and subject to certain conditions upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest. On or after October 31, 2023, the PHC Notes are redeemable by the Company upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest, plus a call premium of 130% if redeemed at
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least six months prior to the Maturity Date or a call premium of 125% if redeemed within six months of the Maturity Date.
The Note Purchase Agreement contains customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and liquidity targets, and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions. The Note Purchase Agreement also contains customary events of default, after which the PHC Notes become due and payable immediately, including defaults related to payment compliance, material inaccuracy of representations and warranties, covenant compliance, material adverse changes, bankruptcy and insolvency proceedings, cross defaults to certain other agreements, judgments against the Company, change of control or delisting events, termination of any guaranty, governmental approvals, and lien priority.
The Company also has the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022 (the “PHC Option”), contingent upon obtaining approval for the 180-day Eversense product for marketing in the United States before such date. The PHC Option represents a freestanding financial instrument and is recognized as an asset in the Company’s consolidated balance sheets at fair value on the date of issuance and subject to impairment testing in each reporting period prior to the options exercise or expiration. The Company acknowledges that while the PHC Option is subject to impairment testing, there is no explicit guidance regarding how impairment should be assessed and measured for the PHC Option. As such, the measurement alternative in ASC Topic 321, Investments—Equity Securities, for equity securities without readily determinable fair values can be applied by analogy to assess and measure impairment of the PHC Option. The Company developed an estimated fair value at March 31, 2022 and December 31, 2021 to be $0.3 million and $0.2 million, respectively, and a gain of less than $0.1 million was recognized in net income as the difference between the fair value of the investment and its carrying amount for the three months ended March 31, 2022
The Note Purchase Agreement also contained several provisions requiring bifurcation as a separate derivative liability including an embedded conversion feature, mandatory prepayment upon event of default that constitutes a breach of the minimum revenue financial covenant, optional redemption upon an event of default, change in interest rate after PMA approval and default interest upon an event of default. The Company recorded the fair value of the embedded features in the amount of $25.8 million as a derivative liability in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded in change in fair value of derivatives that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative at March 31, 2022 and December 31, 2021 was $104.0 million and $149.1 million, respectively.
In connection with the issuance of the Note Purchase Agreement, the Company incurred $2.9 million in debt issuance costs and debt discounts. The associated debt issuance costs were recorded as a contra liability in the amount of $1.4 million and are deferred and amortized as additional interest expense over the term of the notes.
2025 Notes
In July 2019, the Company issued $82.0 million in aggregate principal amount of senior convertible notes that will mature on January 15, 2025 (the “2025 Notes”), unless earlier repurchased or converted. The 2025 Notes are convertible, at the option of the holders, into shares of the Company’s common stock, at an initial conversion rate of 757.5758 shares per $1,000 principal amount of the 2025 Notes (equivalent to an initial conversion price of approximately $1.32 per share).
The 2025 Notes also contained an embedded conversion option requiring bifurcation as a separate derivative liability, along with the fundamental change make-whole provision and the cash settled fundamental make-whole shares provision. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative at March 31, 2022 and December 31, 2021 was $46.0 million and $81.4 million, respectively.
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In connection with the Exchange on April 24, 2020, $24.0 million aggregate principal of the Company’s outstanding 2025 Notes held by Highbridge Capital Management, LLC (“Highbridge”) were exchanged for $15.7 million of Second Lien Notes (the “Second Lien Notes”), (i) 11,026,086 shares of common stock, (ii) warrants to purchase up to 4,500,000 shares of common stock at an exercise price of $0.66 per share, and (iii) $0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged (the “Exchange”). This transaction modified the original 2025 Notes outstanding with Highbridge and resulted in $13.2 million of deferred issuance fees and debt discounts associated with the exchanged 2025 Notes being transferred as a discount to the Second Lien Notes.
As of December 31, 2021, there were conversions of $6.5 million of outstanding principal amount of the 2025 notes for 4,924,998 shares of common stock. Accordingly, $3.2 million of allocated deferred issuance costs and debt discounts were recognized as a loss on extinguishment of debt as of December 31, 2021. There was no activity for the three months ended March 31, 2022.
2023 Notes
In the first quarter of 2018, the Company issued $53.0 million in aggregate principal amount of senior convertible notes due February 1, 2023 (the “2023 Notes”). In July 2019, the Company used the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the outstanding 2023 Notes. Each $1,000 of principal of the 2023 Notes is initially convertible into 294.1176 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $3.40 per share, subject to adjustment upon the occurrence of specified events. Holders may convert at any time prior to February 1, 2023. Holders who convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock. If specific corporate events occur prior to the maturity date, the Company will increase the conversion rate pursuant to the make-whole fundamental change provision for a holder who elects to convert their 2023 Notes in connection with such an event in certain circumstances. Additionally, if a fundamental change occurs prior to the maturity date, holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes for cash at a repurchase price equal to 100% of the principal amount plus any accrued and unpaid interest.
The Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and in January 2018 recorded the embedded features as a debt discount and derivative liability in the Company’s consolidated balance sheets at its initial fair value of $17.3 million. Additionally, the Company incurred transaction costs of $2.2 million. The debt discount and transaction costs are being amortized to interest expense over the term of the 2023 Notes at an effective interest rate of 9.30%. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative at March 31, 2022 and December 31, 2021 was $1.7 million and $5.8 million, respectively.
The 2023 Notes do not have current observable inputs such as recent trading prices (Level 3) and are measured at fair value using the binomial option pricing model and incorporate management’s assumptions for probabilities of conversion occurrence through maturity, stock price, volatility and risky (bond) rate. There were no conversions of 2023 Notes for the three months ended March 31, 2022. As the 2023 Notes have a maturity date of February 1, 2023, they are classified as other current liability on the Company’s consolidated balance sheet at March 31, 2022.
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The following carrying amounts were outstanding under the Company’s notes payable as of March 31, 2022 and December 31, 2021 (in thousands):
Interest expense related to the notes payable for the three months ended March 31, 2022 and 2021 was as follows (dollars in thousands):
The following are the scheduled maturities of the Company’s notes payable as of March 31, 2022 (in thousands):
2022 (remaining nine months) |
| $ | 732 |
2023 |
| 15,700 | |
2024 | 35,000 | ||
2025 | 51,199 | ||
Thereafter | |||
Total |
| $ | 102,631 |
9. | Stockholders’ Deficit |
In November 2021, the Company entered into the 2021 Sales Agreement with Jefferies, under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $150.0 million through Jefferies as the sales agent in an “at the market” offering. Jefferies will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During the three months ended March 31, 2022, the Company received $8.0 million in net proceeds from the sale of 3,077,493 shares of its common stock under the 2021 Sales Agreement.
During the three months ended March 31, 2021, the Company sold 99,740,259 shares of common stock, of which 59,740,259 shares of common stock were sold in the Offering and 40,000,000 shares of common stock were sold
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in the Registered Direct Offering. For additional information on the Offering and the Registered Direct Offering, see Note 2—Liquidity and Capital Resources.
10. Stock-Based Compensation
2015 Plan
In December 2015, the Company adopted the 2015 Equity Incentive Plan (the “2015 Plan”), under which incentive stock options, non-qualified stock options and restricted stock units may be granted to the Company’s employees and certain other persons, such as officers and directors, in accordance with the 2015 Plan provisions. In February 2016, the Company’s Board of Directors adopted, and the Company’s stockholders approved, an Amended and Restated 2015 Equity Incentive Plan (the “amended and restated 2015 Plan”), which became effective on February 20, 2016. The Company’s board of directors may terminate the amended and restated 2015 Plan at any time. Options granted under the amended and restated 2015 Plan expire ten years after the date of grant.
Pursuant to the amended and restated 2015 Plan, the number of shares of the Company’s common stock reserved for issuance automatically increases on January 1 of each year, ending on January 1, 2026, by 3.5% of the total number of shares of its common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by its board of directors. As of March 31, 2022, 25,668,399 shares remained available for grant under the amended and restated 2015 Plan.
Inducement Plan
On May 30, 2019, the Company adopted the Senseonics Holdings, Inc. Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved 1,800,000 shares of the Company’s common stock for issuance. The only persons eligible to receive grants of awards under the Inducement Plan are individuals who satisfy the standards for inducement grants in accordance with NYSE American Company Guide Section 711(a), including individuals who were not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company. An “Award” is any right to receive the Company’s common stock pursuant to the Inducement Plan, consisting of non-statutory options, restricted stock unit awards and other equity incentive awards. As of March 31, 2022, 962,795 shares remained available for grant under the Inducement Plan.
2016 Employee Stock Purchase Plan
In February 2016, the Company adopted the 2016 Employee Stock Purchase Plan, (the “2016 ESPP”). The 2016 ESPP became effective on March 17, 2016. The maximum number of shares of common stock that may be issued under the 2016 ESPP was initially 800,000 shares and automatically increases on January 1 of each year, ending on and including January 1, 2026, by 1.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year; provided, however, the Board of Directors may act prior to the first day of any calendar year to provide that there will be no January 1 increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year will be a lesser number of shares of common stock. At March 31, 2022 there were 13,114,632 shares of common stock available for issuance under the 2016 ESPP. For the three months ended March 31, 2022, there were purchases of 28,944 shares of common stock pursuant to this plan.
The 2016 ESPP permits participants to purchase shares of the Company’s common stock through payroll deductions of up to 15% of their earnings. Unless otherwise determined by the administrator, the purchase price of the shares will be 85% of the lower of the fair market value of common stock on the first day of an offering or on the date of purchase. Participants may end their participation at any time and deductions not yet used in a purchase are refundable upon employment termination. The Company initiated its first 2016 ESPP offering period on August 1, 2019 and new offering periods occur every six months thereafter, each consisting of two purchase periods of six months in duration ending on or about January 31st and July 31st of each year. A participant may only be in one offering at a time. On February 1, 2020, there were 566,573 shares purchased in connection with the initial offering period. The 2016 ESPP contains an offering reset provision whereby if the fair market value of a share on offering date of an ongoing offering is
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less than or equal to the fair market value of a share on a new offering date, the ongoing offering will terminate immediately after the purchase date and rolls over to the new offering.
The 2016 ESPP is considered compensatory for financial reporting purposes.
1997 Plan
On May 8, 1997, the Company adopted the 1997 Stock Option Plan (the “1997 Plan”), under which incentive stock options, non-qualified stock options, and restricted stock awards may be granted to the Company’s employees and certain other persons in accordance with the 1997 Plan provisions. Approximately 2,025,915 shares of the Company’s common stock underlying options have vested under the 1997 Plan. Upon the effectiveness of the 2015 Plan, the Company no longer grants any awards under the 1997 Plan.
11. | Fair Value Measurements |
The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021 (in thousands):
December 31, 2021 |
| ||||||||||||
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| |||||
Assets | |||||||||||||
Money market funds⁽¹⁾ | $ | 29,197 | $ | 29,197 | — | — | |||||||
Corporate debt securities | 39,748 | — | 39,748 | — | |||||||||
Commercial paper | 57,369 | — | 57,369 | — | |||||||||
Asset backed securities | 26,707 | — | 26,707 | — | |||||||||
Government and agency securities | 24,503 | 19,957 | 4,546 | — | |||||||||
PHC Option | 239 | — | — | 239 | |||||||||
Liabilities | |||||||||||||
Energy Capital Option | $ | 69,401 | $ | — | — | 69,401 | |||||||
Embedded features of the 2023 Notes | 5,817 | — | — | 5,817 | |||||||||
Embedded features of the PHC Notes | 149,058 | — | — | 149,058 | |||||||||
Embedded features of the 2025 Notes | 81,417 | — | 81,417 | — | |||||||||
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The following table provides a reconciliation of the beginning and ending net balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):
The recurring Level 3 fair value measurements of the embedded features of the notes payable and preferred stock, include the following significant unobservable inputs at March 31, 2022:
12. | Income Taxes |
The Company has not recorded any tax provision or benefit for the three months ended March 31, 2022 or March 31, 2021. The Company has provided a valuation allowance for the full amount of its net deferred tax assets since realization of any future benefit from deductible temporary differences, NOL carryforwards and research and development credits is not more-likely-than-not to be realized at March 31, 2022 and December 31, 2021.
On March 27, 2020, Congress enacted the CARES Act, as amended by the Flexibility Act, to provide certain relief as a result of the COVID-19 pandemic. The enactment of the CARES Act did not result in any material adjustments to the Company’s income tax provision or net deferred tax assets for the three months ended March 31, 2022.
13. Related Party Transactions
Ascensia, through the ownership interests of its parent company, PHC, has a noncontrolling ownership interest in the Company. Ascensia also has representation on the Company’s board of directors. Revenue from Ascensia during the three months ended March 31, 2022 and March 31, 2021 was $2.2 million and $2.4 million, respectively and the amount due from Ascensia as of March 31, 2022 and December 31, 2021 was $3.8 million and $1.8 million, respectively. The amount due to Ascensia as of March 31, 2022 and December 31, 2021 was $3.7 million and $2.5 million, respectively
14. Subsequent Events
None.
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks, uncertainties, and assumptions, including the duration and severity of the COVID-19 pandemic and its impact on our business and financial performance, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those described below and elsewhere in this Quarterly Report on Form 10-Q, and in our Annual Report on Form 10-K, particularly in Part I – Item 1A, “Risk Factors,” and our other filings with the Securities and Exchange Commission. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, 2021, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2022. Unless otherwise indicated or the context otherwise requires, all references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Senseonics Holdings, Inc. and its subsidiary.
Overview
We are a medical technology company focused on the development and manufacturing of glucose monitoring products designed to transform lives in the global diabetes community with differentiated, long-term implantable glucose management technology. Our Eversense, Eversense XL and Eversense E3 continuous glucose monitoring (“CGM”) systems are designed to continually and accurately measure glucose levels in people with diabetes via an under-the-skin sensor, a removable and rechargeable smart transmitter, and a convenient app for real-time diabetes monitoring and management for a period of up to six months in the case of Eversense E3 and Eversense XL, as compared to seven to 14 days for non-implantable CGM systems. We affixed the CE mark to the original Eversense CGM system in June 2016, which marked the first certification for the product to be sold within the European Economic Area (“EEA”). Subsequently, we affixed the CE mark to the extended life Eversense XL CGM system in September 2017 which is currently available in select markets in Europe and the Middle East. In June 2018, the U.S. Food and Drug Administration (“FDA”), approved the Eversense CGM system and it is currently available throughout the United States. In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the Eversense system. With this approval and the availability of a new app in December 2019, the Eversense system can now be used as a therapeutic CGM in the United States to replace fingerstick blood glucose measurement to make treatment decisions, including insulin dosing. In February 2022, the extended life Eversense E3 CGM system was approved by the FDA and Ascensia Diabetes Care Holdings AG (“Ascensia”) began commercializing Eversense E3 in the United States in the second quarter of 2022.
Our net revenues are derived from sales of the Eversense system which is sold in two separate kits: the disposable Eversense Sensor Pack which includes the sensor, insertion tool, and adhesive patches, and the durable Eversense Smart Transmitter Pack which includes the transmitter and charger.
We sell directly to our network of distributors and strategic fulfillment partners, who provide the Eversense system to healthcare providers and patients through a prescribed request and invoice insurance payors for reimbursement. Sales of the Eversense system are widely dependent on the ability of patients to obtain coverage and
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adequate reimbursement from third-party payors or government agencies. We leverage and target regions where we have coverage decisions for patient device use and provider insertion and removal procedure payment. We have reached over 200 million covered lives in the U.S. through positive insurance payor coverage decisions. During 2020, we received positive payor coverage decisions from Cigna Corporation, who has more than 17 million medical customers and offers a Medicare Advantage plan in 17 states and Washington, DC, Blue Cross and Blue Shield plans, and announced local coverage determinations (“LCDs”) proposals for implantable therapeutic CGMs such as Eversense by all the Medicare Administrative Contractors to enable Eversense to be used by Medicare beneficiaries as a Part B physician service. On August 3, 2020, the Center for Medicare and Medicaid Services (“CMS”) released its Calendar Year 2021 Medicare Physician Fee Schedule Proposed Rule that announces proposed policy changes for Medicare payments, including the proposed establishment of national payment amounts for the three CPT© Category III codes describing the insertion (CPT 0446T), removal (0447T), and removal and insertion (0048T) of an implantable interstitial glucose sensor, which describes our Eversense CGM systems, as a medical benefit, rather than as part of the Durable Medical Equipment channel that includes other CGMs. In December 2021, CMS released its Calendar Year 2022 Medicare Physician Fee Scheduled that update global payments for the device cost and procedure fees. In 2022, we are working with payors to transition their policies to E3 and have confirmed immediate coverage policy transition from select payors.
We are in the early commercialization stages of the Eversense brand and are focused on driving awareness of our CGM system amongst intensively managed patients and their healthcare providers. In both the United States and our overseas markets, we have entered into strategic partnerships and distribution agreements that allow third party collaborators with direct sales forces and established distribution systems to market and promote Senseonics CGM systems, including Eversense, Eversense XL, Eversense E3 and future generation products.
COVID-19
The current COVID-19 pandemic (“COVID-19”) has presented a substantial public health and economic challenge around the world and is affecting our employees, customers, communities and business operations, as well as the U.S. economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and its variants, the actions taken to contain it or mitigate its impact and the economic impact on local, regional, national and international markets. We will continue to monitor the overall impact of the COVID-19 pandemic on our business, financial condition, liquidity, assets and operations, including our personnel, programs, expected timelines, expenses and third-party contract manufacturing and distribution.
As a result of the COVID-19 pandemic’s disruption to our operations, suppliers, employees, and the healthcare community in which we sell to and support, and our limited cash resources, in March 2020, we made significant reductions in our cost structure and operations to improve cash flow and generate future expenditure savings to ensure the long-term success of Eversense. Specifically, in the first quarter of 2020, we temporarily suspended commercial sales and marketing of the Eversense CGM System and we reduced our workforce by approximately 60%.
In addition, in response to the ongoing spread of COVID-19, we have established safety protocols for personnel access to our headquarter offices. The effects of the COVID-19 pandemic could adversely impact our business, assets, operations and sales, particularly if the COVID-19 pandemic continues to persist for an extended period of time. See “Our business, product sales and results of operations could be adversely affected by the effects of health epidemics, including the recent COVID-19 outbreak, in regions where we or third parties distribute our products or where we or third parties on which we rely have significant manufacturing facilities, concentrations, clinical trial sites or other business operations. The COVID-19 pandemic has and may continue to, materially affect our operations, including at our headquarters in Maryland and at our clinical trial sites, as well as the business or operations of our manufacturers, distributors or other third parties with whom we conduct business” in the Risk Factors section of our most recent Annual Report on Form 10-K for more information regarding the potential impact of the COVID-19 pandemic on our business and operations. We continue to actively monitor this situation and the possible effects on our business and operations.
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United States Development and Commercialization of Eversense
In 2016, we completed our PRECISE II pivotal clinical trial in the United States. This trial, which was fully enrolled with 90 subjects, was conducted at eight sites in the United States. In the trial, we measured the accuracy of Eversense measurements through 90 days after insertion. We also assessed safety through 90 days after insertion or through sensor removal. In the trial, we observed a mean absolute relative difference (“MARD”), of 8.5% utilizing two calibration points for Eversense across the 40-400 mg/dL range when compared to YSI blood reference values during the 90-day continuous wear period. Based on the data from this trial, in October 2016 we submitted a pre-market approval (“PMA”), application to the FDA to market Eversense in the United States for 90-day use. On June 21, 2018, we received PMA approval from the FDA for the Eversense system. In July 2018, we began distributing the Eversense system directly in the United States through our own direct sales and marketing organization. We have received Category III CPT codes for the insertion and removal of the Eversense sensor.
In December 2018, we initiated the PROMISE pivotal clinical trial to evaluate the safety and accuracy of Eversense for a period of up to six months in the United States and in September 30, 2019, we completed enrollment of the PROMISE trial. In the trial, we observed performance matching that of the then current Eversense 90-day product available in the United States, with a MARD of 8.5%. This result was achieved with reduced calibration, down to one per day, while also doubling the sensor life to six months. Following the results of the PROMISE trial, on September 30, 2020, a Premarket Approval, or PMA, supplement application to extend the wearable life of the Eversense CGM System to six months was submitted to the FDA. In February 2022, the extended life Eversense E3 CGM system was approved by the FDA.
In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the Eversense system and launched with an updated app in December 2019. With this approval, the Eversense system can be used as a therapeutic CGM to replace fingerstick blood glucose measurement for treatment decisions, including insulin dosing.
On February 26, 2020, we announced that the FDA approved a subgroup of PROMISE trial participants to continue for a total of 365 days to gather feasibility data on the safety and accuracy of a 365-day sensor. This sub-set of 30 participants were left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days. Following information gathered from this sub-set and continued development efforts, and pending developments at the FDA relating to the ongoing COVID-19 pandemic, we plan to seek Investigational Device Exemption (“IDE”) from the FDA to explore the 365-day sensor in a clinical trial. If the IDE is approved in a timely manner, we would target to begin enrollment of a clinical trial, in which we intend to include a pediatric population, in the second half of 2022.
In April 2020, we announced that we received regulatory approval in Europe such that the Eversense XL is no longer contraindicated for MRI, which means the sensor does not need to be removed from under the skin during MRI scanning. We had previously obtained this indication for Eversense in the United States in 2019. This MRI approval is a first for the CGM category, as all other sensors are required to be removed during an MRI scan.
On August 9, 2020, we entered into a collaboration and commercialization agreement with Ascensia (the “Commercialization Agreement”) pursuant to which we granted Ascensia the exclusive right to distribute our 90-day Eversense CGM system and our 180-day Eversense CGM system worldwide, with the following initial exceptions: (i) until January 31, 2021, the territory did not include countries covered by our then existing distribution agreement with Roche Diagnostics International AG and Roche Diabetes Care GmbH (together “Roche”), which are the Europe, Middle East and Asia, excluding Scandinavia and Israel, and 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions; (ii) until September 13, 2021, the territory did not include countries covered by our current distribution agreement with Rubin Medical, which are Sweden, Norway and Denmark; and (iii) until May 31, 2022, the territory does not include Israel. Pursuant to the Commercialization Agreement, in the United States, Ascensia began providing sales support for the 90-day Eversense product on October 1, 2020 and Ascensia ramped up sales activities and assumed commercial responsibilities for the 90-day Eversense product during the second quarter of 2021.
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In February 2022, we received approval from the FDA for the Eversense E3 CGM System. The approval for our third-generation sensor, with proprietary sacrificial boronic acid (“SBA”) technology doubles the sensor life to six months with MARD of 8.5%. Ascensia began commercializing Eversense E3 in the second quarter of 2022.
European Commercialization of Eversense
In September 2017, we received the CE mark for Eversense XL which indicates that the product may be sold freely in any part of the European Economic Area (“EEA”). The Eversense XL is indicated for a sensor life of up to 180 days. Eversense XL began commercialization in Europe in the fourth quarter of 2017. All such commercialization and marketing activities remain subject to applicable government approvals.
In May 2016, we entered into a distribution agreement with Roche. Pursuant to the agreement, as amended, we had granted Roche the exclusive right to market, sell and distribute Eversense in Europe, Middle East and Asia (“EMEA”), excluding Scandinavia and Israel. In addition, Roche had exclusive distribution rights in 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions. Roche was obligated to purchase from us specified minimum volumes of Eversense XL CGM components at pre-determined prices. On December 12, 2019, we further amended the distribution agreement to lower minimum volumes for 2020 and increase pricing for the remaining period of the contract. On November 30, 2020 we entered into a final amendment and settlement agreement with Roche to facilitate the transition of distribution to Ascensia as sales concluded on January 31, 2021, including final purchases, and transition support activities. The distribution rights under the agreement expired January 31, 2021.
Financial Overview
Revenue
We generate product revenue from sales of the Eversense system and related components and supplies to Ascensia, through the Commercialization Agreement, third-party distributors in the European Union and to strategic fulfillment partners in the United States (collectively “Customers”), who then resell the products to health care providers and patients. We are paid for our sales directly to the Customers, regardless of whether or not the Customers resell the products to health care providers and patients.
Revenue from product sales is recognized at a point in time when the Customers obtain control of our product based upon the delivery terms as defined in the contract at an amount that reflects the consideration which we expect to receive in exchange for the product. Contracts with our distributors contain performance obligations, mostly for the supply of goods, and is typically satisfied upon transfer of control of the product. Customer contracts do not include the right to return unless there is a product issue, in which case we may provide replacement product. Product conformity guarantees do not create additional performance obligations and are accounted for as warranty obligations in accordance with guarantee and loss contingency accounting guidance.
Our contracts may contain some form of variable consideration such as prompt-pay discounts, tier-volume price discounts and for the Ascensia commercial agreement, revenue share. Variable consideration, such as discounts and prompt-pay incentives, are treated as a reduction in revenue and variable considerations, such as revenue share, is treated as an addition in revenue when the product sale is recognized. The amount of variable consideration that is included in the transaction price may be constrained and is included in revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period, when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint requires the use of management judgment. Depending on the variable consideration, we develop estimates for the expected value based on the terms of the agreements, historical data, geographic mix, reimbursement rates, and market conditions.
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Contract assets consist of unbilled receivables from customers and are recorded at net realizable value and relate to the revenue share variable consideration from the Ascensia commercial agreement.
Concentration of Revenue and Customers
For the three months ended March 31, 2022 and 2021, we derived 88% and 81%, respectively, of our total revenue from one customer, Ascensia. Revenues for these corresponding periods represent purchases for sensors, transmitters and miscellaneous Eversense system components.
Revenue by Geographic Region
The following table sets forth net revenue derived from our two primary geographical markets, the United States and outside of the United States, based on the geographic location to which we deliver the product, for three months ended March 31, 2022 and 2021:
March 31, 2022 | March 31, 2021 | |||||||||||
% | % | |||||||||||
(Dollars in thousands) | Amount | of Total | Amount | of Total | ||||||||
Revenue, net: | ||||||||||||
Outside of the United States | $ | 1,714 | 69.1 | % | $ | 2,533 | 89.0 | % | ||||
United States | 767 | 30.9 | 313 | 11.0 | ||||||||
Total | $ | 2,481 | 100.0 | % | $ | 2,846 | 100.0 | % | ||||
Accounts Receivable
Accounts receivable consist of amounts due from our Customers and are recorded at net realizable value, which may include reductions for allowances for doubtful accounts at the time potential collection risk is identified or for promotional or prompt-pay discounts offered. We do not have a history of collectability concerns and no allowance for uncollectible accounts was recorded as of March 31, 2022 and December 31, 2021.
Use of Estimates
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. In our accompanying unaudited consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, derivative assets and liabilities, obsolete inventory, warranty obligations, variable consideration related to revenue, depreciable lives of property and equipment, and accruals for clinical study costs, which are accrued based on estimates of work performed under contract. We considered COVID-19 related impacts to our estimates, as appropriate, within our unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods due to the uncertainties surrounding the severity and duration of the COVID-19 pandemic. Actual results could differ from those estimates; however, we do not believe that such differences would be material.
Recent Accounting Pronouncements
Recently Adopted
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contract in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). This new guidance is intended to reduce the complexity of accounting for convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments. Entities may adopt ASU 2020-06 using either partial retrospective or fully retrospective method of transition. ASU 2020-06 is effective for public business entities for fiscal
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years beginning after December 15, 2021, including interim periods within those fiscal years. We adopted this guidance as of January 1, 2022 and its adoption did not have a material impact on the consolidated financial statements and related disclosures.
Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. We currently hold investments in available-for-sale securities. We have not historically experienced collection issues or bad debts with trade receivables. Accordingly, we do not expect this to have a significant impact on our consolidated financial statements and related disclosures at this time. Since we qualified as a smaller reporting company as of June 28, 2019, we maintain our status as a smaller reporting company for the adoption of this standard. As such, we will adopt this guidance on the effective date for smaller reporting companies, January 1, 2023.
Results of Operations
Comparison of the three months ended March 31, 2022 and 2021
The following table sets forth our results of operations for the three months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended |
| |||||||||
March 31, | Period-to- |
| ||||||||
2022 | 2021 | Period Change |
| |||||||
(in thousands) | (in thousands) |
| ||||||||
Revenue, net |
| $ | 292 |
| $ | 487 |
| $ | (195) | |
Revenue, net - related parties | 2,189 | 2,359 | (170) | |||||||
Total revenue | 2,481 | 2,846 | (365) | |||||||
Cost of sales | 1,954 | 2,320 | (366) | |||||||
Gross profit | 527 | 526 | 1 | |||||||
Expenses: | ||||||||||
Sales and marketing expenses |
| 1,509 |
| 1,613 |
| (104) | ||||
Research and development expenses |
| 7,804 |
| 5,255 |
| 2,549 | ||||
General and administrative expenses |
| 6,374 |
| 4,974 |
| 1,400 | ||||
Operating loss |
| (15,160) |
| (11,316) |
| (3,844) | ||||
Other (expense) income, net: | ||||||||||
Interest income | 93 | 9 | 84 | |||||||
Gain (Loss) on fair value adjustment of option | 21,701 | (52,675) | 74,376 | |||||||
Gain on extinguishment of debt and option | — |
| 330 |
| (330) | |||||
Interest expense |
| (4,494) |
| (4,058) |
| (436) | ||||
Gain (Loss) on change in fair value of derivatives | 84,569 | (180,899) | 265,468 | |||||||
Impairment cost, net | 30 | (782) | 812 | |||||||
Other expense |
| (21) |
| (123) |
| 102 | ||||
Total other (expense) income, net |
| 101,878 |
| (238,198) |
| 340,076 | ||||
Net income (loss) | $ | 86,718 | $ | (249,514) | $ | 336,232 | ||||
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Revenue, net
Our net revenue decreased to $2.5 million for the three months ended March 31, 2022, compared to $2.8 million for the three months ended March 31, 2021. This decrease was due to lower orders from Ascensia compared to the first quarter of 2021 when Ascensia began to commercialize our product.
Cost of sales
Our cost of sales decreased to $2.0 million for the three months ended March 31, 2022, compared to $2.3 million for the three months ended March 31, 2021. The decrease was as a result of lower orders from Ascensia compared to the first quarter of 2021 when Ascensia began to commercialize our product.
Gross profit was comparable for the three months ended March 31, 2022 and 2021.
Sales and marketing expenses
Sales and marketing expenses were $1.5 million for the three months ended March 31, 2022, compared to $1.6 million for the three months ended March 31, 2021, a decrease of $0.1 million. The decrease was primarily the result of lower sales software costs as Ascensia assumed commercialization responsibilities.
Research and development expenses
Research and development expenses were $7.8 million for the three months ended March 31, 2022, compared to $5.3 million for the three months ended March 31, 2021, an increase of $2.5 million. The increase was due to a $1.1 million increase in clinical studies activities, an increase of $0.8 million in personnel related costs due to the expansion of our R&D workforce and an increase of $0.6 million for consulting, contract fabrication and other R&D support services.
General and administrative expenses
General and administrative expenses were $6.4 million for the three months ended March 31, 2022, compared to $5.0 million for three months ended March 31, 2021, an increase of $1.4 million. The increase was due primarily to an increase of $0.9 million in other G&A costs to include recruiting, consultants and franchise tax expense. The increase was also due to higher salaries and related expenses of $0.5 million.
Total other (expense) income, net
Total other income, net, was $101.9 million for the three months ended March 31, 2022, compared to other expense, net, of $238.2 million for the three months ended March 31, 2021, a change of $340.1 million. The change was primarily due to a $265.5 million change in fair value of derivatives and a $74.4 million change in fair value of option, a $0.8 million change in impairment cost related to the option and a decrease of $0.1 million in other expense, partially offset by $0.3 million lower gain on extinguishment of debt and a $0.4 million increase in interest expense.
Liquidity and Capital Resources
Sources of Liquidity
From our founding in 1996 until 2010, we devoted substantially all of our resources to researching various sensor technologies and platforms. Beginning in 2010, we narrowed our focus to developing and refining a commercially viable glucose monitoring system. However, to date, we have not generated any significant revenue from product sales. We have incurred substantial losses and cumulative negative cash flows from operations since our inception in October 1996. We have never been profitable and our net losses were $302.5 million, $175.2 million, and $115.5 million for the
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years ended December 31, 2021, 2020 and 2019, respectively. As of March 31, 2022, we had an accumulated deficit of $864.3 million. To date, we have funded our operations principally through the issuance of preferred stock, common stock, convertible notes and debt. As of March 31, 2022, we had cash, cash equivalents and marketable debt securities of $166.9 million.
In November 2021, we entered into an Open Market Sale Agreement (the “2021 Sales Agreement”) with Jefferies LLC (“Jeffries”), under which we could offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $150.0 million through Jeffries as our sales agent in an “at the market” offering. Jeffries will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jeffries under the 2021 Sales Agreement. As of March 31, 2022, we received $8.0 million in net proceeds from the sale of 3,077,493 shares of our common stock under the 2021 Sales Agreement.
In November 2019, we entered into an Open Market Sale Agreement (the “2019 Sales Agreement”) with Jefferies, under which we could offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million through Jeffries as our sales agent in an “at the market” offering. In June 2021, we received $48.4 million in net proceeds from the sale of 12,830,333 shares of our common stock utilizing the full capacity under the 2019 Sales Agreement.
On January 21, 2021, we entered into an underwriting agreement, which was subsequently amended and restated on the same day (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC, as representative of the underwriters (the “Underwriters”), to issue and sell 51,948,052 shares of common stock, in an underwritten public offering pursuant to effective registration statements on Form S-3, including a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission (the “Offering”). The price to the public in the Offering was $1.925 per share of common stock. The Underwriters agreed to purchase the shares from us pursuant to the Underwriting Agreement at a price of $1.799875 per share and the Company also agreed to reimburse them for customary fees and expenses. The initial closing of the Offering occurred on January 26, 2021. Subsequent to the initial closing, the Underwriters exercised their option to purchase an additional 7,792,207 shares of Common Stock. Total net proceeds from the Offering were $106.1 million after deducting underwriting discounts and commissions and estimated offering expenses.
On January 17, 2021, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional purchasers (the “Purchasers”), pursuant to which we sold to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 40,000,000 shares (the “Shares”) of common stock, $0.001 par value per share. The Shares were sold at a purchase price of $1.25 per share for aggregate gross proceeds to the Company of $50 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. The Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on November 27, 2019. The net proceeds to the Company from the Registered Direct Offering, after deducting fees and expenses and the estimated offering expenses payable by us are approximately $46.1 million.
On November 9, 2020, we entered into an equity line agreement, (“Equity Line Agreement”), with Energy Capital, LLC (“Energy Capital”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital is committed to purchase up to an aggregate of $12.0 million of shares of our newly designated series B convertible preferred stock (“the Series B Preferred Stock”), at our request from time to time during the 24-month term of the Equity Line Agreement. There have been no issuances of Series B Preferred Stock as of March 31, 2022.
Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including that we have less than $8.0 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), we have the right, in our sole discretion, to present Energy Capital with a purchase notice (“Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of our Series B Preferred Stock at a per share price (the “Purchase Price”), equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six
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months after the date of its issuance, at a conversion price of $0.3951 per share. The Equity Line Agreement provides that we shall not affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the common stock on the NYSE American is less than $0.25 without the approval of Energy Capital.
Concurrently with entry into the Equity Line Agreement, we issued a warrant to Energy Capital, exercisable beginning May 9, 2021, to purchase up to 10,000,000 shares of common stock at an exercise price of $0.3951 per share, (the “Warrant”). The Warrant was exercised in full in February 2022.
On August 9, 2020, we entered into a financing agreement with Ascensia pursuant to which we issued $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due on October 31, 2024 (the “PHC Notes”), to Ascensia’s parent company, PHC Holdings Corporation (“PHC”), on the Closing Date. We also issued PHC 2,941,176 shares of common stock to PHC as a financing fee. We also have the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining approval for the 180-day Eversense product for marketing in the United States before such date. Upon the closing of the PHC Notes, we prepaid in full the First Lien Notes, issued and sold pursuant to the Highbridge Loan Agreement, in the amount of approximately $17.6 million.
Additionally, on August 9, 2020, we entered into a Stock Purchase Agreement with Masters Special Solutions, LLC and certain affiliates thereof (“Masters”), pursuant to which we issued and sold to Masters 3,000 shares of convertible preferred stock, designated as Series A Preferred Stock (the “Series A Preferred Stock”), at a price of $1,000.00 per share in an initial closing. Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000.00 per share in subsequent closings, subject to the terms and conditions of the Stock Purchase Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds of $22.8 million. Each share of Series A Preferred Stock is initially convertible into a number of shares of common stock equal to $1,000 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. All shares of Series A Preferred Stock have been converted to common stock.
We believe that these agreements provide the financial resources and mutual commitment to support the growth of Eversense and specifically for us, the manufacturing of Eversense and continued product development, including the U.S. launch of Eversense E3. The timing and success of these collaborations and financings are dependent on certain events occurring in accordance with our plans, and may be influenced by uncontrollable external factors, including restrictions or impacts of COVID-19. Management has concluded that based on our current operating plans, existing cash and cash equivalents and cash flows from our future operations will be sufficient to meet our anticipated operating needs through 2023.
Common Stock
In November 2021, we entered into the 2021 Sales Agreement with Jefferies, under which we could offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $150.0 million through Jefferies as the sales agent in an “at the market” offering. Jefferies will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During the three months ended March 31, 2022, we received $8.0 million in net proceeds from the sale of 3,077,493 shares of our common stock under the 2021 Sales Agreement.
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Indebtedness
Term Loans
PPP Loan
On April 22, 2020, we received $5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) is evidenced by the PPP Note dated April 21, 2020 (the “PPP Note”), in the principal amount of $5.8 million with Silicon Valley Bank (“SVB”).
Under the terms of the PPP Note and the PPP Loan, interest accrues on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note is two years, though it may be payable sooner in connection with an event of default under the PPP Note. We began to make equal monthly payments of principal and interest beginning in the third quarter of 2021. As of March 31, 2022, the outstanding balance, including accrued interest, of the PPP Note was $0.7 million.
The PPP Note may be prepaid in part or in full, at any time, without penalty. The PPP Note provides for certain customary events of default, including (i) failing to make a payment when due under the PPP Note, (ii) failure to do anything required by the PPP Note or any other loan document, (iii) defaults of any other loan with SVB, (iv) failure to disclose any material fact or make a materially false or misleading representation to SVB or SBA, (v) default on any loan or agreement with another creditor, if SVB believes the default may materially affect our ability to pay the PPP Note, (vi) failure to pay any taxes when due, (vii) becoming the subject of a proceeding under any bankruptcy or insolvency law, having a receiver or liquidator appointed for any part of our business or property, or making an assignment for the benefit of creditors, (viii) having any adverse change in financial condition or business operation that SVB believes may materially affect our ability to pay the PPP Note, (ix) if we reorganize, merge, consolidate, or otherwise change ownership or business structure without SVB’s prior written consent, or (x) becoming the subject of a civil or criminal action that SVB believes may materially affect our ability to pay the PPP Note. Upon the occurrence of an event of default, SVB has customary remedies and may, among other things, require immediate payment of all amounts owed under the PPP Note, collect all amounts owing from us, and file suit and obtain judgment against us.
Convertible Notes
The following table summarizes our outstanding convertible notes at March 31, 2022:
Aggregate | Initial Conversion | Conversion Price | |||||||||||||||
Convertible | Issuance | Principal | Maturity | Rate per $1,000 | per Share of | ||||||||||||
Note | Date | Coupon |
| (in millions) |
| Date |
| Principal Amount |
| Common Stock |
| ||||||
2023 Notes | January 2018 | 5.25% | $ | 15.7 | February 1, 2023 | 294.1176 | $ | 3.40 | |||||||||
2025 Notes | July 2019 | 5.25% | $ | 51.2 | January 15, 2025 | 757.5758 | $ | 1.32 | |||||||||
PHC Notes | August 2020 | 9.50% | $ | 35.0 | October 31, 2024 | 1867.4136 | $ | 0.53 | |||||||||
2023 Notes
In the first quarter of 2018, we issued $53.0 million in aggregate principal amount of senior convertible notes that will mature on February 1, 2023, (the “2023 Notes”), of which $15.7 million in aggregate principal remains outstanding as of March 31, 2022, after some of the holders exchanged their 2023 Notes for 2025 Notes, as defined below, in July 2019.
2025 Notes
In July 2019, we issued $82.0 million in aggregate principal amount of senior convertible notes that will mature on January 15, 2025 (the “2025 Notes”), unless earlier repurchased or converted. In connection with an exchange on April 24, 2020, $24.0 million in aggregate principal of Highbridge Capital Management, LLC’s (“Highbridge”)
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outstanding 2025 Notes were exchanged for (i) $15.7 million aggregate principal amount of Second Lien Notes (“Second Lien Notes”), (ii) 11,026,086 shares of our common stock, (iii) warrants to purchase up to 4,500,000 shares of our common stock at an exercise price of $0.66 per share, and (iv) $0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged (the “Exchange”).
For additional information on the 2025 Notes and the 2023 Notes, see Note 8—Notes Payable, Preferred Stock and Stock Purchase Warrants in the accompanying unaudited consolidated financial statements.
PHC Notes
On August 9, 2020, we entered into a note purchase agreement with PHC (the “Note Purchase Agreement”), pursuant to which we agreed to borrow $35.0 million in aggregate principal through the issuance and sale of PHC Notes on or prior to August 14, 2020. The PHC Notes will be senior secured obligations and will be guaranteed on a senior secured basis by our wholly owned subsidiary, Senseonics, Incorporated. Interest at the initial annual rate of 9.5% is payable semi-annually in cash or, at our option, payment in kind. The interest rate will decrease to 8.0% beginning in April 2022 because we obtained FDA approval for the 180-day Eversense E3 product for marketing in the United States. The maturity date for the PHC Notes will be October 31, 2024, provided that the maturity date will accelerate if we have not repaid our Second Lien Notes (other than an aggregate principal amount of up to $1.0 million) by 91 days prior to the maturity of the Second Lien Notes.
PHC will be entitled to convert the PHC Notes to common stock at a conversion rate of 1,867.4136 shares per $1,000 principal amount of the PHC Notes, equivalent to a conversion price of approximately $0.54 per share, subject to specified anti-dilution adjustments, including adjustments for our issuance of equity securities on or prior to April 30, 2022 below the conversion price. In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such notice of redemption or corporate event. In certain circumstances, we will be required to pay cash in lieu of delivering make whole shares unless we obtain stockholder approval to issue such shares.
Subject to specified conditions, on or after October 31, 2022, the PHC Notes are redeemable by us if the closing sale price of the common stock exceeds 275% of the conversion price for a specified period of time and subject to certain conditions upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount, plus any accrued but unpaid interest. On or after October 31, 2023, the PHC Notes are redeemable by us upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount, plus any accrued but unpaid interest, plus a call premium of 130% if redeemed at least six months prior to the maturity date or a call premium of 125% if redeemed within six months of the maturity date.
The Note Purchase Agreement contains customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and liquidity targets, and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions. The Note Purchase Agreement also contains customary events of default, after which the PHC Notes be due and payable immediately, including defaults related to payment compliance, material inaccuracy of representations and warranties, covenant compliance, material adverse changes, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against us, change of control or delisting events, termination of any guaranty, governmental approvals, and lien priority.
Funding Requirements and Outlook
Our ability to generate revenue and achieve profitability depends on the successful commercialization and adoption of our Eversense CGM systems by diabetes patients and healthcare providers, along with future product development, regulatory approvals, and post-approval requirements. These activities, including our ongoing focus to grow covered lives through positive insurance payor policy decisions and continued development of Eversense 365-day product, will require significant uses of working capital through 2022 and beyond.
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We expect that existing cash, cash equivalents and cash flows from our future operations will be sufficient to meet the Company’s current operating plans through 2023. As part of our liquidity strategy, we will continue to monitor our capital structure and operating plans and we may access the capital markets or debt markets for additional funding if the opportunity arises to enhance our capital structure for changes to our operating plans, for financing strategic initiatives and to provide financial flexibility.
Cash Flows
The following is a summary of cash flows for each of the periods set forth below (in thousands).
| Three Months Ended | ||||||
| March 31, | ||||||
| 2022 | 2021 | |||||
Net cash used in operating activities |
| $ | (20,159) |
| $ | (16,258) |
|
Net cash provided by (used in) investing activities |
| 19,666 |
| (11) | |||
Net cash provided by financing activities |
| 6,043 |
| 176,674 | |||
Net increase in cash and cash equivalents | $ | 5,550 | $ | 160,405 | |||
Net cash used in operating activities
Net cash used in operating activities was $20.2 million for the three months ended March 31, 2022 and consisted of an $84.6 million change in fair value of derivatives on convertible notes, a $21.7 million gain on fair value adjustment of the option, and a net change in operating assets and liabilities of $5.3 million, partially offset by net income of $86.7 million, $3.0 million related to depreciation/amortization and non-cash interest expense and $1.7 million of stock based compensation.
Net cash used in operating activities was $16.3 million for the three months ended March 31, 2021 and consisted of a net loss of $249.5 million, a net change in operating assets and liabilities of $3.8 million (mostly due to declines in accruals and accounts payables of $4.3 million, a reduction in inventory of $1.3 million and lower prepaid and other current assets of $0.7 million, reflecting reduced operational activities, offset by $1.3 million for collections of accounts receivable in the first quarter of 2021 and $1.2 million in accrued interest) and a $0.3 million for gain on extinguishment for the convertible notes and options, partially offset by $180.9 million due to the change in fair value of derivatives on convertible notes, a $52.7 million loss on fair value adjustment of the option, $1.7 million of stock based compensation and an aggregate of $2.0 million for increased impairment reserves, depreciation/amortization and non-cash interest expense.
Net cash provided by (used in) investing activities
Net cash provided by investing activities was $19.7 million for the three months ended March 31, 2022 and primarily consisted of proceeds from the sale and maturity of marketable securities.
Net cash used in investing activities was less than $0.1 million for the three months ended March 31, 2021 and consisted of capital expenditures laboratory and production equipment at our contract manufacturers.
Net cash provided by financing activities
Net cash provided by financing activities was $6.0 million for the three months ended March 31, 2022, and primarily consisted of $8.0 million from the issuance of common stock and $0.2 million for proceeds related to the exercise of stock options and warrants, partially offset by $2.2 million in repayment of the PPP loan.
Net cash provided by financing activities was $176.7 million for the three months ended March 31, 2021 and primarily consisted of $152.1 million from the issuance of common stock, proceeds of $22.8 million from the issuance of Series A preferred stock and $1.8 million for proceeds related to the exercise of stock options and warrants.
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Contractual Obligations
As of March 31, 2022, there were no material changes in our contractual obligations and commitments from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the SEC on March 1, 2022.
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of March 31, 2022, we had cash, cash equivalents and marketable securities of $166.9 million. We generally hold our cash in interest-bearing money market accounts or short-term investments that meet our policy for cash equivalents. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments, based on an immediate 10% adverse movement in interest rates, the potential losses in future earnings, fair value of risk-sensitive financial instruments, and cash flows are immaterial, although the actual effects may differ materially from the hypothetical analysis. While we therefore believe our cash, cash equivalents, restricted cash, and marketable securities do not contain excessive risk, we cannot provide absolute assurance that, in the future, our investments will not be subject to adverse changes in market value. The interest rates on our notes payable are all fixed. We do not currently engage in hedging transactions to manage our exposure to interest rate risk.
Foreign Currency Risk
The majority of our international sales are denominated in Euros. Therefore, our U.S. dollar value of sales is impacted by exchange rates versus the Euro. Currency fluctuations or a strengthening U.S. dollar can decrease our revenue from these Euro-denominated international sales. To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our consolidated financial statements, and we do not believe that the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would have had a material impact on our operating results or financial condition. We do not currently engage in any hedging transactions to manage our exposure to foreign currency exchange rate risk.
In addition, the uncertainty that exists with respect to the economic impact of the global COVID-19 pandemic has introduced significant volatility in the financial markets subsequent to our quarter ended March 31, 2022, which could increase our foreign currency and interest rate risk.
ITEM 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the assistance of our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, has reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2022. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the periodic reports filed with the SEC is accumulated and communicated to our management, including our principal executive, financial and accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving such control objectives. Based on the evaluation of our disclosure controls and procedures as of March 31, 2022, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
36
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings
From time to time, we are subject to litigation and claims arising in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Legal proceedings, including litigation, government investigations and enforcement actions could result in material costs, occupy significant management resources and entail civil and criminal penalties.
In February 2021, we received notice and accepted service of a civil complaint that had been filed in the Western District of Texas and styled Carew ex rel. United States v. Senseonics, Inc., No. SA20CA0657DAE. The complaint was filed by a relator under seal in May 2020 pursuant to the qui tam provisions in the federal False Claims Act. Prior to the unsealing of the complaint, the government declined to intervene in the case. The case, therefore, is being pursued only by the relator. The complaint alleges the Company’s marketing practices with physicians for its product, Eversense Continuous Glucose Monitoring System, violated the False Claims Act, 31 U.S.C. § 3729 and the Texas Medicaid Fraud Prevention Law, Tex. Hum Res. Code § 36.002. Outside counsel, on behalf of the Company, filed a motion to dismiss the action for failure to state a claim. On March 31, 2022, the court granted the motion to dismiss the action without prejudice which allows the plaintiff 60 days to refile the complaint if they so elect.
ITEM 1A: Risk Factors
Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. Other than the risk factors set forth below, our risk factors as of the date of this Quarterly Report on Form 10-Q have not changed materially from those described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K.
The ongoing military action by Russia in Ukraine could have negative impact on the global economy which could materially adversely affect our business, operations, operating results and financial condition.
On February 24, 2022, Russian forces launched significant military action against Ukraine, and sustained conflict and disruption in the region is possible. The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by Canada, the United Kingdom, the European Union, the U.S. and other countries and companies and organizations against officials, individuals, regions, and industries in Russia and Ukraine, and actions taken by Russia in response to such sanctions, and each country’s potential response to such sanctions, tensions, and military actions could adversely affect the global economy and financial markets and thus could affect our business, operations, operating results and financial condition as well as the price of our common stock and our ability to raise additional capital when needed on acceptable terms. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described in our Annual Report on Form 10-K.
While our suppliers may source certain raw materials from Russia and Ukraine, to date we have not been notified that the supply of these materials has been significantly impacted by the conflict. We continue to monitor the situation closely and are proactively assessing and evaluating alternative sources to bolster supply of these materials moving forward, in addition to working closely with our suppliers in any product re-qualification that may be required. Revenue relating to products manufactured from raw materials sourced from this region does not constitute a material portion of our business. Further, there is uncertainty regarding the ultimate impact the conflict, including any escalation or further expansion of the conflict’s current scope, will have on our customers, the global economy, supply chains, logistics, fuel prices, raw material pricing and our business.
ITEM 2: Unregistered Sales of Equity and Securities and Use of Proceeds
Not applicable.
37
ITEM 3: Defaults Upon Senior Securities
Not applicable.
ITEM 4: Mine Safety Disclosures
Not applicable.
ITEM 5: Other Information
None.
ITEM 6: Exhibits
The exhibits listed on the Exhibit Index hereto are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.
Exhibit No. | Document | |
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
3.6 | ||
3.7 | ||
31.1* | Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act. | |
31.2* | Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act. | |
32.1** | ||
101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document) | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SENSEONICS HOLDINGS, INC. | ||
Date: May 10, 2022 | By: | /s/Nick B. Tressler |
Nick B. Tressler | ||
Chief Financial Officer | ||
(Principal Financial Officer) | ||
39
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy T. Goodnow, Ph.D., certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Senseonics Holdings, Inc. (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 10, 2022
| |
| /s/ Timothy T. Goodnow, Ph.D. |
| Timothy T. Goodnow, Ph.D. |
| President & Chief Executive Officer |
| (principal executive officer) |
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Nick Tressler, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Senseonics Holdings, Inc. (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 10, 2022
| |
| /s/ Nick B. Tressler |
| Nick B. Tressler |
| Chief Financial Officer |
| (principal financial officer) |
EXHIBIT 32.1
CERTIFICATIONS OF
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Timothy T. Goodnow, Ph.D., President and Chief Executive Officer of Senseonics Holdings, Inc. (the “Company”), and Nick B. Tressler, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:
1. | The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (the “Quarterly Report”), to which this Certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and |
2. | The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition of the Company as of the end of the period covered by the Quarterly Report and results of operations of the Company for the periods covered by the Quarterly Report. |
In Witness Whereof, the undersigned have set their hands hereto as of the 10th day of May 2022.
/s/ Timothy T. Goodnow, Ph.D. |
| /s/ Nick B. Tressler |
Timothy T. Goodnow, Ph.D. |
| Nick B. Tressler |
President & Chief Executive Officer |
| Chief Financial Officer |
(principal executive officer) | | (principal financial officer) |
*This Certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.