OPGEN, INC. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report. 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 in the section titled "Risk Factors" included under Part I, Item 1A of this Annual Report.
Overview
On
The focus of
· 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 theNational Center for Health Statistics (2018), pneumonia is a leading cause of admissions to the hospital and is associated with substantial morbidity and mortality. The Unyvero LRT automated test detects 19 pathogens within less than five hours, with approximately two minutes of hands-on time and provides clinicians with a comprehensive overview of 10 genetic antibiotic resistance markers. We are also commercializing the Unyvero LRT BAL test for testing bronchoalveolar lavage, or BAL, specimens from patients with lower respiratory tract infections following FDA clearance received by Curetis inDecember 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 now also includes Pneumocystis jirovecii, a key fungal pathogen often found in immunocompromised patients that can be difficult to diagnose as the 20th pathogen on the panel. 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 theU.S. healthcare system, according to theCenters for Disease Control , orCDC .
· The Unyvero Urinary Tract Infection, or UTI, test which is CE-IVD marked in
Europe is currently being made available to laboratories in theU.S. 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. As part of our portfolio strategy update onOctober 13, 2020 , we have decided to proceed with the analytical and clinical performance evaluation including clinical trials required for a subsequentU.S. FDA submission.
· The Unyvero Invasive Joint Infection, or IJI, test, which is a variant
developed for the U.S. market based on the CE-IVD-marked European Unyvero ITI
test, has also been selected for analytical and clinical performance evaluation
including clinical trials towards a future
diagnosis of IJI is difficult because of challenges in sample collection,
usually at surgery, and patients being on prior antibiotic therapy which
minimizes the chances of recovering viable bacteria. We believe that Unyvero
IJI could be useful in identifying pathogens as well as their AMR markers to
help guide optimal antibiotic treatment for these patients.
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·
a potential clearance decision. The FDA recently notified us that the agency plans to continue prioritizing emergency use authorization requests for diagnostic products intended to address the COVID-19 pandemic for at least the remainder of the year, which will impact the statutory review periods for submissions, including the potential clearance decision on ourAcuitas AMR Gene Panel (Isolates) submission. Despite the FDA having informed us of their resumed review at the end ofJanuary 2021 of the responses filed byOpGen to the AI letters, the FDA still does not commit to any MDUFA timelines. Once FDA cleared, we expect to commercialize theAcuitas AMR Gene Panel for isolates more broadly to customers in theU.S. The Acuitas AMR Gene Panel (Urine) test has been discontinued as part of theOctober 13, 2020 portfolio and pipeline strategy review.
· We are also developing novel bioinformatics tools and solutions to accompany or
augment our current and potential future IVD products and may seek regulatory clearance for such bioinformatics tools and solutions to the extent they would be required either as part of our portfolio of IVD products or even as a standalone bioinformatics product.
In addition to potential future licensing and partnering,
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-IVD-marked in 2012 and was FDA cleared in 2018 along with
the LRT test through a De Novo request. As of
The Company has extensive partner and distribution relationships to help
accelerate the establishment of a global infectious disease diagnostic testing
and informatics business. Partners include
Our headquarters are in
56 Financing Transactions
Since inception, the Company has incurred, and continues to incur, significant losses from operations. The Company has funded its operations primarily through external investor financing arrangements. The following financing transactions took place during 2019 and 2020:
· On
shares of its common stock at a public offering price of$12.00 per share. The offering raised gross proceeds of$5.4 million and net proceeds of approximately$4.8 million .
· On
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 ofDecember 31, 2019 , all 2,109,830 pre-funded warrants issued in theOctober 2019 Public Offering have been exercised.
· On
Wainwright, which was subsequently amended and restated onNovember 13, 2020 , to add BTIG as a sales agent, 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$22.1 million of shares of its common stock through the sales agents. During the year endedDecember 31, 2020 , the Company sold 7,521,610 shares of its common stock under the 2020 ATM Offering resulting in aggregate net proceeds of approximately$15.8 million , and gross proceeds of$16.7 million .
· On
healthcare-focusedU.S. institutional investor of (i) 2,245,400 shares of common stock together with 2,245,400 warrants (the "Common Warrants") to purchase up to 2,245,400 shares of common stock and (ii) 2,597,215 pre-funded warrants (the "Pre-Funded Warrants"), with each Pre-Funded Warrant exercisable for one share of common stock, together with 2,597,215 Common Warrants to purchase up to 2,597,215 shares of common stock. Each share of common stock and accompanying Common Warrant were sold together at a combined offering price of$2.065 , and each Pre-funded Warrant and accompanying Common Warrant were sold together at a combined offering price of$2.055 . The Common Warrants have an exercise price of$1.94 per share and are exercisable commencing on the six month anniversary of the date of issuance, and will expire five and one half (5.5) years from the date of issuance (collectively, the "2020 PIPE"). The 2020 PIPE raised aggregate net proceeds of$9.3 million , and gross proceeds of$10.0 million .
· During the year ended
warrants issued in our
proceeds of approximately
In addition to the foregoing, the Company also completed the following financing transactions during 2021:
· On
"
institutional investor for the purchase of (i) 2,784,184 shares of common stock
and (ii) 5,549,149 pre-funded warrants (the "Pre-Funded Warrants"), with each
Pre-Funded Warrant exercisable for one share of common stock. The Company also
issued to the investor, in a concurrent private placement, unregistered common
share purchase warrants (the "Common Warrants") to purchase 4,166,666 shares of
the Company's common stock. Each share of common stock and accompanying Common
Warrant were sold together at a combined offering price of
Pre-Funded Warrant and accompanying Common Warrant were sold together at a
combined offering price of
exercisable, at an exercise price of
until all of the Pre-Funded Warrants are exercised in full. The Common Warrants
have an exercise price of
six-month anniversary of the date of issuance, and expire five and one half
(5.5) years from the date of issuance. The
aggregate net proceeds of
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· As noted above on
purchase agreement with an institutional investor (the "Holder"), pursuant to which the Company issued to the Investor, securities of the Company, including warrants (the "Existing Warrants") to purchase up to 4,842,615 shares of common stock of the Company (the "Warrant Shares"). The Existing Warrants were exercisable six months after their issuance at an exercise price of$1.94 per share and expire on the fifth and a half year anniversary of the date of issuance. OnMarch 9, 2021 , the Company entered into a Warrant Exercise Agreement (the "Exercise Agreement") with the Holder. Pursuant to the Exercise Agreement, in order to induce the Holder to exercise all of the remaining 4,842,615 outstanding Existing Warrants for cash, pursuant to the terms of and subject to beneficial ownership limitations contained in the Existing Warrants, the Company agreed to issue to the Holder, new warrants (the "New Warrants") to purchase 0.65 shares of Common Stock for each share of Common Stock issued upon such exercise of the remaining 4,842,615 outstanding Existing Warrants pursuant to the Exercise Agreement or an aggregate of 3,147,700 New Warrants. The terms of the New Warrants are substantially similar to those of the Existing Warrants, except that the New Warrants will have an exercise price of$3.56 . The New Warrants are immediately exercisable and expire five years from the date of the Exercise Agreement. OnMarch 12, 2021 , the Company and the Holder amended the Exercise Agreement to provide that the Holder would pay the Company$0.08125 for each New Warrant issued to the Holder. The Holder paid an aggregate of$255,751 to the Company for the purchase of the New Warrants. The Company received aggregate gross proceeds before expenses of approximately$9.65 million from the exercise of all of the remaining 4,842,615 outstanding Existing Warrants held by the Holder and the payment of the purchase price for the New Warrants.
Results of Operations for the Years Ended
Revenues
Years Ended December 31,
2020 2019
Revenue
Product sales $ 2,704,364 $ 2,168,179
Laboratory services 167,736 5,435
Collaboration revenue 1,342,341 1,325,000
Total revenue $ 4,214,441 $ 3,498,614 The Company's total revenue for the year ended
· Product Sales: the increase in revenue of 25% 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 the Company's FISH rapid pathogen ID testing products due to the loss of large customers and COVID-19;
· Laboratory Services: the increase in revenue 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: the decrease in collaboration revenue of 1% in the 2020
period compared to the 2019 period is primarily the result of by lower revenue from our contract with theNew York State DOH offset by the inclusion of Ares Genetics' Collaboration revenue subsequent to the Transaction. Operating expenses Years Ended December 31, 2020 2019 Cost of products sold$ 3,360,280 $ 911,565 Cost of services 488,211 720,156 Research and development 9,964,720 5,121,168 General and administrative 8,801,661 6,252,442 Sales and marketing 3,094,092 1,464,721 Transaction costs 471,522 779,048
Impairment of right-of-use asset 101,838 520,759 Impairment of intangible assets 750,596
-
Gain on sale of equipment (100,000 ) -
Total operating expenses $ 26,932,920 $ 15,769,859
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The Company's total operating expenses for the year ended
· Costs of products sold: expenses for the year ended
approximately 269% 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 write off of its FISH inventory;
· Costs of services: expenses for the year ended
approximately 32% when compared to the same period in 2019. The change in cost of service was primarily attributable to lower costs associated with ourNew York State DOH contract partially offset by the inclusion of Curetis' and Ares Genetics' cost of services subsequent to the Transaction;
· Research and development: expenses for the year ended
increased approximately 95% when compared to the same period in 2019. The change in research and development is primarily attributable to the inclusion of Curetis' and Ares' research and development expenses subsequent to the Transaction;
· General and administrative: expenses for the year ended
increased approximately 41% when compared to the same period in 2019, primarily
due to the inclusion of Curetis' expenses subsequent to the Transaction;
· Sales and marketing: expenses for the year ended
approximately 111% 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 year ended
decreased approximately 39% when compared to the same period in 2019, primarily
due to the timing of the Transaction announcement in 2019;
· Impairment of intangible assets: impairment of intangible assets for the year
ended
from
· Impairment of right-of-use asset: impairment of right-of-use asset for the year
endedDecember 31, 2020 represents the impairment of ourWoburn, Massachusetts ROU asset recorded as part of the Company's adoption of ASU 2016-02, Leases (Topic 842) in 2019 and the additional impairment expense in 2020; and
· Gain on sale of equipment: gain on sale of equipment for the year ended
December 31, 2020 represents the sale of laboratory equipment to one of our vendors. Other expense Years Ended December 31, 2020 2019 Gain on extinguishment of debt$ 884,970 $ - Interest expense (3,399,384 ) (187,549 ) Foreign currency transaction (losses) gains (1,468,855 ) 2,410 Change in fair value of derivative financial instruments 517,680 67 Interest and other income 105,627 9,859 Total other expense$ (3,359,962 ) $ (175,213 )
Other expense for the year ended
Liquidity and Capital Resources
At
On
On
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During the year ended
On
On
Sources and uses of cash
The following table summarizes the net cash provided by (used in) operating activities, investing activities and financing activities for the periods indicated:
Years Ended December 31,
2020 2019
Net cash used in operating activities
Net cash used in operating activities
Net cash used in operating activities in 2020 consisted primarily of our net
loss of
Net cash used in investing activities
Net cash used in investing activities in 2020 consisted primarily of funds
provided to
Net cash provided by financing activities
Net cash provided by financing activities in 2020 of
Funding requirements
Our primary use of cash is to fund operating expenses, including our research and development expenditures. Our future funding requirements will depend on many factors, including the following:
· the initiation, progress, timing, costs and results of preclinical studies and
clinical trials for our products;
· the clinical development plans we establish for these products;
· the number and characteristics of products that we develop;
· the outcome, timing and cost of meeting regulatory requirements established by
the FDA, EMA and other comparable foreign regulatory authorities;
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· the terms of our existing and any future license or collaboration agreements we
may choose to enter into, including the amount of upfront, milestone and
royalty obligations;
· the other costs associated with in-licensing new technologies, such as any
increased costs of research and development and personnel;
· the cost of filing, prosecuting, defending and enforcing our patent claims and
other intellectual property rights;
· the cost of defending intellectual property disputes, including patent
infringement actions brought by third parties against us or our product
candidates;
· the effect of competing technological and market developments;
· the degree of commercial success achieved following the successful completion
of development and regulatory approval activities for our products.
· the cost to establish and maintain collaborations on favorable terms, if at
all; and
· the cost to comply with our obligations as a public company.
Critical Accounting Policies and Use of Estimates
This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our audited consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In our audited consolidated financial statements, estimates are used for, but not limited to, liquidity assumptions, revenue recognition, share-based compensation, allowances for doubtful accounts and inventory obsolescence, valuation of derivative financial instruments measured at fair value on a recurring basis, deferred tax assets and liabilities and related valuation allowance, estimated useful lives of long-lived assets, and the recoverability of long-lived assets. Actual results could differ from those estimates.
A summary of our significant accounting policies is included in Note 3 to the accompanying audited 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.
Business Combinations
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated acquisition date fair values. The excess of the fair value of the purchase consideration over the fair values of the identifiable assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets and debt instruments.
Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer/distributions relationships, developed technology, and in-process research & development discount rates, and terminal values. Our estimate of fair value is based upon assumptions believed to be reasonable, but actual results may differ from estimates.
We determine the fair value of assumed debt using a discounted cash flow analysis using interest rates for debt with similar terms and maturities. Differences between the fair value and the stated value is recorded as a discount or premium and amortized over the remaining term using the effective interest method. We utilize a Monte Carlo simulation method to determine the fair value of conversion notes, which utilizes inputs including the common stock price, volatility of common stock, the risk-free interest rate and the probability of conversion to common shares at the conversion rate.
Other estimates associated with the accounting for the acquisition may change as additional information becomes available regarding the assets acquired and liabilities assumed, as more fully discussed in Note 4 - Business Combination of the notes to the consolidated financial statements (Part II, Item 8 of this Form 10-K).
61 Revenue Recognition
The Company derives revenues from (i) the sale of
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.
Impairment of Long-Lived Assets
Property and equipment is 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.
Definite-lived intangible assets include trademarks, developed technology, software and customer relationships. 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.
Share-Based Compensation
Share-based payments to employees, directors and consultants are recognized at fair value. The resulting fair value is recognized ratably over the requisite service period, which is generally the vesting period of the option. The estimated fair value of equity instruments issued to nonemployees is recorded at fair value on the earlier of the performance commitment date or the date the services required are completed.
For all time-vesting awards granted, expense is amortized using the straight-line attribution method. For awards that contain a performance condition, expense is amortized using the accelerated attribution method. Share-based compensation expense recognized is based on the value of the portion of stock-based awards that is ultimately expected to vest during the period. The fair value of share-based payments is estimated, on the date of grant, using the Black-Scholes model. Option valuation models, including the Black-Scholes model, require the input of highly subjective estimates and assumptions, and changes in those estimates and assumptions can materially affect the grant-date fair value of an award. These assumptions include the fair value of the underlying and the expected life of the award.
See additional discussion of the use of estimates relating to share-based compensation, and a discussion of management's methodology for developing each of the assumptions used in such estimates, in Note 3 to the accompanying consolidated financial statements.
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Recent Accounting Pronouncements
We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 3 to our consolidated financial statements appearing elsewhere in this filing, such standards will not have a material impact on our consolidated financial statements or do not otherwise apply to our operations.
Off-Balance Sheet Arrangements
As of
JOBS Act
Prior to
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