Blood Money

Blood Money

In a desperate attempt to stave off bankruptcy Senseonics entered into a new financing agreement yesterday. Per a press release;

“Senseonics Holdings, Inc. (NYSE American: SENS), a medical technology company focused on the development and commercialization of a long-term, implantable continuous glucose monitoring (CGM) system for people with diabetes, today announced that it has entered into a new senior secured Term Loan Agreement with certain funds managed by Highbridge Capital Management, LLC (“Highbridge”), an existing stakeholder. Pursuant to the Term Loan Agreement, the Company will draw down $15.0 million from the new First Lien Secured Term Loan with a maturity date of October 24, 2021 (the “First Lien Term Loan). The First Lien Term Loan will pay interest in cash at an annual rate of 12% or, at Senseonics’ option, payment in kind at an annual rate of 13%. The Company at its option may draw the remaining $5.0 million from the First Lien Term Loan within 120 days subject to certain conditions.”

The company believes this financing along with cost cutting measures will allow them to remain viable until they can complete development of their 180-day sensor and get that to the FDA. This may be true but even a longer-term sensor life won’t change one huge indisputable fact- the implantable CGM sensor is a niche market and is not large enough nor will grow fast enough to support Senseonics.

Not to be Captain Obvious but several companies have taken a look at Senseonics and passed. What they see is likely the same things we see- good product – poor business model and two large well capitalized well run competitors who are gobbling up new users faster than a child attacks a bowl of ice cream. Worse the company’s installed user base isn’t that large and can be easily captured after the company finally capitulates and declares bankruptcy. About the only real value here is the portfolio of intellectual property which also will become cheaper when the end comes.

Given that several companies have looked and passed we’re a little unclear how Senseonics and their new lender see this playing out. Anyone who has come in and taken a look knows about the 180 sensor, yet they still passed. While we cannot reveal who has come in and taken a look you don’t need to be a genius to figure out who the possible buyers would be. And let’s not forget they are trying to save this sinking ship after it has hit the iceberg, taken on water and we’re in the middle of a huge crisis. Other than that Mrs. Lincoln how was the play?

We hate to use logic, but any new prospective suitors would more than likely reach out too many of the experts we know who would tell them what they have been told. There is nothing wrong with the sensor it works. There is a huge problem with the business model, it sucks. Even bigger problem as the competitors are just crushing it making it next to impossible for the company to gain reasonable share, meaning unless someone likes losing money there is little reason for optimism.

To fully appreciate just how little value there is here we’d say it’s a better to throw money at one of the many Dexcom wannabes than to buy Senseonics. And that my friend should speak volumes to just how little value there is at Senseonics. Even if bought at fire sale prices and millions more invested the long-term outlook does not improve.

This situation reminds us of a scene from Indiana Jones and the Last Crusade when Indiana and his father played by Sean Connery are tied up together and in attempt to escape try to burn their way out of the ropes. Connery drops the lighter and the room begins to catch fire. As they try to avoid being burned to a crisp, they find a secret passage which unfortunately leads them to a room full of their Nazi captures. To wit Connery says to his son Indiana – “Our situation has not improved.”

Of course they escape unfortunately there is no escape for Senseonics only in the movies are impossible escapes possible. In the real world the situation is as dire as it looks, and the situation is not going to improve even with this new blood money.