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Item 7. Management’s Discussion and Analysis

2025-03-03 compared with 2024-03-01 · 128 added, 124 removed, 151 unchanged (63% of the section changed)

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You should review the “Risk Factors” section of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a medical technology company focused on the development and manufacturing of glucose monitoring products designed to transform lives in the global diabetes community with differentiated, long-term implantable glucose management technology.

Our implantable CGM (“Eversense”), Eversense E3 continuous glucose monitoring (“CGM”) system version is designed to continually and accurately measure glucose levels in people with diabetes via an under-the-skin sensor, a removable and rechargeable smart transmitter, and a convenient app for real-time diabetes monitoring and management for a period of up to six months as compared to seven to 14 days for non-implantable CGM systems.

We affixed the CE mark to the original 90-day Eversense CGM system in June 2016, which marked the first certification for the product to be sold within the European Economic Area (being the European Union plus Norway, Iceland, and Liechtenstein) (“EEA”).

Subsequently, we affixed the CE mark to the extended life Eversense XL CGM system in September 2017 to be sold in select markets in Europe and the Middle East.

In June 2022, we affixed the CE mark to the Eversense E3 CGM system and Ascensia Diabetes Care Holdings AG (“Ascensia”) began commercialization in select markets in Europe during the third quarter of 2022.

In June 2018, the U.S.

Food and Drug Administration (“FDA”), approved the 90-day Eversense CGM system for distribution throughout the United States.

In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the 90-day Eversense system.

With this approval and the availability of a new app in December 2019, the Eversense system can now be used as a therapeutic CGM in the United States to replace fingerstick blood glucose measurement to make treatment decisions, including insulin dosing.

In February 2022, the 180-day extended life Eversense E3 CGM system was approved by the FDA and Ascensia began commercializing Eversense E3 in the United States in the second quarter of 2022.

Our net revenues are derived from sales of the Eversense system which is sold in two separate kits:

the disposable Eversense Sensor Pack which includes the sensor, insertion tool, and adhesive patches, and the durable Eversense Smart Transmitter Pack which includes the transmitter and charger.

We sell directly to our network of distributors and strategic fulfillment partners, who provide the Eversense system to healthcare providers and patients through a prescribed request and invoice insurance payors for reimbursement.

management technology.

Our implantable CGM (“Eversense”), including Eversense E3 and Eversense 365 CGM systems are designed to continually and accurately measure glucose levels in people with diabetes via an under-the-skin sensor, a removable and rechargeable smart transmitter, and a convenient app for real-time diabetes monitoring and management for a period of up to six months in the case of Eversense E3 and up to twelve months in the case of Eversense 365, as compared to seven to 14 days for non-implantable CGM systems.

In February 2022, the 180-day Eversense E3 CGM system was approved by the FDA and Ascensia began commercializing Eversense E3 in the United States in the second quarter of 2022.

In June 2022, we affixed the CE mark to the Eversense E3 CGM system and Ascensia began commercialization in select markets in Europe during the third quarter of 2022.

In September 2024, the 365-day extended life Eversense E3 CGM system was approved by the FDA and Ascensia began commercializing Eversense 365 in the United States in the fourth quarter of 2024.

Our net revenues are derived from sales of the Eversense CGM system which includes the Eversense Sensor Pack containing the sensor, insertion tool, and adhesive patches, the Eversense Smart Transmitter Pack containing the transmitter and charger and in some cases the procedure revenue associated with insertions and removals.

We primarily sell directly to our network of distributors, strategic fulfillment partners, who provide the Eversense system to healthcare providers and patients through a prescribed request and invoice insurance payors for reimbursement.

In addition, we sell our product through a consignment model through arrangements with our network of healthcare professionals.

Sales of the Eversense system are widely dependent on the ability of patients to obtain coverage and adequate reimbursement from third-party payors or government agencies.

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In June 2023, we received positive payor coverage decision from UnitedHealthcare, the largest healthcare insurance company in the United States that effective July 1, 2023, Eversense E3 CGM system would be covered.

We also gained coverage expansion through the basal only and hypoglycemic indications across a significant number of commercial payors in 2023.

On August 3, 2020, the Center for Medicare and Medicaid Services (“CMS”) released its Calendar Year 2021 Medicare Physician Fee Schedule Proposed Rule that announces proposed policy changes for Medicare payments, including the proposed establishment of national payment amounts for the three CPT© Category III codes describing the insertion (CPT 0446T), removal (0447T), and removal and insertion (0048T) of an implantable interstitial glucose sensor, which describes our Eversense CGM systems, as a medical benefit, rather than as part of the Durable Medical Equipment channel that includes other CGMs.

In December 2021, CMS released its Calendar Year 2022 Medicare

Physician Fee Schedule that updated global payments for the device cost and procedure fees.

In July 2022, CMS provided temporary G-codes to enable immediate access to Eversense E3 for all eligible Medicare beneficiaries.

In November 2022, CMS released its Calendar Year 2023 Medicare Physician Fee Schedule Proposed Rule that updates the payment amounts for the three CPT© Category III codes to account for the longer 6-month sensor.

The Calendar Year 2024 Medicare Physician Fee Schedule continues to include the three CPT© Category III codes.

In December 2021, CMS released its Calendar Year 2022 Medicare Physician Fee Schedule that updated global payments for the device cost and procedure fees.

In November 2022, CMS released its Calendar Year 2023 Medicare Physician Fee Schedule Proposed Rule that updates the payment amounts for the three CPT© III codes to account for the longer 6-month sensor.

In February 2024, we announced that Medicare coverage was expanded for Eversense E3 to include all people with diabetes using insulin and non-insulin users who have a history of problematic hypoglycemia providing access to millions of Medicare patients.

The first MAC expansion became effective on February 25, 2024 with the remaining MAC’s expected to become effective in the near future.

In February 2020, we announced that the FDA approved a subgroup of PROMISE trial participants to continue for a total of 365 days to gather feasibility data on the safety and accuracy of a 365-day sensor.

This sub-set of 30 participants was left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days.

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

The ENHANCE pivotal study for the Eversense 365-day system completed enrollment, the last patient of the adult cohort completed the study, and we completed our analysis of the data.

Based on this analysis, we determined to advance to the next generation sensor platform as the underlying technology used in the 365-day and future products.

We expect that this data will support an FDA submission to be made in the coming weeks for a new product with a target 365-day duration and once per week calibration.

We are in the early commercialization stages of the Eversense brand and are focused on driving awareness of our CGM system amongst intensively managed patients and their healthcare providers.

All of the Medicare administrative contractors (“MAC”) expansions became effective in 2024.

CMS provided G-codes to enable immediate access to Eversense 365 for all eligible Medicare beneficiaries.

We have been working with payors to transition their policies to Eversense 365 and have confirmed immediate coverage policy transition from select payors.

We are in the early commercialization stages of the Eversense brand and are focused on driving awareness of our CGM system amongst people with diabetes and their healthcare providers.

In both the United States and our overseas markets, we have entered into strategic partnerships and distribution agreements that allow third party collaborators with direct sales forces and established distribution systems to market and promote Senseonics CGM systems, including 90-day Eversense, Eversense XL, Eversense E3, Eversense 365 and future generation products.

Our future generation products in development are our “Gemini” product variation to allow for a 2-in-1 glucose monitoring system combining the functionality of CGM and Flash Glucose Monitoring, in an implantable sensor with battery that may be utilized with a smart transmitter to get continuous glucose readings and alerts, or be utilized through a swipe over the sensor with a smart phone to get on-demand glucose reading without a smart transmitter and our “Freedom” product variation which would include Bluetooth in the sensor eliminating the on-body component.

United States Development and Commercialization of Eversense

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Following the results of the PROMISE trial, on September 30, 2020, a PMA supplement application to extend the wearable life of the Eversense CGM System to six months was submitted to the FDA.

In February 2022, the extended life Eversense E3 CGM system was approved by the FDA.

In February 2022, the Eversense E3 CGM system was approved by the FDA.

In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the Eversense system and launched with an updated app in December 2019.

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On February 26, 2020, we announced that the FDA approved a subgroup of PROMISE trial participants to continue for a total of 365 days to gather feasibility data on the safety and accuracy of a 365-day sensor.

This sub-set of

30 participants were left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days.

This sub-set of 30 participants were left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days.

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

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In March 2022, we extended the ongoing ENHANCE clinical study to evaluate the safety and accuracy of the Eversense 365 System for a period of up to one year in the United States.

In mid-2023, the data gathered in this trial was used to submit an application to the FDA for the integrated continuous glucose monitoring (“iCGM”) designation.

The iCGM designation will enable our ability to integrate with insulin delivery devices like pens and pumps to create systems that would use Everesense for automous control and we exepect approval in the first half of 2024.

In 2022, we submitted and received approval for an investigational device exemption (“IDE”) for an extension of the trial to allow for pediatric patients and we began enrolling patients in the first half of 2023.

The ENHANCE pivotal study for the Eversense 365-day system has been fully enrolled, the last patient of the adult cohort completed the study and we completed the preliminary analysis of the data.

Based on this analysis we determined to advance to the next generation sensor platform as the underlying technology used in the 365-day and future products.

We expect that this data will support an FDA submission to be made in the coming weeks for a new product with a target 365-day duration and once per week calibration.

In September 2022, we completed enrollment of the ENHANCE study and the last patient of the adult cohort completed the study in the third quarter of 2023.

In November 2022, we submitted and in the first quarter of 2023 we received approval of an investigational device enrollment (“IDE”) for the enrollment of a pediatric cohort in the ENHANCE study.

In 2023 the data gathered in the ENHANCE study supported the iCGM submission and in April 2024 Eversense was authorized to be marketed as an iCGM through the FDA’s De Novo pathway, by establishing the special controls that will serve as a predicate device for 510(k) submissions in the future.

Based on the analysis of the ENHANCE Pivotal study data, the decision was made to advance to the next generation sensor platform as the underlying technology used in the 365-day and future products.

In May 2024, this data supported an FDA 510(k) submission for a new product with a 365-day duration and once per week calibration.

The 510(k) submission was approved by the FDA on September 17, 2024 and our 365-day product was cleared for sale in the United States.

Ascensia began commercializing Eversense 365 in the United States during the fourth quarter of 2024.

In April 2024 and July 2024, Eon Care Services, LLC and Eon Management Services, LLC were formed as wholly owned subsidiaries of Senseonics, Incorporated.

In November 2024, Eon Management Services, LLC entered into the Administrative Agreement with the Eon Care PCs, which are consolidated as VIEs.

The wholly owned entities and Eon Care PCs (collectively, “Eon Care”) were established to support patient access to the Eversense system by providing convenient Eversense insertion and training services.

The Company expects established CPT codes associated with Eversense insertions to enable a self-sustaining economic model for this initiative in the future.

In November 2022, we announced a collaboration with the Nurse Practitioner Group (“NPG”) designed to expand U.S.

patient access to Eversense by providing additional convenient in-office and at-home sensor insertion options utilizing NPG’s broad network in approximately 30 states.

Under the agreement between Senseonics and NPG, NPG providers will be certified to perform Eversense procedures in the specified geographies and will offer its services for patients who have been prescribed Eversense.

During 2023, we expanded the inserter network by setting up Eversense procedure capabilities in additional select geographic areas.

In October 2024, we acquired the sensor insertion network assets of NPG to begin transitioning nurse practitioners to our Eon Care subsidiaries in order to further expand patient access and convenience.

In July 2024, we began first-in-human testing for the Gemini system.

The next-generation Gemini product utilizes a fully implantable self-powering system that includes a flash glucose monitor with no on-body component for people with type 2 diabetes and traditional CGM with an on-body component for people with type 1 diabetes.

The Gemini product is built on the 365-day sensor platform and the clinical and regulatory work will be focused on demonstrating the battery integration and functionality rather than the sensor life.

Data gathered from this first-in-human testing will be utilized for an IDE submission anticipated in the second half of 2025.

European Commercialization of Eversense

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

In February 2025, we submitted the Eversense 365 CGM system to our notified body for CE Mark approval.

The submission was prepared in compliance with the EU medical device regulation (“MDR”) and, upon approval, would enable the commercialization of Eversense 365 in European Union member countries.

Following CE Mark approval, we plan to launch Eversense 365 with our global commercial partner, Ascensia, in the second half of 2025.

Critical Accounting Estimates

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The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities and equity and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

These estimates, particularly estimates relating to accounting for variable consideration related to revenue and embedded derivatives, have a material impact on our financial statements and are discussed in detail throughout our analysis of the results of operations discussed below.

These estimates, particularly estimates relating to accounting for variable consideration related to revenue, inventory obsolescence and embedded derivatives, have a material impact on our financial statements and are discussed in detail throughout our analysis of the results of operations discussed below.

We did not make any material changes to these assumptions for the year ended December 31, 2024.

We do not expect any material changes in the near term to the underlying assumptions during the year ended December 31, 2024.

We do not expect any material changes to the underlying assumptions during the year ending December 31, 2025.

We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources.

Actual results and outcomes could differ from these estimates and assumptions.

We generate product revenue from sales of the Eversense system and related components and supplies to Ascensia, through the Commercialization Agreement, third-party distributors in the European Union and to strategic fulfillment partners in the United States (collectively “Customers”), who then resell the products to health care providers and patients.

We are generally paid for our sales directly to the Customers, regardless of whether or not the Customers resell the products to health care providers and patients.

Revenue from product sales is recognized at a point in time when the Customers obtain control of our product based upon the delivery terms as defined in the contract at an amount that reflects the consideration which we expect to receive in exchange for the product.

Contracts with our distributors contain performance obligations, mostly for the supply of goods, and is typically satisfied upon transfer of control of the product.

Customer contracts do not include the right to return unless there is a product issue, in which case we may provide replacement product.

We generate a significant portion of product revenue from sales of the Eversense system and related components and supplies to Ascensia, through the Commercialization Agreement, who then resells the products to health care providers and patients.

Revenue from product sales to Ascensia is recognized at a point in time when the Ascensia obtains control of our product based upon the delivery terms as defined in the contract at an amount that reflects the consideration which we expect to receive in exchange for the product.

Our contract with Ascensia contains performance obligations, mostly for the supply of goods, and are typically satisfied upon transfer of control of the product and does not include the right to return unless there is a product issue, in which case we may provide replacement product.

Product conformity guarantees do not create additional performance obligations and are accounted for as warranty obligations in accordance with guarantee and loss contingency accounting guidance.

In addition, we sell small quantities of our products directly to healthcare provider locations within the United States.

In these direct sales, inventory is purchased on consignment to ensure availability when a patient is identified.

No revenue is recognized upon delivery of our products to the healthcare provider locations, as we retain the ability to control the inventory.

Rather, revenue is recognized when the product is consumed by a patient.

Consignment sales represent approximately five percent of our net sales in 2023.

Our contracts may contain some form of variable consideration such as prompt-pay discounts, tier-volume price discounts and for the Commercialization Agreement, revenue share.

Variable consideration, such as discounts and prompt-pay incentives, are treated as a reduction in revenue and variable considerations, such as revenue share, is treated as an addition in revenue when the product sale is recognized.

The consideration we expect to receive includes estimates of variable consideration for which reserves are established that is primarily the result of variable consideration such as patient assistance program rebates, prompt-pay discounts, tier-volume price discounts and for the Commercialization Agreement, revenue share.

Variable consideration, such as rebates and prompt-pay incentives, are treated as a reduction in revenue and variable considerations, such as revenue share, is treated as an addition in revenue when the product sale is recognized.

The amount of variable consideration that is included in the transaction price may be constrained and is included in revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period, when the uncertainty associated with the variable consideration is subsequently resolved.

Estimating variable consideration and the related constraint requires the use of significant management judgment.

Depending on the variable consideration, we develop

estimates for the expected value based on the terms of the agreements, historical data, geographic mix, reimbursement rates, and market conditions.

Contract assets consist of trade receivables and unbilled receivables from customers and are recorded at net realizable value.

Unbilled receivables relate to the revenue share variable consideration from the Commercialization Agreement.

Depending on the variable consideration, we develop estimates for the expected value based on the terms of the agreements, historical data, geographic mix, reimbursement rates, and market conditions.

Variances in the consideration recognized is partially mitigated by minimum price provisions for certain purchases under the contract.

Inventory Obsolescence

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.

We record an adjustment to reduce the value of inventory for items that are potentially obsolete, where the standard costs require adjustment to the net realizable value, and are in excess of future demand taking into consideration current sales orders, timing of new product launches, market conditions, and remaining shelf life.

Our sensor manufacturing process can span several months, involves various contract manufacturers and includes raw components with long lead times, often resulting in significant work-in-progress inventory.

However, expiry does not commence until the chemistry is applied to the sensor.

We are able to isolate pre-chemistry sensor inventory in progress from post-chemistry sensor inventory and finished goods to assess against demand forecasts and customer dating requirements for potential excess or obsolete inventory.

Our estimates are based on information known at the time and include factors such as anticipated future usage and sales, potential for external unfavorable conditions such as import holds or quality issues, and planned product upgrades.

However, if actual product conditions differ from our assumptions, additional inventory adjustments that would increase cost of sales could be required.

Derivative Financial Instruments

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In connection with our issuance of the convertible senior subordinated notes due 2025, or the 2025 Notes in July 2019, we bifurcated the embedded conversion option along with the fundamental change make-whole provision and the cash settled fundamental make-whole shares provision, and recorded the fair value of these embedded features as a derivative liability in our consolidated balance sheets in accordance with Accounting Standards Codification, or ASC, Topic 815, Derivatives and Hedging.

The 2025 Notes were paid in full in January 2025 and the derivative liability was derecognized.

In August 2020, we issued convertible senior secured notes due 2024, or the PHC Notes.

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Interest income

Gain on fair value adjustment of option

Exchange related gain, net

Loss on extinguishment of debt and option

Interest expense

Gain on change in fair value of derivatives

Impairment cost

Other income (expense)

Total other income, net

Net (Loss) Income

Total other (expense) income, net

Components of Results of Operations

Total revenue

Our total net revenue increased to $22.4 million for the year ended December 31, 2023, compared to $16.4 million for the year ended December 31, 2022, an increase of $6.0 million.

This increase was primarily the result of increased commercial activities driving new patients and awareness and a full year of Eversense E3 revenue in 2023, partially offset by slightly lower sales outside of the United States during 2023.

Our total net revenue increased to $22.5 million for the twelve months ended December 31, 2024, compared to $22.4 million for the year ended December 31, 2023, an increase of $0.1 million.

This increase was primarily driven by sales growth in the US largely due to growth in the consignment program and 365-day product demand.

In the fourth quarter, we had higher shipments to Ascensia for sales of the 365-day product in the US after obtaining FDA approval in September 2024.

Higher sales within the United States of $1.2 million was largely offset by $1.1 million in lower sales outside of the United States primarily due to reduced inventory levels.

Cost of sales and gross profit

Our cost of sales increased to $19.3 million for the year ended December 31, 2023, compared to $13.7 million for the year ended December 31, 2022.

Our gross profit increased to $3.1 million for the year ended December 31, 2023, compared to $2.7 million for the year ended December 31, 2022.

Gross profit as a percentage of revenue, or gross margin, was 13.8% and 16.6% for the years ended December 31, 2023 and 2022, respectively.

The decrease in gross margin was primarily due to sales channel mix and increased contract manufacturing costs driven by raw material prices.

Our cost of sales were $21.9 million for the twelve months ended December 31, 2024 compared to $19.3 million for the twelve months ended December 31, 2023, an increase of $2.6 million.

Our gross profit decreased to $0.5 million for the twelve months ended December 31, 2024, compared to $3.1 million for the twelve months ended December 31, 2023.

Gross profit as a percentage of revenue, or gross margin, was 2.4% and 13.8% for the twelve months ended December 31, 2024 and December 31, 2023, respectively.

The reduction in gross margin was primarily driven by $4.8 million in one-time charges as the result of the transition from Eversense E3 to Eversense 365, partially offset by manufacturing costs previously expensed to research and development expenses.

Prior to receiving FDA approval for the 365-day product in September 2024, costs associated with manufacturing 365-day inventory in the aggregate amount of $2.1 million were expensed as research and development expense.

If we were to have included these costs previously expensed as a component of costs of sales, our costs of sales would have been $23.5 million, resulting in a gross loss of $1.1 million.

We expect cost of sales related to the Eversense 365 will continue to reflect a lower average cost per unit over approximately the next quarter as the previous expensed inventory is fully exhausted.

Research and development expenses

Research and development expenses were $48.8 million for the year ended December 31, 2023, compared to $39.7 million for the year ended December 31, 2022, an increase of $9.1 million.

The increase was primarily due to investments for next generation technologies including a $4.0 million increase in clinical studies activities, an increase of $2.2 million in personnel related costs due to the expansion of our research and development workforce, an increase of

$1.4 million for consulting and other support services, an increase of $1.0 million in design and prototype development costs, and an increase of $0.5 million in other administrative R&D expenses.

Research and development expenses were $41.1 million for the twelve months ended December 31, 2024, compared to $48.8 million for the twelve months ended December 31, 2023, a decrease of $7.7 million.

The decrease was primarily due to a $13.2 million reduction of clinical studies spend including consulting support services and a $0.4 million decrease in other research costs due to the completion of 365-day product trials.

These decreases were partially offset by a $3.2 million increase in personnel costs to support our development projects, $1.8 million in 365-day product manufacturing costs incurred prior to FDA approval, a $0.8 million increase in contract fabrication costs and a $0.2 million increase in facilities costs.

Selling, general and administrative expenses

Selling, general and administrative expenses were $29.9 million for the year ended December 31, 2023, compared to $31.6 million for the year ended December 31, 2022, a decrease of $1.7 million.

The decrease was primarily the result of a $1.0 million decrease in personnel costs, a $0.8 million decrease in other general and administrative costs to include recruiting and associated employee overhead, local tax expenses, and legal expenses, partially offset by a $0.1 million increase in other selling and marketing costs.

Total other income, net

Total other income, net, was $15.2 million for the year ended December 31, 2023, compared to $210.7 million for the year ended December 31, 2022, a reduction of $195.5 million.

The change was primarily due to a $177.6 million reduction in gains on the fair value of derivatives primarily driven by debt settlement and the decrease in our stock price, and a $43.7 million reduction in the gain on fair value of options primarily driven by the decrease in our stock price, partially offset by a $3.5 million increase in interest income, a $7.6 million decrease in interest expense, a $14.1 million gain on exchange of debt, and $0.6 million increase in other income (expense) items, net.

Selling, general and administrative expenses were $34.2 million for the twelve months ended December 31, 2024, compared to $29.9 million for the twelve months ended December 31, 2023, an increase of $4.3 million.

The increase was primarily due to a $2.4 million increase in personnel costs, a $1.4 million increase in legal expenses, and a $0.7 million increase in third-party consulting fees.

These increases were partially offset by a $0.4 million reduction in insurance costs and other sales and marketing expenses.

Total other (expense) income, net

Total other expense, net was $(3.8) million for the twelve months ended December 31, 2024, compared to other income, net of $15.2 million for the twelve months ended December 31, 2023, a decrease in other income of $19.0 million.

The decrease in other income was primarily due to a $14.1 million reduction in exchange related gains, net, a $6.5 million reduction in gain on the change in the fair value of derivatives driven by the decrease in our stock price, and $1.0 million reduction in interest and other income.

These decreases were partially offset by a $2.7 million reduction in interest expense primarily driven by the exchanges of the PHC Notes for a pre-funded warrant and the exchange of a portion of the 2025 Notes for cash and equity in 2023.

Liquidity and Capital Resources

Since our inception, we have incurred significant net losses and expect to incur additional losses in the near future.

We incurred total net (loss) income of ($60.4) million and $142.1 million for the years ended December 31, 2023 and 2022, respectively.

Positive net income during 2022 was substantially the result of fair value gains due to embedded derivatives in our convertible notes.

We incurred total net loss of $(78.6) million and $(60.4) million for the years ended December 31, 2024 and 2023, respectively.

As of December 31, 2024, we had an accumulated deficit of $947.9 million.

To date, we have financed our operations primarily through sales of our equity securities and debt financings.

As of December 31, 2023, we had cash, cash equivalents and marketable securities of $109.5 million.

During 2023, we undertook a number of financing transactions designed to strengthen our balance sheet, including the repayment of our 2023 Notes, the issuance of additional pre-funded warrant to PHC for cash in a private placement, the exchange of our PHC Notes for a newly issued pre-funded warrant, the exchange of a portion of our 2025 Notes for cash and newly issued common stock in a series of private exchanges, the entry into a new term loan facility and the issuance of shares of common stock pursuant to an at the market offering program.

As of December 31, 2024, the Company had unrestricted cash and cash equivalents of $74.6 million.

In the past two years, we have taken a number of measures to strengthen our financial position, including the repayment of our 2023 Notes, the sale of common stock in a registered direct offering and related issuance of warrants, the issuance of a pre-funded warrant to PHC for cash in a private placement, the exchange of our PHC Notes for a newly issued pre-funded warrant, the exchange of a portion of our 2025 Notes for cash and common stock in a series of private exchanges and the repayment of the remaining 2025 Notes, the entry into a term loan facility and the issuance of shares of common stock pursuant to an at the market offering program.

These transactions are described in greater detail below.

On March 13, 2023, we issued and sold to PHC in a private placement a warrant (the “Purchase Warrant”) to purchase an aggregate of 15,425,750 shares of common stock (the “Purchase Warrant Shares”).

The purchase price of the Purchase Warrant was approximately $0.97 per Purchase Warrant Share.

The Purchase Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per Purchase Warrant Share.

We received aggregate gross proceeds of $15.0 million in the transaction, before deducting private placement expenses payable by us.

We have also taken measures to manage our operating expenses, including through a company restructuring in 2024.

On October 24, 2024, the Company completed a registered direct securities offering to certain institutional investors in which we issued and sold 45,714,286 shares of common stock at $0.35 per share and simultaneously issued warrants (“PP Warrants”) to these investors in a private placement to purchase an aggregate of 45,714,286 shares of common stock at an exercise price of $0.35 per share.

The PP Warrants are non-exercisable for the first six months after issuance and expire on April 29, 2030.

The offering closed on October 28, 2024, and the Company received proceeds of approximately $14.8 million after payment of fees to the placement agent, but before payment of any additional expenses incurred by the Company in connection with the transaction.

On September 8, 2023, we entered into a loan agreement (the “Loan and Security Agreement”) with several institutions (collectively, the “Lenders") and Hercules Capital, Inc.

(“Hercules”) in its capacity as administrative agent and collateral agent for itself and the Lenders, pursuant to which the Lenders agreed to make available up to $50.0 million in senior secured term loans (the “Term Loan Facility”), consisting of (i) an initial term loan of $25.0 million (the “Tranche 1 Loan”), which was funded on September 8, 2023 and (ii) two additional tranches of term loans in the amounts of up to $10.0 million (the “Tranche 2 Loan”) and $15.0 million (the “Tranche 3 Loan”), respectively, which will become available to us upon our satisfaction of certain terms and conditions set forth in the Loan and Security Agreement.

(“Hercules”) in its capacity as administrative agent

and collateral agent for itself and the Lenders, pursuant to which the Lenders agreed to make available up to $50.0 million in senior secured term loans (the “Term Loan Facility”), consisting of (i) an initial term loan of $25.0 million (the “Tranche 1 Loan”), which was funded on September 8, 2023 and (ii) two additional tranches of term loans in the amounts of up to $10.0 million (the “Tranche 2 Loan”) and $15.0 million (the “Tranche 3 Loan”), respectively, which will become available to us upon our satisfaction of certain terms and conditions set forth in the Loan and Security Agreement.

In December 2023, we met the terms and conditions to draw on Tranche 2 Loan and the loan was funded on January 2, 2024 in an amount of $10.0 million.

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Based on the volume-weighted average price per share of the common stock during the averaging period, we issued a total of 35.1 million shares of common stock in the exchanges.

Following the exchange, the remaining balance of the 2025 Notes was $20.4 million.

On January 15, 2025, the Company repaid the outstanding principal and accrued interest in full.

In August 2023, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Goldman Sachs & Co.

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The shares will be offered and sold pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on August 10, 2023.

As of the date of this Annual Report on Form 10-K, no sales have been made under the Equity Distribution Agreement.

On October 24, 2024, the Company amended the Equity Distribution Agreement with GS to reduce the maximum amount of shares issuable thereunder to $55.0 million.

For the year ended December 31, 2024, the Company received approximately $4.3 million in net proceeds from the sale of 11,918,121 shares under the Equity Distribution Agreement.

In November 2021, we entered into an Open Market Sale Agreement (the “2021 Sales Agreement”) with Jefferies LLC (“Jefferies”) under which we could offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $150.0 million through Jefferies as our sales agent in an “at the market” offering.

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At the time of termination, approximately $106.6 million remained available for issuance pursuant to the 2021 Sales Agreement.

On November 9, 2020, we entered into the Equity Line Agreement with Energy Capital, pursuant to which Energy Capital committed to purchase up to an aggregate of $12.0 million of shares of our newly designated Series B convertible Preferred Stock (“Series B Preferred Stock”), at our request from time to time during the 24-month term of the Equity Line Agreement.

Beginning on January 1, 2022, since there had been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital had the right, at its sole discretion to purchase up to $12.0 million of Series B Preferred Stock under the Equity Line Agreement at a purchase price of $1,000 per share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share.

On November 7, 2022, Energy Capital exercised in full its right to purchase $12.0 million of Series B Preferred Stock.

Concurrently with entry into the Equity Line Agreement, we issued a warrant to Energy Capital, exercisable

beginning May 9, 2021, to purchase up to 10,000,000 shares of common stock at an exercise price of $0.3951 per share, (the “Warrant”).

The Warrant was exercised in full in February 2022.

The purchase price of the Purchase Warrant was approximately $0.97 per Purchase Warrant Share.

The Purchase Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per Purchase Warrant Share.

We received aggregate gross proceeds of $15.0 million in the transaction, before deducting private placement expenses payable by us.

On August 9, 2020, we entered into a financing agreement with Ascensia’s parent company, PHC Holdings Corporation (“PHC”), pursuant to which we issued $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due on October 31, 2024 (the “PHC Notes”), to PHC on the Closing Date.

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We also had the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining approval for the 180-day Eversense E3 product for marketing in the United States before such date.

Upon the closing of the PHC Notes, we prepaid in full the First Lien Notes, issued and sold pursuant a loan agreement with Highbridge Capital Management, LLC (“Highbridge”) (the “Highbridge Loan Agreement”), in the amount of approximately $17.6 million.

Upon the closing of the PHC Notes, we

prepaid in full the First Lien Notes, issued and sold pursuant to a loan agreement with Highbridge Capital Management, LLC (“Highbridge”) (the “Highbridge Loan Agreement”), in the amount of approximately $17.6 million.

As described in Note 2, on March 13, 2023, we entered into an agreement with PHC, whereby PHC has agreed to exchange the PHC Notes for a warrant (the “PHC Exchange Warrant”) to purchase up to 68,525,311 shares of common stock.

Exchange Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per share.

The Exchange Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per share.

On March 31, 2023 (6:00 am Japan Standard Time on April 1, 2023), the PHC Exchange was consummated, and the Company issued the PHC Exchange Warrant in consideration for the cancellation of the PHC Notes.‌

On November 7, 2022, Energy Capital exercised in full its right to purchase $12.0 million of Series B Preferred Stock.

In the first quarter of 2025, Energy Capital converted its Series B Preferred Stock in full into 30,372,058 shares of common stock.

In connection with certain of our historical financing transactions, we have issued warrants to investors and providers of debt financing, as described below.

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During the year ended December 31, 2021, the warrant holders exercised 1,750,000 warrants.

There were no warrants exercised for the years ended December 31, 2023 or 2022.

On November 9, 2020, we entered into the Equity Line Agreement and issued Energy Capital warrants to purchase up to 10,000,000 shares of our common stock with an exercise price of $0.3951 per share (“Energy Capital Warrants”).

The Energy Capital Warrants vested on May 9, 2021.

The warrants were recorded within equity based on their fair value of $3.4 million.

In February 2022, the Energy Capital Warrants were exercised in full, on a net basis and Energy Capital received 8,917,535 shares of common stock upon the net exercise of the warrants.

On March 13, 2023, we issued to PHC, the Purchase Warrant to purchase 15,425,750 shares of common stock.

On March 13, 2023, we issued and sold to PHC a Purchase Warrant to purchase 15,425,750 shares of common stock for $15.0 million.

The Purchase Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per Purchase Warrant Share.

We received aggregate gross proceeds of $15.0 million, before deducting private placement expenses payable by us.

The warrants were recorded in equity based on their fair value of $14.3 million.

Because PHC was an existing stockholder of the company at the time of the transaction, the $0.7 million excess of the purchase price over the fair value of the Purchase Warrant was recognized as an equity transaction and recorded as a capital contribution made by PHC to us as additional paid-in-capital.

All or any part of the Purchase Warrant shall is exercisable by the holder at any time and from time to time.

In addition, on March 13, 2023, we entered into an exchange agreement with PHC, pursuant to which PHC agreed to exchange $35.0 million aggregate principal amount of the PHC Notes, including all accrued and unpaid interest thereon, for a warrant (the “PHC Exchange Warrant”) to purchase up to 68,525,311 shares of common stock.

On March 31, 2023, the exchange was consummated, and we issued the PHC Exchange Warrant in consideration for the cancellation of the PHC Notes.

All or any part of the Purchase Warrant is exercisable by PHC at any time and from time to time.

In March 2023, we entered into an exchange agreement with PHC, pursuant to which PHC exchanged $35.0 million aggregate principal amount of the PHC Notes, including all accrued and unpaid interest thereon, for a warrant (the “PHC Exchange Warrant”) to purchase up to 68,525,311 shares of common stock.

The PHC Exchange Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per PHC Exchange Warrant Share.

The PHC Exchange Warrant was recorded in equity based on its fair value of $48.6 million.

On September 8, 2023, we entered into the Loan and Security Agreement and issued the Tranche 1 Warrants to acquire an aggregate of 832,362 shares of common stock at an exercise price of $0.6007 per share.

All or any part of the Exchange Warrant is exercisable by PHC at any time and from time to time.

On September 8, 2023, we entered into the Loan and Security Agreement with several lenders and issued the Tranche 1 Warrants to acquire an aggregate of 832,362 shares of common stock at an exercise price of $0.6007 per share.

The Tranche 1 Warrants may be exercised through the earlier of (i) September 8, 2030 and (ii) the consummation of certain acquisition transactions involving the company, as set forth in the warrant agreement.

The Tranche 1 Warrants were recorded in equity based on their fair value of $0.4 million .

The number of shares for which the Tranche 1 Warrants are exercisable and the associated exercise price are subject to certain customary proportional adjustments for fundamental events, including stock splits and reverse stock splits, as set forth in the warrant agreement.

On January 2, 2024, we issued the Tranche 2 Warrants to acquire an aggregate of 347,887 shares at an exercise price of $0.5749 per share.

The Tranche 2 Warrants may be exercised through the earlier of (i) September 8, 2030 and (ii) the consummation of certain acquisition transactions involving the company, as set forth in the warrant agreement.

The Tranche 2 Warrants may be exercised through the earlier of (i) January 2, 2031 and (ii) the consummation of certain acquisition transactions involving the company, as set forth in the warrant agreement.

On October 24, 2024, in connection with the registered direct offering described above, the Company issued to the investors in the offering the PP Warrants to purchase an aggregate of 45,714,286 shares of common stock at an exercise price of $0.35 per share.

The PP Warrants are non-exercisable for the first six months after issuance and expire on April 29, 2030.

Loan and Security Agreement

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In December 2023, we met the terms and conditions to draw on Tranche 2 Loan and the loan was funded on January 2, 2024 in an amount of $10.0 million.

On April 22, 2020, we received $5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”).

The unsecured loan (the “PPP Loan”) was evidenced by the PPP Note dated April 21, 2020 (the “PPP Note”) in the principal amount of $5.8 million with Silicon Valley Bank (“SVB”).

Under the terms of the PPP Note and the PPP Loan, interest accrued on the outstanding principal at a rate of 1.0% per annum.

The term of the PPP Note was two years.

In April 2022, we repaid the outstanding principal and accrued interest in full.

Convertible Notes

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January 15, 2025

The 2025 Notes were repaid in full on January 15, 2025.

See Note 13 in the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report for further discussion of the 2025 Notes.

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These activities, including our ongoing focus to grow covered lives through positive insurance payor policy decisions and continued development of Eversense 365-day product in the United States, will require significant uses of working capital through 2025 and beyond.

Management has concluded that based on our current operating plans, existing cash and cash equivalents and cash flows from our future operations will be sufficient to meet our anticipated operating needs through twelve months after issuance of the financial statements.

As part of our liquidity strategy, we will continue to monitor our capital structure and operating plans and we may access the capital markets or debt markets for additional funding if the opportunity arises to enhance our capital structure for changes to our operating plans, for financing strategic initiatives and to provide financial flexibility.

As of December 31, 2024, the Company had unrestricted cash and cash equivalents of $74.6 million.

In accordance with the FASB Accounting Standards Codification Topic 205-40, Presentation of Financial Statements - Going Concern, management is required to assess the Company’s ability to continue as a going concern through twelve months after issuance of the financial statements.

Based on the Company's current operating plan, existing unrestricted cash, cash equivalents and marketable securities, anticipated debt repayments, minimum cash requirements and satisfaction of performance milestones to comply with debt covenants under its Loan and Security Agreement, the Company has determined that substantial doubt exists regarding its ability to continue as a going concern for the one-year period following the date these condensed consolidated financial statements are issued.

To sustain its future operations beyond such one-year period, the Company will require additional funding.

As part of our liquidity strategy, the Company will continue to monitor our capital structure and market conditions, and the Company may finance our cash needs through public or private debt and equity financings and other sources which may include collaborations, strategic alliances, and licensing arrangements with third parties.

There is no assurance that the Company will be successful in obtaining sufficient funding on acceptable terms, if at all, and could be forced to delay, reduce, or eliminate some or all of its research, clinical trials, product development or future commercialization efforts, which could materially adversely affect its business prospects or its ability to continue as a going concern.

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

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Net cash provided by financing activities

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Net cash used in operating activities

Net cash used in operating activities was $60.5 million for the year ended December 31, 2024, and consisted of a net loss of $78.6 million, partially offset by a $0.9 million net change in operating assets and liabilities, $9.2 million of stock-based compensation, $3.9 million in non-cash inventory costs primarily due to transition to the 365-day product, and $4.1 million related to depreciation/amortization and other non-cash items.

Net cash used in operating activities was $70.2 million for the year ended December 31, 2023, and consisted of a net loss of $60.4 million, a $14.1 million exchange-related gain, a $6.6 million gain in the fair value of derivatives on convertible notes, and a $4.0 million net change in operating assets and liabilities, partially offset by $8.7 million of stock-based compensation, and $6.3 million related to depreciation/amortization and other non-cash items.

Net cash used in operating activities was $66.3 million for the year ended December 31, 2022, and consisted of a $184.2 million gain in the fair value of derivatives on convertible notes, a $43.7 million gain on fair value adjustment of options, a $2.5 million net change in operating assets and liabilities, partially offset by net income of $142.1 million, $13.3 million related to depreciation/amortization and other non-cash items, $8.6 million of stock-based compensation, and $0.1 million of loss on extinguishment of options.

Net cash provided by investing activities

Net cash provided by investing activities was $89.7 million for the year ended December 31, 2023, and consisted of $158.6 million from the sale and maturity of marketable securities, offset by $68.5 million from the purchase of marketable securities and $0.4 million of capital expenditures for laboratory equipment and leasehold improvements.

Net cash provided by investing activities was $26.9 million for the year ended December 31, 2022, and consisted of $131.9 million from the sale and maturity of marketable securities, offset by $104.7 million from the purchase of marketable securities and $0.3 million of capital expenditures for laboratory equipment.

Net cash provided by investing activities was $32.8 million for the year ended December 31, 2024, and consisted of $93.1 million from the sale and maturity of marketable securities, partially offset by $58.1 million from the purchase of marketable securities and $2.2 million of capital expenditures for laboratory equipment and leasehold improvements.

Net cash provided by investing activities was $89.7 million for the year ended December 31, 2023, and consisted of $158.6 million from the sale and maturity of marketable securities, partially offset by $68.5 million from the purchase of marketable securities and $0.4 million of capital expenditures for laboratory equipment and leasehold improvements.

Net cash provided by financing activities

Net cash provided by financing activities was $20.4 million for the year ended December 31, 2023, and primarily consisted of $7.4 million in proceeds related to the issuance of common stock and the exercise of stock options and warrants, $14.7 million in proceeds from the issuance of the PHC Purchase Warrant, and $24.4 million in net proceeds from borrowings pursuant to the Loan and Security Agreement, partially offset by $15.7 million and $7.5 million in repayment of the 2023 and 2025 notes, respectively, $2.7 million taxes paid related to net share settlement of equity awards, and $0.4 million in debt issuance costs.

Net cash provided by financing activities was $41.8 million for the year ended December 31, 2022, and primarily consisted of $12 million in proceeds from the issuance of Series B preferred stock related to the Energy Capital option exercise, $34.2 million from issuance of common stock, and $1.1 million for proceeds related to exercise of stock options and warrants, offset by $2.9 million in repayment of the PPP loan and $2.6 million taxes paid related to net share settlement of equity awards.

Net cash provided by financing activities was $26.8 million for the year ended December 31, 2024, and primarily consisted of an aggregate of $4.0 million in proceeds related to the issuance of common stock pursuant to our at the market offering and the exercise of stock options, $14.5 million in proceeds from a registered direct offering, and $10.0 million in net proceeds from borrowings pursuant to the Loan and Security Agreement, partially offset by $1.7 million taxes paid related to net share settlement of equity awards.

Net cash provided by financing activities was $20.4 million for the year ended December 31, 2023, and primarily consisted of an aggregate of $7.4 million in proceeds related to the issuance of common stock pursuant to our at the market offering and the exercise of stock options, $14.7 million in proceeds from the issuance of the PHC Purchase Warrant, and $24.4 million in net proceeds from borrowings pursuant to the Loan and Security Agreement, partially offset by $15.7 million and $7.5 million in repayment and exchange of the 2023 Notes and 2025 Notes, respectively, $2.7 million taxes paid related to net share settlement of equity awards, and $0.4 million in debt issuance costs.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis