In June 2019, Curetis drew down a third tranche of €5.0 million from the EIB. In line with all prior tranches, the majority of interest is also deferred until repayment upon maturity. In return for the EIB waiving the condition precedent of a minimum cumulative equity capital raised of €15.0 million to disburse this €5.0 million tranche, the parties agreed on a 2.1% PPI. Upon maturity of the tranche, not before approximately mid-2024 (and no later than mid-2025), the EIB would be entitled to an additional payment that is equity-linked and equivalent to 2.1% of the then total valuation of Curetis N.V. As part of an amendment between the Company and the EIB on July 9, 2020, the parties adjusted the PPI percentage applicable to the third EIB tranche of €5.0 million, which was funded in June 2019, from its original 2.1% PPI in Curetis N.V.’s equity value upon maturity to a new 0.3% PPI in OpGen’s equity value upon maturity. This right constitutes an embedded derivative, which is separated and measured at fair value with changes being accounted for through income or loss.
The debt was measured and recognized at fair value as of the acquisition date. The fair value of the EIB debt was approximately $15.8 million as of the acquisition date. The resulting debt discount is being amortized over the life of the EIB debt as an increase to interest expense.
On May 23, 2022, the Company and the EIB entered into a Waiver and Amendment Letter (the “2022 EIB Amendment”) relating to the amendment of the EIB loan facility, between the EIB and Curetis pursuant to which Curetis borrowed an aggregate amount of €18.0 million in three tranches. The 2022 EIB Amendment restructured the first tranche of approximately €13.35 million (including accumulated and deferred interest) of the Company’s outstanding indebtedness with the EIB. Pursuant to the 2022 EIB Amendment, the Company repaid €5.0 million to the EIB in April 2022. The Company also agreed, among other things, to amortize the remainder of the debt tranche over the twelve-month period beginning in May 2022. The Amendment also provides for an increase of the PPI applicable to the third tranche under the loan facility from 0.3% to 0.75% beginning in June 2024. The terms of the second and third tranches of the Company’s indebtedness of €3.0 million and €5.0 million, respectively, plus accumulated deferred interest remain unchanged pursuant to the 2022 EIB Amendment. As the effective borrowing rate under the amended agreement is less than the effective borrowing rate under the previous agreement, a concession is deemed to have been granted under ASC 470-60. As a concession has been granted, the agreement was accounted for as a troubled debt restructuring under ASC 470-60. The amendment did not result in a gain on restructuring as the future undiscounted cash outflows required under the amended agreement exceed the carrying value of the debt immediately prior to the amendment.
As of June 30, 2022, the outstanding borrowings under all tranches were €16,392,331 ($17,026,715), including deferred interest payable at maturity of €1,634,551 ($1,697,808).
PPP
On April 22, 2020, the Company entered into a Term Note (the “Company Note”) with Silicon Valley Bank (the “Bank”) pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. The Company’s wholly-owned subsidiary, Curetis USA Inc. (“Curetis USA” and collectively with the Company, the “Borrowers”), also entered into a Term Note with the Bank (the “Subsidiary Note,” and collectively with the Company Note, the “Notes”). The Notes were dated April 22, 2020. The principal amount of the Company Note was $879,630, and the principal amount of the Subsidiary Note was $259,353.
In accordance with the requirements of the CARES Act, the Borrowers used the proceeds from the Notes in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrued on the Notes at the rate of 1.00% per annum. The Borrowers applied for forgiveness of amounts due under the Notes, in an amount equal to the sum of qualified expenses under the PPP, which include payroll costs, rent obligations, and covered utility payments incurred during the twenty-four weeks following disbursement under the Notes. The entire proceeds were used under the Notes for such qualifying expenses. The Company Note was forgiven in November 2020. In May 2021, the Subsidiary Note was forgiven.
Total interest expense (including amortization of debt discounts and financing fees) on all debt instruments was $779,912 and $1,198,169 for the three months ended June 30, 2022 and 2021, respectively. Total interest expense (including accretion of fair value to book value and amortization of debt discounts and financing fees) on all debt instruments was $2,049,493 and $2,363,151 for the six months ended June 30, 2022 and 2021, respectively.
Note 7 – Stockholders’ equity
As of June 30, 2022, the Company had 100,000,000 shares of authorized common stock and 46,623,618 shares issued and outstanding, and 10,000,000 shares of authorized preferred stock, of which none were issued or outstanding
Following receipt of approval from stockholders at a special meeting of stockholders held on December 8, 2021, the Company filed an amendment to its Amended and Restated Certificate of Incorporation to increase the authorized shares of common stock from 50,000,000 to 100,000,000 shares.
Following receipt of approval from stockholders at a special meeting of stockholders held on January 17, 2018, the Company filed an amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split of the issued and outstanding shares of common stock, at a ratio of one share for twenty-five shares. Additionally, following receipt of approval from stockholders at a special meeting of stockholders held on August 22, 2019, the Company filed an additional amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split of the issued and outstanding shares of common stock, at a ratio of one share for twenty shares. All share amounts and per share prices in this Quarterly Report have been adjusted to reflect the reverse stock splits.
On June 24, 2022, the Company entered into the 2022 ATM Agreement with Wainwright, as a sales agent, pursuant to which the Company may offer and sell from time to time in an “at the market offering”, at its option, up to an aggregate of $10.65 million of shares of the Company's common stock through the sales agent. As of June 30, 2022, the Company had not sold any shares under the 2022 ATM Offering (see Note 11).
On December 8, 2021, the Company received stockholder approval to increase the number of authorized shares of common stock of the Company. As of December 31, 2021, all 150,000 shares of convertible preferred stock were converted into an aggregate of 7,500,000 shares of common stock. The October 2021 Offering raised aggregate net proceeds of $13.9 million, and gross proceeds of $15.0 million.
On October 18, 2021, the Company closed the October 2021 Offering with a single healthcare-focused institutional investor of 150,000 shares of convertible preferred stock and warrants to purchase up to an aggregate of 7,500,000 shares of common stock. The shares of preferred stock had a stated value of $100 per share and were converted into an aggregate of 7,500,000 shares of common stock at a conversion price of $2.00 per share after the Company received stockholder approval for an increase to its number of authorized shares of common stock, which approval occurred at the Company’s special meeting of stockholders held in December 2021. The warrants have an exercise price of $2.05 per share, will become exercisable six months following the date of issuance, and will expire five years following the initial exercise date. The warrants are classified as permanent equity at June 30, 2022. In connection with the issuance of convertible preferred stock, the Company recognized a beneficial conversion feature of $7,166,752 as a deemed dividend to the preferred stockholders in the fourth quarter of 2021.
On March 9, 2021, the Company entered into an Exercise Agreement with the Holder from our 2020 PIPE financing. Pursuant to the Exercise Agreement, in order to induce the Holder to exercise all of the remaining 4,842,615 Existing Warrants for cash, pursuant to the terms of and subject to beneficial ownership limitations contained in the Existing Warrants, the Company agreed to issue to the Holder, New Warrants to purchase 0.65 shares of common stock for each share of common stock issued upon such exercise of the remaining Existing Warrants pursuant to the Exercise Agreement for an aggregate of 3,147,700 New Warrants. The terms of the New Warrants are substantially similar to those of the Existing Warrants, except that the New Warrants have an exercise price of $3.56. The New Warrants are immediately exercisable and will expire five years from the date of the Exercise Agreement. The Holder paid an aggregate of $255,751 to the Company for the purchase of the New Warrants. The Company received aggregate gross proceeds before expenses of approximately $9.65 million from the exercise of the remaining Existing Warrants held by the Holder and the payment of the purchase price for the New Warrants. The Company recognized approximately $7.8 million of non-cash warrant inducement expense during year ended December 31, 2021 related to this transaction representing the fair value of the New Warrants issued to induce the exercise. The fair values were calculated using the Black-Scholes option pricing model.
On February 11, 2021, the Company closed the February 2021 Offering with a single U.S.-based, healthcare-focused institutional investor for the purchase of (i) 2,784,184 shares of common stock and (ii) 5,549,149 pre-funded warrants, with each pre-funded warrant exercisable for one share of common stock. The Company also issued to the investor, in a concurrent private placement, unregistered common warrants to purchase 4,166,666 shares of the Company’s common stock. Each share of common stock and accompanying common warrant were sold together at a combined offering price of $3.00, and each pre-funded warrant and accompanying common warrant were sold together at a combined offering price of $2.99. The pre-funded warrants are immediately exercisable, at an exercise price of $0.01, and may be exercised at any time until all of the pre-funded warrants are exercised in full. The common warrants will have an exercise price of $3.55 per share, will be exercisable commencing on the six-month anniversary of the date of issuance, and will expire five and one-half (5.5) years from the date of issuance. The February 2021 Offering raised aggregate net proceeds of $23.5 million, and gross proceeds of $25.0 million. As of December 31, 2021, all pre-funded warrants issued in the February 2021 Offering have been exercised.
On April 1, 2020, the Company acquired all of the shares of Curetis GmbH, and certain other assets and liabilities of Curetis N.V., as further described in Note 1, and paid, as the sole consideration, 2,028,208 shares of the Company’s common stock to the Seller.
On February 11, 2020, the Company entered into an ATM Agreement with Wainwright, which was amended and restated on November 13, 2020 to add BTIG, LLC as a sales agent, pursuant to which the Company could offer and sell from time to time in an “at the market offering,” at its option, up to an aggregate of $22.1 million of shares of the Company's common stock through the sales agents. During the year ended December 31, 2021, the Company sold 680,000 shares of its common stock under the 2020 ATM Offering resulting in aggregate net proceeds to the Company of approximately $1.48 million, and gross proceeds of $1.55 million. The Company terminated the ATM Agreement in June 2022 in conjunction with the execution of the 2022 ATM Agreement.
Stock options
In 2008, the Company adopted the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), pursuant to which the Company’s Board of Directors could grant either incentive or non-qualified stock options or shares of restricted stock to directors, key employees, consultants and advisors.
In April 2015, the Company adopted, and the Company’s stockholders approved, the 2015 Equity Incentive Plan (the “2015 Plan”); the 2015 Plan became effective upon the execution and delivery of the underwriting agreement for the Company’s initial public offering in May 2015. Following the effectiveness of the 2015 Plan, no further grants will be made under the 2008 Plan. The 2015 Plan provides for the granting of incentive stock options within the meaning of Section 422 of the Code to employees and the granting of non-qualified stock options to employees, non-employee directors and consultants. The 2015 Plan also provides for the grants of restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and stock payments to employees, non-employee directors and consultants.
Under the 2015 Plan, the aggregate number of shares of the common stock authorized for issuance may not exceed (1) 2,710 plus (2) the sum of the number of shares subject to outstanding awards under the 2008 Plan as of the 2015 Plan’s effective date, that are subsequently forfeited or terminated for any reason before being exercised or settled, plus (3) the number of shares subject to vesting restrictions under the 2008 Plan as of the 2015 Plan’s effective date that are subsequently forfeited. In addition, the number of shares that have been authorized for issuance under the 2015 Plan will be automatically increased on the first day of each fiscal year beginning on January 1, 2016 and ending on (and including) January 1, 2025, in an amount equal to the lesser of (1) 4% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, or (2) another lesser amount determined by the Company’s Board of Directors. Following Board of Director approval, 1,858,010 shares were automatically added to the 2015 Plan in 2022. Shares subject to awards granted under the 2015 Plan that are forfeited or terminated before being exercised or settled, or are not delivered to the participant because such award is settled in cash, will again become available for issuance under the 2015 Plan. However, shares that have actually been issued shall not again become available unless forfeited. As of June 30, 2022, 1,284,296 shares remain available for issuance under the 2015 Plan.
On September 30, 2020, the Company held its 2020 Annual Meeting of Stockholders (the “Annual Meeting”). At the Annual Meeting, stockholders of the Company voted to approve, among other things, a plan under which stock options to purchase an aggregate of 1,300,000 shares of the Company’s common stock would be made by the Board of Directors of the Company outside of the stockholder-approved equity incentive plan to its executive officers and non-employee directors (the “2020 Stock Options Plan”). The 2020 Stock Options Plan and the grant made thereunder were approved by the Board of Directors on August 6, 2020, subject to receipt of stockholder approval at the Annual Meeting. The aggregate number of shares of the Company’s common stock authorized for issuance is 1,300,000 shares of common stock and all 1,300,000 stock options were issued on September 30, 2020. Shares subject to awards granted under the 2020 Stock Options Plan that are forfeited or terminated before being exercised will not be available for re-issuance under the 2020 Stock Options Plan. As of June 30, 2022, no shares remain available for issuance under the 2020 Stock Options Plan.
In connection with the appointment of Albert Weber as Chief Financial Officer, OpGen granted Mr. Weber an inducement grant of stock options to purchase an aggregate of 210,000 shares of OpGen’s common stock with a grant date of January 3, 2022. The equity award was granted as a component of Mr. Weber’s employment compensation and was granted as an inducement material to his acceptance of employment with OpGen. The options have an exercise price of $1.08, a ten-year term and a vesting schedule of 25% vesting of the award on the first annual anniversary of the date of grant and then 6.25% vesting each quarter thereafter over three additional years. The award is subject to Mr. Weber’s continued service with OpGen through the applicable vesting dates.
Replacement awards
In connection with the acquisition of Curetis, the Company issued equity awards to Curetis employees consisting of stock options (“replacement awards”) in exchange for their Curetis equity awards. The replacement awards consisted of 134,371 stock options with a weighted average grant date fair value of $1.68. The terms of these replacement awards are substantially similar to the original Curetis equity awards. The fair value of the replacement awards for services rendered through April 1, 2020, the acquisition date, was recognized as a component of the purchase consideration, with the remaining fair value of the replacement awards related to the post-combination services recorded as stock-based compensation over the remaining vesting period.
For the three and six months ended June 30, 2022 and 2021, the Company recognized share-based compensation expense as follows:
| | | Three months ended June 30, | | | Six months ended June 30, | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| Cost of services | | $ | 8,266 | | | $ | 2,944 | | | $ | 11,101 | | | $ | 4,346 | |
| Research and development | | | 73,981 | | | | 67,783 | | | | 140,979 | | | | 102,756 | |
| General and administrative | | | 138,438 | | | | 172,790 | | | | 279,320 | | | | 314,781 | |
| Sales and marketing | | | 36,718 | | | | 18,031 | | | | 67,622 | | | | 29,335 | |
| | | $ | 257,403 | | | $ | 261,548 | | | $ | 499,022 | | | $ | 451,218 | |
No income tax benefit for share-based compensation arrangements was recognized in the condensed consolidated statements of operations and comprehensive loss due to the Company’s net loss position.
The Company granted no options during the three months ended June 30, 2022. During the three months ended June 30, 2022, 7,691 options were forfeited, and 28,367 options expired. The Company granted 542,500 options during the six months ended June 30, 2022. During the six months ended June 30, 2022, 10,191 options were forfeited, and 29,903 options expired.
The Company had total stock options to acquire 2,215,755 shares of common stock outstanding at June 30, 2022 under all of its equity compensation plans.
Restricted stock units
The Company granted 60,000 restricted stock units during the three months ended June 30, 2022, and 65,868 restricted stock units vested and 7,826 were forfeited. The Company granted 730,572 restricted stock units during the six months ended June 30, 2022, and 173,368 restricted stock units vested and 10,402 were forfeited. The Company had 833,066 total restricted stock units outstanding at June 30, 2022.
Stock purchase warrants
At June 30, 2022 and December 31, 2021, the following warrants to purchase shares of common stock were outstanding:
| | | | | | | | | | | | | | Outstanding at | |
| | Issuance | | | | Exercise Price | | | | Expiration | | | | June 30, 2022 (1) | | | | December 31, 2021 (1) | |
| | February 2015 | | | $ | 3,300.00 | | | | February 2025 | | | | 451 | | | | 451 | |
| | June 2017 | | | $ | 390.00 | | | | June 2022 | | | | — | | | | 938 | |
| | July 2017 | | | $ | 345.00 | | | | July 2022 | | | | 318 | | | | 318 | |
| | July 2017 | | | $ | 250.00 | | | | July 2022 | | | | 2,501 | | | | 2,501 | |
| | July 2017 | | | $ | 212.60 | | | | July 2022 | | | | 50,006 | | | | 50,006 | |
| | February 2018 | | | $ | 81.25 | | | | February 2023 | | | | 9,232 | | | | 9,232 | |
| | February 2018 | | | $ | 65.00 | | | | February 2023 | | | | 92,338 | | | | 92,338 | |
| | October 2019 | | | $ | 2.00 | | | | October 2024 | | | | 354,000 | | | | 354,000 | |
| | October 2019 | | | $ | 2.60 | | | | October 2024 | | | | 235,000 | | | | 235,000 | |
| | November 2020 | | | $ | 2.52 | | | | May 2026 | | | | 242,130 | | | | 242,130 | |
| | February 2021 | | | $ | 3.55 | | | | August 2026 | | | | 4,166,666 | | | | 4,166,666 | |
| | February 2021 | | | $ | 3.90 | | | | August 2026 | | | | 416,666 | | | | 416,666 | |
| | March 2021 | | | $ | 3.56 | | | | March 2026 | | | | 3,147,700 | | | | 3,147,700 | |
| | October 2021 | | | $ | 2.05 | | | | April 2027 | | | | 7,500,000 | | | | 7,500,000 | |
| | | | | | | | | | | | | | 16,217,008 | | | | 16,217,946 | |
The warrants listed above were issued in connection with various debt, equity or development contract agreements.
| (1) | Warrants to purchase fractional shares of common stock resulting from the reverse stock split on August 22, 2019 were rounded up to the next whole share of common stock on a holder by holder basis. |
Note 8 – Commitments and Contingencies
Registration and other stockholder rights
In connection with the various investment transactions, the Company entered into certain registration rights agreements with stockholders, pursuant to which the investors were granted certain demand registration rights and/or piggyback and/or resale registration rights in connection with subsequent registered offerings of the Company’s common stock.
Supply agreements
In June 2017, the Company entered into an agreement with Life Technologies Corporation, a subsidiary of Thermo Fisher Scientific (“LTC”), to supply the Company with Thermo Fisher Scientific’s QuantStudio 5 Real-Time PCR Systems (“QuantStudio 5”) to be used to run OpGen’s Acuitas AMR Gene Panel tests. Under the terms of the agreement, the Company must notify LTC of the number of QuantStudio 5s that it commits to purchase in the following quarter. As of June 30, 2022, the Company had acquired twenty-four QuantStudio 5s including none during the three and six months ended June 30, 2022. As of June 30, 2022, the Company has not committed to acquiring additional QuantStudio 5s in the next three months.
Curetis places frame-work orders for Unyvero Systems and for raw materials for its cartridge manufacturing to ensure availability during commercial ramp-up-phase and also to gain volume-scale-effects with regards to purchase prices. Some of the electronic parts used for the production of Unyvero Systems have lead times of several months, hence it is necessary to order such systems with long-term framework-orders to ensure the demands from the market are covered. The aggregate purchase commitments over the next twelve months are approximately $0.5 million.
COVID-19 Impact
In December 2019 and early 2020, the coronavirus known as COVID-19 was reported to have surfaced in China. The spread of this virus including its variants and mutations globally in 2020, 2021 as well as into 2022 has caused significant business disruption domestically in the United States and in Europe, as well as China, the areas in which the Company primarily operates or has significant business interest. While the disruption is currently expected to be temporary, such disruption is still ongoing and there remains considerable uncertainty around the duration of this disruption. Therefore, while the Company expects that this matter will continue to impact the Company’s financial condition, results of operations, or cash flows, the extent of the financial impact and duration cannot be reasonably estimated at this time.
Note 9 – Leases
The following table presents the Company’s ROU assets and lease liabilities as of June 30, 2022 and December 31, 2021:
| Lease Classification | | June 30, 2022 | | | December 31, 2021 | |
| ROU Assets: | | | | | | | | |
| Operating | | $ | 1,582,325 | | | $ | 1,814,396 | |
| Financing | | | 19,660 | | | | 90,467 | |
| Total ROU assets | | $ | 1,601,985 | | | $ | 1,904,863 | |
| Liabilities | | | | | | | | |
| Current: | | | | | | | | |
| Operating | | $ | 394,027 | | | $ | 459,792 | |
| Finance | | | 16,731 | | | | 43,150 | |
| Noncurrent: | | | | | | | | |
| Operating | | | 2,721,233 | | | | 2,977,402 | |
| Finance | | | 1,962 | | | | 3,644 | |
| Total lease liabilities | | $ | 3,133,953 | | | $ | 3,483,988 | |
Maturities of lease liabilities as of June 30, 2022 by fiscal year are as follows:
| Maturity of Lease Liabilities | | | Operating | | | Finance | | | Total | |
| | 2022 (Six months) | | | $ | 329,771 | | | $ | 15,336 | | | $ | 345,107 | |
| | 2023 | | | | 615,068 | | | | 3,364 | | | | 618,432 | |
| | 2024 | | | | 624,663 | | | | 280 | | | | 624,943 | |
| | 2025 | | | | 529,481 | | | | — | | | | 529,481 | |
| | 2026 | | | | 378,279 | | | | — | | | | 378,279 | |
| | Thereafter | | | | 2,126,368 | | | | — | | | | 2,126,368 | |
| | Total lease payments | | | | 4,603,630 | | | | 18,980 | | | | 4,622,610 | |
| | Less: Interest | | | | (1,488,370 | ) | | | (287 | ) | | | (1,488,657 | ) |
| | Present value of lease liabilities | | | $ | 3,115,260 | | | $ | 18,693 | | | $ | 3,133,953 | |
Condensed consolidated statements of operations classification of lease costs as of the three and six months ended June 30, 2022 and 2021 are as follows:
| | | | | Three months ended June 30, | | | Six months ended June 30, | |
| Lease Cost | | Classification | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| Operating | | Operating expenses | | $ | 152,784 | | | $ | 298,331 | | | $ | 327,699 | | | $ | 646,369 | |
| Finance: | | | | | | | | | | | | | | | | | | |
| Amortization | | Operating expenses | | | 31,096 | | | | 111,464 | | | | 70,807 | | | | 222,420 | |
| Interest expense | | Other expenses | | | 509 | | | | 4,491 | | | | 1,414 | | | | 11,350 | |
| Total lease costs | | | | $ | 184,389 | | | $ | 414,286 | | | $ | 399,920 | | | $ | 880,139 | |
Other lease information as of June 30, 2022 is as follows:
| Other Information | | Total | |
| Weighted average remaining lease term (in years) | | | | |
| Operating leases | | | 7.7 | |
| Finance leases | | | 0.6 | |
| Weighted average discount rate: | | | | |
| Operating leases | | | 9.2 | % |
| Finance leases | | | 7.3 | % |
Supplemental cash flow information as of the six months ended June 30, 2022 and 2021 is as follows:
| Supplemental Cash Flow Information | | 2022 | | | 2021 | |
| Cash paid for amounts included in the measurement of lease liabilities | | | | | | | | |
| Cash used in operating activities | | | | | | | | |
| Operating leases | | $ | 327,699 | | | $ | 646,369 | |
| Finance leases | | $ | 1,414 | | | $ | 11,350 | |
| Cash used in financing activities | | | | | | | | |
| Finance leases | | $ | 28,101 | | | $ | 177,742 | |
| ROU assets obtained in exchange for lease obligations: | | | | | | | | |
| Operating leases | | $ | — | | | $ | 748,294 | |
Note 10 – License agreements, research collaborations and development agreements
NYSDOH
In 2018, the Company announced a collaboration with the New York State Department of Health (“DOH”) and ILÚM Health Solutions, LLC (“ILÚM”), a wholly-owned subsidiary of Merck’s Healthcare Services and Solutions division, to develop a state-of-the-art research program to detect, track, and manage antimicrobial-resistant infections at healthcare institutions statewide. ILÚM has since been acquired by Infectious Disease Connect, Inc. (“IDC”), a University of Pittsburgh Medical Center (“UPMC”) Enterprise company. The Company was working together with DOH’s Wadsworth Center and IDC to continue development of an infectious disease digital health and precision medicine platform that connects healthcare institutions to DOH and uses genomic microbiology for statewide surveillance and control of antimicrobial resistance. As part of the collaboration, the Company received approximately $1.6 million over the 15-month demonstration portion of the project. The demonstration project began in early 2019 and was completed in the first quarter of 2020. In April 2020, the Company began a second-year expansion phase to build on the successes and experience of the first-year pilot phase while focusing on accomplishing the goal of the effort to improve patient outcomes and save healthcare dollars by integrating real-time epidemiologic surveillance with rapid delivery of antibiotic resistance results to care-givers via web-based and mobile platforms. The second-year contract included a quarterly retainer-based project fee as well as volume-dependent per test fees for a total contract value of up to $450,000 to OpGen. In April 2021, the Company extended its second-year expansion phase by another six months through September 30, 2021 at which point the project was completed and has ended. The six-month extension and expansion contract included a quarterly retainer-based project fee as well as volume-dependent per test fees for a total contract value of up to an additional $540,000. During the three months ended June 30, 2022 and 2021, the Company recognized $0 and $237,000 of revenue related to the contract, respectively. During the six months ended June 30, 2022 and 2021, the Company recognized $0 and $345,000 of revenue related to the contract, respectively.
Sandoz
In December 2018, Ares Genetics entered into a service frame agreement with Sandoz International GmbH (“Sandoz”), to leverage Ares Genetics’ database on the genetics of antibiotic resistance, ARESdb, and the ARES Technology Platform for Sandoz’ anti-infective portfolio.
Under the terms of the framework agreement, which had an initial term of 36 months that was subsequently extended to January 31, 2025, Ares Genetics and Sandoz intend to develop a digital anti-infectives platform, combining established microbiology laboratory methods with advanced bioinformatics and artificial intelligence methods to support drug development and life-cycle management. The collaboration, in the short- to mid-term, aims to both rapidly and cost-effectively re-purpose existing antibiotics and design value-added medicines with the objective of expanding indication areas and to overcome antibiotic resistance, in particular with regards to infections with bacteria that have already developed resistance against multiple treatment options. In the longer-term, the platform is expected to enable surveillance for antimicrobial resistant pathogens to inform antimicrobial stewardship and the development of novel anti-infectives that are less prone to encounter resistance and thereby preserve antibiotics as an effective treatment option.
Qiagen
On February 18, 2019, Ares Genetics and Qiagen GmbH, or Qiagen, entered into a strategic licensing agreement for ARESdb and AREStools, in the area of antimicrobial resistance (“AMR”) research. The agreement has a term of 20 years and may be terminated by Qiagen for convenience with 180 days written notice.
Ares Genetics has retained the rights to use ARESdb and AREStools for AMR research, customized bioinformatics services, and for the development of specific AMR assays and applications for the Curetis Group (including Ares Genetics), as well as third parties (e.g., other diagnostics companies or partners in the pharmaceutical industry). As the Qiagen research offering is expected to also enable advanced molecular diagnostic services and products, Qiagen’s customers may obtain a diagnostic use license from Ares Genetics.
Under the terms of the original agreement, Qiagen, in exchange for a moderate six figure up-front licensing payment, has received an exclusive RUO license to develop and commercialize general bioinformatics offerings and services for AMR research use only, based on Ares Genetics’ database on the genetics of antimicrobial resistance, ARESdb, as well as on the ARES bioinformatics AMR toolbox, AREStools. Under the agreement, the parties had agreed to a mid-single digit percentage royalty rate on Qiagen net sales, which is subject to a minimum royalty rate that steps up upon certain achieved milestones, which is payable to Ares Genetics. The parties also agreed to further modest six figure milestone payments upon certain product launches. The contract was subsequently amended in May 2021 to a non-exclusive license and a flat annual license fee as well as a royalty percentage on potential future panel-based products that are developed by Qiagen.
FISH License
The Company was party to one license agreement with Life Technologies to acquire certain patent rights and technologies related to its FISH product line. Royalties were incurred upon the sale of a product or service which utilizes the licensed technology. The Company terminated this license agreement in October 2020 effective as of June 30, 2021 in conjunction with its announced exit of the FISH business in June 2021. The Company paid a one-time settlement fee of $350,000 and paid a 10% royalty on the sale of eligible products through June 2021 but is no longer subject to any minimum royalty obligations. The Company recognized net royalty expense of $0 for the three months ended June 30, 2022 and 2021, respectively. The Company recognized net royalty expense of $0 and $8,996 for the six months ended June 30, 2022 and 2021, respectively.
Siemens
In 2016, Ares Genetics acquired the GEAR assets from Siemens Technology Accelerator GmbH (“STA”), providing the original foundation to ARESdb. Under the agreement with STA, Ares Genetics incurs royalties on revenues from licensed product sales or sublicensing proceeds. Royalty rates under the Siemens agreement range from 1.3% to 40% depending on the specifics of the licenses and rights provided by Ares Genetics to third parties and whether such third parties may have been originally introduced by Siemens to Ares Genetics. The total net royalty expense related to this agreement was $703 and $178 for the three months ended June 30, 2022 and 2021, respectively. The total net royalty expense related to this agreement was $3,482 and $794 for the six months ended June 30, 2022 and 2021, respectively.
Note 11 - Subsequent Events
Subsequent to June 30, 2022, the Company sold 1,703,324 shares of its common stock under the 2022 ATM Offering resulting in aggregate gross proceeds to the Company of approximately $1.0 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this quarterly report on Form 10-Q. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under Part II. Item 1A. “Risk Factors” of this quarterly report on Form 10-Q and Part 1. Item 1A of our annual report on Form 10-K for the year ended December 31, 2021.
Overview
OpGen, Inc. (the “Company”) is a precision medicine company harnessing the power of molecular diagnostics and informatics to help combat infectious disease. Along with our subsidiaries, Curetis GmbH and Ares Genetics GmbH, we are developing and commercializing molecular microbiology solutions helping to guide clinicians with more rapid and actionable information about life threatening infections to improve patient outcomes and decrease the spread of infections caused by multidrug-resistant microorganisms, or MDROs. Our current product portfolio includes Unyvero, Acuitas AMR Gene Panel, and the ARES Technology Platform including ARESdb, NGS technology and AI-powered bioinformatics solutions for antibiotic response prediction including ARESiss, ARESid, and AREScloud, as well as the Curetis CE-IVD-marked PCR-based SARS-CoV-2 test kit. The Company exited its FISH business in early 2021, and the Company's license agreement with Life Technologies, a subsidiary of Thermo Fisher, was terminated as of June 30, 2021.
On April 1, 2020, the Company completed a business combination transaction whereby the Company acquired Curetis GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany (“Curetis GmbH”). Curetis is an early commercial-stage molecular diagnostics (MDx) company focused on rapid infectious disease testing for hospitalized patients with the aim to improve the treatment of hospitalized, critically ill patients with suspected microbial infection and has developed the innovative Unyvero molecular diagnostic solution for comprehensive infectious disease testing. The business combination transaction was designed principally to leverage each company’s existing research and development and relationships with hospitals and clinical laboratories to accelerate the sales of both companies’ products and services.
The focus of OpGen is on its combined broad portfolio of products, which includes high impact rapid diagnostics and bioinformatics to interpret AMR genetic data. The Company currently expects to focus on the following products for lower respiratory infection, urinary tract infection and invasive joint infection:
| ● | The Unyvero Lower Respiratory Tract, or LRT, test (e.g., for bacterial pneumonias) is the first U.S. Food and Drug Administration, or FDA, cleared test that can be used for the detection of more than 90% of common causative agents of pneumonia in hospitalized patients. According to the National Center for Health Statistics (2018), pneumonia is a leading cause of admissions to the hospital and is associated with substantial morbidity and mortality. It also increases in elderly patients, transplant, cancer or other immunocompromised patients. The Unyvero LRT automated test detects 19 pathogens within less than five hours, with approximately two minutes of hands-on time and provides clinicians with a comprehensive overview of 10 genetic antibiotic resistance markers. We have commercialized the Unyvero LRT BAL test for testing bronchoalveolar lavage, or BAL, specimens from patients with lower respiratory tract infections following FDA clearance received by Curetis in December 2019. The Unyvero LRT BAL automated test simultaneously detects 20 pathogens and 10 antibiotic resistance markers, and it is the first and only FDA-cleared panel that also includes Pneumocystis jirovecii, a key fungal pathogen often found in immunocompromised patients (such as AIDS and transplant patients) that can be difficult to diagnose, as the 20th pathogen on the panel. We believe the Unyvero LRT and LRT BAL tests have the ability to help address a significant, previously unmet medical need that causes over $10 billion in annual costs for the U.S. healthcare system, according to the Centers for Disease Control, or CDC. |
| ● | Following registration of the Unyvero instrument system as an IVD for the Chinese market in early 2021, we are supporting our strategic partner Beijing Clear Biotech (BCB) in pursuing execution of a supplemental clinical trial with the Unyvero HPN test. As requested by the Chinese regulatory authority NMPA, this study is geared towards generating additional data in China that will complement a larger data set with data from abroad compiled from other clinical and analytical studies performed in the past. Due to continued impact of COVID restrictions in China, this supplementary study has not yet been initiated and OpGen currently does not have visibility on the timelines for such a clinical study to start, given China’s “zero COVID” policies. |
| ● | The Unyvero Urinary Tract Infection, or UTI, test, which is CE-IVD marked in Europe, is currently being made available to laboratories in the United States as a research use only or RUO kit. The test detects a broad range of pathogens as well as antimicrobial resistance markers directly from native urine specimens. We initiated a prospective multi-center clinical trial for the Unyvero UTI in the United States in the third quarter of 2021 and have recently announced enrollment of more than 1,000 patient samples. We currently expect enrollment to be completed in the coming months and expect final data read-out from the UTI clinical trial in H2-2022 for a subsequent FDA submission. |
| ● | The Unyvero Invasive Joint Infection, or IJI, test, which is a variant being developed for the U.S. market, has also been selected for analytical and clinical performance evaluation including clinical trials towards a future U.S. FDA submission. Microbial diagnosis of IJI is difficult because of challenges in sample collection, usually at surgery, and patients being on prior antibiotic therapy which minimizes the chances of recovering viable bacteria. We believe that Unyvero IJI could be useful in identifying pathogens as well as their AMR markers to help guide optimal antibiotic treatment for these patients. |
| ● | On September 30, 2021, we received clearance from the FDA for our Acuitas AMR Gene Panel for bacterial isolates. The Acuitas AMR Gene Panel detects 28 genetic antimicrobial resistance, or AMR, markers in isolated bacterial colonies from 26 different pathogens. We believe the panel provides clinicians with a valuable diagnostic tool that informs about potential antimicrobial resistance patterns early and supports appropriate antibiotic treatment decisions in this indication. We have signed the first two commercial customer contracts for the Acuitas AMR Gene Panel for isolates and have a funnel of several additional commercial contract proposals that we expect to enter into during the coming months. |
| ● | We are also developing novel bioinformatics tools and solutions to accompany or augment our current and potential future IVD products and may seek regulatory clearance for such bioinformatics tools and solutions to the extent they would be required either as part of our portfolio of IVD products or even as a standalone bioinformatics product. |
OpGen has extensive offerings of additional IVD tests including CE-IVD-marked Unyvero tests for hospitalized pneumonia patients who are hospitalized, implant and tissue infections, intra-abdominal infections, complicated urinary tract infections, and blood stream infections. Our portfolio furthermore includes a CE-IVD-marked PCR based rapid test kit for SARS-CoV-2 detection in combination with our PCR compatible universal lysis buffer (PULB).
OpGen’s combined AMR bioinformatics offerings, when and if such products are cleared for marketing, will offer important new tools to clinicians treating patients with AMR infections. OpGen’s subsidiary Ares Genetics’ ARESdb is a comprehensive database of genetic and phenotypic information. ARESdb was originally designed based on the Siemens microbiology strain collection covering resistant pathogens and its development has significantly expanded, as a result of transferring data from the discontinued Acuitas Lighthouse into ARESdb to now cover more than 78,000 bacterial isolates that have been sequenced using NGS technology and tested for susceptibility with applicable antibiotics from a range of over 100 antimicrobial drugs. In the fourth quarter of 2021, Ares Genetics entered into a strategic database access deal with one of the world’s leading microbiology and IVD corporations for their non-exclusive access to approximately 1.1% of Ares Genetics’ total database asset at the time of signing. Ares Genetics continues to explore various discussions with several interested parties in potential future collaboration or licensing opportunities. Additional partnerships with a U.S. CLIA lab, a contract research organization (“CRO”) and a major University Medical Center as well as the Belgian national reference laboratory at UZ Leuven have been initiated and are ongoing and the collaboration master service agreement with Sandoz has recently been extended until January 2025.
In addition to potential future licensing and partnering, Ares Genetics intends to independently utilize the proprietary biomarker content in this database, as well as to build an independent business in NGS and AI based offerings for AMR research and diagnostics in collaboration with its current and potential future partners in the life science, pharmaceutical and diagnostics industries. Ares Genetics’ customers for such offerings include Siemens Technology Accelerator and AGES (Austrian Agency for Health and Food Safety), as well as several other national institutions from various European countries as new customers.
OpGen’s subsidiary Curetis’ Unyvero A50 tests for up to 130 diagnostic targets (pathogens and resistance genes) in under five hours with approximately two minutes of hands-on time. The system was first CE-IVD-marked in 2012 and was FDA cleared in 2018 along with the LRT test through a De Novo request. The Unyvero A30 RQ is a new device designed to address the low-to mid-plex testing market for 5-30 DNA targets and to provide results in approximately 30 to 90 minutes with 2-5 minutes of hands-on time. The Unyvero A30 RQ has a small benchtop footprint and has an attractive cost of goods profile. Curetis has been following a partnering strategy for the Unyvero A30 RQ and, following the successful completion of a key development milestone, Curetis has completed final verification and validation testing of the A30 instruments and is actively engaged in several ongoing partnering discussions and due diligence under respective material transfer agreements.
The Company has extensive partner and distribution relationships to help accelerate the establishment of a global infectious disease diagnostic testing and informatics business. The Company’s partners include A. Menarini Diagnostics S.r.l. for Pan-European distribution to currently 12 countries and Beijing Clear Biotech Co. Ltd. for Unyvero A50 product distribution in China. We have a network of distributors covering countries in Europe, the Middle East and Africa, Asia Pacific and Latin America. With the discontinuation of our FISH products business in Europe, we have reduced our network of distributors to only those distributors actively commercializing our Unyvero line of products or CE-IVD-marked SARS-CoV-2 test kits.
OpGen will continue to develop and seek FDA and other regulatory clearances or approvals, as applicable, for our Unyvero UTI and IJI products. OpGen will continue to offer the FDA-cleared Unyvero LRT and LRT BAL Panels, and FDA-cleared Acuitas AMR Gene Panel tests, as well as the Unyvero UTI Panel as a RUO product to hospitals, public health departments, clinical laboratories, pharmaceutical companies and CROs. OpGen’s subsidiary, Curetis, continues its efforts in ensuring compliance with the new European Union’s In-Vitro-Diagnostic Device Regulation (IVDR), which officially went into effect in May 2022. Given the lack of designated Notified Bodies at this time, and with the recently approved EU commission proposal to provide for generous multi-year grace periods for IVD products with current In-Vitro-Diagnostic Device Directive (IVDD) CE marking, it is now possible for Curetis to continue its portfolio of existing CE-IVD marked products until at least May 2025 and May 2026, respectively, as long as no material changes are being made to any of its products. Following May 2022, however, any new or changed CE marked products will be required to be IVDR compliant from the outset.
Our headquarters are in Rockville, Maryland, and our principal operations are in Rockville, Maryland and Holzgerlingen and Bodelshausen, both in Germany. We also have operations in Vienna, Austria. We operate in one business segment.
Recent developments
COVID-19
On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. COVID-19 has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption in the financial markets.
As a result of the outbreak, we have experienced a material impact on our business, financial condition and results of operations for the three and six months ended June 30, 2022 as well as significant business disruptions. For example, some of our employees are currently still working remotely from home and we are still not always able to physically meet with future and current customers to sell and market our products.
We continue to monitor the impacts of COVID-19 on the global economy and on our business operations. However, at this time, it is difficult to predict how long the potential operational impacts of COVID-19 will remain in effect or to what degree they will impact our operations and financial results. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition, as well as our ability to execute our business strategies and initiatives in their respective expected time frames.
Financings
Since inception, we have incurred, and continue to incur, significant losses from operations. We have funded our operations primarily through external investor financing arrangements. During 2021, we raised net proceeds of approximately $48 million.
Results of operations for the three months ended June 30, 2022 and 2021
Revenues
| | | Three months ended June 30, | |
| | | 2022 | | | 2021 | |
| Product sales | | $ | 889,271 | | | $ | 307,804 | |
| Laboratory services | | | 20,570 | | | | 266,784 | |
| Collaboration revenue | | | 57,364 | | | | 237,027 | |
| Total revenue | | $ | 967,205 | | | $ | 811,615 | |
Total revenue for the three months ended June 30, 2022 increased approximately 19% when compared to the same period in 2021, with a change in the mix of revenue, as follows:
| ● | Product Sales: an increase in revenue of approximately 189% in the 2022 period compared to the 2021 period is primarily attributable to the one-time sale of a pool of Unyvero A50 instrument systems to our Pan-European distribution partner Menarini and an increase in domestic Unyvero sales; |
| ● | Laboratory Services: a decrease in revenue of approximately 92% in the 2022 period compared to the 2021 period is primarily attributable to a decrease in COVID testing services performed by Curetis GmbH; and |
| ● | Collaboration Revenue: a decrease in revenue of approximately 76% in the 2022 period compared to the 2021 period is primarily the result of revenue from our contract with the New York State DOH, which ended in the third quarter of 2021. |
Operating expenses
| | | Three months ended June 30, | |
| | | 2022 | | | 2021 | |
| Cost of products sold | | $ | 646,389 | | | $ | 342,580 | |
| Cost of services | | | 15,650 | | | | 137,934 | |
| Research and development | | | 2,273,756 | | | | 2,859,590 | |
| General and administrative | | | 2,134,266 | | | | 2,692,255 | |
| Sales and marketing | | | 1,169,349 | | | | 802,549 | |
| Impairment of right-of-use asset | | | — | | | | 115,218 | |
| Total operating expenses | | $ | 6,239,410 | | | $ | 6,950,126 | |
Our total operating expenses for the three months ended June 30, 2022 decreased approximately 10% when compared to the same period in 2021. Operating expenses changed as follows:
| ● | Cost of products sold: cost of products sold for the three months ended June 30, 2022 increased approximately 89% when compared to the same period in 2021. The increase is primarily attributable to the one-time sale of a pool of Unyvero A50 instrument systems to our Pan-European distribution partner Menarini, which also contributed to the Company’s improved gross margin. Additionally, the Company saw a significant increase in domestic Unyvero sales over the same period; |
| ● | Cost of services: cost of services for the three months ended June 30, 2022 decreased approximately 89% when compared to the same period in 2021. The decrease in cost of services is primarily attributable to lower cost of services related to the conclusion of our contract with the New York State DOH in the third quarter of 2021 and a decrease in COVID testing services by Curetis; |
| ● | Research and development: research and development expenses for the three months ended June 30, 2022 decreased approximately 20% when compared to the same period in 2021. The decrease in research and development is primarily attributable to a reduction in payroll related costs resulting primarily from streamlining operations and reducing headcount in R&D and operations at our Rockville headquarters; |
| ● | General and administrative: general and administrative expenses for the three months ended June 30, 2022 decreased approximately 21% when compared to the same period in 2021, primarily due to a reduction in payroll related costs; |
| ● | Sales and marketing: sales and marketing expenses for the three months ended June 30, 2022 increased approximately 46% when compared to the same period in 2021, primarily due to the expansion of the Company’s sales force as well as the return of various international and domestic trade shows and exhibitions post COVID; and |
| ● | Impairment of right-of-use asset: impairment of right-of-use asset for the three months ended June 30, 2021 represents the impairment of our San Diego, California ROU asset. |
Other (expense) income
| | | Three months ended June 30, | |
| | | 2022 | | | 2021 | |
| Gain on extinguishment of debt | | $ | — | | | $ | 259,353 | |
| Interest expense | | | (779,912 | ) | | | (1,198,169 | ) |
| Foreign currency transaction gains (losses) | | | 271,967 | | | | (915 | ) |
| Other income | | | 13,851 | | | | 4,702 | |
| Change in fair value of derivative financial instruments | | | (74,116 | ) | | | (13,021 | ) |
| Total other expense | | $ | (568,210 | ) | | $ | (948,050 | ) |
Our total other expense for the three months ended June 30, 2022 decreased when compared to the same period in 2021 primarily due to lower interest expense and foreign currency transaction gains.
Results of operations for the six months ended June 30, 2022 and 2021
Revenues
| | | Six months ended June 30, | |
| | | 2022 | | | 2021 | |
| Product sales | | $ | 1,255,323 | | | $ | 835,383 | |
| Laboratory services | | | 63,499 | | | | 450,849 | |
| Collaboration revenue | | | 118,128 | | | | 355,099 | |
| Total revenue | | $ | 1,436,950 | | | $ | 1,641,331 | |
Total revenue for the six months ended June 30, 2022 decreased approximately 12% when compared to the same period in 2021, with a change in the mix of revenue, as follows:
| ● | Product Sales: an increase in revenue of approximately 50% in the 2022 period compared to the 2021 period is primarily attributable to the one-time sale of a pool of Unyvero A50 instrument systems to our Pan-European distribution partner Menarini and an increase in domestic Unyvero sales; |
| ● | Laboratory Services: a decrease in revenue of approximately 86% in the 2022 period compared to the 2021 period is primarily attributable to a decrease in COVID testing services performed by Curetis GmbH; and |
| ● | Collaboration Revenue: a decrease in revenue of approximately 67% in the 2022 period compared to the 2021 period is primarily attributable to revenue from our contract with the New York State DOH, which ended in the third quarter of 2021. |
Operating expenses
| | | Six months ended June 30, | |
| | | 2022 | | | 2021 | |
| Cost of products sold | | $ | 938,386 | | | $ | 896,634 | |
| Cost of services | | | 46,212 | | | | 242,918 | |
| Research and development | | | 4,590,197 | | | | 5,673,081 | |
| General and administrative | | | 4,759,319 | | | | 5,355,912 | |
| Sales and marketing | | | 2,220,781 | | | | 1,701,801 | |
| Impairment of right-of-use asset | | | — | | | | 170,714 | |
| Total operating expenses | | $ | 12,554,895 | | | $ | 14,041,060 | |
Our total operating expenses for the six months ended June 30, 2022 decreased approximately 11% when compared to the same period in 2021. Operating expenses changed as follows:
| ● | Costs of products sold: cost of products sold for the six months ended June 30, 2022 increased approximately 5% when compared to the same period in 2021. The increase is primarily attributable to the one-time sale of a pool of Unyvero A50 instrument systems to our Pan-European distribution partner Menarini, which also contributed to the Company’s improved gross margin. Additionally, the Company saw a significant increase in domestic Unyvero sales over the same period; |
| ● | Costs of services: cost of services for the six months ended June 30, 2022 decreased approximately 81% when compared to the same period in 2021. The decrease in cost of services is primarily attributable to lower cost of services related to the conclusion of our contract with the New York State DOH in the third quarter of 2021 and a decrease in COVID testing services by Curetis; |
| ● | Research and development: research and development expenses for the six months ended June 30, 2022 decreased approximately 19% when compared to the same period in 2021. The decrease in research and development is primarily attributable to a reduction in payroll related costs resulting primarily from streamlining operations and reducing headcount in R&D and operations at our Rockville headquarters; |
| ● | General and administrative: general and administrative expenses for the six months ended June 30, 2022 decreased approximately 11% when compared to the same period in 2021, which is primarily due to a reduction in payroll related costs; |
| ● | Sales and marketing: sales and marketing expenses for the six months ended June 30, 2022 increased approximately 30% when compared to the same period in 2021, which is primarily due to the expansion of the Company’s sales force as well as the return of various international and domestic trade shows and exhibitions post COVID; and |
| ● | Impairment of right-of-use asset: impairment of right-of-use asset for the six months ended June 30, 2021 represents the impairment of our San Diego, California ROU asset. |
Other expense
| | | Six months ended June 30, | |
| | | 2022 | | | 2021 | |
| Warrant inducement expense | | $ | — | | | $ | (7,755,541 | ) |
| Gain on extinguishment of debt | | | — | | | | 259,353 | |
| Interest expense | | | (2,049,493 | ) | | | (2,363,151 | ) |
| Foreign currency transaction gains (losses) | | | 470,707 | | | | 426,700 | |
| Other income | | | 16,972 | | | | 9,627 | |
| Change in fair value of derivative financial instruments | | | 35,628 | | | | (114,411 | ) |
| Total other expense | | $ | (1,526,186 | ) | | $ | (9,537,423 | ) |
Our total other expense for the six months ended June 30, 2022 decreased when compared to the same period in 2021 primarily due to warrant inducement expense related to our 2021 Warrant Exercise.
Liquidity and capital resources
As of June 30, 2022, we had cash and cash equivalents of $16.6 million compared to $36.1 million at December 31, 2021. We have funded our operations primarily through external investor financing arrangements and have raised funds in 2022 and 2021, including:
During the year ended December 31, 2021, we sold 680,000 shares of common stock under the ATM Agreement resulting in aggregate net proceeds to us of approximately $1.48 million, and gross proceeds of $1.55 million.
On February 11, 2021, we closed the February 2021 Offering for the purchase of (i) 2,784,184 shares of common stock, (ii) 5,549,149 pre-funded warrants, and (iii) unregistered common share purchase warrants to purchase 4,166,666 shares. The February 2021 Offering raised aggregate net proceeds of $23.5 million, and gross proceeds of $25.0 million.
On March 9, 2021, we closed the 2021 Warrant Exercise resulting in the issuance of 4,842,615 shares of common stock and raising gross proceeds of approximately $9.65 million and net proceeds of $9.3 million.
On October 18, 2021, we closed the October 2021 Offering of 150,000 shares of convertible preferred stock and warrants to purchase up to an aggregate of 7,500,000 shares of common stock. The October 2021 Offering raised aggregate net proceeds of $13.9 million, and gross proceeds of $15.0 million.
On June 24, 2022, the Company entered into the 2022 ATM Agreement with Wainwright, as a sales agent, pursuant to which the Company may offer and sell from time to time in an at the market offering, at its option, up to an aggregate of $10.65 million of shares of the Company's common stock through the sales agent. As of June 30, 2022, the Company had not sold any shares under the 2022 ATM Offering (see Note 11).
To meet our capital needs, we are considering multiple alternatives, including, but not limited to, additional equity financings, debt financings and other funding transactions, and licensing and/or partnering arrangements. There can be no assurance that we will be able to complete any such transaction on acceptable terms or otherwise. We believe that current cash on hand will be sufficient to fund operations into the first quarter of 2023. This has led management to conclude that there is substantial doubt about our ability to continue as a going concern. In the event we are unable to successfully raise additional capital during or before the end of the first quarter of 2023, we will not have sufficient cash flows and liquidity to finance our business operations as currently contemplated. Accordingly, in such circumstances we would be compelled to immediately reduce general and administrative expenses and delay research and development projects, including the purchase of scientific equipment and supplies, until we are able to obtain sufficient financing. If such sufficient financing is not received on a timely basis, we would then need to pursue a plan to license or sell its assets, seek to be acquired by another entity, cease operations and/or seek bankruptcy protection.
Sources and uses of cash
Our principal source of liquidity is from financing activities, including issuances of equity and debt securities. The following table summarizes the net cash and cash equivalents provided by (used in) operating activities, investing activities and financing activities for the periods indicated:
| | | Six months ended June 30, | |
| | | 2022 | | | 2021 | |
| Net cash used in operating activities | | $ | (11,700,904 | ) | | $ | (12,559,210 | ) |
| Net cash used in investing activities | | | (83,563 | ) | | | (1,723,064 | ) |
| Net cash (used in) provided by financing activities | | | (6,847,506 | ) | | | 32,205,067 | |
Net cash used in operating activities
Net cash used in operating activities for the six months ended June 30, 2022 consisted primarily of our net loss of $12.6 million, reduced by certain noncash items, including depreciation and amortization expense of $1.0 million, noncash interest expense of $1.6 million, and share-based compensation expense of $0.5 million. Net cash used in operating activities for the six months ended June 30, 2021 consisted primarily of our net loss of $21.9 million, reduced by certain noncash items, including inducement expense related to warrant repricing of $7.8 million, depreciation and amortization expense of $1.3 million, noncash interest expense of $1.9 million, and share-based compensation expense of $0.5 million.
Net cash used in investing activities
Net cash used in investing activities for the six months ended June 30, 2022 and 2021 consisted of purchases of property and equipment. The majority of the purchases of property and equipment in 2021 were related to the Company’s new corporate headquarters in Rockville, Maryland.
Net cash (used in) provided by financing activities
Net cash used in financing activities for the six months ended June 30, 2022 consisted of payments on the Company’s EIB debt and finance leases. Net cash provided by financing activities for the six months ended June 30, 2021 consisted primarily of the net proceeds from the February 2021 Offering, 2021 Warrant Exercise, October 2021 Offering, and exercises of common stock warrants, net of payments on debt and insurance financings.
Contractual Commitments
OpGen’s subsidiary, Curetis, has contractual commitments under its 2016 senior, unsecured loan financing facility of up to €25.0 million with the European Investment Bank (“EIB”). Curetis drew down three tranches under the facility: €10.0 million in April 2017, €3.0 million in June 2018, and €5.0 million in June 2019. The first and second tranches have a floating interest rate of EURIBOR plus 4% payable after each 12-month-period from the draw-down-date and another additional 6% interest per annum that is deferred and payable at maturity together with the principal. The third tranche originally had a 2.1% PPI. Upon maturity of the third tranche, which is not before approximately mid-2024 (and no later than mid-2025), the EIB would have been entitled to an additional payment that is equity-linked and equivalent to 2.1% of the then total valuation of Curetis N.V. As part of an amendment between the Company and the EIB on July 9, 2020, the parties adjusted the PPI percentage applicable to the third EIB tranche of €5.0 million, which was funded in June 2019 from its original 2.1% PPI in Curetis N.V.’s equity value upon maturity to a new 0.3% PPI in OpGen’s equity value upon maturity. This right constitutes an embedded derivative, which is separated and measured at fair value with changes being accounted for through income or loss.
As of June 30, 2022, the outstanding borrowings under all tranches were €16,392,331 ($17,026,715), including deferred interest payable at maturity of €1,634,551 ($1,697,808). On May 23, 2022, the Company and the EIB entered into a Waiver and Amendment Letter (the “2022 EIB Amendment”), which amended the EIB loan facility. The 2022 EIB Amendment restructured the first tranche of approximately €13.35 million (including accumulated and deferred interest) of the Company’s indebtedness with the EIB. Pursuant to the 2022 EIB Amendment, the Company repaid €5.0 million to the EIB in April 2022. The Company also agreed, among other things, to amortize the remainder of the debt tranche over the twelve-month period beginning in May 2022. The 2022 EIB Amendment also provides for the increase of the PPI of the third tranche under the loan facility from 0.3% to 0.75% beginning in June 2024. The terms of the second and third tranches of the Company’s indebtedness of €3.0 million and €5.0 million, respectively, plus accumulated deferred interest remain unchanged.
Critical accounting policies and use of estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In our audited consolidated financial statements, estimates are used for, but not limited to, liquidity assumptions, revenue recognition, share-based compensation, allowances for doubtful accounts and inventory obsolescence, valuation of derivative financial instruments measured at fair value on a recurring basis, deferred tax assets and liabilities and related valuation allowance, estimated useful lives of long-lived assets, and the recoverability of long-lived assets. Actual results could differ from those estimates.
A summary of our significant accounting policies is included in Note 3 “Summary of significant accounting policies” to the accompanying unaudited condensed consolidated financial statements. Certain of our accounting policies are considered critical, as these policies require significant, difficult or complex judgments by management, often requiring the use of estimates about the effects of matters that are inherently uncertain. Our critical policies are summarized in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021.
Recently issued accounting pronouncements
See Note 3 “Summary of significant accounting policies” in this Form 10-Q for a full description of recent accounting pronouncements, including the respective expected dates of adoption and effects on our unaudited condensed consolidated financial statements.
Off-balance sheet arrangements
As of June 30, 2022, and December 31, 2021, we did not have any off-balance sheet arrangements.
JOBS Act
Prior to December 31, 2020, the Company was an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act, (JOBS Act), and elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies until the Company is no longer an EGC, including using the extended transition period for complying with new or revised accounting standards. As of December 31, 2020, the Company has become a non-accelerated filer under the rules of the SEC and is no longer classified as an EGC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of June 30, 2022. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Changes in Internal Control over Financial Reporting
For the quarter ended June 30, 2022, there have been no changes in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Our business and financial results are subject to numerous risks and uncertainties. As a result, the risks and uncertainties discussed in Part I, Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 should be carefully considered. There have been no material changes in the assessment of the risk factors set forth in such Form 10-K, except for the additional risk factors noted below, which update the risk factors included in Part II, Item 1A of our Quarterly Reports on Form 10-Q for the quarter ended March 31, 2022:
If our goodwill, acquired in-process research and development costs or finite-lived tangible and intangible assets become impaired in the future, we may be required to record non-cash charges to earnings, which could be material and could reduce stockholders’ equity or otherwise adversely affect the Company’s financial condition.
We review long-lived assets, including property and equipment and identifiable amortizing intangible assets, for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. If the fair value is less than the carrying amount of the asset, an impairment is recognized for the difference. Factors which may cause an impairment of long-lived assets include significant changes in the manner of use of these assets, negative industry or market trends, a significant underperformance relative to historical or projected future operating results, extended period of idleness or a likely sale or disposal of the asset before the end of its estimated useful life. In 2021, the Company had determined that the right-of-use asset associated with the Company’s San Diego, California office lease may not be recoverable, and, as a result, the Company recorded an impairment charge of $170,714 during the six months ended June 30, 2021. There can be no assurance that our other long-lived assets and intangible assets will not be further impaired. If our property and equipment and identifiable amortizing intangible assets are determined to be impaired in the future, we may be required to record non-cash charges to earnings during the period in which the impairment is determined, which could be material and have an adverse effect on our financial position and results of operations.
In addition, we review and test goodwill for impairment at least annually and whenever changes in circumstances indicate that the carrying value of the goodwill may not be recoverable. The impairment test for goodwill consists of comparing the fair value of the reporting unit and acquired IPR&D, which is estimated using both the income and market approach, to its carrying value. The process of impairment testing for our goodwill involves a number of judgments and estimates made by management including future cash flows, revenue growth rates, profitability assumptions, terminal growth rates and discount rates with regards to our reporting unit. Our internally generated long-range plan includes assumptions regarding pricing and operating forecasts for our products and technologies. If the judgments and estimates used in our analysis are not realized or are affected by external factors, then actual results may not be consistent with these judgments and estimates, and we may be required to record a goodwill impairment charge in the future, which could be material, could reduce stockholders’ equity and have an adverse effect on our financial position and results of operations.
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
Exhibit Number | | | Description |
| | | | |
| 10.1 | | | Waiver and Amendment Letter, dated May 23, 2022 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 24, 2022). |
| | | | |
| 10.2 | | | At the Market Offering Agreement, dated June 24, 2022, by and between OpGen, Inc. and H.C. Wainwright & Co., LLC (incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed on June 24, 2022). |
| | | | |
| 31.1* | | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). |
| | | | |
| 31.2* | | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). |
| | | | |
| 32.1* | | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | | |
| 101* | | | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) the Unaudited Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Unaudited Condensed Consolidated Financial Statements. |
| * | Filed or furnished herewith |
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.
| | OPGEN, INC. |
| | | | |
| | By: | | /s/ Albert Weber |
| | | | Albert Weber |
| | | | Chief Financial Officer (principal financial officer and principal accounting officer) |
| | | | |
| | Date: | | August 12, 2022 |
