|
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2019
|
|
December 31, 2018
|
Cash and cash equivalents
|
|
$
|
11,469,455
|
|
|
$
|
2,708,223
|
|
|
$
|
6,011,508
|
|
|
$
|
4,572,487
|
|
Restricted cash
|
|
|
185,380
|
|
|
|
185,380
|
|
|
|
185,380
|
|
|
|
164,720
|
|
Total cash, cash equivalents and restricted cash in the condensed consolidated statement of cash flows
|
|
$
|
11,654,835
|
|
|
$
|
2,893,603
|
|
|
$
|
6,196,888
|
|
|
$
|
4,737,207
|
|
Accounts receivable
The Company’s accounts receivable
result from revenues earned but not yet collected from customers. Credit is extended based on an evaluation of a customer’s
financial condition and, generally, collateral is not required. Accounts receivable are due within 30 to 60 days and are stated
at amounts due from customers. The Company evaluates if an allowance is necessary by considering a number of factors, including
the length of time accounts receivable are past due, the Company’s previous loss history and the customer’s current
ability to pay its obligation. If amounts become uncollectible, they are charged to operations when that determination is made.
The allowance for doubtful accounts was $20,753 as of March 31, 2020 and December 31, 2019.
At March 31, 2020, the Company
had accounts receivable from one customer which individually represented 31% of total accounts receivable. At March 31, 2019,
one individual customer represented 61% of total accounts receivable. For the three months ended March 31, 2020, revenue earned
from one customer represented 41% of total revenues. For the three months ended March 31, 2019, revenue earned from one customer
represented 49% of total revenues.
Inventory
Inventories are valued using the first-in,
first-out method and stated at the lower of cost or net realizable value and consist of the following:
|
|
March 31, 2020
|
|
December 31, 2019
|
Raw materials and supplies
|
|
$
|
266,444
|
|
|
$
|
315,542
|
|
Work-in-process
|
|
|
22,291
|
|
|
|
35,080
|
|
Finished goods
|
|
|
147,948
|
|
|
|
122,408
|
|
Total
|
|
$
|
436,683
|
|
|
$
|
473,030
|
|
Inventory includes reagents and components
for QuickFISH and PNA FISH kit products, and reagents and supplies used for the Company’s laboratory services. Inventory
reserves for obsolescence and expirations were $132,260 and $92,454 at March 31, 2020 and December 31, 2019, respectively.
Long-lived assets
Property and equipment
Property and equipment are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. Recoverability measurement and estimating of undiscounted cash flows is done
at the lowest possible level for which we can identify assets. If such assets are considered to be impaired, impairment is recognized
as the amount by which the carrying amount of assets exceeds the fair value of the assets. During the three months ended March
31, 2020 and 2019, the Company determined that its property and equipment was not impaired.
Leases
The Company determines if an arrangement
is a lease at inception. For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s
right to use the underlying asset for the term of the lease and the lease liabilities represent an obligation to make lease payments
arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value
of the future lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available
at the commencement date of the underlying lease arrangement to determine the present value of lease payments. The ROU asset also
includes any prepaid lease payments and any lease incentives received. The lease term to calculate the ROU asset and related lease
liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option.
The Company’s lease agreements generally do not contain any material variable lease payments, residual value guarantees
or restrictive covenants.
Lease expense for operating leases
is recognized on a straight-line basis over the lease term as an operating expense while expense for financing leases is recognized
as depreciation expense and interest expense using the accelerated interest method of recognition. The Company has made certain
accounting policy elections whereby the Company (i) does not recognize ROU assets or lease liabilities for short-term leases (those
with original terms of 12 months or less) and (ii) combines lease and non-lease elements of our operating leases.
ROU Assets
ROU assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. Recoverability measurement and estimating of undiscounted cash flows is done at the lowest
possible level for which the Company can identify assets. If such assets are considered to be impaired, impairment is recognized
as the amount by which the carrying amount of assets exceeds the fair value of the assets. In conjunction with adoption of Accounting
Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC 842”),
the Company determined that the ROU asset associated with its Woburn, Massachusetts office lease may not be recoverable.
As a result, the Company recorded an impairment charge of $520,759 during the three months ended March 31, 2019.
Intangible assets and goodwill
Intangible assets and goodwill as of
March 31, 2020 consist of finite-lived intangible assets and goodwill.
Finite-lived intangible assets
Finite-lived intangible assets include
trademarks, developed technology and customer relationships and consisted of the following as of March 31, 2020 and December 31,
2019:
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Impairment
|
|
Net Balance
|
|
Accumulated
Amortization
|
|
Net Balance
|
Trademarks and tradenames
|
|
$
|
461,000
|
|
|
|
(217,413
|
)
|
|
$
|
(243,587
|
)
|
|
$
|
—
|
|
|
$
|
(205,887
|
)
|
|
$
|
255,113
|
|
Developed technology
|
|
|
458,000
|
|
|
|
(308,526
|
)
|
|
|
(149,474
|
)
|
|
|
—
|
|
|
|
(292,170
|
)
|
|
|
165,830
|
|
Customer relationships
|
|
|
1,094,000
|
|
|
|
(736,465
|
)
|
|
|
(357,535
|
)
|
|
|
—
|
|
|
|
(697,393
|
)
|
|
|
396,607
|
|
|
|
$
|
2,013,000
|
|
|
|
(1,262,404
|
)
|
|
$
|
(750,596
|
)
|
|
$
|
—
|
|
|
$
|
(1,195,450
|
)
|
|
$
|
817,550
|
|
Finite-lived intangible assets are
amortized over their estimated useful lives. The estimated useful life of trademarks is 10 years, developed technology is 7 years,
and customer relationships is 7 years. The Company reviews the useful lives of intangible
assets when events or changes in circumstances occur which may potentially impact the estimated useful life of the intangible assets.
Total amortization expense of intangible
assets was $66,954 for each of the three months ended March 31, 2020 and 2019.
Finite-lived intangible assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
If any indicators were present, the Company would test for recoverability by comparing the carrying amount of the asset to the
net undiscounted cash flows expected to be generated from the asset. If those net undiscounted cash flows do not exceed the carrying
amount (i.e., the asset is not recoverable), the Company would perform the next step, which is to determine the fair value of the
asset and record an impairment loss, if any.
In accordance with ASC 360-10, Property,
Plant and Equipment, the Company records impairment losses on long-lived assets used in operations when events and circumstances
indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amounts of those assets. During the three months ended March 31, 2020, events and circumstances indicated
the Company’s intangible assets might be impaired. These circumstances included decreased product sales related to the COVID-19
pandemic and the loss of significant customers. Management’s updated estimate of undiscounted cash flows indicated that such
carrying amounts were no longer expected to be recovered and that the intangible assets were impaired. The Company’s analysis
determined that the fair value of the assets was $0 and the Company recorded and impairment loss of $750,596.
Goodwill
Goodwill represents the excess of
the purchase price paid in a July 2015 merger transaction in which the Company acquired AdvanDx, Inc. and its subsidiary (the “Merger”)
over the fair values of the acquired tangible or intangible assets and assumed liabilities. Goodwill is not tax deductible in any
relevant jurisdictions. The Company’s goodwill balance as of March 31, 2020 and December 31, 2019 was $600,814.
The Company conducts an impairment test
of goodwill on an annual basis, and will also conduct tests if events occur or circumstances change that would, more likely than
not, reduce the Company’s fair value below its net equity value. During the three months ended March 31, 2020 and 2019, the
Company determined that its goodwill was not impaired.
Revenue recognition
The Company derives revenues from (i) the sale
of QuickFISH and PNA FISH diagnostic test products and Acuitas AMR Gene Panel RUO test products, (ii) providing laboratory services,
and (iii) providing collaboration services including funded software arrangements, and license arrangements.
The Company analyzes contracts to determine
the appropriate revenue recognition using the following steps: (i) identification of contracts with customers, (ii) identification
of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract
transaction price to the performance obligations and (v) determination of revenue recognition based on timing of satisfaction of
the performance obligation.
The Company recognizes revenues upon
the satisfaction of its performance obligation (upon transfer of control of promised goods or services to our customers) in an
amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.
The Company defers incremental costs
of obtaining a customer contract and amortizes the deferred costs over the period that the goods and services are transferred to
the customer. The Company had no material incremental costs to obtain customer contracts in any period presented.
Deferred revenue results from amounts
billed in advance to customers or cash received from customers in advance of services being provided.
Research and development costs
Research and development costs are expensed
as incurred. Research and development costs primarily consist of salaries and related expenses for personnel, other resources,
laboratory supplies, and fees paid to consultants and outside service partners.
Stock-based compensation
Stock-based compensation expense is recognized
at fair value. The fair value of stock-based compensation to employees and directors is estimated, on the date of grant, using
the Black-Scholes model. The resulting fair value is recognized ratably over the requisite service period, which is generally the
vesting period of the option. For all time-vesting awards granted, expense is amortized using the straight-line attribution method.
The Company accounts for forfeitures as they occur.
Option valuation models, including the
Black-Scholes model, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect
the grant-date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected
volatility and the expected life of the award.
Income taxes
Income taxes are accounted for under
the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable
to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established
when necessary to reduce deferred income tax assets to the amount expected to be realized.
Tax benefits are initially recognized
in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
Such tax positions are initially, and subsequently, measured as the largest amount of tax benefit that is greater than 50% likely
of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts.
The Company had federal net operating
loss (“NOL”) carryforwards of $188,282,298 at December 31, 2019. Despite
the NOL carryforwards, which begin to expire in 2022, the Company may have future tax liability due to alternative minimum tax
or state tax requirements. Also, use of the NOL carryforwards may be subject to an annual limitation as provided by Section 382
of the Internal Revenue Code of 1986, as amended (the “Code”). To date, the Company has not performed a formal study
to determine if any of its remaining NOL and credit attributes might be further limited due to the ownership change rules of Section 382
or Section 383 of the Code. The Company will continue to monitor this matter going forward. There can be no assurance that
the NOL carryforwards will ever be fully utilized.
Loss per share
Basic loss per share is computed by dividing
net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period.
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 convertible preferred stock and convertible
debt using the if-converted method.
For periods of net loss, diluted loss
per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive.
The number of anti-dilutive shares, consisting of (i) common stock options, (ii) stock purchase warrants, and (iii) restricted
stock units representing the right to acquire shares of common stock which have been excluded from the computation of diluted loss
per share, was 1.1 million shares and 0.2 million shares as of March 31, 2020 and 2019, respectively.
Adopted accounting pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic
842) (“ASC 842”), which amended the existing accounting standards for leases. The new standard requires lessees
to record a right-of-use (“ROU”) asset and a corresponding lease liability on the balance sheet (with the exception
of short-term leases), whereas under previous accounting standards, the Company’s lease portfolio consisting of operating
leases were not recognized on its consolidated balance sheets. The new standard required expanded disclosures regarding leasing
arrangements. The new standard was effective for the Company beginning January 1, 2019.
The Company
adopted this guidance effective January 1, 2019 using the modified retrospective transition method and the following practical
expedients:
|
·
|
The Company did not reassess if any expired or existing contracts are or contain leases.
|
|
·
|
The Company did not reassess the classification of any expired or existing leases.
|
Additionally,
the Company made ongoing accounting policy elections whereby the Company (i) does not recognize ROU assets or lease liabilities
for short-term leases (those with original terms of 12 months or less) and (ii) combines lease and non-lease elements of our operating
leases.
Upon adoption
of the new guidance on January 1, 2019, the Company recorded an operating lease right of use asset of approximately $2.2 million
(net of existing deferred rent) and recognized a lease liability of approximately $2.5 million.
Prior to the adoption of ASC 842, deferred
rent was recorded and amortized to the extent the total minimum rental payments allocated to the period on a straight-line basis
exceeded or were less than the cash payments required.
The Company adopted Accounting Standards
Update 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU
2016-13"), as of January 1, 2020. ASU 2016-13 requires an entity to measure and recognize expected credit losses for certain
financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses
expected to be incurred. For available-for-sale debt securities with unrealized losses, the standard requires allowances to be
recorded through net income instead of directly reducing the amortized cost of the investment under the previous other-than-temporary
impairment model. The adoption of this standard did not have a material impact on our financial statements.
Recently issued accounting standards
The Company has evaluated all other
issued and unadopted ASUs and believes the adoption of these standards will not have a material impact on its results of operations,
financial position or cash flows.
Note 4 – Revenue from contracts
with customers
Disaggregated revenue
The Company provides diagnostic test products,
laboratory services to hospitals, clinical laboratories and other healthcare provider customers, and enters into collaboration
agreements with government agencies and healthcare providers. The revenues by type of service consist of the following:
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
Product sales
|
|
$
|
366,933
|
|
|
$
|
520,177
|
|
Collaboration revenue
|
|
|
250,000
|
|
|
|
500,000
|
|
Total revenue
|
|
$
|
616,933
|
|
|
$
|
1,020,177
|
|
Deferred revenue
Changes in deferred revenue for the period
were as follows:
Balance at December 31, 2019
|
|
$
|
9,808
|
|
Revenue recognized in the current period from the amounts in the beginning balance
|
|
|
—
|
|
New deferrals, net of amounts recognized in the current period
|
|
|
—
|
|
Balance at March 31, 2020
|
|
$
|
9,808
|
|
Contract assets
The Company had no contract
assets as of March 31, 2020, which are generated when contractual billing schedules differ from revenue recognition timing. Contract
assets represent a conditional right to consideration for satisfied performance obligations that becomes a billed receivable when
the conditions are satisfied.
Unsatisfied performance obligations
The Company had no unsatisfied performance
obligations related to its contracts with customers at March 31, 2020.
Note 5 – MGHIF financing
In July 2015,
the Company entered into a Purchase Agreement with MGHIF, pursuant to which MGHIF purchased 2,273 shares of common stock of the
Company at $2,200 per share for gross proceeds of $5.0 million. Pursuant to the Purchase Agreement, the Company also issued to
MGHIF an 8% Senior Secured Promissory Note (the “MGHIF Note”) in the principal amount of $1.0 million with a two-year
maturity date from the date of issuance. The Company’s obligations under the MGHIF Note are secured by a lien on all of the
Company’s assets.
On June 28,
2017, the MGHIF Note was amended and restated, and the maturity date of the MGHIF Note was extended by one year to July 14, 2018.
As consideration for the agreement to extend the maturity date, the Company issued an amended and restated secured promissory note
to MGHIF that (1) increased the interest rate to ten percent (10%) per annum and (2) provided for the issuance of common stock
warrants to purchase 656 shares of its common stock to MGHIF.
On June 11, 2018,
the Company executed an Allonge to the MGHIF Note. The Allonge provided that accrued and unpaid interest of $285,512 due as of
July 14, 2018, the original maturity date, be paid through the issuance of shares of OpGen’s common stock in a private placement
transaction. In addition, the Allonge revised and extended the maturity date for payment of the Note to six semi-annual payments
of $166,667 plus accrued and unpaid interest beginning on January 2, 2019 and ending on July 1, 2021. The Allonge to the MGHIF
Note was treated as a debt modification and as such the unamortized issuance costs of approximately $7,000 as of June 11, 2018
is deferred and amortized as incremental expense over the term of the MGHIF Note.
On July 30, 2018, the Company issued
7,212 shares of common stock to MGHIF in a private placement transaction in payment of the $285,512 of accrued and unpaid interest
due as of July 14, 2018 under the MGHIF Note.
The Company’s
outstanding debt under the MGHIF Note, net of discounts and financing costs as of March 31, 2020 was approximately $497,000.
Note 6 – Fair value measurements
The Company classifies its financial
instruments using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
|
·
|
Level 1 - defined as observable inputs such as quoted prices in active markets;
|
|
·
|
Level 2 - defined as inputs other than quoted prices in active markets that are either directly
or indirectly observable; and
|
|
·
|
Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring
an entity to develop its own assumptions such as expected revenue growth and discount factors applied to cash flow projections.
|
For the three months ended March 31,
2020, the Company has not transferred any assets between fair value measurement levels.
Financial assets and liabilities
measured at fair value on a recurring basis
The Company evaluates financial assets
and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify
them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs
used in determining fair value and where such inputs lie within the hierarchy.
As part of the Company’s bridge
financing and amendment to the MGHIF Note, the Company issued stock purchase warrants that the Company considers to be mark-to-market
liabilities due to certain put features that allow the holder to put the warrant back to the Company for cash equal to the Black-Scholes
value of the warrant upon a change of control or fundamental transaction. The Company determines the fair value of the
warrant liabilities using the Black-Scholes option pricing model. Using this model, level 3 unobservable inputs include the estimated
volatility of the Company’s common stock, estimated terms of the instruments, and estimated risk-free interest rates. The
fair value of level 3 liabilities measured at fair value on a recurring basis for the three months ended March 31, 2020 and December
31, 2019 was $0.
Financial assets and liabilities carried
at fair value on a non-recurring basis
The Company does not have any financial
assets and liabilities measured at fair value on a non-recurring basis.
Non-financial assets and liabilities
carried at fair value on a recurring basis
The Company does not have any non-financial
assets and liabilities measured at fair value on a recurring basis.
Non-financial assets and liabilities
carried at fair value on a non-recurring basis
The Company measures its long-lived assets,
including property and equipment and intangible assets (including goodwill), at fair value on a non-recurring basis when they are
deemed to be impaired. During the three months ended March 31, 2020 the Company recorded impairment expense of $750,596 related
to its intangible assets (See Note – 3).
Note 7 – Debt
As of March 31, 2020, the Company’s
outstanding short-term debt consisted of approximately $333,000 due under the MGHIF Note, as well as the financing
arrangements for the Company’s insurance with note balances of approximately $15,000 with a final payment scheduled
for May 2020. The Company’s outstanding long-term debt as of March 31, 2020 consisted of approximately $163,000 due under
the MGHIF Note (see Note 5 “MGHIF financing”) net of discounts and financing costs. As
of December 31, 2019, the Company’s outstanding short-term debt consisted of approximately $333,000 due under the
MGHIF Note, as well as the financing arrangements for the Company’s insurance with note balances
of approximately $40,000. The Company’s outstanding long-term debt as of December 31, 2019 consisted of approximately
$329,000 due under the MGHIF Note, net of discounts and financing costs. Total principal payments
of approximately $333,000 are due annually in 2020 and 2021.
Total interest expense (including amortization
of debt discounts and financing fees) on all debt instruments was $38,267 and $56,444 for the three months ended March 31, 2020
and 2019, respectively.
Note 8 – Stockholders’ equity
As of March 31, 2020, the Company
has 50,000,000 shares of authorized common shares and 12,468,214 shares issued and outstanding, and 10,000,000 shares of authorized
preferred shares, of which none were issued or outstanding.
Following receipt of approval from stockholders
at a special meeting of stockholders held on January 17, 2018, the Company filed an amendment to its Amended and Restated Certificate
of Incorporation to effect a reverse stock split of the issued and outstanding shares of common stock, at a ratio of one share
for twenty-five shares, and to reduce the authorized shares of common stock from 200,000,000 to 50,000,000 shares. Additionally,
following receipt of approval from stockholders at a special meeting of stockholders held on August 22, 2019, the Company filed
an additional amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split of the issued
and outstanding shares of common stock, at a ratio of one share for twenty shares. All share amounts and per share prices in this
Quarterly Report have been adjusted to reflect the reverse stock splits.
On March 29, 2019, the Company closed
the March 2019 Public Offering of 450,000 shares of its common stock at a public offering price of $12.00 per share. The offering
raised gross proceeds of $5.4 million and net proceeds of approximately $4.8 million.
On October 28, 2019, the Company closed
the October 2019 Public Offering of 2,590,170 units at $2.00 per unit and 2,109,830 pre-funded units at $1.99 per pre-funded unit.
The offering raised gross proceeds of approximately $9.4 million and net proceeds of approximately $8.3 million. As of March 31,
2020, the 2,109,830 pre-funded warrants issued in the October 2019 Public Offering have been exercised. Additionally, during the
three months ended March 31, 2020, 4,071,000 common warrants were exercised raising net proceeds of approximately $8.1 million.
In connection with the October
2019 Public Offering, the Company issued to its placement agent warrants to purchase 235,000 shares of common
stock. The warrants issued to the placement agent have an exercise price of $2.60 per share and are exercisable
for five years.
On February 11, 2020, the Company entered
into an ATM Agreement with Wainwright, pursuant to which the Company may offer and sell from time to time in an “at the market
offering,” at its option, up to an aggregate of $15.7 million of shares of the Company's common stock through Wainwright,
as sales agent. During the three months ended March 31, 2020, the Company sold 2,814,934 shares of its common stock under the 2020
ATM Offering resulting in aggregate net proceeds to the Company of approximately $5.5 million, and gross proceeds of $5.8 million.
As of March 31, 2020, remaining availability under the at the market offering is $9.9
million.
Stock options
In 2008, the Company adopted the
2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), pursuant to which the Company’s Board of Directors
could grant either incentive or non-qualified stock options or shares of restricted stock to directors, key employees, consultants
and advisors.
In April 2015, the Company adopted,
and the Company’s stockholders approved, the 2015 Equity Incentive Plan (the “2015 Plan”); the 2015 Plan became
effective upon the execution and delivery of the underwriting agreement for the Company’s initial public offering in May
2015. Following the effectiveness of the 2015 Plan, no further grants will be made under the 2008 Plan. The 2015 Plan provides
for the granting of incentive stock options within the meaning of Section 422 of the Code to employees and the granting of non-qualified
stock options to employees, non-employee directors and consultants. The 2015 Plan also provides for the grants of restricted stock,
restricted stock units, stock appreciation rights, dividend equivalents and stock payments to employees, non-employee directors
and consultants.
Under the 2015 Plan, the aggregate
number of shares of the common stock authorized for issuance may not exceed (1) 54,200 plus (2) the sum of the number of shares
subject to outstanding awards under the 2008 Plan as of the 2015 Plan’s effective date, that are subsequently forfeited or
terminated for any reason before being exercised or settled, plus (3) the number of shares subject to vesting restrictions under
the 2008 Plan as of the 2015 Plan’s effective date that are subsequently forfeited. In addition, the number of shares that
have been authorized for issuance under the 2015 Plan will be automatically increased on the first day of each fiscal year beginning
on January 1, 2016 and ending on (and including) January 1, 2025, in an amount equal to the lesser of (1) 4% of the outstanding
shares of common stock on the last day of the immediately preceding fiscal year, or (2) another lesser amount determined by the
Company’s Board of Directors. Shares subject to awards granted under the 2015 Plan that are forfeited or terminated before
being exercised or settled, or are not delivered to the participant because such award is settled in cash, will again become available
for issuance under the 2015 Plan. However, shares that have actually been issued shall not again become available unless forfeited.
As of March 31, 2020, 229,533 shares remain available for issuance under the 2015 Plan, which includes 223,291 shares automatically
added to the 2015 Plan on January 1, 2020.
For the three months ended March
31, 2020 and 2019, the Company recognized share-based compensation expense as follows:
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
Cost of services
|
|
$
|
728
|
|
|
$
|
38
|
|
Research and development
|
|
|
13,986
|
|
|
|
17,127
|
|
General and administrative
|
|
|
61,488
|
|
|
|
76,013
|
|
Sales and marketing
|
|
|
3,538
|
|
|
|
4,855
|
|
|
|
$
|
79,740
|
|
|
$
|
98,033
|
|
No income tax benefit for share-based
compensation arrangements was recognized in the condensed consolidated statements of operations and comprehensive loss due to the
Company’s net loss position.
The Company did not grant any stock
options during the three months ended March 31, 2020. During the three months ended March 31, 2020, 28 options were forfeited and
230 options expired. The Company had total stock options to acquire 9,396 shares of common stock outstanding at March 31, 2020.
Restricted stock units
During the three months ended March
31, 2020, no restricted stock units vested and 200 restricted stock units were forfeited. The Company had 14,775 total restricted
stock units outstanding at March 31, 2020.
Stock purchase warrants
At March 31, 2020 and December 31,
2019, the following warrants to purchase shares of common stock were outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
|
Issuance
|
|
|
|
Exercise
Price
|
|
|
|
Expiration
|
|
|
|
March 31, 2020
|
|
|
|
December 31, 2019
|
|
|
January 2010
|
|
|
$
|
3,955.00
|
|
|
|
January 2020
|
|
|
|
—
|
|
|
|
17
|
|
|
March 2010
|
|
|
$
|
3,955.00
|
|
|
|
March 2020
|
|
|
|
—
|
|
|
|
7
|
|
|
November 2011
|
|
|
$
|
3,955.00
|
|
|
|
November 2021
|
|
|
|
15
|
|
|
|
15
|
|
|
December 2011
|
|
|
$
|
3,955.00
|
|
|
|
December 2021
|
|
|
|
2
|
|
|
|
2
|
|
|
February 2015
|
|
|
$
|
3,300.00
|
|
|
|
February 2025
|
|
|
|
451
|
|
|
|
451
|
|
|
May 2015
|
|
|
$
|
3,300.00
|
|
|
|
May 2020
|
|
|
|
6,697
|
|
|
|
6,697
|
|
|
May 2016
|
|
|
$
|
656.20
|
|
|
|
May 2021
|
|
|
|
9,483
|
|
|
|
9,483
|
|
|
June 2016
|
|
|
$
|
656.20
|
|
|
|
May 2021
|
|
|
|
4,102
|
|
|
|
4,102
|
|
|
June 2017
|
|
|
$
|
390.00
|
|
|
|
June 2022
|
|
|
|
938
|
|
|
|
938
|
|
|
July 2017
|
|
|
$
|
345.00
|
|
|
|
July 2022
|
|
|
|
318
|
|
|
|
318
|
|
|
July 2017
|
|
|
$
|
250.00
|
|
|
|
July 2022
|
|
|
|
2,501
|
|
|
|
2,501
|
|
|
July 2017
|
|
|
$
|
212.60
|
|
|
|
July 2022
|
|
|
|
50,006
|
|
|
|
50,006
|
|
|
February 2018
|
|
|
$
|
81.25
|
|
|
|
February 2023
|
|
|
|
9,232
|
|
|
|
9,232
|
|
|
February 2018
|
|
|
$
|
65.00
|
|
|
|
February 2023
|
|
|
|
92,338
|
|
|
|
92,338
|
|
|
October 2019
|
|
|
$
|
2.00
|
|
|
|
October 2024
|
|
|
|
629,000
|
|
|
|
4,700,000
|
|
|
October 2019
|
|
|
$
|
2.60
|
|
|
|
October 2024
|
|
|
|
235,000
|
|
|
|
235,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,040,083
|
|
|
|
5,111,107
|
|
The warrants listed above were issued in
connection with various debt, equity or development contract agreements.
Note 9 – Commitments and
Contingencies
Supply agreements
In June 2017, the Company entered into
an agreement with Life Technologies Corporation, a subsidiary of Thermo Fisher Scientific (“LTC”) to supply the Company
with Thermo Fisher Scientific’s QuantStudio 5 Real-Time PCR Systems (“QuantStudio 5”) to be used to run OpGen’s
Acuitas AMR Gene Panel tests. Under the terms of the agreement, the Company must notify LTC of the number of QuantStudio 5s that
it commits to purchase in the following quarter. As of March 31, 2020, the Company has acquired twenty-four QuantStudio 5s including
none during the three months ended March 31, 2020. As of March 31, 2020, the Company has not committed to acquiring additional
QuantStudio 5s in the next three months.
Contingencies
On March
11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic,
which continues to spread throughout the United States and around the world. As of March 31, 2020, the Company is aware of changes
in its business as a result of COVID-19 but uncertain of the impact of those changes on its financial position, results of operations
or cash flows. Management believes any disruption, when and if experienced, could be temporary; however, there is uncertainty around
when any disruption might occur, the duration and hence the potential impact. As a result, we are unable to estimate the potential
impact on our business as of the date of this filing.
Note 10 – Leases
The following table presents the
Company’s ROU assets and lease liabilities as of March 31, 2020 and December 31, 2019:
Lease Classification
|
|
March 31, 2020
|
|
December 31, 2019
|
ROU Assets:
|
|
|
|
|
|
|
|
|
Operating
|
|
$
|
885,882
|
|
|
$
|
1,043,537
|
|
Financing
|
|
|
826,243
|
|
|
|
958,590
|
|
Total ROU assets
|
|
$
|
1,712,125
|
|
|
$
|
2,002,127
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Operating
|
|
$
|
947,610
|
|
|
$
|
1,017,414
|
|
Finance
|
|
|
517,042
|
|
|
|
579,030
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
Operating
|
|
|
392,106
|
|
|
|
547,225
|
|
Finance
|
|
|
212,798
|
|
|
|
313,263
|
|
Total lease liabilities
|
|
$
|
2,069,556
|
|
|
$
|
2,456,932
|
|
Maturities of lease liabilities as
of March 31, 2020 by fiscal year are as follows:
Maturity of Lease Liabilities
|
|
Operating
|
|
Finance
|
|
Total
|
|
2020
|
|
|
$
|
856,889
|
|
|
$
|
452,206
|
|
|
$
|
1,309,095
|
|
|
2021
|
|
|
|
547,019
|
|
|
|
281,914
|
|
|
|
828,933
|
|
|
2022
|
|
|
|
40,930
|
|
|
|
45,374
|
|
|
|
86,304
|
|
|
2023
|
|
|
|
—
|
|
|
|
3,364
|
|
|
|
3,364
|
|
|
2024
|
|
|
|
—
|
|
|
|
280
|
|
|
|
280
|
|
|
Thereafter
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total lease payments
|
|
|
|
1,444,838
|
|
|
|
783,138
|
|
|
|
2,227,976
|
|
|
Less: Interest
|
|
|
|
(105,122
|
)
|
|
|
(53,298
|
)
|
|
|
(158,420
|
)
|
|
Present value of lease liabilities
|
|
|
$
|
1,339,716
|
|
|
$
|
729,840
|
|
|
$
|
2,069,556
|
|
Statement of operations classification
of lease costs as of the three months ended March 31, 2020, and 2019 are as follows:
Lease Cost
|
|
Classification
|
|
2020
|
|
2019
|
Operating
|
|
Operating expenses
|
|
$
|
214,336
|
|
|
$
|
220,922
|
|
Finance:
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
Operating expenses
|
|
|
132,348
|
|
|
|
97,193
|
|
Interest expense
|
|
Other expenses
|
|
|
18,470
|
|
|
|
22,480
|
|
Total lease costs
|
|
|
|
$
|
365,154
|
|
|
$
|
340,595
|
|
Other lease information as of March 31,
2020 is as follows:
Other Information
|
|
Total
|
Weighted average remaining lease term (in years)
|
|
|
|
|
Operating leases
|
|
|
1.5
|
|
Finance leases
|
|
|
1.4
|
|
Weighted average discount rate:
|
|
|
|
|
Operating leases
|
|
|
10.0
|
%
|
Finance leases
|
|
|
9.4
|
%
|
Supplemental cash flow information
as of the three months ended March 31, 2020, and 2019 is as follows:
Supplemental Cash Flow Information
|
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
214,336
|
|
|
$
|
214,622
|
|
Finance leases
|
|
$
|
18,470
|
|
|
$
|
22,480
|
|
Cash used in financing activities
|
|
|
|
|
|
|
|
|
Finance leases
|
|
$
|
162,455
|
|
|
$
|
116,538
|
|
ROU assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
|
|
Finance leases
|
|
$
|
—
|
|
|
$
|
224,716
|
|
Note 11 – License agreements,
research collaborations and development agreements
In 2018, the Company announced a collaboration
with the New York State Department of Health (“DOH”) and ILÚM Health Solutions, LLC (“ILÚM”),
a wholly-owned subsidiary of Merck’s Healthcare Services and Solutions division, to develop a state-of-the-art research program
to detect, track, and manage antimicrobial-resistant infections at healthcare institutions statewide. The Company is working together
with DOH’s Wadsworth Center and ILÚM to develop an infectious disease digital health and precision medicine platform
that connects healthcare institutions to DOH and uses genomic microbiology for statewide surveillance and control of antimicrobial
resistance. As part of the collaboration, the Company received approximately $1.6 million over the 15-month demonstration portion
of the project. The demonstration project began in early 2019 and was completed in the first quarter of 2020. During
the three months ended March 31, 2020 and 2019, the Company recognized $250,000 and $500,000 of revenue related to the contract,
respectively.
The
Company is a party to one license agreement to acquire certain patent rights and technologies related
to its FISH product line. Royalties are incurred upon the sale of a product or service which utilizes the licensed technology.
The Company recognized net royalty expense of $62,500 for each of the three months ended March 31, 2020 and 2019. Annual future
minimum royalty fees are $250,000 under this agreement.
Note 12 – Related party transactions
In October 2016, the Company entered
into an agreement with Merck Sharp & Dohme Corp. (“MSD”), a wholly-owned subsidiary of Merck, and an affiliate
of MGHIF, a principal stockholder of the Company and a related party to the Company. Under the agreement, MSD provided
access to its archive of over 200,000 bacterial pathogens. The Company is initially performing molecular analyses on
up to 10,000 pathogens to identify markers of resistance to support rapid decision making using the Acuitas Lighthouse, and to
speed development of its rapid diagnostic products. MSD gains access to the high-resolution genotype data for the isolates as well
as access to the Acuitas Lighthouse informatics to support internal research and development programs. The Company is required
to expend up to $175,000 for the procurement of materials related to the activities contemplated by the agreement. Contract life-to-date,
the Company has incurred $171,646 of procurement costs which have been recognized as research and development expense. The Company
did not recognize any research and development expense related to the agreement in the three months ended March 31, 2020 and 2019.
Note 13 – Interim Facility
On September 4, 2019, OpGen entered into the
Implementation Agreement. Under the Implementation Agreement, OpGen agreed to purchase, through Crystal GmbH, all of the outstanding
shares and acquire all of the related business assets of Curetis GmbH to create a combined business within OpGen. The Implementation
Agreement required OpGen to enter into an interim facility with Curetis GmbH to support Curetis GmbH’s operations prior to
the closing of the transaction under the Implementation Agreement.
On November 12, 2019, Crystal GmbH, OpGen’s
subsidiary, as Lender, and Curetis GmbH, as Borrower, entered into the Interim Facility Agreement. The Interim Facility was amended
and restated by the parties on March 18, 2020, or the Interim Facility. Under the Interim Facility, the Lender has lent to the
Borrower committed capital of $4.7 million between November 18, 2019 and the closing of the transaction. The purpose of the loans
was to provide capital to fund the operations of Curetis GmbH, including the discharge of current liabilities when due. Each loan
under the Interim Facility bears interest at 10% per annum and is due to be repaid on the first anniversary of the loan. The Interim
Facility loans are subordinated to the current and future indebtedness of the Borrower. As of March 31, 2020, Curetis GmbH had
borrowed approximately $4.7 million, and OpGen had recognized approximately $109,000 of interest income under the Interim Facility
including approximately $87,000 during the three months ended March 31, 2020.
On April 1, 2020, the Company completed the
transaction with Curetis N.V. and acquired all of the assets and liabilities of Curetis GmbH (see Note 1). The Company will include
the Interim Facility in the consideration transferred in the business combination and will account for the Interim Facility under
ASC 805 as part of the opening balance sheet and purchase price allocation.
Note 14– Subsequent Events
On April 1, 2020, the Company completed the
transaction with Curetis N.V. and acquired all of the assets and liabilities of Curetis GmbH (see Note 1).
Subsequent to March 31, 2020, the Company sold
358,452 shares of its common stock under the 2020 ATM Offering resulting in aggregate net proceeds to the Company of approximately
$942,000, and gross proceeds of $974,000.
On April 22, 2020, OpGen, Inc. (the “Company”)
entered into a Term Note (the “Company Note”) with Silicon Valley Bank (the “Bank”) pursuant to the Paycheck
Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
administered by the U.S. Small Business Administration. The Company’s wholly owned subsidiary, Curetis USA Inc. (“Curetis
USA” and collectively with the Company, the “Borrowers”), also entered into a Term Note with the Bank (the “Subsidiary
Note,” and collectively with the Company Note, the “Notes”). The Notes are dated April 22, 2020. The principal
amount of the Company Note is $879,630, and the principal amount of the Subsidiary Note is $259,353.
In accordance with the requirements of the
CARES Act, the Borrowers will use the proceeds from the Notes in accordance with the requirements of the PPP to cover certain qualified
expenses, including payroll costs, rent and utility costs. Interest accrues on the Notes at the rate of 1.00% per annum. The Borrowers
may apply for forgiveness of amount due under the Notes, in an amount equal to the sum of qualified expenses under the PPP, which
include payroll costs, rent obligations, and covered utility payments incurred during the eight weeks following disbursement under
the Notes. The Borrowers intend to use the entire proceeds under the Notes for such qualifying expenses.
Subject to any forgiveness under the PPP, the
Notes mature two years following the date of issuance of the Notes and includes a period for the first six months during which
time required payments of interest and principal are deferred. Beginning on the seventh month following the date of the Notes,
the Borrowers are required to make 18 monthly payments of principal and interest. The Notes may be prepaid at any time prior to
maturity with no prepayment penalties. The Notes provide for customary events of default, including, among others, those relating
to breaches of their obligations under the Notes, including a failure to make payments, any bankruptcy or similar proceedings involving
the Borrowers, and certain material effects on the Borrowers’ ability to repay the Notes. The Borrowers did not provide any
collateral or guarantees for the Notes.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion
and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated
financial statements and the accompanying notes thereto included in Part I, Item 1 of this quarterly report on Form 10-Q. This
discussion contains forward-looking statements, based on current expectations and related to future events and our future financial
performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of many important factors, including those set forth under Part II. Item 1A. “Risk Factors”
of this quarterly report on Form 10-Q and Part 1. Item 1A of our annual report on Form 10-K for the year ended December 31, 2019.
Overview
OpGen was incorporated in Delaware in
2001. On July 14, 2015, OpGen completed the Merger with AdvanDx. Pursuant to the terms of a Merger Agreement, Velox Acquisition
Corp., OpGen’s wholly-owned subsidiary formed for the express purpose of effecting the Merger, merged with and into AdvanDx
with AdvanDx surviving as OpGen’s wholly-owned subsidiary. OpGen and AdvanDx are collectively referred to hereinafter as
the “Company.” The Company’s headquarters and principal operations are in Gaithersburg, Maryland. The Company
also has operations in Copenhagen, Denmark. The Company operates in one business segment.
Business Combination Transaction
with Curetis N.V.
On April 1, 2020 (the “Closing
Date”), the Company completed its business combination transaction (the “Transaction”) with Curetis N.V., a
public company with limited liability under the laws of the Netherlands (the “Seller”), as contemplated by the Implementation
Agreement, dated as of September 4, 2019 (the “Implementation Agreement”), by and among the Company, the Seller, and
Crystal GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany and wholly owned
subsidiary of the Company (“Purchaser”). Pursuant to the Implementation Agreement, the Purchaser acquired all of the
shares of Curetis GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany (“Curetis
GmbH”) and certain other assets and liabilities of the Seller, as further described below, and paid, as the sole consideration,
2,028,208 shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), to the Seller,
and reserved for future issuance (a) 134,356 shares of Common Stock, in connection with its assumption of the Seller’s 2016
Stock Option Plan, as amended (the “Seller Stock Option Plan”), and the outstanding awards thereunder, and (b) 500,000
shares of Common Stock to be issued upon the conversion, if any, of certain convertible notes issued by the Seller, of which 265,002
shares have been issued as of May 8, 2020, in satisfaction of approximately $543,000 of outstanding principal and indebtedness
under the assumed convertible notes. The 2,028,208 shares of Common Stock issued to the Seller represented approximately 13.8%
of the outstanding Common Stock of the Company as of the Closing Date.
At the closing, the Company assumed
all of the liabilities of the Seller solely and exclusively related to the acquired business, which is providing innovative solutions,
through development of proprietary platforms, diagnostic content, applied bioinformatics, lab services, research services and commercial
collaborations and agreements, for molecular microbiology, diagnostics designed to address the global challenge of detecting severe
infectious diseases and identifying antibiotic resistances in hospitalized patient (the “Curetis Business”). Pursuant
to the Implementation Agreement, the Company also assumed and adopted the Seller Stock Option Plan as an Amended and Restated Stock
Option Plan of the Company. In connection with the foregoing, the Company assumed all awards thereunder that were outstanding as
of the Closing Date and converted such awards into options to purchase shares of the Company’s Common Stock pursuant to the
terms of the applicable award. In addition, the Company assumed, at the closing, all of the outstanding convertible notes issued
by Seller in favor of YA II PN, LTD, pursuant to the previously disclosed Assignment of the Agreement for the Issuance of and Subscription
to Notes Convertible into Shares, dated February 24, 2020 (the “Assignment Agreement”), and entered into pursuant to
the Implementation Agreement. We refer to the combined business within OpGen, in this Quarterly Report as “Newco”
OpGen Overview
OpGen is a precision medicine company harnessing
the power of molecular diagnostics and informatics to help combat infectious disease. The Company is developing molecular information
products and services for global healthcare settings, helping to guide clinicians with more rapid and actionable information about
life threatening infections, improve patient outcomes, and decrease the spread of infections caused by multidrug-resistant microorganisms,
or MDROs. Its proprietary DNA tests and informatics address the rising threat of antibiotic resistance by helping physicians and
other healthcare providers optimize care decisions for patients with acute infections.
The Company’s molecular diagnostics
and informatics products, product candidates and services combine its Acuitas molecular diagnostics and Acuitas Lighthouse informatics
platform for use with its proprietary, curated MDRO knowledgebase. The Company is working to deliver products and services, some
in development, to a global network of customers and partners.
|
·
|
The Company’s Acuitas molecular diagnostic tests provide rapid
microbial identification and antibiotic resistance gene information. These products include its Acuitas antimicrobial resistance,
or AMR, Gene Panel Urine test in development for patients at risk for complicated urinary tract infection, or cUTI, and its Acuitas
AMR Gene Panel test for use with bacterial isolates in development for testing bacterial isolates, and its QuickFISH and PNA FISH
FDA-cleared and CE-marked diagnostics used to rapidly detect pathogens in positive blood cultures. Each of the Acuitas AMR Gene
Panel tests is available for sale for research use only, or RUO and is not for use in diagnostic procedures.
|
|
·
|
The Company’s Acuitas Lighthouse informatics systems are cloud-based
HIPAA compliant informatics offerings that combine clinical lab test results with patient and hospital information to provide analytics
and actionable insights to help manage MDROs in the hospital and patient care environment. Components of the informatics systems
include the Acuitas Lighthouse Knowledgebase and the Acuitas Lighthouse Software. The Acuitas Lighthouse Knowledgebase is a relational
database management system and a proprietary data warehouse of genomic data matched with antibiotic susceptibility information
for bacterial pathogens. The Acuitas Lighthouse Software system includes the Acuitas Lighthouse Portal, a suite of web applications
and dashboards, the Acuitas Lighthouse Prediction Engine, which is a data analysis software, and other supporting software components.
The Acuitas Lighthouse Software can be customized and made specific to a healthcare facility or collaborator, such as a pharmaceutical
company. The Acuitas Lighthouse Software is not distributed commercially for antibiotic resistance prediction and is not for use
in diagnostic procedures.
|
The Company’s operations are
subject to certain risks and uncertainties. The risks include the risk that the Company will not receive 510(k) clearance for
its Acuitas AMR Gene Panel test for use with bacterial isolates on a timely basis, or at all, the timing and ultimate success
of future 510(k) and De Novo submissions for additional Acuitas AMR Gene Panel tests and Acuitas Lighthouse Software,
rapid technology changes, the need to retain key personnel, the need to protect intellectual property and the need to raise
additional capital financing on terms acceptable to the Company. The Company’s success depends, in part, on its ability
to develop, obtain regulatory approval for and commercialize its proprietary technology as well as raise additional
capital.
Overview of the Curetis Business
The Curetis Business develops, manufactures and commercializes
innovative solutions for molecular microbiology.
The Curetis business is based on two
complementary business pillars:
|
·
|
The Unyvero A50 is a high-plex polymerase chain reaction, or PCR, platform for comprehensive
and rapid diagnosis of severe infectious diseases in hospitalized patients. The platform is based on proven, intelligently
integrated technologies, allowing for the testing of broad panels of pathogens and antibiotic resistance markers and the
processing of a large variety of native patient samples with an intuitive workflow. The Unyvero A50 high-plex PCR
platform’s advantage is the timely access to comprehensive, actionable and reliable data. Curetis’ molecular
tests for different indications are commercially available in Europe, the United States, Asia and the Middle East. The
Curetis Group is also developing the Unyvero A30 RQ Analyzer, which is designed to serve as a platform with low-to
medium-plex capabilities that it ultimately intends to commercially leverage predominantly in collaborations with one or more
diagnostics industry partners.
|
|
·
|
The ARES AMR database, or ARESdb, is a comprehensive database of the genetics of antimicrobial
resistance, or AMR, which permits Curetis to increasingly utilize the proprietary biomarker content in its own assay and cartridge
development, as well as to build an independent business in next-generation sequencing, or NGS, based offerings for AMR research
and diagnostics in collaboration with partners in the life science, pharmaceutical and diagnostics industries. ARESdb is
not commercially available in the United States for diagnostic use, as it has not been cleared by the FDA. In September
2019, Ares Genetics, a wholly owned subsidiary of Curetis, or Ares Genetics, signed a technology evaluation agreement with an undisclosed
global IVD corporation. In the first phase of the collaboration, expected to take about 10 months, Ares Genetics expects to further
enrich ARESdb with a focus on certain pathogens relevant in a first, undisclosed infectious disease indication.
|
Curetis GmbH’s offices and R&D
laboratories are based in Holzgerlingen, near Stuttgart with its cartridge manufacturing facility in Bodelshausen also in southern
Germany, in addition to subsidiaries located in San Diego, California, USA and Vienna, Austria.
Overview of Newco
We anticipate that the focus of Newco
will be on its combined broad portfolio of products, which include high impact rapid diagnostics and bioinformatics to interpret
AMR genetic data. The products we expect Newco to focus on are for lower respiratory infection and urinary tract infection:
|
·
|
The Unyvero Lower Respiratory Tract, or LRT, test is the first FDA cleared test that can be
used for more than 90% of infection cases of hospitalized pneumonia patients. According to the National Center for Health
Statistics (2018), pneumonia is a leading cause of admissions to the hospital and is associated with substantial morbidity
and mortality. The Unyvero LRT automated test detects 19 pathogens within less than five hours, with approximately two
minutes of hands-on time and provides clinicians with a comprehensive overview of 10 genetic antibiotic resistance markers.
We are also commercializing the Unyvero LRT test for testing bronchoalveolar lavage, or BAL, specimens of U.S. patients with
lower respiratory tract infections following FDA clearance received by Curetis in December 2019. We believe the Unyvero LRT
test has the ability to help address a significant, previously unmet medical need that causes over $10 billion in annual
costs for the U.S. healthcare system, according to the Centers for Disease Control, or CDC.
|
|
·
|
The Acuitas AMR Gene Panel (Urine) test is being developed for patients at risk for cUTI, and is
designed to test for up to five pathogens and up to 47 antimicrobial resistance genes. When paired with the Acuitas Lighthouse
software, we believe the test will be able to help improve management of the more than one million patients in the United States
with cUTI. The AMR Gene Panel (Urine) is in testing for preparation of a De Novo submission with
the FDA. We are pursuing a Class I designation through a De Novo Request
for the test in connection with an initial clinical indication to test bacterial isolates.
|
Newco will have an extensive offering
of additional in vitro diagnostic tests including CE-marked Unyvero tests for implant and tissue infections, intra-abdominal
infections, cUTI, and blood stream infections, and the QuickFISH and PNA FISH FDA-cleared and CE-marked diagnostics used to rapidly
detect pathogens in positive blood cultures, which we believe have an established market position in the United States.
Newco’s combined AMR informatics
offerings, once all such products are cleared for marketing, if ever, will offer important new tools to clinicians treating patients
with AMR infections. OpGen has collaborated with Merck, Inc. to establish the Acuitas Lighthouse Knowledgebase, which is currently
commercially available in the United States for RUO. The Acuitas Lighthouse Knowledgebase includes approximately 15,000 bacterial
isolates from the Merck SMART surveillance network of 192 hospitals in 52 countries and other sources. The Curetis ARESdb is
a comprehensive database of genetic and phenotypic information. ARESdb was originally designed based on the SIEMENS
microbiology strain collection covering resistant pathogens over the last 30 years and its development has significantly expanded
to now include approximately 55,000 sequenced isolate strains and phenotypic correlation data against over 100 antibiotics. In
September 2019, Ares Genetics signed a technology evaluation agreement with an undisclosed global IVD corporation. In the first
phase of the collaboration, expected to take about 10 months, Ares Genetics expects to further enrich ARESdb with a
focus on certain pathogens relevant in a first, undisclosed infectious disease indication. We anticipate that Newco will utilize
the proprietary biomarker content in these databases, as well as to build an independent business in NGS and AI based offerings
for AMR research and diagnostics in collaboration with partners in the life science, pharmaceutical and diagnostics industries.
The Unyvero A50 tests for up to 130
diagnostic targets (pathogens and resistance genes) in under five hours with approximately two minutes of hands-on time. The system
was first CE Marked in 2012 and was FDA cleared in 2018 along with the LRT test through De Novo process. As
of December 31, 2019, there is an installed base of 173 Unyvero A50 Analyzers globally. The Unyvero A30 RQ is
a new device designed to address the low to mid-plex testing market for 5-30 DNA targets and to provide results in 45 to 90 minutes
with 2-5 minutes of hands on time. The Unyvero A30 has a small laboratory footprint and has an attractive cost of goods profile.
Curetis has been following a partnering strategy for the Unyvero A30.
Newco has extensive partner and distribution
relationships to help accelerate the establishment of a global infectious disease diagnostic testing and informatics business.
Partners will include A. Menarini Diagnostics for pan-European distribution to currently 11 countries; MGI/BGI for NGS-based molecular
microbiology applications in China; and Beijing Clear Biotech Co. Ltd. for Unyvero A50 product distribution in China. Newco has
a network currently consisting of 18 distributors covering 43 countries.
Newco will continue to develop and seek
FDA and other regulatory clearances or approvals, as applicable, for the Acuitas AMR Gene Panel (Urine) diagnostic test and the
Acuitas Lighthouse Software products. Newco will continue to offer the Acuitas AMR Gene Panel (Isolates) and Acuitas Lighthouse
Software as well as the Unyvero UTI Panel as RUO products to hospitals, public health departments, clinical laboratories, pharmaceutical
companies and contract research organizations, or CROs.
Recent developments
COVID-19
On March 11, 2020, the World Health
Organization declared the novel coronavirus (“COVID-19”) a pandemic, and on March 13, 2020 the United States declared
a national emergency with respect to COVID-19. COVID-19 has negatively impacted the global economy, disrupted global supply chains
and created significant volatility and disruption in the financial markets.
As a result, we have experienced a material
impact on our business, financial condition or results of operations for the three months ended March 31, 2020 and significant
business disruptions as a result of the outbreak. For example, most of our employees are currently working remotely from home,
we have suspended all business travel, and we are unable to physically meet with future and current customers to sell and market
our products. In addition, the COVID-19 pandemic has interrupted many of our clinical
activities, which will delay our ability to complete clinical trials and obtain regulatory approval for new products.
We continue to monitor the impacts of
COVID-19 on the global economy and on our business operations. However, at this time, it is difficult to predict how long the potential
operational impacts of COVID-19 will remain in effect or to what degree they will impact our operations and financial results.
An extended period of global supply chain and economic disruption could materially affect our business, results of operations,
access to sources of liquidity and financial condition, as well as our ability to execute our business strategies and initiatives
in their respective expected time frames.
Financings
Since inception, the Company has incurred,
and continues to incur, significant losses from operations. The Company has funded its operations primarily through external investor
financing arrangements. During 2019, the Company raised net proceeds of approximately $13.1 million. On February 11, 2020, the
Company entered into an ATM Agreement with Wainwright, pursuant to which the Company may offer and sell from time to time in an
“at the market offering,” at its option, up to an aggregate of $15.7 million of shares of the Company's common stock
through Wainwright, as sales agent. During the three months ended March 31, 2020, the Company sold 2,814,934 shares of its common
stock under the 2020 ATM Offering resulting in aggregate net proceeds to the Company of approximately $5.5 million, and gross proceeds
of $5.8 million. Additionally, during the three months ended March 31, 2020, approximately 4.1 million common warrants issued in
our October 2019 Public Offering were exercised raising net proceeds of approximately $8.1 million. See Note 2 (“Liquidity
and management’s plan”) to the Notes to Unaudited Condensed Consolidated Financial Statements elsewhere in this quarterly
report on Form 10-Q.
Results of operations for the three
months ended March 31, 2020 and 2019
Revenues
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
Product sales
|
|
$
|
366,933
|
|
|
$
|
520,177
|
|
Collaboration revenue
|
|
|
250,000
|
|
|
|
500,000
|
|
Total revenue
|
|
$
|
616,933
|
|
|
$
|
1,020,177
|
|
Total revenue for the three months ended
March 31, 2020 decreased approximately 40%, with a change in the mix of revenue, as follows:
|
·
|
Product Sales: a decrease in revenue of approximately 29% in the 2020 period compared to the 2019
period is primarily attributable to a reduction in the sale of our rapid pathogen ID testing
products due to the loss of two large customers and COVID-19; and
|
|
·
|
Collaboration Revenue: a decrease in revenue of approximately 50% in the 2020 period compared to
the 2019 period is primarily the result of revenue from our contract with the New York State Department of Health.
|
Operating expenses
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
Cost of products sold
|
|
$
|
276,554
|
|
|
$
|
220,702
|
|
Cost of services
|
|
|
137,666
|
|
|
|
144,482
|
|
Research and development
|
|
|
1,217,556
|
|
|
|
1,776,382
|
|
General and administrative
|
|
|
1,701,448
|
|
|
|
1,747,585
|
|
Sales and marketing
|
|
|
282,277
|
|
|
|
372,233
|
|
Transaction costs
|
|
|
245,322
|
|
|
|
—
|
|
Impairment of intangible assets
|
|
|
750,596
|
|
|
|
—
|
|
Impairment of right-of-use asset
|
|
|
—
|
|
|
|
520,759
|
|
Total operating expenses
|
|
$
|
4,611,419
|
|
|
$
|
4,782,143
|
|
The Company’s total operating expenses
for the three months ended March 31, 2020 decreased approximately 4% when compared to the same period in 2019. Operating expenses
changed as follows:
|
·
|
Costs of products sold: cost of products sold for the three months ended March 31, 2020 increased
approximately 25% when compared to the same period in 2019. The change in costs of products sold is primarily attributable to
increased regulatory costs and an increase in the Company’s inventory reserve;
|
|
·
|
Costs of services: cost of services for the three months ended March 31, 2020 decreased approximately
5% when compared to the same period in 2019. The change in costs of services is primarily attributable to a decrease in costs associated
with our collaboration contracts;
|
|
·
|
Research and development: research and development expenses for the three months ended March 31,
2020 decreased approximately 31% when compared to the same period in 2019, primarily due to the clinical trials needed to support
the 510(k) submission for the Acuitas AMR Gene Panel (Isolates);
|
|
·
|
General and administrative: general and administrative expenses for the three months ended March
31, 2020 decreased approximately 3% when compared to the same period in 2019, primarily due to decreased payroll related costs;
|
|
·
|
Sales and marketing: sales and marketing expenses for the
three months ended March 31, 2020 decreased approximately 24% when compared to the
same period in 2019, primarily due to the reduced headcount of our international sales team;
|
|
·
|
Transaction costs: transaction costs for the three months ended March 31, 2020 represent one-time
costs incurred as part of the business combination with Curetis;
|
|
·
|
Impairment of intangible assets: impairment of intangible assets for the three months ended March
31, 2020 represents the write down of intangible assets acquired from AdvanDx in 2015; and
|
|
·
|
Impairment of right-of-use asset: impairment of right-of-use asset for the three months ended March
31, 2019 represents the impairment of our Woburn, Massachusetts ROU asset recorded as part of the Company’s adoption of ASU
2016-02, Leases (Topic 842) in 2019.
|
Other income (expense)
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
Interest expense
|
|
$
|
(38,267
|
)
|
|
$
|
(56,444
|
)
|
Foreign currency transaction losses
|
|
|
(3,876
|
)
|
|
|
(10,351
|
)
|
Other income (expense)
|
|
|
87,335
|
|
|
|
(24,422
|
)
|
Change in fair value of derivative financial instruments
|
|
|
—
|
|
|
|
67
|
|
Total other income (expense)
|
|
$
|
45,192
|
|
|
$
|
(91,150
|
)
|
The Company’s total other income
(expense) for the three months ended March 31, 2020 increased primarily due to an increase in other income related to interest
income earned under the Interim Facility with Curetis.
Liquidity and capital resources
As of March 31, 2020, the Company had cash
and cash equivalents of $11.5 million compared to $2.7 million at December 31, 2019. The Company has funded its operations primarily
through external investor financing arrangements and has raised funds in 2020 and 2019, including:
During the three months ended March 31, 2020,
the Company sold 2,814,934 shares of its common stock in its 2020 ATM Offering resulting in aggregate net proceeds to the Company
of approximately $5.5 million, and gross proceeds of $5.8 million.
During the three months ended March
31, 2020, approximately 4.1 million common warrants issued in our October 2019 Public Offering were exercised for net proceeds
of approximately $8.1 million.
On October 28, 2019, the Company
closed the October 2019 Public Offering of 2,590,170 units at $2.00 per unit and 2,109,830 pre-funded units at $1.99 per pre-funded
unit. The offering raised gross proceeds of approximately $9.4 million and net proceeds of approximately $8.3 million.
On March 29, 2019, the Company closed
the March 2019 Public Offering of 450,000 shares of its common stock at a public offering price of $12.00 per share. The offering
raised gross proceeds of $5.4 million and net proceeds of approximately $4.8 million.
To meet its capital needs, the Company is considering
multiple alternatives, including, but not limited to, additional equity financings, debt financings and other funding transactions,
licensing and/or partnering arrangements and business combination transactions. There can be no assurance that the Company will
be able to complete any such transaction on acceptable terms or otherwise. The Company believes that current cash on hand will
be sufficient to fund operations into the fourth quarter of 2020. This has led management to conclude that there is substantial
doubt about the Company’s ability to continue as a going concern. In the event the Company is unable to successfully raise
additional capital during or before the end of the fourth quarter of 2020, the Company will not have sufficient cash flows and
liquidity to finance its business operations as currently contemplated. Accordingly, in such circumstances the Company would be
compelled to immediately reduce general and administrative expenses and delay research and development projects, including the
purchase of scientific equipment and supplies, until it is able to obtain sufficient financing. If such sufficient financing is
not received on a timely basis, the Company would then need to pursue a plan to license or sell its assets, seek to be acquired
by another entity, cease operations and/or seek bankruptcy protection.
Sources and uses of cash
The Company’s principal source
of liquidity is from financing activities, including issuances of equity and debt securities. The following table summarizes the
net cash and cash equivalents provided by (used in) operating activities, investing activities and financing activities for the
periods indicated:
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
Net cash used in operating activities
|
|
$
|
(2,344,742
|
)
|
|
$
|
(2,985,779
|
)
|
Net cash (used in) provided by investing activities
|
|
|
(2,201,057
|
)
|
|
|
(7,243
|
)
|
Net cash provided by financing activities
|
|
|
13,265,207
|
|
|
|
4,448,487
|
|
Net cash used in operating activities
Net cash used in operating activities
for the three months ended March 31, 2020 consists primarily of our net loss of $3.9 million, reduced by certain noncash items,
including impairment of intangible assets of $0.7 million, depreciation and amortization expense of $0.2 million, and share-based
compensation expense of $0.1 million. Net cash used in operating activities for the three months ended March 31, 2019
consists primarily of our net loss of $3.9 million, reduced by certain noncash items, including impairment of ROU asset of $0.5
million, depreciation and amortization expense of $0.2 million, and share-based compensation expense of $0.1 million.
Net cash (used in) provided by
investing activities
Net cash used in investing activities
for the three months ended March 31, 2020 consisted primarily of funds provided to Curetis GmbH as part of the Interim Facility.
Net cash used in operating activities for the three months ended March 31, 2019 consisted of the purchase of property and
equipment offset by proceeds from the sale of equipment.
Net cash provided by financing
activities
Net cash provided by financing activities
for the three months ended March 31, 2020 of $13.3 million consisted primarily of the net proceeds from the 2020 ATM Offering and
exercises of common stock warrants. Net cash provided by financing activities for the three months ended March 31, 2019 of
$4.4 million consisted primarily of the net proceeds from the March 2019 Public Offering.
Critical accounting policies and
use of estimates
This Management’s Discussion and
Analysis of Financial Condition and Results of Operations is based on our unaudited condensed consolidated financial statements,
which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.
In our audited consolidated financial statements, estimates are used for, but not limited to, liquidity assumptions, revenue recognition,
share-based compensation, allowances for doubtful accounts and inventory obsolescence, valuation of derivative financial instruments
measured at fair value on a recurring basis, deferred tax assets and liabilities and related valuation allowance, estimated useful
lives of long-lived assets, and the recoverability of long lived assets. Actual results could differ from those estimates.
A summary of our significant accounting
policies is included in Note 3 “Summary of significant accounting policies” to the accompanying unaudited condensed
consolidated financial statements. Certain of our accounting policies are considered critical, as these policies require significant,
difficult or complex judgments by management, often requiring the use of estimates about the effects of matters that are inherently
uncertain. Our critical policies are summarized in Item 7. “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019.
Recently issued accounting pronouncements
See Note 3 “Summary of significant
accounting policies” in this Form 10-Q for a full description of recent accounting pronouncements, including the respective
expected dates of adoption and effects on our unaudited condensed consolidated financial statements.
Off-balance sheet arrangements
As of March 31, 2020 and December 31,
2019, we did not have any off-balance sheet arrangements.
JOBS Act
On April 5, 2012, the JOBS Act was enacted.
Section 107 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. In other words,
an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. The Company has elected to use the extended transition period for complying with new or revised accounting
standards under Section 102(b)(1) of the JOBS Act. This election allows it to delay the adoption of new or revised accounting standards
that have different effective dates for public and private companies until those standards apply to private companies. As a result
of this election, the Company’s financial statements may not be comparable to companies that comply with public company effective
dates.
Subject to certain conditions set forth
in the JOBS Act, as an “emerging growth company,” the Company intends to rely on certain of these exemptions, including
without limitation, (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 of 2002 and (ii) complying with any requirement that may be adopted by the
PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about
the audit and the financial statements, known as the auditor discussion and analysis. The Company will remain an “emerging
growth company” until the earliest of (i) the last day of the fiscal year in which it has total annual gross revenues of
$1.07 billion or more; (ii) December 31, 2020; (iii) the date on which the Company has issued more than $1
billion in nonconvertible debt during the previous three years; or (iv) the date on which the Company is deemed to be
a large accelerated filer under the rules of the SEC.