Table Of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2016 

 

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____ to ____

 

Commission File Number 001-36200

________________________

 

OXFORD IMMUNOTEC GLOBAL PLC

(Exact name of registrant as specified in its charter)

 

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

 

+44 (0)1235 442780

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

 

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐  (Do not check if a smaller reporting company)

Smaller reporting company ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes☐ No☒

 

As of April 27, 2016, there were 22,566,487 Ordinary Shares, nominal value £0.006705, of Oxford Immunotec Global PLC outstanding.

 

 

  

Oxford Immunotec Global PLC

Form 10-Q

Quarterly Period Ended March 31, 2016 

 

TABLE OF CONTENTS  

 

PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements:
		Condensed consolidated balance sheets as of March 31, 2016 (unaudited) and December 31, 2015	4
		Condensed consolidated statements of operations (unaudited) for the three months ended March 31, 2016 and 2015	5
		Condensed consolidated statements of comprehensive loss (unaudited) for the three months ended March 31, 2016 and 2015	6
		Condensed consolidated statements of cash flows (unaudited) for the three months ended March 31, 2016 and 2015	7
		Notes to the unaudited condensed consolidated financial statements	8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.		Controls and Procedures	24
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings	24
Item 1A.		Risk Factors	24
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.		Defaults Upon Senior Securities	24
Item 4.		Mine Safety Disclosures	24
Item 5.		Other Information	24
Item 6.		Exhibits	24
Signatures			25

  

 

   

Special note regarding forward-looking statements

 

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

 

●

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

 

●

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

 

●

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

 

●

our ability to successfully develop and complete the acquired in process research and development, or IPR&D, program and profitably commercialize the underlying product candidates before our competitors develop and commercialize similar products, or at all;

 

●

continued demand for diagnostic products for tuberculosis and the development of new market opportunities;

 

●

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

 

●

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

 

●

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

 

●

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

 

●

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

 

●

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

 

●

the impact of currency fluctuations on our business;

 

●

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

 

●

our ability to retain key members of our management;

 

●

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

 

●

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

 

●

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

 

●

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

 

●

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

 

●

our ability to protect and enforce our intellectual property rights;

 

●

our status as an emerging growth company and as an English company listing ordinary shares in the United States;

 

●

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

 

●

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

 

   

You should refer to Part I, Item 1A, “Risk Factors” in our 2015 Annual Report on Form 10-K for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Further, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this Quarterly Report represent our views only as of the date of this Quarterly Report. Subsequent events and developments may cause our views to change. While we may elect to update these forward-looking statements at some point in the future, we undertake no obligation to publicly update any forward-looking statements, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report.

 

Where you can find more information

 

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

 

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

 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Oxford Immunotec Global PLC

Condensed consolidated balance sheets 

 

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

 

 

Oxford Immunotec Global PLC

Condensed consolidated statements of operations 

(unaudited)

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

 

  

Oxford Immunotec Global PLC

Condensed consolidated statements of other comprehensive loss 

(unaudited)

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

 

  

Oxford Immunotec Global PLC

Condensed consolidated statements of cash flows 

(unaudited)

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

 

 

 

Oxford Immunotec Global PLC

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2016

 

 

  

 

   

 

  

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

 

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. Please see “Special note regarding forward-looking statements” in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with these statements. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly 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 in the Company’s 2015 Form 10-K, particularly in Part I, Item 1A, “Risk Factors.”

 

Overview

 

Oxford Immunotec Global PLC is a global, commercial-stage diagnostics company focused on developing and commercializing proprietary tests for the management of immune-regulated conditions. Our proprietary T-SPOT technology platform allows us to measure the responses of specific immune cells to inform the diagnosis, prognosis and monitoring of patients with immune-regulated conditions. Our current development activities are principally focused on four areas: chronic infections, transplantation, autoimmune and inflammatory disease and immune-oncology. We believe these areas are particularly attractive for the development of diagnostic tests because they involve large patient populations and chronic conditions that present the opportunity for both initial diagnosis and additional testing to monitor the conditions. These immune-regulated conditions also tend to be characterized by wide variation in presentation and progression and often require expensive therapies, making diagnostic tests that can better categorize patients and inform treatment pathways particularly useful. We believe the sensitivity of our T-SPOT technology platform, which can measure T cell and innate immune cell responses at a single cell level, well positions us to bring new insights into the diagnosis, prognosis and monitoring of immune-regulated conditions.

 

The initial product we have developed using our T-SPOT technology platform is our T-SPOT.TB test, which is used to test for tuberculosis, or TB, infection. Our T-SPOT.TB test has been approved for sale in over 50 countries, including the United States, where we have received premarket approval, or PMA, from the Food and Drug Administration, or FDA, in Europe, where we have obtained a CE mark, as well as in Japan and China. Interferon-gamma release assays, or IGRAs, such as our T-SPOT.TB test have been included in clinical guidelines for TB testing in at least 34 countries, including the United States, several European countries and Japan. In addition, we have established reimbursement for our test in the United States, as well as a Current Procedural Terminology, or CPT, code that is unique to our test. Outside the United States, we have established reimbursement in several countries where reimbursement applies, including Japan, Switzerland and Germany. We have also established the cost-effectiveness of our test in several published studies.

 

In 2015, we announced the availability of two additional tests using the T-SPOT technology platform. The T-SPOT.CMV test, which is used to test for cytomegalovirus infection, or CMV, and the T-SPOT.PRT test, which is a panel of reactive T cells, became available in the United States as laboratory developed tests from the Company's Clinical Laboratory Improvements Amendment, or CLIA, certified and College of American Pathologists, or CAP, accredited service laboratory in the first and fourth quarters of 2015, respectively. The T-SPOT.CMV and T-SPOT.PRT tests were CE marked in the European Union during the second and fourth quarters of 2015, respectively. The T-SPOT.CMV test measures the strength of a patient’s cellular immune response to CMV specific antigens and provides information that may be useful in informing management strategies of patients at risk of CMV infection and disease, such as transplant patients. The T-SPOT.PRT test assesses a solid organ transplant candidate's T cell response to foreign tissue, or alloreactivity, and may help clinicians identify patients at increased risk of T cell mediated rejection post-transplant. While we are enthusiastic about the potential utility that the T-SPOT.CMV and T-SPOT.PRT tests may provide in transplant medicine, we are taking a measured approach to market introduction as we await the results of two pivotal clinical studies. Essentially no revenue was earned on the T-SPOT.CMV and T-SPOT.PRT tests through March 31, 2016.

 

We also have several active development programs pertaining to new potential tests. The programs seek to exploit our T cell and innate immune measuring technology and span each of our four focus areas. Our development pipeline includes an assay to assess the overall competence of the T cell side of the immune system, products targeting autoimmune and inflammatory diseases, such as gout and Lyme disease, and an assay informing the efficacy of biologic therapies. We also continue to explore applications of our T-SPOT technology platform in the immune-oncology space. These products are in earlier stages of development. Product development activities are inherently uncertain, and there can be no assurance that we will be able to obtain regulatory body clearance to market any of our products, or if we obtain clearances that we will successfully commercialize any of our products. In addition, we may terminate our development efforts with respect to one or more of our products under development at any time, including before or during clinical trials.

 

 

 

We have incurred significant losses from inception and as of March 31, 2016 had an accumulated deficit of $153.4 million. We anticipate that our operating losses will continue for the next few years as we continue to invest to grow our customer base and invest in research and development to expand our product portfolio. Our revenue for the three months ended March 31, 2016 was $17.1 million and for the three months ended March 31, 2015 was $13.8 million. Our net loss for the three months ended March 31, 2016 was $7.0 million and for the three months ended March 31, 2015 was $6.3 million.

 

Financial operations overview 

 

Revenue

 

We generate revenue from sales associated with our T-SPOT technology platform via our direct sales force and also through distributors. Our T-SPOT.TB test is our first commercialized product based on this technology.

 

Revenue mix

 

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

 

In 2015, we announced the availability of two additional tests using the T-SPOT technology platform. The T-SPOT.CMV and T-SPOT.PRT tests became available in the United States as laboratory developed tests from the Company's CLIA certified and CAP accredited service laboratory in the first and fourth quarters of 2015, respectively. The T-SPOT.CMV and T-SPOT.PRT tests were CE marked in the European Union during the second and fourth quarters of 2015, respectively. The T-SPOT.CMV test measures the strength of a patient’s cellular immune response to CMV specific antigens and provides information that may be useful in informing management strategies of patients at risk of CMV infection and disease, such as transplant patients. The T-SPOT.PRT test assesses a solid organ transplant candidate's T cell alloreactivity and may help clinicians identify patients at increased risk of T cell mediated rejection post-transplant. While we are enthusiastic about the potential utility that the T-SPOT.CMV and T-SPOT.PRT tests may provide in transplant medicine, we are taking a measured approach to market introduction as we await the results of two pivotal clinical studies. Essentially no revenue was earned on the T-SPOT.CMV and T-SPOT.PRT tests through March 31, 2016.

 

Our U.S. business derived 96% of its revenue from our service offering, as opposed to kit sales, for each of the three-month periods ended March 31, 2016 and 2015, respectively, which reflects our experience that U.S. customers prefer to send IGRA tests out for processing and analysis rather than run them in-house. For the majority of our U.S. customers in the hospital and public health segments, TB testing programs are funded primarily from institutional budgets. We receive payment from these customers according to our pre-negotiated prices. For other segments of the U.S. market, notably, for example, the physicians’ office segment, third-party reimbursement is often available to cover the cost of our T-SPOT.TB test.

 

Outside the United States, we derived 93% and 92% of our revenue from the sale of our in vitro diagnostic kits and associated accessories for the three months ended March 31, 2016 and 2015, respectively. For the majority of our customers outside the United States, 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.

 

 

 

		Three months ended March 31,
(in thousands)		2016				2015
Revenue
Product		$	8,138			$	7,122
Service			8,972				6,679
Total revenue		$	17,110			$	13,801

 

Revenue by geography

 

We have a direct sales force in the United States, certain European countries and Japan and market development personnel in China. During the first quarter of 2016, we modified the pricing aspects of our arrangement with our Japanese importer, Riken Genesis Co., Ltd. As a result, price is now determinable upon shipment. Previously, price was determinable when the product was dispatched to the customer. 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. We intend to expand our sales force globally and establish additional distributor relationships outside of our direct markets to better access international markets.

 

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

 

		Three months ended March 31,
(in thousands, except percentages)		2016								2015
Revenue
United States		$	8,747				51	%		$	6,369				46	%
Europe and ROW			1,606				9	%			1,746				13	%
Asia			6,757				40	%			5,686				41	%
Total revenue		$	17,110				100	%		$	13,801				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 and, in 2015, the U.S. medical device excise tax. The U.S. Consolidated Appropriations Act, 2016, signed into law on December 18, 2015, includes a two year moratorium on the medical device excise tax imposed by Internal Revenue Code section 4191.  Thus, the medical device excise tax does not apply to the Company’s U.S. sales during the period from January 1, 2016 through December 31, 2017.

 

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

 

During each of the three-month periods ended March 31, 2016 and 2015, our cost of revenue represented 48% of our total revenue.

 

		Three months ended March 31,
(in thousands)		2016				2015
Cost of revenue
Product		$	3,293			$	3,070
Service			4,872				3,585
Total cost of revenue		$	8,165			$	6,655

 

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 52% for each of the three-month periods ended March 31, 2016 and 2015.

 

 

 

Research and development expenses

 

Our research and development efforts have historically focused on developing multiple new diagnostic tests that use our quantitative T cell measurement technology, including assays that may help transplant physicians better manage patients at risk of rejection and infection. We have expanded our research and development efforts since our initial public offering, or IPO, in November 2013 and, with the Boulder Diagnostics, Inc., or Boulder, acquisition in July 2014, we have expanded our research and development efforts to include the development of immunology-based assays for autoimmune and inflammatory conditions/diseases.

 

Our research and development activities include performing research, development, clinical and regulatory activities and validating improvements to our technology and processes for the purposes of enhancing product performance. Research and development expenses include personnel-related expenses, including share-based compensation, fees for contractual and consulting services, clinical trial costs, travel costs, laboratory supplies, amortization, depreciation, rent, insurance and repairs and maintenance. We have supported the continued growth of our T-SPOT.TB business and expanded the team focused on the development of new products through management of clinical trial programs. In addition, we are expanding our research and development efforts in the United Kingdom and in Memphis, Tennessee. We expense all research and development costs as incurred.

 

During the three months ended March 31, 2016 and 2015, our research and development expenses represented 18% and 17%, respectively, of our total revenue.

 

Sales and marketing expenses 

 

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

 

During the three months ended March 31, 2016 and 2015, our sales and marketing expenses represented 50% and 54%, respectively, of our total revenue.

 

General and administrative expenses

 

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

 

During the three months ended March 31, 2016 and 2015, our general and administrative expenses represented 27% and 28%, respectively, of our total revenue.

 

Other income (expense)

 

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

 

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

 

 

  

Results of operations

 

Comparison of three months ended March 31, 2016 and 2015

 

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

 

		Three months ended March 31,
		2016								2015								Change
(in thousands, except percentages)		Amount				% of revenue				Amount				% of revenue				Amount				%
Revenue:
Product		$	8,138				48	%		$	7,122				52	%		$	1,016				14	%
Service			8,972				52	%			6,679				48	%			2,293				34	%
Total revenue			17,110				100	%			13,801				100	%			3,309				24	%
Cost of revenue:
Product			3,293				19	%			3,070				22	%			223				7	%
Service			4,872				28	%			3,585				26	%			1,287				36	%
Total cost of revenue			8,165				48	%			6,655				48	%			1,510				23	%
Gross profit			8,945				52	%			7,146				52	%			1,799				25	%
Operating expenses:
Research and development			3,076				18	%			2,359				17	%			717				30	%
Sales and marketing			8,480				50	%			7,441				54	%			1,039				14	%
General and administrative			4,583				27	%			3,867				28	%			716				19	%
Total operating expenses			16,139				94	%			13,667				99	%			2,472				18	%
Loss from operations			(7,194	)			(42	)%			(6,521	)			(47	)%			(673	)			10	%
Interest expense, net			(17	)			0	%			(15	)			0	%			(2	)			13	%
Foreign exchange gains			363				2	%			165				1	%			198				120	%
Other (expense) income			(166	)			(1	)%			107				1	%			(273	)			(255	)%
Loss before income taxes			(7,014	)			(41	)%			(6,264	)			(45	)%			(750	)			12	%
Income tax expense			35				0	%			47				0	%			(12	)			(26	)%
Net loss		$	(7,049	)			(41	)%		$	(6,311	)			(46	)%		$	(738	)			12	%

 

Revenue 

 

Revenue increased by 24% to $17.1 million for the three months ended March 31, 2016 compared to $13.8 million for the same period in 2015. U.S. revenue grew by 37%, to $8.7 million for the three months ended March 31, 2016, driven by growth of $1.9 million from the addition of new customers and $0.5 million from existing customers. Asia revenue grew by 19%, to $6.8 million, for the three months ended March 31, 2016 compared to the same period in 2015, due primarily to higher revenue in Japan and China. On a constant currency basis, revenue for Asia would have increased by 15%. Europe and ROW revenue decreased 8%, to $1.6 million, for the three months ended March 31, 2016 compared to the same period in 2015, due primarily to changes in currency rates and lower sales in certain regions. On a constant currency basis, Europe and ROW revenue would have decreased by 3% in 2016 compared to 2015.

 

		Three months ended March 31,								Change
(in thousands, except percentages)		2016				2015				Amount				%
Revenue
Product		$	8,138			$	7,122			$	1,016				14	%
Service			8,972				6,679				2,293				34	%
Total revenue		$	17,110			$	13,801			$	3,309				24	%

 

 

 

		Three months ended March 31,								Change
(in thousands, except percentages)		2016				2015				Amount				%
Revenue
United States		$	8,747			$	6,369			$	2,378				37	%
Europe and ROW			1,606				1,746				(140	)			(8	)%
Asia			6,757				5,686				1,071				19	%
Total revenue		$	17,110			$	13,801			$	3,309				24	%

 

Cost of revenue and gross margin

 

Cost of revenue increased by 23%, to $8.2 million, for the three months ended March 31, 2016 from $6.7 million in the same period in 2015. This increase in cost of revenue was due to the increased volume of kits sold and an increase in volume of tests performed by our laboratories in the United States and the United Kingdom. Gross margin was 52% for each of the three month periods ended March 31, 2016 and 2015.

 

		Three months ended March 31,								Change
(in thousands, except percentages)		2016				2015				Amount				%
Cost of revenue
Product		$	3,293			$	3,070			$	223				7	%
Service			4,872				3,585				1,287				36	%
Total cost of revenue		$	8,165			$	6,655			$	1,510				23	%

 

Research and development expenses

 

Research and development expenses increased by 30%, to $3.1 million for the three months ended March 31, 2016, from $2.4 million for the same period in 2015. The increased spending has primarily related to development project expenses for our transplant program and to the hiring of personnel in the United States to support development programs. The cost of clinical studies increased $407,000 in 2016 compared to 2015 due to development project expenses for our transplant program, salary costs increased $124,000 due to the expansion of our research and development teams and share-based compensation increased $71,000. As a percentage of total revenue, research and development expenses were 18% and 17% for the three-month periods ended March 31, 2016 and 2015, respectively.

 

Sales and marketing expenses

 

Sales and marketing expenses increased 14% to $8.5 million for the three months ended March 31, 2016 from $7.4 million for the same period in 2015. The increase reflects additional sales, marketing, and customer service personnel and the expansion of marketing programs. Salary costs increased $920,000 in 2016 compared to 2015. In addition, marketing expenses increased $147,000, share-based compensation increased $109,000 and travel costs increased $60,000. These increases were partially offset by a $131,000 decrease in legal and professional costs. As a percentage of total revenue, sales and marketing expenses decreased to 50% for the three months ended March 31, 2016 from 54% for the same period in 2015.

 

General and administrative expenses

 

General and administrative expenses increased by 19% to $4.6 million for the three months ended March 31, 2016 from $3.9 million for the same period in 2015. The increase included increases of $665,000 in salary costs and $218,000 in share-based compensation, partially offset by a $64,000 decrease in employee related costs. As a percentage of total revenue, general and administrative expenses were 27% and 28% for the three-month periods ended March 31, 2016 and 2015, respectively.

 

Interest expense, net

 

Interest expense, net was $17,000 for the three months ended March 31, 2016, compared to $15,000 in the same period in 2015. Interest expense in both periods primarily related to the fit out of our Marlborough facility.

 

 

  

Foreign exchange gains (losses)

 

We recorded foreign exchange gains of $363,000 for the three months ended March 31, 2016 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 Pound Sterling. For the three months ended March 31, 2015, we recorded foreign exchange gains of $165,000. 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 51% of our sales were in the United States, which are denominated in U.S. Dollars. Sales in China are denominated in U.S. Dollars but these sales 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. 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 Euro Zone, we may be subject to risk from additional currencies. Sales in Japan are denominated in Yen.

 

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

 

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 (expense) was $(166,000) for the three months ended March 31, 2016, compared to $107,000 in the same period in 2015. Other (expense) in 2016 consisted primarily of certain termination costs. Other income in 2015 consisted primarily of grant income received in Japan and the U.K.

 

Liquidity and capital resources

 

Sources of funds

 

Since our inception, we have incurred significant net losses and negative cash flows from operations. For the three months ended March 31, 2016 we had a net loss of $7.0 million and used $14.0 million of cash for operating activities. As of March 31, 2016, we had an accumulated deficit of $153.4 million. We incurred a net loss of $6.3 million and used $8.7 million of cash for operating activities for the three months ended March 31, 2015.

 

On January 29, 2015, we entered into an underwriting agreement with a group of underwriters, relating to an offering of 4,255,319 ordinary shares, nominal value £0.006705, or the Shares, at an Offering Price to the public of $11.75 per Share. The underwriters agreed to purchase the Shares from us pursuant to an underwriting agreement at a price of $11.045 per share. Under the terms of the underwriting agreement, we granted the underwriters a 30-day option to purchase up to an additional 638,297 option shares at the Offering Price, less underwriting discounts and commissions. On January 30, 2015, the underwriters exercised their option to purchase the option shares in full. The gross proceeds to us from the sale of the Shares and the option shares were approximately $57.5 million and we received net proceeds of approximately $53.8 million after deducting underwriting discounts and commissions and aggregate offering expenses payable by us. The Offering closed on February 4, 2015.

 

As of March 31, 2016, we had cash and cash equivalents of $68.7 million.

 

Credit facilities

 

The Company had no available credit facilities as of March 31, 2016.

 

 

  

Summary of cash flows

 

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

 

		As of and for the three months ended March 31,
(in thousands)		2016				2015
Cash and cash equivalents, excluding restricted cash		$	68,731			$	94,027
Accounts receivable, net			8,427				7,234
Net cash used in operating activities		$	(13,982	)		$	(8,668	)
Net cash used in investing activities			(731	)			(1,008	)
Net cash (used in) provided by financing activities			(8	)			53,732
Effect of exchange rate changes on cash and cash equivalents			(263	)			(194	)
Net (decrease) increase in cash and cash equivalents, excluding restricted cash		$	(14,984	)		$	43,862

 

Cash flows for the three months ended March 31, 2016 and 2015

 

Operating activities

 

Net cash used in operating activities was $14.0 million during the three months ended March 31, 2016, which included a net loss of $7.0 million, non-cash items of $1.7 million, and cash used for changes in operating assets and liabilities of $8.7 million. The non-cash items consisted of share-based compensation expense of $1.1 million, depreciation and amortization expense of $581,000, and a $55,000 expense on the change in fair value of contingent purchase price consideration. The cash used for changes in operating assets and liabilities included a decrease in accounts payable and accrued liabilities of $4.4 million, a decrease in deferred income of $1.5 million, an increase in inventory of $1.5 million, and an increase in accounts receivable, net of $1.5 million, partially offset by a decrease in prepaid expenses and other assets of $128,000. The decrease in accounts payable and accrued liabilities was largely due to payments in the first three months of 2016 for royalties on intellectual property and bonuses that were accrued for at December 31, 2015, as well as the timing of payments. The decrease in deferred income related to a change in the process used to determine pricing for certain sales to customers in Japan that has resulted in those sales being recorded upon shipment. Inventory increased due to timing and accounts receivable, net increased as a reflection of growing sales. The decrease in prepaid expenses and other assets reflects the timing of certain payments.

 

Net cash used in operating activities was $8.7 million during the three months ended March 31, 2015, which included a net loss of $6.3 million, non-cash items of $1.4 million, and cash used for changes in operating assets and liabilities of $3.7 million. The non-cash items consisted of share-based compensation expense of $875,000, depreciation and amortization expense of $453,000 and change in fair value of contingent purchase price consideration of $47,000. The cash used for changes in operating assets and liabilities included a decrease in accounts payable and accrued liabilities of $1.8 million, an increase in prepaid expenses and other assets of $1.7 million, and an increase in accounts receivable, net of $627,000, partially offset by a decrease in inventory of $457,000. The decrease in accounts payable and accrued liabilities was largely due to payments in the first three months of 2015 for royalties on intellectual property and bonuses that were accrued for at December 31, 2014, as well as the timing of payments. The increase in prepaid expenses and other assets reflects the timing of certain payments. The increase in accounts receivable, net reflects growing sales. Inventory decreased due to timing of shipments.

 

Investing activities

 

Net cash used in investing activities was $731,000 and $1.0 million for the three-month periods ended March 31, 2016 and 2015, respectively. The cash used in 2016 consisted of purchases of property and equipment. The cash used in 2015 consisted of $1.2 million used for purchases of property and equipment, partially offset by a $200,000 decrease in restricted cash.

 

  

Financing activities

 

Net cash used in financing activities was $8,000 during the three months ended March 31, 2016. Net cash provided by financing activities was $53.7 million during the three months ended March 31, 2015 due mainly to net proceeds of approximately $53.8 million received in the Offering that closed on February 4, 2015.

 

Employees

 

As of March 31, 2016, we had 296 employees. None of our employees is represented by a labor union. However, we have one employee in Belgium covered under a collective bargaining agreement. We have not experienced any work stoppages and we believe our employee relations are good.

 

Recent accounting pronouncements

 

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers, or ASU 2014-09, which converges the FASB and the International Accounting Standards Board standards on revenue recognition. Under ASU 2014-09, a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance will be effective for us for annual and interim periods beginning after December 15, 2017. Early adoption is permitted for annual and interim periods beginning after December 15, 2016. The guidance allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. We are currently evaluating ASU 2014-09 and have not yet determined how it may impact our financial position or results of operations and related disclosures.

 

In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, or ASU 2016-10, which amends the guidance in ASU 2014-09 with respect to certain implementation issues on identifying performance obligations and accounting for licenses of intellectual property. The new guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption through a cumulative adjustment. We are currently evaluating ASU 2016-10 and have not yet determined how it may impact our financial position or results of operations and related disclosures.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern, or ASU 2014-15. ASU 2014-15 will be effective for fiscal years and interim periods beginning after December 15, 2016 and early application is permitted. ASU 2014-15 requires that management evaluate at each annual and interim reporting period whether there is a substantial doubt about an entity’s ability to continue as a going concern within one year of the date that the financial statements are issued. We do not expect that the application of ASU 2014-15 will have an impact on the presentation of our results of operations, financial position or disclosures.

 

In April 2015, the FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, or ASU 2015-05. ASU 2015-05 amends existing accounting guidance to provide explicit guidance related to a customer’s accounting for fees paid in a cloud computing arrangement. Under the guidance, cloud computing arrangements that include a software license would be accounted for consistent with the acquisition of other software licenses. Conversely, cloud computing arrangements that do not include a software license would be accounted for as a service contract. We adopted ASU 2015-05 effective January 1, 2016 and there was no impact on the presentation of our results of operations, financial position or disclosures.

 

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, or ASU 2015-11. ASU 2015-11 requires that an entity should measure inventory within the scope of ASU 2015-11 at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance will be effective for the Company for annual and interim periods beginning after December 15, 2016. The amendments in ASU 2015-11 are to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently evaluating ASU 2015-11 and have not yet determined how it may impact our financial position or results of operations and related disclosures.

 

 

  

In February 2016, the FASB issued ASU 2016-02, Leases, or ASU 2016-02. ASU 2016-02 requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting. The guidance also eliminates real estate-specific provisions for all entities. The new guidance will be effective for us for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating ASU 2016-02 and have not yet determined how it may impact our financial position or results of operations and related disclosures.

 

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09. ASU 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The new guidance will be effective for us for annual and interim periods after December 15, 2016. Early adoption is permitted. We are currently evaluating ASU 2016-09 and have not yet determined how it may impact our financial position or results of operations and related disclosures.

 

Under the U.S. Jumpstart our Business Startups Act, or the JOBS Act, emerging growth companies that become public can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

The Company’s exposure to market risk from interest rate fluctuations, capital market fluctuations, and foreign currency exchange rate fluctuations has not changed materially from its exposure at year-end 2015 as described in Item 7A of the Company’s 2015 Form 10-K.

 

Item 4. Controls and procedures

 

(a) Evaluation of disclosure controls and procedures

 

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

 

(b) Changes in internal control over financial reporting

 

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

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On August 10, 2015, Oxford Immunotec Limited, a wholly-owned subsidiary of Oxford Immunotec Global PLC, filed suit in the United States District Court for the District of Massachusetts against Qiagen N.V., Qiagen Inc., Quest Diagnostics LLC, and Laboratory Corporation of America Holdings alleging claims of patent infringement and seeking monetary and injunctive relief. The complaint alleges that the defendants’ manufacture, sale and/or use of the QuantiFERON-TB Gold test infringes patents owned by Oxford Immunotec Limited. The defendants timely responded to the complaint in early October 2015 and challenged the validity of the patents upon which the complaint is based. The defendants argued that the Company’s patents are invalid under U.S. law because they claim naturally occurring products or processes. The Company vigorously opposed the defendants’ motion and the matter remains pending. The Company can provide no assurances as to the likely outcome of the litigation.

 

Item 1A. Risk Factors

 

There have been no material changes in the risk factors described in “Item 1A. Risk Factors” of the Company’s 2015 Form 10-K.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

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

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

		OXFORD IMMUNOTEC GLOBAL PLC
Date: May 4, 2016		/s/ Peter Wrighton-Smith, Ph.D.
		Peter Wrighton-Smith, Ph.D.
		Chief Executive Officer and Director
		(Principal Executive Officer)

 

Date: May 4, 2016		/s/ Richard M. Altieri
		Richard M. Altieri
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

 

 

 

EXHIBIT INDEX

Exhibit No.		Description
3.1		Articles of Association of the Registrant (Filed as Exhibit 3.1 to our Current Report on Form 8-K on June 18, 2014 and incorporated herein by reference.)
10.1		Amendment to Marketing Authorization Holder Agreement dated April 1, 2016 between Riken Genesis Co., Ltd. and Oxford Immunotec Limited
10.2		Amendment to Supply Agreement dated April 5, 2016 between MicroCoat Biotechnologie GmbH and Oxford Immunotec Limited
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		The following materials from the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed consolidated balance sheets at March 31, 2016 and December 31, 2015; (ii) Condensed consolidated statements of operations for the three months ended March 31, 2016 and 2015; (iii) Condensed consolidated statements of comprehensive loss for the three months ended March 31, 2016 and 2015; (iv) Condensed consolidated statements of cash flows for the three months ended March 31, 2016 and 2015; and (v) Notes to unaudited condensed consolidated financial statements

 

 

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