Special Note Regarding Forward-Looking Statements

 

This Annual Report on Form 10-K, or the Annual Report, 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 27A of the Securities Act of 1933, as amended, or the Securities Act, and 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 1, “Business,” Part I, Item 1A, “Risk Factors,” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this Annual 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,” “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 Annual 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:

 

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

 

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our ability to continue to sell our T-SPOT.TB at current prices if, for example, our customers or prospective customers are unwilling to pay for our tests at current pricing levels or as a result of increased competition generally;

 

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

 

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

 

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

 

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continued demand for diagnostic products for tuberculosis and other immune-regulated conditions and the development of new market opportunities;

 

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our ability to compete successfully in our target markets and to maintain and expand our sales network;

 

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coverage and reimbursement decisions of insurers and other third-party payors, as well as guidelines, recommendations and studies published by various organizations related to the use of our products;

 

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

 

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disruptions to our business, including disruptions at our laboratory and manufacturing facilities, natural disasters, public health crises and other catastrophic events;

 

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

 

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the impact of currency fluctuations on our business;

 

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the impact of global economic and political developments on our business, including the United Kingdom’s, or U.K., withdrawal from the European Union on January 31, 2020,  and further withdrawal issues, timing and transition agreements;

 

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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, and laws and regulations impacting foreign trade, including the ongoing trade dispute between the U.S. and China, immigration, manufacturing, development and investment in the U.S. and in other territories and countries where we or our customers and suppliers operate;

 

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

 

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our ability to attract or retain key members of our management;

 

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

 

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our ability to maintain effective internal control over financial reporting and the possibility of identifying future material weaknesses in our internal control over financial reporting;

 

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

 

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

 

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the impact of disruptions in, or breach of, our information technology systems, or those of third parties that manage such systems, including as a result of cyber-attacks; and other similar matters which could result in, among other things, personal information or protected health information being improperly accessed, tampered with or disclosed;

 

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our ability to comply with Securities and Exchange Commission, or SEC, reporting, as well as domestic and international anti-fraud, anti-corruption, privacy, environmental, health and safety laws and regulations;

 

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

 

 

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our ability to protect and enforce our intellectual property rights;

 

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our status as an English company with our ordinary shares listed in the U.S.;

 

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

 

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

 

You should refer to Item 1A, “Risk Factors” in this Annual Report 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 Annual 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 Annual Report represent our views only as of the date of this Annual Report. Subsequent events and developments may cause our views to change. We do not undertake, and specifically decline, any obligation to update or revise any forward-looking statements to reflect future events or circumstances after the date of such 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 Annual Report. As used in this Annual 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.

 

 

Part I 

 

Item 1. Business

 

Overview

 

We are a global, high-growth diagnostics company focused on developing and commercializing proprietary tests for immunology and infectious disease by leveraging the technological, product development, manufacturing, quality, regulatory, and sales and marketing capabilities we have developed over our seventeen year history. Our primary product is the proprietary T-SPOT^®1.TB test which utilizes our T-SPOT technology platform to test for tuberculosis, which is the leading cause of infectious disease death worldwide. Alongside this, we have also developed reagents and methods to purify white blood cells for use in immunology assays. When used in conjunction with T-SPOT.TB, these reagents extend blood stability of samples for our test and/or enable workflow automation for T-SPOT.TB.

 

On November 6, 2018, we completed the sale of our U.S. Laboratory Services Business to Quest Diagnostics, Incorporated, or Quest, or the Transaction, for gross proceeds of $170 million in cash. This Transaction represented a strategic business shift and it had a major effect on our operations and financial results.

 

The Market Opportunity for T-SPOT.TB

 

We believe the annual global market opportunity for our T-SPOT.TB test is well in excess of $1 billion, based on an estimated market size of over 70 million latent tuberculosis infection, or LTBI, tests annually. Tuberculosis is a common and, if not properly treated, potentially lethal infectious disease caused by the bacterium Mycobacterium tuberculosis, or MTB. MTB typically infects the lungs, but the lymph nodes, kidneys, brain and bones may also be infected. Those with LTBI are asymptomatic and are not infectious; however, each person with LTBI has a 5% to 10% chance, on average, of progressing to active TB over his or her lifetime. This risk of progression to active TB is significantly elevated among individuals with weakened immune systems, such as those with human immunodeficiency virus, or HIV, or diabetes or those on drugs that suppress the immune system (e.g., those taking biologic therapies for autoimmune disease or those undergoing immune suppression post-transplantation). Without proper treatment, up to two thirds of individuals with active TB disease will die.

 

According to the World Health Organization, or the WHO, approximately 23% of the world’s population, or about 1.7 billion people, are infected with MTB. Despite the availability of an effective treatment, TB is the leading cause of infectious disease death worldwide and remains one of the top ten causes of death worldwide from any cause. The WHO estimated that in 2017 approximately 10 million people developed TB disease, of which approximately 1.6 million people died.

 

There are three broad strategies to control TB: (1) vaccination, (2) finding and treating active TB disease, and (3) finding and treating LTBI to prevent the development of new active TB disease cases. Screening for latent TB infections is considered crucial to reducing or eliminating the reservoir of TB and breaking the cycle of reinfection.  The United States has one of the most comprehensive LTBI screening programs in the world with screening of several high-risk groups, including healthcare workers, recommended by the U.S. Centers for Disease Control and Prevention, or the CDC. Screening of healthcare workers is also recommended as part of the accreditation standards for U.S. hospitals. Other high-risk groups identified by CDC include persons with immunosuppressive conditions, such as persons receiving immunosuppressive agents or organ transplant recipients, and persons with HIV. In addition, TB screening is required in many cases for additional populations, such as day care staff, school teachers and students, and emergency response personnel. Similar to the U.S., other developed countries have implemented effective LTBI screening programs to fight TB and emerging countries are increasingly adding LTBI screening to their repertoire of TB control strategies.

 

The primary test currently used for TB screening is the more than 100-year-old tuberculin skin test, or TST. The TST is administered by injecting an extract from cultured M. tuberculosis, called tuberculin or PPD, into the skin of a subject’s forearm using a needle and syringe. The injection of the PPD into the skin of a subject previously infected with MTB stimulates the immune response, including T cells, causing the formation of a hard lump at the site of the injection. Because it takes time for this reaction to occur, the subject must return 48 to 72 hours after the PPD injection to have the result read. The test result is graded by feeling for the boundaries of the swelling, marking these with a pen and then measuring the diameter with a ruler.

 

The TST suffers from several limitations, including an antiquated technique that results in substantial test variability, false negative results especially in immunocompromised patients, false positive results in patients who have been Bacille Calmette-Geurin, or BCG, vaccinated and boosting of results, which occurs when an infected subject’s reaction to an initially false-negative TST causes increased sensitivity in a subsequent test such that it tests positive. In addition to these technical drawbacks, the TST requires multiple patient visits, which increases its overall cost.

 

We estimate that there are approximately 17 million LTBI tests performed each year in the United States, the majority of which are performed within the healthcare system in a variety of settings, including hospitals, public health offices, physicians’ offices and clinics. Outside the United States, we estimate the total number of tests exceeds 53 million each year, for a combined market size of over 70 million LTBI tests annually.

 

 

 

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¹“T-SPOT®,” “T-Cell Xtend®,” “Oxford Diagnostic Laboratories®,” “ODL®,” “Immunetics®,” the Oxford Immunotec logo, our laboratory logo and other marks are our trademarks. Solely for convenience, trademarks and trade names referred to in this Annual Report, including logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names.

 

 

The T-SPOT.TB Test and supporting reagent kits

 

T-Cell Select is a new reagent kit sold in conjunction with T-SPOT.TB.  In 2018, we certified conformity of T-Cell Select with European IVD regulations, enabling us to attach the CE mark for the T-Cell Select kit, and formally launched the kit in Europe in September 2019. In 2018, we also obtained acceptance of the regulatory notification for the T-Cell Select kit by the National Medical Products Administration, or the NMPA (formerly known as the China Food and Drug Administration, or the CFDA).

 

T-Cell Select represents a new, complementary platform to T-SPOT for our Company. It can be used to isolate mononuclear immune cells using a magnetic bead cell separation system. Use of T-Cell Select permits increased automation in performing the T-SPOT.TB test, enabling simplified workflow, improved throughput, reduced hands-on time and reduced labor costs in performing the T-SPOT.TB test. Furthermore, with T-Cell Select, blood samples can be collected in a single standard blood tube and stored for up to 54 hours at room temperature before use in the test, further extending our simplicity and logistics advantages for customers. T-Cell Select marks an important addition to our solution set that further differentiates us from other IGRAs and supports our market penetration goals.

 

T-Cell Xtend has been available as a supporting reagent kit to extend blood stability for T-SPOT.TB samples since 2008 in Europe and since 2010 in the U.S. The T-Cell Xtend reagent is an antibody complex that is added to blood samples in the laboratory immediately before running the T-SPOT.TB assay and allows blood samples to be processed up to 32 hours after venepuncture without affecting the accuracy of the test.

 

T-SPOT.TB regulatory approvals and clinical validation

 

Our T-SPOT.TB test is approved for commercial sale in over 50 countries. Key geographies where we have regulatory approval include:

 

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The United States. We obtained PMA for our T-SPOT.TB test from the FDA in 2008. Since 2008, an additional ten PMA supplements have been approved, including supplements relating to manufacturing improvements and label extensions, such as those that enable overnight shipment of blood samples.

 

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Europe. We obtained a CE mark in 2004, which allows us to sell our T-SPOT.TB test in Europe as well as other countries that accept the CE mark.

 

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China. We obtained initial approval for our T-SPOT.TB test from the NMPA (when it was formerly known as the CFDA) in 2010. Consistent with NMPA re-registration requirements, we secured re-registration of our test in 2014, which was effective until December 2019. We applied for re-registration in April 2019. At the time of the filing of this Annual Report, we have not received a decision on our application. In order for us to continue to supply our T.SPOT.TB test in China without interruption, we will need to obtain re-registration without significant delay.

 

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Japan. We obtained approval for our T-SPOT.TB test from the Ministry of Health, Labour and Welfare, or MHLW, in 2012.

 

In addition to being validated in multiple clinical studies, our T-SPOT.TB test has also been the subject of over 700 peer-reviewed publications in scientific journals including several meta-analyses. Growing clinical evidence has led to inclusion of T-SPOT.TB in important clinical guidelines.

 

T-SPOT.TB inclusion in clinical guidelines

 

Clinical guidelines, which are recommendations issued by national medical societies or public health bodies, are a driving factor in a clinician’s decision to use a specific diagnostic test. IGRAs, such as our T-SPOT.TB test, have been included in clinical guidelines for TB testing in over 40 countries, including the United States, several European countries, China and Japan. In recent years, the use of IGRAs has been increasingly recommended and our sales and marketing activities will continue to look to leverage these increasingly positive guidelines updates.

 

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In December 2016, a publication titled “Official American Thoracic Society/Infectious Diseases Society of America/Centers for Disease Control and Prevention Clinical Practice Guidelines: Diagnosis of Tuberculosis in Adults and Children” recommended use of IGRAs for testing for TB infection instead of the TST for patients over the age of five who meet the following criteria: 1) are likely to be infected with MTB, 2) have a low or intermediate risk of disease progression, 3) testing for LTBI is warranted, and 4) either have a history of BCG vaccination or are unlikely to return for a second visit to read the TST.

 

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In February 2018, the CDC issued a notification informing the United States Citizenship and Immigration Services that a revised tuberculosis technical instruction would go into effect on October 1, 2018. When a test for cell-mediated immunity to TB is required, all civil surgeons must now use an FDA-approved IGRA test; performing a skin test is no longer allowed.

 

 

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In June 2018, updated guidelines from the American Academy of Pediatrics, or AAP, were published in the AAP’s 2018 Red Book: Report of the Committee on Infectious Diseases, or the Red Book. The Red Book contains a composite summary of current recommendations representing the policy of the AAP on various aspects of infectious diseases and is issued every three years. The AAP guidelines include specific recommendations for the use of IGRAs, such as our T-SPOT.TB test, and the recommended age for IGRA use was lowered from five years to two years in these updated guidelines.

 

 

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In May 2018, IGRAs were included in the World Health Organization’s first ever List of Essential In Vitro Diagnostics, or EDL. The EDL includes the 113 most important tests recommended by the WHO for use at various levels of the health care system. These essential diagnostics satisfy the priority health care needs of the population and were selected with due regard to disease prevalence and public health relevance, evidence of efficacy and accuracy, and comparative cost-effectiveness. 58 of the tests listed are for the detection and diagnosis of a wide range of common conditions, providing an essential package that can form the basis for screening and management of patients. The remaining 55 tests are designed for the detection, diagnosis, and monitoring of WHO key disease areas, for which there is high quality evidence – HIV, tuberculosis, or TB, malaria, hepatitis B and C, syphilis and human papilloma virus.

 

 

We believe that these guidelines, and similar national guidelines outside the United States in countries such as China, allow us to access the vast majority of the current TST market and assert the superiority of an IGRA in significant segments of the market.

 

T-SPOT.TB reimbursement

 

In the United States, we have worked with the American Medical Association, or AMA, to establish a Current Procedural Terminology, or CPT, code (86481) that is unique to T-SPOT.TB and allows laboratories to submit T-SPOT.TB for reimbursement. CPT codes are used by private payors and the Center for Medicare and Medicaid Services, or CMS, to provide reimbursement for tests.  In November 2019, the AMA reaffirmed that only T-SPOT.TB matches the description of the code and is the only test to be billed under code 86481.

 

Medicare reimbursement levels are important because many private payor fee schedules for clinical laboratory tests are pegged to the Medicare Clinical Laboratory Fee Schedule, or CLFS, published by CMS. The Protecting Access to Medicare Act of 2014, or PAMA, required significant changes to how CMS pays for clinical diagnostic laboratory tests under the CLFS. Starting January 1, 2018, reimbursement for most tests under the CLFS was expected to lower 10-15% annually until they equalized with the weighted median of private payor rates. CMS rates are updated periodically. This new methodology is leading to significant private and public reimbursement declines for most lab tests. T-SPOT.TB’s Medicare reimbursement was minimally impacted and will remain at $100 through 2021.

 

Outside the United States, we have also established reimbursement in several countries where reimbursement applies, including Japan, Switzerland, Germany, France and South Korea. Like in the U.S., reimbursement in France and Germany for T-SPOT.TB is higher than for other IGRAs based on T-SPOT.TB’s unique characteristics.

 

We have also established the cost-effectiveness of our test in several published studies.

 

T-SPOT.TB distribution, education and marketing

 

We currently offer globally our T-SPOT.TB test as an in vitro diagnostic kit, meaning we sell test kits and associated accessories to laboratories that perform the testing themselves. We have also established a clinical testing laboratory in the United Kingdom, where we perform our T-SPOT.TB test on samples sent to us by customers. We market our service offering under the name Oxford Diagnostic Laboratories^®, or ODL^®. 

 

Our approach to each country is based on opportunity size, health systems characteristics and maturity of its programs to fight TB. We prefer to establish direct connections with end customers in the most important markets. Today, we market our T-SPOT.TB test directly in the United States, China, Japan and many countries in Europe. In these countries, we use a combination of sales managers, sales representatives, customer service staff and technical experts to interact with clinicians, nurses, administrative staff, laboratories and other groups who are involved in the implementation of TB screening programs. Outside of these territories, we have contracted with distributors who market and sell our test. Our current customer base includes hospitals, commercial testing laboratories, importers and distributors.

 

Our goal is to educate these groups about the clinical, operational and economic benefits of switching from the TST to our T-SPOT.TB test. Our customer service staff and technical experts are also involved in the practical training of customers to perform and order our T-SPOT.TB test as well as providing ongoing customer support. In addition to these teams, we offer a diverse array of awareness-raising and educational activities, which include advertising, medical education and attendance at scientific meetings.

 

In the U.S., we maintain a strategic collaboration agreement with Quest to provide for close coordination between the two entities across functions such as Sales, Marketing, Medical Affairs, Customer Experience, Managed Care and Product Development. The agreement requires the development and execution of a joint annual commercial plan that includes promotional activities, education events, training, market research and analysis and customer experience. The agreement commits both organizations to executive oversight and regular review of progress on the commercial plan. Our U.S. organization also markets T-SPOT.TB to end customers not affiliated with Quest.

 

 

 

 

 

 

 

Competitive landscape

 

Our T-SPOT.TB test competes primarily with the TST. We believe our T-SPOT.TB test has a number of compelling advantages that make it a superior alternative to the more than 100-year-old TST, including superior sensitivity and specificity, simplicity of administration and elimination of variability due to subjective interpretation of results. Although the TST is often considered to be inexpensive, as the PPD reagent and other materials used in the test typically cost less than $5 per test, the materials cost is only one element of the total cost involved when conducting a TB screening program or TB control strategy. Substantial costs beyond the materials cost of the TST test include additional costs associated with: (i) false-negatives and false-positives, which risk non-detection and require additional confirmatory tests; (ii) individuals who fail to return within the prescribed period and, therefore, require re-testing; and (iii) implementing and maintaining training programs for healthcare workers who administer and read TST tests.

 

Studies have been published investigating the costs or cost-effectiveness of a TB screening program in the healthcare worker setting using the TST and in comparison to our T-SPOT.TB test. We believe these studies are informative in demonstrating how expensive the TST actually is to implement and how using our T-SPOT.TB test in preference to the TST can be a more cost-effective solution when implementing TB screening programs.

 

In addition, recent shortages in TST supplies have created additional impetus for transitioning from TST to IGRAs.

 

Other than the TST, our principal competitor is the QuantiFERON^®2-TB Gold Plus test, or QFN Plus, which was approved for sale in Japan in 2018, the U.S. in 2017 and has been available in Europe since 2016. Early publications suggest similar performance characteristics between QFN Plus and its predecessor.

 

We have been competing with QFN Plus, or prior versions of this test, since the launch of our T-SPOT.TB test in 2004. Based on the published evidence on both tests, we believe that we have several performance advantages over QFN Plus, including:

 

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In our pivotal clinical studies conducted in support of our PMA, T-SPOT.TB test results were not impacted by immunocompromised status or immunosuppression. The U.S. package insert for the QFN Plus test notes that the performance of the USA format of the QFN Plus test has not been extensively evaluated with specimens from the following groups of individuals: individuals who have impaired or altered immune functions, individuals younger than age 17 years, and pregnant women. The package insert also notes that the minimum number of lymphocytes required for a reliable test result has not been established and may also be variable. We believe this is an important differentiating factor in patient populations with weakened immune systems, such as those on biologic therapies, corticosteroid or other immunosuppressive treatments, those with HIV and those undergoing dialysis or organ transplantation.

 

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In the FDA pivotal studies in the United States, our T-SPOT.TB test was shown to have sensitivity advantages over the QFN Plus test.

 

We have also been successful in securing differential reimbursement for T-SPOT.TB in certain geographies, including France, Germany and the U.S. In the U.S., where we have established a unique CPT code for our test, this differential reimbursement has been maintained even following recent adjustments to the Clinical Lab Fee Schedule based upon the provisions of PAMA.

 

In 2019, a third IGRA, LIAISON® QuantiFERON®-TB Gold Plus was introduced.  This test is designed to work with QFN Gold Plus blood collection tubes and can be performed only on Diasorin’s Liaison XL platform.  Unlike the ELISA technology underlying the QFN Plus test, in the Liaison version the interferon-gamma quantitation is based on chemiluminescence (CLIA) technology. The U.S. package insert for the test indicates cumulative sensitivity that is 10 percentage points less than the QuantiFERON^®2-TB Gold Plus test and a prospective sensitivity of 78.6%, 17 percentage points lower than T-SPOT.TB.

 

Our technology platforms

 

T-SPOT Platform. The human immune system is composed of two principal branches: cellular (T cell) immunity and humoral (B cell and antibody-based) immunity. Through our T-SPOT technology platform we can efficiently measure marker-specific T cell responses at a single cell level and thereby inform the diagnosis, prognosis and monitoring of patients with immune-regulated conditions. We believe these areas are 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.

 

We employ a quantitative method to detect antigen-specific cells releasing immune messenger molecules, called cytokines, released by effector T cells. In relation to effector T cells, our technology is designed to selectively measure responses from this subtype of T cells because they are primarily present when active, replicating pathogens are inside the body, as opposed to other T cell subtypes that may be present long after an infection has been cleared from the body. For diagnosis and monitoring applications, it is more relevant to be able to measure the immune response associated with the current infection rather than the immune response associated only with past, cleared exposure.

 

Our T-SPOT technology offers many technical advantages including high analytical sensitivity, potential application across multiple diseases and conditions and standardization of white blood cell counts, which makes our technology particularly useful in immunocompromised patients, such as those undergoing transplant surgery or immunosuppressive therapy. We employ proprietary manufacturing processes and protocols designed to cost-effectively and reliably produce key elements of our T-SPOT technology, including the process for coating microtiter plates with cytokine antibodies, such as IFN-y antibodies, and our quality control testing procedures.

 

T-Cell Select Platform.  T-Cell Select is proprietary platform for separating and purifying immune cells by isolating mononuclear immune cells using a magnetic bead cell separation system.  While currently used in conjunction with T-SPOT.TB, this platform has broader relevance for functional immune measurement applications that require the preparation of a highly purified sample of immune cells.

 

 

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² QuantiFERON® is a registered trademark of Qiagen N.V.

 

 

Pipeline

 

We have a number of capabilities that can be leveraged in developing and commercializing products. We have a proven track record of running multi-center clinical trials, changing guidelines and establishing reimbursement, capabilities that are important to commercial success of diagnostic products. We have the experience and capability to gain regulatory clearance to manufacture and sell products meeting the regulatory requirements of numerous countries around the world. This, combined with our global sales and marketing infrastructure, which includes sales and marketing teams on three continents, and a laboratory in the United Kingdom allows us to generate revenues in a large number of countries. These capabilities are an attractive channel for commercializing enhancements to our existing offering and new products.

 

Our development programs are primarily focused on enhancing our T-SPOT.TB test offering, including advancing our T-Cell Select platform. We are developing multiple product enhancements that can add additional clinical utility to our test and further improve test workflow and automation. We believe these enhancements will also serve to increase the barriers to entry in both the U.S. and outside the U.S.

 

We have also developed an immune monitoring test for cytomegalovirus, or CMV, based on our core T-SPOT technology. This T-SPOT.CMV test is designed for the quantification of effector T cells that respond to stimulation by antigens specific for CMV and has applicability for monitoring CMV-seropositive response in transplant recipients at different time-points post-transplantation. We are gathering further evidence on the performance of this test in clinical studies and pilot usage prior to planning further commercialization and launch activities.

 

Product development activities are inherently uncertain, and there can be no assurance that we will be able to obtain regulatory body clearance to market our products. Delays in obtaining regulatory clearance may allow for increased competition, thereby potentially impacting the successful commercialization 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, based upon changed market conditions.

 

Intellectual property

 

We seek to secure and maintain protection of the proprietary aspects of our technology platform and of our existing and planned products. We rely on a combination of patents, trademarks, trade secret and other intellectual property laws, and confidentiality, license and invention assignment agreements and other contracts to protect our intellectual property rights. In addition, we have developed substantial knowledge in the field of immunology diagnostics including proprietary methods that we believe provide us with a significant advantage relative to potential competitors.

 

The intellectual property relating to our T-SPOT.TB test that we own or license includes 6 issued U.S. patents and 9 issued patents in other jurisdictions, as well as registered trademarks, proprietary manufacturing processes and protocols, and proprietary methods directed towards achieving rapid throughput in assay performance.

 

We believe that ESAT-6 and CFP-10 are the most important TB-specific antigens and we include peptides from both of these antigens separately in our T-SPOT.TB test. Certain patent rights we own or in-license have claims directed to the use of CFP-10 to detect Mycobacterium tuberculosis infection. We also believe that using an ELISPOT technique for an IGRA enhances its accuracy and suitability for use in testing individuals with compromised immune systems. Our T-SPOT.TB test employs this technique.

 

The inventions claimed in our patents relating to methods for storing and purifying cells from whole blood samples may also have applications in relation to other diseases, conditions or situations where blood samples cannot be tested soon after the blood draw. This proprietary method is a core part of the T-SPOT technology as it improves the stability of stored blood enabling the overnight shipment of blood samples. The patents covering these inventions expire in 2027 (outside of the U.S.) and 2028 (U.S.).

 

We have acquired a patent family relating to additional TB antigens, which has issued a patent in the U.S. and has applications pending in 3 other jurisdictions. The expected expiration date for the U.S. patent is August 2035.

 

We also have licensed certain patents related to the detection of antibody-secreting B cells specific for HLA. The last expected expiration date for the licensed patents is April 2036. Additionally we own a patent family, with applications pending in 4 jurisdictions, related to monitoring immune status. We can give no assurance that any of our current or future research and development programs will result in the development and validation of any diagnostic test that leverages any of these patents or patent applications or otherwise.

 

Our license and assignment agreements

 

We currently rely upon several license agreements to obtain rights under certain patents that we believe may be necessary to make, use and sell our products. We may in the future rely, at least in part, upon licensing agreements with third parties to obtain patent rights and transfers of technology, information and know-how to enable us to take advantage of research work already completed, including potentially the identification of antigens useful for measuring disease conditions. We believe such licensing arrangements have enabled us, and may in the future enable us, to reduce the amount of time we need to develop and validate new diagnostic tests.

 

We have royalty obligations under some of our current license agreements that are measured in part based upon our sales levels. Where our royalty obligations are calculated on our net sales, the definition of net sales varies by agreement and typically resulted in a lower effective royalty rate on our service revenue than on sales of our kits. Currently, our aggregate royalty burden for our T-SPOT.TB test under all license and assignment agreements, as a percentage of gross product and service revenue, is in the low single digits. Under our license agreements, we may be responsible for paying, or contributing to, patent prosecution and maintenance costs or subject to diligence obligations. We believe we are in compliance with all obligations of our license agreements.

 

 

Tuberculosis related patents

 

In 2013, we entered into an assignment agreement with Oxford University Innovation Ltd., or Oxford Innovation, formerly known as Isis Innovation Limited, pursuant to which various patents we previously licensed from Oxford Innovation were assigned to us. We have ongoing obligations under the assignment agreement to make payments to Oxford Innovation until the patents expire and to continue to extend license rights to Oxford University, its employees, students, agents and appointees to use the technology for academic and research purposes. Our rights under the patents are subject to various grants of license rights, including (i) a license back to Oxford Innovation to maintain a pre-existing license for research use only, (ii) a pre-existing grant to a third party of non-exclusive rights under the patents covering a field of two infectious diseases, and (iii) a pre-existing grant to a third party of non-exclusive rights under the patents limited to the licensee’s internal use to monitor vaccine response.

 

The amount we paid to Oxford Innovation for our royalty obligation is equal to a royalty rate in the low single digits. Our aggregate royalty obligation payments to Oxford Innovation through December 31, 2019 have been $4.1 million. Our royalty obligations to Oxford Innovation ceased in December 2019, at which time there was no valid patent claims still in force covering licensed products or assays.

 

Our license agreement with Rutgers, The State University of New Jersey, or Rutgers, grants us an exclusive license to certain patents to manufacture and commercialize kits for in vitro diagnostic assays relating to TB other than in the ELISA format. The license was made in 2006 and has been amended in 2009, 2011, 2012, 2013, 2016 and 2017. Our license is royalty-bearing, worldwide, with the right to sublicense. We have not granted any sublicenses under this license. Rutgers has reserved the right to grant one additional license to this technology, limited to an ELISA format.

 

We must make semi-annual royalty payments to Rutgers. Although the agreement contains minimum royalty obligations, the amount of royalties due based on our actual sales utilizing the licensed patents has exceeded the minimum for a number of years and we expect our royalties on actual sales will continue to exceed the minimum for the duration of our royalty obligations. We pay a royalty rate in the low single digits. Our aggregate payments to Rutgers through December 31, 2019 for signing fees, annual fees, milestones and royalties, including minimum royalties, have been $3.8 million. Our royalty obligations to Rutgers will cease in July 2020, at which time there will be no valid patent claims still in force covering licensed products or assays. Previously, we made a number of other payments to Rutgers for license issue fees, annual license fees and milestone payments. No such future payments are required under the license.

 

Trademarks and other protection

 

The trademarks we employ in our business include T-SPOT, T-Cell Xtend, T-Cell Select, ODL, Oxford Diagnostic Laboratories, and the laboratory logo and the Oxford Immunotec logo. We have obtained registrations in the United States for T-SPOT, T-Cell Xtend, Oxford Diagnostic Laboratories, and the Oxford Immunotec logo. We have also obtained registrations for certain of these trademarks in other jurisdictions, including the United Kingdom, the European Community, Japan and China. We have also secured numerous internet domain name registrations.

 

We have a policy of requiring all our employees to sign agreements that obligate them to maintain in confidence all confidential information they receive during the course of their employment, except in certain circumstances. Substantially all of our employees are also bound by invention assignment obligations, which provide that rights to all inventions and other types of intellectual property, whether or not patentable, conceived by them during the course of employment are assigned to us. We seek to enter into similar confidentiality and invention assignment agreements with our consultants.

 

Our trade secrets

 

There are several areas in which we have developed trade secrets relating to manufacturing that we believe provide a competitive advantage with respect to our T-SPOT.TB test. It is essential to the performance of ELISPOT tests used to detect the release of interferon-gamma from stimulated T cells that the microtiter plates used in the test be smoothly coated with the proper amount of interferon-gamma antibodies. For volume manufacturing, these coated plates must also meet stringent shelf life requirements. Our plate-coating process meets these criteria and cost-effectively provides reliable results. We believe this approach results in significant cost savings for us without sacrificing our compliance with either good manufacturing practices or our own high standards.

 

As part of our test offerings, we use unique formulations of peptides and other reagents that we believe are important to the accuracy of our tests. Further, we have devoted substantial time and resources to the development of processes and techniques that have resulted in cost reductions in our test manufacture and in assay performance in our service laboratory. In our U.K. ODL facility, we have streamlined the workflow process to allow for rapid throughput, which reduces labor costs and reduces the time we take to provide test results to our customers. In addition, we have developed and validated automated solutions for the assay process, including proprietary protocols for maximizing efficiencies garnered from the automation equipment. These methods are useful in our current test offerings, and will be applicable to future tests we may develop using our T-SPOT technology and other platforms. We believe the manufacturing process and assay performance efficiencies we have developed and employ could not easily or quickly be developed by others.

 

 

Manufacturing and laboratory facilities

 

Our tests are generally manufactured by us from materials we obtain from a limited number of suppliers. We manufacture our T-SPOT.TB test at our U.K. corporate headquarters in Abingdon, England.

 

Our lease for a new facility in Abingdon, England, or the 143 Park Drive lease, will allow us to combine our manufacturing, laboratory, storage and office operations into a single facility.

 

In connection with the sale of our U.S. Laboratory Services Business to Quest, we entered into a sublease with Quest for warehousing and office space in Norwood, Massachusetts.

 

For a detailed description of our manufacturing and laboratory facilities, please refer to Item 2. Properties of this Annual Report.

 

Key supplier relationships

 

We use a broad range of materials in the manufacture and performance of our diagnostic tests. We purchase all raw materials used in our tests from external suppliers. We purchase some materials from single sources for reasons of quality assurance, sole source availability, cost effectiveness or constraints resulting from regulatory requirements. We work closely with our suppliers to assure continuity of supply while maintaining high quality and reliability. To date, we have not experienced any significant difficulty in locating and obtaining the materials necessary to fulfill our production schedules. Because we believe that the only material supply relationships we have are those that pertain to our T-SPOT.TB test, we summarize these relationships below.

 

Mabtech AB. We entered into a purchase agreement with Mabtech AB, or Mabtech, in 2010, which was amended in 2013 and again in 2017. Pursuant to this agreement, Mabtech supplies the antibodies used to coat the membrane plates and for the detection procedure in our tests. We provide rolling forecasts of our anticipated purchases and portions of those forecasts become binding orders. We receive pricing discounts based on the volume of our purchases. We have agreed to purchase these antibodies exclusively from Mabtech, although our exclusivity obligations may cease in the event Mabtech raises prices by more than a certain percentage over a defined period of time and declines to match a competitive third-party quotation for the antibodies.

 

The purchase agreement continues until terminated by either party on 12 months' notice or by providing written notice to the other in the event of a material uncured breach by the other party, a liquidation, insolvency, or bankruptcy proceeding involving the other party or cessation in trading by the other party.

 

EMD Millipore Corporation. We entered into a supply agreement with EMD Millipore Corporation, or Millipore, in 2009, which was amended in 2013 and 2014, and expired on December 31, 2018. In January 2019, we entered into a new agreement with Millipore (UK) Ltd, or Merck, a subsidiary of Millipore. Pursuant to the agreement, Merck supplies us with the membrane plates used in tests incorporating our T-SPOT technology. We provide rolling forecasts of our anticipated purchases and portions of those forecasts become binding orders. We receive pricing discounts based on the size of our orders. The agreement expires, unless earlier terminated, on December 31, 2024. Each party has the right to terminate in the event of a material uncured default by the other party. Each party also has the right to terminate the Agreement upon at least twelve months’ prior written notice. In the event Merck exercises its right of termination, we may continue to purchase goods under the agreement for up to twelve months following termination.

 

MicroCoat Biotechnologie GmbH. Pursuant to our 2010 supply agreement with MicroCoat Biotechnologie GmbH, or MicroCoat, which was amended in 2016 and 2017, MicroCoat performs antibody coating on membrane plates using plates and antibodies we supply. Under the supply agreement, we provide rolling forecasts of our anticipated purchases and portions of those forecasts become binding orders. We receive pricing discounts based on the size of our orders. These antibody-coated plates are a component of tests using our T-SPOT technology.

 

The initial term of the agreement expired on December 31, 2019. However, the agreement is now subject to automatic renewal for additional one-year periods in the absence of specified notice by either party. Each party has the right to terminate in the event of a material uncured breach by the other party, or in the event of a bankruptcy or insolvency proceeding involving the other party.

 

StemCell Technologies, Inc. We entered into a supply agreement with StemCell Technologies, Inc., or StemCell, in 2008, which was amended in 2011 and again in 2017. Pursuant to this agreement, StemCell supplies us with a product that can be used with tests using our T-SPOT technology.

 

We have the exclusive right to market this product for use in association with ELISPOT tests to detect and/or quantify T-cells for use in the in vitro diagnosis, prognosis and/or clinical monitoring of infectious diseases, including tuberculosis, and non-infectious diseases and medical conditions, except our rights in China and India are non-exclusive. StemCell retains the right to sell this product for use in other applications and in our non-exclusive territories. We are obligated to use commercially reasonable efforts to promote sales of the product for the applications to which we have exclusive rights.

 

 

We paid a signing fee in the amount of $0.1 million and milestone payments in the aggregate amount of $0.2 million. We are not obligated to make additional milestone payments. We are obligated to pay an annual exclusivity fee during the term of the agreement, creditable against certain future purchases. Our product purchases exceeded the amount of the exclusivity fee in 2017. We receive pricing discounts based on our quarterly orders. We have also agreed to make StemCell our supplier of choice for certain types of products, subject to performance obligations of StemCell, and we are generally obligated to acquire all of our requirements for such products from StemCell.

 

The agreement expires, unless earlier terminated, on December 31, 2023, but will continue indefinitely thereafter in the absence of specified notice by either party. Each party may terminate for material uncured breach, the insolvency or bankruptcy of the other party or the cessation of trading by or dissolution of the other party.

 

Life Technologies Corporation. We entered into a supply and reseller agreement with Life Technologies Corporation, or Life Tech, in 2013, amended in 2014, 2016 and 2017, which expired on December 31, 2018. In January 2019, we entered into an amended and restated supply and reseller agreement with Life Tech, which expired on December 31, 2019. In November 2019, we entered into an amended and restated supply and reseller agreement with Life Tech, which will expire on December 31, 2022. Pursuant to the amended and restated supply and reseller agreement with Life Tech, we purchase and resell a product that can be used in performing assays using our T-SPOT technology. We have a minimum annual purchase obligation under the agreement, as well as obligations to purchase certain amounts based on our rolling forecasts of anticipated purchases. Either party may terminate for a material uncured breach, the insolvency or bankruptcy of the other party, if one of our twelve-month forecasts does not reflect any anticipated purchases of product or if we purchase no product during a consecutive twelve-month period.

 

Key customer relationships

 

Our customers include independent laboratories, large hospital systems and public and private institutions. Our customer relationships also include our distributors outside of the U.S. We believe our relationships with Quest and with two of our distributors are key customer relationships.

 

Quest Diagnostics, Incorporated. We have a supply agreement with Quest, which was made as of the closing of the sale of our U.S. Laboratory service business to Quest. Pursuant to the supply agreement, we sell T-SPOT.TB kits and certain accessories to Quest. The agreement expires on November 6, 2025. Each party may terminate the supply agreement for a material uncured breach or in any event of bankruptcy or an equivalent winding up of the other party’s business.

 

Riken Genesis Co., Ltd. We sell our T-SPOT.TB test to a Japanese importer, Riken Genesis Co., Ltd., or Riken, which also serves as our marketing authorization holder in Japan, a position required by Japanese regulatory authorities. We entered into a marketing authorization holder agreement with Riken in 2011 and it was amended in 2013, 2016 and 2017. Pursuant to this agreement, Riken provides services for importation into Japan. We initially paid an initiation fee to Riken in the amount of ¥200,000, or approximately $1,600. We currently pay Riken a flat monthly fee in the amount of ¥150,000, or approximately $1,300, and also pay a single-digit percentage commission based on the prices at which end users purchase our products. The initial agreement with Riken had a one-year term and automatically renews for additional one-year periods in the absence of specified notice by either party. Either party may terminate for a material uncured breach or in the event of bankruptcy, insolvency or similar proceedings of the other party.

 

Shanghai Fosun Long March Medical Science Co. Ltd. We had a distribution agreement with Shanghai Fosun Long March Medical Science Co. Ltd., or Fosun, pursuant to which Fosun distributed our TB-related products in China. Under the distribution agreement, Fosun served as our exclusive distributor in a territory consisting of the People’s Republic of China, including Macau Special Administrative Regions, and also served as our non-exclusive distributor in Hong Kong. The relationship with Fosun was terminated in the third quarter of 2019. In December 2019, the Company entered into a new non-exclusive distribution agreement with Shanghai Pharmaceutical Co., Ltd., or Shanghai Pharma (see below).

 

Shanghai Pharma. We sell our T-SPOT.TB test to a Chinese importer and distributor, Shanghai Pharma. This is a non-exclusive agreement for Shanghai Pharma to import, warehouse and distribute our T-SPOT.TB test kits and related accessories to sub-distributors and direct customers in China. The agreement with Shanghai Pharma was signed on December 24, 2019, with a term of three years. Shanghai Pharma receives a flat percentage of the import value of our T-SPOT.TB test for its services.

 

Government regulation

 

Federal Food, Drug, and Cosmetic Act

 

In the United States, in vitro diagnostics, or IVDs, are regulated by the FDA as either medical devices or biological products under the Federal Food, Drug, and Cosmetic Act, or FDCA, depending on their intended use. IVDs that are used as diagnostics are regulated as medical devices.

 

 

Marketing pathways

 

There are two regulatory pathways to receive authorization to market IVDs intended for diagnostic purposes: a premarket application, or PMA, and a 510(k) premarket notification. The FDCA establishes a risk-based standard for determination of the pathway for which a particular IVD device is eligible.

 

The information that must be submitted to the FDA to obtain clearance or approval to market a new medical device varies depending on how the medical device is classified by the FDA. Medical devices are classified into one of three classes on the basis of the controls necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls, including labeling and adherence to the FDA’s quality system regulation, which establishes device-specific good manufacturing practices. Class II devices are subject to general controls and special controls, including performance standards and post-market surveillance. Class III devices are subject to these requirements as well as to premarket approval. Most Class I devices are exempt from premarket submissions to the FDA; most Class II devices require the submission of a 510(k) premarket notification to the FDA; and Class III devices require submission of a PMA application. Our T-SPOT.TB test is a Class III device. We have other Class II devices that have received 510(k) clearance from FDA that we acquired through our acquisition of Immunetics, Inc., or Immunetics.

 

Premarket approval. The PMA process, by which we received marketing authorization for our T-SPOT.TB test in 2008, is complex, costly and time consuming. A PMA application must be supported by detailed and comprehensive scientific evidence, including clinical data, to demonstrate the safety and efficacy of the medical device for its intended purpose. If the device is determined to present a “significant risk,” the sponsor may not begin a clinical trial until it submits an investigational device exemption, or IDE, to the FDA and obtains approval from the FDA to begin the trial. After the PMA application is submitted, the FDA has 45 days to make a threshold determination that the application is sufficiently complete to permit a substantive review. If the application is complete, the FDA will accept it for filing. The FDA is subject to a non-binding performance goal review time for a PMA application of 180 days from the date of filing, although in practice this review time is often longer. Questions from the FDA, requests for additional data and referrals to advisory committees may delay the process considerably. Indeed, the total process may take several years and there is no guarantee that the PMA application will ever be approved. Even if approved, the FDA may limit the indications for which the device may be marketed. The FDA may also request additional clinical data as a condition of approval or after the PMA is issued. Any changes to the medical device may require a supplemental PMA application to be submitted and approved. Since we received initial PMA application approval of our T-SPOT.TB test in 2008, the FDA has granted approval for ten supplemental PMA applications for our T-SPOT.TB test, including supplements relating to the use of our T-Cell Xtend reagent with our T-SPOT.TB test.

 

Post-marketing regulations and controls

 

Under the medical device regulations, the FDA regulates quality control and manufacturing procedures by requiring us to demonstrate and maintain compliance with the quality system regulation, which sets forth the FDA’s current good manufacturing practices requirements for medical devices. The FDA monitors compliance with the quality system regulation and current good manufacturing practices requirements by conducting periodic inspections of manufacturing facilities. FDA inspections in the United States are typically unannounced. FDA inspections outside the United States are coordinated with the companies being inspected. Violations of applicable regulations noted by the FDA during inspections of our manufacturing facilities could adversely affect the continued marketing of our tests.

 

The FDA also enforces post-marketing controls that include the requirement to submit product reports to the agency when a manufacturer becomes aware of information suggesting that any of its marketed products may have caused or contributed to a death, serious injury or serious illness or any of its products has malfunctioned and that a recurrence of a malfunction would likely cause or contribute to a death or serious injury or illness. The FDA relies on product reports to identify product problems and utilizes these reports to determine, among other things, whether it should exercise its enforcement powers. The FDA also enforces the requirement that manufacturers submit reports of recalls and field actions to the FDA if the actions are initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health. The FDA may also require post-market surveillance studies for specified devices.

 

FDA regulations also govern, among other things, the preclinical and clinical testing, manufacture, distribution, labeling and promotion of medical devices and biological products. In addition to compliance with good manufacturing practices and product reporting requirements, we are required to comply with the FDCA’s general controls, including establishment registration, device listing and labeling requirements. If we fail to comply with any requirements under the FDCA, we could be subject to, among other things, fines, injunctions, civil penalties, recalls or product corrections, total or partial suspension of production, denial of premarket notification clearance or approval of products, rescission or withdrawal of clearances and approvals and criminal prosecution. We cannot assure you that any final FDA policy, once issued, or future laws and regulations concerning the manufacture or marketing of medical devices will not increase the cost and time to market of new or existing tests. If we fail to comply with these FDA regulations or guidelines, we may be subject to warnings from, or enforcement action by, the FDA.

 

 

International medical device regulations

 

International marketing of medical devices is subject to foreign government regulations, which vary substantially from country to country. The European Commission is the legislative body responsible for directives with which manufacturers selling medical products in the European Union and the European Economic Area, or EEA, must comply. The European Union includes most of the major countries in Europe, while other countries, such as Switzerland, are part of the EEA and have voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices. The European Union has adopted directives that address regulation of the design, manufacture, labeling, clinical studies and post-market vigilance for medical devices, including IVDs. Devices that comply with the requirements of a relevant directive, including the IVD Directive (Directive 98/79 EC), will be entitled to bear the CE conformity marking, indicating that the device conforms to the essential requirements of the applicable directives and, accordingly, can be marketed throughout the European Union and EEA.

 

Outside of the European Union, regulatory pathways for the marketing of medical devices vary greatly from country to country. In many countries, local regulatory agencies conduct an independent review of IVD medical devices prior to granting marketing approval. For example, in China, approval by the NMPA must be obtained prior to marketing an IVD medical device. In Japan, approval by the MHLW following review by the Pharmaceuticals and Medical Devices Agency, or the PMDA is required prior to marketing an IVD. The process in such countries may be lengthy and require the expenditure of significant resources, including the conduct of clinical trials. In other countries, the regulatory pathway may be shorter and/or less costly. The timeline for the introduction of new IVD medical devices is heavily impacted by these various regulations on a country-by-country basis, which may become more lengthy and costly over time.

 

Our T-SPOT.TB test has been approved for sale in over 50 countries, including in the U.K., and in Europe, Japan and China. Our T-SPOT.TB test obtained a CE mark in 2004 and MHLW approval in Japan in 2012. In China, we obtained NMPA approval in 2010, re-registration in 2014 and applied for re-registration in April 2019. At the time of the filing of this Annual Report, we have not received a decision on our application. Our T-SPOT.CMV test obtained a CE mark in 2015.

 

United Kingdom’s Vote to Leave the European Union

 

The withdrawal of the United Kingdom from the E.U., commonly referred to as “Brexit,” took effect on January 31, 2020. The effects of Brexit will depend on any agreements the United Kingdom makes to retain access to E.U. markets either during a transitional period or more permanently. Since a significant proportion of the regulatory framework in the United Kingdom is derived from E.U. directives and regulations, the regulatory regime applicable to products approved and sold in the United Kingdom could materially change after the end of the transition period, currently anticipated to be December 31, 2020. It is possible that there will be greater restrictions on imports and exports between the United Kingdom, the E.U. and other countries, increased regulatory complexities, and economic and political uncertainty in the region. Because of the continued uncertainty about the effects of Brexit, we cannot quantify or predict with any certainty the likely impact of Brexit or related legislation on our business, financial condition, and results of operations. For more information on the uncertainty surrounding Brexit, see Item 1A, “Risk Factors” in this Annual Report.

 

Laboratory certification, accreditation and licensing

 

Our laboratory located in the United Kingdom operates under accreditation by the United Kingdom Accreditation Service, or UKAS, for the International Standard: ISO 17025:2017 (General requirements for the competence of testing and calibration laboratories). Compliance with this standard is required to maintain accreditation and the continued use of the UKAS logo on our laboratory documentation. National Health Service (NHS)-based customers require that the testing services they procure operate to an accredited quality management system, which is evidenced by the UKAS accreditation. Therefore, a failure to maintain this accreditation could cause us to lose a substantial majority of our U.K. service business.

 

HIPAA and other privacy laws

 

U.S. Health Insurance Portability and Accountability Act, or HIPAA, established for the first time in the United States comprehensive protection for the privacy and security of health information. The HIPAA standards apply to three types of organizations, or Covered Entities: health plans, healthcare clearing houses, and healthcare providers that conduct certain healthcare transactions electronically. Covered Entities and their Business Associates, as defined in HIPAA, must have in place administrative, physical, and technical standards to guard against the misuse of individually identifiable health information. Since the divestiture of our U.S. Laboratory Services Business, we are no longer a Covered Entity. We may conduct other activities that may implicate HIPAA, such as conducting clinical studies or entering into specific kinds of relationships with a Covered Entity or a Business Associate of a Covered Entity.

 

If we or our operations are found to be in violation of HIPAA, the Health Information Technology for Economic and Clinical Health Act, or HITECH, or their implementing regulations, we may be subject to penalties, including civil and criminal penalties, fines, and exclusion from participation in U.S. federal or state health care programs, and the curtailment or restructuring of our operations. HITECH increased the civil and criminal penalties that may be imposed against Covered Entities, their Business Associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions.

 

Our activities must also comply with international privacy laws that impose restrictions on the access, use, and disclosure of health information. For example, the European General Data Protection Regulation covers personal information of citizens of the European Union and imposes strict penalties for noncompliance. All of these laws may impact our business. Our failure to comply with these privacy laws or significant changes in the laws could significantly impact our business and our future plans.

 

U.S. federal and state “anti-kickback” restrictions

 

The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration” is not defined in the federal Anti-Kickback Statute and has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests and providing anything at less than its fair market value.

 

 

 

 

 

 

 

Anti-Corruption

 

We are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, which prohibits companies and certain representatives acting on their behalf from offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official, political party, party official, candidate for public office, or official of a public international organization in order to improperly influence an official act or decision or secure an improper advantage. The term “anything of value” is not defined in the FCPA and has been broadly interpreted to include cash and cash equivalents, gifts, discounts, hospitality at sporting events, offers of internships or jobs, and other benefits. In addition, the scope of non-U.S. government officials covered by the FCPA is broad and can include interactions with certain healthcare professionals in many countries. We are also subject to the FCPA’s accounting provisions. These provisions require us to keep accurate books and records and to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances of management’s control, authority, and responsibility over the company’s assets.

 

Additionally, we are subject to anti-corruption laws of other countries, including the U.K. Bribery Act of 2010, or Bribery Act, where we do business.

 

Many states have also adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs, and do not contain identical safe harbors.

 

If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in U.S. federal or state health care programs, and the curtailment or restructuring of our operations. We may also be subject to similar foreign laws and regulations.

 

U.S. health care reform

 

In March 2010, the U.S. Patient Protection and Affordable Care Act, or the PPACA was enacted, which included measures that significantly changed the way healthcare is financed by both governmental and private insurers. Changes were made to the PPACA as part of the Tax Cuts and Jobs Act of 2017 to remove certain parts of the original legislation and the current Congress continues to make efforts to repeal and/or replace the PPACA. The Physician Payment Sunshine Act, enacted as part of PPACA, has not been repealed and requires medical device manufacturers to track certain financial arrangements with physicians and teaching hospitals, including any “transfer of value” made or distributed to such entities, as well as any investment interests held by physicians and their immediate family members. Manufacturers are required to report this information to CMS. Various states have also implemented regulations prohibiting certain financial interactions with healthcare professionals and/or mandating public disclosure of such financial interactions. We may incur significant costs to comply with such laws and regulations now or in the future.

 

In December 2019, the U.S. Congress permanently repealed the 2.3% medical device excise tax, originally enacted as part of the Affordable Care Act in 2013.

 

Other laws

 

We are also subject to numerous U.S. federal, state and local laws as well as international laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and transportation and disposal of blood and hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future. 

 

Employees

 

As of December 31, 2019, we had 243 employees. None of our employees is covered under a labor union. However, we have one employee in France and one employee in Italy who are covered under collective bargaining agreements. We have not experienced any work stoppages and we believe our employee relations are good.

 

Environmental matters

 

Our operations require the use of hazardous materials, which, among other matters, subjects us to a variety of national, state and local environmental, health and safety laws, regulations and permitting requirements, including those relating to the handling, storage, transportation and disposal of biological and hazardous materials and wastes. The primary hazardous materials we handle or use include human blood samples and solvents. Some of the regulations under the current regulatory structure provide for strict liability, holding a party liable for contamination at currently and formerly owned, leased and operated sites and at third-party sites without regard to fault or negligence. We could be held liable for damages and fines as a result of our, or others’, operations or activities should contamination of the environment or individual exposure to hazardous substances occur. We could also be subject to significant fines for failure to comply with applicable environmental, health and safety requirements. We cannot predict how changes in laws or development of new regulations will affect our business operations or the cost of compliance.

 

Available information

 

Access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed with or furnished to the SEC may be obtained through the investor section of our website at www.oxfordimmunotec.com as soon as reasonably practical after we electronically file or furnish these reports. We do not charge for access to and viewing of these reports. Information in the investor section and on our website is not part of this Annual Report or any of our other securities filings unless specifically incorporated herein by reference. Also, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.

 

 

Corporate information

 

Oxford Immunotec Global PLC was incorporated in England and Wales in 2013. Our principal executive offices are located at 94C Innovation Drive, Milton Park, Abingdon, OX14 4RZ, United Kingdom, and our telephone number is +44 (0) 1235 442 780. Our internet website is www.oxfordimmunotec.com. The information on, or that can be accessed through, our website is not part of this Annual Report.

 

Item 1A. Risk Factors

 

Risks related to our business and our industry.

 

We have a history of losses and we cannot be certain that we will achieve or sustain profitability.

 

We have a history of losses and may continue to incur losses from continuing operations. For the fiscal years ended December 31, 2019 and 2018, we had income (losses) from continuing operations of ($1.3) million and $12.5 million, respectively, and we had an accumulated deficit at December 31, 2019 of $84.0 million. Substantially all of our operating losses in these periods resulted from costs incurred in connection with sales and marketing of our products, general and administrative costs associated with our operations and our research and development programs. Since the sale of our U.S. Laboratory Services Business to Quest, we have concentrated on reducing overhead costs and refocusing our business on the sale of T-SPOT.TB test kits. Because of the numerous risks and uncertainties associated with developing and commercializing diagnostic products, we cannot be certain that we will achieve or sustain certain profitability measures. Our ability to generate profits on sales of our products is subject to market acceptance in market segments we currently serve, as well as in new market segments and new geographies, and our ability to obtain regulatory body clearance to market any of our products. In addition, we may be compelled to sell our products at lower prices if, for example, our customers or prospective customers are unwilling to pay for our tests at current pricing levels or as a result of increased competition generally. Any price erosion would impede our ability to generate revenue. If we are unable to generate sufficient revenue, we will not become profitable and may be unable to continue operations without continued funding.

 

We are currently heavily dependent on the successful further commercialization of our T-SPOT.TB test and, if we encounter delays or difficulties in the further commercialization of this product, both in the U.S. and abroad, our business could be harmed.

 

Our future success is heavily dependent upon the successful further commercialization of our T-SPOT.TB test. We generate our revenue mainly from sales associated with our T-SPOT.TB test via our direct sales force and through distributors. There is no assurance that we will continue to generate revenues from our T-SPOT.TB test, or any products under development, in the future. Our business could be materially harmed if we encounter difficulties in the further commercialization of our products, including, among others:

●

failure to achieve sufficient market acceptance by hospitals and public health departments as well as physicians, third-party payors and others in the medical community;

●

the inability to compete with other diagnostic methods, including the TST;

●

the inability to maintain and expand our sales, marketing and distribution networks;

●

the inability to manage anticipated growth;

●

the inability to obtain and/or maintain necessary regulatory approvals; and

●

the inability to effectively protect our intellectual property.

 

 

 

 

Our further commercialization of our products outside of the U.S. is subject to additional risks. For example, China's NMPA requires that companies re-register their product every five years. Consistent with NMPA re-registration requirements, in 2014 we secured re-registration of our test, which was effective until December 2019. We applied for re-registration in April 2019. However, at the time of the filing of this Annual Report, we have not received a decision on our application. If there is a significant delay in us receiving the re-registration of our T-SPOT.TB test in China, or we do not receive re-registration at all, our business could be materially harmed. Other examples of risks related to international business markets include:

●

different regulatory requirements for product approvals and re-approvals in foreign countries;

●

more restrictive privacy laws relating to personal information of end users and employees, including the General Data Protection Regulation;

●

reduced protection for our intellectual property rights in foreign countries;

●

unexpected changes in tariffs, trade barriers, sanctions and regulatory requirements;

●

different reimbursement systems;

●

economic weakness, including inflation, or political instability in particular foreign economies and markets;

●

regulations that would apply to activities in such foreign jurisdictions, such as the U.S. Foreign Corrupt Practices Act;

●

foreign taxes;

●

foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; and

●

business interruptions resulting from geopolitical actions, including war and terrorism, natural disasters, public health crises and other catastrophic events.

 

If we encounter delays or difficulties in the further commercialization of our products due to the factors noted above, both in the U.S. and abroad, our business and financial results may be adversely affected.

 

If we do not achieve, sustain or successfully manage our anticipated growth, our business and financial results may be adversely affected.

 

Further development and commercialization of our T-SPOT.TB test and other diagnostic product candidates will require us to expand our sales, marketing and distribution networks. We may not be able to attract the right candidates for new roles in the Company required to meet such growth. Such growth may place significant strains on our management and our internal systems and processes, as well as potentially those of our suppliers, and if we cannot effectively manage expanding operations and costs, we may not be able to continue to grow or we may grow at a slower pace and our business and financial results could be adversely affected.

 

Our business, financial condition and results of operations will depend on the market acceptance and increased demand of our products by hospitals and public health departments, as well as physicians and others in the medical community.

 

Our future success depends on our products gaining sufficient market acceptance by hospitals and public health departments. If our products do not achieve an adequate level of acceptance by such customer groups, we may not generate enough revenue to become profitable. For example, the degree of market acceptance of our T-SPOT.TB product will depend on a number of factors, including:

●

clinical guidelines relative to the screening for, and diagnosis and monitoring of, TB infection;

●

the efficacy and potential advantages of our T-SPOT.TB test over alternative tests;

●

the willingness of our target customers to accept and adopt our products;

	●	the availability of reimbursement, or other funding mechanisms to pay for our products;
	●	the ability to offer attractive pricing for our products;

●

the strength of marketing and distribution support and the timing of market introduction of competitive products;

	●	the ability to offer automation solutions that meet customer needs; and
	●	outcomes from clinical studies and other publicity concerning our products or competing products.

 

Our efforts to educate physicians and other members of the medical community on the benefits of our products may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by conventional technologies marketed by our competitors. In particular, continuing to gain market acceptance for our products in nascent markets could be challenging. In certain markets, including, for example, Japan and China, our potential for future growth is difficult to forecast. If we were to incorrectly forecast our ability to penetrate these markets, expenditures that we make may not result in the benefits that we expect, which could harm our results of operations. Additionally, if we lose any of our customers due to significant delays in our ability to obtain re-registration of our T.SPOT.TB test in China, our results of operations could be materially and adversely affected.

 

In the event that our products are the subject of guidelines, clinical studies or scientific publications that are unhelpful or damaging, or otherwise call into question the benefits of our products, we may have difficulty in convincing prospective customers to adopt our test. Moreover, the perception by the investment community or shareholders that recommendations, guidelines or studies will result in decreased use of our products could adversely affect the prevailing market price for our ordinary shares. Similar challenges apply to all of the products in our pipeline.

 

The success of our T-SPOT.TB test depends on the continued demand for diagnostic products for tuberculosis.

 

Even if we achieve market acceptance, our success will depend on continued demand for diagnostic products for tuberculosis. Tuberculosis screening policies could change such that tests are conducted less frequently or in fewer instances. For example, healthcare institutions facing increased cost control requirements could determine to reduce employee testing. In addition, various institutions or governing bodies may decide that the incidence of TB has dropped sufficiently within their screening population so as to permit reduced testing (e.g., U.S. healthcare personnel screening guidelines were updated in 2019 to change annual screening from an institution-based risk approach to an individual-based risk based approach which reduced the total number of health care personnel screened annually). Changes to immigration policies and policies relating to resettlement of refugees, as well as other policy changes may substantially reduce testing in the markets we serve and could have a material and adverse effect on our business.

 

 

 

 

 

 

 

New market opportunities may not develop as quickly as we expect, limiting our ability to market and sell our products successfully.

 

We intend to take steps to continue to increase the presence of our products in new markets both in the United States and internationally. We intend to expand our sales force globally and establish additional distributor relationships outside of our direct markets to better access international markets. We believe these opportunities will take substantial time to develop or mature, however, and we cannot be certain that these market opportunities will develop as we expect. The future growth and success of our products in these markets depends on many factors beyond our control, including recognition and acceptance by the scientific community in that market and the prevalence and costs of competing methods of tuberculosis screening. If the markets for our products do not develop as we expect, our business may be adversely affected.

 

In connection with the Transaction, we entered into a supply agreement and strategic collaboration agreement with Quest. If we are unable to meet our obligations under these agreements, our business could be adversely affected.

 

In connection with the Transaction, we entered into a supply agreement pursuant to which we agreed to sell, and Quest agreed to purchase, T-SPOT.TB test kits and related accessories. Additionally, we entered into a strategic collaboration agreement with Quest to drive continued growth of T.SPOT.TB testing in the U.S. If we fail to meet our obligations under the supply agreement or if our collaboration with Quest does not result in the continued growth of T.SPOT.TB testing in the U.S., our business may be adversely affected.

 

Our T-SPOT.TB test competes with other diagnostic testing methods that may be more widely accepted than our test, and may compete with new diagnostic tests that may be developed by others in the future, which could impair our ability to maintain and grow our business and remain competitive.

 

The clinical diagnostics market is highly competitive, and we must be able to compete effectively against existing and future competitors in order to be successful. In selling our T-SPOT.TB test, we compete primarily with existing diagnostic technologies, particularly the TST, which is widely used as a test for TB infection. An additional competitor is the QFN Plus test, which employs a different IGRA method for detecting tuberculosis infection, and there are also other smaller IGRA manufacturers. If we are unable to differentiate our diagnostic tests from those of our competitors, our business may be materially and adversely affected. Improvements in competing technologies or the development of new technologies for diagnosing tuberculosis and the introduction of products that compete with our T-SPOT.TB test could adversely impact our ability to sell our T-SPOT.TB test or the sales price of the test. This could impact our ability to market our test and/or secure a distribution partner, both of which could have a substantial impact on the value of our T-SPOT.TB test and our sales volume.

 

We also face competition in the development, manufacture, marketing and commercialization of diagnostic products from a variety of other sources, such as academic institutions, government agencies, research institutions and other life sciences companies. These competitors are working to develop and market other diagnostic tests, systems, products and other methods of detecting, preventing or reducing tuberculosis.

 

Among the many experimental diagnostics being developed around the world, there may be diagnostics unknown to us that may compete with our products. Many of our potential competitors have much greater capital resources, manufacturing, research and development resources and production facilities than we do. Competitors with greater resources may be able to offer tests and/or services at prices at which we are unable to compete and more quickly develop improvements than we are. Many of them may also have more experience than we have in preclinical testing and clinical trials of new diagnostic tests.

 

The markets for our products are subject to changing technology, new product introductions, automation, product enhancements and evolving industry standards. The introduction or enhancement of products embodying new technology or the emergence of new industry standards could render existing products obsolete or result in short product life cycles or our inability to sell our products without offering a significant discount.

 

Our future success depends on our ability to successfully develop, obtain clearance or approval for and commercialize new products.

 

Our future success partially depends on our ability to successfully develop and market new products. Our ability to develop any of these products is dependent on a number of factors, including funding availability to complete development efforts; our ability to develop products that adequately detect or measure the targeted function, condition or disease; our ability to secure required FDA or other regulatory clearance or approval and our ability to obtain licenses to necessary third-party intellectual property. We may encounter problems in the development phase for our products, which can result in substantial setbacks and delays or abandonment of further work on the potential product. There can be no assurance that we will not encounter such setbacks with the products in our pipeline, or that funding from outside sources and our revenue will be sufficient to bring any future product to the point of commercialization.

 

In addition, our future success partially depends on the successful completion of clinical trials demonstrating the utility of our product candidates. We currently have a number of pipeline products in development, some of which are or may become the subject of pivotal trials to demonstrate sufficient utility to support successful market adoption and/or to obtain regulatory approval for sale. Not all of our clinical trials may actually result in the successful commercialization of a product. We will not be able to commercialize our pipeline products if clinical trials do not produce successful results or if clinical trials do not demonstrate utility. In addition, the process for the completion of clinical trials and the regulatory approval submission process are lengthy and may be subject to a number of delays for various reasons, which could delay the commercialization of any product. If our development projects are not successful or are significantly delayed, we may not recover our substantial investments in the pipeline products, and our failure to bring these pipeline products to market on a timely basis, or at all, would adversely affect our business, results of operations and financial condition.

 

Even if we are successful in developing new products and securing regulatory approval to market them, we may not be able to achieve marketplace acceptance for our new products or generate significant revenue from their sale. As with our current T-SPOT.TB test, the success of any future products will depend upon the degree of market acceptance by physicians, hospitals, third-party payors and others in the medical community. Achieving market acceptance will require us to expend substantial time and resources to educate physicians and other members of the medical community on the benefits of any new product we develop and we may never be successful in gaining market acceptance of our new products. There can be no assurance that the products we seek to develop will work effectively in the marketplace, or that we will be able to produce them on an economical basis.

 

 

 

 

 

We face significant challenges and risks in managing our geographically dispersed sales and distribution network and retaining the individuals who make up that network. If a substantial number of our direct sales representatives were to leave us within a short period of time, or if a substantial number of our independent distributors were to cease to do business with us within a short period of time, our sales could be adversely affected. If any significant independent distributor or strategic commercial partner were to cease to distribute our product, our sales could be adversely affected. In such a situation, we may need to seek alternative independent distributors or increase our reliance on our direct sales representatives, which may not prevent our sales from being adversely affected. If a direct sales representative or independent distributor were to depart and be retained by one of our competitors, we may be unable to prevent them from helping competitors solicit business from our existing customers, which could further adversely affect our sales. Because of the intense competition for their services, we may be unable to recruit additional qualified independent distributors or to hire additional qualified direct sales representatives to work with us. We may also not be able to enter into agreements with them on favorable or commercially reasonable terms, if at all. Failure to hire or retain qualified direct sales representatives or independent distributors would prevent us from expanding our business and generating sales. See “Certain of our customers account for a significant portion of our revenue.”

 

As we launch new products and increase our sales, marketing and distribution efforts with respect to our T-SPOT.TB test, we will need to expand the reach of our sales, marketing and distribution networks. Our future success will depend largely on our ability to continue to hire, train, retain and motivate skilled direct sales representatives and independent distributors with significant technical knowledge in various areas. New hires require training and take time to achieve full productivity. If we fail to train new hires adequately, or if we experience high turnover in our sales force in the future, we cannot be certain that new hires will become as productive as may be necessary to maintain or increase our sales.

 

If we are unable to expand our sales and marketing capabilities domestically and internationally, we may not be able to effectively commercialize our products, which would adversely affect our business, results of operations and financial condition.

 

Health insurers and other payors may decide not to cover, or may discontinue reimbursing, our T-SPOT.TB test or any other diagnostic tests we offer or may offer, or may provide inadequate reimbursement, which could jeopardize our ability to expand our business.

 

Although for many of our current customers, the cost of screening their employees for tuberculosis is not reimbursable, our business is somewhat impacted, and in the future may be more greatly impacted, by the level of reimbursement from payors or governmental limitations on price.

 

In the United States, the regulatory process allows diagnostic tests to be marketed regardless of any coverage determinations made by payors. For new diagnostic tests, each payor makes its own decision about which tests it will cover, how much it will pay and whether it will continue reimbursing the test. Clinicians may order diagnostic tests that are not reimbursed if the patient is willing to pay for the test without reimbursement, but coverage determinations and reimbursement levels and conditions are important to the commercial success of a diagnostic product. In addition, eligibility for coverage does not imply that any product will be covered and reimbursed in all cases or reimbursed at a rate that allows our potential customers to make a profit or even cover their costs.

 

CMS establishes reimbursement payment levels and coverage rules for Medicare, which are often emulated by commercial payors. Medicare currently covers our T-SPOT.TB test under CPT code 86481. The Protecting Access to Medicare Act, or PAMA, included extensive revisions to the Medicare payment, coding, and coverage requirements for clinical diagnostic laboratory tests. The PAMA induced rate changes to the clinical laboratory fee schedule, or the CLFS, did not materially affect payment rates for CPT code 86481. Per the final payment rates and supporting documentation for the CLFS payment system published by CMS in late 2017 and updated in late 2019, CMS reimbursement for CPT code 86481 is expected to be $100 in years 2020 and 2021. We cannot predict expected reimbursement rates for CPT code 86481 in years beyond 2021. If CMS were to impart significant reductions in payment amounts or eliminate coverage altogether, our ability to generate customer interest for our diagnostic test could be limited.

 

Levels of reimbursement may decrease in the future, and future legislation, regulation or reimbursement policies of third-party payors may harm the demand and reimbursement available for our T-SPOT.TB test, which in turn, could harm our product pricing and sales. If our customers are not adequately reimbursed for our T-SPOT.TB test, they may reduce or discontinue purchases of our product, which would cause our revenues to decline. 

 

 

 

 

 

In addition, state Medicaid plans and private commercial payors establish their own rates and coverage rules. As a result, the coverage determination process is often a time-consuming and costly process that requires us to provide scientific and clinical support for the use of our tests to each payor separately, with no assurance that coverage or adequate reimbursement will be obtained. Even if one or more third-party payors decides to reimburse for our tests, that payor may reduce utilization or stop or lower payment at any time, which could reduce our revenue. We cannot predict whether or when third-party payors will cover our tests or offer adequate reimbursement to make them commercially attractive. Clinicians may decide not to order our tests if inadequate third-party payments result in additional costs to the patient.

 

We are also subject to foreign reimbursement and payment rules in the international markets we serve, including China, Japan, Switzerland, Germany, France, the U.K. and South Korea. Decisions by government funding bodies, health insurers or other third-party payors in these markets not to cover our tests, or to discontinue reimbursement, or governmental limitations on price could materially and adversely affect our business.

 

Billing complexities associated with obtaining payment or reimbursement for our tests may negatively affect our revenue, cash flow and profitability.

 

We currently rely in part, and may in the future more heavily rely, on obtaining third-party payment or reimbursement for our test. Our customers receive payment from individual patients and from a variety of payors, such as commercial insurance carriers, including managed care organizations, and government health care programs, primarily Medicare and Medicaid in the United States. Each payor typically has different billing requirements, and the billing requirements of many payors have become increasingly stringent.

 

Among the factors complicating billing of, and obtaining payment through, third-party payors are:

●

disputes among payors as to which party is responsible for payment;

●

disparity in coverage among various payors;

●

disparity in information and billing requirements among payors;

●

incorrect or missing billing information, which is required to be provided by the ordering physician; and

●

payments may be sent directly to patients rather than to our customers.

 

These billing complexities, and the related uncertainty in obtaining payment for our tests, could negatively affect our customers' ability to get paid for our test and, by extension, our revenue, cash flow and profitability.

 

We depend upon a limited number of suppliers and certain components of our products may only be available from a sole source or limited number of suppliers.

 

Our tests are generally assembled by us from supplies we obtain from a limited number of suppliers. Critical components required to assemble our tests may only be available from a sole or limited number of component suppliers. For example, we source key components of our T-SPOT.TB test from Millipore (UK) Ltd., StemCell Technologies, Inc., Mabtech AB, MicroCoat Biotechnologie GmbH and Life Technologies Corporation, any of whom would be difficult to replace. Even if the key components that we source are available from other parties, the time and effort involved in obtaining any necessary regulatory approvals for substitutes could impede our ability to replace such components timely or at all. The loss of a sole or key supplier would impair our ability to deliver products to our customers in a timely manner and would adversely affect our sales and operating results and negatively impact our reputation. Our business would also be harmed if any of our suppliers could not meet our quality and performance specifications and quantity and delivery requirements.

 

Certain of our customers account for a significant portion of our revenue.

 

We sell our products through a direct sales force in the United States, certain European countries and Japan. In Japan, while we maintain end-user relationships through our direct sales force, we sell through a single importer of record, Riken. In other parts of the world, we sell through distributors. For example, in China, in addition to our own sales force, we have a non-exclusive distributor arrangement with Shanghai Pharma. For the year ended December 31, 2019, sales to Fosun, our previous distributor in China, and through Shanghai Pharma, together accounted for 30% of our total revenue, and Riken accounted for 15% of our total revenue. In connection with the Transaction, we entered into a supply agreement pursuant to which we agreed to sell, and Quest agreed to purchase, T-SPOT.TB test kits and related accessories. Additionally, we entered into a strategic collaboration agreement with Quest to drive continued growth of T.SPOT.TB testing in the U.S. As a result, Quest, which has its own sales force that sells our T-SPOT.TB test along with other products, has become a significant customer in the U.S. and accounted for a majority of our U.S. revenues for the year ended December 31, 2019. In the event that any of these customers or any other significant customer substantially reduces its purchases of our products, particularly if this occurs without adequate advance notice to enable us to secure alternate importation or distribution arrangements, or if we lose any of these customers or distributors due to significant delays in our ability to obtain re-registration of our T.SPOT.TB test in China, our results of operations could be materially and adversely affected.

 

We or our suppliers may experience development or manufacturing problems or delays that could limit the growth of our revenue or increase our losses.

 

We may encounter unforeseen situations in the manufacture and assembly of our products that would result in delays or shortfalls in our production. Our suppliers may also face similar delays or shortfalls. In addition, our or our suppliers’ production processes and assembly methods may have to change to accommodate any significant future expansion of our manufacturing capacity, which may increase our or our suppliers’ manufacturing costs, delay production of our product, reduce our product margin and adversely impact our business. If we are unable to keep up with demand for our product by successfully manufacturing and shipping our product in a timely manner, our revenue could be impaired, market acceptance for our product could be adversely affected and our customers might instead purchase our competitors’ products. In addition, developing manufacturing procedures for new products would require developing specific production processes for those products. Developing such processes could be time consuming, and any unexpected difficulty in doing so can delay the introduction of a product.

 

 

We currently perform our tests for our service offering exclusively in one laboratory in the United Kingdom. If this facility or any future facilities or our equipment are damaged or destroyed, or if we experience a significant disruption in our operations for any reason, our ability to continue to operate our business could be materially harmed.

 

We currently perform our T-SPOT.TB test exclusively in a laboratory facility in Abingdon, England. If this facility or any future facilities are to be damaged, destroyed or otherwise unable to operate, whether due to fire, floods, hurricanes, storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages, or otherwise, or if performance of our laboratory is disrupted for any other reason, we may not be able to perform our tests or generate test reports as promptly as our customers expect, or possibly not at all. Building or finding a replacement facility could be difficult, expensive and time consuming and any new laboratory would need to satisfy the various certification, accreditation and licensing requirements to which our current laboratory facility is subject. If we are unable to perform our tests or generate test reports within a timeframe that meets our customers’ expectations, our business, financial results and reputation could be materially harmed.

 

As of December 31, 2019, we maintain insurance coverage totaling $23.7 million against damage to our property and equipment and an additional $43.5 million to cover business interruption and research and development restoration expenses, subject to deductibles and other limitations. If we have underestimated our insurance needs with respect to an interruption, however, or if an interruption is not subject to coverage under our insurance policies, we may not be able to cover our losses. Even if we cover our losses, our business, financial results and reputation could be materially harmed.

 

We have significant global sales and operations and face risks related to health epidemics that could impact our revenue.

 

Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the recent outbreak of respiratory illness caused by the novel coronavirus first identified in Wuhan, Hubei Province, China. Any outbreak of contagious diseases, and other adverse public health developments, particularly in countries that provide a high contribution to our global sales or that supply raw materials that we use in our products, could have a material and adverse effect on our business operations. For example, the novel coronavirus has had a negative sales impact on our products in China due to disruptions or restrictions on our or our distributors' ability to travel, to market or to distribute our products, as well as temporary closures of our facilities or the facilities of our customers or suppliers and their contract manufacturers. In addition, our staff could become infected and inhibited in the execution of their roles. Any such disruption of our staff, our distributors, our customers or our suppliers and their contract manufacturers would likely impact our sales and operating results. In addition, a significant outbreak of contagious diseases in the human population could divert medical resources and priorities toward the treatment of that disease. Further, such an outbreak could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products both in the U.S. and abroad, and likely materially impact our results of operations and financial condition.

 

Failure in our information technology or storage systems could significantly disrupt our operations and our research and development efforts, which could adversely impact our revenue, as well as our research, development and commercialization efforts.

 

Our ability to execute our business strategy depends, in part, on the continued and uninterrupted performance of our information technology, or IT, systems, which support our operations, including our Laboratory Information System, or LIS. Due to the sophisticated nature of the technology we use in our laboratory, we are substantially dependent on our IT systems. IT systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain data, and in particular to operate our LIS or billing systems, could adversely affect our ability to operate our business. Any interruption in the operation of our LIS or other IT systems, due to IT system failures, part failures or potential disruptions in the event we are required to relocate our IT systems within our facility or to another facility could have an adverse effect on our operations.

 

Because our business relies heavily on international operations and revenue, changes in currency exchange rates and our need to convert currencies may negatively affect our financial condition and results of operations.

 

Our business relies heavily on our operations outside the United States. For the year ended December 31, 2019, 67% of our total revenue was derived from sales outside the United States. Because we currently operate in three major regions of the world (the United States, Europe and rest of world, or Europe and ROW, and Asia), our revenue is denominated in multiple currencies. Sales in the United States are denominated in U.S. dollars. Sales in China are denominated in U.S. dollars and in Yuan and sales in Japan are denominated in Yen but, in each case, these sales are made by our U.K.-based legal entity where the Pound Sterling is the functional currency. As a result, these sales are subject to remeasurement into Pounds Sterling and then translation into U.S. dollars when we consolidate our financial statements. Sales in Europe are denominated primarily in the Pound Sterling and Euro. As we grow Europe and ROW sales outside the United Kingdom and the European Union countries, or the Euro Zone, whose currency is the Euro, we will be subject to exchange rate risk from additional currencies. As a result, our exchange rate exposure may change over time as our business practices evolve and could result in increased costs or reduced revenue and could affect our actual cash flow. Changes in the relative values of currencies occur regularly and, in some instances, may have a significant impact on our operating results. We cannot predict with any certainty changes in currency exchange rates or the degree to which we can effectively mitigate these risks.

 

In addition, the weakening of foreign currencies relative to the U.S. dollar may require us to reduce prices to allow distributors to maintain profitable businesses. As a result, sales and earnings of our products in countries outside the United States may be materially adversely affected by foreign currency exchange rate fluctuations.

 

A decline in the state of the global economy and financial market conditions could adversely affect our ability to conduct business and our results of operations.

 

Global economic and financial market conditions, including disruptions in the credit markets and the threat of or impact of global economic deterioration may materially impact our customers and other parties with whom we do business. Such conditions could negatively affect our future sales of our products. A decline in general economic and financial market conditions could materially adversely affect our financial condition and results of operations. Specifically, the impact of these volatile and negative conditions may include decreased demand for our products and services, a decrease in our ability to accurately forecast future product trends and demand, and a negative impact on our ability to timely collect receivables from our customers. The foregoing economic conditions may lead to increased levels of bankruptcies, restructurings and liquidations for our customers, scaling back of research and development expenditures, delays in planned projects and shifts in business strategies for many of our customers. Such events could, in turn, adversely affect our business through loss of sales.

 

 

Continued uncertainty arising from global political events, such as the United Kingdom’s withdrawal from the European Union, could adversely affect our ability to conduct business and our results of operations.

 

On June 23, 2016, the U.K. held a non-binding referendum, in which voters approved an exit from the European Union, or E.U., commonly referred to as “Brexit”. Thereafter, on March 29, 2017, the U.K. formally notified the E.U. of its intention to withdraw pursuant to Article 50 of the Treaty of the European Union, which formally initiated the withdrawal procedure. The timing of the proposed withdrawal was initially scheduled for March 29, 2019. That deadline was subsequently extended to up until January 31, 2020. The European Union (Withdrawal Agreement Bill) was passed after the third reading (including any amendments thereto) by both Houses, and received Royal Assent on January 23, 2020. After ratification by the European Council on behalf of the E.U., it officially entered into force at 11 p.m. GMT on January 31, 2020.  Brexit took effect at that time and the withdrawal process was complete.

 

A transitional period commenced on the withdrawal agreement becoming effective and will end on December 31, 2020.  During this period, the U.K. will continue to apply E.U. laws but it will no longer be represented in the E.U. institutions. The transition period can be extended once for a period of up to one or two years, if both sides agree to this before July 1, 2020.

 

The effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. and other markets either during the transitional period or more permanently. Since a significant proportion of the regulatory framework in the U.K. is derived from E.U. directives and regulations, Brexit could materially change the regulatory regime applicable to products approved and sold in the U.K. It is possible that there will be greater restrictions on imports and exports between the U.K. and E.U. countries, increased regulatory complexities, and economic and political uncertainty in the region. Because of the continued uncertainty about the effects and implementation of Brexit, we cannot quantify or predict with any certainty the likely impact of Brexit or related legislation on our business, financial condition, and results of operations.

 

Brexit may affect European and worldwide economic or market conditions, which could lead to instability in global financial markets. Brexit is likely to lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business, financial condition, and results of operations.

 

Weakening of economic conditions or economic uncertainties tend to harm our business, and if such conditions emerge in the U.K. or in the rest of the E.U., it may have a material adverse effect on our operations and sales. Although it is unknown what the terms of the U.K.’s future relationship with the E.U. will be at this time, it is possible that there will be greater restrictions on trade between the U.K. and E.U. countries as well as increased regulatory complexities. These changes may adversely affect our operations and financial results. Brexit has also caused significant volatility in global currency markets. The fluctuation of currency exchange rates may expose us to gains and losses on non-U.S. currency transactions and impact the purchasing power of our non-U.S. currency customers, causing them to decrease or cancel orders or default on payment. Any global political uncertainty similar to the Brexit referendum could similarly harm our ability to conduct our business and our results of operations.

 

Changes in tax laws and international trade relations may have a material adverse effect on our business, financial condition and results of operations.

 

Changes in laws and policies relating to taxes or trade may have an adverse effect on our business, financial condition and results of operations. As an example, recent tax reforms in the U.S. have resulted in significant changes to preexisting U.S. tax rules and regulations. These changes may trigger an adverse effect on our business, financial condition and results of operations.

 

Additionally, the U.S. government may seek to implement more protective trade measures with countries in which we conduct business, which has introduced a great deal of uncertainty regarding trade policies, tariffs and government regulations, which if altered could have the potential to create a significant adverse effect on trade between the U.S. and other countries. Overall, changes in international trade relations, such as the imposition of or increase in tariffs or other trade barriers, could materially and adversely impact our costs, the ability to make sales to any of our significant customers in other countries, and reduce the competitiveness of our products.

 

We have in the past and may in the future seek to grow our business through acquisitions of or investments in new or complementary businesses, products or technologies, and the failure to manage acquisitions or investments, or the failure to integrate them with our existing business, could have a material adverse effect on our operating results and the value of our ordinary shares.

 

From time to time we expect to consider opportunities to acquire or make investments in other technologies, products and businesses that may enhance our capabilities, complement our current products or expand the breadth of our product offerings, markets or customer base. Potential and completed acquisitions and strategic investments involve numerous risks, including:

●

difficulties in acquiring new products, technologies or businesses that will help our current business;

●

difficulties in integrating acquired personnel, technologies, products or business operations;

●

issues maintaining uniform standards, procedures, controls and policies;

●

unanticipated costs associated with acquisitions;

●

diversion of management’s attention from our core business;

●

adverse effects on existing business relationships with suppliers and customers;

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risks associated with entering new markets in which we have limited or no experience;

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potential loss of key employees of acquired businesses; and

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increased legal and accounting compliance costs.

 

If we are unable to manage acquisitions or investments, or integrate any future acquired businesses, products or technologies effectively, our business, results of operations and financial condition may be materially and adversely affected.

 

 

Write-offs related to the impairments of our long-lived assets, including goodwill and indefinite-lived intangible assets, may adversely impact our results of operations.

 

We have in the past and may in the future need to take write-offs as a result of impairments to certain of our long-lived assets. For example, in the fourth quarter of 2018, due to the Company’s change in focus following the Transaction, we recorded a non-cash impairment charge of $879,000 to write-off certain intangible assets acquired in conjunction with the 2016 acquisition of Immunetics. In the third quarter of 2017, due to increased competition in the molecular blood donor screening market for Babesia microti, we recorded a non-cash impairment charge of $11.1 million to write-off certain intangible assets acquired in conjunction with the 2016 acquisition of Imugen, Inc., or Imugen. Additionally, in the fourth quarter of 2017, due to a mid-February complete response letter, or CRL, from FDA regarding the Company’s fourth quarter 2017 submissions in relation to its biological license applications, or BLAs, for the Immunetics Babesia microti blood donor screening assay, the Company recorded an impairment charge of $7.2 million to write-off the related intangible assets.

 

We may incur additional non-cash charges related to impairments of our long-lived assets, including $2.5 million of goodwill. We are required to perform periodic impairment reviews of these assets at least annually. To the extent future reviews conclude that the expected future cash flows generated from our business activities are not sufficient to recover the carrying value of these assets, we will be required to measure and record an impairment charge to write-down these assets to their realizable values and those impairment charges could be equal to the entire carrying value of the assets. Any such write-downs could adversely impact our operating results.

 

Our business could suffer if we lose the services of, or are unable to attract and retain, key members of our senior management, key advisors or other personnel.

 

We are dependent upon the continued services of key members of our senior management and a limited number of key advisors and personnel. In particular, we are highly dependent on the skills and leadership of our Chief Executive Officer, Dr. Peter Wrighton-Smith, and the other members of management. The loss of any one of these individuals, without adequate time to find a suitable replacement, could disrupt our operations or our strategic plans. Additionally, our future success will depend on, among other things, our ability to continue to hire and retain the necessary qualified scientific, technical, sales, marketing and managerial personnel, for whom we compete with numerous other companies, academic institutions and organizations. The loss of members of our management team, key advisors or personnel, or our inability to attract or retain other qualified personnel or advisors, could have a material adverse effect on our business, results of operations and financial condition. Although all members of our senior management team have entered into agreements that restrict their ability to compete with us for a period of time after the end of their employment, we may be unable to enforce such restrictive covenants at all or for a sufficient duration of time to prevent members of our management team from competing with us.

 

We may require substantial additional capital resources to fund our operations. We may not be able to obtain additional capital resources on favorable terms and if we cannot find additional capital resources, we may have difficulty operating our business. Raising additional capital may also cause dilution to our existing shareholders.

 

As of December 31, 2019, we had cash and cash equivalents of $181.3 million and working capital (total current assets less total current liabilities) of $202.1 million. While we anticipate that our current cash, cash equivalents and cash generated from operations will be sufficient to meet our projected operating plans for at least the next 12 months, we may require additional funds, either through additional equity or debt financings, strategic collaboration agreements, sale of assets or from other sources. Additional financing opportunities may not be available to us, or if available, may not be on favorable terms. Further, to the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our shareholders. Our future capital requirements will depend on many factors, including revenue generated from the sale of our products, margins, operating expenses and our ability to control costs associated with our operations, and the costs of filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights. The availability of additional capital will also depend on many factors, including the market price of our ordinary shares and the availability and cost of additional equity capital from existing and potential new investors, our ability to retain the listing of our ordinary shares on The Nasdaq Global Market and general economic and industry conditions affecting the availability and cost of capital.

 

Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates beyond the rights we have already relinquished, or grant licenses on terms that are not favorable to us.

 

Our ability to use net operating losses to offset future taxable income may be subject to substantial limitations.

 

As of December 31, 2019, our available U.S. federal net operating losses, or NOLs, totaled $54.3 million and U.S. state loss carryforwards totaled $40.5 million. The amount of these NOLs remains subject to review and possible adjustment by the Internal Revenue Service and state revenue authorities, as applicable. NOLs may become subject to an annual limitation if there is a cumulative change in the ownership interest of significant shareholders (or certain shareholder groups) over a three-year period in excess of 50%, in accordance with rules established under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and similar state rules (we refer to each as an ownership change). Such an ownership change could limit the amount of historic NOLs that can be utilized annually to offset future taxable income. The amount of this annual limitation is determined based on our value immediately prior to the ownership change. We have completed several financings since our inception that may have resulted in one or more ownership changes under this definition. If we are deemed to have undergone an ownership change by virtue of these transactions, we may not be able to utilize a material portion of our NOLs even if we attain profitability. Future changes in our share ownership, some of which are outside of our control, could result in additional ownership changes for purposes of these rules. We are unable to predict future ownership changes or the way an ownership change could limit the use of our NOLs. In addition, recent changes to U.S. tax laws could negatively affect our ability to use net operating losses to offset future taxable income.

 

The failure to successfully maintain the adequacy of our system of internal control over financial reporting could have a material adverse impact on our ability to report our financial results in an accurate and timely manner.

 

Section 404 of the Sarbanes-Oxley Act requires us to evaluate annually the effectiveness of our internal control over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal control over financial reporting in our Annual Report. Section 404 also requires our independent registered public accounting firm to report on our internal control over financial reporting. If we fail to maintain the adequacy of our internal controls, we cannot assure you that we will be able to conclude in the future that we have effective internal control over financial reporting. If we fail to maintain effective internal controls, including remediating any material weaknesses or deficiencies in our internal controls, as such standards are modified, supplemented or amended in the future, we could be subject to regulatory actions, civil or criminal penalties or shareholder litigation. In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect our financial condition, results of operations and cash flows.

 

 

We previously identified a material weakness in our internal control over financial reporting. We may identify further material weaknesses in our internal control over financial reporting for future fiscal years. If we do not remediate material weaknesses or are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected.

 

Our management previously identified a deficiency that was concluded to represent a material weakness in our internal control over financial reporting relating to tax accounting, primarily as a result of a lack of necessary corporate tax resources and ineffective execution of the review of the tax provision and the deferred tax roll-forward. The SEC defines the term “material weakness” as “a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.” This finding relates to our internal control infrastructure as of December 31, 2018 where we did not design or maintain effective or sufficient processes to address the complexity introduced to our financial statements as a result of the sale of our U.S. laboratory service business to Quest.

 

To remediate the material weakness in our internal controls over financial reporting, we reassessed the design of our tax review controls to identify areas where enhanced precision will help detect and prevent material misstatements, which led to us strengthening our tax accounting review procedures and consulting with experienced tax accounting professionals with the skills, training, and knowledge to assist us in the review of more technical or complex tax matters.

 

While we have remediated the previously identified material weakness, we may discover future deficiencies in our internal controls over financial reporting, including those identified through testing conducted by us or subsequent testing by our independent registered public accounting firm. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses or significant deficiencies and cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Furthermore, any failure in the effectiveness of our system of internal control over financial reporting could have a material adverse impact on our ability to report our financial results in an accurate and timely manner.

 

Risks related to regulatory and other legal issues.

 

If we fail to comply with extensive regulations of domestic and international regulatory authorities, sales of our products in new markets and the development and commercialization of any new product candidates could be delayed or prevented.

 

Our existing tests, as well as new tests, will be subject to extensive government regulations related to development, testing, manufacturing and commercialization in the United States and other countries before we can sell in these markets. The process of obtaining and complying with FDA and other governmental regulatory approvals and regulations is costly, time consuming, uncertain and subject to unanticipated delays. Securing regulatory approval for a new product, in the United States and many other countries, typically requires several years. Despite the time and expense exerted, regulatory approval is never guaranteed. We may not be able to obtain FDA or other required regulatory approval and market any further products we may develop during the time we anticipate, or at all. We also are subject to the following risks and obligations, among others:

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regulators may refuse to approve an application if they believe that applicable regulatory criteria are not satisfied;

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regulators may require additional testing for safety and effectiveness;

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regulators may interpret data from clinical studies in different ways than we interpret them;

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if regulatory approval of a product is granted, the approval may be limited to specific indications or limited with respect to its distribution; and

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regulators may change their approval policies and/or adopt new regulations that affect our ability to secure approvals for new products, which would decrease the chance we would be able to commercialize new diagnostic tests.

 

In addition, some international jurisdictions, such as China, require periodic re-registration. Even if we obtain initial registrations from regulatory bodies, we may lose registration after a periodic review. Failure to maintain requisite registrations from regulatory bodies would adversely affect our ability to generate future revenue and operating income. For example, China’s NMPA requires that companies re-register their product every five years. Consistent with NMPA re-registration requirements, we secured re-registration of our test in 2014, until December 2019. We applied for re-registration in April 2019. However, at the time of the filing of this Annual Report, we have not received a decision on our application. Our ability to continue to provide the China market with our T.SPOT.TB test without interruption depends on us receiving our re-registration without significant delay. If we continue to experience further delays in receiving our re-registration in China, or we do not receive re-registration at all, it will materially adversely affect our financial condition and results of operations.

 

 

 

 

If we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.

 

Any product for which we obtain marketing approval in the United States or in international jurisdictions, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. Furthermore, our suppliers may be subject to similar regulatory oversight, and may not currently be or may not continue to be in compliance with applicable regulatory requirements. Failure by us or one of our suppliers to comply with statutes and regulations administered by the FDA and other regulatory bodies, or failure to take adequate action in response to any observations, could result in, among other things, any of the following enforcement actions:

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warning letters or untitled letters;

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fines and civil penalties;

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unanticipated expenditures for corrective actions;

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delays in approving, or refusal to approve, our products;

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withdrawal or suspension of approval by the FDA or other regulatory bodies;

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product recall or seizures;

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interruption of production;

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operating restrictions;

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injunctions; and

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criminal penalties.

 

If any of these actions were to occur, it could harm our reputation and could cause our product sales and profitability to suffer.

 

Any regulatory approval of a product may also be subject to limitations on the indicated uses for which the product may be marketed. If the FDA or another regulatory body determines that our promotional materials, training or other activities constitute promotion of an unapproved use, it could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our training or promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under applicable statutory authorities, such as laws prohibiting false claims for reimbursement.

 

Additionally, we may be required to conduct costly post-market testing, and we will be required to report adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties.

 

Furthermore, the FDA and various other authorities will inspect our facilities and those of our suppliers from time to time to determine whether we are in compliance with regulations relating to the manufacture of diagnostic products, including regulations concerning design, manufacture, testing, quality control, product labeling, distribution, promotion and record-keeping practices. A determination that we are in material violation of such regulations could lead to the imposition of civil penalties, including fines, product recalls, product seizures or, in extreme cases, criminal sanctions.

 

We may potentially be subject to product liability claims.

 

The testing, manufacturing and marketing of medical diagnostic tests such as our T-SPOT.TB test entail an inherent risk of product liability claims. Further, providing clinical testing services entails a risk of claims for errors or omissions made by our laboratory staff. Potential liability claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of the policy. As of December 31, 2019, we had product liability insurance of $15.4 million. Our existing insurance will have to be increased in the future if we are successful at introducing new diagnostic products and this will increase our costs. Under certain of our customer and license agreements, we have agreed to provide indemnification for product liability claims arising out of the use of our products. In the event that we are held liable for a claim or for damages exceeding the limits of our insurance coverage, we may be required to make substantial payments.

 

Regardless of merit or eventual outcome, liability claims may result in:

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decreased demand for our product and product candidates;

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injury to our reputation;

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costs of related litigation;

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substantial monetary awards to patients and others;

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loss of revenue; and

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the inability to commercialize our products and product candidates.

 

Any of these outcomes may have an adverse effect on our consolidated results of operations, financial condition and cash flows, and may increase the volatility of our share price.

 

 

Our inadvertent or unintentional failure to comply with the complex government regulations concerning privacy of medical and personal information could subject us to fines and adversely affect our reputation.

 

Privacy regulations in the U.S. and around the world limit use or disclosure of protected personal information without written authorization or consent, except for permitted purposes outlined in the privacy regulations. The privacy regulations provide for significant fines and other penalties for wrongful use or disclosure of protected health information, including potential civil and criminal fines and penalties.

 

We have policies and practices that we believe make us compliant with the privacy regulations. Nevertheless, the documentation and process requirements of the privacy regulations are complex and subject to interpretation. Failure to comply with the privacy regulations could subject us to sanctions or penalties, loss of business and negative publicity.

 

In the U.S., the privacy regulations establish a “floor” of minimum protection for patients as to their medical information. We are required to comply with both HIPAA privacy regulations and various state privacy laws. Although the HIPAA statute and regulations do not expressly provide for a private right of action, we could incur damages under state laws to private parties for the wrongful use or disclosure of confidential health information or other private personal information. Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal framework with which we or our customers must comply, including the General Data Protection Regulation established in the European Union. We may also need to comply with varying and possibly conflicting privacy laws and regulations in other jurisdictions. As a result, we could face regulatory actions, including significant fines or penalties, adverse publicity and possible loss of business.

 

A disruption in our computer networks, including those related to cybersecurity, could adversely affect our financial performance.

 

Cybersecurity refers to the combination of technologies, processes and procedures established to protect information technology systems and data from unauthorized access, attack, or damage. We rely on our computer networks and systems, some of which are managed by third parties, to manage and store electronic information (including sensitive data such as confidential business information and personally identifiable data relating to employees, customers and other business partners), and to manage or support a variety of critical business processes and activities. Cyber-attacks are increasingly more common, including in the health care industry. The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and changing requirements. Compliance with changes in privacy and information security laws and with rapidly evolving industry standards may result in our incurring significant expense due to increased investment in technology and the development of new operational processes.

 

We have not experienced any known attacks on our information technology systems that have resulted in any material system failure, accident or security breach to date. However, we may face threats to our networks from unauthorized access, security breaches and other system disruptions. We maintain our information technology systems with safeguard protection against cyber-attacks, including passive intrusion protection, firewalls and virus detection software. However, these safeguards do not ensure that a significant cyber-attack could not occur. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not prevent the systems’ improper functioning or damage or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks.

 

Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches can create system disruptions or shutdowns or the unauthorized disclosure of confidential information. If personal information or protected health information is improperly accessed, tampered with or disclosed as a result of a security breach, we may incur significant costs to notify and mitigate potential harm to the affected individuals, and we may be subject to sanctions and civil or criminal penalties if we are found to be in violation of the privacy or security rules under HIPAA or other similar federal or state laws protecting confidential personal information. In addition, a cybersecurity breach could hurt our reputation by adversely affecting the perception of customers and potential customers of the security of their orders and personal information, subject us to liability claims or regulatory penalties for compromised personal information and could have a material adverse effect on our business, financial condition and results of operations.

 

Our use of biological and hazardous materials and waste requires us to comply with regulatory requirements, including environmental, health and safety laws, regulations and permit requirements and subjects us to significant costs and exposes us to potential liabilities.

 

The handling of materials used in the diagnostic testing process involves the controlled use of biological and hazardous materials and wastes. The primary hazardous materials we handle or use include human blood samples and solvents. Our business and facilities and those of our suppliers are subject to federal, state, local and foreign laws and regulations relating to the protection of human health and the environment, including those governing the use, manufacture, storage, handling and disposal of, and exposure to, such materials and wastes. In addition, under some environmental laws and regulations, we could be held responsible for costs relating to any contamination at our past or present facilities and at third-party waste disposal sites even if such contamination was not caused by us. A failure to comply with current or future environmental laws and regulations, including the failure to obtain, maintain or comply with any required permits, could result in severe fines or penalties. Any such expenses or liability could have a significant negative impact on our business, results of operations and financial condition. In addition, we may be required to incur significant costs to comply with regulatory requirements in the future.

 

 

Our business arrangements with customers are subject to applicable anti-kickback, anti-fraud and abuse and other healthcare laws and regulations. If such business arrangements fail to comply with these laws and regulations, we could be exposed to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

 

Healthcare providers and physicians play a primary role in the recommendation and ordering of any product candidates, including our T-SPOT.TB test, for which we obtain marketing approval. Our arrangements with customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our product. Restrictions under applicable federal and state healthcare laws and regulations include the following:

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The U.S. federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federally funded healthcare programs such as Medicare and Medicaid. This statute has been broadly interpreted to apply to manufacturer arrangements with prescribers, purchasers and formulary managers, among others. Several other countries, including the United Kingdom, have enacted similar anti-kickback, fraud and abuse, and healthcare laws and regulations.

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The U.S. False Claims Act imposes criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government.

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HIPAA imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information. HIPAA also imposes criminal liability for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.

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The federal Physician Payment Sunshine Act requirements under the PPACA require manufacturers of drugs, devices, biologics and medical supplies to report to HHS information related to payments and other transfers of value made to or at the request of covered recipients, such as physicians and teaching hospitals, and physician ownership and investment interests in such manufacturers. Payments made to physicians and research institutions for clinical trials are included within the ambit of this law. Certain state laws and regulations also require the reporting of certain items of value provided to health care professionals.

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Analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.

 

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations involve substantial costs. We may be subject to qui tam litigation brought by private individuals on behalf of the government under the U.S. Federal False Claims Act, which would include claims for up to treble damages. Additionally, it is possible that governmental authorities would conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. Exclusion, suspension and debarment from government funded healthcare programs would significantly impact our ability to commercialize, sell or distribute any product. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

 

We are subject to the U.K. Bribery Act, the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, results of operations and financial condition.

 

Our operations are subject to anti-corruption laws, including the Bribery Act, the FCPA and other anti-corruption laws that apply in countries where we do business. The Bribery Act, FCPA and these other laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We and our commercial partners operate in a number of jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and we participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the Bribery Act, FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

 

 

 

We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United Kingdom and the United States, and authorities in the European Union, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws.

 

There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA or other legal requirements, including Trade Control laws. If we violate provisions of the Bribery Act, the FCPA or other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation into or audit of us of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control laws by U.K., U.S. or other authorities could subject us to fines or criminal or other penalties, which could have an adverse impact on our reputation, our business, results of operations and financial condition.

 

Healthcare reform measures could hinder or prevent the commercial success of our diagnostic tests.

 

In March 2010, President Obama signed into law a legislative overhaul of the U.S. healthcare system, the PPACA, which had far-reaching consequences for many healthcare companies, including diagnostic companies like us. For example, if reimbursement for our diagnostic tests is substantially less than we or our clinical laboratory customers expect, our business could be materially and adversely impacted. However, the future of the PPACA is uncertain and at this juncture there will be a period of uncertainty regarding the PPACA’s repeal, modification or replacement or the effect of the changes made to the PPACA under the Tax Cuts and Jobs Act of 2017, any of which could have long term financial impact on the delivery of and payment for healthcare in the U.S.

 

Regardless of the impact of the PPACA on us, the U.S. government and other governments have shown significant interest in pursuing healthcare reform and reducing healthcare costs. Any government-adopted reform measures could cause significant pressure on the pricing of healthcare products and services, including our T-SPOT.TB test, in the United States and internationally, as well as the amount of reimbursement available from governmental agencies and other third-party payors.

 

Actual and anticipated changes to the regulations of the healthcare system and U.S. tax laws may have a negative impact on the cost of healthcare coverage and reimbursement of healthcare services and products.

 

The FDA and comparable agencies in other jurisdictions directly regulate many critical activities of life science, technology, and healthcare industries, including the conduct of preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting, and product risk management. In both domestic and foreign markets, sales of products depend in part on the availability and amount of reimbursement by third-party payors, including governments and private health plans. Governments may regulate coverage, reimbursement, and pricing of products to control cost or affect utilization of products. Private health plans may also seek to manage cost and utilization by implementing coverage and reimbursement limitations. Substantial uncertainty exists regarding the reimbursement by third-party payors of newly approved healthcare products. The U.S. and foreign governments regularly consider reform measures that affect healthcare coverage and costs. Such reforms may include changes to the coverage and reimbursement of healthcare services and products. In particular, there have been recent judicial and Congressional challenges to the PPACA, which could have an impact on coverage and reimbursement for healthcare services covered by plans authorized by the PPACA, and we expect there will be additional challenges and amendments to the PPACA in the future.

 

Attempts to repeal or to repeal and replace the PPACA will likely continue under the current Congress. In addition, various other healthcare reform proposals have emerged at the federal and state level. The recent changes to U.S. tax laws could also negatively impact the PPACA. We cannot predict what healthcare initiatives or tax law changes, if any, will be implemented at the federal or state level, however, government and other regulatory oversight and future regulatory and government interference with the healthcare systems could adversely impact our business.

 

Risks related to our intellectual property.

 

We may be unable to protect or obtain proprietary rights that we utilize or intend to utilize.

 

In developing, manufacturing and using our products, we employ a variety of proprietary and patented technologies, including technologies we license from third parties. We have licensed, and expect to continue to license, various other technologies and methods. We cannot provide any assurance that the intellectual property rights that we own or license provide protection from competitive threats or that we would prevail in any challenge mounted to our intellectual property rights. In addition, we cannot provide any assurances that we will be successful in obtaining and retaining licenses or proprietary or patented technologies in the future.

 

We are unable to predict whether any of our currently pending or future patent applications will result in issued patents, or how long it may take for such patents to be issued. Further, we cannot predict whether other parties will challenge any patents issued or licensed to us or that courts or administrative agencies will hold our patents or the patents we license to be valid and enforceable. We may not be successful in defending challenges made against our patents and patent applications. Any successful third-party challenge to our patents could result in the unenforceability or invalidity of such patents. Both the patent application process and the process of managing patent disputes can be time consuming and expensive.

 

 

The patent positions of life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States. Furthermore, in the biotechnology field, courts frequently render opinions that may affect the patentability of certain inventions or discoveries and the patent positions of companies engaged in development and commercialization of certain diagnostic tests. Various courts, including the U.S. Supreme Court, have recently rendered decisions that impact the scope of patentability of certain inventions or discoveries relating to genomic diagnostics. These decisions generally stand for the proposition that inventions that recite laws of nature are not themselves patentable unless they have sufficient additional features that provide practical assurance that the processes are genuine inventive applications of those laws rather than patent drafting efforts designed to monopolize the law of nature itself. What constitutes a “sufficient” additional feature is uncertain. While we do not generally rely on gene sequence patents, this evolving case law in the United States may adversely impact our ability to obtain new patents and may facilitate third-party challenges to our existing owned and licensed patents.

 

Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property rights. We cannot predict the breadth of claims that may be allowed or enforced in patents we own or in those to which we have license rights. For example:

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the inventor might not have been the first to make the inventions covered by patents we rely on;

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the inventor or his assignee might not have been the first to file patent applications for the claimed inventions;

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others may independently develop similar or alternative products and technologies or duplicate our product and technologies;

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it is possible that the patents we own or license may not provide us with any competitive advantages, or may be challenged and invalidated by third parties;

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any patents we obtain or license may expire before, or shortly after, the products and services relating to such patents are commercialized;

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we may not develop additional proprietary products and technologies that are patentable; and

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the patents of others may have an adverse effect on our business.

 

In particular, in September 2011, the U.S. Congress passed the Leahy-Smith America Invents Act, or the AIA, which became effective in March 2013. The AIA reforms U.S. patent law in part by changing the standard for patent approval for certain patents from a “first to invent” standard to a “first to file” standard and developing a post-grant review system. The AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

 

Some patent applications in the United States may be maintained in secrecy until the patents are issued, other patent applications in the United States and many foreign jurisdictions are not published until eighteen months after filing, and publications in the scientific literature often lag behind actual discoveries. We therefore cannot be certain that others have not filed patent applications for technology covered by issued patents or pending applications that we own or license or that we or our licensors, as applicable, were the first to invent the technology (pre-AIA) or first to file (post-AIA). Our competitors may have filed, and may in the future file, patent applications covering technology similar or the same as ours. Any such patent application may have priority over patent applications that we own or license and could further require us to obtain rights to such technologies in order to carry on our business. If another party has filed a U.S. patent application on inventions similar or the same as those that we own or license, we or our licensors may have to participate in an interference or other proceeding in the U.S. Patent and Trademark Office, or PTO, or a court to determine priority of invention in the United States, for pre-AIA applications and patents. For post-AIA applications and patents, we or our licensors may have to participate in a derivation proceeding to resolve disputes relating to inventorship. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our U.S. patent position with respect to such inventions.

 

Some of our competitors may be able to sustain the costs of complex patent disputes and litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any disputes or litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

 

In addition to pursuing patents on our technology, we seek to protect our intellectual property and proprietary technology by entering into intellectual property assignment agreements with our employees, consultants and third-party collaborators. See “We may be unable to adequately prevent disclosure of trade secrets and other proprietary information, or the misappropriation of the intellectual property we regard as our own.”

 

Our intellectual property rights may not be sufficient to protect our competitive position and to prevent others from manufacturing, using or selling competing products.

 

The scope of our owned and licensed intellectual property rights may not be sufficient to prevent others from manufacturing, using or selling competing tests. For example, our intellectual property position depends in part on intellectual property that we license from third parties. However, many of the key patents we license are expected to expire by 2020. In addition, while many of the licenses we have been granted are exclusive, such rights may be limited to a narrowly defined field of use. As a result, our competitors may have obtained or be able to obtain a license to the same intellectual property in a closely related field of use. Finally, we have also granted sublicenses to third parties under certain of the intellectual property that we license. Such sublicenses may allow third parties or their licensees to market a TB test that would otherwise infringe upon such intellectual property.

 

 

Moreover, competitors could purchase our product and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If our intellectual property is not adequately protected so as to protect our market against competitors’ products and methods, our competitive position could be adversely affected, as could our business.

 

We depend on certain technologies that are licensed or sublicensed to us. We do not control these technologies and any loss of our rights to them could prevent us from selling our product.

 

We rely on licenses in order to be able to use various proprietary technologies that are material to our business. We do not own the patents that underlie these licenses. Our rights to use these technologies and employ the inventions claimed in the licensed patents are subject to the continuation of and our compliance with the terms of those licenses.

 

In some cases, we do not control the prosecution, maintenance or filing of the patents to which we hold licenses. Enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents is often subject to the control or cooperation of our licensors. We cannot be certain that our licensors will prosecute, maintain, enforce and defend the licensed patent rights in a manner consistent with the best interests of our business. We also cannot be certain that drafting or prosecution of the licensed patents and patent applications by the licensors have been or will be conducted in compliance with applicable laws and regulations, will result in valid and enforceable patents and other intellectual property rights, or that any issued patents or patents that may issue in the future will provide any competitive advantage.

 

Certain of our licenses contain provisions that allow the licensor to terminate the license upon specific conditions. Our rights under each of the licenses are subject to our continued compliance with the terms of the license, including certain diligence, disclosure and confidentiality obligations and the payment of royalties and other fees. If we were found to be in breach of any of our license agreements, in certain circumstances our licensors may take action against us, including termination of the applicable license. Because of the complexity of our product and the patents we have licensed, determining the scope of the license and related obligations can be difficult and can lead to disputes between us and the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license or termination of the license. If a licensor believed we were not paying the royalties due under the license or were otherwise not in compliance with the terms of the license, the licensor may have the right to terminate the license or, in certain circumstances, to convert an exclusive license to a non-exclusive one. If such an event were to occur, the value of our product or product candidates could be materially adversely affected, we might be barred from producing and selling some or all of our products and may be subject to other liabilities.

 

In addition to the above risks, certain of our licensors do not own certain intellectual property included in the license, but instead have licensed such intellectual property from a third party, and have granted us a sub-license. As a result, the actions of our licensors or of the ultimate owners of the intellectual property may affect our rights to use our sublicensed intellectual property, even if we are in compliance with all of the obligations under our license agreements. For example, one of our licenses comprises a sublicense to us of certain patent rights owned by a third party that is not our direct licensor. If our licensors were to fail to comply with their obligations under the agreements pursuant to which they obtain the rights that are sublicensed to us, or should such agreements be terminated or amended, our ability to produce and sell our product and product candidates may be materially harmed. Finally, the legal issues surrounding the treatment of intellectual property licenses in bankruptcy proceedings are complex and may vary from jurisdiction to jurisdiction. We therefore cannot provide assurance that we would not lose some or all of our rights under a license if the applicable licensor was involved in such proceedings.

 

We may become involved in disputes relating to our intellectual property rights, and may need to resort to litigation in order to defend and enforce our intellectual property rights. In addition, we could face claims that our activities or the manufacture, use or sale of our products infringe the intellectual property rights of others, which could cause us to pay substantial damages or licensing fees and limit our ability to sell some or all of our products and services.

 

Extensive litigation regarding patents and other intellectual property rights has been common in the medical diagnostics industry. Litigation may be necessary to assert infringement claims, enforce patent rights, protect trade secrets or know-how and determine the enforceability, scope and validity of certain proprietary rights. Litigation may even be necessary to resolve disputes of inventorship or ownership of proprietary rights. The defense and prosecution of intellectual property lawsuits, PTO interference or derivation proceedings, and related legal and administrative proceedings (e.g., a reexamination) in the U.S. and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time consuming to pursue, and their outcome is uncertain. 

 

Even if we prevail in such a proceeding, the remedy we obtain may not be commercially meaningful or adequately compensate us for any damages we may have suffered. If we do not prevail in such a proceeding, certain of our patents could potentially be declared to be invalid, unenforceable or narrowed in scope, or we could otherwise lose valuable intellectual property rights. Similar proceedings involving the intellectual property we license could also have an impact on our business. Further, if any of our other owned or licensed patents are declared invalid, unenforceable or narrowed in scope, our competitive position could be adversely affected.

 

 

In addition, our research, development and commercialization activities, including our T-SPOT.TB test, may infringe or be claimed to infringe patents or other intellectual property rights owned by other parties. Certain of our competitors and other companies have substantial patent portfolios, and may attempt to use patent litigation as a means to obtain a competitive advantage or to extract licensing revenue. The risks of being involved in such litigation may also increase as we gain greater visibility as a public company and as we gain commercial acceptance of our products and move into new markets and applications for our products. There may also be patents and patent applications that are relevant to our technologies or tests that we are not aware of. For example, certain relevant patent applications may have been filed but not published. If such patents exist, or if a patent issues on any of such patent applications, that patent could be asserted against us. In addition to patent infringement claims, we may also be subject to other claims relating to the violation of intellectual property rights, such as claims that we have misappropriated trade secrets or infringed third-party trademarks.

 

Regardless of merit or outcome, our involvement in any litigation, interference or other administrative proceedings could cause us to incur substantial expense and could significantly divert the efforts of our technical and management personnel. Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our share price to decline. An adverse determination, or any actions we take or agreements we enter into in order to resolve or avoid disputes, may subject us to the loss of our proprietary position or to significant liabilities, or require us to seek licenses that may include substantial cost and ongoing royalties. Licenses may not be available from third parties, or may not be obtainable on satisfactory terms. An adverse determination or a failure to obtain necessary licenses may restrict or prevent us from manufacturing and selling our products and offering our services. These outcomes could materially harm our business, financial condition and results of operations.

 

We may not be able to adequately protect our intellectual property outside of the United States.

 

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement of our licensed and owned patents. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. Additionally, prosecuting and maintaining intellectual property (particularly patent) rights are very costly endeavors, and for these and other reasons we may not pursue or obtain patent protection in all major markets. We do not know whether legal and government fees will increase substantially and therefore are unable to predict whether cost may factor into our global intellectual property strategy.

 

In addition to the risks associated with patent rights, the laws in some foreign jurisdictions may not provide protection for our trade secrets and other intellectual property. If our trade secrets or other intellectual property are misappropriated in foreign jurisdictions, we may be without adequate remedies to address these issues. Additionally, we also rely on confidentiality and assignment of invention agreements to protect our intellectual property in foreign jurisdictions. These agreements may provide for contractual remedies in the event of misappropriation, but we do not know to what extent, if any, these agreements and any remedies for their breach, will be enforced by a foreign court. In the event our intellectual property is misappropriated or infringed upon and an adequate remedy is not available, our future prospects will likely diminish. The sale of products that infringe our intellectual property rights, particularly if such products are offered at a lower cost, could negatively impact our ability to achieve commercial success and may materially and adversely harm our business.

 

Our failure to secure trademark registrations could adversely affect our business and our ability to market our product and product candidates.

 

Our trademark applications in the United States and any other jurisdictions where we may file may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the PTO and in corresponding foreign agencies, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our applications and/or registrations, and our applications and/or registrations may not survive such proceedings. Failure to secure such trademark registrations in the United States and in foreign jurisdictions could adversely affect our business and our ability to market our product and product candidates.

 

 

Obtaining and maintaining our patent protection depends upon compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

 

The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent prosecution process and following the issuance of a patent. There are situations in which noncompliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case if our patent were in force.

 

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information, or the misappropriation of the intellectual property we regard as our own.

 

We rely on trade secrets to protect our proprietary know-how and technological advances, particularly where we do not believe patent protection is appropriate or obtainable. Nevertheless, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, third-party collaborators and other advisors to protect our trade secrets and other proprietary information. These agreements generally require that the other party to the agreement keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. If we were to seek to pursue a claim that a third party had illegally obtained and was using our trade secrets, it would be expensive and time consuming, and the outcome would be unpredictable. Further, courts outside the United States may be less willing to protect trade secrets. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. In addition, our trade secrets and proprietary information may be misappropriated as a result of breaches of our electronic or physical security systems in which case we may have no legal recourse. Failure to obtain, or maintain, trade secret protection could enable competitors to use our proprietary information to develop products that compete with our product or cause additional, material adverse effects upon our competitive business position.

 

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

 

As is common in the medical diagnostics industry, we employ individuals who were previously employed at other medical diagnostics companies, including our competitors or potential competitors. We may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

 

Risks related to our ordinary shares. 

 

Our share price may be volatile and may fluctuate.

 

Like other medical diagnostic companies, the market price of our ordinary shares may be volatile. The factors below may also have a material adverse effect on the market price of our ordinary shares:

●

fluctuations in our results of operations;

●

our ability to enter new markets;

●

negative publicity;

●

changes in securities or industry analyst recommendations regarding our company, the sectors in which we operate, the securities market generally and conditions in the financial markets;

●

regulatory developments affecting our industry;

●

announcements of studies and reports relating to our products or those of our competitors;

●

changes in economic performance or market valuations of our competitors;

●

actual or anticipated fluctuations in our quarterly results;

●

conditions in the industries in which we operate;

●

announcements by us or our competitors of new products, acquisitions, strategic relations, joint ventures or capital commitments;

●

additions to or departures of our key executives and employees;

●

fluctuations of exchange rates;

●

release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares; and

●

sales or perceived sales of additional shares of our ordinary shares.

 

 

In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit and divert the time and attention of our management, which could seriously harm our business.

 

We cannot guarantee that we will repurchase our ordinary shares pursuant to our share repurchase program or that our share repurchase program will enhance long-term shareholder value.

 

In January 2019, our board of directors announced that it would seek the shareholders’ authorization of a share repurchase program. The share repurchase program was approved by our shareholders at our 2019 annual general meeting of shareholders on June 18, 2019.

 

Our share repurchase program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. The timing and amount of repurchases, if any, will depend upon several factors, including market and business conditions, the trading price of our ordinary shares and the nature of other investment opportunities. The repurchase program may be limited, suspended or discontinued at any time without prior notice.

 

In addition, repurchases of our ordinary shares pursuant to our share repurchase program could affect our share price and increase its volatility. The existence of a share repurchase program could cause our share price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our ordinary shares. Additionally, our share repurchase program could diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. There can be no assurance that any share repurchases will enhance shareholder value because the market price of our ordinary shares may decline below the levels at which we repurchased shares of stock. Although our share repurchase program is intended to enhance long-term shareholder value, there is no assurance that it will do so and short-term price fluctuations in our ordinary shares could reduce the program’s effectiveness.

 

See Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Annual Report for more information relating to the share repurchase program.

 

We do not intend to pay cash dividends on our ordinary shares in the foreseeable future.

 

We have never paid dividends on ordinary shares and do not currently anticipate paying any cash dividends on our ordinary shares in the foreseeable future. Under English law, any payment of dividends would be subject to relevant legislation and our articles of association, which provide that all dividends must be approved by our board of directors and, in some cases, our shareholders, and may only be paid from our distributable profits available for the purpose, determined on an unconsolidated basis.

 

Our executive officers, directors, and 5% or greater shareholders and management own a significant percentage of our ordinary shares and will be able to exercise significant influence over matters subject to shareholder approval.

 

Our executive officers, directors, and 5% or greater shareholders beneficially own a substantial percentage of our ordinary shares. For example, as of April 22, 2019, as disclosed in our Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 30, 2019, our executive officers, directors, and 5% or greater shareholders and their affiliates beneficially owned approximately 57% of our outstanding ordinary shares in the aggregate. We expect that these shareholders will be able to exert a significant degree of influence over our management and affairs and over matters requiring shareholder approval, including the election of our board of directors and approval of significant corporate transactions. This concentration of ownership could have the effect of entrenching our management and/or our board of directors, delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the fair market value of our ordinary shares.

 

 

 

Our ordinary shares are listed on The Nasdaq Global Market, but we cannot guarantee that we will be able to satisfy the continued listing standards going forward.

 

Although our ordinary shares are listed on The Nasdaq Global Market, we cannot ensure that we will be able to satisfy the continued listing standards of The Nasdaq Global Market going forward. If we cannot satisfy the continued listing standards going forward, The Nasdaq Stock Market may commence delisting procedures against us, which could result in our ordinary shares being removed from listing on The Nasdaq Global Market. If our ordinary shares were to be delisted, the liquidity of our ordinary shares could be adversely affected and the market price of our ordinary shares could decrease. Delisting could also adversely affect our shareholders’ ability to trade or obtain quotations on our shares because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask price for our ordinary shares. Our shareholders may also not be able to resell their shares at or above the price paid for such shares or at all.

 

English law and provisions in our articles of association may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders, and may prevent attempts by our shareholders to replace or remove our current management.

 

Certain provisions of English law and our articles of association may have the effect of delaying or preventing a change in control of us or changes in our management. For example, English law and our articles of association include provisions that:

●

create a classified board of directors whose members serve staggered three-year terms;

●

prohibit shareholder action by written resolution;

●

establish an advance notice procedure for shareholder approvals to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors; and

●

provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum.

 

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. See also “Provisions in the U.K. City Code on Takeovers and Mergers may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders.”

 

Our holding company structure makes us dependent on the operations of our subsidiaries to meet our financial obligations.

 

We are a public limited company organized under the laws of England and Wales and have no significant assets other than our interest in Oxford Immunotec Limited and its subsidiaries. As a result, we rely exclusively upon payments, dividends and distributions from our direct and indirect subsidiaries for our cash flows. Our ability to pay dividends to our shareholders is dependent on the ability of our subsidiaries to generate sufficient net income and cash flows to pay upstream dividends and make loans or loan repayments. However, we have never paid dividends on ordinary shares and do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future.

 

Risks related to being an English company listing ordinary shares.

 

U.S. investors may have difficulty enforcing civil liabilities against our company, our directors or members of senior management.

 

We are incorporated under the laws of England and Wales. The rights of holders of our ordinary shares are governed by English law, including the provisions of the Companies Act 2006, and by our articles of association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations organized in Delaware. Some of our directors and officers reside outside the United States, and a substantial portion of our assets and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may be difficult for you to serve legal process on us or our directors and executive officers or have any of them appear in a U.S. court. The United States and the United Kingdom do not currently have a treaty providing for the recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. The enforceability of any judgment of a U.S. federal or state court in the United Kingdom will depend on the laws and any treaties in effect at the time, including conflicts of laws principles (such as those bearing on the question of whether a U.K. court would recognize the basis on which a U.S. court had purported to exercise jurisdiction over a defendant). In this context, there is doubt as to the enforceability in the United Kingdom of civil liabilities based solely on the federal securities laws of the United States. In addition, awards for punitive damages in actions brought in the United States or elsewhere may be unenforceable in the United Kingdom. An award for monetary damages under the U.S. securities laws would likely be considered punitive if it did not seek to compensate the claimant for loss or damage suffered and was intended to punish the defendant. 

 

 

Provisions in the U.K. City Code on Takeovers and Mergers may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders.

 

The U.K. City Code on Takeovers and Mergers, or the Takeover Code, applies, among other things, to an offer for a public company whose registered office is in the United Kingdom (or the Channel Islands or the Isle of Man) and whose securities are not admitted to trading on a regulated market in the United Kingdom (or the Channel Islands or the Isle of Man) if the company is considered by the Panel on Takeovers and Mergers, or the Takeover Panel, to have its place of central management and control in the United Kingdom (or the Channel Islands or the Isle of Man). This is known as the “residency test.” The test for central management and control under the Takeover Code is different from that used by the U.K. tax authorities. Under the Takeover Code, the Takeover Panel will determine whether we have our place of central management and control in the United Kingdom by looking at various factors, including the structure of our board of directors, the functions of the directors and where they are resident.

 

If at the time of a takeover offer the Takeover Panel determines that we have our place of central management and control in the United Kingdom, we would be subject to a number of rules and restrictions, including but not limited to the following: (1) our ability to enter into deal protection arrangements with a bidder would be extremely limited; (2) we might not, without the approval of our shareholders, be able to perform certain actions that could have the effect of frustrating an offer, such as issuing shares or carrying out acquisitions or disposals; and (3) we would be obliged to provide equality of information to all bona fide competing bidders.

 

If we are a passive foreign investment company, U.S. investors in our ordinary shares could be subject to adverse U.S. federal income tax consequences.

 

The rules governing passive foreign investment companies, or PFICs, can have adverse effects for U.S. federal income tax purposes. The tests for determining PFIC status for a taxable year depend upon the relative values of certain categories of assets and the relative amounts of certain kinds of income. We do not believe that we are currently a PFIC, and we do not anticipate becoming a PFIC in the foreseeable future. Notwithstanding the foregoing, the determination of whether we are a PFIC depends on the particular facts and circumstances (such as the valuation of our assets, including goodwill and other intangible assets) and may also be affected by the application of the PFIC rules, which are subject to differing interpretations. The fair market value of our assets is expected to depend, in part, upon (a) the market price of our ordinary shares and (b) the composition of our income and assets, which will be affected by how, and how quickly, we spend any cash that is raised in any financing transaction. In light of the foregoing, no assurance can be provided that we are not currently a PFIC or that we will not become a PFIC in any future taxable year.

 

If we are a PFIC, U.S. holders of our ordinary shares would be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. Whether or not U.S. holders of our ordinary shares make a timely qualified electing fund, or QEF, election or mark-to-market election may affect the U.S. federal income tax consequences to U.S. holders with respect to the acquisition, ownership and disposition of our ordinary shares and any distributions such U.S. holders may receive. Investors should consult their own tax advisors regarding all aspects of the application of the PFIC rules to our ordinary shares.

 

If a United States person is treated as owning at least 10% of our ordinary shares, such United States person might be subject to adverse U.S. federal income tax consequences. 

 

While we do not believe that we are a controlled foreign corporation for U.S. federal income tax purposes, there is a risk that we are or will be classified as a controlled foreign corporation. In addition, certain non-U.S. subsidiaries will be classified as controlled foreign corporations.  Generally, a foreign corporation is classified as a controlled foreign corporation if more than 50% of its outstanding shares, measured by reference to voting power or value, are owned (directly, indirectly or constructively) by “United States shareholders.” A “United States shareholder” is any United States person that owns (directly, indirectly or constructively) 10% or more of outstanding shares by vote or value.

 

A United States shareholder of controlled foreign corporations will be required to annually report and include in its U.S. taxable income its pro rata share of “subpart F income” and investments in U.S. property by the controlled foreign corporations and its “global intangible low-taxed income” (which reflects “tested income” and “tested loss” of controlled foreign corporations owned by the United States shareholder), regardless of whether the controlled foreign corporations make any distributions of such income. Special rules, however, apply to United States persons that are partnerships or other pass-through entities. Certain deductions in respects of global intangible low-taxed income and credits for foreign income taxes paid or accrued by the controlled foreign corporations may be allowed to a corporate United States shareholder, but generally will not be allowed to an individual United States shareholder. 

 

 

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

Our U.K. corporate headquarters and manufacturing facility are located in Abingdon, England. We manufacture our T-SPOT.TB test at our global manufacturing site in Abingdon, England, where we currently lease approximately 8,600 square feet of manufacturing, storage and mixed use space. The current rent for this lease is $290,000 annually, which is subject to change. This 94C Innovation Drive lease is due to expire in December 2020, before which manufacturing operations will move to our new U.K. corporate headquarters (143 Park Drive), also in Abingdon, England. We entered into the lease for the 143 Park Drive space in June 2018. The 143 Park Drive lease covers 27,000 square feet of laboratory, office, storage, manufacturing and other mixed use space. The lease extends through June 30, 2033. Initial rent under the 143 Park Drive lease is approximately $39,000 per month. When the 94C Innovation Drive lease expires in December 2020, or possibly sooner, and we fully occupy the space subject to the 143 Park Drive lease, rent will increase to $79,000 per month. Rent will be reviewed for possible increases on June 1, 2021 and every third anniversary after that date.

 

We also rent two separate storage spaces in Abingdon, England near our U.K. corporate headquarters, having a combined space of 7,500 square feet. The leases on these storage spaces expire in February 2025 and December 2028, and our current annual rent is $26,000 and $97,000, respectively, which is subject to change.

 

Our U.S. corporate headquarters is located in Marlborough, Massachusetts. In August 2015, we entered into a lease amendment on this location to extend the term of the lease by two years through October 31, 2020. In addition, beginning in March 2016, the lease amendment expanded our office space at this location by 7,600 square feet to a new total of 22,100 square feet. The base rent for the combined space over the remaining lease term will range from a low of $38,000 per month, which includes $13,000 per month for the expansion space, to a high of $39,000 per month. We also currently sublease approximately 9,000 square feet of warehousing and office space from Quest in Norwood, Massachusetts. The base rent for this space is approximately $17,000 per month. The sublease expires in November 2020. We intend to relocate our Marlborough and Norwood operations into a single U.S. site in Massachusetts during 2020.

 

Item 3. Legal Proceedings

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market information

 

Our ordinary shares trade on The Nasdaq Global Market under the symbol “OXFD.”

 

Shareholders

 

On February 18, 2020, there were 8 shareholders of record of our ordinary shares. This number does not include shareholders for whom shares were held in a “nominee” or “street” name. On February 18, 2020, the last reported sale price per share of our ordinary shares on The Nasdaq Global Market was $14.93.

 

Purchases of equity securities by the issuer and affiliated purchasers

 

Calendar month		Total number of shares purchased (1)				Weighted-average price paid per share				Total number of shares purchased as part of publicly announced plans or programs				Approximate dollar value of shares that may yet be purchased under the share repurchase program
October			236,026			$	15.5382				236,026			$	93,007,709
November			—				—				—				93,007,709
December			—				—				—				93,007,709
			236,026								236,026

 

⁽¹⁾ All shares were repurchased under an authorization covering up to $100 million of the Company's ordinary shares in the aggregate including commissions, as approved by the Company's Board of Directors and approved by shareholders at the Company's Annual General Meeting held on June 18, 2019. Unless discontinued by the Company's Board of Directors, the share repurchase program will be valid for up to five years.

 

The Company began repurchasing shares in September 2019. For the four month period ended December 31, 2019, the Company purchased a total of 478,856 shares for a total cost of $7.0 million.

 

Dividends

 

We have never declared or paid cash dividends on our ordinary shares. We currently do not anticipate paying any cash dividends in the foreseeable future. Any future determination as to the declaration and payment of dividends, if any, will be made at the discretion of our Board of Directors and will depend on then existing conditions, including our results of operations, financial condition, contractual restrictions, capital requirements, business prospects and other factors our Board of Directors may deem relevant. Under English law, we may pay dividends only out of our accumulated, realized profits, so far as not previously utilized by distribution or capitalization, less our accumulated, realized losses, so far as not previously written off in a reduction or reorganization of capital duly made. Because we are a holding company and have no direct operations, we will only be able to pay dividends from our available cash on hand and any funds we receive from our subsidiaries.

 

 

The following graph compares the cumulative total shareholder return on our ordinary shares with that of the Nasdaq Composite Index and the S&P Smallcap 600 Healthcare Index. The comparison assumes that $100.00 was invested at the close of market on December 31, 2014 in our ordinary shares or on December 31, 2014 in the NASDAQ Composite Index and the S&P Smallcap 600 Healthcare Index, and assumes reinvestment of dividends, if any. The performance graph is based on historical results and is not intended to suggest future performance.

 

 

This performance graph and related information shall not be deemed “soliciting material” and is being furnished pursuant to SEC rules and will not be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent we specifically incorporate it by reference into such filing.

 

 

Item 6. Selected Consolidated Financial Data

 

The following selected consolidated financial data for the five years ended December 31, 2019 are derived from our audited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the following selected financial data together with “Management’s discussion and analysis of financial condition and results of operations” and our financial statements and accompanying notes included elsewhere in this Annual Report. The selected financial data in this section are not intended to replace our financial statements and the accompanying notes.

 

On October 2, 2013, we completed a scheme of arrangement under the laws of England and Wales, or the Scheme of Arrangement, which was approved by the High Court of Justice in England and Wales. Prior to the Scheme of Arrangement, our business was conducted by Oxford Immunotec Limited and its consolidated subsidiaries. Following the Scheme of Arrangement, our business has been conducted by Oxford Immunotec Global PLC and its consolidated subsidiaries, including Oxford Immunotec Limited.

 

On November 6, 2018, the Company completed an agreement to sell the Company’s U.S. Laboratory Services Business. This agreement represents a strategic business shift having a major effect on the Company’s operations and financial results. Therefore, in accordance with the accounting rules, the operations of this business have been reported in discontinued operations for all periods presented.

 

		Year ended December 31,
(in thousands, except share and per share data)		2019				2018(1)				2017(2)				2016				2015
Consolidated statement of operations data:
Revenue		$	73,710			$	59,753			$	54,733			$	46,988			$	38,589
Cost of revenue			19,288				16,826				18,470				16,491				14,508
Gross profit			54,422				42,927				36,263				30,497				24,081
Operating expenses:
Research and development			8,698				8,122				10,835				9,370				7,106
Sales and marketing			28,424				26,500				29,053				26,858				23,242
General and administrative			22,313				25,952				25,450				18,918				14,041
Change in fair value of contingent purchase price consideration			—				—				(3,475	)			(1,208	)			202
Intangible assets impairment charges			—				879				18,300				1,765				419
Settlement expense			1,110				2,193				10,028				—				—
Total operating expenses			60,545				63,646				90,191				55,703				45,010
Operating loss from continuing operations			(6,123	)			(20,719	)			(53,928	)			(25,206	)			(20,929	)
Other income (expense)			2,366				(4,062	)			22,336				(146	)			(156	)
Income (loss) from continuing operations before income taxes			(3,757	)			(24,781	)			(31,592	)			(25,352	)			(21,085	)
Income tax benefit (expense) from continuing operations			2,417				37,286				(1,634	)			3,774				(146	)
Income (loss) from continuing operations			(1,340	)			12,505				(33,226	)			(21,578	)			(21,231	)
Discontinued operations:
Income (loss) from discontinued operations before income taxes			(469	)			1,727				341				(771	)			(3,247	)
Gain on disposition			—				145,982				—				—				—
Income tax expense			—				(39,435	)			—				—				—
Income (loss) from discontinued operations			(469	)			108,274				341				(771	)			(3,247	)
Net income (loss)		$	(1,809	)		$	120,779			$	(32,885	)		$	(22,349	)		$	(24,478	)
Net income (loss) per ordinary share—basic
Income (loss) from continuing operations		$	(0.05	)		$	0.48			$	(1.40	)		$	(0.97	)		$	(0.97	)
Income (loss) from discontinued operations			(0.02	)			4.17				0.01				(0.03	)			(0.15	)
Net income (loss)		$	(0.07	)		$	4.65			$	(1.38	)		$	(1.00	)		$	(1.12	)
Net income (loss) per ordinary share—diluted
Income (loss) from continuing operations		$	(0.05	)		$	0.47			$	(1.40	)		$	(0.97	)		$	(0.97	)
Income (loss) from discontinued operations			(0.02	)			4.10				0.01				(0.03	)			(0.15	)
Net income (loss)		$	(0.07	)		$	4.58			$	(1.38	)		$	(1.00	)		$	(1.12	)
Weighted-average shares used to compute net income (loss) per ordinary share:
Basic			26,569,342				25,982,809				23,757,902				22,353,713				21,781,933
Diluted			26,569,342				26,397,875				23,757,902				22,353,713				21,781,933

 

 

(1)

Discontinued operations for 2018 included a $146.0 million gain on the sale of our U.S. Laboratory Services Business to Quest pursuant to a Limited Liability Company Interest Purchase Agreement, from which we received net proceeds of approximately $130.2 million in cash. Upon closing of the Transaction, approximately $32.3 million was paid directly to MidCap Financial Trust, or MidCap, in settlement of all amounts due under our debt financing, which was comprised of both a term loan and a revolving line of credit. The payment to MidCap included prepayment and exit fees of approximately $2.3 million.

 

(2)	Other income for 2017 includes a $27.5 million one-time, lump-sum payment for the settlement of a lawsuit.

 

		As of December 31,
		2019				2018				2017				2016				2015
Consolidated balance sheet data:
Cash and cash equivalents		$	181,270			$	192,844			$	90,332			$	59,110			$	83,715
Total assets			235,252				232,120				144,236				124,012				109,852
Long-term portion of operating lease liability			7,710				—				—				—				—
Total liabilities			21,561				18,114				56,607				51,048				17,160
Total shareholders’ equity			213,691				214,006				87,629				72,964				92,692
Ordinary shares outstanding			26,419,961				26,439,334				25,661,634				22,635,431				22,549,488

 

The following table presents a reconciliation of net income (loss), the most comparable U.S. GAAP measure, to EBITDA and Adjusted EBITDA for each of the periods indicated:

 

Reconciliation of net income (loss) to Adjusted EBITDA (1)

(unaudited)

 

		Year Ended December 31,
(in thousands)		2019				2018				2017				2016				2015
Reconciliation of net loss to adjusted EBITDA
Net income (loss)		$	(1,809	)		$	120,779			$	(32,885	)		$	(22,349	)		$	(24,478	)
Income (loss) from discontinued operations			(469	)			108,274				341				(771	)			(3,247	)
Income (loss) from continuing operations			(1,340	)			12,505				(33,226	)			(21,578	)			(21,231	)
Income tax (benefit) expense			(2,417	)			(37,286	)			1,634				(3,774	)			146
Interest (income) expense, net			(4,247	)			1,329				2,536				864				67
Loss on extinguishment of debt			—				2,105				—				—				—
Depreciation and amortization of intangible assets			1,753				1,662				1,618				932				1,294
Accretion and amortization of loan fees			—				468				569				—				—
EBITDA			(6,251	)			(19,217	)			(26,869	)			(23,556	)			(19,724	)
Reconciling items:
Share-based compensation expense			3,613				4,507				5,671				4,901				3,400
Unrealized exchange (gains) losses			211				(1,617	)			686				(1,880	)			(150	)
Change in fair value of contingent purchase price consideration			—				—				(3,475	)			(1,208	)			202
Intangible assets impairment charges			—				879				18,300				1,765				419
Settlement expense			1,110				2,193				10,028				—				—
Litigation settlement income			—				—				(27,500	)			—				—
Transaction expenses			—				3,333				—				—				—
Adjusted EBITDA		$	(1,317	)		$	(9,922	)		$	(23,159	)		$	(19,978	)		$	(15,853	)

 

(1)

EBITDA and Adjusted EBITDA are non-GAAP measures that we calculate as net income (loss), adjusted for the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations. We believe that these measures provide useful information to investors in understanding and evaluating our operating results in the same manner as our management and Board of Directors. Our presentation of these measures is not made in accordance with U.S. GAAP, and our computation of these measures may vary from others in the industry. Our use of these measures has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP.

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report. In addition to our historical 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 elsewhere in this Annual Report, particularly in Part I, Item 1A. “Risk Factors.”

 

As previously disclosed, on September 25, 2018, Oxford Immunotec Global PLC, or the Company, entered into a Limited Liability Company Interest Purchase Agreement, or the Purchase Agreement, with Quest Diagnostics Incorporated, or Quest, Oxford Immunotec Limited, a limited company incorporated in England and Wales and a wholly owned subsidiary of the Company, or Oxford Limited, and Oxford Immunotec, LLC, a Delaware limited liability company (formerly known as Oxford Immunotec, Inc., a Delaware corporation) and a wholly owned subsidiary of the Company, or Oxford LLC, pursuant to which Oxford Limited agreed to sell, and Quest agreed to acquire, the Company’s U.S. Laboratory Services Business, or the U.S. Laboratory Services Business, for gross proceeds of $170 million in cash, or the Transaction. Of this amount, approximately $32.3 million was paid directly to MidCap Financial Trust, or MidCap, in settlement of all amounts due under a financing agreement between the Company and MidCap.

 

In conjunction with the Transaction, all prior year amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have been recast to present our results, as if the Transaction had occurred prior to the earliest period presented. For more information on the Transaction, please see the below section entitled “Discontinued operations” and Note 19. Discontinued operations, of the notes to our consolidated financial statements appearing elsewhere in this Annual Report.

 

Overview

 

We are a global, high-growth diagnostics company focused on developing and commercializing proprietary tests for immunology and infectious disease by leveraging the technological, product development, manufacturing, quality, regulatory, and sales and marketing capabilities we have developed over our seventeen year history. Our proprietary T-SPOT.TB test utilizes our T-SPOT technology platform to test for tuberculosis, which is the leading cause of infectious disease death worldwide.

 

On November 6, 2018, we completed the sale of our U.S. Laboratory Services Business to Quest, for gross proceeds of $170 million in cash. This Transaction represented a strategic business shift and had a major effect on our operations and financial results.

 

Financial condition overview

 

Revenue

 

We generate revenue mainly 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.

 

Revenue by type

 

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 tuberculosis, or TB, testing. In the latter, we have an established clinical testing laboratory in the U.K., where we perform our T-SPOT.TB test on samples sent to us by customers. For the majority of our customers, 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.

 

In conjunction with the Transaction, the parties entered into certain ancillary agreements as of the closing date in November 2018, including: (i) a transitional services agreement, (ii) a technology license agreement and (iii) a long-term supply agreement, or the Supply Agreement, pursuant to which Oxford Immunotec USA, Inc., or Oxford USA, agreed to sell, and Quest agreed to purchase, T-SPOT.TB test kits and related accessories from Oxford USA. In addition, the parties entered into a strategic collaboration agreement to drive continued growth of T.SPOT.TB testing in the U.S.

 

		Year ended December 31,
(in thousands)		2019				2018
Revenue
Product		$	69,763			$	54,687
Service			3,947				5,066
Total revenue		$	73,710			$	59,753

 

 

Revenue by geography

 

We have a direct sales force in the U.S., certain European countries, China and Japan. 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.

 

China's NMPA requires that companies re-register their product every five years. Consistent with NMPA re-registration requirements, we secured re-registration of our test in 2014, until December 2019. We applied for re-registration in April 2019. However, at the time of the filing of this Annual Report, we have not received a decision on our application. We currently have adequate stock of our T.SPOT.TB test in China to meet the demand in the market for the next several months. However, further delay in receiving our re-registration would be expected to adversely affect our ability to serve the China market without interruption and could materially affect our revenue received from the sale of our products in China.

 

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.

 

		Year ended December 31,
(in thousands, except percentages)		2019								2018
Revenue
United States		$	24,177				33	%		$	16,442				28	%
Europe and ROW			10,421				14	%			9,153				15	%
Asia			39,112				53	%			34,158				57	%
Total revenue		$	73,710				100	%		$	59,753				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 T-SPOT.TB kits manufactured and tests performed. However, we also believe that through these increased volumes, along with reduced royalties, we can achieve certain efficiencies in our manufacturing and laboratory operations that could help maintain or improve our overall margins.

 

During the years ended December 31, 2019 and 2018, our cost of revenue represented 26% and 28%, respectively, of our total revenue.

 

		Year ended December 31,
(in thousands)		2019				2018
Cost of revenue
Product		$	17,831			$	13,668
Service			1,457				3,158
Total cost of revenue		$	19,288			$	16,826

 

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 74% and 72% for the years ended December 31, 2019 and 2018, respectively.

 

Research and development expense

 

Our research and development efforts are focused on development programs to enhance our TB product offering. We are developing multiple product enhancements that aim to improve the clinical utility of our test and improve test workflow and automation.

 

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 expense includes 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 the years ended December 31, 2019 and 2018, our research and development expense represented 12% and 13%, respectively, of our total revenue.

 

 

Sales and marketing expense

 

Our sales and marketing expense includes 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 costs, including the cost of obtaining marketing data, customer service activities, medical education activities and overhead expenses. We expense all sales and marketing costs as incurred.

 

During the years ended December 31, 2019 and 2018, our sales and marketing expense represented 39% and 44%, respectively, of our total revenue.

 

General and administrative expense

 

Our general and administrative expense includes 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. Additionally, general and administrative expense for 2018 included about $3.3 million of costs incurred as a result of the Transaction and a credit of $769,000 for income from the transitional services agreement, or TSA, with Quest that was entered into in conjunction with the Transaction. General and administrative expenses for the year ended December 31, 2019 were net of an additional credit of $1.5 million for income from the TSA. We expense all general and administrative expenses as incurred.

 

During the years ended December 31, 2019 and 2018, our general and administrative expense represented 30% and 43%, respectively, of our total revenue.

 

Intangible assets impairment charges

 

During the fourth quarter of 2018, in conjunction with our change in focus following the Transaction, we determined that the intangible assets recorded in conjunction with the acquisition of Immunetics in the fourth quarter of 2016 had become impaired. Therefore, we recorded a non-cash impairment charge of $879,000 to write off the Immunetics intangible assets.

 

Settlement expense

 

Settlement expense for the year ended December 31, 2019 related mainly to the September 30, 2019 Settlement Agreement and Release with Oxford University Innovation Limited, or OUI, or the OUI Settlement Agreement, to resolve outstanding disputes arising from a license agreement with OUI. The terms of the OUI Settlement Agreement are confidential.

Settlement expense for the year ended December 31, 2018 related mainly to the June 18, 2018 Settlement Agreement with the former shareholders of Immunetics, or the Immunetics Settlement Agreement, to resolve disputes arising from the Agreement and Plan of Merger dated October 12, 2016. The terms of the Immunetics Settlement Agreement are confidential.

 

 

Interest income (expense), net

 

Interest income (expense), net for the year ended December 31, 2019 includes interest income on our available cash balances, which are primarily invested in money market funds and reverse repurchase agreements, primarily in U.S. government and agency securities, and bank savings accounts in the U.S., U.K., Germany, Japan, China and South Korea. Substantially all of our cash is in the U.S. and the U.K.

 

Interest income (expense), net for the year ended December 31, 2018 primarily related to interest expense on our previous agreement with MidCap, or the MidCap Agreement, that provided us with $40 million in debt financing, comprised of both a term loan and a revolving line of credit.

 

Loss on extinguishment of debt

 

Upon closing of the Transaction, approximately $32.3 million was paid directly to MidCap in settlement of all amounts due. The payment to MidCap included prepayment and exit fees of approximately $2.3 million and accrued interest of $67,000. This prepayment resulted in a loss on extinguishment of debt of $2.1 million, representing the cash paid to settle the debt in excess of debt related balances at the time of settlement.

 

Foreign exchange gains (losses)

 

Foreign exchange gains (losses) largely resulted 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 U.S. and South Korea are denominated in U.S. dollars while sales in Europe are denominated primarily in the U.K. Pound Sterling and Euro. As we grow Europe and ROW sales outside the U.K. and the Euro Zone, we may be subject to risk from additional currencies. Sales in China have historically been denominated in U.S. dollars, however, effective with the third quarter of 2019, sales are primarily denominated in Chinese Yuan. Sales in Japan are denominated in Yen.

 

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.

 

Other income (expense)

 

Other income (expense) includes other income and expense items.

 

Income (loss) from discontinued operations

 

On November 6, 2018, we completed the agreement to sell our U.S. Laboratory Services Business to Quest. This agreement represented a strategic business shift and had a major effect on our operations and financial results. Accordingly, the operations of this business have been reported in discontinued operations in the consolidated financial statements. Income from discontinued operations for 2018 of $108.3 million included a $146.0 million gain on the sale. The loss from discontinued operations for the year ended December 31, 2019 of $469,000 resulted from adjustments on the remaining proceeds due from the Transaction.

 

 

 

Results of operations

 

Comparison of years ended December 31, 2019 and 2018

 

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.

 

		Year ended December 31,
		2019								2018								Change
(in thousands, except percentages)		Amount				% of revenue				Amount				% of revenue				Amount				%
Revenue:
Product		$	69,763				95	%		$	54,687				92	%		$	15,076				28	%
Service			3,947				5	%			5,066				8	%			(1,119	)			(22	)%
Total revenue			73,710				100	%			59,753				100	%			13,957				23	%
Cost of revenue:
Product			17,831				24	%			13,668				23	%			4,163				30	%
Service			1,457				2	%			3,158				5	%			(1,701	)			(54	)%
Total cost of revenue			19,288				26	%			16,826				28	%			2,462				15	%
Gross profit			54,422				74	%			42,927				72	%			11,495				27	%
Operating expenses:
Research and development			8,698				12	%			8,122				13	%			576				7	%
Sales and marketing			28,424				39	%			26,500				44	%			1,924				7	%
General and administrative			22,313				30	%			25,952				43	%			(3,639	)			(14	)%
Intangible assets impairment charges			—				—	%			879				1	%			(879	)			(100	)%
Settlement expense			1,110				2	%			2,193				4	%			(1,083	)			(49	)%
Total operating expenses			60,545				82	%			63,646				107	%			(3,101	)			(5	)%
Operating loss from continuing operations			(6,123	)			(8	)%			(20,719	)			(34	)%			14,596				(70	)%
Interest income (expense), net			4,247				6	%			(1,797	)			(3	)%			6,044				(336	)%
Loss on extinguishment of debt			—				—	%			(2,105	)			(4	)%			2,105				(100	)%
Foreign exchange gains (losses)			(1,949	)			(3	)%			111				0	%			(2,060	)			(1856	)%
Other income (expense)			68				0	%			(271	)			(0	)%			339				(125	)%
Loss from continuing operations before income taxes			(3,757	)			(5	)%			(24,781	)			(41	)%			21,024				(85	)%
Income tax benefit from continuing operations			2,417				3	%			37,286				62	%			(34,869	)			(94	)%
Income (loss) from continuing operations			(1,340	)			(2	)%			12,505				21	%			(13,845	)			(111	)%
Discontinued operations:
Income (loss) from discontinued operations before income taxes			(469	)			(1	)%			1,727				3	%			(2,196	)			(127	)%
Gain on disposition			—				—	%			145,982				244	%			(145,982	)			(100	)%
Income tax expense			—				—	%			(39,435	)			(66	)%			39,435				(100	)%
Income (loss) from discontinued operations			(469	)			(1	)%			108,274				181	%			(108,743	)			(100	)%
Net income (loss)		$	(1,809	)			(2	)%		$	120,779				202	%		$	(122,588	)			(101	)%

 

 

Revenue

 

Revenue increased by 23% to $73.7 million for the year ended December 31, 2019 compared to $59.8 million for the year ended December 31, 2018.

 

U.S. revenue increased by 47% to $24.2 million for the year ended December 31, 2019, compared to $16.4 million for the year ended December 31, 2018. The increase in U.S. revenue was due to growth in testing volumes and higher average selling prices in 2019, as compared to 2018 average selling prices, partially offset by a $1.7 million decrease in revenue resulting from our withdrawal from the blood donor screening market in 2018.

 

Asia revenue increased by 15% to $39.1 million, compared to the year ended December 31, 2018, due primarily to the growth in the volume of testing in China. On a non-generally accepted accounting principles, or non-GAAP, constant currency basis, revenue for Asia would have increased by 14%. Europe and ROW revenue increased by 14% to $10.4 million, compared to the year ended December 31, 2018. On a non-GAAP constant currency basis, Europe and ROW revenue would have increased by 19% in 2019 compared to 2018.

 

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”.

 

This non-GAAP financial measure may be different from non-GAAP financial measures used by other companies, limiting its usefulness for comparison purposes. Moreover, presentation of revenue on a constant currency basis is provided for year-over-year comparison purposes, and investors should be cautioned that the effect of changing foreign currency exchange rates has an actual effect on our operating results. 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:

 

		Year ended December 31,								Change
(in thousands, except percentages)		2019				2018				Amount				%
Revenue
Product		$	69,763			$	54,687			$	15,076				28	%
Service			3,947				5,066				(1,119	)			(22	)%
Total revenue		$	73,710			$	59,753			$	13,957				23	%

 

Overall growth reflects increased TB sales. The decline in service revenue was due to our withdrawal from the blood donor screening testing market.

 

 

By geography, total revenues were:

 

		Year ended December 31,								Change
(in thousands, except percentages)		2019				2018				Amount				%
Revenue
United States		$	24,177			$	16,442			$	7,735				47	%
Europe and ROW			10,421				9,153				1,268				14	%
Asia			39,112				34,158				4,954				15	%
Total revenue		$	73,710			$	59,753			$	13,957				23	%

 

Cost of revenue and gross margin

 

Cost of revenue increased by 15% to $19.3 million for the year ended December 31, 2019 from $16.8 million in the year ended December 31, 2018. Gross margin for the year ended December 31, 2019 increased to 74% from 72% for the year ended December 31, 2018.

 

		Year ended December 31,								Change
(in thousands, except percentages)		2019				2018				Amount				%
Cost of revenue
Product		$	17,831			$	13,668			$	4,163				30	%
Service			1,457				3,158				(1,701	)			(54	)%
Total cost of revenue		$	19,288			$	16,826			$	2,462				15	%

 

Research and development expenses

 

Research and development expenses increased to $8.7 million for the year ended December 31, 2019 from $8.1 million for the year ended December 31, 2018. As a percentage of total revenue, research and development expenses declined to 12% for the year ended December 31, 2019 compared to 13% for the year ended December 31, 2018.

 

Sales and marketing expenses

 

Sales and marketing expenses increased to $28.4 million for the year ended December 31, 2019 from $26.5 million for the year ended December 31, 2018. The increase largely resulted from higher salary and other employee related expenses and increased marketing expenses. As a percentage of total revenue, sales and marketing expenses declined to 39% for the year ended ended December 31, 2019 compared to 44% for the year ended December 31, 2018.

 

General and administrative expenses 

 

General and administrative expenses decreased to $22.3 million for the year ended December 31, 2019 from $26.0 million for the year ended December 31, 2018. The decrease in general and administrative expenses resulted largely from lower legal and professional fees, along with lower property costs. As a percentage of total revenue, general and administrative expenses declined to 30% for the year ended December 31, 2019 compared to 43% for the year ended December 31, 2018.

 

 

Intangible assets impairment charges

 

During the fourth quarter of 2018, in conjunction with our change in focus following the Transaction, we determined that the intangible assets recorded in conjunction with the acquisition of Immunetics in the fourth quarter of 2016 had become impaired. Therefore, we recorded a non-cash impairment charge of $879,000 to write off the Immunetics intangible assets.

 

Settlement expense

 

Settlement expense decreased to $1.1 million for the year ended December 31, 2019 from $2.2 million for the year ended December 31, 2018. Settlement expense relates to the OUI Settlement Agreement, the Immunetics Settlement Agreement, and the SSI Settlement Agreement. The terms of each of the agreements are confidential.

 

Interest income (expense), net 

 

Interest income (expense), net was income of $4.2 million for the year ended December 31, 2019, reflecting interest income on proceeds received in connection with the Transaction, compared to expense of $1.8 million in the year ended December 31, 2018, resulting from the Company's prior indebtedness under the MidCap Agreement.

 

Loss on extinguishment of debt

 

Upon closing of the sale to Quest in the fourth quarter of 2018, approximately $32.3 million was paid directly to MidCap in settlement of all amounts due, which included prepayment and exit fees of $2.3 million and accrued interest of $67,000. This prepayment resulted in a loss on extinguishment of debt of $2.1 million, representing the cash paid to settle the debt in excess of debt related balances at the time of settlement.

 

Foreign exchange gains (losses)

 

We recorded foreign exchange losses of $1.9 million for the year ended December 31, 2019, 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 year ended December 31, 2018, we recorded foreign exchange gains $111,000. 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 33% of our sales for the year ended December 31, 2019 were in the United States, which are denominated in U.S. dollars. Sales in 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 China have historically been denominated in U.S. dollars, however, effective with the third quarter of 2019, sales in China are primarily denominated in Chinese Yuan. 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 U.S, the U.K., 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 income (expense)

 

Other income was $68,000 for the year ended December 31, 2019, compared to other expense of $271,000 in the year ended December 31, 2018.

 

Income (loss) from discontinued operations

 

Discontinued operations represent the U.S. Laboratory Services Business that we sold to Quest on November 6, 2018. For financial statement purposes, the results of operations for the discontinued operations have been segregated from those of our continuing operations and are presented in our consolidated financial statements as discontinued operations.

 

The loss from discontinued operations for the year ended December 31, 2019 of $469,000 resulted from adjustments on the remaining proceeds due from the Transaction. There was income from discontinued operations of $108.3 million for the year ended December 31, 2018, which included a gain on disposition of $146.0 million.

 

 

Liquidity and capital resources

 

Sources of funds 

 

Since our inception, we have incurred significant losses and negative cash flows from operations. For the year ended December 31, 2019, we had a loss from continuing operations of $1.3 million and used $7.2 million of cash for operating activities. However, for the year ended December 31, 2018, we had income from continuing operations of $12.5 million, largely relating to a tax benefit recorded in conjunction with the Transaction, while using $32.1 million of cash for operating activities from continuing operations. As of December 31, 2019, we had an accumulated deficit of $84.0 million.

 

On November 6, 2018, we completed the sale of our U.S. Laboratory Services Business to Quest, for gross proceeds of $170 million in cash. We received net proceeds of approximately $130.2 million in cash. In conjunction with the closing of the Transaction, approximately $32.3 million was paid directly to MidCap in settlement of all amounts due under our debt financing, which was comprised of both a term loan and a revolving line of credit. The payment to MidCap included prepayment and exit fees of approximately $2.3 million.

 

In 2019, our Board of Directors authorized the repurchase of up to $100 million of our ordinary shares in the aggregate, subject to the approval of our shareholders by an ordinary resolution at our 2019 Annual General Meeting, or the share repurchase program. The share repurchase program was approved by our shareholders at our Annual General Meeting held on June 18, 2019 and was initiated during September 2019. During the four month period ended December 31, 2019, we repurchased 478,856 shares at a total cost of $7.0 million. As the share repurchase program allows for a maximum repurchase of $100 million of our ordinary shares, including commissions, up to $93.0 million of ordinary shares remain eligible for repurchase as of December 31, 2019. The share repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our ordinary shares under the program. Unless discontinued by our Board of Directors, the share repurchase program will be valid for up to five years. See Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Annual Report on Form 10-K for more information relating to the share repurchase program.

 

As of December 31, 2019, we had cash, cash equivalents, and restricted cash of $181.4 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 U.S., U.K., 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, cash equivalents, and restricted cash, accounts receivable and cash flows for the periods indicated:

 

		As of and for the years ended December 31,
(in thousands)		2019				2018
Cash, cash equivalents, and restricted cash		$	181,370			$	192,944
Accounts receivable, net			13,669				9,158
Net cash used in operating activities from continuing operations		$	(7,163	)		$	(32,119	)
Net cash used in investing activities from continuing operations			(1,658	)			(5,350	)
Net cash used in financing activities from continuing operations			(3,181	)			(29,307	)
Net operating cash flows provided by discontinued operations			—				14,729
Net investing cash flows provided by discontinued operations			—				156,218
Net financing cash flows used in discontinued operations			—				(48	)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			428				(1,711	)
Net increase (decrease) in cash, cash equivalents, and restricted cash		$	(11,574	)		$	102,412

 

Cash flows for the years ended December 31, 2019 and 2018

 

Operating activities from continuing operations

 

Net cash used in operating activities from continuing operations was $7.2 million during the year ended December 31, 2019, which included a net loss from continuing operations of $1.3 million, net non-cash expenses of $5.4 million, and cash used for changes in operating assets and liabilities of $11.3 million. The non-cash items included share-based compensation expense of $3.6 million and depreciation and amortization of intangible assets of $1.8 million. The cash used for changes in operating assets and liabilities included a decrease in accounts payable and accrued liabilities of $5.5 million, an increase in accounts receivable of $4.3 million, and an increase in inventory of $2.8 million, partially offset by a $1.4 million decrease in prepaid expenses and other assets. The decrease in accounts payable and accrued liabilities was largely due to payments in 2019 for royalties on intellectual property and bonuses that were accrued for at December 31, 2018, as well as the timing of payments. The increase in inventory was due to timing. The increase in accounts receivable reflects the timing of customer payments.

 

 

Net cash used in operating activities from continuing operations was $32.1 million during the year ended December 31, 2018, which included net income from continuing operations of $12.5 million, a net credit from non-cash items of $29.2 million, and cash used for changes in operating assets and liabilities of $15.4 million. The non-cash items included a credit related to deferred income taxes of $38.8 million, partially offset by share-based compensation expense of $4.5 million, accretion and amortization of loan fees of $2.4 million, depreciation and amortization of intangible assets of $1.7 million, an intangible assets impairment charge of $879,000, and a loss on disposal of property and equipment of $115,000. The cash used for changes in operating assets and liabilities included a decrease in accounts payable and accrued liabilities of $7.1 million, a decrease in other liabilities of $4.2 million, an increase in accounts receivable of $3.4 million, and an increase in inventory of $1.0 million, partially offset by a decrease in prepaid expenses and other assets of $207,000. The decrease in accounts payable and accrued liabilities was largely due to payments in 2018 for royalties on intellectual property and bonuses that were accrued for at December 31, 2017, as well as the timing of payments. The decrease in other liabilities reflects the timing of payments. The increase in accounts receivable reflects the timing of customer payments. The increase in inventory was due to timing. The decrease in prepaid expenses and other assets reflects the timing of certain payments.

Investing activities from continuing operations

Net cash used in investing activities from continuing operations was $1.7 million during the year ended December 31, 2019 and consisted of purchases of property and equipment.

 

Net cash used in investing activities from continuing operations was $5.4 million during the year ended December 31, 2018 and consisted of purchases of property and equipment.

 

Financing activities from continuing operations

 

Net cash used in financing activities was $3.2 million during the year ended December 31, 2019 and consisted of $7.0 million used for the repurchase of our ordinary shares as permitted under the share repurchase program and $224,000 used to pay taxes withheld on exercises of options and vesting of restricted share units, partially offset by $4.0 million received upon the exercises of share options during the period.

 

Net cash used in financing activities was $29.3 million during the year ended December 31, 2018 and consisted of $30.0 million to pay off the debt to MidCap, $2.1 million for a loss on extinguishment of debt, and payments of $383,000 for tax withheld on vesting of restricted share units, partially offset by $3.2 million in proceeds from the exercise of share options.

Discontinued operations

Net cash provided by discontinued operations the year ended December 31, 2018 was $170.9 million, and related to the gain on disposition from the sale of the U.S. Laboratory Services Business to Quest. There were no cash flows from discontinued operations for the year ended December 31, 2019.

 

Operating and capital expenditure requirements

 

Since our inception, we have incurred significant losses and negative cash flows from operations and, for the year ended December 31, 2019, we had a loss from continuing operations of $1.3 million. We expect that our operating expenses will increase as we continue to invest to grow our customer base, expand our marketing and distribution channels, hire additional employees and increase product development expenditures. Additionally, as a public company, we incur significant audit, legal and other expenses. We believe that our existing capital resources will be sufficient to fund our operations for the next few years.

 

Our future capital requirements will depend on many factors, including:

 

	●	our ability to continue to penetrate our existing markets and new markets in the United States;
	●	the costs and timing of further expansion of our sales and marketing efforts;
	●	our ability to penetrate existing markets outside the United States and enter and develop new geographies;
	●	the progress that we make in developing new products based on our technology platform;
	●	the percentage of sales that are reimbursed by payors and our ability to collect our accounts receivable;
	●	our ability to generate cash from operations; and
	●	the acquisition of businesses or technologies that we may undertake.

 

Contractual obligations

 

We have contractual obligations for non-cancelable facilities leases, equipment leases, license commitments and purchase commitments. Purchase commitments include future minimum royalty, license, and exclusivity payments to be paid under our license agreements with third parties for access to certain technologies. The following table reflects a summary of our contractual obligations as of December 31, 2019.

 

		Payments due by period
(in thousands)		Total				Less than 1 year				1-3 Years				3-5 Years				More than 5 years
Operating lease obligations		$	13,738			$	1,197			$	2,249			$	2,126			$	8,166
License commitments			897				56				112				112				617
Purchase commitments			9,609				7,669				1,570				370				—
Total		$	24,244			$	8,922			$	3,931			$	2,608			$	8,783

 

Our U.K. corporate headquarters and manufacturing facilities are located in Abingdon, England. We presently lease 8,600 square feet of manufacturing, storage and mixed use space pursuant to a lease that extends through December 31, 2020, or possibly sooner. Our rent for this space is currently $290,000 annually. We also rent two separate storage spaces in Abingdon, England near our U.K. corporate headquarters. The leases on the storage spaces expire in 2025 and 2028, and our current combined rent is $123,000 annually, which is subject to change.

 

In June 2018, we entered into a lease for a new space in Abingdon, England, which extends through June 30, 2033. The 143 Park Drive lease covers 27,000 square feet of laboratory, office, storage and other mixed use space and will allow us to combine our current manufacturing, laboratory, storage and office operations into a single facility. Initial rent under the 143 Park Drive lease is approximately $39,000 per month. When the 94C Innovation Drive lease expires in December 2020, or possibly sooner, and we fully occupy the space subject to the 143 Park Drive lease, rent will increase to $79,000 per month. Rent will be reviewed for possible increases on June 1, 2021 and every third anniversary after that date.

 

Our U.S. corporate headquarters is located in Marlborough, Massachusetts. In August 2015, we entered into a lease amendment on this location to extend the term of the lease by two years through October 31, 2020. In addition, beginning in March 2016, the lease amendment expanded our office space at this location by 7,600 square feet to a new total of 22,100 square feet. The base rent for the combined space over the remaining lease term will range from a low of $38,000 per month, which includes $13,000 per month for the expansion space which commenced in early 2016, to a high of $39,000 per month. We also currently sublease approximately 9,000 square feet of warehousing and office space from Quest in Norwood, Massachusetts. The base rent for this space is approximately $17,000 per month. The sublease expires in November 2020. We intend to relocate our Marlborough and Norwood operations into a single U.S. site in Massachusetts during 2020.

 

We have license agreements with third parties that provide for minimum royalty, license, and exclusivity payments to be paid by us for access to certain technologies. In addition, we pay royalties as a percent of revenue as described in Note 15. Intellectual property—license agreements, to the notes of our consolidated financial statements appearing elsewhere in this Annual Report. In addition, we have outstanding purchase obligations to our suppliers.

 

 

 

 

Critical accounting policies and significant judgments and estimates

 

We have prepared our consolidated financial statements in accordance with U.S. GAAP. Our preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures at the date of the consolidated financial statements, as well as revenue and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

 

While our significant accounting policies are described in more detail in Note 1. Description of business and significant accounting policies, to our consolidated financial statements included in this Annual Report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

 

Revenue recognition and accounts receivable

 

Our revenues include product and service revenues. Product revenue from diagnostic test kit sales and related accessories is recognized at a point in time based upon the amount of consideration to which we expect to be entitled. Service revenue from tests performed on samples sent by direct billing customers is recorded based upon contractually established billing rates and recognized upon delivery of test results to the customer.

 

As of December 31, 2019, accounts receivables related to products and services were $13.7 million. For the year ended December 31, 2019, we had no material bad-debt expense and there were no material contract assets, contract liabilities or deferred contract costs recorded on the Consolidated Balance Sheet as of December 31, 2019. We generally expense sales commissions when incurred because the amortization period would be less than one year.

 

Revenue expected to be recognized in any future year related to remaining performance obligations is not material. 

 

Income taxes

 

We account for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of our assets and liabilities and their financial statement reported amounts. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses, or NOLs, and research and development credit carryforwards. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

We follow the accounting guidance for uncertainties in income taxes, which prescribes a recognition threshold and measurement process for recording uncertain tax positions taken, or expected to be taken, in tax returns. Additionally, the guidance also prescribes the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. We accrue for the estimated amount of taxes for uncertain tax positions if it is more likely than not that we would be required to pay such additional taxes. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained. We did not have any accrued interest or penalties associated with any unrecognized tax positions, and there were no such interest or penalties recognized during the years ended December 31, 2019 or 2018.

 

 

Share-based compensation

 

Share-based compensation relates to grants of options to purchase ordinary shares, restricted shares and restricted share units. Currently, we maintain two equity compensation plans, the Amended and Restated 2008 Stock Incentive Plan and the 2013 Share Incentive Plan. With the adoption of the 2013 Share Incentive Plan, we are no longer authorized to grant awards under the Amended and Restated 2008 Stock Incentive Plan.

 

We measure the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date on which they are granted. Estimating fair value for options requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model, including the expected life of the award, volatility and dividend yield, and making certain assumptions about the award. Share-based compensation expense for restricted shares is calculated based on the grant date market price of the shares and is recognized over the vesting period.

 

We use the Black-Scholes option pricing model to value the share option awards. The Black-Scholes option pricing model requires the input of subjective assumptions, including assumptions about the expected life of share-based payment awards and share price volatility. In addition, when we were a private company, one of the most subjective inputs into the Black-Scholes option pricing model was the estimated fair value of our ordinary shares.

 

We determine the expected term for share option grants to employees based on the “simplified” method prescribed under Staff Accounting Bulletin Topic 14: Share-based Payments. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. The risk-free interest rate is a weighted-average assumption equivalent to the expected term based on the United States Treasury yield curve in effect as of the date of grant. The assumptions used in calculating the fair value of the share-based payment awards represent our best estimate and involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use different assumptions, share-based compensation expense could be materially different in the future.

 

In accordance with Financial Accounting Standards Board, Accounting Standards Codification, or ASC 718, Compensation—Stock Compensation, we recognize expense based on the share option grant’s pre-defined vesting schedule over the requisite service period using the straight-line method for all employee share options. In addition to the assumptions used to calculate the fair value of the share options, we elected to estimate the expected forfeiture rate of all share-based awards and only recognize expense for those awards expected to vest. The estimation of the number of share awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period in which estimates are revised. We consider multiple factors when estimating expected forfeitures, including employee position and historical employee turnover data. During the period in which the share options vest, we will record additional expense if the actual forfeiture rate is lower than the estimated forfeiture rate and a recovery of expense if the actual forfeiture rate is higher than estimated.

 

Business combinations

 

For acquisitions meeting the definition of a business combination, we allocate the purchase price, including any contingent consideration, to the assets acquired and the liabilities assumed at their estimated fair values as of the date of the acquisition with any excess of the purchase price paid over the estimated fair value of net assets acquired recorded as goodwill. The fair value of the assets acquired and liabilities assumed is typically determined by using either estimates of replacement costs or discounted cash flow valuation methods.

 

When determining the fair value of tangible assets acquired, we estimate the cost using the most appropriate valuation method with assistance from independent third-party specialists. When determining the fair value of intangible assets acquired, we use judgment to estimate the applicable discount rate, growth rates and the timing and amount of future cash flows. The fair value of assets acquired and liabilities assumed is typically determined by management using the assistance of independent third-party specialists. The assumptions used in calculating the fair value of tangible and intangible assets represent our best estimates. If factors change and we were to use different assumptions, valuations of tangible and intangible assets and the resulting goodwill balance related to the business combination could be materially different.

 

 

Goodwill

 

Goodwill is not amortized but is reviewed for impairment at least annually in the fourth quarter of the year, or when events or changes in the business environment indicate that all, or a portion, of the carrying value of the reporting unit may no longer be recoverable, using the two-step impairment review. Under this method, we compare the fair value of the goodwill to its carrying value. If the fair value is less than the carrying amount, a more detailed analysis is performed to determine if goodwill is impaired. An impairment loss, if any, is measured as the excess of the carrying value of goodwill over the fair value of goodwill. We also have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads us to determine that it is more likely than not (that is, a likelihood of more than 50%) that goodwill is impaired. If we choose to first assess qualitative factors and it is determined that it is not more likely than not goodwill is impaired, we are not required to take further action to test for impairment. We also have the option to bypass the qualitative assessment and perform only the quantitative impairment test, which we may choose to do in some periods but not in others.

 

Off-balance sheet arrangements

 

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for any other contractually narrow or limited purpose.

 

Recent accounting pronouncements

 

See Note 1. Description of business and significant accounting policies, to our consolidated financial statements included in this Annual Report for a discussion of the impact of recent accounting pronouncements on our consolidated financial statements.

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

As of December 31, 2019, we had cash and cash equivalents of $181.3 million which consisted of bank deposits, money market funds and reverse repurchase agreements.

 

We are exposed to market risks in the ordinary course of our business. These market risks are principally limited to interest rate fluctuations, capital market fluctuations and foreign currency exchange rate fluctuations, as discussed below.

 

Interest rate fluctuations

 

Changes in the general level of U.S. and European interest rates expose us to interest rate risk. These changes could affect our interest income. Based on our cash and cash equivalents at December 31, 2019, if interest rates went either up or down one percentage point, this could change our interest income by approximately $1.7 million per annum.

 

Capital market fluctuations

 

Our cash and cash equivalents are invested in interest-bearing savings and money market accounts and in reverse repurchase agreements primarily invested in U.S. government and agency securities. We do not enter into investments for trading or speculative purposes. We do not believe capital market fluctuations would have a material effect on the fair market value of our portfolio.

 

Foreign currency exchange rate fluctuations 

 

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 33% of our sales during the year ended December 31, 2019 were in the United States, which are denominated in U.S. dollars. Sales in South Korea are also denominated in U.S. dollars while sales in Europe are denominated primarily in the U.K. Pound Sterling and Euro. As we grow Europe and ROW sales outside the U.K. and the Euro Zone, we may be subject to risk from additional currencies. Sales in China have historically been denominated in U.S. dollars, however, effective with the third quarter of 2019, sales are primarily denominated in Chinese Yuan. Sales in Japan are denominated in Yen.

 

Sales in China and South Korea are made by our United Kingdom-based subsidiary where the Pound Sterling is the functional currency. As a result, these sales are subject to remeasurement into Pounds Sterling and then translation into U.S. dollars when we consolidate our financial statements.

 

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.

 

Item 8. Financial Statements and Supplementary Data

 

The information required by this Item may be found beginning on page F-1 of this Annual Report with the exception of the unaudited consolidated quarterly operations data, which is presented below. Net income (loss) per ordinary share amounts are calculated independently for each of the periods presented. Therefore, the sum of the quarterly net income (loss) per ordinary share amounts will not necessarily equal the total for the full fiscal year.

 

We have prepared the consolidated quarterly operations data on a consistent basis with the audited consolidated financial statements included elsewhere in this Annual Report. In the opinion of management, the quarterly consolidated operations data reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of these data. Historical results are not necessarily indicative of the results to be expected in future periods, and the results for a quarterly period are not necessarily indicative of the operating results for a full year. This information should be read in conjunction with the consolidated financial statements included elsewhere in this Annual Report.

 

 

On November 6, 2018, Quest Diagnostics Incorporated completed its acquisition of the Company’s U.S. Laboratory Services Business. This agreement represented a strategic business shift having a major effect on the Company’s operations and financial results. Accordingly, the operations of this business have been reported in discontinued operations in the consolidated financial statements for all periods presented. Therefore, results of discontinued operations have been broken-out in the quarterly data presented below.

 

		Three months ended
		March 31,				June 30,				September 30,				December 31,
(in thousands, except share and per share data) (unaudited)		2019				2019				2019				2019
Revenue:
Product		$	13,841			$	18,666			$	20,115			$	17,141
Service			948				922				1,104				973
Total revenue		$	14,789			$	19,588			$	21,219			$	18,114
Gross profit		$	10,561			$	14,188			$	15,488			$	14,185
Income (loss) from continuing operations		$	(1,496	)		$	590			$	1,186			$	(1,620	)
Loss from discontinued operations			—				—				(469	)			—
Net income (loss)		$	(1,496	)		$	590			$	717			$	(1,620	)
Net income (loss) per ordinary share—basic:
Income (loss) from continuing operations		$	(0.06	)		$	0.02			$	0.04			$	(0.06	)
Income (loss) from discontinued operations			0.00				0.00				(0.02	)			0.00
Net income (loss) (1)		$	(0.06	)		$	0.02			$	0.03			$	(0.06	)
Net income (loss) per ordinary share—diluted:
Income (loss) from continuing operations		$	(0.06	)		$	0.02			$	0.04			$	(0.06	)
Income (loss) from discontinued operations			0.00				0.00				(0.02	)			0.00
Net income (loss) (1)		$	(0.06	)		$	0.02			$	0.03			$	(0.06	)
Weighted-average shares used to compute net income (loss) per ordinary share:
Basic			26,515,871				26,625,572				26,751,083				26,384,291
Diluted			26,515,871				26,889,232				26,936,541				26,384,291

 

		Three months ended
		March 31,				June 30,				September 30,				December 31,
(in thousands, except share and per share data) (unaudited)		2018				2018				2018				2018
Revenue:
Product		$	10,129			$	15,012			$	15,095			$	14,451
Service			1,550				1,645				955				916
Total revenue		$	11,679			$	16,657			$	16,050			$	15,367
Gross profit		$	7,920			$	12,119			$	11,477			$	11,411
Income (loss) from continuing operations		$	(8,186	)		$	(5,733	)		$	(6,258	)		$	32,682
Income (loss) from discontinued operations			(2,140	)			(738	)			2,774				108,378
Net income (loss) (2)		$	(10,326	)		$	(6,471	)		$	(3,484	)		$	141,060
Net income (loss) per ordinary share—basic:
Income (loss) from continuing operations		$	(0.32	)		$	(0.22	)		$	(0.24	)		$	1.24
Income (loss) from discontinued operations		$	(0.08	)		$	(0.03	)		$	0.11			$	4.12
Net income (loss) (1)		$	(0.40	)		$	(0.25	)		$	(0.13	)		$	5.36
Net income (loss) per ordinary share—diluted:
Income (loss) from continuing operations		$	(0.32	)		$	(0.22	)		$	(0.24	)		$	1.22
Income (loss) from discontinued operations		$	(0.08	)		$	(0.03	)		$	0.11			$	4.06
Net income (loss) (1)		$	(0.40	)		$	(0.25	)		$	(0.13	)		$	5.28
Weighted-average shares used to compute net income (loss) per ordinary share:
Basic			25,718,910				25,845,124				26,033,550				26,326,419
Diluted			25,718,910				25,845,124				26,033,550				26,697,589

 

	(1)	Net income (loss) per ordinary share amounts may not equal the sums of the respective columns due to rounding.
	(2)	The three months ended December 31, 2018 included a $146.0 million gain on the sale of our U.S. Laboratory Services Business to Quest pursuant to a Limited Liability Company Interest Purchase Agreement from which we received approximately $130.2 million in cash proceeds. Upon closing of the Transaction, approximately $32.3 million was paid directly to MidCap in settlement of all amounts due, which included prepayment and exit fees of approximately $2.3 million.

 

Our revenue fluctuates from quarter-to-quarter as a result of a number of factors, many of which are outside our control. Additionally, we see fluctuation in our product revenue from quarter-to-quarter, due to ordering patterns, particularly relating to our large distributor customers. As a result of such factors, we expect to continue to see quarter-to-quarter variations in our revenue.

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

There have been no changes in or disagreements with accountants on accounting and financial disclosure matters in the last fiscal year.

 

Item 9A. 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 Annual Report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were functioning effectively as of the end of the period covered by this Annual Report on Form 10-K to provide reasonable assurance that the Company can meet its disclosure obligations.

 

(b) Management’s report on internal control over financial reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of the end of the period covered by this Annual Report on Form 10-K. In making this assessment, management used the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.

 

Oxford Immunotec Global PLC’s independent registered public accounting firm, Ernst & Young LLP, has audited the Company’s internal control over financial reporting as of December 31, 2019, as stated in their report, which appears herein.

 

(c) Remediation of prior material weakness

 

As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018, our management determined that a material weakness existed in our internal control over financial reporting over the accounting for income taxes, including the income tax provision, deferred tax assets and liabilities, and related disclosures. Management and the Audit Committee believe the complexity introduced to the Company’s financial statements as a result of the sale of the Company’s U.S. laboratory business to Quest was a contributing factor to the identified deficiencies.

 

We have taken the necessary steps to enhance the underlying control activities, which now include strengthened controls around the review of the tax provision, the use of tax software, and the use of a secondary technical tax accounting reviewer.

 

Based on the results of management’s evaluation, we have concluded that the controls over the accounting for income taxes are designed and operating effectively as of December 31, 2019 and, therefore, the previously disclosed material weakness has been remediated.

 

(d) Changes in internal control over financial reporting

 

Other than the remediation of the previously identified material weakness discussed above in Item 9A (c), 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 fourth quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The information required under this item is incorporated herein by reference to our Definitive Proxy Statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended December 31, 2019.

 

Item 11. Executive Compensation

 

The information required under this item is incorporated herein by reference to our Definitive Proxy Statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended December 31, 2019.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information required under this item is incorporated herein by reference to our Definitive Proxy Statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended December 31, 2019.

 

Item 13. Certain Relationships and Related Transactions and Director Independence

 

The information required under this item is incorporated herein by reference to our Definitive Proxy Statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended December 31, 2019.

 

Item 14. Principal Accounting Fees and Services

 

The information required under this item is incorporated herein by reference to our Definitive Proxy Statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended December 31, 2019.

 

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules

 

(a)	1.  Financial Statements

 

As part of this Annual Report, the consolidated financial statements are listed in the accompanying index to financial statements on page F-1.

 

2. Financial Statement Schedules

 

All schedules have been omitted because they are not required, not applicable, not present in amounts sufficient to require submission of the schedule, or the required information is otherwise included.

 

3. Exhibit Index

 

The following is a list of exhibits filed as part of this Annual Report:

 

Exhibit number	Description of exhibit
2.1*+	Purchase Agreement, dated June 23, 2016, between Oxford Immunotec, Inc. and Imugen, Inc. (Incorporated by reference to Exhibit 2.1 from the Registrant's Current Report on Form 8-K filed on July 6, 2016)
2.2+†	Limited Liability Company Interest Purchase Agreement dated September 25, 2018 by and among Quest Diagnostics Incorporated, Oxford Immunotec Limited, Oxford Immunotec, Inc. and solely for the purposes of Section 5.4, Section 5.6, Section 5.12, Section 5.16, Article VII and Article IX, Oxford Immunotec Global PLC (Incorporated by reference to Exhibit 2.1 from the Registrant's Current Report on Form 8-K filed on September 25, 2018)
3.1	Articles of Association of the Registrant (Incorporated by reference to Exhibit 3.1 from the Registrant's Current Report on Form 8-K on June 18, 2014)
4.1	Description of Ordinary Shares
4.2	Form of Ordinary Shares Certificate (Incorporated by reference to Exhibit 4.1 of Amendment No. 5 to the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on November 8, 2013)
10.1+	Supply Agreement dated December 17, 2010 between MicroCoat Biotechnologie GmbH and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.11 from the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on October 15, 2013)
10.2+	Amendment to Supply Agreement dated April 5, 2016 between MicroCoat Biotechnologie GmbH and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.2 from the Registrant's Quarterly Report on Form 10-Q on May 4, 2016)
10.3+	Purchase Agreement dated February 6, 2010 between Mabtech AB and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.12 from the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on October 15, 2013)
10.4+	Amendment to Purchase Agreement dated September 10, 2013 between Mabtech AB and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.13 from the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on October 15, 2013)
10.5+	Second Amendment to Purchase Agreement between Mabtech AB and Oxford Immunotec Limited dated November 17, 2017 (Incorporated by reference to Exhibit 10.5 from the Registrant's Annual Report on Form 10-K filed on February 27, 2018)
10.6+	Manufacturing Agreement dated August 26, 2003 between Mabtech AB and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.14 from the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on October 15, 2013)
10.7	First Amendment dated January 1, 2010 to Manufacturing Agreement between Mabtech AB and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.15 from the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on October 15, 2013)
10.8	Second Amendment dated May 24, 2011 to Manufacturing Agreement between Mabtech AB and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.16 from the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on October 15, 2013)
10.9+	Supply Agreement dated January 31, 2008 between StemCell Technologies, Inc. and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.19 from the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on October 15, 2013)

 

 

Exhibit number	Description of exhibit
10.10+	Amendment dated October 26, 2011 to Supply Agreement between StemCell Technologies, Inc. and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.20 from the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on October 15, 2013)
10.11+	Second Amendment to Supply Agreement dated September 1, 2017 between StemCell Technologies Canada Inc. f/k/a StemCell Technologies, Inc. and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.1 from the Registrant's Quarterly Report on Form 10-Q filed on October 31, 2017)
10.12+	Supplier Agreement dated January 7, 2019 between Millipore (UK) Ltd. and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.12 from the Registrant's Annual Report on Form 10-K filed on March 28, 2019)
10.13+	Amended and Restated Supply and Reseller Agreement dated January 9, 2019 between Life Technologies Corporation and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.13 from the Registrant's Annual Report on Form 10-K on March 28, 2019)
10.14x	First Amendment to the Amended and Restated Supply and Reseller Agreement dated November 14, 2019 between Life Technologies Corporation and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.1 from the Registrant’s Current Report on Form 8-K filed on November 20, 2019)
10.15+	Marketing Authorization Holder Agreement dated July 29, 2011 between Riken Genesis Co., Ltd. and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.25 from the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on October 15, 2013)
10.16+	Amendment to Marketing Authorization Holder Agreement dated September 1, 2013 between Riken Genesis Co., Ltd. and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.26 from the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on October 15, 2013)
10.17+	Amendment to Marketing Authorization Holder Agreement dated April 1, 2016 between Riken Genesis Co., Ltd. and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q on filed on May 4, 2016)
10.18	Amendment to Marketing Authorization Holder Agreement dated July 7, 2017 between Riken Genesis Co., Ltd. and Oxford Immunotec Limited (Incorporated by reference to Exhibit 10.1 from the Registrant's Current Report on Form 8-K filed on July 28, 2017)
10.19	Amended and Restated 2008 Stock Incentive Plan (Incorporated by reference to Exhibit 10.35 from the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on October 15, 2013)
10.20	Oxford Immunotec Global PLC 2013 Share Incentive Plan (Incorporated by reference to Exhibit 10.39 of Amendment No. 6 to the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on November 14, 2013)
10.21	Oxford Immunotec Global PLC 2013 Amended Share Incentive Plan (Incorporated by reference to Exhibit 10.33 from the Registrant's Annual Report on Form 10-K filed on February 27, 2018)
10.22	Form of Director Stock Option Award under Oxford Immunotec Global PLC 2013 Share Incentive Plan (Incorporated by reference to Exhibit 10.48 of Amendment No. 5 to the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on November 8, 2013)

 

 

Exhibit number	Description of exhibit
10.23	Form of Restricted Share Award Certificate under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United States (Incorporated by reference to Exhibit 10.2 from the Registrant's Current Report on Form 8-K filed on March 6, 2014)
10.24	Form of Restricted Share Award Certificate under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United Kingdom (Incorporated by reference to Exhibit 10.1 from the Registrant's Current Report on Form 8-K filed on March 6, 2014)
10.25	Form of First Amendment to Officer Restricted Share Award (Double Trigger) under Appendix C of the 2013 Share Incentive Plan (Incorporated by reference to Exhibit 10.1 from the Registrant's Current Report on Form 8-K filed on January 2, 2015)
10.26	Form of First Amendment to Officer Stock Option Award under Appendix D of the 2013 Share Incentive Plan (Incorporated by reference to Exhibit 10.2 from the Registrant's Current Report on Form 8-K filed on January 2, 2015)
10.27	Form of CSOP Option Certificate (Annual Vesting) under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United Kingdom (Incorporated by reference to Exhibit 10.39 from the Registrant's Annual Report on Form 10-K filed on March 1, 2016)
10.28	Form of Unapproved Stock Option Award (Annual Vesting) under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United Kingdom (Incorporated by reference to Exhibit 10.41 from the Registrant's Form 10-K filed on March 1, 2016)
10.29	Form of Stock Option Agreement (Annual Vesting) under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United States (Incorporated by reference to Exhibit 10.43 from the Registrant's Annual Report on Form 10-K filed on March 1, 2016)
10.30	Form of Unapproved Stock Option Award (Double Trigger) under the Oxford Immunotec Global PLC 2013 Share Incentive Plan (Incorporated by reference to Exhibit 10.44 from the Registrant's Annual Report on Form 10-K filed on February 27, 2018)
10.31	Form of Restricted Share Unit Award under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers (Filed as Exhibit 10.44 of our Annual Report on Form 10-K on March 1, 2016 and incorporated herein by reference).
10.32	Service Agreement dated October 21, 2002 between Oxford Immunotec Limited and Peter Wrighton-Smith, as amended through 2013 (Incorporated by reference to Exhibit 10.45 from the Registrant's Annual Report on Form 10-K filed on March 27, 2014)
10.33	Deed of Novation of Agreement for Services dated November 8, 2013 by and among Oxford Immunotec Limited, Oxford Immunotec Global PLC and Peter Wrighton-Smith (Incorporated by reference to Exhibit 10.49 of Amendment No. 5 to the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on November 8, 2013)
10.34	Employment Agreement dated April 8, 2019 between Oxford Immunotec USA, Inc. and Matthew McLaughlin (Incorporated by reference to Exhibit 10.1 from the Registrant’s Quarterly Report on Form 10-Q filed on August 6, 2019)
10.35	Employment Agreement dated August 28, 2017 between Oxford Immunotec, Inc. and Stefan Linn
10.36	Form of Employment Agreement for Senior Executives (Incorporated by reference to Exhibit 10.50 from the Registrant's Annual Report on Form 10-K filed on February 27, 2018)
10.37	Form of Deed of Indemnity for Directors (Incorporated by reference to Exhibit 10.44 of Amendment No. 5 to the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on November 8, 2013)
10.38	Form of Deed of Indemnity for Officers (Incorporated by reference to Exhibit 10.45 of Amendment No. 5 to the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on November 8, 2013)
10.39	Form of Non-Executive Director Appointment Letter (Incorporated by reference to Exhibit 10.46 of Amendment No. 2 to the Registrant's Registration Statement on Form S-1 (File No. 333-191737) filed on November 4, 2013)
10.40+	Agreement to Purchase Test Kits and Accessories dated November 6, 2018 between Quest Diagnostics Incorporated and Oxford Immunotec USA, Inc. (Incorporated by reference to Exhibit B to the Limited Liability Company Interest Purchase Agreement by and among Quest Diagnostics Incorporated, Oxford Immunotec Limited and Oxford Immunotec Inc. filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on September 25, 2018)
10.41x	Amendment to the Agreement to Purchase Test Kits and Accessories between Quest Diagnostics Incorporated and Oxford Immunotec USA, Inc. (Incorporated by reference to Exhibit 10.1 from the Registrant’s Current Report on Form 8-K filed on June 14, 2019)
10.42	Form of Bonus Agreement for U.S. employees (Incorporated by reference to Exhibit 10.2 from the Registrant's Quarterly Report on Form 10-Q filed on November 9, 2018)
10.43	Form of Bonus Agreement for U.K. employees (Incorporated by reference to Exhibit 10.3 from the Registrant's Quarterly Report on Form 10-Q filed on November 9, 2018)

 

 

Exhibit number	Description of exhibit
21.1	List of Subsidiaries
23.1	Consent of Ernst & Young LLP (US)
24.1	Power of Attorney executed by Directors and Officers (included on signature page)
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 Annual Report on Form 10-K for the year ended December 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated balance sheets as of December 31, 2019 and 2018; (ii) Consolidated statements of operations for the years ended December 31, 2019 and 2018; (iii) Consolidated statements of other comprehensive income (loss) for the years ended December 31, 2019 and 2018; (iv) Consolidated statements of shareholders’ equity for the years ended December 31, 2019 and 2018; (v) Consolidated statements of cash flows for the years ended December 31, 2019 and 2018; and (vi) Notes to consolidated financial statements.

---

*  Certain exhibits and schedules (and similar attachments) to the Purchase Agreement and the Limited Liability Company Interest Purchase Agreement were omitted pursuant to Section 601(b)(2) of Regulation S-K. The Registrant hereby agrees to furnish supplementally a copy of any omitted schedule (or other attachment) to the SEC upon request.

 

+ Confidential treatment has been granted or requested with respect to certain portions of this exhibit. Omitted portions have been submitted separately to the SEC.

 

† Certain exhibits and schedules to the Purchase Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and exhibit will be furnished supplementally to the Securities and Exchange Commission upon request.

 

^x Certain portions of this exhibit (indicated by “[***]”) have been omitted because they are both (i) not material and (ii) would be competitively harmful if publicly disclosed.

 

 

Item 16. Form 10-K Summary

 

None.

 

 

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) 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, in Abingdon, England, on March 6, 2020. 

	OXFORD IMMUNOTEC GLOBAL PLC
	By:	/s/ Peter Wrighton-Smith, Ph.D.
		Peter Wrighton-Smith, Ph.D. Chief Executive Officer and Director

 

Power of Attorney

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Peter Wrighton-Smith, Ph.D., Matthew T E McLaughlin, and Janet Kidd, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on March 6, 2020 in the capacities indicated below.

 

Signature		Title	Date
/s/ Peter Wrighton-Smith, Ph.D.		Chief Executive Officer and Director	March 6, 2020
Peter Wrighton-Smith, Ph.D.		(Principal Executive Officer)
/s/ Matthew T E McLaughlin		Chief Financial Officer	March 6, 2020
Matthew T E McLaughlin		(Principal Financial and Accounting Officer)
/s/ Patrick J. Balthrop, Sr.		Chairman of the Board of Directors	March 6, 2020
Patrick J. Balthrop, Sr.
/s/ Ronald Andrews Jr.		Director	March 6, 2020
Ronald Andrews Jr.
/s/ Mark Klausner		Director	March 6, 2020
Mark Klausner
/s/ Patricia Randall		Director	March 6, 2020
Patricia Randall
/s/ Herm Rosenman		Director	March 6, 2020
Herm Rosenman
/s/ Richard A. Sandberg		Director	March 6, 2020
Richard A. Sandberg
/s/ James R. Tobin		Director	March 6, 2020
James R. Tobin
/s/ A. Scott Walton		Director	March 6, 2020
A. Scott Walton

 

 

Oxford Immunotec Global PLC

 

Index to financial statements

 

Audited consolidated financial statements

 

	Page
Report of independent registered public accounting firm	F-2
Consolidated balance sheets as of December 31, 2019 and 2018	F-4
Consolidated statements of operations for the years ended December 31, 2019 and 2018	F-5
Consolidated statements of other comprehensive income (loss) for the years ended December 31, 2019 and 2018	F-6
Consolidated statements of shareholders’ equity for the years ended December 31, 2019 and 2018	F-7
Consolidated statements of cash flows for the years ended December 31, 2019 and 2018	F-8
Notes to the consolidated financial statements	F-10

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and the Board of Directors of Oxford Immunotec Global Plc

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Oxford Immunotec Global Plc (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 6, 2020 expressed an unqualified opinion thereon.

 

Adoption of ASU No. 2016-02

 

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in year ended December 31, 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842).

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ Ernst & Young LLP

 

We have served as the Company’s auditor since 2018.

 

Boston, Massachusetts

March 6, 2020

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and the board of directors of Oxford Immunotec Global Plc

 

Opinion on Internal Control over Financial Reporting

 

We have audited Oxford Immunotec Global Plc’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Oxford Immunotec Global Plc  (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the two years in the period ended December 31, 2019, and the related notes and our report dated March 6, 2020 expressed an unqualified opinion thereon.

 

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

 

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control Over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ Ernst & Young LLP

Boston, Massachusetts

March 6, 2020

 

 

Oxford Immunotec Global PLC

Consolidated balance sheets

(in thousands, except share and per share data)

 

 

 

See accompanying notes to these consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Consolidated statements of operations

(in thousands, except share and per share data)

 

 

See accompanying notes to these consolidated financial statements.

 

 

  

Oxford Immunotec Global PLC

Consolidated statements of other comprehensive income (loss)

(in thousands)

 

 

See accompanying notes to these consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Consolidated statements of shareholders’ equity

(in thousands)

 

 

See accompanying notes to these consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Consolidated statements of cash flows

(in thousands)

 

 

See accompanying notes to these consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Consolidated statements of cash flows (continued)

(in thousands)

 

 

See accompanying notes to these consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Notes to consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

F-30