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
The Company's molecular diagnostics and informatics products, product candidates
and services combine its Acuitas molecular diagnostics and
• 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 in development for patients at risk for complicated
urinary tract infections, or cUTI, its 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 its
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.
In
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the
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 technology as well as raise additional capital.
Following receipt of approval from stockholders at a special meeting of
stockholders held on
2019 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:
• OnOctober 28, 2019 , the Company closed theOctober 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 ofDecember 31, 2019 , all 2,109,830 pre-funded warrants issued in theOctober 2019 Public Offering have been exercised. • OnMarch 29, 2019 , the Company closed theMarch 2019 Public Offering of 450,000 shares of its common stock at a public offering price of$12.00 per share. The offering raised gross proceeds of$5.4 million and net proceeds of approximately$4.8 million .
Results of Operations for the Years Ended
Revenues
Years Ended December 31,
2019 2018
Revenue
Product sales $ 2,168,179 $ 2,395,626
Laboratory services 5,435 34,665
Collaboration revenue 1,325,000 516,016
Total revenue $ 3,498,614 $ 2,946,307 Our total revenue for the year ended
• Product Sales: the decrease in revenue of 9% in 2019 as compared to 2018 is
primarily attributable to a reduction in the sale of our rapid pathogen ID
testing products (QuickFISH and PNA FISH);
• Laboratory Services: the decrease in revenue of 84% in 2019 as compared to
2018 is a result of decreases in sales of our Acuitas test products; and
• Collaboration Revenue: the increase in collaboration revenue of 157% in 2019
as compared to 2018 is primarily the result of increased Acuitas revenue
associated with our NYSDOH contract.
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Operating expenses
Years Ended December 31,
2019 2018
Cost of products sold $ 911,565 $ 1,222,919
Cost of services 720,156 625,516
Research and development 5,121,168 5,677,243
General and administrative 6,252,442 7,069,315
Sales and marketing 1,464,721 1,531,556
Transaction costs 779,048 -
Impairment of right-of-use asset 520,759 -
Total operating expenses $ 15,769,859 $ 16,126,549 The Company's total operating expenses for the year ended
• Costs of products sold: expenses for the year endedDecember 31, 2019 decreased approximately 25% 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; • Costs of services: expenses for the year endedDecember 31, 2019 increased approximately 15% when compared to the same period in 2018. The change in costs of services is primarily attributable to increased costs of services associated with our NYSDOH contract; • Research and development: expenses for the year endedDecember 31, 2019 decreased approximately 10% when compared to the same period in 2018, primarily due to a decrease in expenses related to our 510(k) submission for theAcuitas AMR Gene Panel for use with bacterial isolates; • General and administrative: expenses for the year endedDecember 31, 2019 decreased approximately 12% when compared to the same period in 2018, primarily due to decreased payroll and outside service costs; and • Sales and marketing: expenses for the year endedDecember 31, 2019 decreased approximately 4% when compared to the same period in 2018, primarily due to reduced marketing related costs. Other income (expense) Years Ended December 31, 2019 2018 Interest expense$ (187,549 ) $ (191,195 ) Foreign currency transaction gains/(losses) 2,410 (10,431 ) Change in fair value of derivative financial instruments 67 8,386 Interest and other income 9,859 5,384 Total other expense$ (175,213 ) $ (187,856 )
Other expense for the year ended
Liquidity and capital resources
At
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On
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During the year ended
Sources and uses of cash
The following table summarizes the net cash flows provided by (used in)
operating activities, investing activities and financing activities for the
periods indicated:
Years Ended December 31,
2019 2018
Net cash used in operating activities $ (11,505,439 ) $ (11,073,997 )
Net cash used in investing activities (2,502,576 ) (137,327 )
Net cash provided by financing activities 12,168,146 13,845,102
Net cash used in operating activities
Net cash used in operating activities in 2019 consists primarily of our net loss
of
Net cash used in investing activities
Net cash used in investing activities in 2019 consisted primarily of funds
provided to
Net cash provided by financing activities
Net cash provided by financing activities in 2019 of
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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, stock-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 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.
Revenue Recognition
The Company derives revenues from (i) the sale of QuickFISH and PNA FISH
diagnostic test products and
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 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
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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.
Recent accounting pronouncements
On
On
In
The Company adopted this guidance effective
• 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
Prior to the adoption of ASC 842, deferred rent was recorded and amortized to the extent the total minimum rental payments allocated to the period on a straight-line basis exceeded or were less than the cash payments required.
In
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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.
Off-Balance Sheet Arrangements
As of
JOBS Act
On
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
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