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 June 30, 2019

or

☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 001-37717

Senseonics Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 3841
(Primary Standard Industrial
Classification Code Number) 47‑1210911
(I.R.S. Employer
Identification Number)

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:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	SENS	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days   Yes ☒No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☒No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	◻	Accelerated filer	☒
Non-accelerated filer	◻	Smaller reporting company	☒
Emerging growth company	☒		

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 203,168,205 shares of common stock, par value $0.001, outstanding as of August 6, 2019.

TABLE OF CONTENTS

PART I: Financial Information
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018	2
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for three and six months ended June 30, 2019 and 2018	3
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2019 and 2018	4
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	5
Notes to Unaudited Condensed Consolidated Financial Statements	6
ITEM 2: Management Discussion and Analysis of Financial Condition and Results of Operations	23
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk	36
ITEM 4: Controls and Procedures	36
PART II: Other Information
ITEM 1: Legal Proceedings	37
ITEM 1A: Risk Factors	37
ITEM 2: Unregistered Sales of Equity and Securities and Use of Proceeds	38
ITEM 3: Defaults Upon Senior Securities	39
ITEM 4: Mine Safety Disclosures	39
ITEM 5: Other Information	39
ITEM 6: Exhibits	39
SIGNATURES	41

1

Senseonics Holdings, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

	June 30,		December 31,
	2019		2018
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	65,296	$	136,793
Accounts receivable		839		830
Accounts receivable - related parties		4,963		6,267
Inventory, net		16,787		10,231
Prepaid expenses and other current assets		6,091		3,985
Total current assets		93,976		158,106
Deposits and other assets		2,142		117
Property and equipment, net		2,278		1,750
Total assets	$	98,396	$	159,973
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,779	$	4,407
Accrued expenses and other current liabilities		16,922		13,851
Deferred revenue		—		628
Term Loans, accrued interest		2,002		—
Term Loans, current portion		9,901		10,000
Total current liabilities		33,604		28,886
Term Loans, net of discount and current portion		—		4,783
2023 Notes, net of discount		37,815		36,103
Derivative liability		10,130		17,091
Term Loans, accrued interest		—		1,764
Other liabilities		1,674		85
Total liabilities		83,223		88,712
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.001 par value per share; 450,000,000 shares authorized; 177,031,842 and 176,918,381 shares issued and outstanding as of June 30, 2019 and December 31, 2018		177		177
Additional paid-in capital		433,229		428,878
Accumulated deficit		(418,233)		(357,794)
Total stockholders' equity		15,173		71,261
Total liabilities and stockholders’ equity	$	98,396	$	159,973

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

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Revenue, net	$	1,475	$	553	$	2,718	$	931
Revenue, net - related parties		3,132		3,070		5,312		5,638
Cost of sales		9,160		3,839		15,893		7,147
Gross profit		(4,553)		(216)		(7,863)		(578)
Expenses:
Sales and marketing expenses		14,179		6,177		27,013		9,618
Research and development expenses		10,504		8,289		17,612		16,402
General and administrative expenses		5,417		5,382		11,933		9,393
Operating loss		(34,653)		(20,064)		(64,421)		(35,991)
Other income (expense), net:
Interest income		410		241		1,037		425
Interest expense		(1,965)		(2,236)		(3,999)		(4,007)
Change in fair value of derivative liability		4,889		(10,166)		6,961		(15,013)
Other income (expense)		245		(271)		(17)		(183)
Total other income (expense), net		3,579		(12,432)		3,982		(18,778)
Net loss		(31,074)		(32,496)		(60,439)		(54,769)
Total comprehensive loss	$	(31,074)	$	(32,496)	$	(60,439)	$	(54,769)
Basic and diluted net loss per common share	$	(0.17)	$	(0.23)	$	(0.34)	$	(0.40)
Basic and diluted weighted-average shares outstanding		177,012,497		138,767,873		176,983,467		137,923,135

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

3

Senseonics Holdings, Inc.

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

(in thousands)

				Additional				Total
	Common Stock			Paid-In		Accumulated		Stockholders'
	Shares	Amount		Capital		Deficit		Equity (Deficit)
Three months ended June 30, 2018:
Balance, March 31, 2018	137,240	$	137	$	272,787	$	(286,096)	$	(13,172)
Issued shares of common stock	37,341		38		149,058		—		149,096
Exercise of stock options for cash and warrants	900		1		433		—		434
Conversion of 2023 Notes	735		1		249		—		250
Stock-based compensation expense and vesting of RSUs	26		—		1,603		—		1,603
Net loss	—		—		—		(32,496)		(32,496)
Balance, June 30, 2018	176,242	$	177	$	424,130	$	(318,592)	$	105,715
Six months ended June 30, 2018:
Balance, December 31, 2017	136,883	$	137	$	270,953	$	(263,823)	$	7,267
Issued shares of common stock	37,341		38		149,058		—		149,096
Exercise of stock options and warrants	1,212		1		813		—		814
Conversion of 2023 Notes	735		1		249		—		250
Stock-based compensation expense and vesting of RSUs	71		—		3,057		—		3,057
Net loss	—		—		—		(54,769)		(54,769)
Balance, June 30, 2018	176,242	$	177	$	424,130	$	(318,592)	$	105,715
Three months ended June 30, 2019:
Balance, March 31, 2019	176,958	$	177	$	430,926	$	(387,159)	$	43,944
Exercise of stock options for cash and warrants	36		—		71		—		71
Stock-based compensation expense and vesting of RSUs	37		—		2,232		—		2,232
Net loss	—		—		—		(31,074)		(31,074)
Balance, June 30, 2019	177,031	$	177	$	433,229	$	(418,233)	$	15,173
Six months ended June 30, 2019:
Balance, December 31, 2018	176,918	$	177	$	428,878	$	(357,794)	$	71,261
Exercise of stock options	51		—		94		—		94
Stock-based compensation expense and vesting of RSUs	62		—		4,257		—		4,257
Net loss	—		—		—		(60,439)		(60,439)
Balance, June 30, 2019	177,031	$	177	$	433,229	$	(418,233)	$	15,173

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

4

Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Six Months Ended
	June 30,
	2019		2018
Cash flows from operating activities
Net loss	$	(60,439)	$	(54,769)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		418		104
Non-cash interest expense (debt discount and deferred costs)		1,830		1,519
Change in fair value of derivative liability		(6,961)		15,012
Stock-based compensation expense		4,257		3,058
Provision for lower of cost or net realizable value		80		202
Provision for inventory obsolescence		2,256		—
Net realized gain on marketable securities		—		(69)
Changes in assets and liabilities:
Accounts receivable		1,295		394
Prepaid expenses and other current assets		(2,106)		(2,103)
Inventory		(8,892)		(5,611)
Deposits and other assets		—		(76)
Accounts payable		372		(2,540)
Accrued expenses and other current liabilities		2,626		4,118
Payments on right of use liability, building		(201)		—
Deferred revenue		(628)		—
Term Loans, accrued interest		238		390
Deferred rent		—		4
Net cash used in operating activities		(65,855)		(40,367)
Cash flows from investing activities
Capital expenditures		(736)		(176)
Purchases of marketable securities		—		(7,935)
Sales and maturities of marketable securities		—		20,350
Net cash (used in) provided by investing activities		(736)		12,239
Cash flows from financing activities
Proceeds from issuance of common stock, net of issuance costs		—		149,379
Proceeds from exercise of stock options and stock warrants		94		813
Proceeds from 2023 Notes, net of costs		—		50,734
Principal payments on Term Loans		(5,000)		(5,000)
Principal payments under capital lease obligations		—		(20)
Net cash (used in) provided by financing activities		(4,906)		195,906
Net (decrease) increase in cash and cash equivalents		(71,497)		167,778
Cash and cash equivalents, at beginning of period		136,793		16,150
Cash and cash equivalents, at end of period	$	65,296	$	183,928
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	1,858	$	954
Supplemental disclosure of non-cash investing and financing activities
Common stock offering costs incurred	$	—	$	282
Convertible debt offering costs incurred	$	—	$	29
Property and equipment purchases included in accounts payable and accrued expenses	$	170	$	73

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

5

Senseonics Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.Organization

Senseonics Holdings, Inc., a Delaware corporation, is a medical technology company focused on the design, development and commercialization of glucose monitoring 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.Liquidity

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 incurred substantial operating losses, principally from expenses associated with the Company’s research and development programs. The Company has not generated significant revenues from the sale of products and its ability to generate revenue and achieve profitability largely depends on the Company’s ability, alone or with others, to complete the development of its products or product candidates, and to obtain necessary regulatory approvals for the manufacture, marketing and sales of those products. These activities will require significant uses of working capital through the remainder of 2019 and beyond.

At June 30, 2019, the Company had $65.3 million in cash and cash equivalents. In July 2019, the Company completed financing and debt transactions totaling gross proceeds of $106.2 million, after repayment of the Term Loans (as defined below) and a portion of the Company’s convertible senior subordinated notes due 2023 (the “2023 Notes”), as described in Note 13 – Subsequent Events. As a result of these transactions, management has concluded that, based on the Company’s current operating plans, its existing cash and cash equivalents, will be sufficient to meet the Company’s anticipated operating needs through the end of 2020. Accordingly, management has concluded that the doubt about the Company’s ability to continue as a going concern over the next twelve months has been alleviated.

Historically, the Company has financed its operating activities through the sale of equity and equity linked securities and the issuance of debt. The Company plans to continue financing its operations with external capital for the foreseeable future. However, the Company may not be able to raise additional funds on acceptable terms, or at all. If the Company is unable to secure sufficient capital to fund its research and development and other operating activities, the Company may be required to delay or suspend operations, enter into collaboration agreements with partners that could require the Company to share commercial rights to its products to a greater extent or at earlier stages in the product development process than is currently intended, merge or consolidate with other entities, or liquidate.

3.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the Company’s opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly its financial position, results of operations, and cash flows. The consolidated balance sheet at December 31, 2018, has been derived from audited financial statements as of that date. The interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited

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interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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 revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, obsolete inventory, depreciable lives of property and equipment, and estimated accruals for clinical study costs, which are accrued based on estimates of work performed under contract. Actual results could differ from those estimates; however management does not believe that such differences would be material.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. 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 and six months ended June 30, 2019 and 2018, the Company’s net loss equaled its comprehensive loss and, accordingly, no additional disclosure is presented.

Cash and Cash Equivalents and Concentration of Credit Risk

The Company considers highly liquid investments with 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.

The Company’s cash and cash equivalents potentially subject the Company to credit and liquidity risk. The Company maintains cash deposits at major financial institutions with high credit quality and, at times, the balances of those deposits may exceed the Federal Deposit Insurance Corporation limits of $250,000. The Company has not experienced and does not anticipate any losses on deposits with commercial banks and financial institutions that exceed the federally insured amounts.

Concentration of Revenues and Customers

At any given time, the Company’s trade receivables are concentrated among a small number of principal customers. If any of the Company’s customers fail to pay their obligations under the terms of these financial instruments, the Company’s maximum exposure to potential losses would be equal to amounts reported on its consolidated balance sheets.

During the three and six months ended June 30, 2019 and 2018, the Company derived a majority of its total net revenue from two customers. During the three months ended June 30, 2019 and 2018, the Company derived 68 percent and 85 percent of its total net revenue from one of those two customers, respectively. During the six months ended June 30, 2019 and 2018, the Company derived 66 percent and 86 percent of its total net revenue from one of those two customers, respectively.

Revenues by geographic region

The following table sets forth net revenues 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

7

product, for the three and six months ended June 30, 2019. All of the Company’s net revenues were earned from sales outside of the United States for the three and six months ended June 30, 2018.

	Three Months Ended				Six Months Ended
	June 30, 2019				June 30, 2019
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenues, net:
Outside of the United States	$	3,509	76.2	%	$	6,117	76.2	%
United States		1,098	23.8			1,913	23.8
Total	$	4,607	100.0	%	$	8,030	100.0	%

Inventory

Inventory is valued at the lower of cost or net realizable value. Cost is determined using the standard cost method that approximates first in, first out. The Company periodically reviews inventory to determine if a write-down is necessary for inventory that has become obsolete, inventory that has a cost basis less than net realizable value, and inventory in excess of future demand taking into consideration the product shelf life.

Accounts Receivable

The Company grants credit to various customers in the normal course of business. Accounts receivable consist of amounts due from distributors. The Company records an allowance for doubtful accounts at the time potential collection risk is identified. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed by use of the straight-line method over the estimated useful lives of the assets, which is between three to five years for laboratory equipment, between five to seven years for office furniture and equipment, and the shorter of lease term or useful life for leasehold improvements. Upon disposition of the assets, the costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations. Repairs and maintenance costs are included as expense in the accompanying statement of operations.

Management reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Management did not identify any indicators of impairment through June 30, 2019.

Derivative Financial Instruments

In connection with the Company’s issuance of the 2023 Notes in January 2018, the Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a derivative liability in the Company’s consolidated balance sheets in accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging. The financial instrument is remeasured at the end of each reporting period with changes in fair value recorded in the consolidated statements of operations in other income (expense) as change in fair value of 2023 derivative.

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In July 2019, the Company issued $82.0 million in aggregate principal amount of convertible senior subordinated notes due 2025 (the “2025 Notes”). The Company used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the Company’s outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon,  as described in Note 13 – Subsequent Events.

Warranty Reserve

The Company may replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs associated with a product are recorded at the time of shipment. The Company estimates future replacement costs by analyzing historical replacement experience for the timing and amount of returned product, and the Company evaluates the reserve quarterly and makes adjustments when appropriate.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606, 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, once the contract is determined to be within the scope of ASC Topic 606, 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 product revenue from sales of the Eversense system and related components and supplies 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.

Revenues from product sales are recognized when the Customers obtain control of the Company’s product, which occurs at a point in time, based upon the delivery terms as defined in the distributor agreement. The Company is typically paid within 60 days of invoicing subsequent to the Customers obtaining control of the Company’s product.

In March 2019, the Company introduced the Eversense Bridge Program (the “program”) in the United States.  Under the program, the Company provides financial assistance, in the form of reimbursement, to eligible patients based on their insurance coverage. Reimbursement payments to the patient under the program are treated as a reduction of revenue in the period in which the corresponding gross revenue is recognized. Estimated reimbursement payments for product shipped to the Company’s customers but not sold to a patient within the same reporting period is based on historical experience and recorded within accrued expenses and other current liabilities in the accompanying consolidated balance sheets. Because of the limited experience with the program as of June 30, 2019, the Company’s estimated reimbursement rates with respect to such shipped, but unsold, products could change in future periods, and such changes could be material. The Company also, at its discretion, offers discounts and other allowances under defined promotional programs to the Customers which result in the establishment of reserves against product revenue.

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Cost of Sales

The Company uses third-party contract manufacturers to manufacture Eversense and related components and supplies. Cost of sales includes raw materials, contract manufacturing service fees, reserves for expected warranty costs, reserves for inventory valuation and obsolescence, scrap, and shipping and handling expenses associated with product delivery.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses include costs related to employee compensation, consultants, contracted services, supplies, outsourced testing, depreciation and other expenses associated with the Company’s process development, clinical, regulatory, and quality assurance activities.

Stock‑Based Compensation

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date of grant. The estimated fair value of stock options on the date of grant is amortized on a straight‑line basis over the requisite service period for each separately vesting portion of the award for those awards with service conditions only. For awards that also contain performance conditions, expense is recognized beginning at the time the performance condition is considered probable of being met over the remaining vesting period. The Company accounts for forfeitures in the period in which they occur.

The Company uses the Black‑Scholes option pricing model to determine the fair value of stock‑option awards. Valuation of stock awards requires management to make assumptions and to apply judgment to determine the fair value of the awards. These assumptions and judgments include estimating the fair value of the Company’s common stock, future volatility of the Company’s stock price, dividend yields, future employee turnover rates, and future employee stock option exercise behaviors. Changes in these assumptions can affect the fair value estimate.

Under ASC Topic 718, the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law shall be considered to be a deductible difference in applying ASC Topic 740, Income Taxes. The deductible temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently do not impact the Company, as all the deferred tax assets have a full valuation allowance.

Since the Company had net operating loss (“NOL”) carryforwards as of June 30, 2019, no excess tax benefits for the tax deductions related to stock-based awards were recognized in the statements of operations and comprehensive loss.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Management uses a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. In the ordinary course of business, transactions occur for which the ultimate outcome may be uncertain. Management does not expect the outcome related to accrued uncertain tax provisions to have a material adverse effect on the Company’s financial position, results of operations or cash flows.  The Company recognizes interest and penalties accrued on any

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unrecognized tax exposures as a component of income tax expense. The Company did not have any amounts accrued relating to interest and penalties as of June 30, 2019 and December 31, 2018.

The Company is subject to taxation in various jurisdictions in the United States and remains subject to examination by taxing jurisdictions for the year 1998 and all subsequent periods due to the availability of NOL carryforwards. In addition, all of the NOLs and research and development credit carryforwards that may be used in future years are still subject to adjustment.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of their short maturities. The Company’s Notes and 2023 Notes are recorded at historical cost, net of discounts, and are not remeasured at fair value.

Net Loss per Share

Basic net loss per share is computed by dividing net loss 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. At June 30, 2019 and 2018, the total number of anti-dilutive shares, consisting of common stock options, stock purchase warrants, and the 2023 Notes using the if-converted method, which have been excluded from the computation of diluted loss per share, were as follows:

	June 30,
	2019	2018
Stock-based awards	27,618,668	21,305,247
2023 Notes	21,321,038	15,499,998
Warrants	4,071,581	4,082,544
Total anti-dilutive shares outstanding	53,011,287	40,887,789

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 and stock purchase warrants using the treasury stock method, and the 2023 Notes using the if-converted method.

Recent Accounting Pronouncements

Recently Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”). The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. In July 2018, the FASB issued ASU 2018-11 to provide another transition method, allowing a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. The guidance is effective for annual reporting periods beginning after December 15, 2018, subject to early adoption. The Company adopted the new standard effective January 1, 2019 using the modified retrospective approach. The Company did not elect the transition option, but elected certain practical expedients, including not separating lease components from nonlease components for all classes of underlying assets. Additionally, all leases with a term at commencement of 12 months or less will be excluded from analysis under ASC 842.  The standard did not materially affect the Company’s consolidated net loss or cash flows.

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Impact of Adopting ASC 842 on the Financial Statements

	January 1, 2019				January 1, 2019
	Prior to ASC
	842 Adoption		ASC 842 Adoption		As Adjusted
Consolidated Balance Sheet Data (in thousands)
Operating lease assets (1)	$	—	$	2,235	$	2,235
Deferred rent non-current (2)	$	84	$	(84)	$	—
Operating lease liabilities (3)	$	—	$	417	$	417
Non-current operating lease liabilities (3)	$	—	$	1,902	$	1,902

(1)    Represents capitalization of operating lease assets, including reclassification of deferred rent to operating lease assets.

(2)    As of December 31, 2018, the deferred rent balance was $84.

(3)    Represents recognition of operating lease liabilities.

The Company has evaluated all other issued unadopted ASUs and believes the adoption of these standards will not have a material impact on its consolidated statements of earnings, balance sheets, or cash flows.

4.  Inventory, net

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

	June 30,		December 31,
	2019		2018
Finished goods	$	1,707	$	1,457
Work-in-process		13,518		7,211
Raw materials		1,562		1,563
Total	$	16,787	$	10,231

5.  Prepaid Expenses and Other Current Assets

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

	June 30,		December 31,
	2019		2018
Contract manufacturing	$	3,614	$	2,962
Financing services		712		—
Marketing and sales		598		287
Insurance		442		—
Clinical and preclinical		257		111
IT and software		199		244
Interest receivable		100		239
Other		169		142
Total prepaid expenses and other current assets	$	6,091	$	3,985

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6.Accrued Expenses and Other Current Liabilities

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

	June 30,		December 31,
	2019		2018
Contract manufacturing	$	4,299	$	6,068
Compensation and benefits		3,457		3,685
Sales and marketing services		1,942		738
Professional services		1,586		727
Clinical and preclinical		1,472		147
Product warranty		1,386		816
Interest on notes payable and 2023 Notes		1,226		1,268
Patient access program		831		—
Right of use liability - building		445		—
Other		278		402
Total accrued expenses and other current liabilities	$	16,922	$	13,851

7.Leases

The Company leases approximately 33,000 square feet of research and office space under a non‑cancelable operating lease expiring in 2023. The Company has an option to renew the lease for one additional five‑year term. With the adoption of ASC 842, the Company has recorded a right-of-use asset and corresponding lease liability, and does not include the additional five year term under the option.

The Company leases approximately 12,000 square feet of office space under a cancelable operating lease that expired on June 30, 2019 and is now a cancellable month-to-month operating lease. The Company can terminate the lease agreement upon 60 days’ prior written notice.

Operating lease expense for the three and six months ended June 30, 2019 was $0.2 million and $0.3 million, respectively. Short-term lease expense is included in total lease expense but was not significant for the three and six months ended June 30, 2019.

Lease expense was $0.1 million and $0.3 million for the three and six months ended June 30, 2018, respectively.

The Company identified and assessed the following estimates in recognizing the right-of-use asset and corresponding liability:

Expected lease term: The expected lease term for those leases commencing prior to January 1, 2019 did not change with the adoption of ASC 842. The expected lease term for leases commencing after the adoption of ASC 842 includes noncancelable lease periods and, when applicable, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, as well as periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

Incremental borrowing rate: As the discount rates in the Company’s lease are not implicit, the Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term.

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The following table summarizes the lease assets and liabilities as of June 30, 2019 (in thousands):

Operating Lease Assets and Liabilities	Balance Sheet Classification	Amount
Assets
Operating lease ROU assets	Deposits and other assets	$	2,025
Liabilities
Current operating lease liabilities	Accrued expenses and other current liabilities	$	445
Non-current operating lease liabilities	Other non-current liabilities		1,674
Total operating lease liabilities		$	2,119

The following table summarizes the maturity of undiscounted payments due under lease liabilities and the present value of those liabilities as of June 30, 2019 (in thousands):

2019 (remaining six months)	$	309
2020		629
2021		648
2022		668
2023		282
Total		2,536
Present value adjustment		(417)
Present value of lease liabilities	$	2,119

The following table summarizes the weighted-average lease term and weighted-average discount rate as of June 30, 2019:

Remaining lease term (years)
Operating leases	3.9
Discount rate
Operating leases	9.1	%

8.Notes Payable

Term Loans

On June 30, 2016, the Company entered into an Amended and Restated Loan and Security Agreement with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB” and together with Oxford, the “Lenders”). Pursuant to the Amended and Restated Loan and Security Agreement, the Company borrowed an aggregate principal amount of $25.0 million in the following three tranches: $15.0 million (“Tranche 1 Term Loan”); $5.0 million (“Tranche 2 Term Loan”); and $5.0 million (“Tranche 3 Term Loan”) (each, a “Term Loan,” and collectively, the “Term Loans”). The funding conditions for the Tranche 1 Term Loan were satisfied as of June 30, 2016. Therefore, the Company issued secured notes to the Lenders for aggregate gross proceeds of $15.0 million (the “Notes”) on June 30, 2016. The Company used approximately $11.0 million from the proceeds from the Notes to repay the outstanding balance under the Company’s previously existing Loan and Security Agreement with Oxford. The Company borrowed the Tranche 2 Term Loan and Tranche 3 Term Loan in November 2016 and March 2017, respectively. The maturity date for all Term Loans was June 1, 2020 (the “Maturity Date”).

On July 16, 2019, the Company entered into a Loan and Security Agreement (the “Solar Loan Agreement”) with Solar Capital, Ltd. a Maryland corporation (“Solar”), as described in Note 13 – Subsequent Events. Pursuant to the Solar Loan Agreement, on July 25, 2019, the Company borrowed term loans in an aggregate principal amount of $45.0 

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million, of which the Company used $11.6 million to repay in full the Term Loans and terminate the Amended and Restated Loan and Security Agreement with Oxford and SVB.

The Term Loans bore interest at a floating annual rate of 6.31% plus the greater of (i) 90-day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.64%, provided that the minimum floor interest rate is 6.95%, and require monthly payments. The monthly payments initially consisted of interest-only through December 31, 2017. In January 2018, the Company began to make monthly principal payments.

The Company elected to prepay all Term Loans prior to the Maturity Date subject to a prepayment fee equal to 1.00%. 

The Amended and Restated Loan and Security Agreement contained customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Lenders’ security interest over the collateral, a material adverse change, the occurrence of a default under certain other agreements entered into by the Company, the rendering of certain types of judgments against the Company, the revocation of certain government approvals of the Company, violation of covenants, and incorrectness of representations and warranties in any material respect. 

Pursuant to the Amended and Restated Loan and Security Agreement, the Company also issued 10-year stock purchase warrants to purchase an aggregate of 260,251 shares of common stock with an exercise price ranging from $1.86 to $3.86 per share (see Note 9, “Stockholders’ Equity”).

The Notes were collateralized by all of the Company’s consolidated assets. The Notes also contained certain restrictive covenants that limited the Company’s ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements. The Company incurred issuance costs related to the Notes of approximately $0.6 million that are being amortized as additional interest expense over the term of the Notes using the effective interest method. The fair value of the stock purchase warrants, which was estimated to be $0.5 million, was recorded as a discount to the Notes, which is also being amortized as additional interest expense over the term of the Notes using the effective interest method.

The Company was also required to make a final payment equal to 9.00% of the aggregate principal balances of the funded Term Loans. This fee is being accrued as additional interest expense over the term of the Notes using the effective interest method. At June 30, 2019 and December 31, 2018, the final payment fee accrual was $2.0 million and $1.8 million, respectively.

The Company estimates the fair value of the Notes based on borrowing rates currently available for loans with similar terms (Level 2). At June 30, 2019, the fair value of the Notes was $11.3 million based on prevailing market rates for secured debt.

2023 Notes

In January 2018, the Company issued $50.0 million in aggregate principal amount of the 2023 Notes. In February 2018, the Company issued an additional $3.0 million in aggregate principal amount of the 2023 Notes, pursuant to the partial exercise of the overallotment option by the underwriter. The net proceeds from the issuance of the 2023 Notes, after deducting transaction costs, were $50.7 million. The 2023 Notes are general, unsecured, senior subordinated obligations of the Company. The Company pays interest semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2018. As the 2023 Notes have a maturity date of February 1, 2023, they are classified as a long-term liability on the Company’s consolidated balance sheet at June 30, 2019.

Each $1,000 of principal of the 2023 Notes is initially convertible into 294.1176 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $3.40 per share, subject to adjustment upon the occurrence of specified events. Holders may convert at any time prior to February 1, 2023. Holders who

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convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock. If specific corporate events occur prior to the maturity date, the Company would increase the conversion rate pursuant to the make-whole fundamental change provision for a holder who elects to convert their 2023 Notes in connection with such an event in certain circumstances. Additionally, if a fundamental change occurs prior to the maturity date, holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes for cash at a repurchase price equal to 100% of the principal amount plus any accrued and unpaid interest.

In accordance with U.S. GAAP relating to embedded conversion features, the Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and in January 2018 recorded the embedded conversion option as a debt discount and derivative liability in the Company’s consolidated balance sheets at its initial fair value of $17.3 million. Additionally, the Company incurred transaction costs of $2.2 million. The debt discount, embedded conversion option and transaction costs, are being amortized to interest expense over the term of the 2023 Notes at an effective interest rate of 9.30%. 

The derivative liability will be remeasured at each reporting period with changes in fair value recorded in the consolidated statements of operations in other income (expense).

In the second quarter of 2018, the Company issued 73,529 shares of common stock upon the conversion of $250,000 in aggregate principal amount of the 2023 Notes. There was no conversion of 2023 Notes in the second quarter of 2019.

The following are the scheduled maturities of the 2023 Notes and Term Loans as of June 30, 2019 (in thousands):

2019 (remaining six months)	$	5,000
2020		5,000
2021		—
2022		—
2023		52,700
Total	$	62,700

The Company estimates the fair value of the 2023 Notes using commonly accepted valuation methodologies and market-risk measurements that are indirectly observable, such as credit risk (Level 2). At June 30, 2019, the fair value of the 2023 Notes, excluding the derivative liability, was $43.1 million.

In July 2019, the Company issued $82.0 million in aggregate principal amount of 2025 Notes. The Company used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the Company’s outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon, as described in Note 13 – Subsequent Events.

9.Stockholders’ Equity

Preferred Stock

As of June 30, 2019 and December 31, 2018, the Company’s authorized capital stock included 5,000,000 shares of undesignated preferred stock, par value $0.001 per share.  No shares of preferred stock were outstanding as of June 30, 2019 or December 31, 2018.

Common Stock

As of June 30, 2019 and December 31, 2018, the Company’s authorized capital stock included 450,000,000 shares of common stock, par value $0.001 per share. The Company had 177,031,842 and 176,918,381 shares of common stock issued and outstanding at June 30, 2019 and December 31, 2018, respectively.

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Stock Purchase Warrants

In connection with the issuance of the Notes, the Company also issued to the Lenders 10-year stock purchase warrants to purchase an aggregate of 116,581,  63,025 and 80,645 shares of common stock at an exercise price of $3.86,  $2.38 and $1.86 per share, respectively. The cumulative fair value of the warrants, which the Company estimated to be $0.5 million, was recorded as a discount to the Notes. These warrants expire on June 30, 2026, November 22, 2026, and March 29, 2027, respectively, and are classified in equity. In connection with the Company’s original Loan and Security Agreement with Oxford in 2014, the Company issued to Oxford 10-year stock purchase warrants to purchase an aggregate of 167,570 shares of common stock at an exercise price of $1.79 per share. The fair value of the warrants, which the Company estimated to be $0.2 million, was recorded as a discount to the promissory notes issued to Oxford in connection with the original Loan and Security Agreement. These warrants expire on November 2, 2020, July 14, 2021 and August 19, 2021, and are classified in equity. The unamortized deferred financing fees and debt discount related to the notes rollover amount is being amortized along with the deferred financing costs and the discount created by the new issuance of the warrants over the term of the loan using the effective interest method. For each of the six months ended June 30, 2019 and 2018, the Company recorded amortization of discount of debt of $0.1 million within interest expense in the accompanying statements of operations and comprehensive loss.

Stock‑Based Compensation

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 awards may be granted to the Company’s employees and certain other persons in accordance with the 2015 Plan provisions. In connection with the March 2016 Offering, 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”). The amended and restated 2015 Plan became effective as of the date of the pricing of the March 2016 Offering. 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 initially reserved for issuance pursuant to equity awards was 17,251,115 shares, representing 8,000,000 shares plus up to an additional 9,251,115 shares in the event that options that were outstanding under the Company’s equity incentive plans as of February 16, 2016 expire or otherwise terminate without having been exercised (in such case, the shares not acquired will revert to and become available for issuance under the amended and restated 2015 Plan). The number of shares of the Company’s common stock reserved for issuance under the amended and restated 2015 Plan will automatically increase on January 1 of each year, beginning on January 1, 2017 and ending on January 1, 2026, by 3.5% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s board of directors. As of June 30, 2019, 670,452 shares remained available for grant under the amended and restated 2015 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 (as defined below) 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 nonstatutory options, restricted stock unit awards and other equity incentive awards. As of June 30, 2019, 1,800,000 shares remained available for grant under the Inducement 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 7,076,638 shares of the Company’s

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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.

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date of grant. The estimated fair value of stock options on the date of grant is amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award for those awards with service conditions only. For awards that also contain performance conditions, expense is recognized beginning at the time the performance condition is considered probable of being met over the remaining vesting period.

10.Fair Value Measurements

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use to price the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

· Level 1—Quoted prices for identical assets or liabilities in active markets.

· Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The fair value of money market funds was derived from quoted prices in active markets for identical assets. The valuation technique used to measure the fair value of the Company’s debt instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company has segregated its financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The inputs used in measuring the fair value of the Company’s money market funds included in cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair market values are based on period-end statements supplied by the various banks and brokers that held the majority of the funds.

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The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis as follows (in thousands):

	June 30, 2019
	Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	47,745	$	47,745	$	—	$	—
Liabilities
Embedded features of the 2023 Notes	$	10,130	$	—	$	—	$	10,130

	December 31, 2018
	Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	122,859	$	122,859	$	—	$	—
Liabilities
Embedded features of the 2023 Notes	$	17,091	$	—	$	—	$	17,091

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):

	Embedded
	Features of the
	2023 Notes
December 31, 2018	$	17,091
Change in fair value included in other income (expense)		(6,961)
June 30, 2019	$	10,130

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain financial instruments within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended June 30, 2019 and 2018. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company has no financial assets and liabilities that are measured at fair value on a non-recurring basis.

Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company has no non-financial assets and liabilities that are measured at fair value on a recurring basis.

Non‑Financial Assets and Liabilities Measured at Fair Value on a Non‑Recurring Basis

The Company measures its long‑lived assets, including property and equipment, at fair value on a non‑recurring basis. These assets are recognized at fair value when they are deemed to be impaired. No such fair value impairment was recognized in the three and six months ended June 30, 2019 and 2018.

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11.Income Taxes

The Company has not recorded any tax provision or benefit for the six months ended June 30, 2019 or June 30, 2018. 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 June 30, 2019 and December 31, 2018.

12. Related Party Transactions

Roche Holding A.G, through its ownership interests in Roche Finance Ltd (collectively, “Roche”), has a noncontrolling ownership interest in the Company. For the three months ended June 30, 2019 and 2018, revenues from Roche were $3.1 million and $3.1 million, respectively. For the six months ended June 30, 2019 and 2018, revenues from Roche were $5.3 million and $5.6 million, respectively. Amounts due from Roche as of June 30, 2019 and December 31, 2018 were $5.0 million and $6.3 million, respectively.

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13.Subsequent Events

Convertible Notes

In July 2019, the Company issued $82.0 million in aggregate principal amount of 2025 Notes. The 2025 Notes are general, unsecured, senior subordinated obligations of the Company and bear interest at a rate of 5.25% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The 2025 Notes will mature on January 15, 2025, unless earlier repurchased or converted.

The Company used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the Company’s outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon.

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 Company may redeem for cash all or part of the 2025 Notes, at its option, if (1) the last reported sale price of the Company’s common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption and (2) a registration statement covering the resale of the shares of the Company’s common stock issuable upon conversion of the 2025 Notes is effective and available for use and is expected to remain effective and available for use during the redemption period as of the date of the redemption notice date. The redemption price will be equal to 100% of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes a fundamental change, holders may require the Company to repurchase for cash all or any portion of their 2025 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2025 Notes in connection with such notice of redemption or corporate event. In certain circumstances, the Company will be required to pay cash in lieu of delivering make whole shares unless the Company obtains stockholder approval to issue shares.

The 2025 Notes are guaranteed on a senior unsecured basis by the Company’s wholly-owned subsidiary, Senseonics, Incorporated, and may be guaranteed by certain future subsidiaries. The subsidiary guarantor is 100% owned, the guarantee is full and unconditional and joint and several and the parent company has no independent assets or operations and any subsidiaries of the parent company other than the subsidiary guarantor are minor.

Solar Loan Agreement

On July 16, 2019, the Company entered into the Solar Loan Agreement with Solar, as collateral agent, and the lenders from time to time party thereto (collectively, the “Solar Lenders”).

Pursuant to the Solar Loan Agreement, on July 25, 2019, the Company borrowed term loans in an aggregate principal amount of $45.0 million (the “Solar Term Loan”). The Company used $11.6 million of the Solar Term Loan to repay in full the Term Loans and terminate the Company’s existing credit facility with Oxford and SVB.

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Interest on the Solar Term Loan will be payable monthly at a floating annual rate of 6.50% plus the greater of (i) the rate per annum rate published by the Intercontinental Exchange Benchmark Administration Ltd. and (ii) 2.48%, provided that the minimum floor interest rate is 8.98%. The maturity date for the Solar Term Loan will be June 1, 2024 (the “Solar Maturity Date”). Commencing on August 1, 2021, the Company will be required to make monthly principal amortization payments; provided that the interest only period may be extended to (i) August 1, 2022 if the Company’s product revenue is greater than or equal to $40.0 million on a trailing six-month basis prior to the second anniversary of the effective date and (ii) August 1, 2023 if the Company’s product revenue is greater than or equal to $75.0 million on a trailing six-month basis after the achievement of the first extension.

The Company may elect to prepay the Solar Term Loan prior to the Solar Maturity Date subject to a prepayment fee equal to 3.00% if the prepayment occurs within one year of the effective date, 2.00% if the prepayment occurs during the second year following the effective date, and 1.00% if the prepayment occurs more than two years after the effective date and prior to the Solar Maturity Date.

The Solar Loan Agreement contains customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Solar Lenders’ security interest over the collateral, a material adverse change, the occurrence of a default under certain other agreements entered into by the Company and its subsidiaries, the rendering of certain types of judgments against the Company and its subsidiaries, the revocation of certain government approvals, violation of covenants, and incorrectness of representations and warranties in any material respect. Upon the occurrence of an event of default, subject to specified cure periods, all amounts owed by the Company would begin to bear interest at a rate that is 5.00% above the rate effective immediately before the event of default, and may be declared immediately due and payable by the Solar Lenders.

The Solar Term Loan is secured by substantially all of the Company and its subsidiaries’ assets. The Solar Loan Agreement also contains specified financial covenants related to the Company’s liquidity and trailing six-month revenues.

The Solar Loan Agreement also contains certain restrictive covenants that limit the Company’s ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements.

Warrants

In connection with the borrowing of the Solar Term Loan, the Company issued the Solar Lenders warrants to purchase an aggregate of 1,125,000 shares of its common stock with an exercise price of $1.20 per share (the “Solar Warrants”).  The Solar Warrants are exercisable until July 25, 2029. The Solar Lenders also have the right to net exercise the Solar Warrants for shares of the Company’s common stock

Public Offering of Common Stock

In July, 2019, pursuant to an underwriting agreement with Jefferies LLC, the Company closed a follow-on public offering of 26,136,363 shares of its common stock at a price of $1.10 per share, which included the exercise in full by Jefferies LLC of its option to purchase up to 3,409,090 additional shares. The Company received aggregate gross proceeds of $28.7 million from the offering before deducing underwriting discounts and offering expenses.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, 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, 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 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, 2018, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2019. 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 design, development and commercialization of glucose monitoring products to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy. Our continuous glucose monitoring, or CGM, systems, Eversense and Eversense XL, are reliable, long‑term, implantable CGM systems that we have designed to continually and accurately measure glucose levels in people with diabetes for a period of up to 90 and 180 days, respectively, as compared to six to fourteen days for currently available CGM systems. We believe Eversense and Eversense XL will provide people with diabetes with a more convenient method to monitor their glucose levels in comparison with the traditional method of self‑monitoring of blood glucose, or SMBG, as well as currently available CGM systems. In our U.S. pivotal clinical trial, we observed that Eversense measured glucose levels over 90 days with a degree of accuracy superior to that of other currently available CGM systems. Our Eversense and Eversense XL systems are currently approved for sale in Europe, the Middle East and Africa (EMEA) and our Eversense system is currently approved for sale in the United States.

Recent Developments

In July 2019, we closed a follow-on public offering of 26,136,363 shares of our common stock at a price of $1.10 per share, which included the exercise in full by the underwriter of its option to purchase up to 3,409,090 additional shares. We received aggregate gross proceeds of $28.7 million from the offering before deducing underwriting discounts and offering expenses.

On July 25, 2019, we issued $82.0 million aggregate principal amount of our 5.25% Convertible Senior Notes due 2025, or the 2025 Notes, to Jefferies LLC as the initial purchaser, or the Initial Purchaser, who subsequently resold the 2025 Notes to qualified institutional buyers, or the Notes Offering, in reliance on the exemption from registration provided by Rule 144A under the Securities Act of 1933, as amended.

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We used $37.9 million of the net proceeds from the Notes Offering to repurchase $37.0 million aggregate principal amount our outstanding 5.25% convertible senior subordinated notes due 2023, or the 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon.

On July 16, 2019, we entered into an Loan and Security Agreement, or the Solar Loan Agreement, with Solar Capital, Ltd. a Maryland corporation, or Solar, as collateral agent, and the lenders from time to time party thereto, or collectively, the Lenders.

Following our closing of the Notes Offering, we borrowed an aggregate principal amount of $45.0 million under the Solar Loan Agreement, or the Solar Term Loan. We used $11.6 million of the Solar Term Loan to terminate our existing Amended and Restated Loan and Security Agreement with Oxford Finance LLC, or Oxford, and Silicon Valley Bank, or SVB, and repay in full outstanding borrowings thereunder, or the Oxford/SVB Term Loans.

In addition, in connection with the borrowing of the Solar Term Loan, we issued the Lenders warrants to purchase an aggregate of 1,125,000 shares of our common stock with an exercise price of $1.20 per share, or the Solar Warrants. The Solar Warrants are exercisable until July 25, 2029.

European Commercialization of Eversense

In September 2015, we entered into a distribution agreement with Rubin Medical, or Rubin, pursuant to which we granted Rubin the exclusive right to market, sell and distribute Eversense in Sweden, Norway and Denmark through September 2020. Rubin markets and sells medical products for diabetes treatment in the Scandinavian region, including as the exclusive Scandinavian distributor for the insulin pump manufacturer Tandem Corporation. Under the agreement, Rubin is obligated to purchase from us specified minimum volumes of Eversense components at pre-determined prices.

In May 2016, we entered into a distribution agreement with Roche Diagnostics International AG and Roche Diabetes Care GmbH, together referred to as Roche, pursuant to which we granted Roche the exclusive right to market, sell and distribute Eversense in Germany, Italy and the Netherlands. Under the agreement, Roche is obligated to purchase from us specified minimum volumes of Eversense components at pre-determined prices. We began distributing Eversense through Roche in Germany in September 2016 and in Italy and the Netherlands in the fourth quarter of 2016. In November 2016, we entered into an amendment to the distribution agreement with Roche granting Roche the exclusive right to market, sell and distribute Eversense in Europe, the Middle East and Africa, excluding Sweden, Norway, Denmark, Finland and Israel. In January 2019, we entered into an additional amendment to the distribution agreement with Roche to extend the agreement through January 31, 2021. Pursuant to the amendment to the agreement, Roche has agreed to certain purchase levels of Eversense systems and pricing terms through the extended term of the agreement. In addition, under the amendment, Roche’s role as the exclusive distributor of Eversense was expanded to provide Roche with 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. To date, we have begun distributing Eversense in an aggregate of 15 European countries through Rubin and Roche.

In September 2017, we received the CE mark for Eversense XL, which 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.

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, or 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, or PMA, application to the FDA to market Eversense in the United States for 90-day use. On June 21, 2018, we received

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PMA approval from the FDA for the Eversense system. In July 2018, we began distributing the Eversense system directly in the United States through our own direct sales and marketing organization. We have received Category III CPT codes for the insertion and removal of the Eversense sensor. We intend to pursue a Category I CPT code. 

In December 2018, we initiated the PROMISE pivotal clinical trial to evaluate the safety and accuracy of Eversense for a period of up to 180 days in the United States. We plan to enroll over 200 subjects in this trial at up to 15 clinical sites. If the data from the PROMISE trial is positive, we intend to use the data in a regulatory submission to the FDA to expand the Eversense system use to 180 days in the United States. We expect to report topline data from the PROMISE trial in the first half of 2020.

In March 2019, we launched a patient access program, the Eversense Bridge Program, to assist those patients who do not have insurance coverage for Eversense, or whose insurance is denied or insufficient. Pursuant to this program, we are providing financial assistance to eligible patients purchasing Eversense to enable more patients to access the Eversense system. The amount of assistance that we provide depends on a patient’s insurance coverage. The program establishes maximum limits per patient and excludes certain patients as ineligible, including government-insured patients and residents of certain states. Although this program has just recently begun, we already see stimulated interest and activity across patients and providers. The program provides opportunities to engage both regional and national payors, which we expect will lead to additional positive payor coverage decisions for the Eversense system.

In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the Eversense system. With this approval, Eversense system can now be used as a therapeutic CGM to replace fingerstick blood glucose measurement for dosing decisions. We plan to roll out the Eversense system with this expanded indication in the United States starting in the second half of 2019.

We have never been profitable and our net losses were $31.1 million and $32.5 million for three months ended June 30, 2019 and 2018, respectively, and $61.2 million and $54.8 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, our accumulated deficit totaled $418.2 million, primarily as a result of expenses incurred in connection with our research and development programs and from general and administrative expenses associated with our operations. We expect to continue to incur significant expenses and increasing operations and net losses for the foreseeable future.

We have incurred and expect to continue to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. In addition, we expect to continue incurring expenses associated with the research and development of our other products and maintaining, expanding and protecting our intellectual property portfolio and seeking regulatory approvals in other jurisdictions. Furthermore, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. We will need to obtain substantial additional funding in connection with our continuing operations through debt financings, public or private equity or other sources, which may include collaborations with third parties. However, we may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise such capital as and when needed would have a negative impact on our financial condition and our ability to successfully commercialize Eversense and develop and commercialize future products and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so.

Financial Overview

Revenue

During three and six months ended June 30, 2019, we generated product revenue from sales of the Eversense and Eversense XL system in Europe pursuant to distribution agreements with Roche and Rubin, and from sales of the Eversense system in the United States. We recognize revenue upon the sales of Eversense systems and related components and supplies to our distributors for sales outside of the United States and to our fulfillment partners for sales in the United States, regardless of whether these customers resell those products to health care providers and patients. Under the terms of our distribution agreements with Roche and Rubin, these distributors are contractually obligated to

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make certain minimum purchases of Eversense systems from us and, accordingly, the revenue we recognize for any given period is not necessarily indicative of the level of sales to end users for that, or any other, period. We expect that our revenue from both European and U.S. product sales will continue to increase in the remainder of 2019 and future years as we continue our commercialization efforts. If we fail to successfully commercialize or are otherwise unable to complete the development of Eversense, our ability to generate future revenue, and our results of operations and financial position, will be adversely affected.

Under the Eversense Bridge Program, we account for reimbursements to the patient as a reduction of revenue in the period in which the corresponding gross revenue is recognized. For product shipped to our customers but not sold to a patient within the same reporting period, we estimate the amount of reimbursement based on our historical experience and record as an accrued expense within current liabilities in our consolidated balance sheets. Because of our limited experience with the Eversense Bridge Program as of June 30, 2019, our estimated reimbursement rates with respect to such shipped, but unsold, products could change in future periods, and such changes could be material.

Cost of Sales

We utilize contract manufacturers to produce Eversense. Cost of sales consists primarily of the components of Eversense and assembly, as well as reserves for warranty costs and any obsolete inventory. Other cost of sales includes distribution-related expenses such as logistics and shipping costs of Eversense to Roche and Rubin for distribution in various regions in EMEA and costs associated with distribution through our strategic fulfillment partners in the United States. We calculate gross margin as revenue less costs of sales divided by revenue. We expect our overall gross margin to improve over the long term, as our sales increase and we have more opportunities to leverage our costs over larger production volumes. However, our gross margins may fluctuate from period to period.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries, commissions, and other related costs, including stock-based compensation, for personnel who perform sales, marketing, and customer support functions. Other significant costs include marketing programs, educational and promotional materials, consultants, and tradeshow expenses.

We anticipate that our sales and marketing expenses will increase in the future with appropriate investment as we continue to expand our commercialization of Eversense both in the United States and Europe.

Research and Development

Research and development expenses consist of expenses incurred in performing research and development activities in developing Eversense, including clinical trials and feasibility studies, and partnerships for strategic initiatives including insulin delivery and new indications. Research and development expenses include compensation and benefits for research and development employees including stock‑based compensation, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to regulatory operations, fees paid to contract research organizations and other consultants, and other outside expenses. Research and development costs are expensed as incurred.

We have incurred significant research and development expenses from inception, with the substantial majority of the expenses spent on the development of Eversense. We expect to continue to commit significant resources to continue to develop future product enhancements for Eversense and to conduct ongoing and future clinical trials. We expect that our overall research and development expenses will increase for the PROMISE and other studies in support of future product enhancements.

General and Administrative

General and administrative expenses consist primarily of salaries and other related costs, including stock‑based compensation, for personnel in our executive, finance, accounting, business development, and human resources

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functions. Other significant costs include information technology, facility costs, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

Our general and administrative expenses have increased, and we expect them to continue to increase at a lower rate in the future and to decline as a  percentage of revenue. These increases include increased costs related to the hiring of additional personnel and increased fees to outside consultants, lawyers and accountants as well as expenses related to maintaining compliance with NYSE American listing rules and SEC requirements, insurance, and investor relations costs. These expenses may further increase when we no longer qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, which will require us to comply with certain reporting requirements from which we are currently exempt. We will no longer qualify as an “emerging growth company” effective December 31, 2019.

Other Income (Expense), Net

Interest income consists of interest earned on our cash equivalents. Interest expense primarily has consisted of interest expense on our convertible senior subordinated notes, and our obligations under the Amended and Restated Loan and Security Agreement with Oxford and SVB. This interest expense primarily consisted of contractual interest on the outstanding debt balances and amortization of debt discounts. During the six months ended June 30, 2018, we issued an aggregate of $53.0 million in aggregate principal amount of convertible senior subordinated notes, or the 2023 Notes. We bifurcated the embedded conversion option of the 2023 Notes, along with the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a derivative liability in our consolidated balance sheets. This embedded derivate instrument is remeasured at the end of each reporting period with changes in fair value recorded to change in fair value of derivative liability in our consolidated results of operations.

Results of Operations

Comparison of the three months ended June 30, 2019 and 2018

The following table sets forth our results of operations for the three months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended
	June 30,				Period-to-
	2019		2018		Period Change
	(unaudited)
Revenue, net	$	1,475	$	553	$	922
Revenue, net - related parties		3,132		3,070		62
Cost of sales		9,160		3,839		5,321
Gross profit		(4,553)		(216)		(4,337)
Expenses:
Sales and marketing expenses		14,179		6,177		8,002
Research and development expenses		10,504		8,289		2,215
General and administrative expenses		5,417		5,382		35
Operating loss		(34,653)		(20,064)		(14,589)
Other income (expense), net:
Interest income		410		241		169
Interest expense		(1,965)		(2,236)		271
Change in fair value of derivative liability		4,889		(10,166)		15,055
Other income (expense)		245		(271)		516
Total other income (expense), net		3,579		(12,432)		16,011
Net loss	$	(31,074)	$	(32,496)	$	1,422

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Revenue, net

Our net revenues increased to $4.6 million for the three months ended June 30, 2019, compared to $3.6 million for the three months ended June 30, 2018. This increase was primarily due to sales of Eversense in the United States in the three months ended June 30, 2019 following our U.S. launch in July 2018, partially offset by gross to net reductions to revenue for the Eversense Bridge Program.

Cost of sales

Our cost of sales increased to $9.2 million for the three months ended June 30, 2019, compared to $3.8 million for the three months ended June 30, 2018. The increase was primarily due to $1.9 million of U.S. sales, a $1.3 million increase in warranty expense, a $2.0 million increase in impairment charges for obsolete inventory associated with product design changes and yield losses at our contract manufacturers, and a $0.2 million increase in other selling costs in the three months ended June 30, 2019.

Gross profit was $(4.6) million and $(0.2) million for the three months ended June 30, 2019 and 2018, respectively. Gross profit as a percentage of revenue, or gross margin, was (99)% and (6)% for the three months ended June 30, 2019 and 2018, respectively. The decrease was primarily due to warranty expense and impairment charges associated with product design changes and yield losses at our contract manufacturers.

Sales and marketing expenses

Sales and marketing expenses were $14.2 million for the three months ended June 30, 2019, compared to $6.2 million for the three months ended June 30, 2018, an increase of $8.0 million. The increase was primarily due to a $4.3 million increase in salaries, bonuses and payroll related costs for additional headcount, an increase in market research, consultants, and marketing costs of $2.2 million in connection with the U.S. launch of Eversense, and an increase of $1.5 million in other sales and general marketing expenses to support our European distribution of Eversense as well as in connection with our U.S. launch of Eversense.

Research and development expenses

Research and development expenses were $10.5 million for the three months ended June 30, 2019, compared to $8.3 million for the three months ended June 30, 2018, an increase of $2.2 million. The increase was primarily due to a $2.4 million increase in expenses related to clinical studies, partially offset by a $0.2 million decrease in development efforts at our contract manufacturers related to development of future generations of Eversense.

General and administrative expenses

General and administrative expenses were $5.4 million for both the three months ended June 30, 2019, and June 30, 2018.

Total other income (expense), net

Total other income (expense), net, was $3.6 million for the three months ended June 30, 2019, compared to $(12.4) million for the three months ended June 30, 2018, an increase of $16.0 million. The increase was primarily due to a $15.1 million change in fair value of the derivative liability in the three months ended June 30, 2019, compared to the three months ended June 30, 2018, partially offset by an increase of $0.9 million in interest expense on our Oxford/SVB Term Loans and 2023 Notes.

Comparison of the six months ended June 30, 2019 and 2018

The following table sets forth our results of operations for the six months ended June 30, 2019 and 2018 (in thousands).

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	Six Months Ended
	June 30,				Period-to-
	2019		2018		Period Change
	(in thousands)
Revenue, net	$	2,718	$	931	$	1,787
Revenue, net - related parties		5,312		5,638		(326)
Cost of sales		15,893		7,147		8,746
Gross profit		(7,863)		(578)		(7,285)
Expenses:
Sales and marketing expenses		27,013		9,618		17,395
Research and development expenses		17,612		16,402		1,210
General and administrative expenses		11,933		9,393		2,540
Operating loss		(64,421)		(35,991)		(28,430)
Other income (expense), net:
Interest income		1,037		425		612
Interest expense		(3,999)		(4,007)		8
Change in fair value of derivative liability		6,961		(15,013)		21,974
Other income (expense)		(17)		(183)		166
Total other income (expense), net		3,982		(18,778)		22,760
Net loss	$	(60,439)	$	(54,769)	$	(5,670)

Revenue, net

Our net revenue increased to $8.0 million for the six months ended June 30, 2019, compared to $6.6 million for the six months ended June 30, 2018. This increase was primarily due to sales of Eversense in the United States in the six months ended June 30, 2019 following our U.S. launch in July 2018, partially offset by gross to net reductions to revenue for the Eversense Bridge Program.

Cost of sales

Our cost of sales increased to $15.9 million for the six months ended June 30, 2019, compared to $7.1 million for the six months ended June 30, 2018. The increase was primarily due to $3.0 million of U.S. sales, a $1.8 million increase in warranty expense and obligations as a result of the January 2019 amendment of the Roche distribution agreement, an increase of $2.2 million for impairment charges for obsolete inventory associated with product design changes and yield losses at our contract manufacturers, and an increase of $1.7 million for lab supplies, shipping and duties, and logistics costs.

Our gross profit was $(7.9) million and $(0.6) million for the six months ended June 30, 2019 and 2018, respectively. Gross profit as a percentage of revenue, or gross margin, was (98)% and (9)% in the six months ended June 30, 2019 and 2018.

Sales and marketing expenses

Sales and marketing expenses were $27.0 million for the six months ended June 30, 2019, compared to $9.6 million for the six months ended June 30, 2018, an increase of $17.4 million. The $17.4 million increase was primarily due to a $9.0 million increase in salaries, bonuses and payroll related costs for additional headcount, an increase in sales related costs of $2.8 million in connection with the U.S. launch and commercialization of Eversense, and an increase of $5.6 million in other sales and general marketing expenses to support our European distribution of Eversense as well as the U.S. launch of Eversense, including travel, marketing programs and materials, and trade shows.

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Research and development expenses

Research and development expenses were $17.6 million for the six months ended June 30, 2019, compared to $16.4 million for the six months ended June 30, 2018, an increase of $1.2 million. The increase of $1.2 million was primarily due to a $0.5 million increase in salaries, bonuses and payroll related costs for additional headcount and a $2.9 million increase in expenses related to clinical studies, partially offset by a $2.1 million decrease in development efforts at our contract manufacturers related to development of future generations of Eversense.

General and administrative expenses

General and administrative expenses were $11.9 million for the six months ended June 30, 2019, compared to $9.4 million for the six months ended June 30, 2018, an increase of $2.5 million. The increase was primarily due to a $0.9 million increase in salaries, bonuses and payroll related costs for additional headcount, and an increase of $1.6 million in other general and administrative costs to support our operations.

Total other income (expense), net

Total other income (expense), net, was $4.0 million for the six months ended June 30, 2019, compared to $(18.8) million for the six months ended June 30, 2018, an increase of $22.8 million. The increase was primarily due to a $22.0 million change in fair value of the derivative liability during the six months ended June 30, 2019 compared to the six months ended June 30, 2019, partially offset by an increase of $2.2 million in interest expense on our Oxford/SVB Term Loans and 2023 Notes, and a $0.7 million increase in investment income.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have not generated any significant revenue from product sales. We have incurred substantial losses and cumulative negative cash flows from operations since our inception in October 1996. We have never been profitable and our net losses were $60.4 million and $54.8 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, our accumulated deficit totaled $418.2 million.

To date, we have funded our operations principally through the issuance of preferred stock, common stock and debt. As of June 30, 2019, we had cash and cash equivalents of $65.3 million. Under the Amended and Restated Loan and Security Agreement with Oxford and SVB, we borrowed an aggregate principal amount of $25.0 million.

In January 2018, we issued $50.0 million in aggregate principal amount of 2023 Notes, and in February 2018, we issued an additional $3.0 million in aggregate principal amount of the 2023 Notes.

On June 28, 2018, pursuant to an underwriting agreement with BTIG, LLC, we closed the June 2018 Offering of 38,076,561 shares of our common stock, including BTIG, LLC’s exercise in full of its option to purchase additional shares, at a price of $3.93 per share. We received aggregate net proceeds of $149.0 million from the June 2018 Offering.

In July 2019, we closed a follow-on public offering of 26,136,363 shares of our common stock at a price of $1.10 per share, which included the exercise in full by the underwriter of its option to purchase up to 3,409,090 additional shares. We received aggregate gross proceeds of $28.7 million from the offering, before deducing underwriting discounts and offering expenses.

On July 25, 2019, we issued $82.0 million aggregate principal amount of our 2025 Notes in the Notes Offering. We used $37.9 million of the net proceeds from the Notes Offering to repurchase $37.0 million aggregate principal amount our outstanding 2023 Notes at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon.

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On July 16, 2019, we entered into the Solar Loan Agreement. Following our closing of the Notes Offering, we borrowed an aggregate principal amount of $45.0 million under the Solar Loan Agreement. We used $11.6 million of the Solar Term Loan to and repay in full the Oxford/SVB Term Loans.

Our ability to generate revenue and achieve profitability depends on our completion of the development of Eversense and future product candidates and obtaining and maintaining the necessary regulatory approvals for the manufacture, marketing and sales of those products. These activities, including our planned significant research and development efforts, will require significant uses of working capital through 2019 and beyond.

We expect our existing cash and cash equivalents, including the proceeds from the July 2019 follow-on public offering, the Notes Offering and the Solar Term Loans will be sufficient to fund our operations through the end of 2020. We have based this estimate on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect. Additionally, the process of clinical and regulatory development of medical devices is costly, and the timing of progress of these efforts is uncertain.

We anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development expenses and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations. Until such time, if ever, as we can generate substantial revenue, we expect to finance our cash needs through a combination of debt financings, equity offerings, and revenue from potential research and development and other collaboration agreements. To the extent that we raise additional capital through debt or the future sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant licenses to develop and market products that we would otherwise prefer to develop and market ourselves.

Indebtedness

Term Loans

On June 30, 2016, we entered into an Amended and Restated Loan and Security Agreement with Oxford and SVB. Pursuant to the Amended and Restated Loan and Security Agreement, we borrowed an aggregate principal amount of $25.0 million. We refer to these borrowings as the Oxford/SVB Term Loans. As described below, in July 2019, we used $11.6 million of the Solar Term Loan to repay in full the Oxford/SVB Term Loans and terminate our Amended and Restated Loan and Security Agreement with Oxford and SVB.

The Oxford/SVB Term Loans bore interest at a floating annual rate of 6.31% plus the greater of (i) 90-day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.64%, provided that the minimum floor interest rate is 6.95%, and require monthly payments. The monthly payments initially consisted of interest-only through December 31, 2017. In January 2018, we began to make monthly principal payments.

We elected to prepay all Oxford/SVB Term Loans prior to the Maturity Date subject to a prepayment fee equal to 1.00%. As of June 30, 2019, the outstanding balance of the Oxford/SVB Term Loans was $10.0 million.  

Pursuant to the Amended and Restated Loan and Security Agreement, we also issued to Oxford and SVB10-year stock purchase warrants to purchase an aggregate of 116,581, 63,025 and 80,645 shares of common stock with exercise prices of $3.86, $2.38, and $1.86 per share, respectively.

We incurred issuance costs related to the Oxford/SVB Term Loans of approximately $0.6 million that are being amortized as additional interest expense over the term of the Oxford/SVB Term Loans using the effective interest method. The fair value of the stock purchase warrants, which was estimated to be $0.5 million, was recorded as a

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discount to the Oxford/SVB Term Loans, which is also being amortized as additional interest expense over the term of the Oxford/SVB Term Loans using the effective interest method.

We were also required to make a final payment equal to 9.00% of the aggregate principal balances of the funded Oxford/SVB Term Loans. This fee is being accrued as additional interest expense over the term of the Oxford/SVB Term Loans using the effective interest method.

On July 16, 2019, we entered into the Solar Loan Agreement with the Lenders. Pursuant to the Solar Loan Agreement, on July 25, 2019, we borrowed the Solar Term Loan in an aggregate principal amount of $45.0 million. We used $11.6 million of the Solar Term Loan to repay in full the Oxford/SVB Term Loans and terminate our Amended and Restated Loan and Security Agreement with Oxford and SVB.

Interest on the Solar Term Loan will be payable monthly at a floating annual rate of 6.50% plus the greater of (i) the rate per annum rate published by the Intercontinental Exchange Benchmark Administration Ltd. and (ii) 2.48%, provided that the minimum floor interest rate is 8.98%. The maturity date for the Solar Term Loan will be June 1, 2024, or the Solar Maturity Date. Commencing on August 1, 2021, we will be required to make monthly principal amortization payments; provided that the interest only period may be extended to (i) August 1, 2022 if our product revenue is greater than or equal to $40.0 million on a trailing six-month basis prior to the second anniversary of the effective date and (ii) August 1, 2023 if our product revenue is greater than or equal to $75.0 million on a trailing six-month basis after the achievement of the first extension.

We may elect to prepay the Solar Term Loan prior to the Solar Maturity Date subject to a prepayment fee equal to 3.00% if the prepayment occurs within one year of the effective date, 2.00% if the prepayment occurs during the second year following the effective date, and 1.00% if the prepayment occurs more than two years after the effective date and prior to the Solar Maturity Date.

The Solar Loan Agreement contains customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Lenders’ security interest over the collateral, a material adverse change, the occurrence of a default under certain other agreements entered into by us, the rendering of certain types of judgments against us, the revocation of certain government approvals, violation of covenants, and incorrectness of representations and warranties in any material respect. Upon the occurrence of an event of default, subject to specified cure periods, all amounts owed by us would begin to bear interest at a rate that is 5.00% above the rate effective immediately before the event of default, and may be declared immediately due and payable by the Lenders.

The Solar Term Loan is secured by substantially all of our assets. The Solar Loan Agreement also contains specified financial covenants related to our liquidity and trailing six-month revenues.

The Solar Loan Agreement also contains certain restrictive covenants that limit our ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements.

Convertible Notes

In January 2018, we issued $50.0 million in aggregate principal amount of 2023 Notes, and in February 2018, we issued an additional $3.0 million in aggregate principal amount of 2023 Notes. The 2023 Notes are general, unsecured, senior subordinated obligations and bear interest at a rate of 5.25% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2018. The 2023 Notes will mature on February 1, 2023, unless earlier repurchased or converted. Payment of the principal of, and accrued and unpaid interest, if any, on the maturity date, and the fundamental change repurchase price of (excluding cash payable in lieu of delivering fractional shares of our common stock), the 2023 Notes is subordinated to the prior payment in full in cash or other payment satisfactory to the holders of senior debt, of all existing and future senior debt, which includes our indebtedness under the Amended and Restated Loan and Security Agreement with Oxford and SVB and any refinancing thereof.

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The 2023 Notes are convertible into shares of our common stock at the option of the holders at any time prior to the close of business on the business day immediately preceding the maturity date. The conversion rate is initially 294.1176 shares of common stock per $1,000 principal amount of 2023 Notes (equivalent to an initial conversion price of approximately $3.40 per share of common stock), subject to customary adjustments. Holders who convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of our common stock. In addition, following certain corporate events that occur prior to the maturity date, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2023 Notes in connection with such a corporate event. 

In the second quarter of 2018, we issued 73,529 shares of common stock upon the conversion of $250,000 in aggregate principal amount of the 2023 Notes. There was no conversion of 2023 Notes in the second quarter of 2019.

As of June 30, 2019, the aggregate outstanding principal amount of the 2023 Notes was $52.7 million.

In July 2019, we issued $82.0 million in aggregate principal amount of 2025 Notes. The 2025 Notes are general, unsecured, senior subordinated obligations and bear interest at a rate of 5.25% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The 2025 Notes will mature on January 15, 2025, unless earlier repurchased or converted.

We used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon.

The 2025 Notes are convertible, at the option of the holders, into shares of our 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).

We may redeem for cash all or part of the 2025 Notes, at our option, if (1) the last reported sale price of our common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption and (2) a registration statement covering the resale of the shares of our common stock issuable upon conversion of the 2025 Notes is effective and available for use and is expected to remain effective and available for use during the redemption period as of the date of the redemption notice date. The redemption price will be equal to 100% of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

If we undergo a fundamental change, holders may require us to repurchase for cash all or any portion of their 2025 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2025 Notes in connection with such notice of redemption or corporate event. In certain circumstances, we will be required to pay cash in lieu of delivering make whole shares unless we obtain stockholder approval to issue shares.

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Cash Flows

The following is a summary of cash flows for each of the periods set forth below (in thousands).

	Six Months Ended
	June 30,
	2019		2018
	(unaudited)
Net cash used in operating activities	$	(65,855)	$	(40,367)
Net cash (used in) provided by investing activities		(736)		12,239
Net cash (used in) provided by financing activities		(4,906)		195,906
Net (decrease) increase in cash and cash equivalents	$	(71,497)	$	167,778

Net cash used in operating activities

Net cash used in operating activities was $65.9 million for the six months ended June 30, 2019, and consisted of a net loss of $60.4 million and a net change in operating assets and liabilities of $7.3 million, partially offset by net non-cash items of $1.9 million. Net change in operating assets and liabilities consisted of an $8.9 million increase in inventory, a $0.4 million increase in accounts payable, a $2.1 million increase in prepaid expenses and other current assets, $0.2 million of lease payments, and a $0.6 million decrease in deferred revenue, partially offset by a $1.3 million decrease in accounts receivable, $0.2 million of accrued interest on Term Loans, and a $2.6 million increase in accrued expenses and other current liabilities. Net non-cash items consisted of stock-based compensation expense of $4.3 million, non-cash interest expense of $1.9 million, depreciation and amortization of $0.4 million, and an increase in the provision for inventory obsolescence of $2.3 million, partially offset by decrease in fair value of derivative liability of $7.0 million.

Net cash used in operating activities was $40.4 million for the six months ended June 30, 2018, and consisted of a net loss of $54.8 million and a net change in operating assets and liabilities of $5.4 million (consisting of a net increase in accounts receivable, prepaid expenses and other current assets, inventory, and deposits and other assets of $7.4 million, net of an increase in accounts payable, accrued expenses and other current liabilities, accrued interest, and deferred rent of $2.0 million), partially offset by stock-based compensation expense of $3.1 million, an increase in the fair value of derivative liability of $15.0 million, non-cash interest expense of $1.5 million, and depreciation and write-down of the carrying value of our inventory to net realizable value of an aggregate amount of $0.2 million.

Net cash (used in) provided by investing activities

Net cash used in investing activities was $0.7 million for the six months ended June 30, 2019, and consisted of $0.7 million of capital expenditures for laboratory and production equipment at our contract manufacturers.

Net cash provided by investing activities was $12.2 million for the six months ended June 30, 2018, and consisted sales and maturities of marketable securities of $20.3 million, offset by purchases of marketable securities of $7.9 million and capital expenditures of $0.2 million.

Net cash (used in) provided by financing activities

Net cash used in financing activities was $4.9 million for the six months ended June 30, 2019, and consisted of aggregate principal payments on our Oxford/SVB Term Loans of $5.0 million, partially offset by proceeds from the exercise of stock options of $0.1 million.

Net cash provided by financing activities was $195.9 million for the six months ended June 30, 2018, and consisted primarily of $149.4 million from the issuance of common stock in our June 2018 Offering, $50.7 million from the issuance of the 2023 Notes, and $1.0 million from the exercise of stock options, partially offset by aggregate principal payments on our Oxford/SVB Term Loans of $5.0 million.

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Contractual Obligations

As of June 30, 2019, there was no material change in our contractual obligations and commitments from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 15, 2019.

We issued the 2025 Notes subsequent to June 30, 2019.  The $82.0 million principal amount of the 2025 Notes is payable in full at maturity on January 15, 2025. The interest payment schedule for the 2025 Notes is as follows: $0.0 million, $8.5 million, $8.6 million and $6.5 million for 2019, 2020-2021, 2022-2023 and after 2023, respectively.

As described elsewhere in this report, we repurchased $37.0 aggregate principal amount of the 2023 Notes with a portion of the proceeds from the offering of the 2025 Notes subsequent to June 30, 2019.  The remaining $15.2 million principal amount of the 2023 Notes is payable in full at maturity on February 1, 2023. The interest payment schedule for the 2023 Notes is as follows: $0.5 million, $1.7 million and $0.9 million for the remainder of 2019, 2020-2021 and 2022-2023, respectively.

We also borrowed the Solar Term Loan subsequent to June 30, 2019. The principal payment schedule for the Solar Term Loan is as follows: $0.0 million, $6.4 million, $30.8 million and $7.7 million for 2019, 2020-2021, 2022-2023 and after 2023, respectively. The interest payment schedule for the Solar Term Loan, based on the prevailing rate on such borrowings as of the date of the filing of this report, is as follows: $1.4 million, $8.1 million, $4.3 million and $0.2 million for 2019, 2020-2021, 2022-2023 and after 2023, respectively.

As described elsewhere in this report, we repaid all amounts outstanding under our Amended and Restated Loan and Security Agreement with Oxford and SVB with a portion of the procees from the Solar Term Loan.

Off‑Balance Sheet Arrangements

During three and six months ended June 30, 2019 we did not have, and we do not currently have, any off‑balance sheet arrangements, as defined under SEC rules.

JOBS Act

In April 2012, the JOBS Act was enacted. Section 107(b) of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

At the end of the 2019 fiscal year, we will no longer be an emerging growth company and we will no longer be exempt from (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results

35

may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our financial statements prospectively from the date of the change in estimate.

Management considers an accounting policy to be critical if it is important to our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by our management. Due to the significant judgment involved in selecting certain of the assumptions used in these areas, it is possible that different parties could choose different assumptions and reach different conclusions.

We believe there have been no material changes to our critical accounting policies and use of estimates as disclosed in the footnotes to our audited financial statements for the year ended December 31, 2018 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2019.

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of June 30, 2019, we had cash and cash equivalents of $65.3 million. We generally hold our cash in interest-bearing money market accounts. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Additionally, the interest rates on our 2025 Notes and 2023 Notes are fixed. The rate on borrowings under our Solar Term Loan is variable, subject to a minimum floor interest rate. Due to the short-term maturities of our cash equivalents and the minimum interest rate on the Solar Term Loan, an immediate 100 basis point change in interest rates would not have a material effect on our results of operations. We do not currently engage in hedging transactions to manage our exposure to interest rate risk.

Foreign Currency Risk

The majority of our international sales are denominated in Euros. Therefore, our dollar value of sales is impacted by exchange rates versus the dollar. Currency fluctuations or a strengthening U.S. dollar can decrease our revenue from these Euro-denominated international sales. To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our consolidated financial statements, and we do not believe that the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would have had a material impact on our operating results or financial condition. We do not currently engage in any hedging transactions to manage our exposure to foreign currency exchange rate risk. 

ITEM 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision of and with the participation of our management, including our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2019, the end of the period covered by this Quarterly Report. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms promulgated by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the

36

company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected. Based on the evaluation of our disclosure controls and procedures as of June 30, 2019, 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 was no change 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 June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1: Legal Proceedings

From time to time, we are subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results or financial condition.

ITEM 1A: Risk Factors

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. Except as described below, our risk factors as of the date of this Quarterly Report on Form 10-Q have not changed materially from those described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 15, 2019.

Risks Related to Our Indebtedness

If holders of 2023 Notes object to the amendment of the 2023 Notes indenture, it could have a material adverse effect on our business and financial condition.

In connection with the Notes Offering, we launched a consent solicitation to holders of the 2023 Notes seeking consent to amend the indenture related to the 2023 Notes to remove a restrictive covenant that limited our ability to incur additional indebtedness. On July 25, 2019, we received the requisite consents from holders of the 2023 Notes to amend the indenture related to the 2023 Notes and entered into a Second Supplemental Indenture to reflect the foregoing amendment. The holders that consented to the amendment of the indenture related to the 2023 Notes may have interests that may differ from other holders of the 2023 Notes, including the fact that certain of such holders purchased a portion of the 2025 Notes and we repurchased their 2023 Notes with a portion of the net proceeds of the Notes Offering. If the remaining holders of the 2023 Notes object to the entry into the Second Supplemental Indenture, they could challenge the issuance of the 2025 Notes and the borrowing of the Solar Term Loan. Any such challenge could divert management's attention from our day-to-day operations and could have a material adverse effect on our business and financial condition.

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Restrictive covenants under the indentures related to the 2023 Notes and the 2025 Notes and the Solar Loan Agreement may limit the manner in which we operate.

The indentures related to the 2023 Notes and the 2025 Notes and the Solar Loan Agreement contain, and any future indebtedness we incur may contain, various negative covenants that restrict, among other things, our ability to:

· incur additional indebtedness, guarantee indebtedness or issue disqualified stock or, in the case of such subsidiaries, preferred stock; 

· declare or pay dividends on, repurchase or make distributions in respect of, their capital stock or make other restricted payments; 

· make investments or acquisitions; 

· create liens; 

· enter into agreements restricting certain subsidiaries' ability to pay dividends or make other intercompany transfers; 

· consolidate, merge, sell or otherwise dispose of all or substantially all of our assets and the assets of our restricted subsidiaries; 

· enter into transactions with affiliates; 

· sell, transfer or otherwise convey certain assets; and 

· prepay certain types of indebtedness.

In addition, the Solar Loan Agreement has minimum liquidity and monthly net product revenue requirements and the Solar Term Loan and other obligations under the Solar Loan Agreement are be secured by substantially all of our assets. As a result, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities, repurchase shares of our common stock or finance future operations or capital needs.

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

Despite our current debt levels, subject to certain conditions and limitations, we may still incur substantially more debt or take other actions which would intensify the risks discussed above.

Despite our current consolidated debt levels, subject to certain conditions and limitations in the indentures related to the 2023 Notes and the 2025 Notes and the Solar Loan Agreement, we may be able to incur substantial additional debt in the future, some of which may be secured debt. We may not be subject to any restrictions on incurrence of additional indebtedness under the terms of any future indebtedness. If new debt is added to our current debt levels, the related risks that we and they now face could intensify.

ITEM 2: Unregistered Sales of Equity and Securities and Use of Proceeds

Not applicable.

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ITEM 3: Defaults Upon Senior Securities

Not applicable.

ITEM 4: Mine Safety Disclosures

Not applicable.

ITEM 5: Other Information

None.

ITEM 6: Exhibits

The exhibits listed on the Exhibit Index hereto are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.

Exhibit No.		Document
3.1		Amended and Restated Certificate of Incorporation of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on March 23, 2016).
3.2		Amended and Restated Bylaws of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on March 23, 2016).
3.3		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2018 (File No. 001-37717), filed with the Commission on August 8, 2018).
10.1 +	Senseonics Holdings, Inc. Inducement Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on June 5, 2019).
10.2+	Form of Stock Option Grant Notice and Stock Option Agreement used in connection with the Senseonics Holdings, Inc. Inducement Plan (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on June 5, 2019).
31.1*		Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act.
31.2*		Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act.
32.1**		Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

+Indicates management contract or compensatory plan.

*Filed herewith.

**These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

39

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SENSEONICS HOLDINGS, INC.
Date: August 7, 2019	By:	/s/ Jon Isaacson
		Jon Isaacson
		Chief Financial Officer
		(Principal Financial Officer)

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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy T. Goodnow, Ph.D., certify that:

1.I have reviewed this quarterly report on Form 10-Q of Senseonics Holdings, Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2019

/s/ Timothy T. Goodnow, Ph.D. 

Timothy T. Goodnow, Ph.D.

President & Chief Executive Officer

(principal executive officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jon Isaacson, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Senseonics Holdings, Inc. (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2019 

/s/ Jon Isaacson

Jon Isaacson

Chief Financial Officer

(principal financial officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATIONS OF

PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Timothy T. Goodnow, Ph.D., President and Chief Executive Officer of Senseonics Holdings, Inc. (the “Company”), and Jon Isaacson, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1.The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (the “Quarterly Report”), to which this Certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

2.The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition of the Company as of the end of the period covered by the Quarterly Report and results of operations of the Company for the periods covered by the Quarterly Report.

In Witness Whereof, the undersigned have set their hands hereto as of the 7th day of August, 2019.  

/s/ Timothy T. Goodnow, Ph.D.	/s/ Jon Isaacson
Timothy T. Goodnow, Ph.D.	Jon Isaacson
President & Chief Executive Officer	Chief Financial Officer
(principal executive officer)	(principal financial officer)

*This Certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 06, 2019
Document and Entity Information
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Entity Registrant Name	Senseonics Holdings, Inc.
Entity Current Reporting Status	Yes
Entity Central Index Key	0001616543
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		203,168,205

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 65,296	$ 136,793
Accounts receivable	839	830
Accounts receivable - related parties	4,963	6,267
Inventory, net	16,787	10,231
Prepaid expenses and other current assets	6,091	3,985
Total current assets	93,976	158,106
Deposits and other assets	2,142	117
Property and equipment, net	2,278	1,750
Total assets	98,396	159,973
Current liabilities:
Accounts payable	4,779	4,407
Accrued expenses and other current liabilities	16,922	13,851
Deferred revenue		628
Term Loans, current portion	9,901	10,000
Term Loans, accrued interest	2,002
Total current liabilities	33,604	28,886
Term Loans, net of discount and current portion		4,783
2023 Notes, net of discount	37,815	36,103
Derivative liability	10,130	17,091
Term Loans, accrued interest		1,764
Other liabilities	1,674	85
Total liabilities	83,223	88,712
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.001 par value per share; 450,000,000 shares authorized; 177,031,842 and 176,918,381 shares issued and outstanding as of June 30, 2019 and December 31, 2018	177	177
Additional paid-in capital	433,229	428,878
Accumulated deficit	(418,233)	(357,794)
Total stockholders' equity	15,173	71,261
Total liabilities and stockholders’ equity	$ 98,396	$ 159,973

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Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Class of stock information
Common stock, par value per share (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	450,000,000	450,000,000
Common stock, shares issued	177,031,842	176,918,381
Common stock, shares outstanding	177,031,842	176,918,381

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Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Condensed Consolidated Statements of Operations and Comprehensive Loss
Revenue, net	$ 1,475	$ 553	$ 2,718	$ 931
Revenue, net - related parties	3,132	3,070	5,312	5,638
Cost of sales	9,160	3,839	15,893	7,147
Gross profit	(4,553)	(216)	(7,863)	(578)
Expenses:
Sales and marketing expenses	14,179	6,177	27,013	9,618
Research and development expenses	10,504	8,289	17,612	16,402
General and administrative expenses	5,417	5,382	11,933	9,393
Operating loss	(34,653)	(20,064)	(64,421)	(35,991)
Other income (expense), net:
Interest income	410	241	1,037	425
Interest expense	(1,965)	(2,236)	(3,999)	(4,007)
Change in fair value of derivative liability	4,889	(10,166)	6,961	(15,013)
Other income (expense)	245	(271)	(17)	(183)
Total other income (expense), net	3,579	(12,432)	3,982	(18,778)
Net loss	(31,074)	(32,496)	(60,439)	(54,769)
Total comprehensive loss	$ (31,074)	$ (32,496)	$ (60,439)	$ (54,769)
Basic and diluted net loss per common share	$ (0.17)	$ (0.23)	$ (0.34)	$ (0.40)
Basic and diluted weighted-average shares outstanding	177,012,497	138,767,873	176,983,467	137,923,135

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Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) - USD ($) shares in Thousands, $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Balance at Dec. 31, 2017	$ 137	$ 270,953	$ (263,823)	$ 7,267
Balance (in shares) at Dec. 31, 2017	136,883
Changes in Stockholders' Equity (Deficit)
Issued shares of common stock	$ 38	149,058		149,096
Issued shares of common stock (in shares)	37,341
Exercise of stock options and warrants	$ 1	813		814
Exercise of stock options and warrants (in shares)	1,212
Conversion of 2023 Notes	$ 1	249		250
Conversion of 2023 Notes (in shares)	735
Stock-based compensation expense and vesting of RSUs		3,057		3,057
Stock-based compensation expense and vesting of RSUs (in shares)	71
Net loss			(54,769)	(54,769)
Balance at Jun. 30, 2018	$ 177	424,130	(318,592)	105,715
Balance (in shares) at Jun. 30, 2018	176,242
Balance at Mar. 31, 2018	$ 137	272,787	(286,096)	(13,172)
Balance (in shares) at Mar. 31, 2018	137,240
Changes in Stockholders' Equity (Deficit)
Issued shares of common stock	$ 38	149,058		149,096
Issued shares of common stock (in shares)	37,341
Exercise of stock options and warrants	$ 1	433		434
Exercise of stock options and warrants (in shares)	900
Conversion of 2023 Notes	$ 1	249		250
Conversion of 2023 Notes (in shares)	735
Stock-based compensation expense and vesting of RSUs		1,603		1,603
Stock-based compensation expense and vesting of RSUs (in shares)	26
Net loss			(32,496)	(32,496)
Balance at Jun. 30, 2018	$ 177	424,130	(318,592)	105,715
Balance (in shares) at Jun. 30, 2018	176,242
Balance at Dec. 31, 2018	$ 177	428,878	(357,794)	71,261
Balance (in shares) at Dec. 31, 2018	176,918
Changes in Stockholders' Equity (Deficit)
Exercise of stock options and warrants		94		94
Exercise of stock options and warrants (in shares)	51
Stock-based compensation expense and vesting of RSUs		4,257		4,257
Stock-based compensation expense and vesting of RSUs (in shares)	62
Net loss			(60,439)	(60,439)
Balance at Jun. 30, 2019	$ 177	433,229	(418,233)	15,173
Balance (in shares) at Jun. 30, 2019	177,031
Balance at Mar. 31, 2019	$ 177	430,926	(387,159)	43,944
Balance (in shares) at Mar. 31, 2019	176,958
Changes in Stockholders' Equity (Deficit)
Exercise of stock options and warrants		71		71
Exercise of stock options and warrants (in shares)	36
Stock-based compensation expense and vesting of RSUs		2,232		2,232
Stock-based compensation expense and vesting of RSUs (in shares)	37
Net loss			(31,074)	(31,074)
Balance at Jun. 30, 2019	$ 177	$ 433,229	$ (418,233)	$ 15,173
Balance (in shares) at Jun. 30, 2019	177,031

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities
Net loss	$ (60,439)	$ (54,769)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	418	104
Non-cash interest expense (debt discount and deferred costs)	1,830	1,519
Change in fair value of derivative liability	(6,961)	15,012
Stock-based compensation expense	4,257	3,058
Provision for lower of cost or net realizable value	80	202
Provision for inventory obsolescence	2,256
Net realized gain on marketable securities		(69)
Changes in assets and liabilities:
Accounts receivable	1,295	394
Prepaid expenses and other current assets	(2,106)	(2,103)
Inventory	(8,892)	(5,611)
Deposits and other assets		(76)
Accounts payable	372	(2,540)
Accrued expenses and other current liabilities	2,626	4,118
Payments on right of use liability, building	(201)
Deferred revenue	(628)
Term Loans, accrued interest	238	390
Deferred rent		4
Net cash used in operating activities	(65,855)	(40,367)
Cash flows from investing activities
Capital expenditures	(736)	(176)
Purchases of marketable securities		(7,935)
Sales and maturities of marketable securities		20,350
Net cash (used in) provided by investing activities	(736)	12,239
Cash flows from financing activities
Proceeds from issuance of common stock, net of issuance costs		149,379
Proceeds from exercise of stock options and stock warrants	94	813
Proceeds from 2023 Notes, net of costs		50,734
Principal payments on Term Loans	(5,000)	(5,000)
Principal payments under capital lease obligations		(20)
Net cash (used in) provided by financing activities	(4,906)	195,906
Net (decrease) increase in cash and cash equivalents	(71,497)	167,778
Cash and cash equivalents, at beginning of period	136,793	16,150
Cash and cash equivalents, at end of period	65,296	183,928
Supplemental disclosure of cash flow information
Cash paid during the period for interest	1,858	954
Supplemental disclosure of non-cash investing and financing activities
Common stock offering costs incurred		282
Convertible debt offering costs incurred		29
Property and equipment purchases included in accounts payable and accrued expenses	$ 170	$ 73

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Organization

6 Months Ended

Jun. 30, 2019

Organization

Organization

1.Organization

Senseonics Holdings, Inc., a Delaware corporation, is a medical technology company focused on the design, development and commercialization of glucose monitoring 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.

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Liquidity

6 Months Ended

Jun. 30, 2019

Liquidity

Liquidity

2.Liquidity

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 incurred substantial operating losses, principally from expenses associated with the Company’s research and development programs. The Company has not generated significant revenues from the sale of products and its ability to generate revenue and achieve profitability largely depends on the Company’s ability, alone or with others, to complete the development of its products or product candidates, and to obtain necessary regulatory approvals for the manufacture, marketing and sales of those products. These activities will require significant uses of working capital through the remainder of 2019 and beyond.

At June 30, 2019, the Company had $65.3 million in cash and cash equivalents. In July 2019, the Company completed financing and debt transactions totaling gross proceeds of $106.2 million, after repayment of the Term Loans (as defined below) and a portion of the Company’s convertible senior subordinated notes due 2023 (the “2023 Notes”), as described in Note 13 – Subsequent Events. As a result of these transactions, management has concluded that, based on the Company’s current operating plans, its existing cash and cash equivalents, will be sufficient to meet the Company’s anticipated operating needs through the end of 2020. Accordingly, management has concluded that the doubt about the Company’s ability to continue as a going concern over the next twelve months has been alleviated.

Historically, the Company has financed its operating activities through the sale of equity and equity linked securities and the issuance of debt. The Company plans to continue financing its operations with external capital for the foreseeable future. However, the Company may not be able to raise additional funds on acceptable terms, or at all. If the Company is unable to secure sufficient capital to fund its research and development and other operating activities, the Company may be required to delay or suspend operations, enter into collaboration agreements with partners that could require the Company to share commercial rights to its products to a greater extent or at earlier stages in the product development process than is currently intended, merge or consolidate with other entities, or liquidate.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

3.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the Company’s opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly its financial position, results of operations, and cash flows. The consolidated balance sheet at December 31, 2018, has been derived from audited financial statements as of that date. The interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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 revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, obsolete inventory, depreciable lives of property and equipment, and estimated accruals for clinical study costs, which are accrued based on estimates of work performed under contract. Actual results could differ from those estimates; however management does not believe that such differences would be material.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. 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 and six months ended June 30, 2019 and 2018, the Company’s net loss equaled its comprehensive loss and, accordingly, no additional disclosure is presented.

Cash and Cash Equivalents and Concentration of Credit Risk

The Company considers highly liquid investments with 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.

The Company’s cash and cash equivalents potentially subject the Company to credit and liquidity risk. The Company maintains cash deposits at major financial institutions with high credit quality and, at times, the balances of those deposits may exceed the Federal Deposit Insurance Corporation limits of $250,000. The Company has not experienced and does not anticipate any losses on deposits with commercial banks and financial institutions that exceed the federally insured amounts.

Concentration of Revenues and Customers

At any given time, the Company’s trade receivables are concentrated among a small number of principal customers. If any of the Company’s customers fail to pay their obligations under the terms of these financial instruments, the Company’s maximum exposure to potential losses would be equal to amounts reported on its consolidated balance sheets.

During the three and six months ended June 30, 2019 and 2018, the Company derived a majority of its total net revenue from two customers. During the three months ended June 30, 2019 and 2018, the Company derived 68 percent and 85 percent of its total net revenue from one of those two customers, respectively. During the six months ended June 30, 2019 and 2018, the Company derived 66 percent and 86 percent of its total net revenue from one of those two customers, respectively.

Revenues by geographic region

The following table sets forth net revenues 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 and six months ended June 30, 2019. All of the Company’s net revenues were earned from sales outside of the United States for the three and six months ended June 30, 2018.

	Three Months Ended				Six Months Ended
	June 30, 2019				June 30, 2019
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenues, net:
Outside of the United States	$	3,509	76.2	%	$	6,117	76.2	%
United States		1,098	23.8			1,913	23.8
Total	$	4,607	100.0	%	$	8,030	100.0	%

Inventory

Inventory is valued at the lower of cost or net realizable value. Cost is determined using the standard cost method that approximates first in, first out. The Company periodically reviews inventory to determine if a write-down is necessary for inventory that has become obsolete, inventory that has a cost basis less than net realizable value, and inventory in excess of future demand taking into consideration the product shelf life.

Accounts Receivable

The Company grants credit to various customers in the normal course of business. Accounts receivable consist of amounts due from distributors. The Company records an allowance for doubtful accounts at the time potential collection risk is identified. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed by use of the straight-line method over the estimated useful lives of the assets, which is between three to five years for laboratory equipment, between five to seven years for office furniture and equipment, and the shorter of lease term or useful life for leasehold improvements. Upon disposition of the assets, the costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations. Repairs and maintenance costs are included as expense in the accompanying statement of operations.

Management reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Management did not identify any indicators of impairment through June 30, 2019.

Derivative Financial Instruments

In connection with the Company’s issuance of the 2023 Notes in January 2018, the Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a derivative liability in the Company’s consolidated balance sheets in accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging. The financial instrument is remeasured at the end of each reporting period with changes in fair value recorded in the consolidated statements of operations in other income (expense) as change in fair value of 2023 derivative.

In July 2019, the Company issued $82.0 million in aggregate principal amount of convertible senior subordinated notes due 2025 (the “2025 Notes”). The Company used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the Company’s outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon,  as described in Note 13 – Subsequent Events.

Warranty Reserve

The Company may replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs associated with a product are recorded at the time of shipment. The Company estimates future replacement costs by analyzing historical replacement experience for the timing and amount of returned product, and the Company evaluates the reserve quarterly and makes adjustments when appropriate.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606, 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, once the contract is determined to be within the scope of ASC Topic 606, 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 product revenue from sales of the Eversense system and related components and supplies 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.

Revenues from product sales are recognized when the Customers obtain control of the Company’s product, which occurs at a point in time, based upon the delivery terms as defined in the distributor agreement. The Company is typically paid within 60 days of invoicing subsequent to the Customers obtaining control of the Company’s product.

In March 2019, the Company introduced the Eversense Bridge Program (the “program”) in the United States.  Under the program, the Company provides financial assistance, in the form of reimbursement, to eligible patients based on their insurance coverage. Reimbursement payments to the patient under the program are treated as a reduction of revenue in the period in which the corresponding gross revenue is recognized. Estimated reimbursement payments for product shipped to the Company’s customers but not sold to a patient within the same reporting period is based on historical experience and recorded within accrued expenses and other current liabilities in the accompanying consolidated balance sheets. Because of the limited experience with the program as of June 30, 2019, the Company’s estimated reimbursement rates with respect to such shipped, but unsold, products could change in future periods, and such changes could be material. The Company also, at its discretion, offers discounts and other allowances under defined promotional programs to the Customers which result in the establishment of reserves against product revenue.

Cost of Sales

The Company uses third-party contract manufacturers to manufacture Eversense and related components and supplies. Cost of sales includes raw materials, contract manufacturing service fees, reserves for expected warranty costs, reserves for inventory valuation and obsolescence, scrap, and shipping and handling expenses associated with product delivery.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses include costs related to employee compensation, consultants, contracted services, supplies, outsourced testing, depreciation and other expenses associated with the Company’s process development, clinical, regulatory, and quality assurance activities.

Stock‑Based Compensation

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date of grant. The estimated fair value of stock options on the date of grant is amortized on a straight‑line basis over the requisite service period for each separately vesting portion of the award for those awards with service conditions only. For awards that also contain performance conditions, expense is recognized beginning at the time the performance condition is considered probable of being met over the remaining vesting period. The Company accounts for forfeitures in the period in which they occur.

The Company uses the Black‑Scholes option pricing model to determine the fair value of stock‑option awards. Valuation of stock awards requires management to make assumptions and to apply judgment to determine the fair value of the awards. These assumptions and judgments include estimating the fair value of the Company’s common stock, future volatility of the Company’s stock price, dividend yields, future employee turnover rates, and future employee stock option exercise behaviors. Changes in these assumptions can affect the fair value estimate.

Under ASC Topic 718, the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law shall be considered to be a deductible difference in applying ASC Topic 740, Income Taxes. The deductible temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently do not impact the Company, as all the deferred tax assets have a full valuation allowance.

Since the Company had net operating loss (“NOL”) carryforwards as of June 30, 2019,  no excess tax benefits for the tax deductions related to stock-based awards were recognized in the statements of operations and comprehensive loss.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Management uses a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. In the ordinary course of business, transactions occur for which the ultimate outcome may be uncertain. Management does not expect the outcome related to accrued uncertain tax provisions to have a material adverse effect on the Company’s financial position, results of operations or cash flows.  The Company recognizes interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense. The Company did not have any amounts accrued relating to interest and penalties as of June 30, 2019 and December 31, 2018.

The Company is subject to taxation in various jurisdictions in the United States and remains subject to examination by taxing jurisdictions for the year 1998 and all subsequent periods due to the availability of NOL carryforwards. In addition, all of the NOLs and research and development credit carryforwards that may be used in future years are still subject to adjustment.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of their short maturities. The Company’s Notes and 2023 Notes are recorded at historical cost, net of discounts, and are not remeasured at fair value.

Net Loss per Share

Basic net loss per share is computed by dividing net loss 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. At June 30, 2019 and 2018, the total number of anti-dilutive shares, consisting of common stock options, stock purchase warrants, and the 2023 Notes using the if-converted method, which have been excluded from the computation of diluted loss per share, were as follows:

	June 30,
	2019	2018
Stock-based awards	27,618,668	21,305,247
2023 Notes	21,321,038	15,499,998
Warrants	4,071,581	4,082,544
Total anti-dilutive shares outstanding	53,011,287	40,887,789

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 and stock purchase warrants using the treasury stock method, and the 2023 Notes using the if-converted method.

Recent Accounting Pronouncements

Recently Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”). The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. In July 2018, the FASB issued ASU 2018-11 to provide another transition method, allowing a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. The guidance is effective for annual reporting periods beginning after December 15, 2018, subject to early adoption. The Company adopted the new standard effective January 1, 2019 using the modified retrospective approach. The Company did not elect the transition option, but elected certain practical expedients, including not separating lease components from nonlease components for all classes of underlying assets. Additionally, all leases with a term at commencement of 12 months or less will be excluded from analysis under ASC 842.  The standard did not materially affect the Company’s consolidated net loss or cash flows.

Impact of Adopting ASC 842 on the Financial Statements

	January 1, 2019				January 1, 2019
	Prior to ASC
	842 Adoption		ASC 842 Adoption		As Adjusted
Consolidated Balance Sheet Data (in thousands)
Operating lease assets (1)	$	—	$	2,235	$	2,235
Deferred rent non-current (2)	$	84	$	(84)	$	—
Operating lease liabilities (3)	$	—	$	417	$	417
Non-current operating lease liabilities (3)	$	—	$	1,902	$	1,902

(1)    Represents capitalization of operating lease assets, including reclassification of deferred rent to operating lease assets.

(2)    As of December 31, 2018, the deferred rent balance was $84.

(3)    Represents recognition of operating lease liabilities.

The Company has evaluated all other issued unadopted ASUs and believes the adoption of these standards will not have a material impact on its consolidated statements of earnings, balance sheets, or cash flows.

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Inventory, net

6 Months Ended

Jun. 30, 2019

Inventory, net

Inventory, net

4.  Inventory, net

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

	June 30,		December 31,
	2019		2018
Finished goods	$	1,707	$	1,457
Work-in-process		13,518		7,211
Raw materials		1,562		1,563
Total	$	16,787	$	10,231

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Prepaid Expenses and Other Current Assets

6 Months Ended

Jun. 30, 2019

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets

5.  Prepaid Expenses and Other Current Assets

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

	June 30,		December 31,
	2019		2018
Contract manufacturing	$	3,614	$	2,962
Financing services		712		—
Marketing and sales		598		287
Insurance		442		—
Clinical and preclinical		257		111
IT and software		199		244
Interest receivable		100		239
Other		169		142
Total prepaid expenses and other current assets	$	6,091	$	3,985

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Accrued Expenses and Other Current Liabilities

6 Months Ended

Jun. 30, 2019

Accrued Expenses and Other Current Liabilities

Accrued Expenses and Other Current Liabilities

6.Accrued Expenses and Other Current Liabilities

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

	June 30,		December 31,
	2019		2018
Contract manufacturing	$	4,299	$	6,068
Compensation and benefits		3,457		3,685
Sales and marketing services		1,942		738
Professional services		1,586		727
Clinical and preclinical		1,472		147
Product warranty		1,386		816
Interest on notes payable and 2023 Notes		1,226		1,268
Patient access program		831		—
Right of use liability - building		445		—
Other		278		402
Total accrued expenses and other current liabilities	$	16,922	$	13,851

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Leases

6 Months Ended

Jun. 30, 2019

Leases

Leases

7.Leases

The Company leases approximately 33,000 square feet of research and office space under a non‑cancelable operating lease expiring in 2023. The Company has an option to renew the lease for one additional five‑year term. With the adoption of ASC 842, the Company has recorded a right-of-use asset and corresponding lease liability, and does not include the additional five year term under the option.

The Company leases approximately 12,000 square feet of office space under a cancelable operating lease that expired on June 30, 2019 and is now a cancellable month-to-month operating lease. The Company can terminate the lease agreement upon 60 days’ prior written notice.

Operating lease expense for the three and six months ended June 30, 2019 was $0.2 million and $0.3 million, respectively. Short-term lease expense is included in total lease expense but was not significant for the three and six months ended June 30, 2019.

Lease expense was $0.1 million and $0.3 million for the three and six months ended June 30, 2018, respectively.

The Company identified and assessed the following estimates in recognizing the right-of-use asset and corresponding liability:

Expected lease term: The expected lease term for those leases commencing prior to January 1, 2019 did not change with the adoption of ASC 842. The expected lease term for leases commencing after the adoption of ASC 842 includes noncancelable lease periods and, when applicable, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, as well as periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

Incremental borrowing rate: As the discount rates in the Company’s lease are not implicit, the Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term.

The following table summarizes the lease assets and liabilities as of June 30, 2019 (in thousands):

Operating Lease Assets and Liabilities	Balance Sheet Classification	Amount
Assets
Operating lease ROU assets	Deposits and other assets	$	2,025
Liabilities
Current operating lease liabilities	Accrued expenses and other current liabilities	$	445
Non-current operating lease liabilities	Other non-current liabilities		1,674
Total operating lease liabilities		$	2,119

The following table summarizes the maturity of undiscounted payments due under lease liabilities and the present value of those liabilities as of June 30, 2019 (in thousands):

2019 (remaining six months)	$	309
2020		629
2021		648
2022		668
2023		282
Total		2,536
Present value adjustment		(417)
Present value of lease liabilities	$	2,119

The following table summarizes the weighted-average lease term and weighted-average discount rate as of June 30, 2019:

Remaining lease term (years)
Operating leases	3.9
Discount rate
Operating leases	9.1	%

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Notes Payable

6 Months Ended

Jun. 30, 2019

Notes Payable

Notes Payable

8.Notes Payable

Term Loans

On June 30, 2016, the Company entered into an Amended and Restated Loan and Security Agreement with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB” and together with Oxford, the “Lenders”). Pursuant to the Amended and Restated Loan and Security Agreement, the Company borrowed an aggregate principal amount of $25.0 million in the following three tranches: $15.0 million (“Tranche 1 Term Loan”); $5.0 million (“Tranche 2 Term Loan”); and $5.0 million (“Tranche 3 Term Loan”) (each, a “Term Loan,” and collectively, the “Term Loans”). The funding conditions for the Tranche 1 Term Loan were satisfied as of June 30, 2016. Therefore, the Company issued secured notes to the Lenders for aggregate gross proceeds of $15.0 million (the “Notes”) on June 30, 2016. The Company used approximately $11.0 million from the proceeds from the Notes to repay the outstanding balance under the Company’s previously existing Loan and Security Agreement with Oxford. The Company borrowed the Tranche 2 Term Loan and Tranche 3 Term Loan in November 2016 and March 2017, respectively. The maturity date for all Term Loans was June 1, 2020 (the “Maturity Date”).

On July 16, 2019, the Company entered into a Loan and Security Agreement (the “Solar Loan Agreement”) with Solar Capital, Ltd. a Maryland corporation (“Solar”), as described in Note 13 – Subsequent Events. Pursuant to the Solar Loan Agreement, on July 25, 2019, the Company borrowed term loans in an aggregate principal amount of $45.0 million, of which the Company used $11.6 million to repay in full the Term Loans and terminate the Amended and Restated Loan and Security Agreement with Oxford and SVB.

The Term Loans bore interest at a floating annual rate of 6.31% plus the greater of (i) 90-day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.64%, provided that the minimum floor interest rate is 6.95%, and require monthly payments. The monthly payments initially consisted of interest-only through December 31, 2017. In January 2018, the Company began to make monthly principal payments.

The Company elected to prepay all Term Loans prior to the Maturity Date subject to a prepayment fee equal to 1.00%. 

The Amended and Restated Loan and Security Agreement contained customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Lenders’ security interest over the collateral, a material adverse change, the occurrence of a default under certain other agreements entered into by the Company, the rendering of certain types of judgments against the Company, the revocation of certain government approvals of the Company, violation of covenants, and incorrectness of representations and warranties in any material respect. 

Pursuant to the Amended and Restated Loan and Security Agreement, the Company also issued 10-year stock purchase warrants to purchase an aggregate of 260,251 shares of common stock with an exercise price ranging from $1.86 to $3.86 per share (see Note 9, “Stockholders’ Equity”).

The Notes were collateralized by all of the Company’s consolidated assets. The Notes also contained certain restrictive covenants that limited the Company’s ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements. The Company incurred issuance costs related to the Notes of approximately $0.6 million that are being amortized as additional interest expense over the term of the Notes using the effective interest method. The fair value of the stock purchase warrants, which was estimated to be $0.5 million, was recorded as a discount to the Notes, which is also being amortized as additional interest expense over the term of the Notes using the effective interest method.

The Company was also required to make a final payment equal to 9.00% of the aggregate principal balances of the funded Term Loans. This fee is being accrued as additional interest expense over the term of the Notes using the effective interest method. At June 30, 2019 and December 31, 2018, the final payment fee accrual was $2.0 million and $1.8 million, respectively.

The Company estimates the fair value of the Notes based on borrowing rates currently available for loans with similar terms (Level 2). At June 30, 2019, the fair value of the Notes was $11.3 million based on prevailing market rates for secured debt.

2023 Notes

In January 2018, the Company issued $50.0 million in aggregate principal amount of the 2023 Notes. In February 2018, the Company issued an additional $3.0 million in aggregate principal amount of the 2023 Notes, pursuant to the partial exercise of the overallotment option by the underwriter. The net proceeds from the issuance of the 2023 Notes, after deducting transaction costs, were $50.7 million. The 2023 Notes are general, unsecured, senior subordinated obligations of the Company. The Company pays interest semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2018. As the 2023 Notes have a maturity date of February 1, 2023, they are classified as a long-term liability on the Company’s consolidated balance sheet at June 30, 2019.

Each $1,000 of principal of the 2023 Notes is initially convertible into 294.1176 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $3.40 per share, subject to adjustment upon the occurrence of specified events. Holders may convert at any time prior to February 1, 2023. Holders who convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock. If specific corporate events occur prior to the maturity date, the Company would increase the conversion rate pursuant to the make-whole fundamental change provision for a holder who elects to convert their 2023 Notes in connection with such an event in certain circumstances. Additionally, if a fundamental change occurs prior to the maturity date, holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes for cash at a repurchase price equal to 100% of the principal amount plus any accrued and unpaid interest.

In accordance with U.S. GAAP relating to embedded conversion features, the Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and in January 2018 recorded the embedded conversion option as a debt discount and derivative liability in the Company’s consolidated balance sheets at its initial fair value of $17.3 million. Additionally, the Company incurred transaction costs of $2.2 million. The debt discount, embedded conversion option and transaction costs, are being amortized to interest expense over the term of the 2023 Notes at an effective interest rate of 9.30%. 

The derivative liability will be remeasured at each reporting period with changes in fair value recorded in the consolidated statements of operations in other income (expense).

In the second quarter of 2018, the Company issued 73,529 shares of common stock upon the conversion of $250,000 in aggregate principal amount of the 2023 Notes. There was no conversion of 2023 Notes in the second quarter of 2019.

The following are the scheduled maturities of the 2023 Notes and Term Loans as of June 30, 2019 (in thousands):

2019 (remaining six months)	$	5,000
2020		5,000
2021		—
2022		—
2023		52,700
Total	$	62,700

The Company estimates the fair value of the 2023 Notes using commonly accepted valuation methodologies and market-risk measurements that are indirectly observable, such as credit risk (Level 2). At June 30, 2019, the fair value of the 2023 Notes, excluding the derivative liability, was $43.1 million.

In July 2019, the Company issued $82.0 million in aggregate principal amount of 2025 Notes. The Company used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the Company’s outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon, as described in Note 13 – Subsequent Events.

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Stockholders' Equity

6 Months Ended

Jun. 30, 2019

Stockholders' Equity

Stockholders' Equity

9.Stockholders’ Equity

Preferred Stock

As of June 30, 2019 and December 31, 2018, the Company’s authorized capital stock included 5,000,000 shares of undesignated preferred stock, par value $0.001 per share.  No shares of preferred stock were outstanding as of June 30, 2019 or December 31, 2018.

Common Stock

As of June 30, 2019 and December 31, 2018, the Company’s authorized capital stock included 450,000,000 shares of common stock, par value $0.001 per share. The Company had 177,031,842 and 176,918,381 shares of common stock issued and outstanding at June 30, 2019 and December 31, 2018, respectively.

Stock Purchase Warrants

In connection with the issuance of the Notes, the Company also issued to the Lenders 10-year stock purchase warrants to purchase an aggregate of 116,581,  63,025 and 80,645 shares of common stock at an exercise price of $3.86,  $2.38 and $1.86 per share, respectively. The cumulative fair value of the warrants, which the Company estimated to be $0.5 million, was recorded as a discount to the Notes. These warrants expire on June 30, 2026, November 22, 2026, and March 29, 2027, respectively, and are classified in equity. In connection with the Company’s original Loan and Security Agreement with Oxford in 2014, the Company issued to Oxford 10-year stock purchase warrants to purchase an aggregate of 167,570 shares of common stock at an exercise price of $1.79 per share. The fair value of the warrants, which the Company estimated to be $0.2 million, was recorded as a discount to the promissory notes issued to Oxford in connection with the original Loan and Security Agreement. These warrants expire on November 2, 2020, July 14, 2021 and August 19, 2021, and are classified in equity. The unamortized deferred financing fees and debt discount related to the notes rollover amount is being amortized along with the deferred financing costs and the discount created by the new issuance of the warrants over the term of the loan using the effective interest method. For each of the six months ended June 30, 2019 and 2018, the Company recorded amortization of discount of debt of $0.1 million within interest expense in the accompanying statements of operations and comprehensive loss.

Stock‑Based Compensation

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 awards may be granted to the Company’s employees and certain other persons in accordance with the 2015 Plan provisions. In connection with the March 2016 Offering, 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”). The amended and restated 2015 Plan became effective as of the date of the pricing of the March 2016 Offering. 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 initially reserved for issuance pursuant to equity awards was 17,251,115 shares, representing 8,000,000 shares plus up to an additional 9,251,115 shares in the event that options that were outstanding under the Company’s equity incentive plans as of February 16, 2016 expire or otherwise terminate without having been exercised (in such case, the shares not acquired will revert to and become available for issuance under the amended and restated 2015 Plan). The number of shares of the Company’s common stock reserved for issuance under the amended and restated 2015 Plan will automatically increase on January 1 of each year, beginning on January 1, 2017 and ending on January 1, 2026, by 3.5% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s board of directors. As of June 30, 2019,  670,452 shares remained available for grant under the amended and restated 2015 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 (as defined below) 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 nonstatutory options, restricted stock unit awards and other equity incentive awards. As of June 30, 2019, 1,800,000 shares remained available for grant under the Inducement 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 7,076,638 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.

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date of grant. The estimated fair value of stock options on the date of grant is amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award for those awards with service conditions only. For awards that also contain performance conditions, expense is recognized beginning at the time the performance condition is considered probable of being met over the remaining vesting period.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2019

Fair Value Measurements

Fair Value Measurements

10.Fair Value Measurements

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use to price the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

· Level 1—Quoted prices for identical assets or liabilities in active markets.

· Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The fair value of money market funds was derived from quoted prices in active markets for identical assets. The valuation technique used to measure the fair value of the Company’s debt instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company has segregated its financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The inputs used in measuring the fair value of the Company’s money market funds included in cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair market values are based on period-end statements supplied by the various banks and brokers that held the majority of the funds.

The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis as follows (in thousands):

	June 30, 2019
	Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	47,745	$	47,745	$	—	$	—
Liabilities
Embedded features of the 2023 Notes	$	10,130	$	—	$	—	$	10,130

	December 31, 2018
	Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	122,859	$	122,859	$	—	$	—
Liabilities
Embedded features of the 2023 Notes	$	17,091	$	—	$	—	$	17,091

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):

	Embedded
	Features of the
	2023 Notes
December 31, 2018	$	17,091
Change in fair value included in other income (expense)		(6,961)
June 30, 2019	$	10,130

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain financial instruments within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended June 30, 2019 and 2018. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company has no financial assets and liabilities that are measured at fair value on a non-recurring basis.

Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company has no non-financial assets and liabilities that are measured at fair value on a recurring basis.

Non‑Financial Assets and Liabilities Measured at Fair Value on a Non‑Recurring Basis

The Company measures its long‑lived assets, including property and equipment, at fair value on a non‑recurring basis. These assets are recognized at fair value when they are deemed to be impaired. No such fair value impairment was recognized in the three and six months ended June 30, 2019 and 2018.

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Income Taxes

6 Months Ended

Jun. 30, 2019

Income Taxes

Income Taxes

11.Income Taxes

The Company has not recorded any tax provision or benefit for the six months ended June 30, 2019 or June 30, 2018. 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 June 30, 2019 and December 31, 2018.

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Related Party Transactions

6 Months Ended

Jun. 30, 2019

Related Party Transactions

Related Party Transactions

12. Related Party Transactions

Roche Holding A.G, through its ownership interests in Roche Finance Ltd (collectively, “Roche”), has a noncontrolling ownership interest in the Company. For the three months ended June 30, 2019 and 2018, revenues from Roche were $3.1 million and $3.1 million, respectively. For the six months ended June 30, 2019 and 2018, revenues from Roche were $5.3 million and $5.6 million, respectively. Amounts due from Roche as of June 30, 2019 and December 31, 2018 were $5.0 million and $6.3 million, respectively.

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Subsequent Events

6 Months Ended

Jun. 30, 2019

Subsequent Events

Subsequent Events

13.Subsequent Events

Convertible Notes

In July 2019, the Company issued $82.0 million in aggregate principal amount of 2025 Notes. The 2025 Notes are general, unsecured, senior subordinated obligations of the Company and bear interest at a rate of 5.25% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The 2025 Notes will mature on January 15, 2025, unless earlier repurchased or converted.

The Company used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the Company’s outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon.

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 Company may redeem for cash all or part of the 2025 Notes, at its option, if (1) the last reported sale price of the Company’s common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption and (2) a registration statement covering the resale of the shares of the Company’s common stock issuable upon conversion of the 2025 Notes is effective and available for use and is expected to remain effective and available for use during the redemption period as of the date of the redemption notice date. The redemption price will be equal to 100% of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes a fundamental change, holders may require the Company to repurchase for cash all or any portion of their 2025 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2025 Notes in connection with such notice of redemption or corporate event. In certain circumstances, the Company will be required to pay cash in lieu of delivering make whole shares unless the Company obtains stockholder approval to issue shares.

The 2025 Notes are guaranteed on a senior unsecured basis by the Company’s wholly-owned subsidiary, Senseonics, Incorporated, and may be guaranteed by certain future subsidiaries. The subsidiary guarantor is 100% owned, the guarantee is full and unconditional and joint and several and the parent company has no independent assets or operations and any subsidiaries of the parent company other than the subsidiary guarantor are minor.

Solar Loan Agreement

On July 16, 2019, the Company entered into the Solar Loan Agreement with Solar, as collateral agent, and the lenders from time to time party thereto (collectively, the “Solar Lenders”).

Pursuant to the Solar Loan Agreement, on July 25, 2019, the Company borrowed term loans in an aggregate principal amount of $45.0 million (the “Solar Term Loan”). The Company used $11.6 million of the Solar Term Loan to repay in full the Term Loans and terminate the Company’s existing credit facility with Oxford and SVB.

Interest on the Solar Term Loan will be payable monthly at a floating annual rate of 6.50% plus the greater of (i) the rate per annum rate published by the Intercontinental Exchange Benchmark Administration Ltd. and (ii) 2.48%, provided that the minimum floor interest rate is 8.98%. The maturity date for the Solar Term Loan will be June 1, 2024 (the “Solar Maturity Date”). Commencing on August 1, 2021, the Company will be required to make monthly principal amortization payments; provided that the interest only period may be extended to (i) August 1, 2022 if the Company’s product revenue is greater than or equal to $40.0 million on a trailing six-month basis prior to the second anniversary of the effective date and (ii) August 1, 2023 if the Company’s product revenue is greater than or equal to $75.0 million on a trailing six-month basis after the achievement of the first extension.

The Company may elect to prepay the Solar Term Loan prior to the Solar Maturity Date subject to a prepayment fee equal to 3.00% if the prepayment occurs within one year of the effective date, 2.00% if the prepayment occurs during the second year following the effective date, and 1.00% if the prepayment occurs more than two years after the effective date and prior to the Solar Maturity Date.

The Solar Loan Agreement contains customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Solar Lenders’ security interest over the collateral, a material adverse change, the occurrence of a default under certain other agreements entered into by the Company and its subsidiaries, the rendering of certain types of judgments against the Company and its subsidiaries, the revocation of certain government approvals, violation of covenants, and incorrectness of representations and warranties in any material respect. Upon the occurrence of an event of default, subject to specified cure periods, all amounts owed by the Company would begin to bear interest at a rate that is 5.00% above the rate effective immediately before the event of default, and may be declared immediately due and payable by the Solar Lenders.

The Solar Term Loan is secured by substantially all of the Company and its subsidiaries’ assets. The Solar Loan Agreement also contains specified financial covenants related to the Company’s liquidity and trailing six-month revenues.

The Solar Loan Agreement also contains certain restrictive covenants that limit the Company’s ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements.

Warrants

In connection with the borrowing of the Solar Term Loan, the Company issued the Solar Lenders warrants to purchase an aggregate of 1,125,000 shares of its common stock with an exercise price of $1.20 per share (the “Solar Warrants”).  The Solar Warrants are exercisable until July 25, 2029. The Solar Lenders also have the right to net exercise the Solar Warrants for shares of the Company’s common stock

Public Offering of Common Stock

In July, 2019, pursuant to an underwriting agreement with Jefferies LLC, the Company closed a follow-on public offering of 26,136,363 shares of its common stock at a price of $1.10 per share, which included the exercise in full by Jefferies LLC of its option to purchase up to 3,409,090 additional shares. The Company received aggregate gross proceeds of $28.7 million from the offering before deducing underwriting discounts and offering expenses.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the Company’s opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly its financial position, results of operations, and cash flows. The consolidated balance sheet at December 31, 2018, has been derived from audited financial statements as of that date. The interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Use of Estimates

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 revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, obsolete inventory, depreciable lives of property and equipment, and estimated accruals for clinical study costs, which are accrued based on estimates of work performed under contract. Actual results could differ from those estimates; however management does not believe that such differences would be material.

Segment Information

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment, glucose monitoring products.

Comprehensive Loss

Comprehensive Loss

Comprehensive loss comprises net loss and other changes in equity that are excluded from net loss. For the three and six months ended June 30, 2019 and 2018, the Company’s net loss equaled its comprehensive loss and, accordingly, no additional disclosure is presented.

Cash and Cash Equivalents and Concentration of Credit Risk

Cash and Cash Equivalents and Concentration of Credit Risk

The Company considers highly liquid investments with 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.

The Company’s cash and cash equivalents potentially subject the Company to credit and liquidity risk. The Company maintains cash deposits at major financial institutions with high credit quality and, at times, the balances of those deposits may exceed the Federal Deposit Insurance Corporation limits of $250,000. The Company has not experienced and does not anticipate any losses on deposits with commercial banks and financial institutions that exceed the federally insured amounts.

Concentration of Revenues and Customers

Concentration of Revenues and Customers

At any given time, the Company’s trade receivables are concentrated among a small number of principal customers. If any of the Company’s customers fail to pay their obligations under the terms of these financial instruments, the Company’s maximum exposure to potential losses would be equal to amounts reported on its consolidated balance sheets.

During the three and six months ended June 30, 2019 and 2018, the Company derived a majority of its total net revenue from two customers. During the three months ended June 30, 2019 and 2018, the Company derived 68 percent and 85 percent of its total net revenue from one of those two customers, respectively. During the six months ended June 30, 2019 and 2018, the Company derived 66 percent and 86 percent of its total net revenue from one of those two customers, respectively.

Revenues by geographic region

The following table sets forth net revenues 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 and six months ended June 30, 2019. All of the Company’s net revenues were earned from sales outside of the United States for the three and six months ended June 30, 2018.

	Three Months Ended				Six Months Ended
	June 30, 2019				June 30, 2019
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenues, net:
Outside of the United States	$	3,509	76.2	%	$	6,117	76.2	%
United States		1,098	23.8			1,913	23.8
Total	$	4,607	100.0	%	$	8,030	100.0	%

Inventory

Inventory

Inventory is valued at the lower of cost or net realizable value. Cost is determined using the standard cost method that approximates first in, first out. The Company periodically reviews inventory to determine if a write-down is necessary for inventory that has become obsolete, inventory that has a cost basis less than net realizable value, and inventory in excess of future demand taking into consideration the product shelf life.

Accounts Receivable

Accounts Receivable

The Company grants credit to various customers in the normal course of business. Accounts receivable consist of amounts due from distributors. The Company records an allowance for doubtful accounts at the time potential collection risk is identified. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed by use of the straight-line method over the estimated useful lives of the assets, which is between three to five years for laboratory equipment, between five to seven years for office furniture and equipment, and the shorter of lease term or useful life for leasehold improvements. Upon disposition of the assets, the costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations. Repairs and maintenance costs are included as expense in the accompanying statement of operations.

Management reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Management did not identify any indicators of impairment through June 30, 2019.

Derivative Financial Instruments

Derivative Financial Instruments

In connection with the Company’s issuance of the 2023 Notes in January 2018, the Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a derivative liability in the Company’s consolidated balance sheets in accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging. The financial instrument is remeasured at the end of each reporting period with changes in fair value recorded in the consolidated statements of operations in other income (expense) as change in fair value of 2023 derivative.

In July 2019, the Company issued $82.0 million in aggregate principal amount of convertible senior subordinated notes due 2025 (the “2025 Notes”). The Company used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the Company’s outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon,  as described in Note 13 – Subsequent Events.

Warranty Reserve

Warranty Reserve

The Company may replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs associated with a product are recorded at the time of shipment. The Company estimates future replacement costs by analyzing historical replacement experience for the timing and amount of returned product, and the Company evaluates the reserve quarterly and makes adjustments when appropriate.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606, 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, once the contract is determined to be within the scope of ASC Topic 606, 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 product revenue from sales of the Eversense system and related components and supplies 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.

Revenues from product sales are recognized when the Customers obtain control of the Company’s product, which occurs at a point in time, based upon the delivery terms as defined in the distributor agreement. The Company is typically paid within 60 days of invoicing subsequent to the Customers obtaining control of the Company’s product.

In March 2019, the Company introduced the Eversense Bridge Program (the “program”) in the United States.  Under the program, the Company provides financial assistance, in the form of reimbursement, to eligible patients based on their insurance coverage. Reimbursement payments to the patient under the program are treated as a reduction of revenue in the period in which the corresponding gross revenue is recognized. Estimated reimbursement payments for product shipped to the Company’s customers but not sold to a patient within the same reporting period is based on historical experience and recorded within accrued expenses and other current liabilities in the accompanying consolidated balance sheets. Because of the limited experience with the program as of June 30, 2019, the Company’s estimated reimbursement rates with respect to such shipped, but unsold, products could change in future periods, and such changes could be material. The Company also, at its discretion, offers discounts and other allowances under defined promotional programs to the Customers which result in the establishment of reserves against product revenue.

Cost of Sales

Cost of Sales

The Company uses third-party contract manufacturers to manufacture Eversense and related components and supplies. Cost of sales includes raw materials, contract manufacturing service fees, reserves for expected warranty costs, reserves for inventory valuation and obsolescence, scrap, and shipping and handling expenses associated with product delivery.

Research and Development Costs

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses include costs related to employee compensation, consultants, contracted services, supplies, outsourced testing, depreciation and other expenses associated with the Company’s process development, clinical, regulatory, and quality assurance activities.

Stock-Based Compensation

Stock‑Based Compensation

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date of grant. The estimated fair value of stock options on the date of grant is amortized on a straight‑line basis over the requisite service period for each separately vesting portion of the award for those awards with service conditions only. For awards that also contain performance conditions, expense is recognized beginning at the time the performance condition is considered probable of being met over the remaining vesting period. The Company accounts for forfeitures in the period in which they occur.

The Company uses the Black‑Scholes option pricing model to determine the fair value of stock‑option awards. Valuation of stock awards requires management to make assumptions and to apply judgment to determine the fair value of the awards. These assumptions and judgments include estimating the fair value of the Company’s common stock, future volatility of the Company’s stock price, dividend yields, future employee turnover rates, and future employee stock option exercise behaviors. Changes in these assumptions can affect the fair value estimate.

Under ASC Topic 718, the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law shall be considered to be a deductible difference in applying ASC Topic 740, Income Taxes. The deductible temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently do not impact the Company, as all the deferred tax assets have a full valuation allowance.

Since the Company had net operating loss (“NOL”) carryforwards as of June 30, 2019,  no excess tax benefits for the tax deductions related to stock-based awards were recognized in the statements of operations and comprehensive loss.

Income Taxes

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Management uses a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. In the ordinary course of business, transactions occur for which the ultimate outcome may be uncertain. Management does not expect the outcome related to accrued uncertain tax provisions to have a material adverse effect on the Company’s financial position, results of operations or cash flows.  The Company recognizes interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense. The Company did not have any amounts accrued relating to interest and penalties as of June 30, 2019 and December 31, 2018.

The Company is subject to taxation in various jurisdictions in the United States and remains subject to examination by taxing jurisdictions for the year 1998 and all subsequent periods due to the availability of NOL carryforwards. In addition, all of the NOLs and research and development credit carryforwards that may be used in future years are still subject to adjustment.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of their short maturities. The Company’s Notes and 2023 Notes are recorded at historical cost, net of discounts, and are not remeasured at fair value.

Net Loss per Share

Net Loss per Share

Basic net loss per share is computed by dividing net loss 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. At June 30, 2019 and 2018, the total number of anti-dilutive shares, consisting of common stock options, stock purchase warrants, and the 2023 Notes using the if-converted method, which have been excluded from the computation of diluted loss per share, were as follows:

	June 30,
	2019	2018
Stock-based awards	27,618,668	21,305,247
2023 Notes	21,321,038	15,499,998
Warrants	4,071,581	4,082,544
Total anti-dilutive shares outstanding	53,011,287	40,887,789

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 and stock purchase warrants using the treasury stock method, and the 2023 Notes using the if-converted method.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Recently Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”). The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. In July 2018, the FASB issued ASU 2018-11 to provide another transition method, allowing a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. The guidance is effective for annual reporting periods beginning after December 15, 2018, subject to early adoption. The Company adopted the new standard effective January 1, 2019 using the modified retrospective approach. The Company did not elect the transition option, but elected certain practical expedients, including not separating lease components from nonlease components for all classes of underlying assets. Additionally, all leases with a term at commencement of 12 months or less will be excluded from analysis under ASC 842.  The standard did not materially affect the Company’s consolidated net loss or cash flows.

Impact of Adopting ASC 842 on the Financial Statements

	January 1, 2019				January 1, 2019
	Prior to ASC
	842 Adoption		ASC 842 Adoption		As Adjusted
Consolidated Balance Sheet Data (in thousands)
Operating lease assets (1)	$	—	$	2,235	$	2,235
Deferred rent non-current (2)	$	84	$	(84)	$	—
Operating lease liabilities (3)	$	—	$	417	$	417
Non-current operating lease liabilities (3)	$	—	$	1,902	$	1,902

(1)    Represents capitalization of operating lease assets, including reclassification of deferred rent to operating lease assets.

(2)    As of December 31, 2018, the deferred rent balance was $84.

(3)    Represents recognition of operating lease liabilities.

The Company has evaluated all other issued unadopted ASUs and believes the adoption of these standards will not have a material impact on its consolidated statements of earnings, balance sheets, or cash flows.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2019

Schedule of revenues by geographic region

	Three Months Ended				Six Months Ended
	June 30, 2019				June 30, 2019
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenues, net:
Outside of the United States	$	3,509	76.2	%	$	6,117	76.2	%
United States		1,098	23.8			1,913	23.8
Total	$	4,607	100.0	%	$	8,030	100.0	%

Schedule of anti-dilutive shares which have been excluded from the computation of diluted loss per share

	June 30,
	2019	2018
Stock-based awards	27,618,668	21,305,247
2023 Notes	21,321,038	15,499,998
Warrants	4,071,581	4,082,544
Total anti-dilutive shares outstanding	53,011,287	40,887,789

ASU 2016-02

Schedule of impact of adopting ASC 842 on the financial statements

	January 1, 2019				January 1, 2019
	Prior to ASC
	842 Adoption		ASC 842 Adoption		As Adjusted
Consolidated Balance Sheet Data (in thousands)
Operating lease assets (1)	$	—	$	2,235	$	2,235
Deferred rent non-current (2)	$	84	$	(84)	$	—
Operating lease liabilities (3)	$	—	$	417	$	417
Non-current operating lease liabilities (3)	$	—	$	1,902	$	1,902

(1)    Represents capitalization of operating lease assets, including reclassification of deferred rent to operating lease assets.

(2)    As of December 31, 2018, the deferred rent balance was $84.

(3)    Represents recognition of operating lease liabilities.

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Inventory, net (Tables)

6 Months Ended

Jun. 30, 2019

Inventory, net

Schedule of Inventory, net

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

	June 30,		December 31,
	2019		2018
Finished goods	$	1,707	$	1,457
Work-in-process		13,518		7,211
Raw materials		1,562		1,563
Total	$	16,787	$	10,231

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Prepaid Expenses and Other Current Assets (Tables)

6 Months Ended

Jun. 30, 2019

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets

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

	June 30,		December 31,
	2019		2018
Contract manufacturing	$	3,614	$	2,962
Financing services		712		—
Marketing and sales		598		287
Insurance		442		—
Clinical and preclinical		257		111
IT and software		199		244
Interest receivable		100		239
Other		169		142
Total prepaid expenses and other current assets	$	6,091	$	3,985

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Accrued Expenses and Other Current Liabilities (Tables)

6 Months Ended

Jun. 30, 2019

Accrued Expenses and Other Current Liabilities

Schedule of accrued expenses and other current liabilities

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

	June 30,		December 31,
	2019		2018
Contract manufacturing	$	4,299	$	6,068
Compensation and benefits		3,457		3,685
Sales and marketing services		1,942		738
Professional services		1,586		727
Clinical and preclinical		1,472		147
Product warranty		1,386		816
Interest on notes payable and 2023 Notes		1,226		1,268
Patient access program		831		—
Right of use liability - building		445		—
Other		278		402
Total accrued expenses and other current liabilities	$	16,922	$	13,851

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Leases (Tables)

6 Months Ended

Jun. 30, 2019

Leases

Summary of lease assets and liabilities

Operating Lease Assets and Liabilities	Balance Sheet Classification	Amount
Assets
Operating lease ROU assets	Deposits and other assets	$	2,025
Liabilities
Current operating lease liabilities	Accrued expenses and other current liabilities	$	445
Non-current operating lease liabilities	Other non-current liabilities		1,674
Total operating lease liabilities		$	2,119

Schedule of operating lease liabilities maturities

2019 (remaining six months)	$	309
2020		629
2021		648
2022		668
2023		282
Total		2,536
Present value adjustment		(417)
Present value of lease liabilities	$	2,119

Schedule of lease term and discount rate

Remaining lease term (years)
Operating leases	3.9
Discount rate
Operating leases	9.1	%

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Notes Payable (Tables)

6 Months Ended

Jun. 30, 2019

Notes Payable

Schedule of future maturities

The following are the scheduled maturities of the 2023 Notes and Term Loans as of June 30, 2019 (in thousands):

2019 (remaining six months)	$	5,000
2020		5,000
2021		—
2022		—
2023		52,700
Total	$	62,700

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Measurements

Schedule of fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis

The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis as follows (in thousands):

	June 30, 2019
	Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	47,745	$	47,745	$	—	$	—
Liabilities
Embedded features of the 2023 Notes	$	10,130	$	—	$	—	$	10,130

	December 31, 2018
	Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	122,859	$	122,859	$	—	$	—
Liabilities
Embedded features of the 2023 Notes	$	17,091	$	—	$	—	$	17,091

Schedule of changes in the fair value of Level 3 derivative liability measured at fair value on a recurring basis

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):

	Embedded
	Features of the
	2023 Notes
December 31, 2018	$	17,091
Change in fair value included in other income (expense)		(6,961)
June 30, 2019	$	10,130

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Liquidity (Details) - USD ($) $ in Thousands	1 Months Ended
	Jul. 31, 2019	Jun. 30, 2019	Dec. 31, 2018
Convertible Notes
Cash and cash equivalents		$ 65,296	$ 136,793
Forecast
Convertible Notes
Gross proceeds	$ 106,200

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Summary of Significant Accounting Policies - Segment Information (Details)	6 Months Ended
	Jun. 30, 2019 segment
Segment Information
Number of operating segments	1

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Summary of Significant Accounting Policies - Concentration of Revenues and Customers (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($) customer	Jun. 30, 2018 customer	Jun. 30, 2019 USD ($) customer item	Jun. 30, 2018 customer
Estimated total revenues from major customers
FDIC maximum	$ 250,000		$ 250,000
Number of geographical markets | item			2
Revenue
Estimated total revenues from major customers
Number of customers | customer	2	2	2	2
Revenue | Customer Concentration Risk | One Major Customer
Estimated total revenues from major customers
Percentage of total revenue	68.00%	85.00%	66.00%	86.00%
Revenue | Geographic Concentration Risk
Estimated total revenues from major customers
Percentage of total revenue	100.00%		100.00%
Revenues	$ 4,607,000		$ 8,030,000
Outside of the United States | Revenue | Geographic Concentration Risk
Estimated total revenues from major customers
Percentage of total revenue	76.20%		76.20%
Revenues	$ 3,509,000		$ 6,117,000
United States | Revenue | Geographic Concentration Risk
Estimated total revenues from major customers
Percentage of total revenue	23.80%		23.80%
Revenues	$ 1,098,000		$ 1,913,000

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Summary of Significant Accounting Policies - Property and Equipment (Details)	6 Months Ended
	Jun. 30, 2019
Laboratory equipment | Minimum
Property and Equipment, net
Useful lives	3 years
Laboratory equipment | Maximum
Property and Equipment, net
Useful lives	5 years
Office furniture and equipment | Minimum
Property and Equipment, net
Useful lives	5 years
Office furniture and equipment | Maximum
Property and Equipment, net
Useful lives	7 years

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Summary of Significant Accounting Policies - Derivative Financial Instruments (Details) - USD ($) $ in Millions	1 Months Ended
	Jul. 31, 2019	Feb. 28, 2018	Jan. 31, 2018
Forecast
Derivative [Line Items]
Net proceeds	$ 106.2
2025 Notes | Forecast
Derivative [Line Items]
Principal amount	82.0
Net proceeds	37.9
2023 Notes
Derivative [Line Items]
Principal amount		$ 3.0	$ 50.0
2023 Notes | Forecast
Derivative [Line Items]
Repurchase amount	$ 37.0

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Summary of Significant Accounting Policies - Revenue Recognition (Details)	6 Months Ended
	Jun. 30, 2019
Summary of Significant Accounting Policies
Payment period	60 days

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Summary of Significant Accounting Policies - Stock-Based Compensation and Income Taxes (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Stock-Based Compensation
Excess tax benefits recognized in statements of operations	$ 0
Income Taxes
Accrued for income tax penalties and interest	$ 0	$ 0

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Summary of Significant Accounting Policies - Net Loss per Share (Details) - shares	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Net Loss per Share
Total anti-dilutive shares outstanding	53,011,287	40,887,789
Stock-based awards
Net Loss per Share
Total anti-dilutive shares outstanding	27,618,668	21,305,247
2023 Notes
Net Loss per Share
Total anti-dilutive shares outstanding	21,321,038	15,499,998
Warrants
Net Loss per Share
Total anti-dilutive shares outstanding	4,071,581	4,082,544

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Summary of Significant Accounting Policies - Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease ROU assets	$ 2,025	$ 2,235
Deferred rent non-current			$ 84
Operating lease liabilities	445	417
Non-current operating lease liabilities	$ 1,674	1,902
ASU 2016-02 | Prior to ASC 842 Adoption
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Deferred rent non-current		84
ASU 2016-02 | As Adjusted
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease ROU assets		2,235
Deferred rent non-current		(84)
Operating lease liabilities		417
Non-current operating lease liabilities		$ 1,902

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Inventory, Net - Summary (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Inventory, net
Finished goods	$ 1,707	$ 1,457
Work-in-process	13,518	7,211
Raw materials	1,562	1,563
Total	$ 16,787	$ 10,231

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Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Prepaid Expenses and Other Current Assets
Contract manufacturing	$ 3,614	$ 2,962
Financing services	712
Marketing and sales	598	287
Insurance	442
Clinical and preclinical	257	111
IT and software	199	244
Interest receivable	100	239
Other	169	142
Total prepaid expenses and other current assets	$ 6,091	$ 3,985

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Accrued Expenses and Other Current Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Accrued Expenses and Other Current Liabilities
Contract manufacturing	$ 4,299		$ 6,068
Compensation and benefits	3,457		3,685
Sales and marketing services	1,942		738
Professional services	1,586		727
Clinical and preclinical	1,472		147
Product warranty	1,386		816
Interest on notes payable and 2023 Notes	1,226		1,268
Patient access program	831
Right of use liability - building	445	$ 417
Other	278		402
Total accrued expenses and other current liabilities	$ 16,922		$ 13,851

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Leases - (Details) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($) ft²	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) ft² item	Jun. 30, 2018 USD ($)	Dec. 31, 2018 ft²
Lessee, Lease, Description [Line Items]
Option to renew lease			true
Operating lease expense | $	$ 0.2	$ 0.1	$ 0.3	$ 0.3
Office Space
Lessee, Lease, Description [Line Items]
Additional leased space, in square feet					12,000
Lease termination period			60 days
Research and Office Space
Lessee, Lease, Description [Line Items]
Leased space, in square feet	33,000		33,000
Number of renewal terms | item			1
Renewal term of lease	5 years		5 years

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Leases - Assets and liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 01, 2019
Operating Lease Assets and Liabilities
Operating lease ROU assets	$ 2,025	$ 2,235
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List]	Deposits and Other Assets, Noncurrent
Right of use liability - building	$ 445	417
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Accrued Liabilities and Other Liabilities, Current
Non-current operating lease liabilities	$ 1,674	$ 1,902
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List]	Other Liabilities, Noncurrent
Total operating lease liabilities	$ 2,119
Operating Lease Liabilities, Payments Due [Abstract]
2019 (remaining six months)	309
2020	629
2021	648
2022	668
2023	282
Total	2,536
Present value adjustment	(417)
Total operating lease liabilities	$ 2,119
Remaining lease term	3 years 10 months 24 days
Discount rate	9.10%

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Notes Payable (Details) $ in Millions	Jul. 25, 2019 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2019 tranche
Oxford Notes
Notes payable
Amount used to retire existing loans		$ 11.0
Term Notes Payable | Amended and Restated Loan and Security Agreement
Notes payable
Principal amount		$ 25.0
Number of tranches under facility | tranche			3
Prepayment fee percentage after second anniversary of funding		1.00%
Term Notes Payable | Amended and Restated Loan and Security Agreement | LIBOR
Notes payable
Floating annual rate, spread (as a percent)		6.31%
90-day U.S. Dollar LIBOR		90-day U.S. Dollar LIBOR
Term Notes Payable | Amended and Restated Loan and Security Agreement | Floor interest rate
Notes payable
Floor interest rate (as a percent)		0.64%
Term Notes Payable | Amended and Restated Loan and Security Agreement | Floor interest rate | Minimum
Notes payable
Floor interest rate (as a percent)		6.95%
Term Notes Payable | Amended and Restated Loan and Security Agreement | Interest only period
Notes payable
Frequency of payment		monthly
Type of payment required		interest-only
Term Notes Payable | Solar Loan Agreement | Forecast
Notes payable
Principal amount	$ 45.0
Proceeds from issuance of notes	$ 11.6
Tranche 1 Term Loan | Amended and Restated Loan and Security Agreement
Notes payable
Principal amount		$ 15.0
Proceeds from issuance of notes		15.0
Tranche 2 Term Loan | Amended and Restated Loan and Security Agreement
Notes payable
Principal amount		5.0
Tranche 3 Term Loan | Amended and Restated Loan and Security Agreement
Notes payable
Principal amount		$ 5.0

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Notes Payable - Term Notes Payable (Details) - USD ($)			1 Months Ended			3 Months Ended		6 Months Ended		12 Months Ended
	Jul. 25, 2019	Jun. 30, 2016	Jul. 31, 2019	Feb. 28, 2018	Jan. 31, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Long term debt
Derivative liability						$ 10,130,000		$ 10,130,000		$ 17,091,000
Aggregate outstanding principal amount						62,700,000		62,700,000
Conversion of 2023 Notes							$ 250,000		$ 250,000
Forecast
Long term debt
Net proceeds			$ 106,200,000
Term Notes Payable
Long term debt
Fair value of notes excluding the derivative liability						11,300,000		11,300,000
Term Notes Payable | Amended and Restated Loan and Security Agreement
Long term debt
Final prepayment fee (as a percent)		9.00%
Final payment fee, notes								2,000,000		$ 1,800,000
Principal amount		$ 25,000,000
Transaction costs		600,000
Term Notes Payable | Amended and Restated Loan and Security Agreement | Warrant liability | Stock Purchase Warrants
Long term debt
Warrant liability		$ 500,000
Term Notes Payable | Amended and Restated Loan and Security Agreement | Warrant liability | Common Stock | Stock Purchase Warrants, $1.86 to $3.86 Exercise Price Range
Long term debt
Term of stock purchase warrants		10 years
Number of shares called by warrants		260,251
Term Notes Payable | Amended and Restated Loan and Security Agreement | Warrant liability | Minimum | Common Stock | Stock Purchase Warrants, $1.86 to $3.86 Exercise Price Range
Long term debt
Exercise price of warrant (in dollars per share)		$ 1.86
Term Notes Payable | Amended and Restated Loan and Security Agreement | Warrant liability | Maximum | Common Stock | Stock Purchase Warrants, $1.86 to $3.86 Exercise Price Range
Long term debt
Exercise price of warrant (in dollars per share)		$ 3.86
Term Notes Payable | Solar Loan Agreement | Forecast
Long term debt
Principal amount	$ 45,000,000
Proceeds from issuance of notes	$ 11,600,000
2023 Notes
Long term debt
Principal amount				$ 3,000,000	$ 50,000,000
Proceeds from issuance of notes				$ 50,700,000
Conversion rate (per $1,000 of principal)					294.1176
Derivative liability					$ 17,300,000
Amount of principal which is converted to shares					$ 1,000
Conversion price (in dollars per share)					$ 3.40
Conversion period					6 months
Repurchase price as a percent of principal amount					100.00%
Transaction costs					$ 2,200,000
Amortization percent					9.30%
Debt conversion amount						0	$ 250,000
Aggregate outstanding principal amount						$ 43,100,000		$ 43,100,000
2023 Notes | Forecast
Long term debt
Repurchase amount			37,000,000
2023 Notes | Common Stock
Long term debt
Debt converted, shares issued							73,529
2025 Notes | Forecast
Long term debt
Principal amount			82,000,000
Net proceeds			$ 37,900,000

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Notes Payable - Scheduled Maturities (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Scheduled maturities
2019 (remaining six months)	$ 5,000
2020	5,000
2023	52,700
Total	$ 62,700

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Stockholders' Equity (Deficit) - Class of Stock (Details) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Class of stock information
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, par value per share (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares outstanding	0	0
Common stock, shares authorized	450,000,000	450,000,000
Common stock, par value per share (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares issued	177,031,842	176,918,381
Common stock, shares outstanding	177,031,842	176,918,381

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Stockholders' Equity - Stock Purchase Warrants (Details) - USD ($) $ / shares in Units, $ in Millions		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2014
Stock Purchase Warrants | Interest Expense
Stock Purchase Warrants
Accretion of debt discount		$ 0.1	$ 0.1
Amended and Restated Loan and Security Agreement | Term Notes Payable | Stock Purchase Warrants | Warrant liability
Stock Purchase Warrants
Warrant liability	$ 0.5
Amended and Restated Loan and Security Agreement | Term Notes Payable | Stock Purchase Warrants, $3.86 Exercise Price | Warrant liability | Common Stock
Stock Purchase Warrants
Term of stock purchase warrants	10 years
Number of shares called by warrants	116,581
Exercise price of warrant (in dollars per share)	$ 3.86
Amended and Restated Loan and Security Agreement | Term Notes Payable | Stock Purchase Warrants, $2.38 Exercise Price | Warrant liability | Common Stock
Stock Purchase Warrants
Term of stock purchase warrants	10 years
Number of shares called by warrants	63,025
Exercise price of warrant (in dollars per share)	$ 2.38
Amended and Restated Loan and Security Agreement | Term Notes Payable | Stock Purchase Warrants, $1.86 Exercise Price | Warrant liability | Common Stock
Stock Purchase Warrants
Term of stock purchase warrants	10 years
Number of shares called by warrants	80,645
Exercise price of warrant (in dollars per share)	$ 1.86
Oxford Notes | Stock Purchase Warrants | Common Stock
Stock Purchase Warrants
Term of stock purchase warrants				10 years
Number of shares called by warrants				167,570
Exercise price of warrant (in dollars per share)				$ 1.79
Oxford Notes | Stock Purchase Warrants | Warrant liability
Stock Purchase Warrants
Warrant liability				$ 0.2

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Stockholders' Equity - Stock-Based Compensation (Details) - shares		1 Months Ended	6 Months Ended
	Feb. 16, 2016	Dec. 31, 2015	Jun. 30, 2019	May 30, 2019
2015 Equity Incentive Plan
Stock-based compensation
Expiration period		10 years
Total shares that may be issued	17,251,115
Shares available for grant	8,000,000		670,452
Automatic annual increase in shares authorized, percent of common stock outstanding			3.50%
2015 Equity Incentive Plan | Maximum
Stock-based compensation
Additional shares authorized	9,251,115
1997 Stock Option Plan
Stock-based compensation
Options vested and expected to vest			7,076,638
Inducement Plan
Stock-based compensation
Total shares that may be issued				1,800,000
Shares available for grant			1,800,000

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Fair Value Measurements - Recurring (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018	Jan. 31, 2018
Fair Value Measurements
Money market funds	$ 65,296		$ 65,296		$ 136,793
Embedded features of the 2023 Notes	10,130		10,130		17,091
Reconciliation of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3)
Fair Value, Assets, Level 1 to Level 2 Transfers, Amount	0	$ 0	0	$ 0
Fair Value, Assets, Level 2 to Level 1 Transfers, Amount	0	0	0	0
Fair Value, Liabilities, Level 1 to Level 2 Transfers, Amount	0	0	0	0
Fair Value, Liabilities, Level 2 to Level 1 Transfers, Amount	0	0	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Liability, Transfers Into Level 3	0	0	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Liability, Transfers out of Level 3	0	0	0	0
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset Transfers Into Level 3	0	$ 0	0	$ 0
2023 Notes
Fair Value Measurements
Embedded features of the 2023 Notes						$ 17,300
Recurring | Embedded conversion option | 2023 Notes
Fair Value Measurements
Embedded features of the 2023 Notes	10,130		10,130		17,091
Recurring | Money market funds
Fair Value Measurements
Money market funds	47,745		47,745		122,859
Recurring | Level 1 | Money market funds
Fair Value Measurements
Money market funds	47,745		47,745		122,859
Recurring | Level 3 | Embedded conversion option
Reconciliation of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3)
Balance at the beginning of the period			17,091
Change in fair value included in other income (expense)			(6,961)
Balance at the end of the period	10,130		10,130
Recurring | Level 3 | Embedded conversion option | 2023 Notes
Fair Value Measurements
Embedded features of the 2023 Notes	$ 10,130		$ 10,130		$ 17,091

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Fair Value Measurements - Nonrecurring (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Recurring
Fair Value Measurements
Fair value of non-financial assets	$ 0		$ 0		$ 0
Fair value of non-financial liabilities	0		0		0
Nonrecurring
Fair Value Measurements
Assets, fair value	0		0		0
Liabilities, fair value	0		0		$ 0
Fair value impairment recognized on long-lived assets	$ 0	$ 0	$ 0	$ 0

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Income Taxes - Tax Provision (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Income Taxes
Income tax provision	$ 0	$ 0

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Related Party Transactions - Revenues (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Related party transactions
Revenues	$ 3,132	$ 3,070	$ 5,312	$ 5,638
Due from related party	4,963		4,963		$ 6,267
Roche Diabetes Care (related party)
Related party transactions
Revenues	3,100	$ 3,100	5,300	$ 5,600
Due from related party	$ 5,000		$ 5,000		$ 6,300

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Subsequent Events - (Details)		1 Months Ended		6 Months Ended
	Jul. 25, 2019 USD ($) $ / shares shares	Jul. 31, 2019 USD ($) D $ / shares shares	Jan. 31, 2018 USD ($) $ / shares	Jun. 30, 2018 USD ($)	Feb. 28, 2018 USD ($)
Subsequent Event [Line Items]
Proceeds from issuance of common stock, net of issuance costs				$ 149,379,000
2023 Notes
Subsequent Event [Line Items]
Principal amount			$ 50,000,000		$ 3,000,000
Conversion rate (per $1,000 of principal)			294.1176
Amount of principal which is converted to shares			$ 1,000
Conversion price (in dollars per share) | $ / shares			$ 3.40
Repurchase price as a percent of principal amount			100.00%
Subsequent Event
Subsequent Event [Line Items]
Issued shares of common stock (in shares) | shares		26,136,363
Price per share (in dollars per share) | $ / shares		$ 1.10
Proceeds from issuance of common stock, net of issuance costs		$ 28,700,000
Subsequent Event | Senseonics, Incorporated
Subsequent Event [Line Items]
Ownership of subsidiary guarantor (as a percent)		100.00%
Subsequent Event | Jefferies LLC
Subsequent Event [Line Items]
Issued shares of common stock (in shares) | shares		3,409,090
Subsequent Event | 2023 Notes
Subsequent Event [Line Items]
Repurchase amount		$ 37,000,000
Subsequent Event | 2025 Notes
Subsequent Event [Line Items]
Principal amount		$ 82,000,000
Interest rate (as a percent)		5.25%
Net proceeds		$ 37,900,000
Conversion rate (per $1,000 of principal)		757.5758
Amount of principal which is converted to shares		$ 1,000
Conversion price (in dollars per share) | $ / shares		$ 1.32
Conversion price percentage		150.00%
Number of trading days | D		20
Number of consecutive trading days | D		30
Repurchase price as a percent of principal amount		100.00%
Subsequent Event | Term Notes Payable | Solar Loan Agreement
Subsequent Event [Line Items]
Principal amount	$ 45,000,000
Net proceeds	$ 11,600,000
Floating annual rate, spread (as a percent)	6.50%
Floor interest rate (as a percent)	2.48%
Threshold product revenue for monthly principal amortization payments prior to second anniversary	$ 40,000,000
Period prior to second anniversary for monthly principal amortization payments	6 months
Threshold product revenue for monthly principal amortization payments after achievement of first extension	$ 75,000,000
Period after achievement of first extension for monthly principal amortization payments	6 months
Prepayment fee percentage within one year of funding	3.00%
Prepayment period, first year	1 year
Prepayment fee percentage second year after funding date	2.00%
Prepayment fee percentage after second anniversary of funding	1.00%
Prepayment period, after two years	2 years
Debt default, interest rate (as a percent)	5.00%
Revenue period for specified financial covenants	6 months
Subsequent Event | Term Notes Payable | Solar Warrants | Solar Loan Agreement
Subsequent Event [Line Items]
Number of shares called by warrants | shares	1,125,000
Exercise price of warrant (in dollars per share) | $ / shares	$ 1.20
Subsequent Event | Term Notes Payable | Minimum | Solar Loan Agreement
Subsequent Event [Line Items]
Floor interest rate (as a percent)	8.98%