f
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20192020
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-37367
OPGEN, INC.
(Exact name of registrant as specified in its charter)
Delaware | 06-1614015 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.) | |
708 Quince Orchard Road, Suite 205, Gaithersburg, MD | 20878 | |
(Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (240) 813-1260
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Trading Symbols | Name of each exchange on which registered |
Common Stock | OPGN | Nasdaq Capital Market |
|
|
|
17,645,720
19,714,348 shares of the Company’s common stock, par value $0.01 per share, were outstanding as of August 10, 2019.12, 2020.
TABLE OF CONTENTS FOR FORM 10-Q
3 | ||||
PART I. | 4 | |||
Item 1. | 4 | |||
Condensed Consolidated Balance Sheets at June 30, | 4 | |||
2019 | 5 | |||
2019 | 6 | |||
Condensed Consolidated Statements of Cash Flow for the six months ended June 30, | 7 | |||
Notes to Unaudited Condensed Consolidated Financial Statements | 8 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ||
Item 3. |
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Item 4. |
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PART II. |
| |||
Item 1. |
| |||
Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5 |
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Item 6. |
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2 |
INFORMATION REGARDING FORWARD-LOOKINGFORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q of OpGen, Inc. contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In this quarterly report, we refer to OpGen, Inc. as the “Company,” “we,” “our” or “us.” All statements other than statements of historical facts contained herein, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” or the negative version of these words and similar expressions are intended to identify forward-looking statements.
We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II Item 1A “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances included herein may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
our liquidity and working capital requirements, including our cash requirements over the next 12 months;
our ability to maintain compliance with the ongoing listing requirements for the Nasdaq Capital Market;
receipt of regulatory clearance of our submitted 510(k) application for our Acuitas AMR Gene Panel (Isolates) test;
the completion of our development efforts for the Acuitas AMR Gene Panel tests and Acuitas Lighthouse Software, and the timing of regulatory submissions;
our ability to sustain or grow our customer base for our current research use only and rapid pathogen ID testing products;
regulations and changes in laws or regulations applicable to our business, including regulation by the FDA;
anticipated trends and challenges in our business and the competition that we face;
the execution of our business plan and our growth strategy;
our expectations regarding the size of and growth in potential markets;
our opportunity to successfully enter into new collaborative or strategic agreements;
compliance with the U.S. and international regulations applicable to our business; and
our expectations regarding future revenue and expenses.
· | our ability to integrate the OpGen, Curetis, and Ares Genetics businesses; |
· | our liquidity and working capital requirements, including our cash requirements over the next 12 months; |
· | our ability to maintain compliance with the ongoing listing requirements for the Nasdaq Capital Market; |
· | receipt of regulatory clearance of our submitted 510(k) pre-market submission for our Acuitas AMR Gene Panel test for use with bacterial isolates; |
· | the impact of the coronavirus pandemic on our business and operations; |
· | the completion of our development efforts for the Acuitas AMR Gene Panel Urine test and Acuitas Lighthouse Software, Unyvero IJI and SHR panels, Unyvero A30 RQ platform and ARESdb and the timing of regulatory submissions; |
· | our ability to sustain or grow our customer base for our Unyvero IVD products as well as our current research use only and rapid pathogen ID testing products; |
· | regulations and changes in laws or regulations applicable to our business, including regulation by the FDA; |
· | anticipated trends and challenges in our business and the competition that we face; |
· | the execution of our business plan and our growth strategy; |
· | our expectations regarding the size of and growth in potential markets; |
· | our opportunity to successfully enter into new collaborative or strategic agreements; |
· | compliance with the U.S. and international regulations applicable to our business; and |
· | our expectations regarding future revenue and expenses; |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. These risks should not be construed as exhaustive and should be read in conjunction with our other disclosures, including but not limited to the risk factors described in Part II, Item 1A of this quarterly report. Other risks may be described from time to time in our filings made under the securities laws. New risks emerge from time to time. It is not possible for our management to predict all risks. All forward-looking statements in this quarterly report speak only as of the date made and are based on our current beliefs and expectations. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
NOTE REGARDING TRADEMARKS
We own various U.S. federal trademark registrations and applications and unregistered trademarks and servicemarks, including OpGen®, Curetis®, Unyvero®, ARES® and ARES GENETICS®, Acuitas®, Acuitas Lighthouse®, AdvanDx®, QuickFISH®, and PNA FISH®. All other trademarks, servicemarks or trade names referred to in this quarterly report are the property of their respective owners. Solely for convenience, the trademarks and trade names in this quarterly report are sometimes referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies, products or services.
3 |
Part I. FINANCIALFINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
OpGen, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
|
| June 30, 2019 |
|
| December 31, 2018 |
| June 30, 2020 | December 31, 2019 | ||||||||
Assets |
|
|
|
|
|
|
|
| ||||||||
Current assets |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents |
| $ | 3,055,894 |
|
| $ | 4,572,487 |
| $ | 12,886,547 | $ | 2,708,223 | ||||
Accounts receivable, net |
|
| 772,914 |
|
|
| 373,858 |
| 231,427 | 567,811 | ||||||
Inventory, net |
|
| 567,422 |
|
|
| 543,747 |
| 2,898,185 | 473,030 | ||||||
Note receivable | — | 2,521,479 | ||||||||||||||
Prepaid expenses and other current assets |
|
| 178,356 |
|
|
| 292,918 |
| 810,391 | 396,760 | ||||||
Total current assets |
|
| 4,574,586 |
|
|
| 5,783,010 |
| 16,826,550 | 6,667,303 | ||||||
Property and equipment, net |
|
| 197,502 |
|
|
| 1,221,827 |
| 3,587,341 | 130,759 | ||||||
Finance lease right-of-use assets, net |
|
| 984,742 |
|
|
| — |
| 696,333 | 958,590 | ||||||
Operating lease right-of-use assets |
|
| 1,381,830 |
|
|
| — |
| 1,653,603 | 1,043,537 | ||||||
Goodwill |
|
| 600,814 |
|
|
| 600,814 |
| 7,650,642 | 600,814 | ||||||
Intangible assets, net |
|
| 951,458 |
|
|
| 1,085,366 |
| 15,566,528 | 817,550 | ||||||
Other noncurrent assets |
|
| 241,182 |
|
|
| 259,346 |
| 309,347 | 203,271 | ||||||
Total assets |
| $ | 8,932,114 |
|
| $ | 8,950,363 |
| $ | 46,290,344 | $ | 10,421,824 | ||||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
| ||||||||
Current liabilities |
|
|
|
|
|
|
|
| ||||||||
Accounts payable |
| $ | 1,258,908 |
|
| $ | 1,623,751 |
| $ | 1,745,499 | $ | 1,056,035 | ||||
Accrued compensation and benefits |
|
| 1,190,500 |
|
|
| 1,041,573 |
| 1,730,128 | 855,994 | ||||||
Accrued liabilities |
|
| 820,667 |
|
|
| 902,019 |
| 2,514,992 | 1,046,661 | ||||||
Deferred revenue |
|
| 9,993 |
|
|
| 15,824 |
| 393,739 | 9,808 | ||||||
Short-term notes payable |
|
| 343,330 |
|
|
| 398,595 |
| ||||||||
Current maturities of long-term debt | 1,378,380 | 373,599 | ||||||||||||||
Short-term finance lease liabilities |
|
| 576,322 |
|
|
| 399,345 |
| 432,494 | 579,030 | ||||||
Short-term operating lease liabilities |
|
| 958,992 |
|
|
| — |
| 1,271,700 | 1,017,414 | ||||||
Total current liabilities |
|
| 5,158,712 |
|
|
| 4,381,107 |
| 9,466,932 | 4,938,541 | ||||||
Deferred rent |
|
| — |
|
|
| 162,919 |
| ||||||||
Note payable |
|
| 494,897 |
|
|
| 660,340 |
| ||||||||
Warrant liability |
|
| — |
|
|
| 67 |
| ||||||||
Long-term debt, net | 16,794,652 | 329,456 | ||||||||||||||
Long-term finance lease liabilities |
|
| 379,825 |
|
|
| 437,189 |
| 135,521 | 313,263 | ||||||
Long-term operating lease liabilities |
|
| 1,071,677 |
|
|
| — |
| 782,494 | 547,225 | ||||||
Derivative liabilities | 234,224 | — | ||||||||||||||
Other long-term liabilities | 147,977 | — | ||||||||||||||
Total liabilities |
|
| 7,105,111 |
|
|
| 5,641,622 |
| 27,561,800 | 6,128,485 | ||||||
Commitments (Note 9) |
|
|
|
|
|
|
|
| ||||||||
Stockholders' equity |
|
|
|
|
|
|
|
| ||||||||
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued and outstanding at June 30, 2019 and December 31, 2018, respectively |
|
| — |
|
|
| — |
| ||||||||
Common stock, $0.01 par value; 50,000,000 shares authorized; 17,645,720 and 8,645,720 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively |
|
| 176,457 |
|
|
| 86,457 |
| ||||||||
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued and outstanding at June 30, 2020 and December 31, 2019, respectively | — | — | ||||||||||||||
Common stock, $0.01 par value; 50,000,000 shares authorized; 17,693,932 and 5,582,280 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 176,939 | 55,823 | ||||||||||||||
Additional paid-in capital |
|
| 170,190,415 |
|
|
| 165,313,902 |
| 204,154,419 | 178,779,814 | ||||||
Accumulated deficit |
|
| (168,524,652 | ) |
|
| (162,078,525 | ) | (185,949,915 | ) | (174,524,983 | ) | ||||
Accumulated other comprehensive loss |
|
| (15,217 | ) |
|
| (13,093 | ) | ||||||||
Accumulated other comprehensive income (loss) | 347,101 | (17,315 | ) | |||||||||||||
Total stockholders’ equity |
|
| 1,827,003 |
|
|
| 3,308,741 |
| 18,728,544 | 4,293,339 | ||||||
Total liabilities and stockholders’ equity |
| $ | 8,932,114 |
|
| $ | 8,950,363 |
| $ | 46,290,344 | $ | 10,421,824 |
See accompanying notes to unaudited condensed consolidated financial statements.
4 |
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Product sales |
| $ | 504,293 |
|
| $ | 632,525 |
|
| $ | 1,024,470 |
|
| $ | 1,266,021 |
|
| $ | 601,304 | $ | 504,293 | $ | 968,237 | $ | 1,024,470 | ||||||||
Laboratory services |
|
| 5,250 |
|
|
| 1,100 |
|
|
| 5,250 |
|
|
| 9,790 |
|
| 25,992 | 5,250 | 25,992 | 5,250 | ||||||||||||
Collaboration revenue |
|
| 500,000 |
|
|
| 155,276 |
|
|
| 1,000,000 |
|
|
| 359,316 |
|
| 561,089 | 500,000 | 811,089 | 1,000,000 | ||||||||||||
Total revenue |
|
| 1,009,543 |
|
|
| 788,901 |
|
|
| 2,029,720 |
|
|
| 1,635,127 |
|
| 1,188,385 | 1,009,543 | 1,805,318 | 2,029,720 | ||||||||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cost of products sold |
|
| 198,493 |
|
|
| 303,663 |
|
|
| 419,195 |
|
|
| 646,495 |
|
| 713,916 | 198,493 | 990,470 | 419,195 | ||||||||||||
Cost of services |
|
| 251,981 |
|
|
| 179,402 |
|
|
| 396,463 |
|
|
| 347,955 |
|
| 252,655 | 251,981 | 390,321 | 396,463 | ||||||||||||
Research and development |
|
| 1,153,584 |
|
|
| 1,304,388 |
|
|
| 2,929,966 |
|
|
| 2,534,817 |
|
| 2,979,025 | 1,153,584 | 4,196,581 | 2,929,966 | ||||||||||||
General and administrative |
|
| 1,592,845 |
|
|
| 1,831,063 |
|
|
| 3,340,430 |
|
|
| 3,621,585 |
|
| 2,491,571 | 1,592,845 | 4,193,019 | 3,340,430 | ||||||||||||
Sales and marketing |
|
| 393,567 |
|
|
| 426,297 |
|
|
| 765,800 |
|
|
| 756,070 |
|
| 1,044,032 | 393,567 | 1,326,309 | 765,800 | ||||||||||||
Transaction costs | 225,000 | — | 470,322 | — | |||||||||||||||||||||||||||||
Impairment of right-of-use asset |
|
| — |
|
|
| — |
|
|
| 520,759 |
|
|
| — |
|
| — | — | — | 520,759 | ||||||||||||
Impairment of intangibles assets | — | — | 750,596 | — | |||||||||||||||||||||||||||||
Total operating expenses |
|
| 3,590,470 |
|
|
| 4,044,813 |
|
|
| 8,372,613 |
|
|
| 7,906,922 |
|
| 7,706,199 | 3,590,470 | 12,317,618 | 8,372,613 | ||||||||||||
Operating loss |
|
| (2,580,927 | ) |
|
| (3,255,912 | ) |
|
| (6,342,893 | ) |
|
| (6,271,795 | ) |
| (6,517,814 | ) | (2,580,927 | ) | (10,512,300 | ) | (6,342,893 | ) | ||||||||
Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Other income (expense) |
|
| 15,166 |
|
|
| 5 |
|
|
| (9,256 | ) |
|
| 5,303 |
|
| ||||||||||||||||
Interest and other (expense) income | (5,656 | ) | 15,166 | 81,679 | (9,256 | ) | |||||||||||||||||||||||||||
Interest expense |
|
| (37,129 | ) |
|
| (54,533 | ) |
|
| (93,573 | ) |
|
| (112,379 | ) |
| (1,044,891 | ) | (37,129 | ) | (1,083,158 | ) | (93,573 | ) | ||||||||
Foreign currency transaction gains (losses) |
|
| 9,879 |
|
|
| (21,762 | ) |
|
| (472 | ) |
|
| (9,581 | ) |
| (289,788 | ) | 9,879 | (293,664 | ) | (472 | ) | |||||||||
Change in fair value of derivative financial instruments |
|
| — |
|
|
| (11 | ) |
|
| 67 |
|
|
| 8,155 |
|
| 382,511 | — | 382,511 | 67 | ||||||||||||
Total other expense |
|
| (12,084 | ) |
|
| (76,301 | ) |
|
| (103,234 | ) |
|
| (108,502 | ) |
| ||||||||||||||||
Total other income (expense) | (957,824 | ) | (12,084 | ) | (912,632 | ) | (103,234 | ) | |||||||||||||||||||||||||
Loss before income taxes |
|
| (2,593,011 | ) |
|
| (3,332,213 | ) |
|
| (6,446,127 | ) |
|
| (6,380,297 | ) |
| (7,475,638 | ) | (2,593,011 | ) | (11,424,932 | ) | (6,446,127 | ) | ||||||||
Provision for income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — | — | — | — | ||||||||||||
Net loss |
|
| (2,593,011 | ) |
|
| (3,332,213 | ) |
|
| (6,446,127 | ) |
|
| (6,380,297 | ) |
| $ | (7,475,638 | ) | $ | (2,593,011 | ) | $ | (11,424,932 | ) | $ | (6,446,127 | ) | ||||
Net loss available to common stockholders |
| $ | (2,593,011 | ) |
| $ | (3,332,213 | ) |
| $ | (6,446,127 | ) |
| $ | (6,380,297 | ) |
| $ | (7,475,638 | ) | $ | (2,593,011 | ) | $ | (11,424,932 | ) | $ | (6,446,127 | ) | ||||
Net loss per common share - basic and diluted |
| $ | (0.15 | ) |
| $ | (0.57 | ) |
| $ | (0.48 | ) |
| $ | (1.29 | ) |
| $ | (0.49 | ) | $ | (2.94 | ) | $ | (1.00 | ) | $ | (9.54 | ) | ||||
Weighted average shares outstanding - basic and diluted |
|
| 17,645,720 |
|
|
| 5,826,947 |
|
|
| 13,518,648 |
|
|
| 4,950,517 |
|
| 15,403,986 | 882,286 | 11,427,322 | 675,932 | ||||||||||||
Net loss |
| $ | (2,593,011 | ) |
| $ | (3,332,213 | ) |
| $ | (6,446,127 | ) |
| $ | (6,380,297 | ) |
| $ | (7,475,638 | ) | $ | (2,593,011 | ) | $ | (11,424,932 | ) | $ | (6,446,127 | ) | ||||
Other comprehensive (loss) gain - foreign currency translations |
|
| (4,950 | ) |
|
| 18,113 |
|
|
| (2,124 | ) |
|
| 5,534 |
|
| ||||||||||||||||
Other comprehensive income (loss) - foreign currency translation | 324,939 | (4,950 | ) | 364,416 | (2,124 | ) | |||||||||||||||||||||||||||
Comprehensive loss |
| $ | (2,597,961 | ) |
| $ | (3,314,100 | ) |
| $ | (6,448,251 | ) |
| $ | (6,374,763 | ) |
| $ | (7,150,699 | ) | $ | (2,597,961 | ) | $ | (11,060,516 | ) | $ | (6,448,251 | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
5 |
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
|
| Common Stock |
|
| Preferred Stock |
|
| Additional |
|
| Accumulated Other |
|
|
|
|
|
|
|
|
| Common Stock | Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||
|
| Number of Shares |
|
| Amount |
|
| Number of Shares |
|
| Amount |
|
| Paid- in Capital |
|
| Comprehensive Loss |
|
| Accumulated Deficit |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2017 |
|
| 2,265,320 |
|
| $ | 22,653 |
|
|
| — |
|
|
| — |
|
| $ | 150,114,671 |
|
| $ | (25,900 | ) |
| $ | (148,710,427 | ) |
| $ | 1,400,997 |
| ||||||||||||||||||||||||||||||||
Public offering of common stock and warrants, net of issuance costs |
|
| 3,019,230 |
|
|
| 30,192 |
|
|
| — |
|
|
| — |
|
|
| 10,691,208 |
|
|
| — |
|
|
| — |
|
|
| 10,721,400 |
| ||||||||||||||||||||||||||||||||
Issuance of RSUs |
|
| 5,400 |
|
|
| 54 |
|
|
| — |
|
|
| — |
|
|
| (54 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 238,190 |
|
|
| — |
|
|
| — |
|
|
| 238,190 |
| ||||||||||||||||||||||||||||||||
Stock cancellation |
|
| (31 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,579 | ) |
|
| — |
|
|
| (12,579 | ) | ||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,048,084 | ) |
|
| (3,048,084 | ) | ||||||||||||||||||||||||||||||||
Balances at March 31, 2018 |
|
| 5,289,919 |
|
| $ | 52,899 |
|
|
| — |
|
|
| — |
|
| $ | 161,044,015 |
|
| $ | (38,479 | ) |
| $ | (151,758,511 | ) |
| $ | 9,299,924 |
| ||||||||||||||||||||||||||||||||
Public offering of common stock and warrants, net of issuance costs |
|
| 673,077 |
|
|
| 6,731 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,731 |
| ||||||||||||||||||||||||||||||||
At the market offering, net of offering costs |
|
| 104,043 |
|
|
| 1,040 |
|
|
| — |
|
|
| — |
|
|
| 191,280 |
|
|
| — |
|
|
| — |
|
|
| 192,320 |
| ||||||||||||||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 213,890 |
|
|
| — |
|
|
| — |
|
|
| 213,890 |
| ||||||||||||||||||||||||||||||||
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18,113 |
|
|
| — |
|
|
| 18,113 |
| ||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,332,213 | ) |
|
| (3,332,213 | ) | ||||||||||||||||||||||||||||||||
Balances at June 30, 2018 |
|
| 6,067,039 |
|
| $ | 60,670 |
|
|
| — |
|
|
| — |
|
| $ | 161,449,185 |
|
| $ | (20,366 | ) |
| $ | (155,090,724 | ) |
| $ | 6,398,765 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of Shares | Amount | Number of Shares | Amount | Additional Paid- in Capital | Accumulated Other Comprehensive (Loss) Income | Accumulated Deficit | Total | ||||||||||||||||||||||||
Balances at December 31, 2018 |
|
| 8,645,720 |
|
| $ | 86,457 |
|
|
| — |
|
|
| — |
|
| $ | 165,313,902 |
|
| $ | (13,093 | ) |
| $ | (162,078,525 | ) |
| $ | 3,308,741 |
| 432,286 | $ | 4,323 | — | $ | — | $ | 165,396,036 | $ | (13,093 | ) | $ | (162,078,525 | ) | $ | 3,308,741 | ||||||||||||||||
Public offering of common stock and warrants, net of issuance costs |
|
| 9,000,000 |
|
|
| 90,000 |
|
|
| — |
|
|
| — |
|
|
| 4,692,509 |
|
|
| — |
|
|
| — |
|
|
| 4,782,509 |
| 450,000 | 4,500 | — | — | 4,778,009 | — | — | 4,782,509 | ||||||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 98,033 |
|
|
| — |
|
|
| — |
|
|
| 98,033 |
| — | — | — | — | 98,033 | — | — | 98,033 | ||||||||||||||||||||||||
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,826 |
|
|
| — |
|
|
| 2,826 |
| — | — | — | — | — | 2,826 | — | 2,826 | ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,853,116 | ) |
|
| (3,853,116 | ) | — | — | — | — | — | — | (3,853,116 | ) | (3,853,116 | ) | ||||||||||||||||||||||
Balances at March 31, 2019 |
|
| 17,645,720 |
|
| $ | 176,457 |
|
|
| — |
|
|
| — |
|
| $ | 170,104,444 |
|
| $ | (10,267 | ) |
| $ | (165,931,641 | ) |
| $ | 4,338,993 |
| 882,286 | 8,823 | — | — | 170,272,078 | (10,267 | ) | (165,931,641 | ) | 4,338,993 | ||||||||||||||||||||||
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 85,971 |
|
|
| — |
|
|
| — |
|
|
| 85,971 |
| — | — | — | — | 85,971 | — | — | 85,971 | ||||||||||||||||||||||||
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,950 | ) |
|
| — |
|
|
| (4,950 | ) | — | — | — | — | — | (4,950 | ) | — | (4,950 | ) | ||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,593,011 | ) |
|
| (2,593,011 | ) | — | — | — | — | — | — | (2,593,011 | ) | (2,593,011 | ) | ||||||||||||||||||||||
Balances at June 30, 2019 |
|
| 17,645,720 |
|
| $ | 176,457 |
|
|
| — |
|
|
| — |
|
| $ | 170,190,415 |
|
| $ | (15,217 | ) |
| $ | (168,524,652 | ) |
| $ | 1,827,003 |
| 882,286 | $ | 8,823 | — | $ | — | $ | 170,358,049 | $ | (15,217 | ) | $ | (168,524,652 | ) | $ | 1,827,003 | ||||||||||||||||
Balances at December 31, 2019 | 5,582,280 | $ | 55,823 | — | $ | — | $ | 178,779,814 | $ | (17,315 | ) | $ | (174,524,983 | ) | $ | 4,293,339 | ||||||||||||||||||||||||||||||||||||||||||||||||
At the market offering, net of offering costs | 2,814,934 | 28,149 | — | — | 5,449,283 | — | — | 5,477,432 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock warrant exercises | 4,071,000 | 40,710 | — | — | 8,101,290 | — | — | 8,142,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation expense | — | — | — | — | 79,740 | — | — | 79,740 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | 39,477 | — | 39,477 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (3,949,294 | ) | (3,949,294 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2020 | 12,468,214 | 124,682 | — | — | 192,410,127 | 22,162 | (178,474,277 | ) | 14,082,694 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
At the market offering, net of offering costs | 2,739,442 | 27,394 | — | — | 5,870,807 | — | — | 5,898,201 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued in business combination | 2,028,208 | 20,282 | — | 4,827,135 | — | — | 4,847,417 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Value of equity awards assumed in business combination | — | — | — | — | 136,912 | — | — | 136,912 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of RSUs | 5,166 | 52 | — | — | (52 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to settle convertible notes | 452,902 | 4,529 | — | — | 875,903 | — | — | 880,432 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation expense | — | — | — | — | 33,587 | — | — | 33,587 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | 324,939 | — | 324,939 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (7,475,638 | ) | (7,475,638 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2020 | 17,693,932 | $ | 176,939 | — | $ | — | $ | 204,154,419 | $ | 347,101 | $ | (185,949,915 | ) | $ | 18,728,544 |
See accompanying notes to unaudited condensed consolidated financial statements.
6 |
OpGen, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
| Six Months Ended June 30, |
| Six months ended June 30, | ||||||||||||
|
| 2019 |
|
| 2018 |
| 2020 | 2019 | ||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
| ||||||||
Net loss |
| $ | (6,446,127 | ) |
| $ | (6,380,297 | ) | $ | (11,424,932 | ) | $ | (6,446,127 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization |
|
| 450,952 |
|
|
| 317,652 |
| 913,443 | 450,952 | ||||||
Noncash interest expense |
|
| 43,371 |
|
|
| 94,594 |
| 810,368 | 43,371 | ||||||
Noncash interest income | (87,233 | ) | — | |||||||||||||
Stock compensation expense |
|
| 184,004 |
|
|
| 452,080 |
| 113,327 | 184,004 | ||||||
Loss (gain) on sale of equipment |
|
| 9,904 |
|
|
| (5,253 | ) | ||||||||
Change in fair value of warrant liability |
|
| (67 | ) |
|
| (8,155 | ) | ||||||||
Loss on sale of equipment | — | 9,904 | ||||||||||||||
Change in fair value of derivative liabilities | (382,511 | ) | (67 | ) | ||||||||||||
Impairment of right-of-use asset |
|
| 520,759 |
|
|
| — |
| — | 520,759 | ||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
| ||||||||
Impairment of intangible assets | 750,596 | — | ||||||||||||||
Changes in operating assets and liabilities, net of acquisition: | ||||||||||||||||
Accounts receivable |
|
| (399,528 | ) |
|
| 291,273 |
| 820,505 | (399,528 | ) | |||||
Inventory |
|
| (23,824 | ) |
|
| (81,321 | ) | (373,379 | ) | (23,824 | ) | ||||
Other assets |
|
| 429,558 |
|
|
| (235,835 | ) | 662,694 | 429,558 | ||||||
Accounts payable |
|
| (301,376 | ) |
|
| (219,565 | ) | (487,314 | ) | (301,376 | ) | ||||
Accrued compensation and other liabilities |
|
| (285,953 | ) |
|
| 226,611 |
| (97,586 | ) | (285,953 | ) | ||||
Deferred revenue |
|
| (5,831 | ) |
|
| (10,320 | ) | (450,719 | ) | (5,831 | ) | ||||
Net cash used in operating activities |
|
| (5,824,158 | ) |
|
| (5,558,536 | ) | (9,232,741 | ) | (5,824,158 | ) | ||||
Cash flows from investing activities |
|
|
|
|
|
|
|
| ||||||||
Acquisition of business, net of cash acquired of $1,266,849 | 1,266,849 | — | ||||||||||||||
Note receivable | (2,200,000 | ) | — | |||||||||||||
Purchases of property and equipment |
|
| (24,680 | ) |
|
| (4,457 | ) | (1,057 | ) | (24,680 | ) | ||||
Proceeds from sale of equipment |
|
| 29,250 |
|
|
| 10,440 |
| — | 29,250 | ||||||
Net cash provided by investing activities |
|
| 4,570 |
|
|
| 5,983 |
| ||||||||
Net cash (used in) provided by investing activities | (934,208 | ) | 4,570 | |||||||||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
| ||||||||
Proceeds from issuance of common stock, net of issuance costs |
|
| 4,782,509 |
|
|
| 192,320 |
| 11,375,633 | 4,782,509 | ||||||
Proceeds from issuance of units, net of selling costs |
|
| — |
|
|
| 10,728,131 |
| ||||||||
Proceeds from the exercise of common stock warrants | 8,142,000 | — | ||||||||||||||
Proceeds from debt, net of issuance costs |
|
| 15,481 |
|
|
| 309,900 |
| 1,138,983 | 15,481 | ||||||
Payments on debt |
|
| (237,414 | ) |
|
| (55,582 | ) | (206,933 | ) | (237,414 | ) | ||||
Payments on finance leases |
|
| (235,600 | ) |
|
| (107,871 | ) | ||||||||
Payments on finance lease obligations | (324,278 | ) | (235,600 | ) | ||||||||||||
Net cash provided by financing activities |
|
| 4,324,976 |
|
|
| 11,066,898 |
| 20,125,405 | 4,324,976 | ||||||
Effects of exchange rates on cash |
|
| (1,321 | ) |
|
| 5,587 |
| 325,908 | (1,321 | ) | |||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
| (1,495,933 | ) |
|
| 5,519,932 |
| ||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 10,284,364 | (1,495,933 | ) | |||||||||||||
Cash, cash equivalents and restricted cash at beginning of period |
|
| 4,737,207 |
|
|
| 2,090,551 |
| 2,893,603 | 4,737,207 | ||||||
Cash, cash equivalents and restricted cash at end of period |
| $ | 3,241,274 |
|
| $ | 7,610,483 |
| $ | 13,177,967 | $ | 3,241,274 | ||||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
| ||||||||
Cash paid for interest |
| $ | 97,599 |
|
| $ | 17,785 |
| $ | 94,073 | $ | 97,599 | ||||
Supplemental disclosures of noncash investing and financing activities: |
|
|
|
|
|
|
|
| ||||||||
Right-of-use assets acquired through finance leases |
| $ | 291,936 |
|
| $ | 281,153 |
| $ | — | $ | 291,936 | ||||
Conversion of accounts payable to finance lease |
| $ | 63,600 |
|
| $ | 174,968 |
| $ | — | $ | 63,600 | ||||
Shares issued in business combination | $ | 4,847,417 | $ | — | ||||||||||||
Shares issued to settle convertible notes | $ | 880,432 | $ | — |
See accompanying notes to unaudited condensed consolidated financial statements.
7 |
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 20192020
Note 1 – Organization
OpGen, Inc. (“OpGen” or the “Company”) was incorporated in Delaware in 2001. On April 1, 2020, OpGen 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” or “Curetis N.V.”), 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 (together, “Curetis”) (see Note 4). References in this report to the “Company” include OpGen and its wholly-owned subsidiaries. The Company’s headquarters are in Gaithersburg, Maryland, and its principal operations are in Gaithersburg, Maryland. The Company also has operations in Copenhagen, Denmark,Maryland; Holzgerlingen and Bogota, Colombia.Bodelshausen, Germany, and Vienna, Austria. The Company operates in one business segment.
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 and commercializing molecular information products and services for global healthcare settings,microbiology solutions helping to guide clinicians with more rapid and actionable information about life threatening infections to improve patient outcomes, and decrease the spread of infections caused by multidrug-resistant microorganisms, or MDROs. Its proprietary DNA testsOpGen’s current product portfolio includes Unyvero, QuickFISH, PNA FISH, Acuitas AMR Gene Panel and informatics addressAcuitas Lighthouse, and the rising threat ofARES Technology Platform including ARESdb, using NGS technology and AI-powered bioinformatics solutions for antibiotic resistance by helping physicians and other healthcare providers optimize care decisions for patients with acute infections. response prediction.
The Company’s molecularfocus of OpGen is on its combined broad portfolio of products, which include high impact rapid diagnostics and informatics products, product candidatesbioinformatics to interpret AMR genetic data. OpGen will continue to develop and services combine itsseek FDA and other regulatory clearances or approvals, as applicable, for the 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) diagnostic test in development for patients at risk for complicated urinary tract infection, or cUTI, and itsthe Acuitas Lighthouse Software products. OpGen will continue to offer the Acuitas AMR Gene Panel (Isolates) test 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.
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 tests and Acuitas Lighthouse Software on a timely basis, or at all, 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.the Unyvero UTI Panel as RUO products to hospitals, public health departments, clinical laboratories, pharmaceutical companies and contract research organizations, or CROs.
Note 2 – Liquidity and management’s plans
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. 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 transactions, including the following in 20182019 and 20192020 to date:
· | On February 11, 2020, the Company entered into an At the Market Common Offering (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“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, (the “2020 ATM Offering”). During the three months ended June 30, 2020, the Company sold 2,739,442 shares of its common stock under the 2020 ATM Offering resulting in aggregate net proceeds to the Company of approximately $5.9 million, and gross proceeds of $6.1 million. During the six months ended June 30, 2020, the Company sold 5,554,376 shares of its common stock under the 2020 ATM Offering resulting in aggregate net proceeds to the Company of approximately $11.4 million, and gross proceeds of $11.9 million. |
· | On October 28, 2019, the Company closed a public offering (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, raising gross proceeds of approximately $9.4 million and net proceeds of approximately $8.3 million. Each unit included one share of common stock and one common warrant to purchase one share of common stock at an exercise price of $2.00 per share. Each pre-funded unit included one pre-funded warrant to purchase one share of common stock for an exercise price of $0.01 per share, and one common warrant to purchase one share of common stock at an exercise price of $2.00 per share. The common warrants are exercisable immediately and have a five-year term from the date of issuance. As of June 30, 2020, all 2,109,830 pre-funded warrants issued in the October 2019 Public Offering have been exercised. Additionally, during the six months ended June 30, 2020, 4,071,000 common warrants issued in the October 2019 Public Offering were exercised for net proceeds of approximately $8.1 million. As of June 30, 2020, 629,000 common warrants issued in the October 2019 Public Offering remain outstanding. |
8 |
On October 22, 2018, the Company closed a public offering (the “October 2018 Public Offering”) of 2,220,000 shares of its common stock at a public offering price of $1.45 per share. The offering raised gross proceeds of approximately $3.2 million and net proceeds of approximately $2.8 million.
|
On February 6, 2018, the Company closed a public offering (the “February 2018 Public Offering”) of 2,841,152 units at $3.25 per unit, and 851,155 pre-funded units at $3.24 per pre-funded unit, raising gross proceeds of approximately $12 million and net proceeds of approximately $10.7 million. Each unit included one share of common stock and one common warrant to purchase 0.5 share of common stock at an exercise price of $3.25 per share. Each pre-funded unit included one pre-funded warrant to purchase one share of common stock for an exercise price of $0.01 per share, and one common warrant to purchase 0.5 share of common stock at an exercise price of $3.25 per share. The common warrants are exercisable immediately and have a five-year term from the date of issuance. The 851,155 pre-funded warrants issued in the February 2018 Public Offering were exercised during the year ended December 31, 2018.
On September 13, 2016, the Company entered into the Sales Agreement (the “Sales Agreement”) with Cowen and Company LLC (“Cowen”) pursuant to which the Company could offer and sell from time to time, up to an aggregate of $25 million of shares of its common stock through Cowen, as sales agent, with initial sales limited to an aggregate of $11.5 million. During the year ended December 31, 2018, the Company sold 318,236 shares of its common stock under this at the market offering resulting in aggregate net proceeds to the Company of approximately $0.6 million, and gross proceeds of $0.6 million. The at the market offering was terminated in connection with the October 2018 Public Offering.
To meet its capital needs, the Company is considering multiple alternatives, including, but not limited to, strategic financings or other transactions, 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 will be sufficient to fund operations into the thirdearly first quarter of 2019.2020. This has led management to conclude that substantial doubt about the Company’s ability to continue as a going concern exists. In the event the Company is unable to successfully raise additional capital during or before the end of the thirdfirst quarter of 2019,2021, 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.
Note 3 – Summary of significant accounting policies
Basis of presentation and consolidation
The Company has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and the standards of accounting measurement set forth in the Interim Reporting Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, although the Company believes that the disclosures made are adequate to make the information not misleading. The Company recommends that the following unaudited condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s 2018latest Annual Report on Form 10-K. In the opinion of management, all adjustments that are necessary for a fair presentation of the Company’s financial position for the periods presented have been reflected. All adjustments are of a normal, recurring nature, unless otherwise stated. The interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. The December 31, 20182019 consolidated balance sheet included herein was derived from the audited consolidated financial statements, but does not include all disclosures including notes required by GAAP for complete financial statements.
The accompanying unaudited condensed consolidated financial statements include the accounts of OpGen and its wholly-owned subsidiaries;subsidiaries as of June 30, 2020 including Curetis GmbH and subsidiaries acquired on April 1, 2020; all intercompany transactions and balances have been eliminated.
Foreign currency
The Company has subsidiaries located in Holzgerlingen, Germany; Vienna, Austria; Copenhagen, Denmark,Denmark; and Bogota, Colombia, botheach of which use currencies other than the U.S dollar as their functional currency. As a result, all assets and liabilities are translated into U.S. dollars based on exchange rates at the end of the reporting period. Income and expense items are translated at the average exchange rates prevailing during the reporting period. Translation adjustments are reported in accumulated other comprehensive loss,(loss) income, a component of stockholders’ equity. Foreign currency translation adjustments are the sole component of accumulated other comprehensive loss(loss) income at June 30, 20192020 and December 31, 2018.2019.
Foreign currency transaction gains and losses, excluding gains and losses on intercompany balances where there is no current intent to settle such amounts in the foreseeable future, are included in the determination of net loss. Unless otherwise noted, all references to “$” or “dollar” refer to the U.S.United States dollar.
9 |
Use of estimates
In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the accompanying unaudited condensed consolidated financial statements, estimates are used for, but not limited to, liquidity assumptions, revenue recognition, stock-based compensation, allowances for doubtful accounts and inventory obsolescence, discount rates used to discount unpaid lease payments to present values, valuation of derivative financial instruments measured at fair value on a recurring basis, deferred tax assets and liabilities and related valuation allowance, determining the fair value of assets acquired and liabilities assumed in business combinations, the estimated useful lives of long-lived assets, and the recoverability of long-lived assets. Actual results could differ from those estimates.
Fair value of financial instruments
Financial instruments classified as current assets and liabilities (including cash and cash equivalent, receivables, accounts payable, deferred revenue and short-term notes) are carried at cost, which approximates fair value, because of the short-term maturities of those instruments.
Cash, cash equivalents and restricted cash
The Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. The Company has cash and cash equivalents deposited in financial institutions in which the balances occasionally exceed the federal government agency (“FDIC”) insured limit of $250,000. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk.
At June 30, 2019, the Company has funds totaling $185,380, which are required as collateral for letters of credit benefiting its landlords2020 and for credit card processors. At December 31, 2018,2019, the Company had funds totaling $164,720,$291,420 and $185,380, respectively, which are required as collateral for letters of credit benefiting its landlords and for credit card processors. These funds are reflected in other noncurrent assets on the accompanying unaudited condensed consolidated balance sheets.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the statements of cash flows:
|
| June 30, 2019 |
|
| December 31, 2018 |
|
| June 30, 2018 |
|
| December 31, 2017 |
| ||||
Cash and cash equivalents |
| $ | 3,055,894 |
|
| $ | 4,572,487 |
|
| $ | 7,428,993 |
|
| $ | 1,847,171 |
|
Restricted cash |
|
| 185,380 |
|
|
| 164,720 |
|
|
| 181,490 |
|
|
| 243,380 |
|
Total cash, cash equivalents and restricted cash in the condensed consolidated statement of cash flows |
| $ | 3,241,274 |
|
| $ | 4,737,207 |
|
| $ | 7,610,483 |
|
| $ | 2,090,551 |
|
June 30, 2020 | December 31, 2019 | June 30, 2019 | December 31, 2018 | |||||||||||||
Cash and cash equivalents | $ | 12,886,547 | $ | 2,708,223 | $ | 3,055,894 | $ | 4,572,487 | ||||||||
Restricted cash | 291,420 | 185,380 | 185,380 | 164,720 | ||||||||||||
Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows | $ | 13,177,967 | $ | 2,893,603 | $ | 3,241,274 | $ | 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 $22,309 and $18,332$20,753 as of June 30, 20192020 and December 31, 2018,2019, respectively.
OneAt June 30, 2020, the Company had accounts receivable from one customer which individually represented 13% of total accounts receivable. At December 31, 2019, one individual customer represented 50% and 19%44% of revenues fortotal accounts receivable. For the three months ended June 30, 2020, revenue earned from one customer represented 38% of total revenues. For the three months ended June 30, 2019, and 2018, respectively. One individualrevenue earned from one customer represented 49%50% of total revenues. For the six months ended June 30, 2020, revenue earned from two customers represented 22% and 21%14% of total revenues, forrespectively. For the six months ended June 30, 2019, and 2018, respectively. At June 30, 2019,revenue earned from one individual customer represented 65%49% of total accounts receivable. At December 31, 2018, one individual customer represented 12% of total accounts receivable.revenues.
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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:
|
| June 30, 2019 |
|
| December 31, 2018 |
| June 30, 2020 | December 31, 2019 | ||||||||
Raw materials and supplies |
| $ | 237,500 |
|
| $ | 368,438 |
| $ | 1,177,089 | $ | 315,542 | ||||
Work-in-process |
|
| 135,916 |
|
|
| 58,402 |
| 169,303 | 35,080 | ||||||
Finished goods |
|
| 194,006 |
|
|
| 116,907 |
| 1,551,793 | 122,408 | ||||||
Total |
| $ | 567,422 |
|
| $ | 543,747 |
| $ | 2,898,185 | $ | 473,030 |
Inventory includes Unyvero instrument systems, Unyvero cartridges, reagents and components for Unyvero, Acuitas, QuickFISH and PNA FISH kit products, and reagents and supplies used for the Company’s laboratory services. Inventory reserves for obsolescence and expirations were $114,327$202,403 and $71,270$92,454 at June 30, 20192020 and December 31, 2018,2019, 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. DuringAs of the three and six months ended June 30, 20192020 and 2018,2019, 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
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 six months ended June 30, 2019.
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Intangible assets and goodwill
Intangible assets and goodwill as of June 30, 20192020 consist of finite-lived and indefinite-lived intangible assets and goodwill.
Finite-lived and indefinite-lived intangible assets
Finite-lived intangibleIntangible assets include trademarks, developed technology, In-Process Research & Development, software and customer relationships and consisted of the following as of June 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
| June 30, 2019 |
|
| December 31, 2018 |
| June 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||||
|
| Cost |
|
| Accumulated Amortization |
|
| Net Balance |
|
| Accumulated Amortization |
|
| Net Balance |
| Subsidiary | Cost | Accumulated Amortization | Impairment | Net Balance | Accumulated Amortization | Net Balance | ||||||||||||||||||||||||||
Trademarks and trade names |
| $ | 461,000 |
|
| $ | (182,835 | ) |
| $ | 278,165 |
|
| $ | (159,783 | ) |
| $ | 301,217 |
| ||||||||||||||||||||||||||||
Trademarks and tradenames | AdvanDx | $ | 461,000 | $ | (217,413 | ) | $ | (243,587 | ) | $ | — | $ | (205,887 | ) | $ | 255,113 | ||||||||||||||||||||||||||||||||
Developed technology |
|
| 458,000 |
|
|
| (259,458 | ) |
|
| 198,542 |
|
|
| (226,746 | ) |
|
| 231,254 |
| AdvanDx | 458,000 | (308,526 | ) | (149,474 | ) | — | (292,170 | ) | 165,830 | ||||||||||||||||||
Customer relationships |
|
| 1,094,000 |
|
|
| (619,249 | ) |
|
| 474,751 |
|
|
| (541,105 | ) |
|
| 552,895 |
| AdvanDx | 1,094,000 | (736,465 | ) | (357,535 | ) | — | (697,393 | ) | 396,607 | ||||||||||||||||||
Trademarks and tradenames | Curetis | 1,790,546 | (44,765 | ) | — | 1,745,781 | — | — | ||||||||||||||||||||||||||||||||||||||||
Distributor relationships | Curetis | 2,392,120 | (39,869 | ) | — | 2,352,251 | — | — | ||||||||||||||||||||||||||||||||||||||||
A50 - Developed technology | Curetis | 381,808 | (13,636 | ) | — | 368,172 | — | — | ||||||||||||||||||||||||||||||||||||||||
Ares - Developed technology | Curetis | 5,413,160 | (96,663 | ) | — | 5,316,497 | — | — | ||||||||||||||||||||||||||||||||||||||||
A30 - In-Process Research & Development | Curetis | 5,783,827 | — | — | 5,783,827 | — | — | |||||||||||||||||||||||||||||||||||||||||
|
| $ | 2,013,000 |
|
| $ | (1,061,542 | ) |
| $ | 951,458 |
|
| $ | (927,634 | ) |
| $ | 1,085,366 |
| $ | 17,774,461 | $ | (1,457,337 | ) | $ | (750,596 | ) | $ | 15,566,528 | $ | (1,195,450 | ) | $ | 817,550 |
Finite-livedIdentifiable intangible assets arewill be amortized on a straight-line basis over their estimated useful lives. The estimated useful lifelives of trademarksthe intangibles are:
Estimated Useful Life | |||
Trademarks and tradenames | 10 years | ||
Customer/distributor relationships | 15 years | ||
A50 – Developed technology | 7 years | ||
Ares – Developed technology | 14 years | ||
A30 – Acquired in-process research & development | Indefinite |
Acquired IPR&D represents the fair value assigned to those research and development projects that were acquired in a business combination for which the related products have not received regulatory approval and have no alternative future use. IPR&D is 10 years, developed technologycapitalized at its fair value as an indefinite-lived intangible asset, and any development costs incurred after the acquisition are expensed as incurred. Upon achieving regulatory approval or commercial viability for the related product, the indefinite-lived intangible asset is 7 years,accounted for as a finite-lived asset and customer relationships is 7 years. amortized on a straight-line basis over the estimated useful life. If the project is not completed or is terminated or abandoned, the Company may have an impairment related to the IPR&D which is charged to expense. Indefinite-lived intangible assets are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may be impaired. Impairment is calculated as the excess of the asset’s carrying value over its fair value.
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 $192,709 and $66,954 for each of the three months ended June 30, 2020 and 2019, and 2018.respectively. Total amortization expense of intangible assets was $259,663 and $133,908 for each of the six months ended June 30, 2020 and 2019, and 2018.respectively. Expected future amortization of intangible assets is as follows.
Finite-lived intangible
Year Ending December 31, | ||||||
2020 (Six months) | $ | 389,865 | ||||
2021 | 779,730 | |||||
2022 | 779,730 | |||||
2023 | 779,730 | |||||
2024 | 779,730 | |||||
2025 | 779,730 | |||||
Thereafter | 5,494,186 | |||||
Total | $ | 9,782,701 |
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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. During the three and six months ended June 30, 2019 and 2018, the Company determined that its finite-lived intangible assets were not impaired.
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 fourth quarter of 2018,six months ended June 30, 2020, events and circumstances indicated the Company’s intangible assets might be impaired. However, management’sThese 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. Nonetheless, it is reasonably possiblerecovered and that the estimateintangible assets were impaired. The Company’s analysis determined that the fair value of undiscounted cash flows may change in the near term resulting inassets was $0 and the need to write down those assets to fair value. Management’s estimateCompany recorded an impairment loss of cash flows might change if there is an unfavorable development of sales trends. $750,596.
Goodwill
Goodwill represents the excess of the purchase price paid in a July 2015 merger transaction in whichwhen the Company acquired AdvanDx, Inc. in July 2015 and its subsidiary (the “Merger”)Curetis in April 2020, 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 June 30, 20192020 and December 31, 20182019 was $600,814.$7,650,642 and $600,814, respectively.
The changes in the carrying amount of goodwill as of June 30, 2020, and since December 31, 2019, were as follows:
Balance as of December 31, 2019 | $ | 600,814 | ||
Acquisition of Curetis | 7,046,535 | |||
Changes in currency translation | 3,293 | |||
Balance as of June 30, 2020 | $ | 7,650,642 |
The Company conducts an impairment test of goodwill on an annual basis, as of October 1 of each year, 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 and six months ended June 30, 20192020 and 2018,2019, 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, andUnyvero Application cartridges, Unyvero Systems, Acuitas AMR Gene Panel RUO test products, (ii) providing laboratory services, and (iii) providing collaboration services including funded software arrangements, and license arrangements.
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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 condensed consolidated 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 $178.2 million$188,282,298 at December 31, 2018.2019. 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.
14 |
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 4.01.2 million shares and 3.80.2 million shares as of June 30, 20192020 and 2018,2019, respectively.
Adopted accounting pronouncements
There have been no developments to the Recent Accounting Pronouncements discussion included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, including the expected dates of adoption and estimated effects on the Company’s condensed consolidated financial statements, except for the following:
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASC 842,842”), which amendsamended the existing accounting standards for leases. The guidancenew standard requires lessees to recognize assetsrecord a right-of-use (“ROU”) asset and liabilities related to long-term leasesa corresponding lease liability on the balance sheet and expands disclosure requirements(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.
· | 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 useROU asset of approximately $2.2 million (net of existing deferred rent) and recognized a lease liability of approximately $2.5 million.
In June 2018,Prior to the FASB issued ASU 2018-07: Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees, and as a result, the accounting for share-based payments to non-employees will be substantially aligned. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, early adoption is permitted but no earlier than an entity’s adoption date of ASC 606.842, 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 new guidancestandard did not have a material impact on the Company’sour condensed consolidated financial statements.
In August 2018, the SECRecently issued a final rule that amends certain disclosure requirements that were duplicative, outdated or superseded. In addition, the final rule expanded the financial reporting requirements for changes in stockholders’ equity for interim reporting periods. The Company adopted the new guidance on January 1, 2019 with no material impact to the condensed consolidated financial statements.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.
15 |
Note 4 – Business Combination
On April 1, 2020, the Company completed its business combination transaction with Curetis N.V., a public company with limited liability under the laws of the Netherlands, as contemplated by the Implementation Agreement, dated as of September 4, 2019, 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. 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, 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, 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.
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. 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, and entered into pursuant to the Implementation Agreement.
Curetis’ assets and liabilities were measured and recognized at their fair values as of the transaction date and combined with the assets, liabilities and results of operations of OpGen after the consummation of the business combination. The allocation of the purchase price to acquired assets and assumed liabilities based on their underlying fair values requires the extensive use of significant estimates and management’s judgment. The allocation of the purchase price is preliminary at this time, and will remain as such until management completes valuations and other studies in order to finalize the valuation of the net assets acquired. These provisional estimates will be adjusted upon the availability of further information regarding events or circumstances which exist at the acquisition date and such adjustments may be significant.
The components of the purchase price and net assets acquired are as follows:
Purchase Price
Number of shares issued to Curetis N.V | 2,028,208 | |||
Multiplied by the market value per share of OpGen's common stock (i) | $ | 2.39 | ||
Total fair value of common stock issued to Curetis N.V shareholders | 4,847,417 | |||
Fair value of replacement stock awards related to precombination service (ii) | 136,912 | |||
Fair value of convertible notes assumed (iii) | 1,323,750 | |||
Fair value of EIB debt assumed (iv) | 15,784,892 | |||
Funds advanced to Curetis GmbH under Interim Facility | 4,808,712 | |||
Cash, cash equivalents, and restricted cash acquired | (1,266,849 | |||
$ | 25,634,834 |
(i) | The price per share of OpGen’s common stock was based on the closing price as reported on the Nasdaq Capital Market on April 1, 2020. |
(ii) | The fair value of the stock options assumed was determined using the Black-Scholes option pricing model. |
(iii) | To derive the fair value of the convertible notes, the Company estimated the fair value of the convertible notes with and without the derivative liability using a scenario analysis and Monte Carlo simulation. |
(iv) | The fair value of the EIB debt is determined using a discounted cash flow analysis with current applicable rates for similar instruments. |
16 |
Net Assets Acquired
Asset acquired | ||||
Receivables | $ | 482,876 | ||
Inventory | 2,022,577 | |||
Property and equipment | 3,802,431 | |||
Right of use assets | 1,090,812 | |||
Other current assets | 585,500 | |||
Finite-lived intangible assets | ||||
Trade names/trademarks | 1,768,000 | |||
Customer/distributor relationships | 2,362,000 | |||
A50 - Developed technology | 377,000 | |||
Ares - Developed technology | 5,345,000 | |||
Indefinite-lived intangible assets | ||||
A30 - In-process research & development | 5,711,000 | |||
Goodwill | 7,046,535 | |||
Liabilities assumed | ||||
Accounts payable | (1,168,839 | ) | ||
Accrued expenses and other current liabilities | (2,016,946 | ) | ||
Derivative liabilities | (615,831 | ) | ||
Lease liabilities | (1,108,193 | ) | ||
Other long–term liabilities | (49,088 | ) | ||
Net assets acquired | $ | 25,634,834 |
The fair value of identifiable intangible assets has been determined using the income approach, which involves significant unobservable inputs (Level 3 inputs). These inputs include projected sales, margin, required rate of return and tax rate, as well as an estimated royalty rate in the case of the trade names/trademarks intangibles. The trade names/trademarks intangibles are valued using a relief-from-royalty method. The customer/distributor relationships are valued using the with and without method. The developed technology intangibles are valued using a multi-period earnings method.
The Company determined the fair value of an IPR&D asset resulting from the acquisition of Curetis using the multi-period earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the IPR&D, less charges representing the required return on other assets to sustain those cash flows.
The weighted-average amortization periods for finite-lived intangible assets acquired are 15 years for customer/distributor relationships, 10 years for developed technology and 10 years for trade names/trademarks.
The total consideration paid in the acquisition exceeded the estimated fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, resulting in approximately $7.0 million of goodwill. Goodwill, primarily related to expected synergies gained from combining operations, sales growth from future product offerings and customers, together with certain intangible assets that do not qualify for separate recognition, including assembled workforce, is not tax deductible in all relevant taxing jurisdictions.
17 |
The following unaudited pro forma financial information summarizes the results of operations for the periods indicated as if the Transaction had been completed as of January 1, 2019. Pro forma information primarily reflects adjustments relating to the amortization of intangibles acquired and elimination of interest expense due under the interim facility. The pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred as of January 1, 2019 or that may be obtained in the future:
Unaudited pro forma results | Three months ended June 30, | Six months ended June 30, | ||||||||||
2019 | 2020 | 2019 | ||||||||||
Revenues | $ | 1,441,739 | $ | 2,835,532 | $ | 3,267,164 | ||||||
Net loss | (8,545,303 | ) | (14,734,370 | ) | (18,381,421 | ) | ||||||
Net loss per share | (9.69 | ) | (1.29 | ) | (27.19 | ) |
Note 45 – 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.providers. The revenues by type of service consist of the following:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Product sales |
| $ | 504,293 |
|
| $ | 632,525 |
|
| $ | 1,024,470 |
|
| $ | 1,266,021 |
|
Laboratory services |
|
| 5,250 |
|
|
| 1,100 |
|
|
| 5,250 |
|
|
| 9,790 |
|
Collaboration revenue |
|
| 500,000 |
|
|
| 155,276 |
|
|
| 1,000,000 |
|
|
| 359,316 |
|
Total revenue |
| $ | 1,009,543 |
|
| $ | 788,901 |
|
| $ | 2,029,720 |
|
| $ | 1,635,127 |
|
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Product sales | $ | 601,304 | $ | 504,293 | $ | 968,237 | $ | 1,024,470 | ||||||||
Laboratory services | 25,992 | 5,250 | 25,992 | 5,250 | ||||||||||||
Collaboration revenue | 561,089 | 500,000 | 811,089 | 1,000,000 | ||||||||||||
Total revenue | $ | 1,188,385 | $ | 1,009,543 | $ | 1,805,318 | $ | 2,029,720 |
Revenues by geography are as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Domestic | $ | 302,676 | $ | 985,426 | $ | 893,125 | $ | 1,941,522 | ||||||||
International | 885,709 | 24,117 | 912,193 | 88,198 | ||||||||||||
Total revenue | $ | 1,188,385 | $ | 1,009,543 | $ | 1,805,318 | $ | 2,029,720 |
Deferred revenue
Changes in deferred revenue for the period were as follows:
Balance at December 31, 2018 |
|
|
|
|
|
|
| $ | 15,824 |
|
Revenue recognized in the current period from the amounts in the beginning balance |
|
|
|
|
|
|
|
| (5,831 | ) |
New deferrals, net of amounts recognized in the current period |
|
|
|
|
|
|
|
| — |
|
Balance at June 30, 2019 |
|
|
|
|
|
|
| $ | 9,993 |
|
Balance at December 31, 2019 | $ | 9,808 | ||
Acquired deferrals from Curetis, net of amounts recognized in the current period | 378,556 | |||
Revenue recognized in the current period from the amounts in the beginning balance | — | |||
Effect of foreign exchange rates | 5,375 | |||
Balance at June 30, 2020 | $ | 393,739 |
Contract assets
The Company had noapproximately $70,000 of contract assets as of June 30, 2019,2020, which are generated when contractual billing schedules differ from revenue recognition timing. The Company had no contract assets as of December 31, 2019. Contract assets represent a conditional right to consideration for satisfied performance obligations that becomes a billed receivable when the conditions are satisfied.
18 |
Unsatisfied performance obligations
Remaining contract consideration for which revenue has not been recognized due toThe Company had no unsatisfied performance obligations was $575,000related to its contracts with customers at June 30, 2019, which the Company expects to recognize over the next six months.
Note 5 – MGHIF financing
In July 2015, in connection with the Merger, the Company entered into a Purchase Agreement with MGHIF, pursuant to which MGHIF purchased 45,454 shares of common stock of the Company at $110.00 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 amended2020 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 13,120 shares of its common stock to MGHIF. December 31, 2019.
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.
On July 30, 2018, the Company issued 144,238 shares of common stock to MGHIF in a private placement transaction for $285,512 of accrued and unpaid interest due as of July 14, 2018 under the MGHIF Note.
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 are deferred and amortized as incremental expense over the term of the MGHIF Note.
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.
· | 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 six months ended June 30, 2019,2020, 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.
In June 2019, Curetis drew down a third tranche of EUR 5.0 million from the EIB (European Investment Bank). In return for EIB waiving the condition precedent of a minimum cumulative equity capital raised of EUR 15 million to disburse this EUR 5.0 million tranche, the parties agreed on a 2.1% participation percentage interest (PPI). Upon maturity of the tranche, EIB would be entitled to an additional payment that is equity-linked and equivalent to 2.1% of the then total valuation of Curetis N.V. On July 9, 2020, the Company negotiated an amendment to the EIB debt financing facility (see Note 13). As part of the Company’s bridge financing and amendment, the parties adjusted the PPI percentage applicable to the MGHIF Note, the Company issued stock purchase warrants that the Company considersprevious EIB tranche of EUR 5.0 million which was funded in June 2019 from its original 2.1% PPI in Curetis N.V.’s equity value upon maturity to be mark-to-market liabilities due to certain put features that allow the holder to put the warrant back to the Companya new 0.3% PPI in OpGen’s equity value upon maturity between mid-2024 and mid-2025. This right constitutes an embedded derivative, which is separated and measured at fair value with changes being accounted for cash equal to the Black-Scholes value of the warrant upon a change of controlthrough profit or fundamental transaction.loss. The Company determines the fair value of the warrant liabilitiesderivative using the Black-Scholes option pricinga Monte Carlo simulation model. Using this model, level 3 unobservable inputs include the estimated volatility of the Company’s common stock, estimated terms of the instruments,discount rates and estimated risk-free interest rates.
The following table sets forthCompany’s convertible debt with YA II PN, LTD (see Note 7) includes a summaryconversion feature which constitutes an embedded derivative, which is separated and measured at fair value with subsequent changes being accounted for through profit or loss. The Company determines the fair value of changes in the derivative using a Monte Carlo simulation model. Using this model, level 3 unobservable inputs include estimated volatility rates and estimated risk-free interest rates.
The fair value of level 3 liabilities measured at fair value on a recurring basis for the six months ended June 30, 2019:2020 was as follows.
Description |
| Balance at December 31, 2018 |
|
| Change in Fair Value |
|
| Balance at June 30, 2019 |
| Balance at December 31, 2019 | Acquired from Curetis | Change in Fair Value | Effect of Foreign Exchange Rates | Balance at June 30, 2020 | ||||||||||||||||||
Warrant liability |
| $ | 67 |
|
| $ | (67 | ) |
| $ | — |
| ||||||||||||||||||||
Participation percentage interest liability | $ | — | $ | 173,373 | $ | (113,230 | ) | $ | 904 | $ | 61,047 | |||||||||||||||||||||
Embedded conversion option liability | — | 442,458 | (269,281 | ) | — | 173,177 | ||||||||||||||||||||||||||
Total revenue | $ | — | $ | 615,831 | $ | (382,511 | ) | $ | 904 | $ | 234,224 |
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. Noa triggering event requires such fair value impairment was recognized inevaluation. During the three and six months ended June 30, 2019 and 2018.2020, the Company recorded impairment expense of $750,596 related to its intangible assets (see Note 3).
19 |
Note 7 – Debt
The following table summarizes the Company’s long-term debt and short-term borrowings as June 30, 2020 and December 31, 2019:
June 30, 2020 | December 31, 2019 | |||||||
EIB | $ | 23,059,717 | $ | — | ||||
Yorkville | 559,900 | — | ||||||
PPP | 1,138,983 | — | ||||||
MGHIF | 497,347 | 662,789 | ||||||
Insurance financings | — | 40,266 | ||||||
Total debt obligations | 25,255,947 | 703,055 | ||||||
Unamortized debt discount | (7,082,915 | ) | — | |||||
Carrying value of debt | 18,173,032 | 703,055 | ||||||
Less current portion | (1,378,380 | ) | (373,599 | ) | ||||
Long-term debt | $ | 16,794,652 | $ | 329,456 |
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 OpGen’s assets excluding the assets of Curetis GmbH, Curetis USA, and Ares Genetics.
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.
Yorkville Convertible Notes
The Company agreed to assume, as a condition to closing the Transactions all of the outstanding convertible notes (the “Convertible Notes”) issued by Curetis N.V. in favor of YA II PN, LTD (“Yorkville”), pursuant to that certain Agreement for the Issuance of and Subscription to Notes Convertible into Shares and Share Subscription Warrants, dated October 2, 2018, by and between Curetis N.V. and Yorkville.
20 |
On February 24, 2020, the Company entered into an Assignment of the Agreement for the Issuance of and Subscription to Notes Convertible into Shares (the “Assignment Agreement”) with Curetis N.V. and Yorkville. Pursuant to the Assignment Agreement, upon assumption of the Convertible Notes by the Company, the Convertible Notes ceased to be convertible into shares of Curetis N.V. and are instead convertible into shares of the Company’s common stock, par value $0.01. The Assignment Agreement provided that an amount of 500,000 shares of the Company’s common stock that comprise a portion of the consideration payable by the Company under the Implementation Agreement be reserved for issuance under the Convertible Notes. On June 17, 2020, the Company registered for resale an additional 450,000 shares of Company common stock issuable upon conversion of the Convertible Notes.
Each Convertible Note has a maturity of 12 months from its date of issuance. The Company has the right to extend such maturity by an additional 12-month period, while paying a cash fee equal to 5% of the principal amount of the relevant Convertible Notes. Subject to certain limitations, the maturity period can be extended up to four times.
The Convertible Notes do not accrue interest, except in the case of an event of default under the Convertible Notes, in which case the Convertible Notes shall accrue default interest at a rate of 15% per annum until the earlier of the date that the event of default is cured or the date on which the Convertible Notes have been fully converted or redeemed.
The Convertible Notes may be converted at any time until they are fully redeemed. Upon conversion of one or more Convertible Notes into shares of the Company’s common stock, the number of Company shares will be calculated by dividing the aggregate principal amount of the relevant Convertible Notes by 93% of the lowest daily volume weighted average price of the Company common stock on the Nasdaq Capital Market over the 10 trading days prior to the conversion date.
The Convertible Notes may be freely transferred, except to retail investors, and subject to compliance with applicable securities laws. The Convertible Notes contain anti-dilution protection, which protects the holder of the security from equity dilution resulting from later issues of shares at a lower price or value than that provided for in the security. The protection in the Convertible Notes takes the form of tying the conversion price of the Convertible Notes to the prevailing market price of the underlying shares of Company common stock so that changes to the share price due to share issuances, share splits or other potentially dilutive events will result in a corresponding change in the number of shares of Company common stock issuable upon conversion of a Convertible Note.
At closing of the Transaction, an aggregate amount of €1.3 million of unconverted Convertible Notes was assumed by the Company. The Convertible Notes were measured and recognized at fair value at the acquisition date. The fair value of the Convertible Notes as of the closing of the Transaction was approximately $1.3 million. The resulting debt discount will be amortized over the life of the Convertible Notes as an increase in interest expense. During the three months ended June 30, 2020 the Company issued 452,902 shares of common stock in satisfaction of approximately $880,000 of Convertible Notes.
EIB Loan Facility
In 2016, Curetis entered into a contract for an up to €25 million senior, unsecured loan financing facility from the European Investment Bank (“EIB”). The financing is in the first growth capital loan under the European Growth Finance Facility (“EGFF”), launched in November 2016. It is backed by a guarantee from the European Fund for Strategic Investment (“EFSI”), EFSI is an essential pillar of the Investment Plan for Europe (“IPE”), under which the EIB and the European Commission are working as strategic partners to support investments and bring back jobs and growth to Europe.
The funding can be drawn in up to five tranches within 36 months, under the EIB amendment, and each tranche is to be repaid upon maturity five years after draw-down.
In April 2017, Curetis drew down a first tranche of €10 million from this facility. This tranche has a floating interest rate of EURIBOR plus 4% payable after each 12-month-period from the draw-down-date and another additional 6% interest per annum that is deferred and payable at maturity together with the principal. In June 2018, another tranche of €3 million was drawn down. The terms and conditions are analogous to the first one.
In June 2019, Curetis drew down a third tranche of €5 million from the EIB. In line with all prior tranches, the majority of interest is also deferred into the bullet repayment structure upon maturity. In return for EIB waiving the condition precedent of a minimum cumulative equity capital raised of €15 million to disburse this €5 million tranche, the parties agreed on a 2.1% participation percentage interest (“PPI”). Upon maturity of the tranche, not before approximately mid-2024 (and no later than mid-2025) EIB would be entitled to an additional payment that is equity-linked and equivalent to 2.1% of the then total valuation of Curetis N.V. As part of the amendment between the Company and EIB on July 9, 2020 (see note 13) the parties adjusted the PPI percentage applicable to the previous EIB tranche of €5 million which was funded in June 2019 from its original 2.1% PPI in Curetis N.V.’s equity value upon maturity to a new 0.3% PPI in OpGen’s equity value upon maturity. This right constitutes an embedded derivative, which is separated and measured at fair value with changes being accounted for through income or loss.
21 |
On July 9, 2020, the Company negotiated an amendment to the EIB debt financing facility for an additional €5 million tranche. This additional tranche is earmarked to co-fund R&D programs across several of the platforms and the entire product portfolio of OpGen subsidiaries Curetis and Ares Genetics as it relates to COVID-19 (see Note 13).
The EIB debt was measured and recognized at fair value as of the acquisition date. The fair value of the EIB debt was approximately $15.8 million as of the acquisition date. The resulting debt discount will be amortized over the life of the EIB debt as an increase to interest expense.
As of June 30, 2019,2020, the outstanding borrowings under all tranches were €20,592,710 (approximately USD $23,059,000), including deferred interest payable at maturity of €2,592,710 (approximately USD $2,903,317).
PPP
On April 22, 2020, 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 outstanding short-term debt consistedwholly-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 approximately $333,000the 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 amounts due under the MGHIF Note, as well asNotes, in an amount equal to the financing arrangementssum 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 include a period for the Company’s insurancefirst 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 note balancesno prepayment penalties. The Notes provide for customary events of approximately $10,000 with a final payment scheduled for February 2020. The Company’s outstanding long-term debt asdefault, including, among others, those relating to breaches of June 30, 2019 consisted of approximately $495,000 duetheir obligations under the MGHIF Note (see Note 5 “MGHIF financing”). As of December 31, 2018,Notes, including a failure to make payments, any bankruptcy or similar proceedings involving the Company’s outstanding short-term debt consisted of $333,000 due underBorrowers, and certain material effects on the MGHIF Note, net of discounts and financing costs, as well asBorrowers’ ability to repay the financing arrangementsNotes. The Borrowers did not provide any collateral or guarantees for the Company’s insurance with note balances of approximately $65,000. The Company’s outstanding long-term debt as of December 31, 2018 consisted of approximately $660,000 due under the MGHIF Note, net of discounts and financing costs. Total principal payments of approximately $333,000 are due annually in 2019, 2020, and 2021.Notes.
Total interest expense (including amortization of debt discounts and financing fees) on all debt instruments was $37,129$1,044,891 and $54,533$37,129 for the three months ended June 30, 2020 and 2019, and 2018, respectively. Total interest expense (including accretion of fair value to book value and amortization of debt discounts and financing fees) on all debt instruments was $93,573$1,083,158 and $112,379$93,573 for the six months ended June 30, 2020 and 2019, and 2018, respectively.
Note 8 – Stockholders’ equity
As of June 30, 2019,2020, the Company hashad 50,000,000 authorized shares of authorized common stockshares and 17,645,72017,693,932 shares issued and outstanding, and 10,000,000 authorized shares of authorized preferred stock,shares, of which none were issued or outstanding.
In September 2016,
Following receipt of approval from stockholders at a special meeting of stockholders held on January 17, 2018, the Company entered intofiled an amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Sales Agreement with Cowen pursuantissued and outstanding shares of common stock, at a ratio of one share for twenty-five shares, and to whichreduce 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 could offerfiled an additional amendment to its Amended and sell from timeRestated Certificate of Incorporation to time, upeffect 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 an aggregatereflect the reverse stock splits.
On March 29, 2019, the Company closed the March 2019 Public Offering of $25 million of450,000 shares of its common stock through Cowen, as sales agent, with initial sales limited to an aggregateat a public offering price of $11.5 million. During the year ended December 31, 2018, the Company sold 318,236 shares of its common stock under this at the market$12.00 per share. The offering resulting in aggregate net proceeds to the Company of approximately $0.6 million, andraised gross proceeds of $0.6 million. In connection with the October 2018 Public Offering, the Company terminated the at the market offering.
In the February 2018 Public Offering, the Company issued 2,841,152 units at $3.25 per unit, and 851,155 pre-funded units at $3.24 per pre-funded unit, raising gross proceeds of approximately $12$5.4 million and net proceeds of approximately $10.7$4.8 million. Each
22 |
On October 28, 2019, the Company closed the October 2019 Public Offering of 2,590,170 units at $2.00 per unit included one shareand 2,109,830 pre-funded units at $1.99 per pre-funded unit. The offering raised gross proceeds of common stockapproximately $9.4 million and one common warrant to purchase 0.5 sharenet proceeds of common stock at an exercise priceapproximately $8.3 million. As of $3.25 per share. Each pre-funded unit included one pre-funded warrant to purchase one share of common stock for an exercise price of $0.01 per share, and one common warrant to purchase 0.5 share of common stock at an exercise price of $3.25 per share. The common warrants were exercisable immediately and have a five-year term fromJune 30, 2020, the date of issuance. The 851,1552,109,830 pre-funded warrants issued in the February 2018October 2019 Public Offering have been exercised. Additionally, during the six months ended June 30, 2020, 4,071,000 common warrants were exercised during the year ended December 31, 2018.raising net proceeds of approximately $8.1 million.
In connection with the February 2018October 2019 Public Offering, the Company issued to its placement agent warrants to purchase 184,615235,000 shares of common stock. The warrants issued to the placement agent have an exercise price of $4.0625$2.60 per share and are exercisable for five years.
On October 22, 2018,February 11, 2020, the Company closedentered into an ATM Agreement with Wainwright, pursuant to which the October 2018 Public OfferingCompany may offer and sell from time to time in an “at the market offering,” at its option, up to an aggregate of 2,220,000$15.7 million of shares of the Company's common stock through Wainwright, as sales agent. During the three months ended June 30, 2020, the Company sold 2,739,442 shares of its common stock at a public offering priceunder the 2020 ATM Offering resulting in aggregate net proceeds to the Company of $1.45 per share. The offering raised approximately $5.9 million, and gross proceeds of approximately $3.2 million and net proceeds of approximately $2.8$6.1 million.
On March 29, 2019, During the six months ended June 30, 2020, the Company closed the March 2019 Public Offering of 9,000,000sold 5,554,376 shares of its common stock at a public offering priceunder the 2020 ATM Offering resulting in aggregate net proceeds to the Company of $0.60 per share. The offering raisedapproximately $11.4 million, and gross proceeds of $5.4 million$11.9 million. As of June 30, 2020, remaining availability under the ATM Agreement is $3.8 million.
On April 1, 2020 the Company acquired all of the shares of Curetis GmbH, and net proceedscertain other assets and liabilities of approximately $4.8 million.Curetis N.V., as further described in Notes 1 and 4, and paid, as the sole consideration, 2,028,208 shares of the Company’s common stock to the Seller.
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 June 30, 2019, 84,4122020, 229,533 shares remain available for issuance under the 2015 Plan, which includes 345,828223,291 shares automatically added to the 2015 Plan on January 1, 2019.2020.
Replacement awards
In connection with the acquisition of Curetis, the Company issued equity awards to Curetis employees (“2016 Plan”), consisting of stock options (“replacement awards”) in exchange for their Curetis equity awards. The replacement awards consisted of 134,371 stock options with a weighted average grant date fair value of $1.68. The terms of these replacement awards are substantially similar to the original Curetis equity awards. The fair value of the replacement awards for services rendered through April 1, 2020, the acquisition date, was recognized as a component of the purchase consideration, with the remaining fair value of the replacement awards related to the post-combination services recorded as stock-based compensation over the remaining vesting period.
23 |
For the three and six months ended June 30, 20192020 and 2018,2019, the Company recognized stock-basedshare-based compensation expense as follows:
|
| Three Months Ended June 30, |
|
|
| Six Months Ended June 30, |
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
|
| 2019 |
|
| 2018 |
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
Cost of services |
| $ | 524 |
|
| $ | 1,341 |
|
| $ | 562 |
|
| $ | 3,731 |
| $ | 727 | $ | 524 | $ | 1,455 | $ | 562 | |||||||||
Research and development |
|
| 18,333 |
|
|
| 61,080 |
|
|
| 35,460 |
|
|
| 130,551 |
| 12,077 | 18,333 | 26,063 | 35,460 | |||||||||||||
General and administrative |
|
| 61,365 |
|
|
| 140,158 |
|
|
| 137,378 |
|
|
| 292,340 |
| 17,222 | 61,365 | 78,710 | 137,378 | |||||||||||||
Sales and marketing |
|
| 5,749 |
|
|
| 11,311 |
|
|
| 10,604 |
|
|
| 25,458 |
| 3,561 | 5,749 | 7,099 | 10,604 | |||||||||||||
|
| $ | 85,971 |
|
| $ | 213,890 |
|
| $ | 184,004 |
|
| $ | 452,080 |
| $ | 33,587 | $ | 85,971 | $ | 113,327 | $ | 184,004 |
No income tax benefit for stock-basedshare-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 assumed 134,371 options under the 2016 Plan and did not grant any stock options during the three months ended June 30, 2019.2020. During the three months ended June 30, 2019, 7202020, 117 options were forfeited and no362 options expired. The Company assumed 134,371 options under the 2016 Plan and did not grant any stock options during the six months ended June 30, 2019. During the six months ended June 30, 2019, 7202020, 145 options were forfeited and 5591 options expired.
The Company had total stock options to acquire 210,834143,288 shares of common stock outstanding at June 30, 2019.2020 under all of its equity compensation plans.
Restricted stock units
During the six months ended June 30, 2019, 313,000 restricted stock units were granted, no2020, 5,924 restricted stock units vested and no900 restricted stock units were forfeited. The Company had 313,2508,151 total restricted stock units outstanding at June 30, 2019.2020.
Stock purchase warrants
At June 30, 20192020 and December 31, 2018,2019, the following warrants to purchase shares of common stock were outstanding:
|
|
|
|
|
|
|
| Outstanding at |
| |||||
Issuance |
| Exercise Price |
|
| Expiration |
| June 30, 2019 |
|
| December 31, 2018 |
| |||
November 2009 |
| $ | 197.75 |
|
| November 2019 |
|
| 270 |
|
|
| 270 |
|
January 2010 |
| $ | 197.75 |
|
| January 2020 |
|
| 270 |
|
|
| 270 |
|
March 2010 |
| $ | 197.75 |
|
| March 2020 |
|
| 55 |
|
|
| 55 |
|
November 2011 |
| $ | 197.75 |
|
| November 2021 |
|
| 212 |
|
|
| 212 |
|
December 2011 |
| $ | 197.75 |
|
| December 2021 |
|
| 27 |
|
|
| 27 |
|
March 2012 |
| $ | 2,747.50 |
|
| March 2019 |
|
| — |
|
|
| 165 |
|
February 2015 |
| $ | 165.00 |
|
| February 2025 |
|
| 9,001 |
|
|
| 9,001 |
|
May 2015 |
| $ | 165.00 |
|
| May 2020 |
|
| 138,310 |
|
|
| 138,310 |
|
May 2016 |
| $ | 32.81 |
|
| May 2021 |
|
| 189,577 |
|
|
| 189,577 |
|
June 2016 |
| $ | 32.81 |
|
| May 2021 |
|
| 82,035 |
|
|
| 82,035 |
|
June 2017 |
| $ | 19.50 |
|
| June 2022 |
|
| 18,754 |
|
|
| 18,754 |
|
July 2017 |
| $ | 17.25 |
|
| July 2022 |
|
| 6,350 |
|
|
| 6,350 |
|
July 2017 |
| $ | 12.50 |
|
| July 2022 |
|
| 50,000 |
|
|
| 50,000 |
|
July 2017 |
| $ | 10.63 |
|
| July 2022 |
|
| 1,000,003 |
|
|
| 1,000,003 |
|
February 2018 |
| $ | 4.06 |
|
| February 2023 |
|
| 184,615 |
|
|
| 184,615 |
|
February 2018 |
| $ | 3.25 |
|
| February 2023 |
|
| 1,846,153 |
|
|
| 1,846,153 |
|
|
|
|
|
|
|
|
|
| 3,525,632 |
|
|
| 3,525,797 |
|
Outstanding at | ||||||||||||||||||
Issuance | Exercise Price | Expiration | June 30, 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 | |||||||||||||
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 | |||||||||||||
1,033,386 | 5,111,107 |
The warrants listed above were issued in connection with various debt, equity or development contract agreements.
24 |
Note 9 – Commitments and Contingencies
Registration and other stockholder rights
In connection with the various investment transactions, the Company entered into registration rightsSupply agreements with stockholders, pursuant to which the investors were granted certain demand registration rights and/or piggyback and/or resale registration rights in connection with subsequent registered offerings of the Company’s common stock.
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 June 30, 2019,2020, the Company hashad acquired twenty-onetwenty-four QuantStudio 5s including six innone during the six months ended June 30, 2019.2020. As of June 30, 2019,2020, the Company has not committed to acquiring an additional three QuantStudio 5s at a total cost of approximately $135,000 in the next three months.
Curetis places frame-work orders for Unyvero-Systems and for raw materials for its cartridge manufacturing to ensure availability during commercial ramp-up-phase and also to gain volume-scale-effects with regards to purchase prices. Some of the electronic parts used for the production of Unyvero-Systems have lead times of many months, hence it is necessary to order such systems with long-term framework-orders to ensure the demands from the market are covered. The aggregate purchase commitments over the next twelve months are approximately $3.5 million.
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 a result, we have experienced a material impact on our business, financial condition or results of operations for the six months ended June 30, 2020 and significant business disruptions as a result of the outbreak. For example, most of our employees in the U.S. 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. 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 June 30, 2020 and December 31, 2019:
Lease Classification | June 30, 2020 | December 31, 2019 | ||||||
ROU Assets: | ||||||||
Operating | $ | 1,653,603 | $ | 1,043,537 | ||||
Financing | 696,333 | 958,590 | ||||||
Total ROU assets | $ | 2,349,936 | $ | 2,002,127 | ||||
Liabilities | ||||||||
Current: | ||||||||
Operating | $ | 1,271,700 | $ | 1,017,414 | ||||
Finance | 432,494 | 579,030 | ||||||
Noncurrent: | ||||||||
Operating | 782,494 | 547,225 | ||||||
Finance | 135,521 | 313,263 | ||||||
Total lease liabilities | $ | 2,622,209 | $ | 2,456,932 |
Lease Classification |
|
|
|
| June 30, 2019 |
| |
ROU Assets: |
|
|
|
|
|
|
|
Operating |
|
|
|
| $ | 1,381,830 |
|
Financing |
|
|
|
|
| 984,742 |
|
Total ROU assets |
|
|
|
| $ | 2,366,572 |
|
Liabilities |
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
Operating |
|
|
|
| $ | 958,992 |
|
Finance |
|
|
|
|
| 576,322 |
|
Noncurrent: |
|
|
|
|
|
|
|
Operating |
|
|
|
|
| 1,071,677 |
|
Finance |
|
|
|
|
| 379,825 |
|
Total lease liabilities |
|
|
|
| $ | 2,986,816 |
|
25 |
Maturities of lease liabilities as of June 30, 20192020 by fiscal year are as follows:
Maturity of Lease Liabilities |
|
|
| Operating |
|
| Finance |
|
| Total |
| |||
2019 |
|
|
| $ | 558,109 |
|
| $ | 332,786 |
|
| $ | 890,895 |
|
2020 |
|
|
|
| 1,128,138 |
|
|
| 520,947 |
|
|
| 1,649,085 |
|
2021 |
|
|
|
| 536,819 |
|
|
| 166,318 |
|
|
| 703,137 |
|
2022 |
|
|
|
| 40,080 |
|
|
| 11,240 |
|
|
| 51,320 |
|
2023 |
|
|
|
| — |
|
|
| 3,644 |
|
|
| 3,644 |
|
Thereafter |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
Total lease payments |
|
|
|
| 2,263,146 |
|
|
| 1,034,935 |
|
|
| 3,298,081 |
|
Less: Interest |
|
|
|
| (232,477 | ) |
|
| (78,788 | ) |
|
| (311,265 | ) |
Present value of lease liabilities |
|
|
| $ | 2,030,669 |
|
| $ | 956,147 |
|
| $ | 2,986,816 |
|
Maturity of Lease Liabilities | Operating | Finance | Total | |||||||||||
2020 | $ | 818,468 | $ | 275,332 | $ | 1,093,800 | ||||||||
2021 | 940,857 | 281,914 | 1,222,771 | |||||||||||
2022 | 199,986 | 45,374 | 245,360 | |||||||||||
2023 | 75,533 | 3,364 | 78,897 | |||||||||||
2024 | 75,533 | 280 | 75,813 | |||||||||||
Thereafter | 44,061 | — | 44,061 | |||||||||||
Total lease payments | 2,154,438 | 606,264 | 2,760,702 | |||||||||||
Less: Interest | (100,244 | ) | (38,249 | ) | (138,493 | ) | ||||||||
Present value of lease liabilities | $ | 2,054,194 | $ | 568,015 | $ | 2,622,209 |
Statement of operations classification of lease costs as of the three and six months ended June 30, 2020, and 2019 are as follows:
|
|
|
|
|
| June 30, 2019 |
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||
Lease Cost |
|
|
| Classification |
| Three months ended |
|
| Six months ended |
| Classification | 2020 | 2019 | 2020 | 2019 | |||||||||||||||
Operating |
|
|
| Operating expenses |
| $ | 218,673 |
|
| $ | 439,595 |
| Operating expenses | $ | 335,920 | $ | 218,673 | $ | 550,256 | $ | 439,595 | |||||||||
Finance: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Amortization |
|
|
| Operating expenses |
|
| 107,496 |
|
|
| 204,689 |
| Operating expenses | 129,909 | 107,496 | 262,257 | 204,689 | |||||||||||||
Interest expense |
|
|
| Other expenses |
|
| 19,297 |
|
|
| 41,778 |
| Other expenses | 15,050 | 19,297 | 33,519 | 41,778 | |||||||||||||
Total lease costs |
|
|
|
|
| $ | 345,466 |
|
| $ | 686,062 |
| $ | 480,879 | $ | 345,466 | $ | 846,032 | $ | 686,062 | ||||||||||
Other lease information as of June 30, 2020 is as follows:
Other Information | Total | |||||||||
Weighted average remaining lease term (in years) | ||||||||||
Operating leases | 2.0 |
| ||||||||
Finance leases | 1.3 |
| ||||||||
Weighted average discount rate: | ||||||||||
Operating leases | 6.2 |
| % | |||||||
Finance leases | 9.5 |
| % |
Supplemental Cash Flow Information |
|
|
|
|
| Total |
| |
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
Cash used in operating activities |
|
| �� |
|
|
|
|
|
Operating leases |
|
|
|
|
| $ | 439,595 |
|
Finance leases |
|
|
|
|
| $ | 41,778 |
|
Cash used in financing activities |
|
|
|
|
|
|
|
|
Finance leases |
|
|
|
|
| $ | 235,600 |
|
ROU assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
Finance leases |
|
|
|
|
| $ | 355,536 |
|
Supplemental cash flow information as of the six months ended June 30, 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 | $ | 550,256 | $ | 439,595 | ||||
Finance leases | $ | 33,519 | $ | 41,778 | ||||
Cash used in financing activities | ||||||||
Finance leases | $ | 324,278 | $ | 235,600 | ||||
ROU assets obtained in exchange for lease obligations: | ||||||||
Finance leases | $ | — | $ | 355,536 |
Lease Commitments as of December 31, 2018
Minimum lease payments for future years as of December 31, 2018 were as follows:
Year ending December 31, |
| Total |
| |
2019 |
| $ | 1,615,679 |
|
2020 |
|
| 1,534,204 |
|
2021 |
|
| 639,829 |
|
2022 |
|
| 40,080 |
|
2023 and thereafter |
|
| — |
|
Total |
| $ | 3,829,792 |
|
26 |
Note 11 – License agreements, research collaborations and development agreements
NYSDOH
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 will receivereceived approximately $1.6 million over the 12 month15-month demonstration portion of the project. The demonstration project began in early 2019.2019 and was completed in the first quarter of 2020. The Company began a second-year expansion phase to build on the successes and experience of the first year pilot phase while focusing on accomplishing the goal of this visionary effort to improve patient outcomes and save healthcare dollars by integrating real-time epidemiologic surveillance with rapid delivery of antibiotic resistance results to care-givers via web-based and mobile platforms. The second year contract includes a quarterly retainer-based project fee as well as volume-dependent per test fees for a total contract value of up to $450,000 to OpGen. During the three and six months ended June 30, 2020 and 2019, the Company recognized $500,000$30,000 and $1.0 million$500,000 of revenue related to the contract, respectively. During the six months ended June 30, 2020 and 2019, the Company recognized $280,000 and $1,000,000 of revenue related to the contract, respectively.
Sandoz
In December 2018, Ares Genetics entered into a service frame agreement with Sandoz International GmbH (“Sandoz”), to leverage Ares Genetics’ database on the genetics of antibiotic resistance, ARESdb, and the ARES Technology Platform for Sandoz’ anti-infective portfolio.
Under the terms of the frame agreement, which has an initial term of 36 months and is currently scheduled to terminate December 13, 2021, Ares Genetics and Sandoz intend to develop a digital anti-infectives platform, combining established microbiology laboratory methods with advanced bioinformatics and artificial intelligence methods to support drug development and life-cycle management. The collaboration, in the short- to mid-term, aims to both rapidly and cost-effectively re-purpose existing antibiotics and design value-added medicines with the objective of expanding indication areas and to overcome antibiotic resistance, in particular with regards to infections with bacteria that has already developed resistance against multiple treatment options. In the longer-term, the platform is expected to inform the development of novel anti-infectives that are less prone to encounter resistance and thereby preserve antibiotics as an effective treatment option.
The agreement covers the first phases of the collaboration with Sandoz and provides certain moderate six-figure R&D funding to Ares Genetics. No milestones or royalties were agreed to as part of this first phase of the collaboration. The agreement may be terminated by Sandoz effective immediately at any time with written notice.
Qiagen
On February 18, 2019, Ares Genetics and Qiagen GmbH, or Qiagen, entered into a strategic licensing agreement for ARESdb and AREStools, in the area of antimicrobial resistance (AMR) research. The agreement has a term of 20 years and may be terminated by Qiagen for convenience with 180 days written notice.
Ares Genetics has retained the rights to use ARESdb and AREStools for AMR research, customized bioinformatics services, and for the development of specific AMR assays and applications for the Curetis Group (including Ares Genetics), as well as third parties (e.g. other diagnostics companies or partners in the pharmaceutical industry). As the Qiagen research offering is expected to also enable advanced molecular diagnostic services and products, Qiagen’s customers may obtain a diagnostic use license from Ares Genetics.
Under the terms of the agreement, Qiagen, in exchange for a moderate six figure up-front licensing payment, has received an exclusive RUO license to develop and commercialize general bioinformatics offerings and services for AMR research use only, based on Ares Genetics’ database on the genetics of antimicrobial resistance, ARESdb, as well as on the ARES bioinformatics AMR toolbox, AREStools. Under the agreement, the parties agreed to a mid-single digit percentage royalty rate on Qiagen net sales, which is subject to a minimum royalty rate that steps up upon certain achieved milestones, which is payable to Ares Genetics. The parties also agreed to further modest six figure milestone payments upon certain product launches.
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Global leading IVD corporation
On September 16, 2019, Ares Genetics entered into a multi-phase partnership with an undisclosed leading global in vitro diagnostics corporation, the Partner, to jointly develop diagnostic solutions for infectious disease testing, based on next-generation sequencing, or NGS, technology. Ares Genetics and the Partner also entered into an R&D option agreement for the first phase of the partnership. Ares Genetics received an option fee of approximately $550,000. The initial term of the R&D collaboration is 10 months, ending July 13, 2020 with payments excluding the option fee of approximately $1.2 million. The Partner may terminate, at any time and for any reason, with 30 days’ written notice.
In the first phase of the collaboration, which lasted 10 months, the parties have further enriched ARESdb with a focus on certain pathogens relevant in a first, undisclosed infectious disease indication. Additional clinical isolates of such pathogens have been sequenced by Ares Genetics at its recently established NGS laboratory in Vienna, Austria. Based on this enlarged and enriched dataset, Ares Genetics has further developed the algorithms for predictive antibiotic resistance testing for drug/pathogen combinations particularly relevant in the targeted indication to enable NGS-based infectious disease diagnostics.
Under the initial agreement, the Partner funded Ares Genetics’ R&D activities for the genotypic and phenotypic characterization of additional bacterial strains to augment ARESdb and the development of optimized algorithms for predicting antibiotic resistance. Furthermore, in return for the up-front option fee, the Partner obtained a three-month right for first negotiation for an exclusive human clinical diagnostic use license to ARESdb and the ARES Technology Platform. The option can be exercised during the term of the agreement plus three months.
The Company recognized approximately $456,000 of revenue related to the contract during the three months ended June 30, 2020.
FISH License
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 June 30, 20192020 and 2018.2019. The Company recognized net royalty expense of $125,000 for each of the six months ended June 30, 20192020 and 2018.2019. Annual future minimum royalty fees are $250,000 under this agreement.
Note 12 – Related party transactions
Prior to his departure from the Company entered into an agreement with Merck Sharp & Dohme Corp. (“MSD”),Company’s Board on June 30, 2019, Dr. David Rubin served as a wholly-owned subsidiaryrepresentative of Merck andGlobal Health Innovation Fund, or MGHIF, an affiliate of MGHIF,Merck, Inc. The Company has the following relationships with Merck and its subsidiaries:
On June 11, 2018, the Company executed the Allonge to its Second Amended and Restated Senior Secured Promissory Note, dated June 28, 2017, with a principal stockholderamount of $1,000,000 issued to MGHIF. 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. On July 30, 2018, the Company issued 7,212 shares of common stock to MGHIF in a private placement transaction for $285,512 of accrued and unpaid interest due as of July 14, 2018 under the MGHIF Note.
On April 1, 2020, as part of the Transaction, Oliver Schacht, Ph.D., the former CEO of Curetis N.V., was appointed as the CEO of the Company, and a related party toJohannes Bacher the former COO of Curetis N.V. was appointed as the Chief Operating Officer of the Company. UnderEffective April 1, 2020, Mr. Schacht and Mr. Bacher were appointed as liquidators of Curetis N.V. in liquidation and Curetis GmbH was designated as Custodian of 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 usingBooks for Curetis N.V. During 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 recognized research and development expense of $0 and $22,604 related to the agreement in the three monthsquarter ended June 30, 20192020, Curetis N.V. in liquidation processed payroll for Mr. Schacht and 2018, respectively. TheMr. Bacher and invoiced OpGen and Curetis GmbH, respectively, in line with their signed management agreements.
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Note 13 – Subsequent Events
On July 9, 2020, the Company recognized research and development expense of $0 and $22,604 relatednegotiated an amendment to the agreementEIB debt financing facility for an additional €5 million tranche. This additional tranche is earmarked to co-fund R&D programs across several of the platforms and the entire product portfolio of OpGen subsidiaries Curetis and Ares Genetics as it relates to COVID-19.
This additional tranche, which can be drawn down, subject to certain conditions, at Curetis’ option within nine months from the Effective Date of the amendment, will also have a five-year term to maturity from such draw-down date and will accrue interest at a rate of 10% per annum. All interest payments during that five-year term are compounded and become payable only upon maturity of the principal amount of this tranche. The EIB tranche disbursement will become available subject to typical conditions precedent including a pledge of certain Curetis IP rights as security to EIB. The parties have furthermore agreed on a 0.7% PPI. Upon maturity of the tranche, i.e. not before mid 2025 (and no later than early 2027 depending on draw-down date), EIB will be entitled to an additional payment that is equity-linked and equivalent to 0.7% of the then total equity valuation of OpGen. The parties have also adjusted the PPI percentage applicable to the previous EIB tranche of €5.0 million which was funded in June 2019 from its original 2.1% PPI in Curetis N.V.’s equity value upon maturity to a new 0.3% PPI in OpGen’s equity value upon maturity between mid-2024 and mid-2025. This adjustment follows the six months endedrespective stockholder ownership interest in OpGen following the business combination with Curetis as of April 1, 2020. All other terms and conditions of the EIB financing contract with Curetis remain unchanged.
Additionally, on July 10, 2020, EIB agreed to defer total interest payments of €720k due in April and June 30, 2019 and 2018, respectively.2020 under the first three tranches of the debt financing facility until December 31, 2020.
In December 2017,
On July 13, 2020, the Company entered into a subcontractor agreementstrategic co-promotion partnership with ILÚM, whereby ILÚMMenarini Silicon Biosystems (“MSB”), the pioneer of liquid biopsy and rare cell technologies, for its CELLSEARCH Circulating Endothelial Cell (“CEC”) Kit, relevant to study progression of COVID-19 disease, and other COVID-19-related products. Effective immediately, MSB’s CELLSEARCH system, CELLSEARCH CEC kit and COVID-19 related products will provide servicesbe marketed and promoted by OpGen to infectious disease healthcare providers and researchers in North America through its dedicated team of sales and marketing experts. The partnership will focus on promoting MSB’s CELLSEARCH system for CEC application, for the enrichment and enumeration of CEC from whole blood. CEC count is useful in studying the progression of COVID-19 and potentially in identifying patients at risk of developing more severe complications.
Both parties intend to expand the portfolio of COVID-19 products and platforms available over the coming months as they become available for sale. The OpGen commercial team will offer these products to its contacts in infectious disease hospitals, labs, research centers, along with distributors and other relevant stakeholders in the COVID-19 testing space.
Subsequent to June 30, 2020, the German Federal Ministry for Economic Affairs and Energy (“BMWi”) initiated an investigation of the OpGen business combination with Curetis with regards to its impact on the public order and security of the Federal Republic of Germany as well as national healthcare interests in the light of the current COVID-19 pandemic. OpGen has already responded to all questions currently raised by the BMWi and will remain in constructive dialogue with the BMWi with a view to completing the process as swiftly as possible.
Subsequent to June 30, 2020, the Company issued 311,003 shares of common stock to Yorkville upon the conversion of the remaining outstanding principal balance of approximately $550,000 of the Convertible Notes. Following such issuance, no Convertible Notes remain outstanding.
Subsequent to June 30, 2020, the Company sold 1,523,663 shares of its common stock under the 2020 ATM Offering resulting in aggregate net proceeds to the Company of approximately $3.6 million, and gross proceeds of $3.8 million.
Subsequent to June 30, 2020, the Company issued 185,000 shares of common stock pursuant to the exercise of outstanding warrants sold in the performanceOctober 2019 Public Offering for gross proceeds of the Company’s CDC contract to deploy ILÚM’s commercially-available cloud- and mobile-based software platform for infectious disease management in up to three medical sites in Colombia with the aimapproximately $370,000. As of improving antibiotic use in resource-limited settings. The Company recognized $0 and $84,853 of cost of services expenseAugust 12, 2020, 444,000 common warrants related to the contract in the three months ended June 30,October 2019 and 2018, respectively. The Company recognized $0 and $198,665 of cost of services expense related to the contract in the six months ended June 30, 2019 and 2018, respectively.Public Offering remain outstanding.
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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, 2018.2019.
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, and Bogota, Colombia. The Company operates in one business segment.
OpGen is a precision medicine company usingharnessing the power of molecular diagnostics and informatics to help combat infectious disease. The Company isAlong with subsidiaries, Curetis GmbH and Ares Genetics GmbH, we are developing and commercializing molecular information products and services for global healthcare settings,microbiology solutions helping to guide clinicians with more rapid and actionable information about life threatening infections to improve patient outcomes, and decrease the spread of infections caused by multidrug-resistant microorganisms, or MDROs. The Company’s 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,Our current product candidates and services combine itsportfolio includes Unyvero, QuickFISH, PNA FISH, 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 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 inAcuitas® Lighthouse, and the ARES Technology Platform including ARESdb, using NGS technology and AI-powered bioinformatics solutions for antibiotic response prediction.
On April 1, 2020, we completed our business combination transaction (the “Transaction”) with Curetis N.V., a public company with limited liability under the laws of the Netherlands (the “Seller” or “Curetis N.V.”), 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 (together, “Curetis”). Curetis is an early commercial-stage molecular diagnostics (MDx) company focused on rapid infectious disease testing for hospitalized patients with the aim to improve the treatment of hospitalized, critically ill patients with suspected microbial infection and has developed the innovative Unyvero molecular diagnostic solution for comprehensive infectious disease testing. The Transaction was designed principally to leverage each company’s existing research and development and relationships with hospitals and clinical laboratories to accelerate the sales of both companies products and services.
The focus of OpGen is on its combined broad portfolio of products, which include high impact rapid diagnostics and bioinformatics to interpret AMR genetic data. The Company currently expects to focus on the following products 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 the detection of more than 90% of common causative agents of hospitalized pneumonia. 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 BAL 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 from patients with lower respiratory tract infections following FDA clearance received by Curetis in December 2019. The Unyvero LRT BAL automated test simultaneously detects 20 pathogens and 10 antibiotic resistance markers, and it is the first and only FDA-cleared panel that includes Pneumocystis jirovecii, a key fungal pathogen often found in immunocompromised patients that can be difficult to diagnose. We believe the Unyvero LRT and LRT BAL tests have 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 Unyvero Urinary Tract Infection, or UTI, test is being made available to laboratories as a research use only or RUO kit. The test detects a broad range of pathogens as well as antimicrobial resistance markers directly from native urine specimens, |
· | The Acuitas AMR Gene Panel (isolates) is currently pending final FDA review and a potential clearance decision. 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 Acuitas 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 Acuitas AMR Gene Panel (Urine) test following an initial 510(k) submission for use with bacterial isolates. |
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OpGen has extensive offerings of additional in vitro diagnostic tests including CE-marked Unyvero tests for implant and tissue infections, intra-abdominal infections, complicated urinary tract infections, or cUTI, its Acuitas AMR Gene Panel (Isolates) test in development for testing bacterial isolates, and itsblood stream infections, and the QuickFISH and PNA FISH FDA-cleared and CE-marked diagnostics used to rapidly detect pathogens in positive blood cultures. Eachcultures, which we believe have an established market position in the United States.
OpGen’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. Ares Genetics’ ARESdb is a comprehensive database of genetic and phenotypic information. ARESdb was originally designed based on the SIEMENS microbiology strain collection covering resistant pathogens and its development has significantly expanded, also by transferring data from the Acuitas Lighthouse® into ARESdb. In September 2019, Ares Genetics signed a technology evaluation agreement with an undisclosed global IVD corporation. In the collaboration, Ares Genetics further enriched ARESdb with a focus on certain pathogens relevant in a first, undisclosed infectious disease indication. Ares Genetics intends to independently 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. Ares Genetics has recently signed up Siemens Technology Accelerator and AGES (Austrian Agency for Health and Food Safety) as new customers, as well as entered into another technology assessment and feasibility project with another undisclosed major global IVD corporation.
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 the De Novo process. As of June 30, 2020, there is an installed base of about 170 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 RQ has a small laboratory footprint and has an attractive cost of goods profile. Curetis has been following a partnering strategy for the Unyvero A30 RQ.
OpGen has extensive partner and distribution relationships to help accelerate the establishment of a global infectious disease diagnostic testing and informatics business. Partners 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. OpGen has a network currently consisting of 26 distributors covering 45 countries.
OpGen will continue to develop and seek FDA and other regulatory clearances or approvals, as applicable, for the Acuitas AMR Gene Panel tests is available for sale for research use only, or RUO.
The Company’s Acuitas Lighthouse informatics systems are cloud-based HIPAA compliant informatics offerings that combine clinical lab(Urine) diagnostic 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 includesproducts. OpGen will continue to offer 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.
In May 2019, the Company filed a 510(k) application with the FDA seeking clearance of its Acuitas AMR Gene Panel (Isolates) diagnostic test. In July 2019, the Company received correspondence from the FDA detailing a number of questions related to this filing. The Company is currently evaluating the FDA correspondence and preparing its responses.
The Company’s operations are subject to certain risks and uncertainties. The risks include rapid technology changes, the need to manage growth, 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 and commercialize its proprietary technologyAcuitas Lighthouse Software as well as raise additional capital.the Unyvero UTI Panel as RUO products to hospitals, public health departments, clinical laboratories, pharmaceutical companies and contract research organizations, (CROs).
Our headquarters are in Gaithersburg, Maryland, and our principal operations are in Gaithersburg, Maryland and Holzgerlingen and Bodelshausen, both in Germany. We also have operations in Vienna, Austria. We operate in one business segment.
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 six months ended June 30, 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.
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Financings
Since inception, the Company haswe have incurred, and continuescontinue to incur, significant losses from operations. The Company hasWe have funded itsour operations primarily through external investor financing arrangements. During 2018, the Company2019, we raised net proceeds of approximately $14.1$13.1 million. On February 11, 2020, we entered into an ATM Agreement with Wainwright, pursuant to which we 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 and renegotiatedof shares of our common stock through Wainwright, as sales agent. During the payment terms of its Second Amended and Restated Senior Secured Promissory Note, datedthree months ended June 28, 2017, with a principal amount of $1,000,000 issued to Merck Global Health Innovation Fund, LLC (“MGHIF”). On March 29, 2019, the Company closed a public offering (the “March 2019 Public Offering”) of 9,000,00030, 2020, we sold 2,739,442 shares of its common stock at a public offering priceunder the 2020 ATM Offering resulting in aggregate net proceeds to us of $0.60 per share. The offering raisedapproximately $5.9 million, and gross proceeds of $5.4$6.1 million. During the six months ended June 30, 2020, we sold 5,554,376 shares of its common stock under the 2020 ATM Offering resulting in aggregate net proceeds to us of approximately $11.4 million, and gross proceeds of $11.9 million. Additionally, during the six months ended June 30, 2020, approximately 4.1 million common warrants issued in our October 2019 Public Offering were exercised raising net proceeds of approximately $4.8$8.1 million. For more information regarding the public offerings during 2018 and the amendments to the MGHIF Note, seeSee Note 2 (“Liquidity and management’s plan”) to the Notes to Unaudited Condensed Consolidated Financial Statements elsewhereincluded in this quarterly report on Form 10-Q. 10-Q for additional information.
Results of operations for the three months ended June 30, 2020 and 2019
The results of operations for the three months ended June 30 2019 herein exclude results from operations of Curetis and 2018its subsidiaries for the three months ended June 30, 2019.
Revenue Revenues
|
| Three Months Ended June 30, |
| Three months ended June 30, | ||||||||||||
|
| 2019 |
|
| 2018 |
| 2020 | 2019 | ||||||||
Product sales |
| $ | 504,293 |
|
| $ | 632,525 |
| $ | 601,304 | $ | 504,293 | ||||
Laboratory services |
|
| 5,250 |
|
|
| 1,100 |
| 25,992 | 5,250 | ||||||
Collaboration revenue |
|
| 500,000 |
|
|
| 155,276 |
| 561,089 | 500,000 | ||||||
Total revenue |
| $ | 1,009,543 |
|
| $ | 788,901 |
| $ | 1,188,385 | $ | 1,009,543 |
Total revenue for the three months ended June 30, 20192020 increased approximately 28%,18% when compared to the same period in 2019, with a change in the mix of revenue, as follows:
· | Product Sales: an increase in revenue of approximately 19% in the 2020 period compared to the 2019 period is primarily attributable to the inclusion of Curetis products sales subsequent to the Transaction, offset in part by a reduction in the sale of our rapid pathogen ID testing products due to the loss of large customers and COVID-19; |
· | Laboratory Services: an increase in revenue of approximately 395% in the 2020 period compared to the 2019 period is primarily attributable to the inclusion of Ares Genetics laboratory services subsequent to the Transaction; and |
· | Collaboration Revenue: an increase in revenue of approximately 12% in the 2020 period compared to the 2019 period is primarily the result of lower revenue from our contract with the New York State Department of Health, offset by the inclusion of Ares Genetics Collaboration revenue subsequent to the Transaction. |
Product sales: a decrease in revenue of approximately 20% in the 2019 period compared to the 2018 period is primarily attributable to a reduction in the sale of our rapid pathogen ID testing products;
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Laboratory services: an increase in revenue of approximately 377% in the 2019 period compared to the 2018 period is a result of Acuitas whole genome sequencing performed in 2019; and
Collaboration revenue: an increase in revenue of approximately 222% in the 2019 period compared to the 2018 period is primarily the result of revenue from our contract with the New York State Department of Health.
Operating expenses
|
| Three Months Ended June 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Cost of products sold |
| $ | 198,493 |
|
| $ | 303,663 |
|
Cost of services |
|
| 251,981 |
|
|
| 179,402 |
|
Research and development |
|
| 1,153,584 |
|
|
| 1,304,388 |
|
General and administrative |
|
| 1,592,845 |
|
|
| 1,831,063 |
|
Sales and marketing |
|
| 393,567 |
|
|
| 426,297 |
|
Impairment of right-of-use asset |
|
| — |
|
|
| — |
|
Total operating expenses |
| $ | 3,590,470 |
|
| $ | 4,044,813 |
|
The Company’sOperating expenses
Three months ended June 30, | ||||||||
2020 | 2019 | |||||||
Cost of products sold | $ | 713,916 | $ | 198,493 | ||||
Cost of services | 252,655 | 251,981 | ||||||
Research and development | 2,979,025 | 1,153,584 | ||||||
General and administrative | 2,491,571 | 1,592,845 | ||||||
Sales and marketing | 1,044,032 | 393,567 | ||||||
Transaction costs | 225,000 | — | ||||||
Total operating expenses | $ | 7,706,199 | $ | 3,590,470 |
Our total operating expenses for the three months ended June 30, 2019 decreased2020 increased approximately 11%115% when compared to the same period in 2018. This decrease is primarily attributable to:2019. Operating expenses changed as follows:
Cost of products sold: cost of products sold for the three months ended June 30, 2019 decreased approximately 35% when compared to the same period in 2018. The change in costs of products sold is primarily attributable to a reduction in the sale of our rapid pathogen ID testing products;
Cost of services: cost of services for the three months ended June 30, 2019 increased approximately 40% when compared to the same period in 2018. The change in costs of services is primarily attributable to an increase in costs associated with our collaboration contracts;
· | Costs of services: cost of services for the three months ended June 30, 2020 did not materially change when compared to the same period in 2019; |
· | Research and development: research and development expenses for the three months ended June 30, |
· | General and administrative: general and administrative expenses for the three months ended June 30, 2020 increased approximately 56% when compared to the same period in 2019, primarily due to the inclusion of Curetis expenses subsequent to the Transaction, as well as an increase in payroll related |
· | Sales and marketing: sales and marketing expenses for the |
· | Transaction costs: transaction costs for the three months ended June 30, 2020 represent one-time costs incurred |
General and administrative: general and administrative expenses for the three months ended June 30, 2019 decreased approximately 13% when compared to the same period in 2018, primarily due to decreased payroll related costs; and
Sales and marketing: sales and marketing expenses for the three months ended June 30, 2019 decreased approximately 8% when compared to the same period in 2018, primarily due to a reduction in marketing expenses.
Other income (expense)expense
|
| Three Months Ended June 30, |
| Three months ended June 30, | ||||||||||||
|
| 2019 |
|
| 2018 |
| 2020 | 2019 | ||||||||
Interest expense |
| $ | (37,129 | ) |
| $ | (54,533 | ) | $ | (1,044,891 | ) | $ | (37,129 | ) | ||
Foreign currency transaction gains (losses) |
|
| 9,879 |
|
|
| (21,762 | ) | ||||||||
Other income (expense) |
|
| 15,166 |
|
|
| 5 |
| ||||||||
Foreign currency transaction (losses) gains | (289,788 | ) | 9,879 | |||||||||||||
Other (expense) income | (5,656 | ) | 15,166 | |||||||||||||
Change in fair value of derivative financial instruments |
|
| — |
|
|
| (11 | ) | 382,511 | — | ||||||
Total other expense |
| $ | (12,084 | ) |
| $ | (76,301 | ) | $ | (957,824 | ) | $ | (12,084 | ) |
The Company’sOur total other expense for the three months ended June 30, 2020 when compared to the same period in 2019 decreasedincreased primarily due to a decreasean increase in interest expense and an increase in other income.associated with the debt assumed as part of the Transaction with Curetis.
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Results of operations for the six months ended June 30, 2020 and 2019
The results of operations for the six months ended June 30, 2020 and 2019 herein exclude results from operations of Curetis and 2018its subsidiaries for the three months ended March 31, 2020 and the six months ended June 30, 2019.
RevenueRevenues
|
| Six Months Ended June 30, |
| Six months ended June 30, | ||||||||||||
|
| 2019 |
|
| 2018 |
| 2020 | 2019 | ||||||||
Product sales |
| $ | 1,024,470 |
|
| $ | 1,266,021 |
| $ | 968,237 | $ | 1,024,470 | ||||
Laboratory services |
|
| 5,250 |
|
|
| 9,790 |
| 25,992 | 5,250 | ||||||
Collaboration revenue |
|
| 1,000,000 |
|
|
| 359,316 |
| 811,089 | 1,000,000 | ||||||
Total revenue |
| $ | 2,029,720 |
|
| $ | 1,635,127 |
| $ | 1,805,318 | $ | 2,029,720 |
Total revenue for the six months ended June 30, 2019 increased2020 decreased approximately 24%,11% when compared to the same period in 2019, with a change in the mix of revenue, as follows:
· | Product Sales: a decrease in revenue of approximately 5% 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 large FISH products customers and COVID-19, partially offset by the inclusion of Curetis products sales subsequent to the Transaction; |
· | Laboratory Services: an increase in revenue of approximately 395% in the 2020 period compared to the 2019 period is primarily attributable to the inclusion of Ares Genetics laboratory services subsequent to the Transaction; and |
· | Collaboration Revenue: a decrease in revenue of approximately 19% in the 2020 period compared to the 2019 period is primarily the result of lower revenue from our contract with the New York State Department of Health, offset by the inclusion of Collaboration revenue subsequent to the Transaction. |
Product sales: a decrease in revenue of approximately 19% in the 2019 period compared to the 2018 period is primarily attributable to a reduction in the sale of our rapid pathogen ID testing products;
Laboratory services: a decrease in revenue of approximately 46% in the 2019 period compared to the 2018 period is a result of our ceasing sales of our Acuitas MDRO test products in 2019; and
Collaboration revenue: an increase in revenue of approximately 178% in the 2019 period compared to the 2018 period is primarily the result of revenue from our contract with the New York State Department of Health.
Operating expenses
|
| Six Months Ended June 30, |
| Six months ended June 30, | ||||||||||||
|
| 2019 |
|
| 2018 |
| 2020 | 2019 | ||||||||
Cost of products sold |
| $ | 419,195 |
|
| $ | 646,495 |
| $ | 990,470 | $ | 419,195 | ||||
Cost of services |
|
| 396,463 |
|
|
| 347,955 |
| 390,321 | 396,463 | ||||||
Research and development |
|
| 2,929,966 |
|
|
| 2,534,817 |
| 4,196,581 | 2,929,966 | ||||||
General and administrative |
|
| 3,340,430 |
|
|
| 3,621,585 |
| 4,193,019 | 3,340,430 | ||||||
Sales and marketing |
|
| 765,800 |
|
|
| 756,070 |
| 1,326,309 | 765,800 | ||||||
Transaction costs | 470,322 | — | ||||||||||||||
Impairment of intangible assets | 750,596 | — | ||||||||||||||
Impairment of right-of-use asset |
|
| 520,759 |
|
|
| — |
| — | 520,759 | ||||||
Total operating expenses |
| $ | 8,372,613 |
|
| $ | 7,906,922 |
| $ | 12,317,618 | $ | 8,372,613 |
The Company’sOur total operating expenses for the six months ended June 30, 20192020 increased approximately 6%47% when compared to the same period in 2018. This increase is primarily attributable to the impairment of our Woburn, Massachusetts ROU asset for the six months ended June 30, 2019 recorded as part of the Company’s adoption of ASU 2016-02, Leases (Topic 842). In addition, operating2019. Operating expenses changed as follows:
· | Costs of products sold: cost of products sold for the six months ended June 30, 2020 increased approximately 136% when compared to the same period in 2019. The change in costs of products sold is primarily attributable to the inclusion of Curetis cost of products sold subsequent to the Transaction as well as increased regulatory costs and an increase in the Company’s inventory reserve; |
· | Costs of services: cost of services for the six months ended June 30, 2020 decreased approximately 2% compared to the same period in 2019. The change in cost of service was primarily attributable to lower costs associated with our NYSDOH contract partially offset by the inclusion of Curetis cost of services subsequent to the Transaction; |
· | Research and development: research and development expenses for the six months ended June 30, 2020 increased approximately 43% when compared to the same period in 2019. The change in research and development is primarily attributable to the inclusion of Curetis research and development expenses subsequent to the Transaction; |
Cost of products sold: cost of products sold for the six months ended June 30, 2019 decreased approximately 35% when compared to the same period in 2018. The change in costs of products sold is primarily attributable to a reduction in the sale of our rapid pathogen ID testing products;
34 |
Cost of services: cost of services for the six months ended June 30, 2019 increased approximately 14% when compared to the same period in 2018. The change in costs of services is primarily attributable to an increase in costs associated with our collaboration contracts;
Research and development: research and development expenses for the six months ended June 30, 2019 increased approximately 16% when compared to the same period in 2018, primarily due to R&D related costs associated with our contract with the New York State Department of Health that were allocated to cost of services;
General and administrative: general and administrative expenses for the six months ended June 30, 2019 decreased approximately 8% when compared to the same period in 2018, primarily due to decreased payroll related costs; and
Sales and marketing: sales and marketing expenses for the six months ended June 30, 2019 increased approximately 1% when compared to the same period in 2018, primarily due to the increased headcount of our marketing team.
· | General and administrative: general and administrative expenses for the six months ended June 30, 2020 increased approximately 26% when compared to the same period in 2019, primarily due to the inclusion of Curetis expenses subsequent to the Transaction; |
· | Sales and marketing: sales and marketing expenses for the six months ended June 30, 2020 increased approximately 73% when compared to the same period in 2019, primarily due to the inclusion of Curetis sales and marketing expenses subsequent to the Transaction, partially offset by lower travel costs; |
· | Transaction costs: transaction costs for the six months ended June 30, 2020 represent one-time costs incurred as part of the business combination with Curetis; |
· | Impairment of intangible assets: impairment of intangible assets for the six months ended June 30, 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 six months ended June 30, 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)
|
| Six Months Ended June 30, |
| Six months ended June 30, | ||||||||||||
|
| 2019 |
|
| 2018 |
| 2020 | 2019 | ||||||||
Interest expense |
| $ | (93,573 | ) |
| $ | (112,379 | ) | $ | (1,083,158 | ) | $ | (93,573 | ) | ||
Foreign currency transaction gains (losses) |
|
| (472 | ) |
|
| (9,581 | ) | ||||||||
Foreign currency transaction losses | (293,664 | ) | (472 | ) | ||||||||||||
Other income (expense) |
|
| (9,256 | ) |
|
| 5,303 |
| 81,679 | (9,256 | ) | |||||
Change in fair value of derivative financial instruments |
|
| 67 |
|
|
| 8,155 |
| 382,511 | 67 | ||||||
Total other expense |
| $ | (103,234 | ) |
| $ | (108,502 | ) | ||||||||
Total other income (expense) | $ | (912,632 | ) | $ | (103,234 | ) |
The Company’sOur total other expense for the six months ended June 30, 2020 when compared to the same period in 2019 decreasedincreased primarily due to a decreasean increase in interest expense and an increase in other expenses.associated with the debt assumed as part of the Transaction with Curetis.
Liquidity and capital resources
As of June 30, 2019, the Company2020, we had cash and cash equivalents of $3.1$12.9 million compared to $4.6$2.7 million at December 31, 2018. The Company has2019. We have funded its operations primarily through external investor financing arrangements and hashave raised funds in 20192020 and 2018,2019, including:
During the three months ended June 30, 2020, we sold 2,739,442 shares of common stock under the 2020 ATM Offering resulting in aggregate net proceeds to us of approximately $5.9 million, and gross proceeds of $6.1 million. During the six months ended June 30, 2020, we sold 5,554,376 shares of common stock under the 2020 ATM Offering resulting in aggregate net proceeds to us of approximately $11.4 million, and gross proceeds of $11.9 million.
During the six months ended June 30, 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, we 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 Companywe closed the March 2019 Public Offering of 9,000,000450,000 shares of itsour common stock at a public offering price of $0.60$12.00 per share. The offering raised gross proceeds of $5.4 million and net proceeds of approximately $4.8 million.
On October 22, 2018, the Company closed its October 2018 Public Offering of 2,220,000 shares of its common stock at a public offering price of $1.45 per share. The offering raised gross proceeds of approximately $3.2 million and net proceeds of approximately $2.8 million.
On February 6, 2018, the Company closed a public offering, or the February 2018 Public Offering, of 2,841,152 units at $3.25 per unit, and 851,155 pre-funded units at $3.24 per pre-funded unit, raising gross proceeds of approximately $12 million and net proceeds of approximately $10.7 million.
During the year ended December 31, 2018, the Company sold 318,236 shares of its common stock under its at the market offering resulting in aggregate net proceeds to the Company of approximately $0.6 million, and gross proceeds of $0.6 million.
To meet its capital needs, the Company iswe are 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 Companywe will be able to complete any such transaction on acceptable terms or otherwise. The Company believesWe believe that current cash on hand will be sufficient to fund operations into the thirdearly first quarter of 2019.2021. This has led management to conclude that there is substantial doubt about the Company’sour ability to continue as a going concern. In the event the Company iswe are unable to successfully raise additional capital during or before the end of the thirdfirst quarter of 2019, the Company2021, we will not have sufficient cash flows and liquidity to finance itsour business operations as currently contemplated. Accordingly, in such circumstances the Companywe 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 Companywe 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.
35 |
Sources and uses of cash
The Company’sOur 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:
|
| Six Months Ended June 30, |
| Six months ended June 30, | ||||||||||||
|
| 2019 |
|
| 2018 |
| 2020 | 2019 | ||||||||
Net cash used in operating activities |
| $ | (5,824,158 | ) |
| $ | (5,558,536 | ) | $ | (9,232,741 | ) | $ | (5,824,158 | ) | ||
Net cash provided by investing activities |
|
| 4,570 |
|
|
| 5,983 |
| ||||||||
Net cash (used in) provided by investing activities | (934,208 | ) | 4,570 | |||||||||||||
Net cash provided by financing activities |
|
| 4,324,976 |
|
|
| 11,066,901 |
| 20,125,405 | 4,324,976 |
Net cash used in operating activities
Net cash used in operating activities
for the six months ended June 30, 2020 consists primarily of our net loss of $11.4 million, reduced by certain noncash items, including impairment of intangible assets of $0.7 million, depreciation and amortization expense of $0.9 million, non-cash interest expense of $0.8 million, and share-based compensation expense of $0.1 million. Net cash used in operating activities for the six months ended June 30, 2019 consists primarily of our net loss of $6.4 million, reduced by certain noncash items, including impairment of ROU asset of $0.5 million, depreciation and amortization expense of $0.5 million, and stock-based compensation expense of $0.2 million.
Net cash (used in) provided by investing activities
Net cash used in operatinginvesting activities for the six months ended June 30, 2018 consists2020 consisted primarily of ourfunds provided to Curetis GmbH as part of the Interim Facility offset by the acquisition of Curetis net loss of $6.4 million, reduced by certain noncash items, including depreciation and amortization expensecash acquired of $0.3 million and stock-based compensation expense of $0.5$1.3 million.
Net cash provided by investing activities
Net cash provided by investing activities infor the six months ended June 30, 2019 and 2018 consisted solely of purchasesthe 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 six months ended June 30, 2020 of $20.1 million consisted primarily of the net proceeds from the 2020 ATM Offering, exercises of common stock warrants, and issuance of debt. Net cash provided by financing activities for the six months ended June 30, 2019 of $4.3 million consisted primarily of the net proceeds from the March 2019 Public Offering. Net cash provided by financing activities for the six months ended June 30, 2018 of $11.1 million consisted primarily of net proceeds from the February 2018 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 auditedunaudited consolidated financial statements, estimates are used for, but not limited to, liquidity assumptions, revenue recognition, stock-basedshare-based compensation, allowances for doubtful accounts and inventory obsolescence, and 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 livedlong-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, 2018.2019.
36 |
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 June 30, 20192020 and December 31, 2018,2019, 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 itus 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, 2019;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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of June 30, 2019.2020. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Changes in Internal Control over Financial Reporting
On April 1, 2020, OpGen completed its business combination transaction of Curetis. The Company has not yet completed an assessment of the design and/or operating effectiveness of Curetis’ internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 20192020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
37 |
Part II. OTHER INFORMATION
None.
Reference is made to the Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, as supplemented by the following:
We have a history of losses, and we expect to incur losses for the next several years. SubstantialThe report of our independent registered public accounting firm on our financial statements for the years ended December 31, 2019 and 2018 contain explanatory language that substantial doubt exists about our ability to continue as a going concern. If we cannot raise additional capital prior to the end of the third quarter 2019, we will not have sufficient cash and liquidity to fund our business as currently contemplated.
We have incurred substantial losses since our inception, and we expect to continue to incur additional losses for the next several years. For the six months ended June 30, 2019, we had a net loss of $6.4 million and for the yearyears ended December 31, 2019 and 2018, we had a net losslosses of $12.4 million and $13.4 million.million, respectively. From our inception through June 30, 2019,2020, we had an accumulated deficit of $168.5$185.9 million. SubstantialThe reports of our independent registered public accounting firm on our financial statements for the years ended December 31, 2019 and 2018 each contain explanatory language that substantial doubt exists about our ability to continue as a going concern. We completed a number of financings in 2019 and 2020 to date, including the October 2019 Public Offering, March 2019 Public Offering, and 2020 ATM Offering. The net proceeds from such financings were approximately $32.6 million. We believe we can fund our operations into the first quarter of 2021, but cannot assure you that we can continue to raise the capital necessary to fund our business.
We need to raise equity capital to support our business. If we cannot do so successfully, we will not be able to continue as a going concern.
We need to raise equity capital to support our business. If we cannot do so successfully, we will not be able to continue as a going concern. To meet our capital needs, we are considering multiple alternatives, including, but not limited to, the 2020 ATM Offering, additional equity financings, debt financings, convertible note issuances, and other funding transactions, licensing and/or partnering arrangements and business combination transactions.
For example, in July 2015, in connection with our acquisition of our subsidiary, AdvanDx, MGHIF made investments in the Company, including the $1 million MGHIF Note, secured by a security interest in substantially all of our assets, including our intellectual property assets. The debt is due to be paid in six semi-annual payments of $166,667, which began on January 2, 2019 and will end on July 1, 2021. Such secured creditor rights could negatively impact our ability to raise money in the future. If we default on payments under the MGHIF Note, MGHIF has the rights of a secured creditor. If those rights are exercised, it could have a material adverse effect on our financial condition.
Further, in 2016, Curetis entered into a contract for an up to €25 million senior, unsecured loan financing facility from the European Investment Bank (“EIB”), which we assumed in connection with our acquisition of Curetis. As of June 30, 2020, €18.0 million plus deferred interest in the amount of approximately €3.4 million was outstanding under the contract.
We believe that additional equity financings are the most likely source of capital going forward. There can be no assurance that we will be able to complete any such financing transaction on acceptable terms or otherwise.
We believe that current cash on hand will be sufficient to fund our operations into the thirdearly first quarter of 2019. If2021. In the event we are not ableunable to successfully raise additional capital during or before the end of the thirdfirst quarter of 2019,2021, we will not have sufficient cash flows and liquidity to fundfinance our business operations as currently contemplated. Accordingly, in such circumstances we 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 we are able to obtain sufficient financing. We have no committed sources of capital and may find it difficultIf such sufficient financing is not received timely, we would then need to raise money on terms favorablepursue a plan to uslicense or at all. sell assets, seek to be acquired by another entity, cease operations and/or seek bankruptcy protection.
The failure to obtain sufficient capital to support our operations would have a material adverse effect onCOVID-19 pandemic has adversely impact our business, financial condition and results of operations.
The COVID-19 pandemic has impacted the global economy and has impacted our operations in the United States and abroad, including by negatively impacting our sales and revenue. As a result, our total revenues have decreased significantly, and we have implemented certain operational changes in order to address the evolving challenges presented by the global pandemic. We receivedhave experienced significant reductions in the demand for certain of our products, particularly due to the decline in elective medical procedures and medical treatment unrelated to COVID-19, which negatively impacted our revenues in the first half of fiscal year 2020. As the pandemic continues, we expect to continue to experience weakened demand for these products as a bid price deficiency noticeresult of the reduction in elective and non-essential procedures, lower utilization of routine testing and related specimen collection, reduced spend by customers and reduced demand from research laboratories.
38 |
Healthcare providers, including our strategic partners, are focused almost exclusively on dealing with COVID-19, and may be unable to continue to participate in our clinical activities. For example, some clinical trial sites have imposed restrictions on site visits by sponsors and CROs, the NASDAQ Capital Market. Ifinitiation of new trials, and new patient enrollment to protect both site staff and patients from possible COVID-19 exposure and to focus medical resources on patients suffering from COVID-19. The pandemic will therefore likely delay enrollment in and completion of our clinical trials due to prioritization of hospital resources toward the outbreak, and some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Moreover, due to site and participant availability during the pandemic and in the interest of patient safety, many of our partners have paused new subject enrollment for most clinical trials.
For ongoing trials, we have seen an increasing number of clinical trial sites imposing restrictions on patient visits to limit risks of possible COVID-19 exposure, and we may experience issues with participant compliance with clinical trial protocols as a result of quarantines, travel restrictions and interruptions to healthcare services. The current pressures on medical systems and the prioritization of healthcare resources toward the COVID-19 pandemic have also resulted in interruptions in data collection and submissions for certain clinical trials and delayed starts for certain planned studies. Further, health regulatory agencies globally may also experience disruptions in their operations as a result of the COVID-19 pandemic. The FDA and comparable foreign regulatory agencies may have slower response times or be under-resourced, which could significantly delay the FDA’s ability to timely review and process any submissions we or our partners have filed or may file.
As a result of the outbreak, we and certain of our suppliers may also be affected and could experience closures and labor shortages, which could disrupt activities. We could therefore face difficulty sourcing key components necessary to produce our product candidates, which may negatively affect our clinical development activities. Even if we are unableable to curefind alternate sources for some of these components, they may cost more, which could affect our results of operations and financial position.
At this deficiencypoint in time, there remains significant uncertainty relating to the potential effect of the novel coronavirus on our business and meet the NASDAQ continued listing requirements, we could be delisted from the NASDAQ Capital Marketresults of operations. As coronavirus becomes more widespread, each day manufacturing closures and travel restrictions may remain or worsen, all of which would negativelyhave a negative impact the tradingon our ability to operate our business, financial condition and results of operations.
Moreover, we have transitioned a significant subset of our common stock.office-based employee population to a remote work environment in an effort to mitigate the spread of COVID-19, which may exacerbate certain risks to our business, including cybersecurity attacks and risk of phishing due to an increase in the number of points of potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers). Additionally, we may find that remote work arrangements are not as efficient as physical operations. Specifically, due to ongoing travel and immigration issues related to the ongoing COVID-19 pandemic, our Chief Executive Officer is required to work from Germany. His ability to oversee and manage the Company from outside of the United States may further exacerbate risks to our results of operations and financial position.
On May 6, 2019,We and our wholly-owned subsidiary, Curetis USA, accepted loans under the CARES Act pursuant to the Paycheck Protection Program, or the PPP, which loan may not be forgiven or may subject us to challenges and investigations regarding qualification for the loan.
We have secured loans under the CARES Act Paycheck Protection Program (“PPP”) in the aggregate amount of approximately $1.1 million. We intend to use such funds for the intended purposes to maintain our employee base and pay rent and utility expenses. There has been significant negative publicity regarding the receipt of PPP loans by publicly traded companies, and there is a risk that our receipt of PPP loans will be closely scrutinized and additional requirements will be imposed on us by the lender and the Small Business Association, or the SBA.
The PPP loan application required us to certify, among other things, that the current economic uncertainty made the PPP loan request necessary to support our ongoing operations. While we received notice from NASDAQmade this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we had failed to maintain a bid pricesatisfied all eligibility criteria for the PPP loan and that our receipt of at least $1.00 per share for 30 successive trading days. We have six months to regain compliancethe PPP loans is consistent with the listing standard. We have submittedbroad objectives of the PPP of the CARES Act, the certification described above does not contain any objective criteria and is subject to interpretation.
In addition, the SBA previously stated that it is unlikely that a proposalpublic company with substantial market value and access to our stockholders to be considered at our 2019 annual meeting of stockholders to be held on August 22, 2019 to provide the Board of Directors with the authority to effect a reverse stock split of our common stock. However, there can be no assurance that our stockholders will approve the proposal or that wecapital markets will be able to maintainmake the NASDAQ Capital Market listingrequired certification in good faith. The lack of clarity regarding loan eligibility under the PPP has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good faith belief that we satisfied all eligibility requirements for the PPP loans, we are found to have been ineligible to receive the PPP loans or in violation of any of the laws or governmental regulations that apply to us in connection with the PPP loans, including the False Claims Act, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP loans. In the event that we seek forgiveness of all or a portion of the PPP loans, we will also be required to make certain certifications which will be subject to audit and review by governmental entities and could subject us to significant penalties and liabilities if found to be inaccurate, including under the False Claims Act. In addition, our receipt of the PPP loans may result in adverse publicity and damage to our reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources. Any of these events could harm our business, results of operations and financial condition.
39 |
Customer demand for and our ability to sell and market our products may be adversely affected by the COVID-19 pandemic and the legislative and regulatory responses thereto.
U.S. state and local governments as well as many governments around the world have imposed orders, restrictions and recommendations resulting in closures of businesses, work stoppages, travel restrictions, social distancing practices and cancellations of gatherings and events. Such orders, restrictions and recommendations, combined with fears of the spreading of COVID-19, has and may continue to cause certain of our common stock in the future.
Ifcustomers to delay, cancel or reduce orders of our common stock is delisted by NASDAQ, our common stock may be eligible for quotation on an over-the-counter quotation system or on the pink sheets. Upon any such delisting, our common stock would become subject to the regulations of the SEC relating to the market for penny stocks. A penny stock is any equity security not traded on a national securities exchange that has a market price of less than $5.00 per share. The regulations applicable to penny stocks may severely affect the market liquidity for our common stockproducts and could limit the ability of shareholders to sell securities in the secondary market. In such a case, an investor may findmakes it more difficult to disposefacilitate meetings with current and potential customers, as our sales personnel often rely on in-person meetings and interaction with our customers. COVID-19 related restrictions have thus harmed our sales efforts, and continued restrictions could have a negative impact on our sales and results of operations. We are unable to accurately predict how these factors will reduce our sales going forward and when these orders, restrictions and recommendations will be relaxed or obtain accurate quotations as to the market value of our common stock, and therelifted. There can be no assuranceassurances that our common stockcustomers and distributors will be eligible for trading or quotation on any alternative exchanges or markets.
Delisting from NASDAQ could adversely affect our ability to raise additional financing through public or private sales of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidityresume purchases of our common stock. Delistingproducts upon termination of these governmental orders, restrictions and recommendations, particularly if there remains any continued community outbreak of COVID-19. A prolonged economic contraction or recession may also result in our customers seeking to reduce their costs and expenditures, which could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development and business combination opportunities.
The process to obtain and maintain FDA clearances or approvalsresult in lower demand for our products is complex and time-consuming.products. If we fail to obtainour sales decline, or if such clearances or approvals,lost sales are not recoverable in the future, our revenues, business and results of operations will be materiallysignificantly adversely impacted.affected.
It is not possible to predict the future of the emerging COVID-19 global pandemic or the development of potential tests or treatments. No assurance can be given that our products will aid in the testing or the treatment of this virus.
We offer products for the testing for SARS-CoV-2, the causal pathogen of COVID-19. We may offer other products for testing or treatment of coronavirus. There can be no assurance that the existing test or any such future tests will be broadly adopted for use. We are among many companies that are trying to develop tests for coronavirus, most of whom have far greater resources than us. If one of these companies develops an effective test, our development of such tests may not significantly increase our revenues and results of operations.
We incurred significant indebtedness as a result of the combination with Curetis, which could have a material adverse effect on our financial condition.
On April 1, 2020, we assumed the indebtedness of Curetis N.V. and Curetis. As of June 30, 2020, we owed indebtedness of approximately $550,000 to Yorkville under the Convertible Notes with maturity in June 2021 and owed indebtedness of $20.2 million of principal (plus interest of $3.8 million) under a loan provided by the European Investment Bank with maturities in 2022, 2023, and 2024. In addition, we have secured indebtedness to MGHIF under the MGHIF Note. OpGen may not be able to generate sufficient cash to service all of its indebtedness and may be forced to take other actions to satisfy its obligations under indebtedness that may not be successful. The inability in the future to repay such indebtedness when due would have a material adverse effect on us.
We have incurred significant transaction costs as a result of the business combination transaction with Curetis, which could have a material adverse effect on our financial condition.
We have incurred significant one-time transaction costs related to the business combination with Curetis. These transaction costs include legal and accounting fees and expenses and filing fees, printing expenses, banking advisory fees, and other related charges. Additional costs will be incurred in connection with integrating the two companies’ businesses. Costs in connection with the transaction and integration may be higher than expected. These costs could adversely affect our financial condition, operating results or prospects.
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The processbusiness combination transaction with Curetis significantly changed the business and operations of obtaining regulatory clearancesOpGen. We may face challenges integrating the businesses.
Following the consummation of the combination with Curetis, we will continue as the operating entity and both the size and geographic scope of our business will significantly increase. Most of the Curetis business is currently conducted in Europe, Asia and other countries outside of the United States, and many of the Curetis employees are located outside of the United States. In addition, the majority of the initial board of directors consist of individuals appointed by Curetis N.V., and we expect that the focus of our business may shift to Curetis operations. We may face challenges integrating such geographically diverse businesses and implementing a smooth transition of business focus and governance in a timely or approvalsefficient manner, especially while the global COVID-19 pandemic is continuing. In particular, if the effort we devote to marketthe integration of our businesses diverts more management time or other resources from carrying out our operations than we originally planned, our ability to maintain and increase revenues as well as manage our costs could be impaired. Furthermore, our capacity to expand other parts of our existing businesses may be impaired. We also cannot assure you that our combination with Curetis will function as we anticipate, or that significant synergies will result from the business combination. Any of the above could have a medical device canmaterial adverse effect on our business.
Management and the board of directors of OpGen changed upon the consummation of our acquisition of the Curetis businesses. We cannot assure you that this will not have a material impact on our business.
Oliver Schacht, Ph.D., the prior chief executive officer of Curetis N.V., became the chief executive officer at the closing of our acquisition of the Curetis business. Pursuant to the acquisition, four members of our board of directors following the closing were appointed by Curetis N.V. and two by OpGen. Any new members of management or new directors are likely to have different backgrounds, experiences and perspectives from those individuals who previously served as executive officers or directors and, thus, may have different views on the issues that will determine our future. Additionally, the ability of our new directors to quickly expand their knowledge of our operations will be costlycritical to their ability to make informed decisions about our business and time consuming,strategies, particularly given the competitive environment in which we operate. As a result, our future strategy and plans may differ materially from those of the past.
The acquisition of the Curetis businesses may not lead to the growth and success of the combined business that we believe will occur.
Although we believe the combination of the OpGen and Curetis businesses provides a significant commercial opportunity for growth, we may not realize all of the synergies that we anticipate and may not be successful in implementing our commercialization strategy. Our combined business will be subject to all of the risks and uncertainties inherent in the pursuit of growth in our industry and we may not be able to successfully sell our products, obtain thesethe regulatory clearances and approvals we apply for or, approvals on a timely basis, if at all. In May 2019, we filed a 510(k) submission withor realize the FDA seeking clearance ofanticipated benefits from our Acuitas AMR Gene Panel (Isolates) diagnostic test. In July 2019, we received correspondence from the FDA requesting additional information related to this filing. The Company is currently evaluating the FDA correspondencedistribution, collaboration and preparing its responses.other commercial partners. If we cannot successfully address the questions posed by the FDA,are not able to grow our receipt of clearance for this productbusiness as a commercial enterprise, our financial condition will be delayed. In addition,negatively impacted.
Integrating the businesses of OpGen and Curetis may disrupt or have a negative impact on OpGen.
We could have difficulty integrating the assets, personnel and business of OpGen and Curetis. The proposed transaction was complex and we have devoted and will need to continue to devote significant time and expense neededresources to respond tointegrating the FDA’s request for additional information may divert time and attention frombusinesses. Risks that could impact us negatively include:
· | the difficulty of integrating the acquired companies, and their concepts and operations; |
· | the difficulty in combining our financial operations and reporting; |
· | the potential disruption of the ongoing businesses and distraction of our management; |
· | changes in our business focus and/or management; |
· | risks related to international operations; |
· | the potential impairment of relationships with employees and partners as a result of any integration of new management personnel; and |
· | the potential inability to manage an increased number of locations and employees. |
If we are not successful in addressing these risks effectively, our other regulatory submissions in process, which may adversely affect our strategy and ability to commercialize our diagnostic tests and bioinformatics products and services. business could be severely impaired.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
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Item 4. Mine Safety Disclosures
Not applicable.
None.
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Number
* | Filed or furnished herewith |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
OPGEN, INC. | |||
By: | /s/ Timothy C. Dec | ||
Timothy C. Dec | |||
Chief Financial Officer | |||
Date: | August 14, |
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