Table of Contents

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 March 31, 2018 

 

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 001-36200

 

---

 

OXFORD IMMUNOTEC GLOBAL PLC

(Exact name of registrant as specified in its charter)

 

England and Wales	98-1133710
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
94C Innovation Drive, Milton Park, Abingdon OX14 4RZ, United Kingdom	Not Applicable
(Address of Principal Executive Offices)	(Zip Code)

 

+44 (0)1235 442780

(Registrant’s Telephone Number, Including Area Code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

 

Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the 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 ☐   Non-accelerated filer  ☐ (Do not check if a smaller reporting company)

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 ☒

 

As of April 25, 2018, there were 25,881,152 Ordinary Shares, nominal value £0.006705, of Oxford Immunotec Global PLC outstanding.

 

 

Oxford Immunotec Global PLC Form 10-Q Quarterly Period Ended March 31, 2018   TABLE OF CONTENTS   PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed consolidated balance sheets as of March 31, 2018 (unaudited) and December 31, 2017	4
	Condensed consolidated statements of operations (unaudited) for the three months ended March 31, 2018 and 2017	5
	Condensed consolidated statements of other comprehensive loss (unaudited) for the three months ended March 31, 2018 and 2017	6
	Condensed consolidated statements of cash flows (unaudited) for the three months ended March 31, 2018 and 2017	7
	Notes to the unaudited condensed consolidated financial statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	26
Signatures		27

 

 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q, and exhibits hereto, contains or incorporates by reference estimates, predictions, opinions, projections and other statements that may be interpreted as “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The forward-looking statements are contained principally in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Part II, Item 1A, “Risk Factors,” but are also contained elsewhere in this Quarterly Report. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “would,” “could,” “should,” “intend,” “plan,” “contemplate,” “expect,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “target,” “potential,” “continue,” and “ongoing” and other comparable expressions intended to identify statements about the future, although not all forward-looking statements contain these identifying words. These statements involve substantial known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievements to differ materially from those currently anticipated. Forward-looking statements are neither historical facts nor assurances of future performance. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain and that involve substantial risks and uncertainties. Such risks and uncertainties include, but are not limited to:

 

●

our history of losses, our ability to achieve or sustain profitability and our ability to manage our growth;

●

our ability to effectively use our current financial resources and our ability to obtain additional capital resources;

●

our ability to service our debt and meet the obligations thereunder;

●

our ability to further develop, commercialize and achieve market acceptance of our current and future products;

●

our ability to obtain and maintain regulatory body clearance and approval to market any of our products;

●

continued demand for diagnostic products for tuberculosis, tick-borne diseases and other than immune-regulated conditions and the development of new market opportunities;

●

our ability to compete successfully and to maintain and expand our sales network;

●

our ability to properly complete and submit claims to insurers and other third party payors with respect to coverage and reimbursement;

●

decisions by insurers and other third party payors with respect to coverage and reimbursement;

●

our dependence on certain of our customers, suppliers and service providers;

●

disruptions to our business, including disruptions at our laboratories and manufacturing facilities;

●

the integrity and uninterrupted operation of our information technology and storage systems;

●

the impact of currency fluctuations on our business;

●

the impact of global economic and political developments, including the referendum to leave the European Union, passed by the United Kingdom, or U.K., on June 23, 2016, and further implementing legislation on our business;

●

potential changes in the United States, or U.S., social, political, regulatory and economic conditions or laws and policies governing the health care system, U.S. tax laws, foreign trade, immigration, manufacturing, and development and investment in the territories and countries where we or our customers and suppliers operate;

●

our ability to make successful acquisitions or investments and to manage the integration of such acquisitions or investments;

●

our ability to retain key members of our management;

●

the impact of taxes on our business, including our ability to use net operating losses;

●

the impact of legislative and regulatory developments, including healthcare and tax reform, on our business;

●

potential changes to the Patient Protection and Affordable Care Act of 2010, or PPACA;

●

the impact of product liability, intellectual property and commercial litigation on our business;

●

our ability to comply with Securities and Exchange Commission, or SEC, reporting, antifraud, anti-corruption, environmental, health and safety laws and regulations;

●

our ability to maintain our licenses to sell our products around the world, including in countries such as China and the U.S. and in the several U.S. states requiring licensure;

●

our ability to protect and enforce our intellectual property rights;

●

our status as an emerging growth company, which ends in late 2018, and as an English company listing ordinary shares in the U.S.;

●

the volatility of the price of our shares, substantial future sales of our shares and the fact that we do not pay dividends; and

●

the impact of anti-takeover provisions under U.K. law and our articles of association.

 

 

You should refer to Part I, Item 1A, “Risk Factors” in our 2017 Annual Report on Form 10-K for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Further, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this Quarterly Report represent our views only as of the date of this Quarterly Report. Subsequent events and developments may cause our views to change. While we may elect to update these forward-looking statements at some point in the future, we undertake no obligation to publicly update any forward-looking statements, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report. As used in this Quarterly Report, the words “Company,” “we,” “us” and “our” refer to Oxford Immunotec Global PLC, a public limited company incorporated under the laws of England and Wales.

 

Where you can find more information

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can inspect, read and copy these reports, proxy statements and other information at the SEC’s Public Reference Room, which is located at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information regarding the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that makes available reports, proxy statements and other information regarding issuers that file electronically.

 

We make available free of charge on our corporate website at www.oxfordimmunotec.com (in the “Investors” section) copies of materials we file with, or furnish to, the SEC. By referring to our corporate website, www.oxfordimmunotec.com, we do not incorporate such website or its contents into this Quarterly Report.

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Oxford Immunotec Global PLC

Condensed consolidated balance sheets

 

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Condensed consolidated statements of operations

(unaudited)

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Condensed consolidated statements of other comprehensive loss

(unaudited)

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Condensed consolidated statements of cash flows

(unaudited)

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2018

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. Please see “Special note regarding forward-looking statements” in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with these statements. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and in the Company’s 2017 Form 10-K, particularly in Part I, Item 1A, “Risk Factors.”

 

Overview

 

We are a global, high-growth diagnostics company focused on developing and commercializing proprietary tests for underserved immune-regulated conditions. Our focus is on four areas: infectious diseases, transplantation, autoimmune and inflammatory disease and immune-oncology. We believe these areas are particularly attractive because they involve large patient populations and chronic conditions that present the opportunity for both initial diagnosis and additional testing to monitor the conditions. These immune-regulated conditions also tend to be characterized by wide variation in presentation and progression and often require expensive therapies, making diagnostic tests that can better categorize patients and inform treatment pathways particularly useful and cost-effective. Lastly, we believe these conditions to be underserved as the industry lacks the appropriate techniques to prosecute the immune responses which are driving these conditions.

 

Our first product is our proprietary T-SPOT^®.TB test, which is used to test for tuberculosis, or TB, infection and leverages our T-SPOT technology platform, which allows us to measure the response of specific immune cells to inform the diagnosis, prognosis and monitoring of patients with immune-regulated conditions. Our T-SPOT.TB test has been approved for sale in over 50 countries, including the United States, where we have received premarket approval, or PMA, from the Food and Drug Administration, or FDA, in Europe, where we have obtained a CE mark, as well as in Japan and China. Interferon-gamma release assays, or IGRAs, such as our T-SPOT.TB test have been included in clinical guidelines for TB testing in over 30 countries, including the United States, several European countries and Japan. In addition, we have established reimbursement for our test in the United States, as well as a Current Procedural Terminology, or CPT ¹, code that is unique to our test. Outside the United States, we have established reimbursement in several countries where reimbursement applies, including Japan, Switzerland, Germany, France and South Korea. We have also established the cost-effectiveness of our test in several published studies.

 

Our second product line is a range of assays for tick-borne diseases, such as Lyme disease. Tick-borne disease is the collective name for diseases passed to humans through the bite of an infected tick. The most prevalent and well known tick-borne disease is Lyme disease, but there are others such as anaplasmosis, ehrlichiosis, and babesiosis. If left unrecognised, and therefore untreated, they may go on to cause significant complications, including in rare cases death. Our tick-borne disease tests utilize molecular methods (such as polymerase chain reaction) and techniques to prosecute the immune system, and are widely reimbursed in the U.S. using existing codes on fee schedules. Our tests include multiple laboratory developed tests, or LDTs, which utilize unique methodologies offered from our Clinical and Laboratory Improvement Amendments, or CLIA, certified and College of American Pathologists, or CAP, accredited laboratory in Massachusetts and an FDA cleared test kit utilizing the C6 peptide, which is a marker specific to Lyme disease. Our C6 Lyme ELISA^TM kit is also CE marked in the European Union.

 

Our third product line is a series of assays for use in screening blood for the parasite Babesia microti which causes babesiosis. Babesiosis is a tick-borne disease characterized by a wide spectrum of clinical manifestations that range from asymptomatic to severe acute or even fatal illness. The disease is generally mild to moderate in children and young healthy adults, but it is more severe in neonates, the elderly and immunocompromised individuals such as those undergoing treatment for cancer. While it is primarily transmitted through a tick bite, babesiosis can also be transmitted by blood transfusion. In fact, transfusion-transmitted babesiosis is responsible for the highest percentage (31%) of transfusion-related infectious fatalities reported to the FDA in transfusion recipients and Babesia microti is the highest ranking pathogen in the U.S. transmitted by blood transfusion for which no licensed donor screening is available. The transmission risk of Babesia microti is comparable to the transmission risk of HIV, HBV, and HCV prior to the implementation of routine blood screening programs for these pathogens. Screening of blood products for Babesia microti, therefore, has become a priority for the FDA. We are developing three assays for use in screening the U.S. blood supply for Babesia microti, and received FDA approval in March 2018 for two of our assays. Our third assay remains under review by the FDA.

 

---

¹ CPT is a registered trademark of the American Medical Association.

 

 

Our T-SPOT.CMV test is a part of our fourth product line focused on the transplantation market. The test utilizes our T-SPOT technology platform and is an LDT performed in our CLIA certified, CAP accredited laboratory in Tennessee. The T-SPOT.CMV test is also CE marked as a kit in the European Union. The T-SPOT.CMV test measures the strength of a patient’s cellular immune response to antigens specific to cytomegalovirus, or CMV, and provides information that may be useful in informing management strategies of patients at risk of CMV infection and disease, such as transplant patients. We continue to take a measured approach to market introduction of this test as we continue to evaluate the final results of our two pivotal clinical studies involving this test.

 

In addition to our existing product lines, we continue to pursue development programs to enhance our TB and tick-borne disease and other product offerings. Product development activities are inherently uncertain, and there can be no assurance that we will be able to obtain regulatory body clearance to market any of our products, or if we obtain clearances that we will successfully commercialize any of our products. In addition, we may terminate our development efforts with respect to one or more of our products under development at any time, including before or during clinical trials.

 

We have incurred significant losses from inception and as of March 31, 2018 had an accumulated deficit of $211.9 million. We anticipate that our operating losses may continue for the foreseeable future as we continue to invest to grow our customer base and invest in research and development to expand our product portfolio. Our revenue for the three months ended March 31, 2018 was $21.4 million and for the three months ended March 31, 2017 was $21.5 million. Our net loss for the three months ended March 31, 2018 was $10.3 million and for the three months ended March 31, 2017 was $8.1 million.

 

Financial operations overview

 

Revenue

 

We generate revenue from sales associated with our T-SPOT technology platform via our direct sales force and also through distributors. Our T-SPOT.TB test is our first commercialized product based on this technology and accounted for $18.8 million of our revenue in the first quarter of 2018. We also generate revenue from sales of tick-borne disease and other tests via our direct sales force and also through distributors. During the first quarter of 2018 these tests accounted for revenue of $2.5 million.

 

Revenue mix

 

We currently offer our T-SPOT.TB test as both an in vitro diagnostic kit and a service. In the former, we sell test kits and associated accessories to distributors for resale and directly to institutions and laboratories that perform TB testing. In the latter, we have established clinical testing laboratories in the U.S. and the U.K., where we perform our T-SPOT.TB test on samples sent to us by customers. In these markets, we have found that many of our customers prefer to send samples to us rather than perform their own analysis on-site.

 

Our U.S. business derived 94% and 92% of its revenue from our service offering, as opposed to kit sales, for the three months ended March 31, 2018 and 2017, respectively. These results reflect our experience that U.S. customers prefer to send IGRA tests out for processing and analysis rather than run them in-house. For the majority of our U.S. customers in the hospital and public health segments, TB testing programs are funded primarily from institutional budgets. We receive payment from these customers according to our pre-negotiated prices. For other segments of the U.S. market (notably, for example, the physicians’ office segment) third-party reimbursement is often available to cover the cost of our T-SPOT.TB test. In addition, U.S. results include revenue from our portfolio of tick-borne disease tests. For certain customers, we receive payment from customers according to pre-negotiated rates. For other customers we seek third party reimbursement. U.S. results also include revenue from our C6 Lyme ELISA kits, which is included in product revenue. Our C6 Lyme ELISA kits are sold to customers at pre-negotiated rates.

 

 

Outside the U.S., we derived 90% and 91% of our revenue from the sale of our in vitro diagnostic kits and associated accessories for the three months ended March 31, 2018 and 2017, respectively. For the majority of our customers outside the U.S., we primarily negotiate pricing directly with our customers; our prices are influenced to some degree by the mechanism and level of funding our customers receive for performing tests for TB infection.

 

Revenue by type

 

By type, total revenues were as summarized in the table below.

 

		Three months ended March 31,
(in thousands)		2018				2017
Revenue
Product		$	7,935			$	8,386
Service			13,435				13,119
Total revenue		$	21,370			$	21,505

 

Revenue by indication

 

By indication, total revenues were as summarized in the table below.

 

		Three months ended March 31,
(in thousands)		2018				2017
Revenue
Tuberculosis		$	18,837			$	18,542
Tick-borne disease and other			2,533				2,963
Total revenue		$	21,370			$	21,505

 

Revenue by geography

 

We have a direct sales force in the U.S., certain European countries and Japan and market development personnel in China and South Korea. In parts of the world where we do not maintain a direct sales force, we market and sell our products through distributors. As a result, our revenue is denominated in multiple currencies.

 

The following table reflects revenue by geography (United States, Europe and rest of world, or Europe and ROW, and Asia) and as a percentage of total revenue, based on the billing address of our customers.

 

		Three months ended March 31,
(in thousands, except percentages)		2018								2017
Revenue
United States		$	13,393				63	%		$	13,536				63	%
Europe and ROW			2,240				10	%			1,806				8	%
Asia			5,737				27	%			6,163				29	%
Total revenue		$	21,370				100	%		$	21,505				100	%

 

Cost of revenue and operating expenses

 

Cost of revenue and gross margin

 

Cost of revenue consists of direct labor expenses, including employee benefits and share-based compensation expenses, overhead expenses, material costs, cost of laboratory supplies, freight costs, royalties paid under license agreements, depreciation of laboratory equipment and leasehold improvements.

 

 

We expect our overall cost of revenue to increase as we continue to increase our volume of kits manufactured and tests performed. However, we also believe that through these increased volumes, we can achieve certain efficiencies in our manufacturing and laboratory operations that could help maintain or improve our overall margins.

 

On June 30, 2017, we entered into a Release and Settlement Agreement, or the Settlement Agreement, with Statens Serum Institut, or SSI, to resolve outstanding disputes arising from the license agreement with SSI. The terms of the Settlement Agreement are confidential. Based on the Settlement Agreement, we no longer expect to pay royalties to SSI, which will improve future margins. On December 19, 2017, the Company amended its license agreement with Rutgers, The State University of New Jersey, which reduced our royalties due under the license. This agreement will further improve our future margins.

 

During the three months ended March 31, 2018 and 2017, our cost of revenue represented 50% and 49%, respectively, of our total revenue.

 

		Three months ended March 31,
(in thousands)		2018				2017
Cost of revenue
Product		$	2,574			$	3,245
Service			8,016				7,252
Total cost of revenue		$	10,590			$	10,497

 

Our gross profit represents total revenue less total cost of revenue, and gross margin is gross profit expressed as a percentage of total revenue. Our gross margins were 50% and 51% for the three months ended March 31, 2018 and 2017, respectively.

 

Research and development expenses

 

Our research and development efforts have historically focused on developing multiple new diagnostic tests that use our quantitative T cell measurement technology, including assays that may help transplant physicians better manage patients at risk of rejection and infection.

 

Our research and development activities include performing research, development, clinical and regulatory activities and validating improvements to our technology and processes for the purposes of enhancing product performance. Research and development expenses include personnel-related expenses, including share-based compensation, fees for contractual and consulting services, clinical trial costs, travel costs, laboratory supplies, amortization, depreciation, rent, insurance and repairs and maintenance. We expense all research and development costs as incurred.

 

During each of the three month periods ended March 31, 2018 and 2017, our research and development expenses represented 18% of our total revenue.

 

Sales and marketing expenses

 

Our sales and marketing expenses include costs associated with our sales organization, including our direct sales force and sales management, and our marketing, customer service and business development personnel. These expenses consist principally of salaries, commissions, bonuses and employee benefits for these personnel, including share-based compensation, as well as travel costs related to sales, marketing, customer service activities, medical education activities and overhead expenses. We expense all sales and marketing costs as incurred.

 

During the three-month periods ended March 31, 2018 and 2017, our sales and marketing expenses represented 44% and 45%, respectively, of our total revenue.

 

 

General and administrative expenses

 

Our general and administrative expenses include costs for our executive, accounting, treasury, finance, legal, information technology, or IT, and human resources functions. These expenses consist principally of salaries, bonuses and employee benefits for the personnel included in these functions, including share-based compensation and travel costs, professional services fees, such as consulting, audit, tax and legal fees, costs related to our Board of Directors, general corporate costs, overhead expenses, and bad debt expense. We expense all general and administrative expenses as incurred.

 

During each of the three months ended March 31, 2018 and 2017, our general and administrative expenses represented 32% of our total revenue.

 

Interest expense, net

 

Interest expense, net mainly relates to our October 4, 2016 MidCap agreement, that provides us with $40 million in debt financing, comprised of both a term loan and a revolving line of credit. The MidCap agreement provides us with a term loan of $30 million, which matures five years from closing. The term loan accrues interest at a rate of LIBOR plus 7.60% with interest only payments for the first 24 months, with the ability to extend to 48 months subject to certain conditions, before the loan begins to amortize. The MidCap agreement also provides us with a revolving line of credit of up to $10 million, which matures five years from closing. The revolving line of credit accrues interest at a rate of LIBOR plus 4.45%. Based on certain conditions, both the term loan and revolving line of credit may be increased by an additional $10 million for a total of $60 million. To date, we have not borrowed under the revolving line of credit.

 

Foreign exchange gains (losses)

 

Foreign exchange (losses) gains largely result from U.S. Dollar denominated bank accounts, accounts receivable, and accounts payable reflected on the books of Oxford Immunotec Limited, which has a functional currency of the U.K. Pound Sterling. We are exposed to foreign exchange rate risk because we currently operate in three major regions of the world: the United States, Europe and ROW, and Asia, and our revenue is denominated in multiple currencies. Sales in the United States, China and South Korea are denominated in U.S. Dollars. Sales in Europe are denominated primarily in the U.K. Pound Sterling and Euro. As we grow Europe and ROW sales outside the United Kingdom and the Euro Zone, we may be subject to risk from additional currencies. Sales in Japan are denominated in Yen.

 

Other expense

 

Other expense includes interest expense, net, foreign exchange gains/ (losses) and other income and expense items.

 

Monetary assets and liabilities that are denominated in foreign currencies are remeasured at the period-end closing rate with resulting unrealized exchange fluctuations. Realized exchange fluctuations result from the settlement of transactions in currencies other than the functional currencies of our businesses. The functional currencies of our businesses are U.S. Dollars, Pounds Sterling, Euros, Japanese Yen and Chinese Yuan, depending on the entity.

 

 

Results of operations 

 

Comparison of three months ended March 31, 2018 and 2017

 

The following table sets forth, for the periods indicated, the amounts of certain components of our statements of operations and the percentage of total revenue represented by these items, showing period-to-period changes.

 

		Three months ended March 31,
		2018								2017								Change
(in thousands, except percentages)		Amount				% of revenue				Amount				% of revenue				Amount				%
Revenue:
Product		$	7,935				37	%		$	8,386				39	%		$	(451	)			(5	)%
Service			13,435				63	%			13,119				61	%			316				2	%
Total revenue			21,370				100	%			21,505				100	%			(135	)			(1	)%
Cost of revenue:
Product			2,574				12	%			3,245				15	%			(671	)			(21	)%
Service			8,016				38	%			7,252				34	%			764				11	%
Total cost of revenue			10,590				50	%			10,497				49	%			93				1	%
Gross profit			10,780				50	%			11,008				51	%			(228	)			(2	)%
Operating expenses:
Research and development			3,744				18	%			3,805				18	%			(61	)			(2	)%
Sales and marketing			9,405				44	%			9,640				45	%			(235	)			(2	)%
General and administrative			6,928				32	%			6,876				32	%			52				1	%
Change in fair value of contingent purchase price consideration			—				0	%			(2,357	)			(11	)%			2,357				(100	)%
Settlement expense			207				1	%			—				0	%			207			N/M
Total operating expenses			20,284				95	%			17,964				84	%			2,320				13	%
Loss from operations			(9,504	)			(44	)%			(6,956	)			(32	)%			(2,548	)			37	%
Interest expense, net			(604	)			(3	)%			(823	)			(4	)%			219				(27	)%
Foreign exchange losses			(103	)			(0	)%			(106	)			(0	)%			3				(3	)%
Other expense			(52	)			(0	)%			(140	)			(1	)%			88				(63	)%
Loss before income taxes			(10,263	)			(48	)%			(8,025	)			(37	)%			(2,238	)			28	%
Income tax expense			(63	)			(0	)%			(47	)			(0	)%			(16	)			34	%
Net loss		$	(10,326	)			(48	)%		$	(8,072	)			(38	)%		$	(2,254	)			28	%

 

Revenue 

 

Revenue declined slightly to $21.4 million for the three months ended March 31, 2018 compared to $21.5 million for the same period in 2017.

 

U.S. revenue declined slightly to $13.4 million for the three months ended March 31, 2018, compared to the same period in 2017, driven largely by tick-borne disease and other revenue of $2.5 million in 2018, compared to $3.0 million in 2017.

 

 

Asia revenue declined by 7% to $5.7 million for the three months ended March 31, 2018, compared to the same period in 2017, due primarily to the timing of shipments to China. On a non-Generally Accepted Accounting Principles, or non-GAAP, constant currency basis, revenue for Asia would have decreased by 9%. Europe and ROW revenue increased 24% to $2.2 million for the three months ended March 31, 2018, compared to the same period in 2017, due to strong TB sales and the additional contribution from the sale of Lyme kits. On a non-GAAP constant currency basis, Europe and ROW revenue would have increased by 9% in 2018 compared to 2017.

 

Changes in revenue include the impact of changes in foreign currency exchange rates. We use the non-GAAP financial measure “constant currency basis” in our filings to show changes in our revenue without giving effect to period-to-period currency fluctuations. Under U.S. GAAP, revenues received in local (non-U.S. Dollar) currencies are translated into U.S. Dollars at the average exchange rate for the period presented. When we use the term “constant currency basis”, it means that we have translated local currency revenues for the prior reporting period into U.S. Dollars using the same average foreign currency exchange rates for the conversion of revenues into U.S. Dollars that we used to translate local currency revenues for the comparable reporting period of the current year. We then calculate the change, as a percentage, from the prior period revenues using the current period exchange rates versus the current period revenues. This resulting percentage is a non-GAAP measure referring to a change as a percentage on a “constant currency basis”. We consider the use of a period over period revenue comparison on a constant currency basis to be helpful to investors, as it provides a revenue growth measure free of positive or negative volatility due to currency fluctuations.

 

By revenue type, total revenues were:

 

		Three months ended March 31,								Change
(in thousands, except percentages)		2018				2017				Amount				%
Revenue
Product		$	7,935			$	8,386			$	(451	)			(5	)%
Service			13,435				13,119				316				2	%
Total revenue		$	21,370			$	21,505			$	(135	)			(1	)%

 

By indication, total revenues were:

 

		Three months ended March 31,								Change
(in thousands, except percentages)		2018				2017				Amount				%
Revenue
Tuberculosis		$	18,837			$	18,542			$	295				2	%
Tick-borne disease and other			2,533				2,963				(430	)			(15	)%
Total revenue		$	21,370			$	21,505			$	(135	)			(1	)%

 

By geography, total revenues were:

 

		Three months ended March 31,								Change
(in thousands, except percentages)		2018				2017				Amount				%
Revenue
United States		$	13,393			$	13,536			$	(143	)			(1	)%
Europe and ROW			2,240				1,806				434				24	%
Asia			5,737				6,163				(426	)			(7	)%
Total revenue		$	21,370			$	21,505			$	(135	)			(1	)%

 

 

Cost of revenue and gross margin

 

Cost of revenue of $10.6 million for the three months ended March 31, 2018 was essentially flat when compared to the same period in 2017. Gross margin was 50% and 51% for the three months ended March 31, 2018 and 2017, respectively.

 

		Three months ended March 31,								Change
(in thousands, except percentages)		2018				2017				Amount				%
Cost of revenue
Product		$	2,574			$	3,245			$	(671	)			(21	)%
Service			8,016				7,252				764				11	%
Total cost of revenue		$	10,590			$	10,497			$	93				1	%

 

Research and development expenses

 

Research and development expenses of $3.8 million for the three months ended March 31, 2018 were essentially flat when compared to the same period in 2017. As a percentage of total revenue, research and development expenses were 18% for each of the three month periods ended March 31, 2018 and 2017.

 

Sales and marketing expenses

 

Sales and marketing expenses decreased to $9.4 million for the three months ended March 31, 2018 from $9.6 million for the same period in 2017. As a percentage of total revenue, sales and marketing expenses declined slightly to 44% for the three months ended March 31, 2018 compared to 45% for the same period in 2017.

 

General and administrative expenses

 

General and administrative expenses of $6.9 million for the three months ended March 31, 2018 were essentially unchanged from the same period in 2017. As a percentage of total revenue, general and administrative expenses were 32% for each of the three month periods ended March 31, 2018 and 2017.

 

Settlement expense

 

Settlement expense relates to the Settlement Agreement with SSI to resolve outstanding disputes arising from our previous license agreement. The terms of the Settlement Agreement are confidential.

 

Interest expense, net

 

Interest expense, net was $604,000 for the three months ended March 31, 2018, compared to $823,000 in the same period in 2017.

 

Foreign exchange losses                                     

 

We recorded foreign exchange losses of $103,000 for the three months ended March 31, 2018, substantially all as a net result of U.S. Dollar denominated bank accounts, accounts receivable, and accounts payable reflected on the books of Oxford Immunotec Limited, which has a functional currency of the U.K. Pound Sterling. For the three months ended March 31, 2017, we recorded foreign exchange losses of $106,000. We are exposed to foreign exchange rate risk because we currently operate in three major regions of the world: the United States, Europe and ROW, and Asia, and our revenue is denominated in multiple currencies. Approximately 63% of our sales for the three months ended March 31, 2018 were in the United States, which are denominated in U.S. Dollars. Sales in China and South Korea are also denominated in U.S. Dollars. Sales in Europe are denominated primarily in the U.K. Pound Sterling and the Euro. As we grow Europe and ROW sales outside the United Kingdom and the Euro Zone, we may be subject to risk from additional currencies. Sales in Japan are denominated in Yen.

 

Our expenses are generally denominated in the currencies in which our operations are located, which are primarily in the United States, the United Kingdom, Japan, Europe, China and South Korea.

 

As we continue to grow our business outside the United States, our results of operations and cash flows will be subject to fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future. To date, we have not entered into any foreign currency hedging contracts, although we may do so in the future.

 

 

Other expense

 

Other expense was $52,000 for the three months ended March 31, 2018, compared to $140,000 for the three months ended March 31, 2017.

 

Liquidity and capital resources

 

Sources of funds

 

Since our inception, we have incurred significant net losses and negative cash flows from operations. For the three months ended March 31, 2018, we had a net loss of $10.3 million and used $11.9 million of cash for operating activities. As of March 31, 2018, we had an accumulated deficit of $211.9 million. We incurred a net loss of $8.1 million and used $14.6 million of cash for operating activities for the three months ended March 31, 2017.

 

As noted above, on October 4, 2016, we entered into a credit agreement with MidCap Financial Trust. The credit agreement consisted of a 60 month, $30 million term loan and a $10 million revolving line of credit, both of which mature on September 30, 2021. The availability of funds under the revolving line of credit is based upon the Company’s eligible accounts receivable and eligible inventory. To date, we have not borrowed under the revolving line of credit. Based on certain conditions, both the term loan and revolving line of credit may be increased by an additional $10 million for a total of $60 million.

 

The term loan accrues interest at a rate of LIBOR plus 7.60% with interest only payments for the first 24 months, with the ability to extend to 48 months subject to certain conditions, before the loan begins to amortize. The Company has the intention and ability to extend the interest only period by at least six months.

 

As of March 31, 2018, we had cash and cash equivalents of $77.3 million. We maintain our available cash balances in cash, money market funds and repurchase agreements primarily invested in U.S. government and agency securities, and bank savings accounts in the United States, United Kingdom, Germany, Japan, China and South Korea. Essentially all our cash is in the U.S. and the U.K.

 

Summary of cash flows

 

The following table summarizes our cash and cash equivalents, accounts receivable and cash flows for the periods indicated:

 

		As of and for the three months ended March 31,
(in thousands)		2018				2017
Cash and cash equivalents, including restricted cash		$	77,446			$	43,333
Accounts receivable, net			16,900				16,906
Net cash used in operating activities		$	(11,932	)		$	(14,638	)
Net cash used in investing activities			(1,118	)			(1,301	)
Net cash used in financing activities			(94	)			(148	)
Effect of exchange rate changes on cash and cash equivalents			58				110
Net decrease in cash and cash equivalents, including restricted cash		$	(13,086	)		$	(15,977	)

 

Cash flows for the three months ended March 31, 2018 and 2017

 

Operating activities

 

Net cash used in operating activities was $11.9 million during the three months ended March 31, 2018, which included a net loss of $10.3 million, non-cash expenses of $3.1 million, and cash used for changes in operating assets and liabilities of $4.7 million. The non-cash items included share-based compensation expense of $1.8 million, depreciation and amortization of intangible assets expense of $1.1 million, and accretion and amortization of loan fees of $140,000. The cash used for changes in operating assets and liabilities included a decrease in accounts payable and accrued liabilities of $3.1 million, an increase in prepaid expenses and other assets of $1.5 million, and an increase in inventory, net of $490,000, partially offset by a decrease in accounts receivable, net of $296,000. The decrease in accounts payable and accrued liabilities was largely due to payments in the first three months of 2018 for royalties on intellectual property and bonuses that were accrued for at December 31, 2017, as well as the timing of payments. The increase in prepaid expenses and other assets reflects the timing of certain payments. Inventory, net increased due to timing, and accounts receivable, net declined due to the timing of customer payments.

 

 

Net cash used in operating activities was $14.6 million during the three months ended March 31, 2017, which included a net loss of $8.1 million, non-cash expenses of $121,000, and cash used for changes in operating assets and liabilities of $6.7 million. The non-cash items included share-based compensation expense of $1.3 million, depreciation and amortization of intangible assets expense of $1.0 million, and accretion and amortization of loan fees of $149,000, largely offset by a decrease in the fair value of contingent purchase price consideration of $2.4 million. The cash used for changes in operating assets and liabilities included an increase in accounts receivable of $3.6 million, an increase in prepaid expenses and other assets of $1.4 million, a decrease in accounts payable and accrued liabilities of $908,000, and an increase in inventory, net of $806,000. The increase in accounts receivable, net reflects growing sales and timing of customer payments. The increase in prepaid expenses and other assets reflects the timing of certain payments. The decrease in accounts payable and accrued liabilities was largely due to payments in the first three months of 2017 for royalties on intellectual property and bonuses that were accrued for at December 31, 2016, as well as the timing of payments. Inventory, net increased due to timing.

 

Investing activities

 

Net cash used in investing activities was $1.1 million during the three months ended March 31, 2018 and consisted of purchases of property and equipment.

 

Net cash used in investing activities was $1.3 million during the three months ended March 31, 2017 and consisted of purchases of property and equipment.

 

Financing activities

 

Net cash used in financing activities was $94,000 during the three months ended March 31, 2018.

 

Net cash used in financing activities was $148,000 during the three months ended March 31, 2017. 

 

Employees

 

As of March 31, 2018, we had 446 employees. None of our employees is represented by a labor union. We have not experienced any work stoppages and we believe our employee relations are good.

 

Contractual obligations

 

In March 2018, we entered into an agreement relating to our location in Norwood, Massachusetts to bifurcate our existing lease for two adjacent facilities into two separate leases, as one of the facilities was being sold to a new owner. The first of the two leases, which is referred to as the “315 Lease”, relates to about 18,000 rentable square feet within a larger facility. The base rent on the 315 Lease will range from an initial low of $32,000 per month to a high of $35,000 per month and extends through September 30, 2018, when the Company is anticipated to surrender the space.

 

The second lease, which extends through March 31, 2023, is referred to as the “320 Lease” and relates to an entire building containing about 39,000 rentable square feet. The base rent on the 320 Lease over the lease term will range from an initial low of $67,000 per month to a high of $83,000 per month. The Company will have two options to extend the lease term, each for a five-year period.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

The Company’s exposure to market risk from interest rate fluctuations, capital market fluctuations, and foreign currency exchange rate fluctuations has not materially changed from its exposure as of December 31, 2017, as described in Item 7A of our 2017 Form 10-K.

 

Item 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive and Chief Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Control Over Financial Reporting

 

There have been no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

There have been no material changes in the risk factors described in “Item 1A. Risk Factors” of the Company’s 2017 Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this Quarterly Report, which Exhibit Index is incorporated herein by this reference.

 

 

SIGNATURES

 

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.

 

	OXFORD IMMUNOTEC GLOBAL PLC
Date: May 1, 2018	/s/	Peter Wrighton-Smith, Ph.D.
		Peter Wrighton-Smith, Ph.D.
		Chief Executive Officer and Director
		(Principal Executive Officer)
Date: May 1, 2018	/s/	Richard M. Altieri
		Richard M. Altieri
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

 

 

EXHIBIT INDEX

Exhibit No.		Description
3.1		Articles of Association of the Registrant (Filed as Exhibit 3.1 to our Current Report on Form 8-K on June 18, 2014 and incorporated herein by reference.)
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		The following materials from the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed consolidated balance sheets at March 31, 2018 and December 31, 2017; (ii) Condensed consolidated statements of operations for the three months ended March 31, 2018 and 2017; (iii) Condensed consolidated statements of comprehensive loss for the three months ended March 31, 2018 and 2017; (iv) Condensed consolidated statements of cash flows for the three months ended March 31, 2018 and 2017; and (v) Notes to unaudited condensed consolidated financial statements

 

28