Will they make it?

As difficult as it may be business in the wacky world must go on at least for some. This afternoon after the markets closed, thank goodness, Senseonics reported fourth quarter and full year results. The results unfortunately were not promising and there is serious doubt the company can remain afloat. Even before the results were released, we knew the company was running out of money and barring a fresh capital infusion or sale it was unlikely the company could survive much longer.

Multiple sources have confirmed some companies have been sniffing around Senseonics but so far, no takers. Looking at the results then throwing in the current coronavirus panic it seems unlikely the company will find a suitor. It’s equally unlikely given the craziness going on in the financial markets additional capital will be forthcoming.

In a nutshell here is the problem, per the earnings announcement;

“Fourth quarter 2019 gross profit decreased by $3.3 million year-over-year, to ($8.2) million. The decrease in gross profit was primarily due to increased cost of sales expenses including charges for obsolete inventory and product enhancements, warranties and costs to streamline the sensor supply chain.

As of December 31, 2019, cash and cash equivalents were $95.9 million and outstanding indebtedness was $144.9 million.”

To increase sales the company began the Eversense Bridge Program designed to boost sales with lower sensor prices. Unfortunately even if the program is successful, and it doesn’t look like it has been, the cost of program is killing margins. Not sure how this works but we don’t believe you can sell something at a loss and make up for that loss with increased volume.

Stranger still is the company has yet to conserve capital. Again from the press release;

“Fourth quarter 2019 sales and marketing expenses increased by $0.7 million year-over-year, to $11.0 million. The increase was due primarily to commercialization efforts in the U.S.

Fourth quarter 2019 research and development expenses increased by $1.7 million year-over-year, to $9.7 million. The increase in research and development expenses was primarily driven by expenses associated with the 180-day PROMISE clinical study.

Fourth quarter 2019 general and administrative expenses increased by $0.6 million year-over-year, to $5.9 million.”

During the call the company telegraphed more possible bad news as they noted that their partner Roche may delay purchasing product even though they are contractually obligated to do so.

Not to pile on but market dynamics aren’t helping either. Dexcom and Abbott continue to gobble up patients, the G7 is coming and one day maybe the Liber2 will get here.

One would think with the CGM market exploding, with CGM becoming the standard for glucose measurement that Senseonics if nothing else would be riding this wave. Well in an ironic twist this is one time when a rising tide does not lift all boats.

The harsh reality here is what we have said all along there just isn’t a large demand for implantable sensors. Now if the sensor lasted one or maybe two years without need for reinsertion things might be different. If the patient didn’t have to wear a transmitter on their body maybe things would be different. If the sensor could be self-implanted by the patient, if there wasn’t this additional procedure by a physician things might be different.

But things aren’t different and to us it’s not a question of if the company goes under but when and how. The best-case scenario would be a sale as that would ensure continuity for their installed patient base. However baring a sale we don’t see more capital as needed as it may be changing the long-term dynamic.

But hey things aren’t all bad as the company has those way cool whiz bang 18-wheelers with their logo on them. Yep that was great way to spend capital.