Senseonics Holdings, Inc. NYSE MKYT: SENS Short Report, 12:35pm February 21, 2020

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Intro:

Over the last two weeks Senseonics’ share price has nearly doubled, daily trading volume has increased relative to the six-month daily average and daily RSI (14) breached 80 more than once. We looked into it and found some red flags that we would like to share with our readers. These include: worrying levels of dilution, poor financials, dubious third parties, tens of millions of dollars’ worth of convertible notes and promotion on various “pump” news websites over the last year.

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Security Details:

Symbol: SENS

Current price: $1.53

Outstanding shares: 203 million

Market Cap: $310 million

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Company information:

Senseonics describes itself as “a medical technology company focused on the design, development and commercialization of glucose monitoring (CGM) systems to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy.”

Its main products are Eversense and Eversense XL, which it claims are able 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.” In June 2018 the FDA approved Eversense for marketing in the United States. Eversence is also available in certain EMEA markets.

Recent News:

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Financial Highlights:

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As previously mentioned Senseonics has been able to sell its products in the United States since mid-2018 when it obtained FDA approval. However, quarterly revenue has seen a steady decline since then, decreasing from $7.2 million in 2018 Q3 to under $1 million in Q3 2019. Other worrying trends in the company’s finances relate to its total liabilities which have increased by more then 50% from $91 million to $142 million and the outstanding shares which have also increased around 50% from 138 million to 203 million over the same time period.

Marketing and commercialising a newly approved product are complex and expensive tasks. However, such drastic and simultaneous increases in debt and dilution levels make it very clear that the company is over extended and very likely to require significant additional funding in order to increase revenue to a level that allows it to break even. Which, in our opinion, seems very unlikely for the foreseeable future. At least the company is flush with cash at the moment, with more than $130 million in cash-in-hand. Most of this cash was procured during Q3 2019, $23.5 million of which was done through a public offering around July 17. But how was the rest of this money obtained?

Convertible notes and an underwriter with some recent SEC issues:

On July 25, 2019, SENS issued $82.0 million aggregate principal amount of its 5.25% convertible senior notes due 2025 (the “2025 Notes”) to Jefferies LLC, who subsequently resold the 2025 Notes to qualified institutional buyers ( 1 ).

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These notes can be converted into common stock at $1.32 per share initial rate.

Furthermore, Jefferies LLC is an organisation that is no stranger to SEC litigation. In February 2016, Jeffries was the subject of an SEC order instituting administrative and cease-and-desist proceedings because of violations of an anti-fraud provision, namely that it “conducted inadequate due diligence in certain offerings and as a result, failed to form a reasonable basis for believing the truthfulness of certain material representations in official statements issued in connection with those offerings. This resulted in Respondent offering and selling municipal securities on the basis of materially misleading disclosure documents.” ( 2 )

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This is not the first time in the last decade that Jefferies has found itself in hot water with the SEC. In March 2014, the SEC charged it with failing to supervise employees on its mortgage-backed securities desk. Turns out that Jefferies employees lied to customers about the prices that the firm paid for certain mortgage-backed securities, thus misleading them about the true amount of profits being earned by the firm in its trading ( 3 ). Jefferies ended up paying $25 million to settle the charges.

It thus appears that SENS is relying on a dubious and deceptive entity to raise the money that it needs to stay afloat through what could turn out to be an obscenely dilutive convertible notes offering.

An institutional shareholder with some “colourful” links:

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Little under 5% of SENS common stock is owned by Mr. James J. Bochnowski through and entity by the name of Delphi Ventures ( 4 ). Like Jefferies LLC, Mr. Bochnowski is no stranger to the SEC, as he was named as a defendant in a class action lawsuit. The lawsuit relates to a reverse merger between Jaguar Health and Napo Pharmaceuticals with terms that were very unfavourable for Jaguar Health shareholders. The merger was approved by the shareholders as Jaguar Health’s board filed a materially incomplete and misleading joint proxy statement/prospectus. Mr. Bochnowski was at the time the Chairman of the board for Jaguar Health ( 5 ).

It thus appears that SENS is in bed with entities that are not particularly concerned with transparency.

Promotion:

SENS price run has coincided with promotion on “pump” news websites. For example, on February 18, the website guerrillastocktrading.com published an article that rehashed recent Senseonics news ( 6 ). At the end of this article the following disclaimer can be found:

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Another website that promoted SENS is microsmallcap.com. On February 20, 2019 it published an article praising SENS potential ( 7 ). A quick look at their disclaimer page will reveal that they are compensated to put out such pieces:

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It thus appears that SENS heavy dilution over the last year or so has coincided with pump news from questionable websites.

Red Flags:

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Opinion:

SENS seems like a poor investment at the present time. Despite having a promising product that could better the lives of diabetes sufferers, the company’s financials, its relations with dubious third parties, worrying levels of dilution and the fact that its shares have been promoted by pump sites over the last year, suggest that the company is overvalued at the present time. We thus advise investors to stay away from SENS unless they are familiar with this type of ticker.

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