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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 June 30, 2015 

 

OR

 

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

 

For the transition period from ____ to ____

 

Commission File Number 001-36200

________________________

 

OXFORD IMMUNOTEC GLOBAL PLC

(Exact name of registrant as specified in its charter)

 

England and Wales

98-1133710

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

94C Innovation Drive, Milton Park, Abingdon

OX14 4RZ, United Kingdom

 

Not Applicable

(Address of Principal Executive Offices)

(Zip Code)

 

+44 (0)1235 442780

(Registrant’s Telephone Number, Including Area Code)

 

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

 

Yes     No 

 

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

 

Yes     No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer 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 July 31, 2015, there were 22,532,985 Ordinary Shares, nominal value £0.006705, of Oxford Immunotec Global PLC outstanding.

 

 

Oxford Immunotec Global PLC

Form 10-Q

Quarterly Period Ended June 30, 2015

 

TABLE OF CONTENTS 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Condensed consolidated balance sheets (unaudited) as of June 30, 2015 and December 31, 2014

4

 

 

 

 

Condensed consolidated statements of operations (unaudited) for the three and six months ended June 30, 2015 and 2014

5

     

 

Condensed consolidated statements of comprehensive loss (unaudited) for the three and six months ended June 30, 2015 and 2014

6

     

 

Condensed consolidated statements of cash flows (unaudited) for the six months ended June 30, 2015 and 2014

7

     

 

Notes to the unaudited condensed consolidated financial statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

 

 

 

Item 4.

Controls and Procedures

29

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

Item 3.

Defaults Upon Senior Securities

29

 

 

 

Item 4.

Mine Safety Disclosures

29

 

 

 

Item 5.

Other Information

29

 

 

 

Item 6.

Exhibits

29

 

 

 

Signatures

30

 

 

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, including the several 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 share price, 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 2014 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 

(unaudited)

 

 

   

June 30,

   

December 31,

 

(in thousands, except share and per share data)

 

2015

   

2014

 

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 90,370     $ 50,165  

Restricted cash

          200  

Accounts receivable, net

    7,647       6,823  

Inventory

    5,470       6,425  

Prepaid expenses and other assets

    3,668       2,755  

Total current assets

    107,155       66,368  

Restricted cash, non-current

    192       192  

Property and equipment, net

    5,300       4,537  

In-process research and development

    2,209       2,399  

Goodwill

    46       50  

Other intangible assets, net

    300       273  

Other assets

    19       30  

Total assets

  $ 115,221     $ 73,849  
                 

Liabilities and shareholders’ equity

               

Current liabilities:

               

Accounts payable

  $ 2,544     $ 2,368  

Accrued liabilities

    5,843       7,070  

Deferred income

    2,720       1,993  

Current portion of loans payable

    125       137  

Total current liabilities

    11,232       11,568  

Long-term portion of loans payable

    385       454  

Contingent purchase price consideration

    1,219       1,218  

Total liabilities

    12,836       13,240  
                 

Commitments and contingencies (Note 2)

               
                 

Shareholders’ equity:

               

Ordinary shares, £0.006705 nominal value; 36,183,293 shares authorized at June 30, 2015 and December 31, 2014, and 22,532,344 and 17,614,650 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

    242       192  

Additional paid-in capital

    242,128       186,816  

Accumulated deficit

    (135,434 )     (121,829 )

Accumulated other comprehensive loss

    (4,551 )     (4,570 )

Total shareholders’ equity

    102,385       60,609  

Total liabilities and shareholders’ equity

  $ 115,221     $ 73,849  

 

See accompanying notes to these unaudited condensed consolidated financial statements.        

 

 

Oxford Immunotec Global PLC

Condensed consolidated statements of operations 

(unaudited)

 

   

Three months ended June 30,

   

Six months ended June 30,

 

(in thousands, except share and per share data)

 

2015

   

2014

   

2015

   

2014

 

Revenue:

                               

Product

  $ 6,613     $ 5,887     $ 13,735     $ 12,712  

Service

    7,639       5,901       14,318       11,350  

Total revenue

    14,252       11,788       28,053       24,062  

Cost of revenue:

                               

Product

    2,885       2,822       5,955       5,863  

Service

    3,617       3,171       7,202       6,142  

Total cost of revenue

    6,502       5,993       13,157       12,005  

Gross profit

    7,750       5,795       14,896       12,057  

Operating expenses:

                               

Research and development

    2,846       1,515       5,205       2,239  

Sales and marketing

    7,727       6,343       15,168       10,908  

General and administrative

    3,784       3,968       7,651       7,880  

Total operating expenses

    14,357       11,826       28,024       21,027  

Loss from operations

    (6,607 )     (6,031 )     (13,128 )     (8,970 )

Other income (expense):

                               

Interest expense, net

    (19 )     (28 )     (34 )     (63 )

Foreign exchange losses

    (674 )     (262 )     (509 )     (407 )

Other income

    7       81       114       79  

Loss before income taxes

    (7,293 )     (6,240 )     (13,557 )     (9,361 )

Income tax expense (benefit)

    1       (6 )     48       26  

Net loss

  $ (7,294 )   $ (6,234 )   $ (13,605 )   $ (9,387 )

Net loss per share attributable to ordinary shareholders—basic and diluted

  $ (0.33 )   $ (0.36 )   $ (0.64 )   $ (0.54 )

Weighted-average shares used to compute net loss attributable to ordinary shareholders—basic and diluted

    22,245,682       17,292,251       21,293,835       17,284,330  

 

See accompanying notes to these unaudited condensed consolidated financial statements.                

 

 

Oxford Immunotec Global PLC

Condensed consolidated statements of other comprehensive loss 

(unaudited)

 

   

Three months ended June 30,

   

Six months ended June 30,

 

(in thousands)

 

2015

   

2014

   

2015

   

2014

 

Net loss

  $ (7,294 )   $ (6,234 )   $ (13,605 )   $ (9,387 )

Other comprehensive income (loss), net of taxes:

                               

Foreign currency translation adjustment, net of taxes

    668       (320 )     19       298  

Other comprehensive income (loss), net of taxes

    668       (320 )     19       298  

Total comprehensive loss

  $ (6,626 )   $ (6,554 )   $ (13,586 )   $ (9,089 )

 

See accompanying notes to these unaudited condensed consolidated financial statements.                

 

 

Oxford Immunotec Global PLC

Condensed consolidated statements of cash flows 

(unaudited)

 

   

Six months ended June 30,

 

(in thousands)

 

2015

   

2014

 

Cash flows from operating activities

               

Net loss

  $ (13,605 )   $ (9,387 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    936       760  

Share-based compensation expense

    1,588       1,025  

Change in fair value of contingent purchase price consideration

    96        

Loss on change in fair value of warrants

          22  

Changes in operating assets and liabilities:

               

Accounts receivable, net

    (800 )     (204 )

Inventory

    964       (1,111 )

Prepaid expenses and other assets

    (878 )     (455 )

Accounts payable

    51       1,198  

Accrued liabilities

    (1,217 )     (2,405 )

Deferred income

    692       822  

Net cash used in operating activities

    (12,173 )     (9,735 )

Cash flows from investing activities

               

Purchases of property and equipment

    (1,582 )     (1,469 )

Purchases of intangible assets

    (44 )     (17 )

Decrease in restricted cash

    200       57  

Net cash used in investing activities

    (1,426 )     (1,429 )

Cash flows from financing activities

               

Proceeds from issuance of ordinary shares

    53,762        

Proceeds from exercise of share options and warrants

    10       9  

Payments on loan

    (77 )     (73 )

Net cash provided by (used in) financing activities

    53,695       (64 )

Effect of exchange rate changes on cash and cash equivalents

    109       509  

Net increase (decrease) in cash and cash equivalents, excluding restricted cash

    40,205       (10,719 )

Cash and cash equivalents at beginning of period

    50,165       76,494  

Cash and cash equivalents at end of period

  $ 90,370     $ 65,775  

Noncash investing and financing activities:

               

Warrants liability reclassified to additional paid-in capital upon exercise of warrants

  $     $ 318  

 

See accompanying notes to these unaudited condensed consolidated financial statements.        

 

 

 

Oxford Immunotec Global PLC

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2015

 

1. Business and basis of presentation

 

Description of business

 

Oxford Immunotec Global PLC, or the Company, is a global, commercial-stage diagnostics company focused on developing and commercializing proprietary tests for the management of immune-regulated conditions. The Company’s proprietary T-SPOT® technology platform allows it to measure the responses of specific immune cells to inform the diagnosis, prognosis and monitoring of patients with immune-regulated conditions. Substantially all of the Company’s revenue is currently derived from the sale of its T-SPOT.TB test, which is sold in two formats: an in vitro diagnostic kit format (allowing customers to perform the test at their own institutions), and a service format (in which the Company performs the test on samples sent by customers to the Company’s own laboratory facilities). The Company has a direct sales force in the United States, certain European countries and Japan and market development personnel in China. In parts of the world where the Company does not maintain a direct sales force, it markets and sells its products through distributors.

 

During the first quarter of 2015, the Company announced the availability in the United States of a new test, the T-SPOT.CMV test, that measures the strength of a patient's cellular immune response to cytomegalovirus infection, or CMV. The T-SPOT.CMV test was CE marked and made available in the European Union during the second quarter of 2015. CMV can affect individuals with weaknesses in their T cell response and is therefore an important and common cause of morbidity and mortality in solid organ and hematopoietic stem cell transplant recipients. This T-SPOT.CMV test is available in the United States as a laboratory developed test from the Company's Clinical Laboratory Improvements Amendment, or CLIA, certified and College of American Pathologists, or CAP, accredited service laboratory.

 

Unaudited Interim Financial Statements

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the interim consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at June 30, 2015, the results of operations for the three and six-month periods ended June 30, 2015 and 2014, and the cash flows for the six-month periods ended June 30, 2015 and 2014. Interim results are not necessarily indicative of results for a full year.

 

The consolidated balance sheet presented as of December 31, 2014, has been derived from the audited consolidated financial statements as of that date. The consolidated financial statements and notes included in this report should be read in conjunction with the 2014 consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 5, 2015, or the Company’s 2014 Form 10-K.

 

Note 1 to the consolidated financial statements included in the Company’s 2014 Form 10-K describes the significant accounting estimates and policies used in preparation of the consolidated financial statements. There have been no material changes in the Company’s significant accounting policies during the three and six-month periods ended June 30, 2015.

 

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 standard 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 the Company 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. The Company is currently evaluating ASU 2014-09 and has not yet determined how it may impact the Company’s 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. The Company does not expect that the application of ASU 2014-15 will have an impact on the presentation of its results of operations, financial position or disclosures.

 

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging, or ASU 2014-16. The objective of ASU 2014-16 is to eliminate the existing diversity in practice in accounting for hybrid financial instruments issued in the form of a share. A hybrid financial instrument consists of a “host contract” into which one or more derivative terms have been embedded. ASU 2014-16 requires an entity to consider the terms and features of the entire financial instrument, including the embedded derivative features, in order to determine whether the nature of the host contract is more akin to debt or to equity. ASU 2014-16 is effective for fiscal years and interim periods beginning after December 15, 2015, with early adoption permitted. A reporting entity should apply ASU 2014-16 using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the annual period of adoption. Retrospective application is permitted to all relevant prior periods. The adoption of ASU 2014-16 on January 1, 2015 had no impact on the Company’s presentation of its results of operations, financial position or disclosures.

 

In January 2015, the FASB issued ASU 2015-01, Income Statement—Extraordinary and Unusual Items, or ASU 2015-01. ASU 2015-01 eliminates from GAAP the concept of extraordinary items. However, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. The amendments in ASU 2015-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of ASU 2015-01 on January 1, 2015 had no impact on the Company’s presentation of its 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. This guidance will be effective for the Company for annual and interim periods beginning after December 15, 2015 and early adoption is permitted. The Company does not expect that the application of ASU 2015-05 will have an impact on the presentation of its 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. The Company is currently evaluating ASU 2015-11 and has not yet determined how it may impact the Company’s 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.

 

 

2. Fair value measurement

 

As a basis for determining the fair value of certain of the Company’s financial instruments, the Company utilizes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level I—Observable inputs such as quoted prices in active markets for identical assets or liabilities.

 

Level II—Observable inputs, other than Level I prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level III—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The carrying amount of certain of the Company’s financial instruments, including cash, accounts receivable, prepaid expenses and other assets, accounts payable, and accrued liabilities approximate fair value due to their short maturities.

 

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability.

 

The following tables present information about the balances of liabilities measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques it utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates, and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The Company did not have any financial assets measured at fair value on a recurring basis.

 

           

Fair value measurements at June 30, 2015 using

 

(in thousands)

 

June 30,

2015

   

Quoted prices in active markets for identical assets
(Level
1)

   

Significant
other
observable
inputs
(Level 2)

   

Significant
u
nobservable
inputs
(Level 3)

 

Liabilities:

                               

Contingent purchase price consideration

  $ 1,219     $     $     $ 1,219  

Total

  $ 1,219     $     $     $ 1,219  

 

           

Fair value measurements at December 31, 2014 using

 

(in thousands)

 

December 31,

2014

   

Quoted prices in active markets for identical assets
(Level
1)

   

Significant
other
observable
inputs
(Level 2)

   

Significant
u
nobservable
inputs
(Level 3)

 

Liabilities:

                               

Contingent purchase price consideration

  $ 1,218     $     $     $ 1,218  

Total

  $ 1,218     $     $     $ 1,218  

  

 

On July 31, 2014, the Company acquired substantially all of the assets of Boulder Diagnostics, Inc., or Boulder, a privately owned company developing immunology-based assays for autoimmune and inflammatory conditions/diseases. The terms of the purchase agreement included contingent purchase price consideration consisting of future potential milestone payments totaling up to $6.1 million at any time on or prior to July 31, 2024. The milestone payments consist of completion of studies related to acquired technologies, development of diagnostic test kits, patient enrollment in an Institutional Review Board approved study, issuance of patents, and approvals or clearances by the U.S. Food and Drug Administration, or FDA. The fair value of future potential milestone payments was determined based upon a probability weighted analysis of expected future milestone payments to be made to the seller, which are considered as Level 3 inputs.

 

The following table provides a summary of changes in the fair value of the Company's Level 3 financial liabilities for the three and six-month periods ended June 30, 2015:

 

(in thousands)

 

Three months ended June 30, 2015

   

Six months ended June 30, 2015

 

Balance – beginning

  $ 1,126     $ 1,218  

Change in fair value of contingent purchase price consideration

    49       96  

Foreign currency adjustment

    44       (95 )

Balance – ending

  $ 1,219     $ 1,219  

 

The change in the fair value of the contingent purchase price consideration was due to the effect of the passage of time on the fair value measurement of future potential milestone payments related to the Boulder acquisition that is included in other income in the Company’s condensed consolidated statements of operations for the three and six month-periods ended June 30, 2015. Foreign currency adjustments are included in accumulated other comprehensive loss for the three and six-month periods ended June 30, 2015.

 

3. Accounts receivable, net

 

Accounts receivable, net, consisted of the following as of:

 

(in thousands)

 

June 30,

2015

   

December 31,

2014

 

Accounts receivable

  $ 7,791     $ 6,937  

Less allowance for uncollectible accounts receivable

    (144 )     (114 )

Accounts receivable, net

  $ 7,647     $ 6,823  

 

4. Inventory

 

Inventory consisted of the following as of:

 

(in thousands)

 

June 30,

2015

   

December 31,

2014

 

Raw materials

  $ 2,734     $ 3,605  

Finished goods

    2,736       2,820  

Inventory, net

  $ 5,470     $ 6,425  

 

 

5. Accrued liabilities

 

Accrued liabilities consisted of the following as of:

 

(in thousands)

 

June 30,

2015

   

December 31,

2014

 

Employee related expenses

  $ 3,583     $ 3,348  

Royalties

    1,233       2,458  

Professional services

    194       323  

Inventory

    94       88  

Rent

    57       196  

Other accrued liabilities

    682       657  

Total accrued liabilities

  $ 5,843     $ 7,070  

 

6. Share option and equity incentive plan

 

Net expense recognized related to share-based compensation was as follows:

 

   

Three months ended June 30,

   

Six months ended June 30,

 

(in thousands)

 

2015

   

2014

   

2015

   

2014

 

Cost of revenue

  $ 122     $ 43     $ 239     $ 54  

Research and development

    56       4       110       10  

Sales and marketing

    106       262       423       351  

General and administrative

    429       451       816       610  

Total share-based compensation

  $ 713     $ 760     $ 1,588     $ 1,025  

 

In November 2013, in connection with the Company’s initial public offering, the Company adopted the 2013 Share Incentive Plan, or the 2013 Plan, which provides for the grant of share options, restricted shares, restricted share units, or RSUs, and other share-based awards to employees, officers, directors and consultants of the Company.

 

During the three month period ended June 30, 2015, the Company granted to certain employees 263,619 share options with exercise prices ranging from $14.12 to $14.17 per share under the 2013 Plan. The weighted-average grant date fair value related to share options granted under the 2013 Plan during the three month period ended June 30, 2015 was $6.20 per share. During the six month period ended June 30, 2015, the Company granted to certain employees 670,150 share options with exercise prices ranging from $14.12 to $14.61 per share under the 2013 Plan. The weighted-average grant date fair value related to share options granted under the 2013 Plan during the six month period ended June 30, 2015 was $6.41 per share. Share options generally vest based on the grantee’s continued service with the Company during a specified period following the vesting start date or, in rare instances, based on the achievement of performance or other conditions as determined by the Board of Directors, and expire after ten years.

 

During the three month period ended June 30, 2015, the Company awarded to certain employees 81,185 RSUs with a weighted average grant date fair value of $14.13 per share under the 2013 Plan. During the six month period ended June 30, 2015, the Company awarded to certain employees 108,563 RSUs with a weighted average grant date fair value of $14.25 per share under the 2013 Plan. The RSUs vest based on the grantee’s continued service with the Company during a specified period following grant as follows: 40% on the second anniversary of the grant date; 30% on the third anniversary of the grant date; and 30% on the fourth anniversary of the grant date. Share-based compensation expense for these restricted shares is calculated based on the grant date market price of the shares and is being recognized over the vesting period.

 

For the three month period ended June 30, 2015, the Company incurred shared-based compensation expense related to share options and restricted shares/RSUs of $520,000 and $193,000, respectively. For the three month period ended June 30, 2014, the Company incurred shared-based compensation expense related to share options and restricted shares of $483,000 and $277,000, respectively.

 

 

For the six month period ended June 30, 2015, the Company incurred shared-based compensation expense related to share options and restricted shares/RSUs of $1.1 million and $483,000, respectively. For the six month period ended June 30, 2014, the Company incurred shared-based compensation expense related to share options and restricted shares of $660,000 and $365,000, respectively.

 

As of June 30, 2015, there was $7.3 million and $5.4 million of total unrecognized compensation cost related to unvested share options and restricted shares/RSUs, respectively. These costs are expected to be recognized over weighted-average periods of 2.7 years for share options and 3.0 years for restricted shares/RSUs.

 

7. Share capital

 

On January 29, 2015, the Company entered into an underwriting agreement, or the Underwriting Agreement, with J.P. Morgan Securities LLC and Piper Jaffray & Co., as representatives of the several underwriters named therein, collectively, the Underwriters, relating to the public offering, or the 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, or the Offering Price. The Underwriters agreed to purchase the Shares from the Company pursuant to the Underwriting Agreement at a price of $11.045 per share. Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to an additional 638,297 Shares, or the 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 the Company from the sale of the Shares and the Option Shares were approximately $57.5 million and the Company received net proceeds of approximately $53.8 million after deducting underwriting discounts and commissions and estimated aggregate offering expenses payable by the Company. The Offering closed on February 4, 2015.

 

During the first six months of 2015, 24,078 ordinary shares were issued upon the exercise of options. As of June 30, 2015, there were 36,183,293 ordinary shares authorized and 22,532,344 ordinary shares issued and outstanding.

 

8. Restructuring

 

During the fourth quarter of 2014, the Company closed the facilities that had been used by Boulder, terminated four employees, and consolidated the research and development activities that had been performed at those locations to the Company’s Abingdon, U.K. and Memphis, Tennessee facilities. As a result of these actions, the Company recorded a fourth quarter 2014 restructuring charge of $182,000 in research and development expense.

 

The following table provides a rollforward of the liability balance for these restructuring actions.

 

(in thousands)

 

Abandonment

of Excess Facilities

   

Relocation

Costs

   

Severance

   

Total

 

Balance at December 31, 2014

  $ 42     $ 28     $     $ 70  

(Credit) charge for restructuring

          (9 )     3       (6 )

Payments

    (42 )     (19 )     (3 )     (64 )

Balance at June 30, 2015

  $     $     $     $  

 

 

9. Net loss per share

 

The following numbers of outstanding ordinary share options and unvested restricted shares and unvested restricted share units were excluded from the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive:

 

   

Three months ended June 30,

   

Six months ended June 30,

 
   

2015

   

2014

   

2015

   

2014

 

Options to purchase ordinary shares

    1,125,351       1,189,782       1,125,816       1,202,161  

Unvested restricted shares

    253,740       254,700       253,740       254,700  

Unvested restricted share units

    108,563             108,563        

 

  

 

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 “Cautionary 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 2014 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 position 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 (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 FDA, in Europe, where we have obtained a CE mark, as well as in Japan and China. Our T-SPOT.TB test has been included in clinical guidelines for TB screening in at least 17 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.

 

During the first quarter of 2015, we announced the availability in the United States of a new test, the T-SPOT.CMV test, that measures the strength of a patient's cellular immune response to cytomegalovirus infection, or CMV. The T-SPOT.CMV test was CE marked and made available in the European Union during the second quarter of 2015. CMV can affect individuals with weaknesses in their T cell response and is therefore an important and common cause of morbidity and mortality in solid organ and hematopoietic stem cell transplant recipients. This T-SPOT.CMV test is available in the United States as a laboratory developed test from the Company's Clinical Laboratory Improvements Amendment, or CLIA, certified and College of American Pathologists, or CAP, accredited service laboratory. While we are enthusiastic about the potential clinical utility and economic value that the T-SPOT.CMV test may provide in transplant medicine, we are taking a measured approach to market introduction as we await the results of two pivotal clinical studies to provide the evidence needed to drive adoption and acceptance by the medical and payor communities of this test.

 

We also have seven active development programs pertaining to new potential tests. Each program seeks to exploit our T cell and innate immune measuring technology and cover each of our four focus areas.

 

Our T-SPOT.PRT, or Panel of Reactive T-cells, test is also based on our T-SPOT technology platform and assesses T cell responses to foreign tissue as a means of better informing organ rejection risk in current or potential transplant recipients.

 

 

Our development pipeline also 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.

 

In April 2015, we entered into a First Amendment to Distributorship Agreement, or the Amendment, with Fosun Long March Medical Science Co. Ltd. and Shanghai Xin Chang Medical Device Co. Ltd., collectively the Distributors. The Amendment amends the Distributorship Agreement between the parties dated October 8, 2013, pursuant to which the Distributors purchase T-SPOT.TB test kits from us for distribution in China, or the Agreement. In accordance with the terms of the Amendment, we will provide the Distributors with a certain quantity of T-SPOT.TB test kits at no charge for use in the Distributors’ discount programs, subject to the achievement by the Distributors of certain minimum purchase requirements. The costs of these no charge tests will be recorded in cost of product revenue or in sales and marketing expense, based on the recipient.

 

We have incurred significant losses from inception and as of June 30, 2015 had an accumulated deficit of $135.4 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 June 30, 2015 was $14.3 million and for the three months ended June 30, 2014 was $11.8 million. Our revenue for the six months ended June 30, 2015 was $28.1 million and for the six months ended June 30, 2014 was $24.1 million. Our net loss for the three months ended June 30, 2015 was $7.3 million and for the three months ended June 30, 2014 was $6.2 million. Our net loss for the six months ended June 30, 2015 was $13.6 million and for the six months ended June 30, 2014 was $9.4 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 platform.

 

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.

 

Our U.S. business derived 96% of its revenue from our service offering (as opposed to diagnostic kit sales) for each of the three-month periods ended June 30, 2015 and 2014. These results reflect our experience that U.S. customers prefer to send interferon-gamma release assay, or IGRA, tests out for processing and analysis rather than run them in-house. Our U.S. business derived 96% and 97% of its revenue from service revenue for the six months ended June 30, 2015 and 2014, respectively. 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 91% and 90% of our revenue from the sale of our in vitro diagnostic kits and associated accessories for the three months ended June 30, 2015 and 2014, respectively. These sales represented 92% and 91% of our revenue for the six-month periods ended June 30, 2015 and 2014, 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 June 30,

   

Six months ended June 30,

 

(in thousands)

 

2015

   

2014

   

2015

   

2014

 

Revenue

                               

Product

  $ 6,613     $ 5,887     $ 13,735     $ 12,712  

Service

    7,639       5,901       14,318       11,350  

Total revenue

  $ 14,252     $ 11,788     $ 28,053     $ 24,062  

 

Revenue by geography

 

We have a direct sales force in the United States, certain European countries and Japan and market development personnel in China. 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 tables reflect product revenue by geography (United States, Europe and rest of world, or Europe & ROW, and Asia) and as a percentage of total product revenue, based on the billing address of our customers.

 

   

Three months ended June 30,

 

(in thousands, except percentages)

 

2015

   

2014

 

Revenue

                               

United States

  $ 7,302       51 %   $ 5,490       47 %

Europe & ROW

    1,913       14 %     1,809       15 %

Asia

    5,037       35 %     4,489       38 %

Total revenue

  $ 14,252       100 %   $ 11,788       100 %

 

 

   

Six months ended June 30,

 

(in thousands, except percentages)

 

2015

   

2014

 

Revenue

                               

United States

  $ 13,671       49 %   $ 10,491       44 %

Europe & ROW

    3,659       13 %     3,685       15 %

Asia

    10,723       38 %     9,886       41 %

Total revenue

  $ 28,053       100 %   $ 24,062       100 %

 

In 2014, we created new subsidiaries in Hong Kong and Shanghai, China, further expanding our presence in Asia.

 

Diagnostic products such as ours are subject to periodic re-registration in China. We completed the re-registration process for our T-SPOT.TB test with the China Food and Drug Administration, or CFDA, effective December 11, 2014. The registration will remain in effect until 2019.

 

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, U.S. medical device excise tax, and depreciation of laboratory equipment and leasehold improvements. During the three months ended June 30, 2015 and 2014, our cost of revenue represented 46% and 51%, respectively, of our total revenue. For the six months ended June 30, 2015 and 2014, our cost of revenue represented 47% and 50%, respectively, of our total revenue.

 

 

   

Three months ended June 30,

   

Six months ended June 30,

 

(in thousands)

 

2015

   

2014

   

2015

   

2014

 

Cost of revenue

                               

Product

  $ 2,885     $ 2,822     $ 5,955     $ 5,863  

Service

    3,617       3,171       7,202       6,142  

Total cost of revenue

  $ 6,502     $ 5,993     $ 13,157     $ 12,005  

 

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 54% and 49%, respectively, for the three months ended June 30, 2015 and 2014. Gross margins were 53% and 50%, respectively, for the six months ended June 30, 2015 and 2014. The gross margin improvement was attributable to a reduction in material costs per test and efficiency from increased volume in our manufacturing operations and service laboratories, partially offset by the impact of foreign currency exchange rate changes and increased share-based compensation expense in 2015 compared to 2014.

 

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.

 

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 would 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 in November 2013 and, with the Boulder acquisition in July 2014, we are expanding 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, repairs and maintenance. In June 2014, we hired a Chief Medical Officer, or CMO. Since joining the Company, the CMO has 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 June 30, 2015 and 2014, our research and development expenses represented 20% and 13%, respectively, of our total revenue. For the six months ended June 30, 2015 and 2014, research and development expenses represented 19% and 9%, respectively, of our total revenue. These increases were primarily related to clinical studies, including the PROTECT study, which is a pivotal clinical trial designed to demonstrate the clinical value of Oxford Immunotec’s T-SPOT.CMV and T-SPOT.PRT products, and the REACT study, which focuses on stem cell transplant patients, and is the second of two pivotal clinical trials designed to demonstrate the clinical value of Oxford Immunotec’s T-SPOT.CMV test, as well as development project expenses related to our transplant program, to the hiring of personnel in the United States to support development programs and to the projects acquired in the Boulder acquisition.

 

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.

 

 

We continue to expand our operations in Asia. During 2014, we established two new subsidiaries in Asia: Oxford Immunotec Asia Limited, located in Hong Kong, and Oxford Immunotec (Shanghai) Medical Device Co. Ltd., located in Shanghai, China. In addition, we are expanding our sales force in Japan.

 

During each of the three-month periods ended June 30, 2015 and 2014, our sales and marketing expenses represented 54% of our total revenue. For the six months ended June 30, 2015 and 2014, our sales and marketing expenses represented 54% and 45%, respectively, of our total revenue. We expect our sales and marketing costs to increase, as we expand our sales force, business development activities, geographic presence, and marketing and medical education programs to increase awareness and adoption of our current T-SPOT.TB test and future products.

 

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 June 30, 2015 and 2014, our general and administrative expenses represented 27% and 34%, respectively, of our total revenue. For the six months ended June 30, 2015 and 2014, our general and administrative expenses represented 27% and 33%, respectively, of our total revenue. Our general and administrative expenses decreased largely due to lower legal fees related to regulatory filings in 2015 compared to 2014, partially offset by higher salary costs.

 

Other income (expense)

 

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

 

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

 

 

Results of operations

 

Comparison of three months ended June 30, 2015 and 2014

 

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 June 30,

                 
   

2015

   

2014

   

Change

 

(in thousands, except percentages)

 

Amount

   

% of
revenue

   

Amount

   

% of
revenue

   

Amount

   

%

 

Revenue:

                                               

Product

  $ 6,613       46 %   $ 5,887       50 %   $ 726       12 %

Service

    7,639       54 %     5,901       50 %     1,738       29 %

Total revenue

    14,252       100 %     11,788       100 %     2,464       21 %

Cost of revenue:

                                               

Product

    2,885       20 %     2,822       24 %     63       2 %

Service

    3,617       25 %     3,171       27 %     446       14 %

Total cost of revenue

    6,502       46 %     5,993       51 %     509       8 %

Gross profit

    7,750       54 %     5,795       49 %     1,955       34 %

Operating expenses:

                                               

Research and development

    2,846       20 %     1,515       13 %     1,331       88 %

Sales and marketing

    7,727       54 %     6,343       54 %     1,384       22 %

General and administrative

    3,784       27 %     3,968       34 %     (184 )     (5 )%

Total operating expenses

    14,357       101 %     11,826       100 %     2,531       21 %

Loss from operations

    (6,607 )     (46 )%     (6,031 )     (51 )%     (576 )     10 %

Interest expense, net

    (19 )     0 %     (28 )     0 %     9       (32 )%

Foreign exchange losses

    (674 )     (5 )%     (262 )     (2 )%     (412 )     157 %

Other income (expense)

    7       0 %     81       1 %     (74 )     (91 )%

Loss before income taxes

    (7,293 )     (51 )%     (6,240 )     (53 )%     (1,053 )     17 %

Income tax expense (benefit)

    1       0 %     (6 )     0 %     7       (117 )%

Net loss

  $ (7,294 )     (51 )%   $ (6,234 )     (53 )%   $ (1,060 )     17 %

 

 

Revenue 

 

Revenue increased by 21% to $14.3 million for the three months ended June 30, 2015 compared to $11.8 million for the same period in 2014. This increase in revenue was due to an increase in volumes across all regions where we sell our T-SPOT.TB test. U.S. revenue grew by 33%, to $7.3 million for the three months ended June 30, 2015, driven by growth of $1.7 million from the addition of new customers and $146,000 from existing customers. Asia revenue grew by 12% to $5.0 million for the three months ended June 30, 2015 compared to the same period in 2014, due primarily to higher revenue in Japan and China. On a constant currency basis, revenue for Asia would have increased by 27%. Europe & ROW revenue increased 6% to $1.9 million for the three months ended June 30, 2015 compared to the same period in 2014. On a constant currency basis, Europe & ROW revenue would have increased by 21% in 2015 compared to 2014.

 

   

Three months ended June 30,

   

Change

 

(in thousands, except percentages)

 

2015

   

2014

   

Amount

   

%

 

Revenue

                               

Product

  $ 6,613     $ 5,887     $ 726       12 %

Service

    7,639       5,901       1,738       29 %

Total revenue

  $ 14,252     $ 11,788     $ 2,464       21 %

 

   

Three months ended June 30,

   

Change

 

(in thousands, except percentages)

 

2015

   

2014

   

Amount

   

%

 

Revenue

                               

United States

  $ 7,302     $ 5,490     $ 1,812       33 %

Europe & ROW

    1,913       1,809       104       6 %

Asia

    5,037       4,489       548       12 %

Total revenue

  $ 14,252     $ 11,788     $ 2,464       21 %

 

Cost of revenue and gross margin

 

Cost of revenue increased by 8% to $6.5 million for the three months ended June 30, 2015 from $6.0 million in the same period in 2014. 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 increased to 54% for the three months ended June 30, 2015 from 49% for the same period in 2014. The gross margin improvement was attributable to a reduction in material costs per test and efficiency from increased volume in our manufacturing operations and service laboratories, partially offset by the impact of foreign currency exchange rate changes and increased share-based compensation expense in 2015 compared to 2014.

 

   

Three months ended June 30,

   

Change

 

(in thousands, except percentages)

 

2015

   

2014

   

Amount

   

%

 

Cost of revenue

                               

Product

  $ 2,885     $ 2,822     $ 63       2 %

Service

    3,617       3,171       446       14 %

Total cost of revenue

  $ 6,502     $ 5,993     $ 509       8 %

 

 

Research and development expenses

 

Research and development expenses increased by 88%, to $2.8 million for the three months ended June 30, 2015, from $1.5 million for the same period in 2014. This increase reflects the fact that in 2014 we were just beginning to ramp-up our research and development activities following completion of our initial public offering in late 2013. 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. In addition, with the acquisition of Boulder in the third quarter of 2014, we have expanded our research efforts to include assays for Lyme disease and gout and an assay to inform decisions regarding biologic therapies. Salary costs increased $954,000 in 2015 compared to 2014. In addition, the cost of clinical studies increased $290,000 in 2015 compared to 2014. As a percentage of total revenue, research and development expenses increased to 20% for the three months ended June 30, 2015 from 13% for the same period in 2014.

 

Sales and marketing expenses

 

Sales and marketing expenses increased 22% to $7.7 million for the three months ended June 30, 2015 from $6.3 million for the same period in 2014. The increase reflects an increase in sales personnel and in personnel-related costs for commissions on increased sales and for hiring of sales and marketing personnel. Salary costs increased $1.3 million in 2015 compared to 2014. As a percentage of total revenue, sales and marketing expenses were 54% for each of the three-month periods ended June 30, 2015 and 2014.

 

General and administrative expenses

 

General and administrative expenses decreased by 5% to $3.8 million for the three months ended June 30, 2015 from $4.0 million for the same period in 2014. The decrease in general and administrative expenses included a $251,000 decrease in accounting consulting fees in 2015 compared to 2014 and a $227,000 decrease in legal fees related to regulatory filings in 2015 compared to 2014, partially offset by a $318,000 increase in salary costs in 2015 compared to 2014. As a percentage of total revenue, general and administrative expenses decreased to 27% for the three months ended June 30, 2015 from 34% for the same period in 2014.

 

Interest expense, net

 

Interest expense, net was $19,000 for the three months ended June 30, 2015, compared to $28,000 in the same period in 2014. Interest expense in both periods primarily related to the fit out of our Marlborough facility.

 

Foreign exchange losses

 

We recorded foreign exchange losses of $674,000 for the three months ended June 30, 2015 as a net result of U.S. Dollar denominated bank accounts, accounts receivable, and accounts payable reflected on the books of Oxford Immunotec Limited, which has a functional currency of the U.K. Pound Sterling, during a period when the Pound was falling versus the Dollar. For the three months ended June 30, 2014, we recorded foreign exchange losses of $262,000. We are exposed to foreign exchange rate risk because we currently operate in three major regions of the world: the United States, Europe & 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 & 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, and our sales in Japan, which started in late 2012, have since grown significantly.

 

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 income of $7,000 for the three months ended June 30, 2015, compared to income of $81,000 for the three months ended June 30, 2014.

 

 

Comparison of six months ended June 30, 2015 and 2014

 

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.

 

   

Six months ended June 30,

                 
   

2015

   

2014

   

Change

 

(in thousands, except percentages)

 

Amount

   

% of
revenue

   

Amount

   

% of
revenue

   

Amount

   

%

 

Revenue:

                                               

Product

  $ 13,735       49 %   $ 12,712       53 %   $ 1,023       8 %

Service

    14,318       51 %     11,350       47 %     2,968       26 %

Total revenue

    28,053       100 %     24,062       100 %     3,991       17 %

Cost of revenue:

                                               

Product

    5,955       21 %     5,863       24 %     92       2 %

Service

    7,202       26 %     6,142       26 %     1,060       17 %

Total cost of revenue

    13,157       47 %     12,005       50 %     1,152       10 %

Gross profit

    14,896       53 %     12,057       50 %     2,839       24 %

Operating expenses:

                                               

Research and development

    5,205       19 %     2,239       9 %     2,966       132 %

Sales and marketing

    15,168       54 %     10,908       45 %     4,260       39 %

General and administrative

    7,651       27 %     7,880       33 %     (229 )     (3 )%

Total operating expenses

    28,024       100 %     21,027       87 %     6,997       33 %

Loss from operations

    (13,128 )     (47 )%     (8,970 )     (37 )%     (4,158 )     46 %

Interest expense, net

    (34 )     0 %     (63 )     0 %     29       (46 )%

Foreign exchange losses

    (509 )     (2 )%     (407 )     (2 )%     (102 )     25 %

Other income (expense)

    114       0 %     79       0 %     35       44 %

Loss before income taxes

    (13,557 )     (48 )%     (9,361 )     (39 )%     (4,196 )     45 %

Income tax expense

    48       0 %     26       0 %     22       85 %

Net loss

  $ (13,605 )     (48 )%   $ (9,387 )     (39 )%   $ (4,218 )     45 %

 

 

Revenue 

 

Revenue increased by 17% to $28.1 million for the six months ended June 30, 2015 compared to $24.1 million for the same period in 2014. This increase in revenue was due to an increase in volumes across all regions where we sell our T-SPOT.TB test. U.S. revenue grew by 30%, to $13.7 million for the six months ended June 30, 2015, driven by growth of $2.8 million from the addition of new customers and $357,000 from existing customers. Asia revenue grew by 8% to $10.7 million for the six months ended June 30, 2015 compared to the same period in 2014, due primarily to higher revenue in Japan and China. However, on a constant currency basis, revenue for Asia would have increased by 18%. Europe & ROW revenue for the six months ended June 30, 2015 of $3.7 million decreased 1% compared to the same period in 2014, due primarily to changes in currency exchange rates. On a constant currency basis, Europe & ROW revenue would have increased by 12% in 2015 compared to 2014.

 

   

Six months ended June 30,

   

Change

 

(in thousands, except percentages)

 

2015

   

2014

   

Amount

   

%

 

Revenue

                               

Product

  $ 13,735     $ 12,712     $ 1,023       8 %

Service

    14,318       11,350       2,968       26 %

Total revenue

  $ 28,053     $ 24,062     $ 3,991       17 %

 

   

Six months ended June 30,

   

Change

 

(in thousands, except percentages)

 

2015

   

2014

   

Amount

   

%

 

Revenue

                               

United States

  $ 13,671     $ 10,491     $ 3,180       30 %

Europe & ROW

    3,659       3,685       (26 )     (1 )%

Asia

    10,723       9,886       837       8 %

Total revenue

  $ 28,053     $ 24,062     $ 3,991       17 %

 

Cost of revenue and gross margin

 

Cost of revenue increased by 10% to $13.2 million for the six months ended June 30, 2015 from $12.0 million in the same period of 2014. 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 increased to 53% for the six months ended June 30, 2015 from 50% for the same period in 2014. The gross margin improvement was attributable to a reduction in material costs per test and efficiency from increased volume in our manufacturing operations and service laboratories, partially offset by the impact of foreign currency exchange rate changes and increased share-based compensation expense in 2015 compared to 2014.

 

   

Six months ended June 30,

   

Change

 

(in thousands, except percentages)

 

2015

   

2014

   

Amount

   

%

 

Cost of revenue

                               

Product

  $ 5,955     $ 5,863     $ 92     &nbs