# Senseonics Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Senseonics Holdings, Inc.](/companies/sens.md) (CIK 1616543)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:27 ET
- Period: 2023-09-30
- Accession: 0001558370-23-018596
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1616543/000155837023018596/sens-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1616543/000155837023018596/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $6.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $14.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $4.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $12.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $1.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $2.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $12.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $38.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $7.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $22.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$19.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$58.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $2.4m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $9.4m | us-gaap:InterestExpense |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$24.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$43.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.04 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.08 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.04 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 592,452,262 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 552,703,546 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$55.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $180.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2023-09-30 | $55.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $146.1m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $154.1m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $17.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $64.3m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $40.5m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-09-30 | $52.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 46,374 characters.

*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, 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, 2022, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2023. 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 implantable CGM (“Eversense”), including 90-day Eversense, Eversense XL and Eversense E3 CGM system versions 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 XL and Eversense E3, as compared to seven to 14 days for non-implantable CGM systems. We affixed the CE mark to the original 90-day Eversense CGM system in June 2016, which marked the first certification for the product to be sold within the European Economic Area (being the European Union plus Norway, Iceland, and Liechtenstein) (“EEA”). Subsequently, we affixed the CE mark to the extended life Eversense XL CGM system in September 2017 to be sold in select markets in Europe and the Middle East. In June 2022, we affixed the CE mark to the extended life Eversense E3 CGM system and Ascensia began commercialization in select markets in Europe during the third quarter of 2022. In June 2018, the FDA, approved the 90-day Eversense CGM system for distribution throughout the United States. In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the 90-day 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 180-day extended life Eversense E3 CGM system was approved by the FDA and 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 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 approximately 300 million covered lives in the United States through positive insurance payor coverage decisions. In June 2023, we received positive payor coverage decision from UnitedHealthcare, the largest healthcare insurance company in the United States that effective July 1, 2023, Eversense E3 CGM system would be covered. 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 Schedule that updated global payments for the device cost and procedure fees. In July 2022, CMS provided temporary G-codes to enable immediate access to Eversense E3 for all eligible Medicare beneficiaries. In November 2022, CMS released its Calendar Year 2023 Medicare Physician Fee Schedule Proposed Rule that updates the payment amounts for the three CPT© Category III codes to account for the longer 6-month sensor.

In February 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 was left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days. Information gathered from this sub-set and additional development efforts provided us the confidence to start the Pivotal study for the Eversense 365-day System. The ENHANCE pivotal study for the Eversense 365-day system completed enrollment in the third quarter of 2022 and the last patient of the adult cohort completed the study in the third quarter of 2023. We expect to have data by the end of 2023, which is intended to support an FDA submission for a new product in early 2024.

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 90-day Eversense, Eversense XL, Eversense E3 and future generation products.

### 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 90-day 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 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. Information gathered from this sub-set and additional development efforts provided us the confidence to start the Pivotal study for the Eversense 365 System.

In April 2020, we announced that we received an extension to our CE Certificate of Conformity in the EEA 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 E3 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 included 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 then current distribution agreement with Rubin Medical, which included Sweden, Norway and Denmark; and (iii) until May 31, 2022, the territory did 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.

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 United States during the second quarter of 2022.

The ENHANCE clinical study was initiated as a pivotal study with the purpose of gathering additional clinical data to support an integrated continuous glucose monitoring (iCGM) submission for the Eversense E3 system using the SBA technology. In March 2022, we extended the ongoing ENHANCE clinical study to evaluate the safety and accuracy of the Eversense 365 System for a period of up to one year in the United States. In September 2022, we completed enrollment of the ENHANCE study and the last patient of the adult cohort completed the study in the third quarter of 2023. In November 2022, we submitted and in the first quarter of 2023 we received approval of an IDE for the enrollment of a pediatric cohort in the ENHANCE study. We began to enroll pediatric patients during the second quarter of 2023.

### European Commercialization of Eversense

In September 2017, we affixed 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 the 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 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.

In June 2022, we affixed the CE mark to the extended life Eversense E3 CGM system, and Ascensia began commercialization in European markets during the second half of 2022.

### 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 generally 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. Additionally, a portion of revenue is recognized through our consignment program whereas small quantities of inventory are maintained securely at various health care provider locations within the United States. Under this model, the Company does not recognize revenue upon shipment of product. Rather, revenue is recognized when the product is consumed by a patient.

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.

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 Commercialization Agreement.

#### Concentration of Revenue and Customers

For the three months ended September 30, 2023 and 2022, the Company derived 93% and 97%, respectively, of its total revenue from one customer, Ascensia. For the nine months ended September 30, 2023, and 2022, the Company derived 92% and 95%, respectively of its total revenue from one customer, Ascensia. Revenues for these corresponding periods represent sales of 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 and nine months ended September 30, 2023 and 2022:

*(Dollars in thousands)*

| ​ ​ ​ ​ Revenue, net: | ​ ​ ​ ​ ​ Three Months Ended ​ September 30, 2023 ​ ​ ​% ​ Amount ​ of Total ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ Nine Months Ended ​ September 30, 2023 ​ ​ ​% ​ Amount ​ of Total ​ ​ ​ ​ ​ ​ |
| --- | --- | --- | --- |
| United States | $3,930 ​ 64.5% | ​ | $7,885 ​ 54.9% |
| Outside of the United States | ​ 2,167 ​ 35.5 ​ | ​ | ​ 6,475 ​ 45.1 ​ |
| Total | $6,097 ​ 100.0% | ​ | $14,360 ​ 100.0% |
| ​ | ​ ​ ​ ​ ​ | ​ | ​ ​ ​ ​ ​ |
| ​ | ​ ​ ​ ​ ​ | ​ | ​ ​ ​ ​ ​ |
| ​ | **Three Months Ended** | ​ | **Nine Months Ended** **​** |
| ​ | **September 30, 2022** **​** | ​ | **September 30, 2022** ​ |
| ​ | **​** **​%** **​** | ​ | **​** **​%** ​ |
| (Dollars in thousands) | **Amount** ​ **of Total** **​** | ​ | **Amount** ​ **of Total** ​ |
| **Revenue, net:** | **​** **​** ​ **​** **​** | ​ | **​** **​** ​ **​** ​ |
| United States | $1,934 ​ 41.8% | ​ | $3,908 ​ 36.1% |
| Outside of the United States | ​ 2,688 ​ 58.2 ​ | ​ | ​ 6,910 ​ 63.9 ​ |
| Total | $4,622 ​ 100.0% | ​ | $10,818 ​ 100.0% |

### Results of Operations for the Three Months Ended September 30, 2023 and 2022

*(in thousands)*

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ ​ ​ ​ | ​ ​ ​ ​ Period-to- Period Change ​ | ​ |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Revenue, net |  | $426 |  | $126 |  | $300 | ​ |
| Revenue, net - related parties | ​ | ​ 5,671 | ​ | ​ 4,496 | ​ | ​ 1,175 | ​ |
| Total revenue | ​ | ​ 6,097 | ​ | ​ 4,622 | ​ | ​ 1,475 | ​ |
| Cost of sales | ​ | ​ 4,925 | ​ | ​ 3,866 | ​ | ​ 1,059 | ​ |
| Gross profit | ​ | ​ 1,172 | ​ | ​ 756 | ​ | ​ 416 | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Expenses: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Research and development expenses | ​ | 12,769 | ​ | 10,985 | ​ | 1,784 | ​ |
| Selling, general and administrative expenses | ​ | 7,425 | ​ | 7,340 | ​ | 85 | ​ |
| Operating loss | ​ | (19,022) | ​ | (17,569) | ​ | (1,453) | ​ |
| Other income (expense), net: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Interest income | ​ | ​ 1,460 | ​ | ​ 544 | ​ | ​ 916 | ​ |
| (Loss) Gain on fair value adjustment of option | ​ | ​ — | ​ | ​ (8,592) | ​ | ​ 8,592 | ​ |
| Exchange related loss, net | ​ | ​ (4,569) | ​ | ​ — | ​ | ​ (4,569) | ​ |
| Interest expense | ​ | (2,425) | ​ | (4,801) | ​ | 2,376 | ​ |
| Gain (Loss) on change in fair value of derivatives | ​ | ​ 438 | ​ | ​ (28,948) | ​ | ​ 29,386 | ​ |
| Impairment cost, net | ​ | ​ — | ​ | ​ (984) | ​ | ​ 984 | ​ |
| Other income (expense) | ​ | 15 | ​ | (41) | ​ | 56 | ​ |
| Total other (expense) income, net | ​ | (5,081) | ​ | (42,822) | ​ | 37,741 | ​ |
| Net (Loss) Income | ​ | $(24,103) | ​ | $(60,391) | ​ | $36,288 | ​ |

#### Total revenue

Our total revenue increased to $6.1 million for the three months ended September 30, 2023, compared to $4.6 million for the three months ended September 30, 2022, an increase of $1.5 million. This increase was primarily due to higher shipments of Eversense E3 in the United States in the third quarter of 2023 driving higher revenue in the current year offset by a higher revenue share percentage due to Ascensia.

#### Cost of sales and gross profit

Our cost of sales increased to $4.9 million for the three months ended September 30, 2023, compared to $3.9 million for the three months ended September 30, 2022. Our gross profit increased to $1.2 million for the three months ended September 30, 2023, compared to $0.8 million for the three months ended September 30, 2022. Gross profit as a percentage of revenue, or gross margin, was 19.2% and 16.4% for the three months ended September 30, 2023 and September 30, 2022, respectively. The improvement in gross margin was primarily driven by an increase in revenue partially offset by an increase to the revenue share percentage due to Ascensia.

#### Research and development expenses

Research and development expenses were $12.8 million for the three months ended September 30, 2023, compared to $11.0 million for the three months ended September 30, 2022, an increase of $1.8 million. The increase was primarily due to investments in next generation technologies including a $0.2 million increase in clinical studies activities and $1.6 million in personnel costs, consulting, contract fabrication and other research and development support services.

#### Selling, general and administrative expenses

Selling, general and administrative expenses were $7.4 million for the three months ended September 30, 2023, compared to $7.3 million for three months ended September 30, 2022, an increase of less than $0.1 million.

#### Total other income (expense), net

Total other expense, net, was $5.1 million for the three months ended September 30, 2023, compared to other expense, net, of $42.8 million for the three months ended September 30, 2022, an increase in other income of $37.7 million. The change was primarily due to a $8.6 million change in the fair value adjustment of options, a $29.4 million change in the fair value of derivatives, a $1.0 million change in impairment cost, an increase in interest income of $0.9 million, and a decrease in interest expense of $2.4 million, partially offset by a $4.6 million extinguishment loss due to a partial exchange of the 2025 notes.

### Results of Operations for the Nine Months Ended September 30, 2023 and 2022

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ ​ ​ ​ | ​ ​ ​ ​ Period-to- Period Change ​ ​ | ​ |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Revenue, net |  | $1,176 |  | $555 |  | $621 | ​ |
| Revenue, net - related parties | ​ | ​ 13,184 | ​ | ​ 10,263 | ​ | ​ 2,921 | ​ |
| Total revenue | ​ | ​ 14,360 | ​ | ​ 10,818 | ​ | ​ 3,542 | ​ |
| Cost of sales | ​ | ​ 12,358 | ​ | ​ 8,711 | ​ | ​ 3,647 | ​ |
| Gross profit | ​ | ​ 2,002 | ​ | ​ 2,107 | ​ | ​ (105) | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Expenses: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Research and development expenses | ​ | 38,003 | ​ | 28,088 | ​ | 9,915 | ​ |
| Selling, general and administrative expenses | ​ | 22,598 | ​ | 23,785 | ​ | (1,187) | ​ |
| Operating loss | ​ | (58,599) | ​ | (49,766) | ​ | (8,833) | ​ |
| Other income (expense), net: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Interest income | ​ | 3,879 | ​ | ​ 878 | ​ | ​ 3,001 | ​ |
| Gain on fair value adjustment of option | ​ | ​ — | ​ | ​ 41,333 | ​ | (41,333) | ​ |
| Exchange related gain, net | ​ | ​ 14,207 | ​ | ​ — | ​ | ​ 14,207 | ​ |
| Interest expense | ​ | ​ (9,388) | ​ | ​ (13,806) | ​ | ​ 4,418 | ​ |
| Gain on change in fair value of derivatives | ​ | ​ 6,505 | ​ | ​ 152,169 | ​ | ​ (145,664) | ​ |
| Impairment cost | ​ | ​ — | ​ | ​ (138) | ​ | 138 | ​ |
| Other income (expense) | ​ | 194 | ​ | (112) | ​ | 306 | ​ |
| Total other (expense) income, net | ​ | 15,397 | ​ | 180,324 | ​ | (164,927) | ​ |
| Net (Loss) Income | ​ | $(43,202) | ​ | $130,558 | ​ | $(173,760) | ​ |

#### Total revenue

Our total revenue increased to $14.3 million for the nine months ended September 30, 2023, compared to $10.8 million for the nine months ended September 30, 2022, an increase of $3.5 million. This increase was primarily due to higher shipments of Eversense E3 in the United States in the third quarter of 2023 driving higher revenue in the current year offset by a higher revenue share percentage due to Ascensia.

#### Cost of sales and gross profit

Our cost of sales were $12.4 million for the nine months ended September 30, 2023 compared to $8.7 million for the nine months ended September 30, 2022, an increase of $3.7 million. Our gross profit decreased to $2.0 million for the nine months ended September 30, 2023, compared to $2.1 million for the nine months ended September 30, 2022. Gross profit as a percentage of revenue, or gross margin, was 13.9% and 19.5% for the nine months ended September 30,

2023 and September 20, 2022, respectively. The reduction in gross margin was primarily driven by an increase in the revenue share percentage due to Ascensia, sales channel mix and increased manufacturing and logistics costs.

#### Research and development expenses

Research and development expenses were $38.0 million for the nine months ended September 30, 2023, compared to $28.1 million for the nine months ended September 30, 2022, an increase of $9.9 million. The increase was primarily due to investments for next generation technologies including a $6.1 million increase in clinical studies activities, an increase of $3.8 million in personnel costs, consulting, contract fabrication and other research and development support services.

#### Selling, general and administrative expenses

Selling, general and administrative expenses were $22.6 million for the nine months ended September 30, 2023, compared to $23.8 million for nine months ended September 30, 2022, a decrease of $1.2 million. The decrease was primarily due to a $0.6 million reduction in personnel costs, a $0.8 million reduction in other general and administrative costs to include recruiting and associated employee overhead and local tax expenses offset by $0.2 million increase in legal expenses.

#### Total other income (expense), net

Total other income (expense), net, was $15.4 million for the nine months ended September 30, 2023, compared to other income (expense), net, of $180.3 million for the nine months ended September 30, 2022, a decrease in other income of $164.9 million. The change was primarily due to a $145.7 million change in fair value of derivatives, a $41.3 million change in fair value of option, offset by an $14.2 million net extinguishment loss on the exchange of the PHC Notes and 2025 Notes, $3.0 million increase in interest income, $4.4 million decrease in interest expense, change in impairment cost of $0.1 million, and an increase of $0.3 million in other income, net.

### Liquidity and Capital Resources

### Sources of Liquidity

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. The Company has incurred substantial losses and cumulative negative cash flows from operations since its inception in October 1996 and expects to incur additional losses in the near future. We incurred total gross profit of $2.7 million, ($0.8) million, and ($17.4) million for the years ended December 31, 2022, 2021 and 2020, respectively. For the three months ending September 30, 2023, the Company had gross profit of $1.2 million and an accumulated deficit of $852.1 million. To date, the Company has funded its operations principally through the issuance of preferred stock, common stock, warrants, convertible notes, and debt. As of September 30, 2023, the Company had cash, cash equivalents and marketable securities of $125.4 million.

On September 8, 2023 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with the several financial institutions or entities party thereto (collectively, the “Lenders") and Hercules Capital, Inc., a Maryland corporation (“Hercules”), pursuant to which the Lenders have agreed to make available to the Company up to $50.0 million in senior secured term loans (the “Term Loan Facility”), consisting of (i) an initial term loan of $25.0 million (the “Tranche 1 Loan”), which was funded on the Effective Date and (ii) two additional tranches of term loans in the amounts of up to $10.0 million (the “Tranche 2 Loan”) and $15.0 million (the “Tranche 3 Loan”), respectively, which will become available to the Company upon the Company’s satisfaction of certain terms and conditions set forth in the Loan Agreement. The loans under the Loan Agreement mature on September 1, 2027 (the “Maturity Date”).

On August 10, 2023, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders (the “Noteholders”) of the Company’s currently outstanding

5.25% Convertible Senior Notes due 2025 (the “2025 Notes”). Under the terms of the Exchange Agreements, the Noteholders agreed to exchange with the Company (the “Exchanges”) up to $30.8 million in aggregate principal amount of the Company’s outstanding 2025 Notes (the “Exchanged Notes”) for a combination of $7.5 million of cash and newly issued shares of common stock (the “Exchange Shares”). The number of Exchange Shares was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges. The Exchanges were settled on the initial share issuance date of August 14, 2023 and the final settlement date of September 5, 2023.

In August 2023, the Company entered into an Equity Distribution Agreement, (the “Equity Distribution Agreement”) with Goldman Sachs & Co. LLC (“GS”), 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 $106.6 million through GS as its sales agent in an “at the market” offering. GS will receive a commission up to 3.0% of the gross proceeds of any common stock sold through GS under the Equity Distribution Agreement. The shares will be offered and sold pursuant to an effective shelf registration statement on Form S-3 (the “Registration Statement”), which was originally filed with the Securities and Exchange Commission (the “Commission”) on August 10, 2023.

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 our 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 2023, the Company received $7.4 million in net proceeds from the sale of 9,944,663 shares of its common stock under the 2021 Sales Agreement. For the nine months ended September 30, 2022, Company received $34.4 million in net proceeds from the sale of 15,160,899 shares of its common stock under the 2021 Sales Agreement. On August 7, 2023, the Company and Jefferies mutually agreed to terminate the 2021 Sales Agreement, effective as of August 7, 2023. At the time of termination, approximately $106.6 million remained available for issuance pursuant to the 2021 Sales Agreement.

On November 9, 2020, the Company entered into the Equity Line Agreement with Energy Capital which provided that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital was committed to purchase up to an aggregate of $12.0 million of shares of the Company’s newly designated 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 that the Company have less than $8.0 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company had the right, at its 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 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 provided that the Company was not permitted to 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 had been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital had 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. On November 7, 2022, Energy Capital exercised in full its right to purchase $12.0 million of Series B Preferred Stock. The excess of the Purchase Price and the fair value of the Energy Capital option in the total amount of $37.6 million was recorded in additional-paid-in-capital.

On August 9, 2020, the Company entered into a financing agreement with 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 FDA approval for the 180-day Eversense product for marketing in the United States before such date. The Company successfully obtained FDA approval in February 2022 and the option was not exercised.

On March 13, 2023, the Company entered into an Exchange Agreement with PHC, pursuant to which PHC agreed to exchange its $35.0 million aggregate principal amount of the PHC Notes, including all accrued and unpaid interest thereon, for the PHC Exchange Warrant to purchase up to 68,525,311 PHC Exchange Warrant Shares. The PHC Exchange Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per PHC Exchange Warrant Share. The number of PHC Exchange Warrant Shares represents the number of shares of common stock previously issuable upon conversion of the PHC Notes, in accordance with the original terms of the notes, including a number of shares in respect of accrued and unpaid interest through the closing date, plus additional shares with a value of $675,000 reflecting a portion of the future interest payments forgone by PHC. On March 31, 2023, the PHC Exchange was consummated, and the Company issued the PHC Exchange Warrant in consideration for the cancellation of the PHC Notes.

On March 13, 2023, the Company entered into a Securities Purchase Agreement with PHC, pursuant to which the Company issued and sold to PHC in a private placement a Purchase Warrant to purchase an aggregate of 15,425,750 Purchase Warrant Shares. The purchase price of the Purchase Warrant was approximately $0.97 per Purchase Warrant Share, representing the undiscounted, trailing 10-day volume weighted average price of the Company’s common stock through March 10, 2023. The Purchase Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per Purchase Warrant Share. The issuance of the Purchase Warrants enabled PHC to maintain, as of the closing of the transaction, a 15% beneficial ownership for purposes of the Investor Rights Agreement, dated August 9, 2020, between the Company and PHC.

On the Private Placement Closing Date, the Company received aggregate gross proceeds of $15.0 million, before deducting private placement expenses payable by the Company.

### Indebtedness

#### Term Loans

On the Effective Date, the Company entered into the Loan Agreement with the Lenders and Hercules, pursuant to which the Lenders have agreed to make available to the Company the Term Loan Facility, consisting of (i) an initial Tranche 1 Loan, which was funded on the Effective Date and (ii) the Tranche 2 Loan and Tranche 3 Loan, respectively, which will become available to the Company upon the Company’s satisfaction of certain terms and conditions set forth in the Loan Agreement. The loans under the Loan Agreement mature on the Maturity Date.

#### 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 PPP Loan was evidenced by 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 accrued on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note was two years. In April 2022, the Company repaid the outstanding principal and accrued interest in full.

#### Convertible Notes

The following table summarizes our outstanding convertible notes at September 30, 2023:

*(in millions)*

| ​ ​ Convertible Note | ​ ​ ​ ​ | ​ ​ Issuance Date | ​ ​ ​ Coupon | ​ | ​ ​ ​ | ​ ​ Aggregate Principal | ​ ​ ​ | ​ ​ Maturity Date | ​ | ​ ​ ​ | ​ Initial Conversion Rate per $1,000 Principal Amount | ​ | ​ ​ ​ | ​ ​ Conversion Price per Share of Common Stock | ​ ​ ​ |
| --- | --- | --- | --- | ---: | --- | ---: | --- | --- | --- | --- | --- | ---: | --- | ---: | --- |
| 2025 Notes | ​ | July 1, 2019 | **​** | 5.25% | ​ | $20.4 | ​ | **​** | January 15, 2025 | ​ | **​** | 757.5758 | ​ | $1.32 | ​ |

As described above, on August 10, 2023, we executed a series of exchange agreements with certain holders of the 2025 Notes to exchange an aggregate principal amount of up to $30.8 million of 2025 Notes for a combination of cash and newly issued shares of common stock. For additional information on the 2025 Notes, see Note 12—Notes Payable, Preferred Stock and Stock Purchase Warrants in the accompanying unaudited consolidated financial statements.

### Funding Requirements and Outlook

Our ability to grow revenues 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 2023 and beyond.

We believe that our existing agreements, including the transactions with PHC, evidence the mutual commitment of PHC and the Company to support the commercialization of Eversense and specifically for the Company, provide the financial resources for manufacturing of Eversense and continued product development. 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 into 2025. As part of our liquidity strategy, we will continue to monitor our capital structure and market conditions going forward and we may access the debt and equity or equity linked 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).

| ​ ​ ​ ​ | ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Net cash used in operating activities |  | $(55,096) |  | $(48,925) |  |
| Net cash provided by investing activities | ​ | 53,518 | ​ | 19,532 | ​ |
| Net cash provided by financing activities | ​ | 21,544 | ​ | 31,416 | ​ |
| Net (decrease) increase in cash and cash equivalents | ​ | $19,966 | ​ | $2,023 | ​ |

#### Net cash used in operating activities

Net cash used in operating activities was $55.1 million for the nine months ended September 30, 2023 and consisted of a net loss of $43.2 million, $14.2 million net loss due to partial exchange of the 2025 Notes, a $6.5 million gain on change in the fair value of the 2025 Notes embedded derivative, a net change in operating assets and liabilities of $2.9 million (most notably increases in accounts receivable of $1.0 million and inventory of $2.5 million), partially offset by $5.1 million related to depreciation/amortization and other non-cash items, net and $6.7 million of stock-based compensation.

Net cash used in operating activities was $48.9 million for the nine months ended September 30, 2022 and consisted of an $152.2 million change in fair value of derivatives on convertible notes, a $41.3 million loss on fair value adjustment of the option, and a net change in operating assets and liabilities of $2.3 million, partially offset by net income of $130.6 million, $9.8 million related to depreciation/amortization and other non-cash items and $6.5 million of stock-based compensation.

#### Net cash provided by investing activities

Net cash provided by investing activities was $53.5 million for the nine months ended September 30, 2023 and consisted of $122.2 million in proceeds from the sale and maturity of marketable securities, offset by $68.5 million in purchase of marketable securities and $0.2 million in purchase of capital expenditures.

Net cash provided by investing activities was $19.5 million for the nine months ended September 30, 2022 and primarily consisted of proceeds from the sale and maturity of marketable securities.

#### Net cash provided by financing activities

Net cash provided by financing activities was $21.5 million for the nine months ended September 30, 2023, and primarily consisted of $7.4 million in proceeds from issuance of common stock, $14.7 million in proceeds from the issuance of the PHC Warrants, and $24.5 million in proceeds from the issuance of the Loan and Security Agreement, partially offset by $15.7 million for the repayment of the 2023 Notes, $7.5 million for the partial repayment of the 2025 Notes, $1.6 million related to the settlement of equity awards, and $0.2 million for debt issuance costs.

Net cash provided by financing activities was $31.4 million for the nine months ended September 30, 2022, and primarily consisted of $34.4 million from the issuance of common stock pursuant to the 2021 Sales Agreement and $1.1 million for proceeds related to the exercise of stock options and warrants, partially offset by $2.9 million in repayment of the PPP loan and $1.2 million in tax payments related to the settlement of equity awards.

### Contractual Obligations

As of September 30, 2023, 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 16, 2023.

## Market risk

As filed, 203 characters.

Under SEC rules and regulations, because we are considered to be a “smaller reporting company”, we are not required to provide the information required by this item in this Quarterly Report on Form 10-Q.

## Controls and procedures

As filed, 1,964 characters.

### 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 September 30, 2023. 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 September 30, 2023, 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.

### 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 September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,708 characters.

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. Except as set forth below, there have been no material changes from our risk factors described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K.

***Our recent exchange agreements with certain holders of our 2025 Notes will result in additional dilution and could cause our stock price to decline.***

On August 10, 2023, we entered into separate, privately negotiated exchange agreements with certain holders of our 2025 Notes, pursuant to which the noteholders agreed to exchange an aggregate principal amount of up to $30.8 million of 2025 Notes for a combination of cash and newly issued shares of common stock. The number of shares we issued in connection with these exchanges was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges. The number of shares that issued in connection with the exchanges exceeded the number of shares underlying the 2025 Notes that were exchanged, resulting in incremental dilution to our common stockholders. Additionally, the shares that we issued to the noteholders will be eligible for immediate resale in the open market without restriction, which could increase the number of shares of common stock sold over the near term and could cause our stock price to decline.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-018596. Last ingested by Listed: Oct 27, 2026, 17:29 ET. No prices; not investment advice.