Senseonics Holdings, Inc. - Quarter Report: 2020 March (Form 10-Q)

 

 

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, 2020

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)

 

 

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:

 

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 227,641,604 shares of common stock, par value $0.001, outstanding as of June 5, 2020.

 

 

 

 

TABLE OF CONTENTS

 

 

 

Explanatory Note

 

Senseonics Holdings, Inc. (the “Company”) relied on the Securities and Exchange Commission’s Order under Section 36 of the Securities Exchange Act of 1934, as amended, Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies dated March 25, 2020 (Release No. 34-88465) (the “Order”) to delay the filing of its quarterly report on Form 10-Q for the quarter ended March 31, 2020 (the “Form 10-Q”) due to circumstances related to the coronavirus disease (“COVID-19”).

 

The Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic. The state of Maryland, where the Company is headquartered, has been affected by COVID-19. The Governor of Maryland has issued an order closing all non-essential businesses, which took effect on March 23, 2020. Substantially all of the Company’s workforce is currently working from home either all or substantially all of the time, including the Company’s limited number of general administrative and finance personnel. These safety measures have restricted access to the Company’s facilities and records, and have disrupted routine interactions among the Company’s staff, advisors and third parties involved in the preparation of the Form 10-Q.

 

In addition, the Company’s personnel who are primarily responsible for preparing its Form 10-Q have been mobilized on key business continuity efforts that have emerged in part as a result of COVID-19, including financing activities and cost-reduction initiates (including significant headcount reductions), following the Company’s payment of all amounts outstanding under its loan and security agreement with Solar Capital Ltd. on March 22, 2020. These factors resulted in  a delay in the Company’s ability to complete its quarterly review processes in time to file the Form 10-Q by May 11, 2020. The Company is filing the Form 10-Q within 45 days after the standard filing deadline as permitted by the Order.

 

 

 

Senseonics Holdings, Inc.

 

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

Senseonics Holdings, Inc.

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

Senseonics Holdings, Inc.

 

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(in thousands)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

Senseonics Holdings, Inc.

 

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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 and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997. Senseonics Holdings and Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context otherwise requires.

2.Going Concern and Liquidity Update

 

The Company’s operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, lack of operating history and uncertainty of future profitability. Since inception, the Company has suffered substantial operating losses, principally from expenses associated with the Company’s research and development programs and commercial launch of Eversense® CGM System (for use up to 90 days) in the United States and the Eversense CGM and Eversense XL CGM Systems (for use up to 180 days) in Europe, the Middle East, and Africa. The Company has not generated significant revenue from the sale of products and its ability to generate revenue and achieve profitability largely depends on the Company’s ability to successfully expand the commercialization of Eversense, continue the development of its products and product upgrades, and to obtain necessary regulatory approvals for the sale of those products, including approval by the FDA for the extended Eversense XL CGM system in the United States. These activities will require significant uses of working capital through 2020 and beyond.

 

The Company generated a net loss of $42.6 million for the three months ended March 31, 2020 and had an accumulated deficit of $515.9 million at March 31, 2020. Following the repayment in full of its term loan with Solar Capital Ltd. (“Solar”) in the amount of $48.5 million on March 22, 2020, the Company had $18.8 million of cash, cash equivalents and restricted cash at March 31, 2020. As a result, and in consideration of the evolving impact of the coronavirus (“COVID-19”) pandemic, the Company made reductions in its cost structure to improve operating cash flow and generate future capital expenditure savings to ensure the long-term success of Eversense. Specifically, the Company temporarily suspended commercial sales of the Eversense CGM system in the United States to new patients and streamlined its operational strategy to focus on the development and regulatory submission efforts for its Eversense XL CGM system, for use for up to 180 days, in the United States. In connection with these actions, on March 26, 2020, the Company reduced its workforce by approximately 60%, over half of which were sales personnel.  

 

The Company is pursuing strategic alternatives and has been in discussions with new financing sources. Additional financing could include issuing additional equity (including through the Open Market Sales agreement with Jefferies) or either secured or unsecured indebtedness or a combination of both.

 

Given its limited cash resources, and after inclusion of its subsequent financings described in Note 13 – Subsequent Events, and also considering the economic and market uncertainty resulting from COVID-19, the Company has substantial doubt regarding its ability to meet its obligations as they become due in the ordinary course of business for the next twelve months from the date of this Quarterly Report on Form 10-Q. The Company’s ability to generate enough cash to meet its streamlined working capital requirements is dependent on its ability to achieve additional capital sources and favorable outcomes from potential strategic alternatives currently being explored. New financings may not be available to the Company on commercially acceptable terms, or at all, and may be impacted by the current debt covenants. The Company’s plans to alleviate its substantial doubt about its ability to continue as a going concern assume that there will be no material adverse development in its business, liquidity, or capital requirements, or additional material adverse impacts from COVID-19.  

 

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 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, 2020 and December 31, 2019 and results of operations for the three months ended March 31, 2020 and 2019, and cash flows for the three months ended March 31, 2020 and 2019 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, 2019, as filed with the SEC on March 16, 2020, and amended on April 28, 2020. The interim results for March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 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 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 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, management does not believe that such differences would be material.

 

Segment Information

 

The Company views its operations and manages its business in one segment, glucose monitoring products.

 

Comprehensive Loss

 

Comprehensive loss comprises net loss and other changes in equity that are excluded from net loss. For the three months ended March 31, 2020 and 2019, the Company’s net loss equaled its comprehensive loss and, accordingly, no additional disclosure is presented.

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 periods listed below (in thousands):

 

⁽¹⁾ Includes overnight repurchase agreements

 

Restricted Cash

 

The Company’s restricted cash includes pledged cash as collateral related to its credit card program with Silicon Valley Bank. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows (in thousands):

 

 

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. As a result of COVID-19 and the events described above in Note 2, the Company concluded the fair value of some of its property and equipment did not exceed its carrying values. Accordingly, a loss on disposal of property and equipment in the amount of $0.2 million for the three months ended March 31, 2020 was recorded in the Company’s consolidated statement of operations and comprehensive loss.

 

Revenue

The Company recognizes revenue in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company generates revenue from sales of the Eversense CGM system and related components at a fixed price to third-party distributors in the European Union and to a network of 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. Customer contracts do include the right to return.

Revenue is recognized, at a point in time, when the Customers obtain control of the product based upon the delivery terms as defined in the contract at an amount that reflects the consideration which is expected to be received in exchange for the product. Contracts with the Customers include performance obligations for supply of goods and the performance obligation is typically satisfied upon transfer of control of the product. Distribution contracts may also contain requirements for training and customer service support, however these are not assessed as performance obligations given the activities are considered immaterial in the context of the contract. The payment terms and conditions of the Customers vary, but the Company is typically paid within 60 days of invoicing subsequent to the Customers obtaining control of the Company’s product.

Revenue is recognized only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur in a future period. The Company’s contracts may contain variable consideration such as prompt-pay discounts or tier-volume price discounts. Variable consideration, including the reimbursements paid by the Company to its Customers in accordance with the Eversense Bridge Program initiated in March 2019 and to a lesser extent, other discounts and prompt-pay incentives, is treated as a reduction in revenue when the product sale is recognized. Depending on the variable consideration, the Company estimates the expected value based on the terms of the agreements, historical data, insurance payor mix, reimbursement rates, and market conditions. In connection with the Eversense Bridge Program, the Company reimburses participating Customers an amount up to a fixed maximum for the difference in the cost of the Eversense System and what they collect from insurance payors and the patient’s fee of $99. The Customers are responsible for confirming patient insurance coverage, obtaining pre-authorizations, determining eligibility, and continuously provide the Company with data regarding which patient orders are under the program and which are not. Customer supplied data, along with actual reimbursements that have been validated to patient claims, are used to support expected reimbursement estimates. Estimated reimbursement payments for product shipped to Customers but not provided to a patient within the same reporting period are recorded within accrued expenses and other current liabilities in the accompanying consolidated balance sheets. Because of the limited experience with the Eversense Bridge Program, the estimates used in determining the variable consideration on a sale transaction could change in future periods, and such changes could be material.

Contract assets consist of trade receivables from Customers and contract liabilities consist of amounts due to Customers in connection with the Eversense Bridge Program, classified as patient access and incentive programs within accrued liabilities on the accompanying unaudited consolidated balance sheets. Trade receivables for customers in the United States are recorded at net realizable value, which is generally the contractual price but may be net of anticipated prompt-pay or promotional discounts.

 

Concentration of Revenue and Customers

 

For the three months ended March 31, 2020 and 2019, the Company derived 0% and 59%, respectively, from one customer, Roche Diabetes Care GmbH.

 

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, 2020 and 2019.

 

 

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 provided one-time COVID-19 pandemic relief concessions to some of its customers in the United States for allowances up to a specified amount if they are unable to sell through Eversense and related components on hand prior to expiry, which the Company expects to occur in the third and fourth quarters of 2020. The Company’s net revenues and corresponding accounts receivables were reduced by $1.2 million for these allowances at March 31, 2020. The Company does not have a history of collectability concerns and there have been no provisions for uncollectible accounts recorded against accounts receivable at March 31, 2020 or December 31, 2019.

 

Net Loss per Share

 

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.

 

For periods of net loss, diluted net loss per share is calculated similarly to basic loss per share because the impact of all potential common shares is anti-dilutive. The total number of anti-dilutive shares at March 31, 2020 and 2019, consisting of common stock options and stock purchase warrants, which have been excluded from the computation of diluted net loss per share, was as follows:

 

 

For periods of net income, and when the effects are not anti-dilutive, diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options stock purchase warrants and employee stock purchases using the treasury stock method.

 

Exit or Disposal Costs

 

Costs associated with exit or disposal activities, such as restructuring, sale or termination of a line of business, the closure of business activities in a particular location, the relocation of business activities, changes in management structure and a fundamental reorganization that affects the nature and focus of operations, are recognized and measured initially at their fair values during the period in which an obligation meets the definition of a liability. As a result of the Company’s financial condition following the repayment in full of its term loan with Solar on March 22, 2020, further described above in Note 2 – Going Concern and Liquidity Update, and in consideration of the economic uncertainty due to the COVID-19 pandemic, the Company made reductions in its cost structure and operational focus to improve operating cash flow and generate future capital expenditure savings to ensure the long-term success of Eversense. These cost reductions included a reduction in force by approximately 60%, which was communicated to employees on March 26, 2020 and did not permit continuation of service past March 31, 2020. Associated one-time employee termination benefit costs in the amount of $1.6 million were accrued and recorded in the Company’s accompanying unaudited consolidated financial statements as of March 31, 2020.

 

Recent Accounting Pronouncements

 

Recently Adopted

 

In August 2018, the Financial Accounting Standards Board (“FASB “) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements on fair value measurements. The new standard includes additional disclosure requirements regarding the range and weighted average to develop significant unobservable inputs within Level 3 fair value measurements. The Company adopted this on its effective date, January 1, 2020 and 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 does not currently hold or plan to invest in available-for-sale securities and 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. The Company will adopt this guidance on its effective date for smaller reporting companies, January 1, 2023. 

 

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.

 

4.  Inventory, net

 

Inventory, net of reserves, consisted of the following (in thousands):

 

 

The Company charged $15.0 million and $0.1 million to cost of sales for the three months ended March 31, 2020 and 2019, respectively, to reduce the value of inventory for items that are potentially obsolete, in excess of product demand, or to adjust costs to their net realizable value.

 

 

 

5.  Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

 

6.Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

⁽¹⁾Includes $1.6 million for one-time employee termination benefits associated with the Company’s reduction in force on March 26, 2020

 

7.Notes Payable and Stock Purchase Warrants

 

Repayment of Solar Term Loan

 

On March 22, 2020, the Company and Solar terminated its Loan and Security Agreement, dated as of July 16, 2019 (the “Solar Loan Agreement”). As previously disclosed in the Company’s Annual Report on Form 10-K, the Company expected to default on its obligations under the Solar Loan Agreement and was seeking a waiver from Solar of any default under the Solar Loan Agreement. Following discussions with Solar, the parties were unable to negotiate such a waiver and, as a result, the parties determined to terminate the Solar Loan Agreement.

 

In connection with the termination, the Company paid $48.5 million representing all amounts outstanding under the Solar Loan Agreement, including the principal amount and interest of the loans, a payoff fee of 6.45% of the loans outstanding, a prepayment premium of 3.0% of the loans outstanding and other obligations owed to Solar thereunder. The Company issued warrants in connection to the Solar Loan Agreement to purchase an aggregate of 1,125,000 shares of the Company’s common stock with an exercise price of $1.20 per share, which are exercisable until July 25, 2029. 

 

A loss on the extinguishment of debt in the amount of $4.5 million reflecting the difference between the repayment amount and the carrying value of the principal balance, accrued interest, unamortized debt issuance costs and unaccreted prepayment fee at March 22, 2020 was recorded to other income (expense) in the Company’s unaudited consolidated statement of operations and comprehensive loss during the three months ended March 31, 2020.

 

Convertible 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, unless earlier repurchased or converted (the “2025 Notes”). 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.

 

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.

 

The Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision as a derivative liability. 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 following carrying amounts were outstanding under the Company’s notes payable as of March 31, 2020 and December 31, 2019 (in thousands):

 

 

Interest expense related to the notes payable for the three months ended March 31, 2020 was as follows (in thousands):

 

 

The following are the scheduled maturities of the 2025 Notes and 2023 Notes as of March 31, 2020 (in thousands):

 

⁽¹⁾ On April 21, 2020 the Company entered into a Note Purchase and Exchange Agreement with certain funds managed by Highbridge Capital Management, LLC 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 Secured Notes due January 2022, (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. See Note 13 below for more details.

8.Stockholders’ Deficit

 

In November 2019, the Company entered into an Open Market Sale Agreement with Jefferies LLC which allows the Company to issue and sell up to $50 million in gross proceeds of its common stock. During the three months ended March 31, 2020 the Company sold 175,089 shares of common stock resulting in gross proceeds of $0.1 million.

 

9.  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 in accordance with the 2015 Plan provisions, such as officers and directors. 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 March 17, 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, 2020, 17,261,319 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, 2020, 1,229,132 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, 2020 there were 6,341,661 shares of common stock available for issuance under the 2016 ESPP.   

 

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 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. During the three months ended March 31, 2020, 40 participants in the initial offering were automatically rolled over to the subsequent new offering as a result this reset provision and an incremental cost of less than $0.1 million.

 

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 3,515,817 shares of the Company’s common stock underlying options have vested or are expected to vest under the 1997 Plan. Upon the effectiveness of the 2015 Plan, the Company no longer grants any awards under the 1997 Plan. 

 

10.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, 2020 and December 31, 2019 (in thousands):

 

 

⁽¹⁾ Classified as cash and cash equivalents due to their short-term maturity

 

The following table provides a reconciliation of the beginning and ending 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 2023 Notes include the following significant unobservable inputs at March 31, 2020:

 

 

11.Income Taxes

 

The Company has not recorded any tax provision or benefit for the three months ended March 31, 2020 or March 31, 2019. 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, 2020 and December 31, 2019.

 

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)