Special Note Regarding Forward-Looking Statements

 

This Annual Report on Form 10-K, 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 1: “Business,” Part I, Item 1A: “Risk Factors,” and Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this Annual Report. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “would,” “could,” “should,” “intend,” “plan,” “contemplate,” “expect,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “target,” “potential,” “continue,” 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 Annual Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain and that involve substantial risks and uncertainties. Such risks and uncertainties include, but are not limited to:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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the impact of currency fluctuations on our business;

 

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

 

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

 

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

 

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our ability to retain key members of our management;

 

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

 

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

   

	●	potential changes to the Patient Protection and Affordable Care Act of 2010, or PPACA;
	●	the impact of product liability, intellectual property and commercial litigation on our business;

 

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

 

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

 

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our ability to protect and enforce our intellectual property rights;

 

 

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

 

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

 

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

 

You should refer to Item 1A, “Risk Factors” in this Annual Report for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Further, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this Annual Report represent our views only as of the date of this Annual Report. Subsequent events and developments may cause our views to change. 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 Annual Report. As used in this Annual Report, the words “Company,” “we,” “us” and “our” refer to Oxford Immunotec Global PLC, a public limited company incorporated under the laws of England and Wales.

 

Part I 

 

Item 1. Business

 

Overview

 

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

 

Our first product is our proprietary T-SPOT^®1.TB test, which is used to test for tuberculosis, or TB, infection and leverages our T-SPOT technology platform, which allows us to measure the response of specific immune cells to inform the diagnosis, prognosis and monitoring of patients with immune-regulated conditions. Our T-SPOT.TB test has been approved for sale in over 50 countries, including the United States, where we have received premarket approval, or PMA, from the Food and Drug Administration, or FDA, in Europe, where we have obtained a CE mark, as well as in Japan and China. Interferon-gamma release assays, or IGRAs, such as our T-SPOT.TB test have been included in clinical guidelines for TB testing in over 30 countries, including the United States, several European countries and Japan. In addition, we have established reimbursement for our test in the United States, as well as a Current Procedural Terminology, or CPT ², code that is unique to our test. Outside the United States, we have established reimbursement in several countries where reimbursement applies, including Japan, Switzerland, Germany, France and South Korea. We have also established the cost-effectiveness of our test in several published studies.

 

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

 

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

 

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

 

 

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¹ “T-SPOT^®,” “T-Cell Xtend^®,” “Oxford Diagnostic Laboratories^®,” “ODL^®,” “SpiroFind^®”, “Immunetics^®,” the Oxford Immunotec logo, our laboratory logo and other marks are our trademarks. Solely for convenience, trademarks and trade names referred to in this Annual Report on Form 10-K, including logos, artwork and other visual displays, may appear without the^® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names.

² CPT is a registered trademark of the American Medical Association. 

 

Product development activities are inherently uncertain, and there can be no assurance that we will be able to obtain regulatory body clearance to market our products, including our blood donor screening assays, and delays in obtaining regulatory clearance may allow for increased competition, thereby potentially impacting the successful commercialization of our products. In addition, we may terminate our development efforts with respect to one or more of our products under development at any time, including before or during clinical trials, based upon changed market conditions.

 

We believe the annual global market opportunity for our T-SPOT.TB test is well in excess of $1 billion, assuming we can largely displace the tuberculin skin test, or TST, in the developed world. We believe the market opportunity for our tests directed to Lyme and other tick-borne diseases exceeds $400 million. We have not yet sized the market opportunity for our transplantation and blood screening assays, as the volume of sales and pricing remain unknown.

 

We are a global business with 457 employees, including sales and marketing teams on three continents, and laboratories in the United States and the United Kingdom. In 2017, we derived approximately 38% of our revenue from outside the United States and our current customer base includes more than 3,000 active customers, such as hospitals, public health departments, physician offices, commercial testing laboratories, importers and distributors.

 

Our focus

 

Our focus is to develop and commercialize proprietary assays for under-served immune-regulated conditions by leveraging the technological, product development, manufacturing, quality, regulatory and sales and marketing capabilities we have developed over our fifteen year history. Large populations of patients have immune-regulated conditions that are often chronic conditions requiring active management through monitoring. Testing that allows better categorization of patients and yields insights into the most likely successful treatment path facilitates personalized medicine, directing therapies to patients in whom they are more likely to work and saving healthcare dollars. We view this space as being underserved by traditional diagnostic companies which lack appropriate techniques to prosecute the immune system.

 

Understanding immune-regulated conditions requires interrogation of the immune system. The human immune system is composed of two principal branches: cellular (T cell) immunity and humoral (B cell and antibody-based) immunity. Through our T-SPOT technology platform we can efficiently measure marker-specific T cell responses at a single cell level and thereby inform the diagnosis, prognosis and monitoring of patients with immune-regulated conditions. We employ a quantitative method to detect antigen-specific cells releasing immune messenger molecules, called cytokines, released by effector T cells. In relation to effector T cells, our technology is designed to selectively measure responses from this subtype of T cells because they are primarily present when active, replicating pathogens are inside the body, as opposed to other T cell subtypes that may be present long after an infection has been cleared from the body. For diagnosis and monitoring applications, it is more relevant to be able to measure the immune response associated with the current infection rather than the immune response associated only with past, cleared exposure.

 

Our T-SPOT technology offers many technical advantages that make it well suited to support our focus on immune-regulated conditions including high analytical sensitivity, application across multiple diseases and conditions and standardization of white blood cell counts, which makes our technology particularly useful in immunocompromised patients, such as those undergoing transplant surgery or immunosuppressive therapy. We employ proprietary manufacturing processes and protocols designed to cost-effectively and reliably produce key elements of our T-SPOT technology, including the process for coating microtiter plates with cytokine antibodies, such as IFN-y antibodies, and our quality control testing procedures. Further, we have developed proprietary methods designed to achieve rapid throughput in assay performance across our product lines. These methods involve specific protocols throughout the assay process and have been developed in our service and research and development laboratories.

 

Our assays directed to tick-borne diseases include differentiated tests that provide increased insight into antibody responses to tick-borne pathogens, which may help clinicians understand the disease state more completely. Our C6 Lyme test kit employs a patented synthetic peptide derived from a protein that is highly specific for Lyme disease.  

 

In addition to our technologies, we have a number of capabilities that we believe we can leverage in developing and commercializing products. We operate both kit and service offerings, giving us go to market flexibility. We have a proven track record of running multi-center clinical trials, changing guidelines and establishing reimbursement, capabilities that are important to commercial success of diagnostic products. We have the experience and capability to gain regulatory clearance to manufacture and sell products meeting the regulatory requirements of numerous countries around the world. This, combined with our global sales and marketing infrastructure, allows us to generate revenues in a large number of countries.

 

Our Commercial Products and Late-Stage Product Pipeline

 

Tuberculosis

 

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

 

 

According to the World Health Organization, or WHO, approximately one-third of the world’s population, over two billion people, is infected with M. tuberculosis. Despite the availability of an effective treatment, TB is the leading cause of infectious disease death worldwide and remains one of the top ten causes of death worldwide from any cause. The WHO estimated that in 2016 approximately 10 million people were diagnosed with active TB disease, of which approximately 1.7 million people died.

 

There are three broad strategies to control TB: vaccination, finding and treating active TB disease, and finding and treating LTBI to prevent the development of new active TB disease cases. The United States has one of the most comprehensive LTBI screening programs in the world with screening of several high-risk groups, including healthcare workers, recommended by the U.S. Centers for Disease Control and Prevention, or the CDC. Screening of healthcare workers is also recommended as part of the accreditation standards for U.S. hospitals. Other high-risk groups identified by CDC include persons with immunosuppressive conditions, such as persons receiving immunosuppressive agents or organ transplant recipients, and persons with human immunodeficiency virus, or HIV. In addition, TB screening is required in many cases for additional populations, such as day care staff, school teachers and students, and emergency response personnel.

 

In total, we estimate that there are approximately 22 million LTBI tests performed each year in the United States, the majority of which are performed within the healthcare system in a variety of settings, including hospitals, public health offices, physicians’ offices and clinics. Outside the United States, we estimate the total number of tests to be approximately 28 million each year, for a combined market size of approximately 50 million LTBI tests annually.

 

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

 

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

 

Our T-SPOT.TB test addresses the limitations of the TST by directly measuring antigen-specific T cells indicative of TB infection. We use two TB-specific antigens, ESAT-6 and CFP10, to stimulate T cells that have previously been exposed to M. tuberculosis, which causes them to release a cytokine called interferon-gamma. Interferon-gamma is one of the dominant cytokines released by activated T cells when encountering M. tuberculosis. In contrast to the PPD reagent used in the TST, these two antigens are not shared with the BCG vaccine or with most non-tuberculous mycobacteria. Because our test detects individual T cells via their release of interferon-gamma, our test is sometimes referred to generically as an IGRA.

 

We currently offer our T-SPOT.TB test in either an in vitro diagnostic kit or a service format. In the former, we sell test kits and associated accessories to laboratories for them to perform the testing themselves. 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. We market our service offering under the name Oxford Diagnostic Laboratories^®, or ODL^®.

 

Our test is widely reimbursed both internationally, with reimbursement established in Japan, Switzerland, Germany, France and South Korea, and in the U.S., where we have established a unique CPT code for our test. Based upon the combination of public and private payors, we have over 300 million covered lives in the U.S.

 

We believe that clinical guidelines, which are recommendations issued by national medical societies or public health bodies, are a driving factor in a clinician’s decision to use a specific diagnostic test. IGRAs, such as our T-SPOT.TB test have been included in clinical guidelines for TB testing in over 30 countries, including the United States, several European countries and Japan.

 

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

 

 

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

 

We currently market our T-SPOT.TB test directly in the United States, Northern Europe and Japan. Outside of these territories, we have contracted with distributors who market and sell our test. In countries where we have a direct presence, we use a combination of sales managers, sales representatives, customer service staff and technical experts to interact with clinicians, nurses, administrative staff, laboratories and other groups who are involved in the implementation of TB screening programs. Our goal is to educate these groups about the clinical, operational and economic benefits of switching from the TST to our T-SPOT.TB test. Our customer service staff and technical experts are also involved in the practical training of customers to perform and order our T-SPOT.TB test as well as providing ongoing customer support. In addition to these teams, we offer a diverse array of marketing programs and services, which include advertising, medical education, attendance at scientific meetings and other awareness-raising activities.

 

In 2017, we derived approximately 83% of our revenue from sales of our T-SPOT.TB test.

 

Tick-borne diseases

 

Tick-borne diseases is the collective name for diseases passed to humans through the bite of an infected tick. As reported by the CDC, the most common tick-borne disease in the United States is Lyme disease, and it is estimated that over 300,000 people are diagnosed with the disease each year. Other tick-borne diseases include Rocky Mountain Spotted Fever, babesiosis, erlichiosis, anaplasmosis, Powassan disease, tick-borne relapsing fever and tularemia. According to data maintained by CDC, the incidence of all tick-borne diseases has increased steadily each year and the number of reported cases of Lyme disease more than doubled from 2001 through 2016.

 

The symptoms of tick-borne diseases often overlap, making diagnosis a challenge without accurate tests that can differentiate between the causative agents of disease. The CDC recommended approach for diagnosis of Lyme disease involves a 2-tier testing methodology that relies on detection of antibodies. While these guidelines are effective in many situations, this 2-tier testing algorithm has limitations, especially during the first few weeks of infection. Furthermore, the CDC guidelines for Lyme disease testing do not require testing for other tick-borne infections, meaning that such infections may be missed.

 

Tests, or combinations of tests, that allow for more timely and accurate detection of tick-borne infections other than Lyme disease are a primary unmet need in this market. Our portfolio of tick-born disease tests addresses this need by covering a wide range of tick-borne diseases, including babesiosis, erlichiosis and anaplasmosis. Our tests also aim to address the separate unmet need for tests that have higher sensitivity in early presentations of Lyme disease. We use a variety of methods, including antibody capture, enzyme immunoassay, or EIA, western blot, polymerase chain reaction, or PCR, and immunofluorescence assay, or IFA, to detect serological and molecular evidence of the particular organisms associated with tick-borne disease.

 

We also maintain a tick-borne disease database of specimens with serological evidence of infection. This database allows us to run a comparative analysis of current and past samples to provide further information to clinicians about their patients and disease state. Our database also enables us to analyze co-infection data and tailor test combinations to the tick-borne diseases most prevalent in particular geographies.

 

In 2017, our Massachusetts laboratory began offering an assay targeting Rocky Mountain Spotted Fever, or RMSF. RMSF is the most lethal and most frequently reported rickettsial tick-borne diseases in the United States. Although RMSF cases have been reported throughout most of the contiguous United States, five states (North Carolina, Oklahoma, Arkansas, Tennessee, and Missouri) account for over 60% of RMSF cases. The early clinical presentation of RMSF is nonspecific and may resemble a variety of other infectious and non-infectious diseases. Our offering can be used to identify RMSF infection as well as other rickettsial diseases.

 

In addition to our service offerings, our C6 Borrelia burgdorferi (Lyme) ELISA kit, or C6 Lyme ELISA kit, measures Lyme specific antibodies by leveraging a synthetic version of the C6 peptide antigen, a marker specific to Borrelia burgdorferi, the causative organism of Lyme disease in the U.S. We currently utilize our sales force to market our tick-borne disease tests directly in the U.S. Outside the U.S., we rely on our direct sales force as well as independent distributors to market our C6 Lyme ELISA kit.

 

Babesia microti Blood Screening

 

Babesiosis is a tick-borne disease characterized by a wide spectrum of clinical manifestations that range from asymptomatic to severe acute or even fatal illness. While the disease is generally mild to moderate in children and young healthy adults, it is more severe in neonates, the elderly and immunocompromised individuals such as those undergoing treatment for cancer. Babesiosis is predominately caused by a parasite called Babesia microti. While it is primarily transmitted through a tick bite, babesiosis can also be transmitted by blood transfusion. Transfusion-transmitted babesiosis is responsible for the highest percentage (31%) of transfusion-related infectious fatalities over the past ten years (2006 – 2015) reported to the FDA in transfusion recipients and Babesia microti is the highest ranking pathogen in the U.S. transmitted by blood transfusion for which no licensed donor screening is available. The transmission risk of Babesia microti is comparable to the transmission risk of HIV, HBV, and HCV prior to the implementation of routine blood screening programs for these pathogens. Screening of blood products for Babesia microti, therefore, has become a priority for the FDA.

 

 

To address the need for effective blood screening assays, we have three assays that have demonstrated ability to detect Babesia microti in donated blood. Our antibody and PCR tests are the subject of two pending BLA applications and are offered from our Massachusetts laboratory. These tests were the subject of an extensive clinical trial, completed under an FDA Investigational New Drug, or IND, application and in cooperation with the American Red Cross, which screened approximately 90,000 blood samples to evaluate the effectiveness of our testing regime in detecting Babesia microti infected donors. No reported cases of transfusion-transmitted babesiosis were associated with the 75,331 screened donations from high risk states as compared to 14 cases per 253,031 unscreened donations. Based upon the study results, we believe our antibody and PCR tests are effective for screening blood for Babesia microti. The results of the clinical trial were published in the New England Journal of Medicine in December 2016.

 

We also have a second antibody test that may be used to screen for Babesia microti in blood donor samples. This test utilizes a standard ELISA platform and would be offered as a kit for laboratories seeking to screen units of blood for Babesia microti in-house. Our BLA application for this test remains pending with FDA. In mid-February, the Company received a complete response letter, or CRL, from FDA which raised a number of questions related to the Company’s submissions in the fourth quarter of 2017 in support of licensure.  Given FDA’s previous verbal comments to the Company, the CRL was unexpected and will delay licensure and commercialization of the assay. As a result, the Company recorded an impairment charge of $7.2 million to write off the intangible assets related to the assay.

 

Transplantation

 

The most recent available information indicates that over 160,000 transplants are conducted in the world every year. Kidney and hematopoietic stem cell transplants comprise the majority of the market. The majority of transplants are performed in hospitals or clinics specializing in transplantation and thus represent a fairly concentrated sales call point.

 

Our T-SPOT.CMV test currently targets the transplant market. Technical development of this test has been completed and clinical validation activities are currently underway.

 

Our T-SPOT.CMV test measures the strength of a patient’s T cell response to CMV infection. Once infected with CMV, the virus remains in the body for life and is an opportunistic pathogen. It is present in up to 90% of the human adult population, most of whom successfully control its progression through their T cell response. For those with weakened immune systems such as transplant recipients, however, CMV presents a significant source of morbidity. Our T-SPOT.CMV test provides information that may be useful in informing management strategies of patients at risk of CMV infection and disease, such as transplant patients. Our T-SPOT.CMV test is CE marked in the European Union. In the U.S., our CLIA-certified and CAP-accredited laboratory in Tennessee performs this test. We continue to take a measured approach to market introduction of this test as we await final results of our two pivotal clinical studies involving this test.

 

Regulatory approvals and clinical validation

 

Tuberculosis

 

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

 

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

 

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

 

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China. We obtained initial approval for our T-SPOT.TB test from the China Food and Drug Administration, or the CFDA, in 2010. Consistent with CFDA re-registration requirements, we secured re-registration of our test in 2014, which will remain effective until 2019.

 

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

 

In addition to being validated in multiple clinical studies, our T-SPOT.TB test has also been the subject of nearly 500 peer-reviewed publications in scientific journals including several meta-analyses.

 

Tick-borne diseases and transplantation

 

Our C6 Lyme ELISA kit is FDA cleared and CE marked in the European Union. The test has been the subject of over 20 peer-reviewed publications.

 

Our service-based tests for tick-borne diseases are offered as laboratory developed tests from our CLIA certified, CAP accredited laboratory in Massachusetts. Our tests have been the subject of more than 20 peer-reviewed publications.

 

Competitive landscape

 

Tuberculosis

 

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

 

 

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

 

Other than the TST, our principal competitor is the QuantiFERON^®3-TB Gold Plus test, or QFN Plus, which was approved for sale in the U.S. in 2017 and has been available in Europe since 2016. Early publications suggest similar performance characteristics between QFN Plus and its predecessor. QFN Plus, however, requires use of a fourth specialized antigen-coated blood collection tube, either at the time of blood draw or later, which may increase phlebotomy complexity and time requirements. The additional blood collection tube also increases lab processing expense as it requires an additional well per test.

 

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

 

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

 

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

 

In addition to the performance advantages we believe we have over QFN Plus, we have developed and implemented the ability to offer our test as a service in the United States and the United Kingdom. The significant advantages of offering our test as a service include marketing opportunities created through the development of direct customer relationships, more convenient and extensive (7 days a week) access to testing via our logistics infrastructure, faster and more efficient customer on-boarding as a result of the simplicity of our pre-paid shipper boxes, and greater utility for our customers due to additional services we can provide beyond a test result.

 

As a result of clinical and service advantages, we have been able to negotiate a higher average selling price for our service. We believe this advantage provides us a larger addressable market than is available through selling kits as done by QFN Plus; simply put, our revenue potential from the same testing volume is higher. This advantage has been further strengthened as a result of the recent adjustments to the Clinical Lab Fee Schedule based upon the provisions of the Protect Access to Medicare Act, or PAMA. In 2017, The Centers for Medicare & Medicaid Services, or CMS, reimbursement for our test under CPT code 86481 was approximately $103 per test; CMS reimbursement for QFN Plus under CPT code 86480 was approximately $85 per test. Under PAMA, reimbursement for our T-SPOT.TB test for the years 2018-2020 will remain largely unchanged from 2017 rates. In contrast, the reimbursement for QFN Plus will decrease by 27% by 2020. We believe that the increased difference in reimbursement under PAMA provides us with pricing and access advantages in certain segments of the U.S. market.

 

Tick-borne diseases

 

Historically, the tick-borne disease testing market has been served by undifferentiated assays focused mainly on Lyme disease. The U.S. CDC guidelines, which are now over 20 years old and were formulated when the incidence Lyme and other tick-borne diseases was far lower, recommend the use of a 2-tier methodology for Lyme disease testing consisting of an initial screening by EIA or IFA followed by a confirmatory western blot for equivocal or positive EIA or IFA results. This methodology has three limitations: 1) it relies solely on indirect serological detection of infection; 2) serology testing can be insensitive within the first few weeks following infection; and 3) it does not address testing for co-infection with other organisms that cause tick-borne diseases.

 

The competitive landscape for diagnostics directed to tick-borne diseases is largely fragmented in the U.S. with national laboratories, regional laboratories and specialty laboratories offering various tests utilizing a range of established technologies and laboratory techniques. Large community and academic hospitals may offer tick-borne disease testing ‘in-house’ i.e., within their laboratories, but it is typically limited to Lyme disease testing, as no FDA-approved test kits exist for ehrlichiosis, anaplasmosis, babesiosis and several other tick-borne diseases other than Lyme. National laboratories, including Quest Diagnostics Inc. and Laboratory Corporation of America Holdings, have broad geographic reach in the U.S. and offer a range of antibody screening and PCR tests targeting Lyme and other tick-borne diseases. Regional laboratories focus on particular geographic areas within the U.S. and differ in the variety of tick-borne disease tests offered while specialty laboratories tend to have more limited test menus, especially for tick-borne diseases other than Lyme disease.

 

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³ QuantiFERON^® is a registered trademark of Qiagen N.V.

 

We believe that our growing portfolio of tick-borne disease tests offers a significant competitive advantage relative to the existing products on the market. Through the combination of PCR and antibody tests offered through our Massachusetts laboratory, we are able to detect the organism that causes the tick-borne disease as well as the antibody response to the organism. Our service approach accommodates a wider diagnostic window and aims to provide additional information to clinicians about the stage of infection than the traditional test for Lyme disease. Based upon our tick-borne disease database, we are able to offer a comparative analysis of past and current samples to better inform the interpretation of the results. Our database also enables us to offer customers tests tailored to the tick-borne diseases present in their local geographies. Our test result turnaround time of 24-48 hours from time of sample receipt also provides us with a competitive advantage.

 

Our pipeline

 

As noted above, our late-stage pipeline consists of three assays for use in screening the U.S. blood supply for Babesia microti and our T-SPOT.CMV test. In addition, we have active development programs to enhance our TB and tick-borne disease product offerings. With regard to TB, we are developing multiple product enhancements that aim to improve the clinical utility of our test and improve test workflow and automation. These enhancements will also serve to increase the barriers to entry in both the U.S. and outside the U.S.

 

In tick-borne disease, we continue to develop enhancements to improve the accuracy of Lyme disease diagnosis and recently commenced a prospective clinical study earlier this year. This study, named the Lyme Test Indication Combinations or LyTIC Study, aims to establish the performance of individual tests, including our Spirofind assay, and combinations of tests in diagnosis of early Lyme infection. Our SpiroFind assay targets Lyme disease and may provide both an earlier diagnosis and the ability to differentiate re-infections from prior exposure. This assay would complement our existing assays offering comprehensive testing for tick-borne infections.

 

We also have additional assays in technical development which target other tick-borne infectious diseases endemic to the U.S.

 

Our total research and development expenses were $16.7 million, $13.9 million, and $10.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.

 

Intellectual property

 

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

 

The intellectual property relating to our T-SPOT.TB test that we own or license includes 12 issued U.S. patents, 13 issued patents in other jurisdictions, one pending U.S. patent application and two pending patent applications in other jurisdictions, as well as registered trademarks, proprietary manufacturing processes and protocols, and proprietary methods directed towards achieving rapid throughput in assay performance.

 

Our owned and licensed patents

 

Many of the patent rights we own or in-license have claims directed to the use of ESAT-6 and/or CFP10 to detect Mycobacterium tuberculosis. We believe that these are the most important TB-specific antigens and we include peptides from both of these in our T-SPOT.TB test. We also believe that using an ELISPOT technique for an IGRA enhances its accuracy and suitability for use in testing individuals with compromised immune systems. Our T-SPOT.TB test employs this technique.

 

Our technology patents contain claims to methods of measuring marker-specific effector T cell responses at a single-cell level to certain peptides of ESAT-6 to diagnose TB infection. In December 2017, as part of the settlement of our patent infringement action, we received a one-time, lump sum payment of $27.5 million from Qiagen Inc., or Qiagen. The settlement agreement included a non-exclusive, royalty-free license to certain of our patents for use in Qiagen’s QFN products. See “Legal Proceedings” for more information. These patents expire in 2019.

 

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

 

 

We have also licensed two patents on a non-exclusive basis that relate to our T-SPOT.CMV test and four patents that relate to our C6 Lyme ELISA kit. In connection with our acquisitions of Boulder Diagnostics, Inc., or Boulder, and Immunetics, Inc., or Immunetics, we gained access to additional patents that we believe may assist us to develop future diagnostic tests in the infectious disease or transplant fields. We have licensed certain patents related to the detection of antibody-secreting B cells specific for HLA and to the PCR and IFA tests performed at our Massachusetts laboratory. We also have two patents under license and acquired a patent family application, pending in four territories, relating to additional TB antigens. The expected expiration dates of the licensed patents range from March 2018 to May 2032. We can give no assurance that any of our current or future research and development programs will result in the development and validation of any diagnostic test that leverages any of these patents or patent applications or otherwise.

 

Our license and assignment agreements

 

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

 

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

 

Tuberculosis related patents

 

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

 

The amount we pay to Oxford Innovation for our royalty obligation is equal to a royalty rate in the low single digits. Our aggregate royalty obligation payments to Oxford Innovation through December 31, 2017 have been $3.2 million. Our royalty obligations to Oxford Innovation will cease when there are no valid patent claims still in force.

 

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

 

We must make semi-annual royalty payments to Rutgers. Although the agreement contains minimum royalty obligations, the amount of royalties due based on our actual sales utilizing the licensed patents has exceeded the minimum for a number of years and we expect our royalties on actual sales will continue to exceed the minimum for the duration of our royalty obligations. We pay a royalty rate in the low single digits. Our aggregate payments to Rutgers through December 31, 2017 for signing fees, annual fees, milestones and royalties, including minimum royalties, have been $5.9 million. Our royalty obligations to Rutgers will cease when there are no valid patent claims still in force covering licensed products or assays. Previously, we made a number of other payments to Rutgers for license issue fees, annual license fees and milestone payments. No such future payments are required under the license.

 

Tick-borne disease related patents

 

We license patents relating to our tick-borne disease products from Roche Molecular Systems, Inc., or Roche, Life Technologies Corporation, or Life Technologies, and Tulane University, or Tulane. The licenses from Roche and Life Technologies pertain to patents covering aspects of the PCR and IFA test methods, respectively, used at our Massachusetts laboratory. Both are fully paid up licenses with no ongoing royalty obligations. The patents that are the subject of the licenses expire in 2018.

 

 

Our C6 Lyme ELISA kit incorporates the VIsE protein and C6 peptide, the most immunodominant portion of the VIsE protein. The protein is the subject of a patent held by Tulane. The license from Tulane grants us the exclusive right to use the C6 peptide in a diagnostic test for Lyme disease in humans. The license from Tulane has a royalty rate in the single digits and expires in 2019.

 

Trademarks and other protection

 

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

 

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

 

Our Trade Secrets

 

There are several areas in which we have developed trade secrets relating to manufacturing that we believe provide a competitive advantage not only with respect to our T-SPOT.TB test, but also for the other tests we perform at our laboratories. It is essential to the performance of ELISPOT tests used to detect the release of interferon-gamma from stimulated T cells that the microtiter plates used in the test be smoothly coated with the proper amount of interferon-gamma antibodies. For volume manufacturing, these coated plates must also meet stringent shelf life requirements. Our plate-coating process meets these criteria and cost-effectively provides reliable results. We believe this approach results in significant cost savings for us without sacrificing our compliance with either good manufacturing practices or our own high standards.

 

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

 

Manufacturing and laboratory facilities

 

Our tests are generally manufactured by us from materials we obtain from a limited number of suppliers. We manufacture our T-SPOT.TB test at our U.K. corporate headquarters in Abingdon, England, where we currently lease approximately 2,800 square feet of manufacturing space. The lease covering this space expires in 2020 and our current rent for the manufacturing space is $102,000 annually, which is subject to change. Our manufacturing facility is certified to ISO 13485 and ISO 9001. Our space in Abingdon also includes 6,400 square feet of storage/warehouse space. The leases covering this space expire in 2025 and our current rent for the storage/warehouse space is $75,000 annually, which is subject to change.

 

We also operate a laboratory in Abingdon, England, where we currently lease approximately 2,100 square feet of space divided equally between our diagnostic testing laboratory and our research and development and quality control laboratory. The leases for these facilities expire in 2019 and 2020, respectively. Our current rent for the total U.K. laboratory space is $83,000 annually, which is subject to change.

 

In 2017, we executed an agreement for lease for new space in Abingdon, England that will allow us to combine our manufacturing, laboratory, storage and office operations into a single facility. We expect to take occupancy of the new space in the second half of 2018.

 

We operate two diagnostic testing laboratories in the United States where we process samples sent to us by our customers who choose the service format of our product offering. Our U.S. laboratory facility, located in Memphis, Tennessee performs our T-SPOT.TB test and performs our T-SPOT.CMV test. Our current lease for the Tennessee laboratory facility covers approximately 35,000 square feet of space and expires in 2021. Our current rent under this lease is $150,000 annually and is subject to annual increases.

 

Our second U.S. laboratory is located in Norwood, Massachusetts and performs both our T-SPOT.TB and tick-borne disease testing. Our current lease for the Norwood laboratory facility covers approximately 58,000 square feet of space divided between two buildings. During 2018, we expect to consolidate our current facilities into a single building and reduce our space under lease to approximately 40,000 square feet. Our current lease expires in March 2023 and rent for our Norwood operations is approximately $975,000 and is subject to annual increases. We also currently lease approximately 14,000 square feet in Boston, Massachusetts, which includes a clinical and research laboratory directed to the development and testing of the products acquired from Immunetics. The lease for the Boston facility expires in July 2018 at which time the operations will be consolidated into the Norwood, Massachusetts facility. Current rent under this lease is $263,000 annually.

 

 

Key supplier relationships 

 

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

 

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

 

The purchase agreement expires, unless earlier terminated, on December 31, 2023. Either party may terminate by providing written notice to the other in the event of a material uncured breach by the other party, a liquidation, insolvency, or bankruptcy proceeding involving the other party or cessation in trading by the other party.

 

EMD Millipore Corporation. We entered into a supply agreement with EMD Millipore Corporation, or Millipore, in 2009, which was amended in 2013 and 2014. Pursuant to this agreement, Millipore supplies us with the membrane plates used in tests incorporating our T-SPOT technology. We provide rolling forecasts of our anticipated purchases and portions of those forecasts become binding orders. We receive pricing discounts based on the size of our orders. The agreement expires, unless earlier terminated, on December 31, 2018. Each party has the right to terminate in the event of a material uncured default by the other party.

 

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

 

The current term of the agreement expires, unless earlier terminated, on December 31, 2018, subject to automatic renewals for additional one-year periods in the absence of specified notice by either party. Each party has the right to terminate in the event of a material uncured breach by the other party, or in the event of a bankruptcy or insolvency proceeding involving the other party.

 

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

 

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

 

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

 

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

 

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

 

 

Key customer relationships

 

Given the diversity of our product and service offerings, our customers include large hospital systems, public and private institutions such as universities, public health departments and physician groups. Our customer relationships also include our distributors outside of the U.S. We believe our relationships with two of the distributors of our T-SPOT.TB test are key customer relationships.

 

Shanghai Fosun Long March Medical Science Co. Ltd. We have a distribution agreement with Shanghai Fosun Long March Medical Science Co. Ltd., or Fosun, pursuant to which Fosun distributes our TB-related products in China. Under the distribution agreement, Fosun serves as our exclusive distributor in a territory consisting of the People’s Republic of China, including Macau Special Administrative Regions, and also serves as our non-exclusive distributor in Hong Kong. Fosun commits to using its best efforts to promote, sell and distribute our products in the territory in compliance with our policies and procedures and applicable law. The agreement imposes certain annual minimum purchase obligations at agreed upon pricing and covers our products, as well as other accessories which may be used in conjunction with our products. Fosun is obligated to refrain from dealing in any products in the territory which would be competitive with ours through a period extending 12 months after the termination of the agreement.

 

The agreement expires on January 1, 2021. Either party may terminate the agreement for a material uncured breach or in the event of bankruptcy or an equivalent winding up of the other party’s business. We may terminate the agreement if Fosun does not meet the minimum purchase requirements, for late payment or if Fosun undergoes a change in control. In December 2017, we amended the distribution agreement to provide a certain rebate in Fosun’s discount programs in 2017, subject to Fosun’s achievement of minimum purchase quantities.

 

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

 

Government regulation

 

Federal Food, Drug, and Cosmetic Act

 

In the United States, in vitro diagnostics, or IVDs, are regulated by the FDA as either medical devices or biological products under the Federal Food, Drug, and Cosmetic Act, or FDCA, depending on their intended use. IVDs that are used as diagnostics are regulated as medical devices. IVDs that are used to screen donor blood are regulated as biological products, which have two different regulatory pathways.

 

Marketing pathways

 

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

 

The information that must be submitted to the FDA to obtain clearance or approval to market a new medical device varies depending on how the medical device is classified by the FDA. Medical devices are classified into one of three classes on the basis of the controls necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls, including labeling and adherence to the FDA’s quality system regulation, which establishes device-specific good manufacturing practices. Class II devices are subject to general controls and special controls, including performance standards and post-market surveillance. Class III devices are subject to these requirements as well as to premarket approval. Most Class I devices are exempt from premarket submissions to the FDA; most Class II devices require the submission of a 510(k) premarket notification to the FDA; and Class III devices require submission of a PMA application. Our T-SPOT.TB test is a Class III device and our C6 Lyme ELISA kit is a Class II device. We have other Class II devices that have received 510(k) clearance from FDA that we acquired through our acquisition of Immunetics.

 

 

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

 

510(k) Clearance. Our C6 Lyme ELISA kit has obtained 510(k) clearance from FDA. A traditional 510(k) submission requires demonstration of substantial equivalence to a previous legally marketed device that was not subject to PMA. If a substantial equivalence cannot be demonstrated and the test is of low to moderate risk, the FDA may allow a de novo 510(k) submission. Submission of either a traditional or de novo 510(k) notification is subject to a 90-day FDA review period. Questions from the FDA, requests for additional data and referrals to advisory committees may delay the process considerably and the FDA may ultimately limit the indications for which the device may be marketed. Marketing of an IVD medical device may begin as soon as FDA clearance is granted.

 

Biologics License Application. The BLA process is similar to a PMA in that it must be supported by detailed and comprehensive scientific evidence, including clinical data to demonstrate the safety and efficacy of the biological product for its intended use in donor blood screening. Blood screening assay development follows the same general pathway followed for drugs and vaccines. Before an application is submitted, an Investigational New Drug application (IND) must be submitted and completed. The IND describes the biological product, its method of manufacture, and quality control tests for release, as well the comprehensive clinical trial protocols. We currently have three BLAs under review by FDA.

 

FDA Guidance on Laboratory Developed Tests. The FDA has historically exercised enforcement discretion over the regulation of Laboratory Developed Tests, or LDTs. In October 2014, the FDA issued draft guidance for the oversight of LDTs that included notification and medical device reporting. Under the draft guidance, the FDA sought to classify LDTs as high, medium or low risk tests, which would then dictate the regulatory route to be followed for each test. In November 2016, the FDA announced that it would not finalize its guidance during 2016. It is uncertain whether the guidance in its current form will be finalized or if, and when, alternate guidance may be issued by the agency.

 

Post-marketing regulations and controls

 

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

 

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

 

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

 

 

International medical device regulations

 

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

 

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

 

Our T-SPOT.TB test has been approved for sale in over 50 countries, including in Europe, China, and Japan. Our T-SPOT.TB test obtained a CE mark in 2004, CFDA approval in China in 2010 and re-registration in 2014, and MHLW approval in Japan in 2012. Our T-SPOT.CMV and T-SPOT.PRT tests obtained CE marks in 2015 and our C6 Lyme ELISA kit obtained a CE mark in 2011.

 

Laboratory certification, accreditation and licensing

 

As a company engaged in the diagnostic testing business, we are required to maintain certain federal and state licenses, certificates and permits.

 

United States. In the United States, CLIA imposes requirements relating to test processes, personnel qualifications, facilities and equipment, record keeping, quality assurance and participation in proficiency testing, which involves comparing the results of tests on specimens that have been specifically prepared for our laboratory to the known results of the specimens. The CLIA requirements also apply as a condition for participation by clinical laboratories under the Medicare program. Under the CLIA regulations, the complexity of the tests performed determines the level of regulatory control. United States Department of Health and Human Services, or HHS, classifies our T-SPOT tests and our tests directed to tick-borne diseases as high-complexity tests. As a result, we must employ more experienced and highly educated personnel, as well as additional categories of employees.

 

HHS, or an organization to which HHS delegates authority, verifies compliance with CLIA standards through periodic on-site inspections. Sanctions for failure to meet these certification, accreditation and licensure requirements include suspension or revocation of the certification, accreditation or license, as well as imposition of plans to correct deficiencies, injunctive actions and civil and criminal penalties. If HHS should remove or suspend our CLIA certificates, we would be forced to cease performing testing at our U.S. laboratories in Memphis, Tennessee or Norwood, Massachusetts.

 

Our U.S. laboratories are also accredited by CAP. The CAP Laboratory Accreditation Program is an internationally recognized program that utilizes teams of practicing laboratory professionals as inspectors, and accreditation by CAP can often be used to meet CLIA and state certification requirements. Additionally, a few states require out-of-state laboratories to obtain a license prior to performing testing on samples originating from such states and to take certain notice or approval steps in connection with the performance by such laboratories of additional tests. The failure to maintain such licenses or approvals would force us to cease performing the applicable tests on samples originating from such a state.

 

United Kingdom. Our laboratory located in the United Kingdom operates under accreditation by the United Kingdom Accreditation Service, or UKAS, for the International Standard: ISO 17025:2005 (General requirements for the competence of testing and calibration laboratories). Compliance with this standard is required to maintain accreditation and the continued use of the UKAS logo on our laboratory documentation. National Health Service (NHS)-based customers require that the testing services they procure operate to an accredited quality management system, which is evidenced by the UKAS accreditation. Therefore, a failure to maintain this accreditation could cause us to lose a substantial majority of our U.K. service business.

 

HIPAA and other privacy laws

 

U.S. Health Insurance Portability and Accountability Act, or HIPAA, established for the first time in the United States comprehensive protection for the privacy and security of health information. The HIPAA standards apply to three types of organizations, or Covered Entities: health plans, healthcare clearing houses, and healthcare providers that conduct certain healthcare transactions electronically. Covered Entities and their Business Associates, as defined in HIPAA, must have in place administrative, physical, and technical standards to guard against the misuse of individually identifiable health information. Because we are a healthcare provider and we conduct certain healthcare transactions electronically, we are currently a Covered Entity, and we must have in place the administrative, physical, and technical safeguards required by HIPAA, the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations. Additionally, some state laws impose privacy protections more stringent than HIPAA. We may conduct other activities that may implicate HIPAA, such as conducting clinical studies or entering into specific kinds of relationships with a Covered Entity or a Business Associate of a Covered Entity.

 

 

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

 

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

 

U.S. federal and state billing and fraud and abuse laws

 

Although only about 15% of our U.S. clinical diagnostics business currently involves payment by third-party payors, including government payors, we are subject to numerous laws governing billing for health care services.

 

Antifraud laws / overpayments. As participants in federal and state healthcare programs, we are subject to numerous federal and state anti-fraud and abuse laws. Prohibitions under some of these laws include:

 

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the submission of false claims or false information to government programs;

 

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deceptive or fraudulent conduct;

 

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excessive or unnecessary services or services at excessive prices; and

 

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defrauding private sector health insurers.

 

We could be subject to substantial penalties for violations of these laws, including denial of payment, obligation to issue refunds, suspension of payments from Medicare, Medicaid or other federal healthcare programs and exclusion from participation in the federal healthcare programs, as well as civil and criminal penalties and imprisonment. One of these statutes, the False Claims Act, is a key enforcement tool used by the government to combat healthcare fraud.

 

Numerous federal and state agencies enforce anti-fraud and abuse laws. In addition, private insurers may bring private actions. In some circumstances, private whistleblowers are authorized to bring fraud suits on behalf of the government against providers and are entitled to receive a portion of any final recovery.

 

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

 

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

 

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

 

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

 

Self-referral law. We are subject to a federal “self-referral” law, commonly referred to as the “Stark” law, which provides, unless a specific exception applies, that physicians who, personally or through a family member, have ownership interests in or compensation arrangements with a laboratory are prohibited from making a referral to that laboratory for laboratory tests reimbursable by Medicare, and also prohibits laboratories from submitting a claim for Medicare payments for laboratory tests referred by physicians who, personally or through a family member, have ownership interests in or compensation arrangements with the testing laboratory.

 

 

We are subject to comparable state laws, some of which apply to all payors regardless of source of payment, and do not contain identical exceptions to the Stark law. The self-referral laws may cause some physicians who would otherwise use our laboratory to use other laboratories for their testing. Providers are subject to sanctions for claims submitted for each service that is furnished based on a referral prohibited under the federal self-referral laws. These sanctions include denial of payment, obligation to issue refunds, civil monetary payments and exclusion from participation in federal healthcare programs and civil monetary penalties. They may also include penalties for applicable violations of the False Claims Act, which may require payment of up to three times the actual damages sustained by the government, plus civil penalties of up to about $11,000 to $22,000 for each separate false claim.

 

U.S. health care reform

 

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

 

Other laws

 

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

 

Employees

 

As of December 31, 2017, we had 457 employees. None of our employees is covered under a collective bargaining agreement. We have not experienced any work stoppages and we believe our employee relations are good.

 

Environmental matters

 

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

 

Available Information

 

Access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed with or furnished to the SEC may be obtained through the investor section of our website at www.oxfordimmunotec.com as soon as reasonably practical after we electronically file or furnish these reports. We do not charge for access to and viewing of these reports. Information in the investor section and on our website is not part of this Annual Report on Form 10-K or any of our other securities filings unless specifically incorporated herein by reference. In addition, the public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.

 

Corporate information

 

Oxford Immunotec Global PLC was incorporated in England and Wales in 2013. Our principal executive offices are located at 94C Innovation Drive, Milton Park, Abingdon, OX14 4RZ, United Kingdom, and our telephone number is +44 (0) 1235 442 780. Our internet website is www.oxfordimmunotec.com. The information on, or that can be accessed through, our website is not part of this Annual Report on Form 10-K.

 

 

Item 1A. Risk Factors

 

Risks related to our business.

 

We have a history of losses and anticipate that we may incur continued losses for at least the next few years. We cannot be certain that we will achieve or sustain profitability.

 

We have a history of losses and may continue to incur operating and net losses for the foreseeable future. For the fiscal years ended December 31, 2017, 2016 and 2015, we had net losses of $32.9 million, $22.3 million and $24.5 million, respectively, and we had an accumulated deficit at December 31, 2017 of $201.5 million. Substantially all of our operating losses in these periods resulted from costs incurred in connection with sales and marketing of our T-SPOT.TB test, general and administrative costs associated with our operations and our research and development programs. Even though we generate revenue from our T-SPOT.TB test, 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. Because of the numerous risks and uncertainties associated with developing and commercializing diagnostic products, we are unable to predict the magnitude of these future losses. Our historic losses, combined with expected future losses, have had and will continue to have an adverse effect on our cash resources, shareholders’ deficit and working capital. We expect our research and development expenses to be substantial for at least the next few years as we continue enhancing our T-SPOT.TB test and work to develop new products.

 

We have not achieved profitability on a consolidated basis and our ability to become profitable depends upon our ability to generate revenue. In 2004, we began to generate revenue from the sale and marketing of our T-SPOT.TB test, but we may not be able to generate sufficient revenue to attain profitability. Our ability to generate profits on sales of our T-SPOT.TB test is subject to market acceptance in market segments we currently serve, as well as in new market segments and new geographies, and our ability to obtain regulatory body clearance to market any of our products. In addition, we may be compelled to sell our T-SPOT.TB test at lower prices if, for example, our customers or prospective customers are unwilling to pay for our tests at current pricing levels or as a result of increased competition generally. Any price erosion would impede our ability to generate revenue. If we are unable to generate sufficient revenue, we will not become profitable and may be unable to continue operations without continued funding.

 

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

 

As of December 31, 2017, we had cash and cash equivalents of $90.3 million and working capital (total current assets less total current liabilities) of $98.0 million. While we anticipate that our current cash, cash equivalents and cash generated from operations will be sufficient to meet our projected operating plans for at least the next 12 months, we may require additional funds, either through additional equity or debt financings, strategic collaboration agreements, sale of assets or from other sources. Additional financing opportunities may not be available to us, or if available, may not be on favorable terms. Further, to the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our shareholders. Our future capital requirements will depend on many factors, including revenue generated from the sale of our T-SPOT.TB test, margins, operating expenses and our ability to control costs associated with our operations, and the costs of filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights. The availability of additional capital will also depend on many factors, including the market price of our ordinary shares and the availability and cost of additional equity capital from existing and potential new investors, our ability to retain the listing of our ordinary shares on The NASDAQ Global Market and general economic and industry conditions affecting the availability and cost of capital.

 

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

 

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

 

We have experienced significant revenue growth in a relatively short period of time. We may not achieve similar growth rates in future periods. Investors should not rely on our operating results for any prior periods as an indication of our future operating performance. If we are unable to maintain adequate revenue growth, our financial results could suffer and our share price could decline.

 

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

 

 

Our cash flows and capital resources may be insufficient to make required payments on our indebtedness and future indebtedness.

 

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

 

As of December 31, 2017, we had $30 million of indebtedness under the MidCap agreement. Such indebtedness could have important consequences to us. For example, it could:

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make it difficult for us to satisfy our other debt obligations;

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make us more vulnerable to general adverse economic and industry conditions;

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limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and other general corporate requirements;

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limit our ability to make large investments or acquisitions;

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expose us to interest rate fluctuations because the interest rate on the debt under the MidCap agreement is variable;

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require us to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for operations and other purposes;

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limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

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place us at a competitive disadvantage compared to competitors that may have proportionately less debt and greater financial resources.

 

In addition, our ability to make scheduled payments or refinance our obligations depends on our successful financial and operating performance, cash flows and capital resources, which in turn depend upon prevailing economic conditions and certain financial, business and other factors, many of which are beyond our control. These factors include, among others:

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economic and demand factors affecting our industry;

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pricing pressures;

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increased operating costs;

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competitive conditions; and

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other operating difficulties.

 

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. In the event that we are required to dispose of material assets or operations to meet our debt service and other obligations, the value realized on such assets or operations will depend on market conditions and the availability of buyers. Accordingly, any such sale may not, among other things, be for a sufficient dollar amount to fund our debt service obligations. Our obligations pursuant to the MidCap agreement are secured by first priority security interests in substantially all of our assets. The foregoing encumbrances may limit our ability to dispose of material assets or operations. We also may not be able to restructure our indebtedness on favorable economic terms, if at all.

 

We may incur additional indebtedness in the future, including pursuant to the MidCap agreement. Our incurrence of additional indebtedness would intensify the risks described above.

 

The MidCap agreement contains various covenants limiting the discretion of our management in operating our business.

 

The MidCap agreement contains, subject to certain carve-outs, various restrictive covenants that limit our management's discretion in operating our business. In particular, these instruments limit our ability to, among other things:

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incur additional debt;

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grant liens on assets;

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make investments, including capital expenditures and acquisitions;

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sell or acquire assets outside the ordinary course of business; and

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make fundamental business changes.

 

If we fail to comply with the restrictions in the MidCap agreement, a default may allow the creditors under the relevant instruments to accelerate the related debt and to exercise their remedies under these agreements, which will typically include the right to declare the principal amount of that debt, together with accrued and unpaid interest and other related amounts, immediately due and payable, to exercise any remedies the creditors may have to foreclose on assets that are subject to liens securing that debt and to terminate any commitments they had made to supply further funds.

 

 

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

 

Our future success is heavily dependent upon the successful further commercialization of our T-SPOT.TB test. There is no assurance that we will continue to generate revenues from this product, or any products under development, in the future. Our business could be materially harmed if we encounter difficulties in the further commercialization of this product, including, among others: failure to achieve sufficient market acceptance by hospitals and public health departments as well as physicians, third-party payors and others in the medical community; the inability to compete with other diagnostic methods, including the TST; the inability to maintain and expand our sales, marketing and distribution networks; the inability to manage anticipated growth; the inability to obtain and/or maintain necessary regulatory approvals; and the inability to effectively protect our intellectual property.

 

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

 

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

 

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

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

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the willingness of our target customers to accept and adopt our T-SPOT.TB test;

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the ability to offer attractive pricing for our T-SPOT.TB test;

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

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outcomes from clinical studies and other publicity concerning our T-SPOT.TB test or competing products.

 

Our efforts to educate physicians and other members of the medical community on the benefits of our T-SPOT.TB test may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by conventional technologies marketed by our competitors. In particular, continuing to gain market acceptance for our T-SPOT.TB test in nascent markets could be challenging. In certain markets, including, for example, Japan and China, our potential for future growth is difficult to forecast. If we were to incorrectly forecast our ability to penetrate these markets, expenditures that we make may not result in the benefits that we expect, which could harm our results of operations. Moreover, in the event that our T-SPOT.TB test is the subject of guidelines, clinical studies or scientific publications that are unhelpful or damaging, or otherwise call into question the benefits of our T-SPOT.TB test, we may have difficulty in convincing prospective customers to adopt our test. Moreover, the perception by the investment community or shareholders that recommendations, guidelines or studies will result in decreased use of our products could adversely affect the prevailing market price for our ordinary shares. Similar challenges apply to all of the products in our pipeline.

 

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

 

Even if we achieve market acceptance, our success will depend on continued demand for diagnostic products for tuberculosis. Tuberculosis screening policies could change such that tests are conducted less frequently or in fewer instances. For example, healthcare institutions facing increased cost control requirements could determine to reduce employee testing. In addition, various institutions or governing bodies may decide that the incidence of TB has dropped sufficiently within their screening population so as to permit reduced testing (e.g., U.S. military guidelines were recently updated such that testing may now be required in fewer instances than under previous guidelines). Changes to immigration policies and policies relating to resettlement of refugees, as well as other policy changes may substantially reduce testing in the markets we serve and could have a material and adverse effect on our business.

 

New market opportunities may not develop as quickly as we expect, limiting our ability to market and sell our T-SPOT.TB test successfully.

 

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

 

 

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

 

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

 

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

 

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

 

In our service offering, we also may face competition from commercial laboratories, including large national and regional laboratories, which may be able to offer access to TB testing. These laboratories may have perceived advantages over our solution, including phlebotomy services, established payor relationships and dedicated courier services. For example, as we seek to further penetrate the physicians’ office segment of the U.S. market, we may find that physicians have established relationships with commercial laboratories that offer physicians additional services, such as phlebotomy, and a wider range of available laboratory tests that a physician may choose to order in addition to a TB test. Further, some commercial laboratories may be able to offer their services at lower cost to physicians’ patients due to the reimbursement arrangements these laboratories may have established with third-party payors. These factors may make it difficult for us to convince physicians to use our test and service offering.

 

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

 

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

 

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

 

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

 

 

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

 

If we are unable to maintain and expand our network of direct sales representatives and independent distributors, we may not be able to generate anticipated sales.

 

We sell our T-SPOT.TB test through our own sales force in the United States, certain European countries and Japan and we sell through distributors in other parts of the world such as in China. Our operating results are directly dependent upon the sales and marketing efforts of not only our employees, but also our independent distributors. We expect our direct sales representatives and independent distributors to develop long-lasting relationships with the providers they serve. If our direct sales representatives or independent distributors fail to adequately promote, market and sell our product, our sales could significantly decrease.

 

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

 

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

 

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

 

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

 

Although for many of our current customers, including those in the hospital and public health segments, the cost of screening their employees for tuberculosis is not reimbursable, our business is somewhat impacted, and in the future may be more greatly impacted, by the level of reimbursement from payors or governmental limitations on price. In the United States, the regulatory process allows diagnostic tests to be marketed regardless of any coverage determinations made by payors. For new diagnostic tests, each payor makes its own decision about which tests it will cover, how much it will pay and whether it will continue reimbursing the test. Clinicians may order diagnostic tests that are not reimbursed if the patient is willing to pay for the test without reimbursement, but coverage determinations and reimbursement levels and conditions are important to the commercial success of a diagnostic product. In addition, eligibility for coverage does not imply that any product will be covered and reimbursed in all cases or reimbursed at a rate that allows our potential customers to make a profit or even cover their costs.

 

CMS establishes reimbursement payment levels and coverage rules for Medicare. CMS currently covers our T-SPOT.TB test. If CMS were to place significant restrictions on the use of our tests, reduce payment amounts or eliminate coverage altogether, our ability to generate revenue from our diagnostic tests could be limited. For example, payment for diagnostic tests furnished to Medicare beneficiaries is made based on a fee schedule set by CMS. In July 2013, CMS released certain proposals that re-examined payment amounts for tests reimbursed under the Medicare clinical laboratory fee schedule due to changes in technology. CMS also proposed to bundle the Medicare payments for certain laboratory tests ordered while a patient received services in a hospital outpatient setting, replacing the current methodology to make separate payments for the test. These changes went into effect on January 1, 2014. In addition, payment methodologies may be subject to changes in healthcare legislation. In February 2012, President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012, which mandated an additional change in reimbursement for clinical laboratory services payments. This legislation required CMS to reduce the Medicare clinical laboratory fee schedule by 2% in 2013, which in turn serves as the base for 2014 and subsequent years. Levels of reimbursement may continue to decrease in the future, and future legislation, regulation or reimbursement policies of third-party payors may harm the demand and reimbursement available for our T-SPOT.TB test, which in turn, could harm our product pricing and sales. If our customers are not adequately reimbursed for our T-SPOT.TB test, they may reduce or discontinue purchases of our product, which would cause our revenues to decline. 

 

 

The Protecting Access to Medicare Act of 2014, or PAMA, includes extensive revisions to the Medicare payment, coding, and coverage requirements for clinical diagnostic laboratory tests as well as creates a new subcategory of CDLTs called Advanced Diagnostic Laboratory Tests (ADLTs) with separate reporting and payment requirements. Under PAMA, the payment amount for CDLTs furnished on or after January 1, 2017, will be equal to the weighted median of private payor rates determined for the test, based on certain data reported by laboratories during a specified data collection period. Per the final payment rates and supporting documentation for the new private payor rate-based CLFS payment system published by CMS in late 2017, CMS reimbursement per test for CPT code 86481 is expected to be $100 in years 2018, 2019, and 2020.

 

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

 

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

 

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

 

Although third-party payors accounted for only about 8% of our total revenue for the year ended December 31, 2017, we currently rely in part, and may in the future more heavily rely, on obtaining third-party payment or reimbursement for our test. We or our customers receive payment from individual patients and from a variety of payors, such as commercial insurance carriers, including managed care organizations and governmental programs, primarily Medicare and Medicaid in the United States. Each payor typically has different billing requirements, and the billing requirements of many payors have become increasingly stringent.

 

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

 

●

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

●

disparity in coverage among various payors;

●

disparity in information and billing requirements among payors;

●

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

●

payments may be sent directly to patients rather than to us.

 

These billing complexities, and the related uncertainty in obtaining payment for our tests, could negatively affect our revenue, cash flow and profitability.

 

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

 

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

 

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

 

We sell our T-SPOT.TB test through a direct sales force in the United States, certain European countries and Japan. In Japan, while we maintain end-user relationships through our direct sales force, we sell through a single importer of record, Riken. In other parts of the world, we sell through distributors. For example, in China, we sell through a single distributor, Fosun. For the year ended December 31, 2017, sales to Fosun and through Riken together accounted for 25% of our total revenue, with Fosun accounting for 14% and Riken accounting for 11%. In the event that either of these customers or any other significant customer substantially reduces its purchases of our products, particularly if this occurs without adequate advance notice to enable us to secure alternate importation or distribution arrangements, our results of operations could be materially and adversely affected.

 

 

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

 

We may encounter unforeseen situations in the manufacture and assembly of our T-SPOT.TB test that would result in delays or shortfalls in our production. Our suppliers may also face similar delays or shortfalls. In addition, our or our suppliers’ production processes and assembly methods may have to change to accommodate any significant future expansion of our manufacturing capacity, which may increase our or our suppliers’ manufacturing costs, delay production of our product, reduce our product margin and adversely impact our business. If we are unable to keep up with demand for our product by successfully manufacturing and shipping our product in a timely manner, our revenue could be impaired, market acceptance for our product could be adversely affected and our customers might instead purchase our competitors’ products. In addition, developing manufacturing procedures for new products would require developing specific production processes for those products. Developing such processes could be time consuming, and any unexpected difficulty in doing so can delay the introduction of a product.

 

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

 

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

 

As of December 31, 2017, we maintain insurance coverage totaling $14.5 million against damage to our property and equipment and an additional $58.4 million to cover business interruption and research and development restoration expenses, subject to deductibles and other limitations. If we have underestimated our insurance needs with respect to an interruption, however, or if an interruption is not subject to coverage under our insurance policies, we may not be able to cover our losses. Even if we cover our losses, our business, financial results and reputation could be materially harmed.

 

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

 

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

 

We rely on courier delivery services to transport samples to our facilities for testing. If these delivery services are disrupted, our business and customer satisfaction could be negatively impacted.

 

Customers in the United States and the United Kingdom ship samples to us by air and ground express courier delivery service for testing in our Memphis, Tennessee, Norwood, Massachusetts and Abingdon, England facilities. If we suffer from disruptions in delivery service, whether due to bad weather, natural disaster, terrorist acts or threats, or for other reasons, we may be unable to provide timely services to customers or at all. As a result, such disruptions could materially and adversely affect our financial results and our reputation.

 

 

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

 

Our business relies heavily on our operations outside the United States. For the year ended December 31, 2017, 38% of our total revenue was derived from sales outside the United States. Because we currently operate in three major regions of the world (the United States, Europe and rest of world, or Europe and ROW, and Asia), our revenue is denominated in multiple currencies. Sales in the United States are denominated in U.S. Dollars. Sales in China are denominated in U.S. Dollars and sales in Japan are denominated in Yen but, in each case, these sales are made by our U.K.-based legal entity where the Pound Sterling is the functional currency. As a result, these sales are subject to remeasurement into Pounds Sterling and then translation into U.S. Dollars when we consolidate our financial statements. Sales in Europe are denominated primarily in the Pound Sterling and Euro. As we grow Europe and ROW sales outside the United Kingdom and the European Union countries, or the Euro Zone, whose national currency is the Euro, we will be subject to exchange rate risk from additional currencies. As a result, our exchange rate exposure may change over time as our business practices evolve and could result in increased costs or reduced revenue and could affect our actual cash flow. Changes in the relative values of currencies occur regularly and, in some instances, may have a significant impact on our operating results. We cannot predict with any certainty changes in currency exchange rates or the degree to which we can effectively mitigate these risks.

 

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

 

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

 

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

 

Uncertainty arising from global political events, including as a result of the June 2016 referendum on the United Kingdom’s exit from the European Union, could adversely affect our ability to conduct business and our results of operations.

 

On June 23, 2016, the United Kingdom, or U.K., held a non-binding referendum, commonly referred to as “Brexit”, in which voters approved an exit from the European Union, or E.U. Thereafter, on March 29, 2017, the U.K. formally notified the E.U. of its intention to withdraw pursuant to Article 50 of the Treaty of the European Union, which formally initiated the withdrawal procedure and set the U.K. on track to exit the E.U. by no later than April 2019.

 

It appears likely that this withdrawal will involve a process of lengthy negotiations between the U.K. and E.U. member states to determine the future terms of the U.K.’s relationship with the E.U. For example, on December 8, 2017, the U.K. reached an agreement in principle with the E.U. on certain areas under consideration as part of the first phase of negotiations on the terms of its exit from the E.U. The ongoing negotiations between the U.K. and E.U., could lead to a period of considerable uncertainty and volatility, particularly in relation to U.K. financial and banking markets. There is also a risk that the vote by the U.K. to leave the E.U. could result in other member states re-considering their respective membership in the E.U. Weakening of economic conditions or economic uncertainties tend to harm our business, and if such conditions emerge in the U.K. or in the rest of Europe, it may have a material adverse effect on our operations and sales.

 

Although it is unknown what the terms of the U.K.’s future relationship with the E.U. will be, it is possible that there will be greater restrictions on trade between the U.K. and E.U. countries and increased regulatory complexities. These changes may adversely affect our operations and financial results. The announcement of Brexit also caused significant volatility in global currency markets. The fluctuation of currency exchange rates may expose us to gains and losses on non U.S. currency transactions and impact the purchasing power of our non U.S. currency customers, causing them to decrease or cancel orders or default on payment. Any global political uncertainty similar to the Brexit referendum could similarly harm our ability to conduct our business and our results of operations.

 

Changes in U.S. tax law may have a material adverse effect on our business, financial condition and results of operations.

 

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

 

Additionally, the 2016 U.S. presidential election introduced a great deal of uncertainty regarding trade policies, tariffs and government regulations, which if altered could have the potential to create a significant adverse effect on trade between the U.S. and other countries. Overall, changes in international trade relations, such as the imposition of or increase in tariffs or other trade barriers, could materially and adversely impact our costs and reduce the competitiveness of our products.

 

 

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

 

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

 

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

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

●     issues maintaining uniform standards, procedures, controls and policies;

●     unanticipated costs associated with acquisitions;

●     diversion of management’s attention from our core business;

●     adverse effects on existing business relationships with suppliers and customers;

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

●     potential loss of key employees of acquired businesses; and

●     increased legal and accounting compliance costs.

 

We have completed three acquisitions since 2014. On July 31, 2014, we acquired substantially all of the assets of Boulder, a privately owned company developing immunology-based assays for autoimmune and inflammatory conditions/diseases. On July 1, 2016, we acquired substantially all of the assets of Imugen, a privately owned Massachusetts corporation specializing in the development and performance of testing for tick-borne diseases, including Lyme disease. On October 12, 2016, we acquired Immunetics, a privately owned Massachusetts corporation focused on developing specialized tests for infectious diseases, including tick-borne diseases, such as Lyme disease.

 

These acquisitions brought us additional product pipeline opportunities which we believe are well-suited to our growing commercial infrastructure, but there can be no assurance that we will be able to successfully develop and complete the development or commercialization of the products that we acquired in these acquisitions. Further, even if we are able to profitably commercialize the underlying product candidates, there is no guarantee that we will be able to do so before any competitors develop and commercialize similar products.

 

In addition to our completed acquisitions, any acquisitions we undertake in the future could be expensive and time consuming, and may disrupt our ongoing business and prevent management from focusing on our operations. If we are unable to manage acquisitions or investments, or integrate any future acquired businesses, products or technologies effectively, our business, results of operations and financial condition may be materially and adversely affected.

 

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

 

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

 

Further, during the fourth quarter of 2016, we made the strategic decision to end our GoutiFind program. GoutiFind was a blood test designed to allow for early diagnosis of gout and better inform therapies by measuring the strength of the underlying uric acid induced inflammation. As a result of this decision, we recorded a non-cash IPR&D impairment charge of $270,000. Also during the fourth quarter of 2016, we recorded a non-cash IPR&D impairment charge of $1.4 million related to the SpiroFind assay when it was determined that the Boulder IPR&D will not directly yield any products.

 

 

Finally, during the third quarter of 2015, the timeline for the development of an assay to inform decisions regarding biologic therapies that was acquired as part of the Boulder acquisition was changed due to delays in the completion of research studies. Based upon the changed timeline and the resulting impact on fair value, we recorded a non-cash IPR&D impairment charge of $385,000.

 

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

 

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

 

We are dependent upon the continued services of key members of our senior management and a limited number of key advisors and personnel. In particular, we are highly dependent on the skills and leadership of our Chief Executive Officer, Dr. Peter Wrighton-Smith, and the other members of management named in the “Management” section elsewhere in this Annual Report. The loss of any one of these individuals could disrupt our operations or our strategic plans. Additionally, our future success will depend on, among other things, our ability to continue to hire and retain the necessary qualified scientific, technical, sales, marketing and managerial personnel, for whom we compete with numerous other companies, academic institutions and organizations. The loss of members of our management team, key advisors or personnel, or our inability to attract or retain other qualified personnel or advisors, could have a material adverse effect on our business, results of operations and financial condition. Although all members of our senior management team have entered into agreements that restrict their ability to compete with us for a period of time after the end of their employment, we may be unable to enforce such restrictive covenants at all or for a sufficient duration of time to prevent members of our management team from competing with us.

 

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

 

As of December 31, 2017, our available U.S. federal net operating losses, or NOLs, totaled $160.5 million and U.S. state loss carryforwards totaled $154.9 million. The amount of these NOLs remains subject to review and possible adjustment by the Internal Revenue Service and state revenue authorities, as applicable. NOLs may become subject to an annual limitation if there is a cumulative change in the ownership interest of significant shareholders (or certain shareholder groups) over a three-year period in excess of 50%, in accordance with rules established under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and similar state rules (we refer to each as an ownership change). Such an ownership change could limit the amount of historic NOLs that can be utilized annually to offset future taxable income. The amount of this annual limitation is determined based on our value immediately prior to the ownership change. We have completed several financings since our inception, including our most recent public offering of ordinary shares that closed on August 18, 2017, that may have resulted in one or more ownership changes under this definition. If we are deemed to have undergone an ownership change by virtue of these transactions, we may not be able to utilize a material portion of our NOLs even if we attain profitability. Future changes in our share ownership, some of which are outside of our control, could result in additional ownership changes for purposes of these rules. We are unable to predict future ownership changes or the way an ownership change could limit the use of our NOLs. In addition, recent changes to U.S. tax laws could negatively affect our ability to use net operating losses to offset future taxable income.

 

Risks related to regulatory and other legal issues.

 

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

 

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

 

●

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

●

regulators may require additional testing for safety and effectiveness;

●

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

●

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

●

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

 

 

In addition, some international jurisdictions, such as China, require periodic recertification. Even if we obtain initial certifications from regulatory bodies, we may lose certification after a periodic review. Failure to maintain requisite certifications from regulatory bodies would adversely affect our ability to generate future revenue and operating income.

 

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

 

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

 

●

warning letters or untitled letters;

●

fines and civil penalties;

●

unanticipated expenditures for corrective actions;

●

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

●

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

●

product recall or seizures;

●

interruption of production;

●

operating restrictions;

●

injunctions; and

●

criminal penalties.

 

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

 

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

 

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

 

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

 

If we are unable to comply with the requirements of CLIA and state laws governing clinical laboratories or if we are required to expend significant additional resources to comply with these requirements, the success of our business could be threatened.

 

HHS has classified our T-SPOT and tick-borne disease tests as high-complexity tests under CLIA. Under CLIA, personnel requirements for laboratories conducting high-complexity tests are more stringent than those applicable to laboratories performing less complex tests. As a result of these personnel requirements, we must employ more experienced or more highly educated personnel and additional categories of employees, which increases our operating costs. If we fail to meet CLIA requirements, HHS or state agencies could require us to cease some or all of the tests that we offer. Continued compliance with CLIA requirements may cause us to incur significant expenses and potentially lose revenue in doing so. Moreover, new interpretations of current regulations or future changes in regulations under CLIA may make it difficult or impossible for us to comply with our CLIA classification, which would significantly harm our business.

 

Many states in which our physician and laboratory clients are located, such as New York, have laws and regulations governing clinical laboratories that are more stringent than federal law and may apply to us even if we are not located, and do not perform tests, in that state. We may also be subject to additional licensing requirements as we expand our sales and operations into new geographic areas, which could impair our ability to pursue our growth strategy.

 

 

We may potentially be subject to product liability claims.

 

The testing, manufacturing and marketing of medical diagnostic tests such as our T-SPOT.TB test entail an inherent risk of product liability claims. Further, providing clinical testing services entails a risk of claims for errors or omissions made by our laboratory staff. Potential liability claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of the policy. As of December 31, 2017, we had product liability insurance of $15.4 million. Our existing insurance will have to be increased in the future if we are successful at introducing new diagnostic products and this will increase our costs. Under certain of our customer and license agreements, we have agreed to provide indemnification for product liability claims arising out of the use of our T-SPOT.TB test. In the event that we are held liable for a claim or for damages exceeding the limits of our insurance coverage, we may be required to make substantial payments.

 

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

 

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decreased demand for our product and product candidates;

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injury to our reputation;

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costs of related litigation;

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substantial monetary awards to patients and others;

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loss of revenue; and

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the inability to commercialize our products and product candidates.

 

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

 

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

 

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

 

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

 

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

 

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

 

We rely on our computer networks and systems, some of which are managed by third parties, to manage and store electronic information (including sensitive data such as confidential business information and personally identifiable data relating to employees, customers and other business partners), and to manage or support a variety of critical business processes and activities. We may face threats to our networks from unauthorized access, security breaches and other system disruptions. Despite our security measures, our infrastructure may be vulnerable to external or internal attacks. Any such security breach may compromise information stored on our networks and may result in significant data losses or theft of sensitive or proprietary information. A cybersecurity breach could hurt our reputation by adversely affecting the perception of customers and potential customers of the security of their orders and personal information. In addition, a cybersecurity attack could result in other negative consequences, including disruption of our internal operations, increased cyber security protection costs, lost revenue, regulatory actions or litigation. Any disruption of could also have a material adverse impact on our operations. To date, we have not experienced any material cybersecurity attacks.

 

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

 

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

 

 

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

 

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

 

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

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

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

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

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

 

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

 

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

 

Our operations are subject to anti-corruption laws, including the U.K. Bribery Act 2010, or Bribery Act, the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws that apply in countries where we do business. The Bribery Act, FCPA and these other laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We and our commercial partners operate in a number of jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and we participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the Bribery Act, FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Risks related to our intellectual property.

 

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

 

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

 

 

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

 

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

 

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

 

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

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

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

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

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

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

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

Even if we prevail in such a proceeding, the remedy we obtain may not be commercially meaningful or adequately compensate us for any damages we may have suffered. If we do not prevail in such a proceeding, certain of our patents could potentially be declared to be invalid, unenforceable or narrowed in scope, or we could otherwise lose valuable intellectual property rights. Similar proceedings involving the intellectual property we license could also have an impact on our business. For example, the scope of one of the European patents that we license from Rutgers, The State University of New Jersey, was narrowed as a result of a third-party opposition proceeding before the European Patent Office. The decision is currently under appeal and the outcome of that appeal may adversely affect our competitive position. Further, if any of our other owned or licensed patents are declared invalid, unenforceable or narrowed in scope, our competitive position could be adversely affected.

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Risks related to our ordinary shares. 

 

We are eligible to be treated as an emerging growth company and we cannot be certain that the reduced disclosure requirements applicable to emerging growth companies will not make our ordinary shares less attractive to investors. 

 

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act, or JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including (1) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, (2) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (3) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

 

We could be an emerging growth company for up to five years from the date of our initial public offering, or November 2018, although we could lose that status sooner if our gross revenues exceed $1.07 billion, if we issue more than $1.0 billion in non-convertible debt in a three-year period, or if we are deemed to be a "large accelerated filer" (the fiscal year-end on which the market value of our ordinary shares held by non-affiliates exceeded $700 million as of the end of the second quarter of such year), in which case we would no longer be an emerging growth company as of the following December 31.

 

We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.  

 

Our share price may be volatile.

 

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

 

●

fluctuations in our results of operations;

●

our ability to enter new markets;

●

negative publicity;

●

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

●

regulatory developments affecting our industry;

●

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

●

changes in economic performance or market valuations of our competitors;

●

actual or anticipated fluctuations in our quarterly results;

●

conditions in the industries in which we operate;

●

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

●

additions to or departures of our key executives and employees;

●

fluctuations of exchange rates;

●

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

●

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

 

In addition, the equity markets have recently experienced significant volatility, particularly with respect to the securities of life sciences companies. The volatility of the securities of life sciences companies often does not relate to the operating performance of those companies. As we operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products, or to a lesser extent our markets. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

 

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

 

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

 

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

 

Our executive officers, directors, and 5% or greater shareholders beneficially own a substantial percentage of our ordinary shares. For example, as of December 31, 2017, our executive officers, directors, and 5% or greater shareholders and their affiliates beneficially owned approximately 31% of our outstanding ordinary shares in the aggregate. We expect that these shareholders will be able to exert a significant degree of influence over our management and affairs and over matters requiring shareholder approval, including the election of our Board of Directors and approval of significant corporate transactions. This concentration of ownership could have the effect of entrenching our management and/or our Board of Directors, delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the fair market value of our ordinary shares.

 

 

We incur increased costs as a result of being a public company whose ordinary shares are publicly traded in the United States and our management must devote substantial time to public company compliance programs.

 

As a public company, we have incurred and will continue to incur significant legal, insurance, accounting and other expenses that we did not incur as a private company. We intend to continue to invest resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. Our insurance costs have increased, particularly for directors and officers liability insurance. Such costs may further increase in the future, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our audit committee and remuneration committee, and qualified executive officers.

 

Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, we are required to furnish a report by our management on our internal control over financial reporting, and, once we cease to be an emerging growth company, we will be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal controls in the future.

 

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

 

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

 

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

 

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

 

●

create a classified Board of Directors whose members serve staggered three-year terms;

●

prohibit shareholder action by written resolution;

●

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

●

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

 

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

 

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

 

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

 

Risks related to being an English company listing ordinary shares.

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

U.S. holders of 10% or more of the voting power of our ordinary shares may be subject to U.S. federal income taxation at ordinary income tax rates on undistributed earnings and profits.

 

There is a risk that we will be classified as a controlled foreign corporation, or CFC, for U.S. federal income tax purposes. We will generally be classified as a CFC if more than 50% of our outstanding shares, measured by reference to voting power or value, are owned (directly, indirectly or by attribution) by “U.S. Shareholders.” For this purpose, a “U.S. Shareholder” is any U.S. person that owns directly, indirectly or by attribution, 10% or more of the voting power of our outstanding shares. If we are classified as a CFC, a U.S. Shareholder may be subject to U.S. income taxation at ordinary income tax rates on all or a portion of our undistributed earnings and profits attributable to “subpart F income” and may also be subject to tax at ordinary income tax rates on any gain realized on a sale of ordinary shares, to the extent of our current and accumulated earnings and profits attributable to such shares. The CFC rules are complex and U.S. Shareholders of the ordinary shares are urged to consult their own tax advisors regarding the possible application of the CFC rules to them in their particular circumstances.

 

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

Our U.K. corporate headquarters and operations, including our laboratory facility, are located in Abingdon, England, where we currently lease approximately 2,100 square feet of laboratory space, 9,700 square feet of office space, 2,800 square feet of manufacturing space, and 6,400 square feet of storage/warehouse space. The leases on these facilities expire in 2019, 2020, and 2025. Our current rents under these leases are $370,000 annually for the office, $103,000 annually for the manufacturing space, $83,000 annually for the laboratory, and $72,000 annually for the storage/warehouse space, each of which are subject to change. In May 2017, the Company entered into an agreement to consolidate its U.K. office and laboratory facilities into a new building that is currently under construction. The lease for the new building is due to commence on June 1, 2018 and extends through June 1, 2033. Initial rent for the new building will be $40,000 per month, while the Company continues to occupy its existing facilities, including its laboratory space. When the leases on the Company’s existing facilities have terminated in December 2020, or possibly sooner, and it fully occupies the new building, rent for the new building will increase to $80,000 per month. Rent will be reviewed for possible increases on June 1, 2021 and every third anniversary after that date.

 

Our U.S. corporate headquarters is located in Marlborough, Massachusetts. In August 2015, we entered into a lease amendment on this location to extend the term of the lease by two years through October 31, 2020. In addition, beginning in March 2016, the lease amendment expanded our office space at this location by 7,600 square feet to a new total of 22,100 square feet. The base rent for the combined space over the lease term will range from an initial low of $36,000 per month, which includes $12,000 per month for the expansion space commencing in early 2016, to a high of $39,000 per month. We will have an option to extend the lease for one additional term of five years. Our main U.S. laboratory facility is located in Memphis, Tennessee, where we currently lease approximately 35,000 square feet of space. The lease on this facility expires in 2021. Our current rent under this lease is $150,000 annually, subject to annual increases. The two laboratory facilities acquired in 2016 are located in Norwood and Boston, Massachusetts. We currently lease approximately 58,000 square feet of space in Norwood divided between two buildings. During 2018, we expect to consolidate our current facilities into a single building and reduce our space under lease to approximately 40,000 square feet. Our current lease expires in March 2023 and rent for our Norwood operations is approximately $975,000 and is subject to annual increases. We lease approximately 18,000 square feet in Boston, under a lease due to expire in July 2018. Our current rent under the Boston lease is $263,000 annually.

 

Item 3. Legal Proceedings

 

On August 10, 2015, Oxford Immunotec Limited, a wholly-owned subsidiary of Oxford Immunotec Global PLC, filed suit in the United States District Court for the District of Massachusetts against Qiagen N.V., Qiagen Inc., Quest Diagnostics LLC, and Laboratory Corporation of America Holdings alleging claims of patent infringement and seeking monetary and injunctive relief. The complaint alleged that the defendants’ manufacture, sale and/or use of the QuantiFERON-TB Gold test infringes patents owned by Oxford Immunotec Limited.

 

On December 15, 2017, the Company reached a settlement in the lawsuit in the U.S. District Court for the District of Massachusetts in Boston (15-cv-13124-NMG) alleging patent infringement in relation to QIAGEN’s QuantiFERON^®-TB Gold and QuantiFERON^®-TB Gold Plus products. Under terms of the agreement, all pending claims between the Company and QIAGEN and the co-defendants have been resolved. In connection with the settlement, the Company received a one-time, lump sum payment of $27.5 million from QIAGEN. As part of the settlement, the Company has granted QIAGEN a royalty-free, non-exclusive license that extends to all current and future customers of QuantiFERON-TB Gold and QuantiFERON-TB Gold Plus. The settlement includes general releases of all parties with no admissions of wrongdoing.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 

PART II

 

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

 

Market Information

 

Our ordinary shares trade on the NASDAQ Global Market under the symbol “OXFD.” The price range per share reflected in the table below is the high and low sales prices of our ordinary shares as reported by NASDAQ (rounded to the nearest penny) for the periods presented.

 

		Year ended December 31, 2017								Year ended December 31, 2016
		High				Low				High				Low
First quarter		$	16.13			$	12.96			$	12.13			$	8.45
Second quarter			16.90				13.53				11.91				8.50
Third quarter			19.51				14.35				12.99				7.73
Fourth quarter			17.20				12.19				15.18				11.88

 

Shareholders

 

On February 1, 2018, there were 10 shareholders of record of our ordinary shares. This number does not include shareholders for whom shares were held in a “nominee” or “street” name. On February 20, 2018, the last reported sale price per share of our ordinary shares on The NASDAQ Global Market was $12.04.

 

Dividends

 

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

 

 

The following graph compares the cumulative total shareholder return on our ordinary shares with that of the NASDAQ Composite Index and the S&P Smallcap 600 Healthcare Index. The comparison assumes that $100.00 was invested at the close of market on November 22, 2013 in our ordinary shares or on October 31, 2013 in the NASDAQ Composite Index and the S&P Smallcap 600 Healthcare Index, and assumes reinvestment of dividends, if any. The performance graph is based on historical results and is not intended to suggest future performance.

 

 

This performance graph is being furnished pursuant to SEC rules and will not be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent we specifically incorporate it by reference.

 

 

Item 6. Selected Consolidated Financial Data

 

The following selected consolidated financial data for the five years ended December 31, 2017 are derived from our consolidated financial statements.

 

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

 

We have prepared the unaudited consolidated financial information presented below on the same basis as our audited consolidated financial statements. The unaudited consolidated financial information includes all adjustments, consisting only of normal recurring adjustments that are necessary for a fair presentation of our financial position and results of operations for these periods. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the following selected financial data together with “Management’s discussion and analysis of financial condition and results of operations” and our financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. The selected financial data in this section are not intended to replace our financial statements and the accompanying notes. 

 

		Year ended December 31,
(in thousands, except share and per share data)			2017 (1)				2016				2015				2014				2013 (2)
Consolidated statement of operations data:
Revenue		$	103,080			$	86,078			$	62,782			$	49,505			$	38,784
Cost of revenue			46,731				39,472				29,544				24,009				18,600
Gross profit			56,349				46,606				33,238				25,496				20,184
Operating expenses:
Research and development			16,701				13,881				10,381				6,961				2,146
Sales and marketing			38,016				34,964				30,402				25,487				13,270
General and administrative			30,366				23,181				16,010				14,837				12,119
Change in fair value of contingent purchase price consideration			(3,475	)			(1,208	)			202				72				—
Intangible assets impairment charges			18,300				1,765				419				—				—
Settlement expense			10,028				—				—				—				—
Total operating expenses			109,936				72,583				57,414				47,357				27,535
Loss from operations			(53,587	)			(25,977	)			(24,176	)			(21,861	)			(7,351	)
Other income (expense)			22,336				(146	)			(156	)			(159	)			(1,221	)
Loss before income taxes			(31,251	)			(26,123	)			(24,332	)			(22,020	)			(8,572	)
Income tax (expense) benefit			(1,634	)			3,774				(146	)			(154	)			(92	)
Net loss		$	(32,885	)		$	(22,349	)		$	(24,478	)		$	(22,174	)		$	(8,664	)
Net loss per ordinary share—basic and diluted		$	(1.38	)		$	(1.00	)		$	(1.12	)		$	(1.28	)		$	(2.26	)
Weighted-average shares used to compute net loss per ordinary share—basic and diluted			23,757,902				22,353,713				21,781,933				17,310,148				3,830,837
Supplemental financial metric:
Adjusted EBITDA (3)		$	(20,003	)		$	(18,469	)		$	(18,167	)		$	(17,664	)		$	(6,008	)

 

(1)	Other income for 2017 includes a $27.5 million one-time, lump-sum payment for the settlement of a lawsuit. See Part I, Item 3. Legal Proceedings for further information.

 

(2)	Net loss for 2013 includes $1.9 million of accounting and auditing costs related to our registration statement on Form S-1, filed in connection with our IPO.

 

(3)

Adjusted EBITDA is a non-Generally Accepted Accounting Principles, or non-GAAP, financial measure that we calculate as net loss, adjusted for income tax expense (benefit), interest expense, net, depreciation and amortization of intangible assets, accretion and amortization of loan fees, share-based compensation expense, unrealized exchange losses (gains), loss on change in fair value of warrants, loss on change in fair value of derivative instrument, change in fair value of contingent purchase price consideration, intangible assets impairment charges, settlement expense and litigation settlement income. We believe that Adjusted EBITDA provides useful information to investors and analysts in understanding and evaluating our operating results in the same manner as our management and Board of Directors. Our presentation of Adjusted EBITDA is not made in accordance with U.S. GAAP, and our computation of Adjusted EBITDA may vary from others in the industry. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. For example, Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations.

 

 

		As of December 31,
		2017				2016				2015				2014				2013
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	90,332			$	59,110			$	83,715			$	50,165			$	76,494
Total assets			144,236				124,012				109,852				73,849				92,744
Total liabilities			56,607				51,048				17,160				13,240				11,992
Total shareholders’ equity			87,629				72,964				92,692				60,609				80,752
Ordinary shares outstanding			25,661,634				22,635,431				22,549,488				17,614,650				17,255,267

 

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

 

Reconciliation of net loss to Adjusted EBITDA (1)
(unaudited)
		Year Ended December 31,
(in thousands)		2017				2016				2015				2014				2013
Reconciliation of net loss to adjusted EBITDA
Net loss		$	(32,885	)		$	(22,349	)		$	(24,478	)		$	(22,174	)		$	(8,664	)
Income tax expense (benefit)			1,634				(3,774	)			146				154				92
Interest expense, net			2,535				864				67				52				328
Depreciation and amortization of intangible assets			4,240				3,094				2,142				1,742				1,101
Accretion and amortization of loan fees			570				—				—				—				—
EBITDA			(23,906	)			(22,165	)			(22,123	)			(20,226	)			(7,143	)
Reconciling items:
Share-based compensation expense			5,864				5,019				3,485				2,521				140
Unrealized exchange losses (gains)			686				(1,880	)			(150	)			(53	)			155
Loss on change in fair value of warrants			—				—				—				22				279
Loss on change in fair value of derivative instrument			—				—				—				—				561
Change in fair value of contingent purchase price consideration			(3,475	)			(1,208	)			202				72				—
Intangible assets impairment charges			18,300				1,765				419				—				—
Settlement expense			10,028				—				—				—				—
Litigation settlement income			(27,500	)			—				—				—				—
Adjusted EBITDA		$	(20,003	)		$	(18,469	)		$	(18,167	)		$	(17,664	)		$	(6,008	)

 

(1)

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

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

As of December 31, 2017, we had cash and cash equivalents of $90.3 million and restricted cash of $200,000 pledged as collateral for procurement cards issued by a U.S. commercial bank.

 

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

 

Interest rate fluctuations

 

Changes in the general level of U.S. and European interest rates expose us to interest rate risk. These changes could affect our interest income and interest expense. Based on our cash and cash equivalents at December 31, 2017, if interest rates went either up or down one percentage point, this could change our interest income by approximately $0.8 million per annum.

 

We are also exposed to market risk related to fluctuations in interest rates indexed to LIBOR, which determines the variable interest payments made on our loan payable. However, we do not believe we are subject to any material market risk exposure related to this obligation.

 

Capital market fluctuations

 

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

 

 

Foreign currency exchange rate fluctuations 

 

We are exposed to foreign exchange rate risk because we currently operate in three major regions of the world: the United States, Europe and ROW and Asia, and our revenue is denominated in multiple currencies. Approximately 62% of our sales were in the United States, which are denominated in U.S. Dollars. Sales in China are denominated in U.S. Dollars but these sales are made by our United Kingdom-based subsidiary where the Pound Sterling is the functional currency. As a result, these sales are subject to remeasurement into Pounds Sterling and then translation into U.S. Dollars when we consolidate our financial statements. Sales in Europe are denominated primarily in the Pound Sterling and Euro. As we grow Europe and ROW sales outside the United Kingdom and the Euro Zone, we may be subject to risk from additional currencies. Sales in Japan are denominated in Yen.

 

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

 

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

 

 

Item 8. Financial Statements and Supplementary Data

 

The information required by this item may be found beginning on page F-1 of this Annual Report on Form 10-K with the exception of the unaudited consolidated quarterly operations data, which is presented below. Net loss per ordinary share is calculated independently for each of the periods presented. Therefore, the sum of the quarterly net loss per ordinary share amounts will not necessarily equal the total for the full fiscal year.

 

We have prepared the consolidated quarterly operations data on a consistent basis with the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In the opinion of management, the quarterly consolidated operations data reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of these data. Historical results are not necessarily indicative of the results to be expected in future periods, and the results for a quarterly period are not necessarily indicative of the operating results for a full year. This information should be read in conjunction with the consolidated financial statements included elsewhere in this Annual Report Form 10-K.

 

		Three months ended
(in thousands, except share and per share data) (unaudited)		March 31, 2017				June 30, 2017				September 30, 2017				December 31, 2017
Revenue:
Product		$	8,386			$	10,422			$	12,000			$	9,714
Service			13,119				15,698				18,429				15,312
Total revenue		$	21,505			$	26,120			$	30,429			$	25,026
Gross profit		$	11,008			$	13,628			$	17,261			$	14,452
Net (loss) income (1)		$	(8,072	)		$	(16,766	)		$	(16,847	)		$	8,800
Net (loss) income per ordinary share:
Basic		$	(0.36	)		$	(0.74	)		$	(0.70	)		$	0.34
Diluted		$	(0.36	)		$	(0.74	)		$	(0.70	)		$	0.33
Weighted-average shares used to compute net (loss) income per ordinary share:
Basic			22,533,531				22,805,379				24,123,574				25,532,152
Diluted			22,533,531				22,805,379				24,123,574				26,828,912

 

(1)

The three months ended June 30, 2017 included a $9.6 million Release and Settlement Agreement, or the Settlement Agreement, with Statens Serum Institut, or SSI, to resolve outstanding disputes arising from our previous license agreement. The terms of the Settlement Agreement are confidential. Based on the Settlement Agreement, we no longer expect to pay royalties to SSI, which will improve future margins. The three months ended September 30, 2017 included an impairment charge of $11.1 million to write-off certain intangibles acquired in conjunction with the 2016 acquisition of Imugen, including $9.2 million related to IPR&D, $1.1 million related to customer relationships and $701,000 related to the Imugen trade name. The three months ended December 31, 2017 included a $27.5 million one-time, lump-sum payment for the settlement of a lawsuit. See Part I, Item 3. Legal Proceedings for further information. Additionally, the three months ended December 31, 2017 included an impairment charge of $7.2 million to write-off certain intangibles acquired in conjunction with the 2016 acquisition of Immunetics.

 

		Three months ended
(in thousands, except share and per share data) (unaudited)		March 31, 2016				June 30, 2016				September 30, 2016				December 31, 2016
Revenue:
Product		$	8,138			$	9,293			$	9,713			$	9,286
Service			8,972				9,861				16,396				14,419
Total revenue		$	17,110			$	19,154			$	26,109			$	23,705
Gross profit		$	8,945			$	10,548			$	14,606			$	12,507
Net loss (2)		$	(7,049	)		$	(6,446	)		$	(3,996	)		$	(4,858	)
Net loss per ordinary share—basic and diluted		$	(0.32	)		$	(0.29	)		$	(0.18	)		$	(0.22	)
Weighted-average shares used to compute net loss per ordinary share—basic and diluted			22,284,392				22,351,645				22,365,349				22,412,691

 

(2)

The three months ended December 31, 2016 included impairment charges of $1.8 million, which included a $1.5 million impairment charge for Boulder IPR&D and a $306,000 fixed asset impairment charge, partially offset by a $1.2 million benefit due to the change in fair value of contingent consideration.

 

Our revenue fluctuates from quarter to quarter as a result of a number of factors, many of which are outside our control. Our service revenue has historically been strong in the third quarter as a result of a concentration of testing in the United States related to college students returning to school, while the fourth quarter has historically been weaker due to the holiday periods and decreased screening activity in hospitals as they focus on other priorities. Additionally, we see fluctuation in our product revenue from quarter to quarter, due to ordering patterns, particularly relating to our large distributor customers. As a result of such factors, we expect to continue to see seasonality and quarter-to-quarter variations in our revenue.

 

 

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

 

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

 

Item 9A. Controls and procedures

 

(a) Evaluation of disclosure controls and procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive and Chief Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

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

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.

 

(c) Changes in internal control over financial reporting

 

There have been no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other information

 

None.

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended December 31, 2017.

 

Item 11. Executive Compensation

 

The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended December 31, 2017.

 

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

 

The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended December 31, 2017.

 

Item 13. Certain Relationships and Related Transactions and Director Independence

 

The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended December 31, 2017.

 

Item 14. Principal Accounting Fees and Services

 

The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended December 31, 2017.

 

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules

 

(a) 1.  Financial Statements

 

As part of this Annual Report on Form 10-K, the consolidated financial statements are listed in the accompanying index to financial statements on page F-1.

 

2.  Financial Statement Schedules

 

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

 

3.  Exhibit Index

 

The following is a list of exhibits filed as part of this Annual Report on Form 10-K:

 

Exhibit number		Description of exhibit
2.1*+		Purchase Agreement, dated June 23, 2016, between Oxford Immunotec, Inc. and Imugen, Inc. (Filed as Exhibit 2.1 to our Current Report on Form 8-K on July 6, 2016, and incorporated herein by reference.)
3.1		Articles of Association of the Registrant (Filed as Exhibit 3.1 of our Form 8-K on June 18, 2014 and incorporated herein by reference.)
4.1		Form of Ordinary Shares Certificate (Filed as Exhibit 4.1 of Amendment No. 5 to our Registration Statement on Form S-1 (File No. 333-191737) on November 8, 2013 and incorporated herein by reference.)
10.1+		Supply Agreement dated December 17, 2010 between MicroCoat Biotechnologie GmbH and Oxford Immunotec Limited (Filed as Exhibit 10.11 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.2		Amendment to Supply Agreement dated April 5, 2016 between MicroCoat Biotechnologie GmbH and Oxford Immunotec Limited (Filed as Exhibit 10.2 to our Current Report on Form 8-K on May 4, 2016, and incorporated herein by reference.)
10.3+		Purchase Agreement dated February 6, 2010 between Mabtech AB and Oxford Immunotec Limited (Filed as Exhibit 10.12 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.4+		Amendment to Purchase Agreement dated September 10, 2013 between Mabtech AB and Oxford Immunotec Limited (Filed as Exhibit 10.13 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.5+		Second Amendment to Purchase Agreement between Mabtech AB and Oxford Immunotec Limited dated November 17, 2017.
10.6+		Manufacturing Agreement dated August 26, 2003 between Mabtech AB and Oxford Immunotec Limited (Filed as Exhibit 10.14 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.7		First Amendment dated January 1, 2010 to Manufacturing Agreement between Mabtech AB and Oxford Immunotec Limited (Filed as Exhibit 10.15 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.8		Second Amendment dated May 24, 2011 to Manufacturing Agreement between Mabtech AB and Oxford Immunotec Limited (Filed as Exhibit 10.16 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.9+		Supply Agreement dated January 1, 2009 between EMD Millipore Corporation and Oxford Immunotec Ltd (Filed as Exhibit 10.17 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.10+		First Amendment to Supply Agreement dated September 27, 2013 between EMD Millipore Corporation and Oxford Immunotec Limited (Filed as Exhibit 10.18 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)

 

 

Exhibit number		Description of exhibit
10.11+		Second Amendment to Supply Agreement dated March 25, 2014 between EMD Millipore Corporation and Oxford Immunotec Limited (Filed as Exhibit 10.20 of our Form 10-K on March 27, 2014 and incorporated herein by reference.)
10.12+		Supply Agreement dated January 31, 2008 between StemCell Technologies, Inc. and Oxford Immunotec Limited (Filed as Exhibit 10.19 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.13+		Amendment dated October 26, 2011 to Supply Agreement between StemCell Technologies, Inc. and Oxford Immunotec Limited (Filed as Exhibit 10.20 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.14+		Second Amendment to Supply Agreement dated September 1, 2017 between StemCell Technologies Canada Inc. f/k/a StemCell Technologies, Inc. and Oxford Immunotec Limited (Filed as Exhibit 10.1 of our Form 10-Q on October 31, 2017 and incorporated herein by reference.)
10.15+		Supply and Reseller Agreement dated August 12, 2013 between Life Technologies Corporation and Oxford Immunotec Limited (Filed as Exhibit 10.21 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.16+		First Amendment to Supply and Reseller Agreement, dated April 1, 2014 between Life Technologies Corporation and Oxford Immunotec Limited (Filed as Exhibit 10.1 of our Form 8-K on April 3, 2014 and incorporated herein by reference.)
10.17+		Second Amendment to Supply and Reseller Agreement, dated August 9, 2016 between Life Technologies Corporation and Oxford Immunotec Limited (Filed as Exhibit 10.1 of our Form 10-Q on November 1, 2016 and incorporated herein by reference.)
10.18+		Distributorship Agreement dated October 8, 2013 among Shanghai Fosun Long March Medical Science Co. Ltd., Shanghai Xin Chang Medical Device Co. Ltd. and Oxford Immunotec Limited (Filed as Exhibit 10.24 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.19+		First Amendment to Distributorship Agreement between Oxford Immunotec, Ltd., Fosun Long March Medical Science Co. Ltd. and Shanghai Xin Chang Medical Device Co. Ltd. dated April 22, 2015 (Filed as Exhibit 10.1 of our Quarterly Report on Form 10-Q on August 4, 2015 and incorporated herein by reference.)
10.20+		Second Amendment to Distributorship Agreement between Oxford Immunotec, Ltd., Fosun Long March Medical Science Co. Ltd. and Shanghai Xin Chang Medical Device Co. Ltd. dated November 3, 2016. (Filed as Exhibit 10.20 of our Annual Report on Form 10-K on March 1, 2017 and incorporated herein by reference.)
10.21+		Third Amendment to Distributorship Agreement between Oxford Immunotec, Ltd., Fosun Long March Medical Science Co. Ltd. and Shanghai Xin Chang Medical Device Co. Ltd. entered into on December 20, 2017.
10.22+		Marketing Authorization Holder Agreement dated July 29, 2011 between Riken Genesis Co., Ltd. and Oxford Immunotec Limited (Filed as Exhibit 10.25 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.23+		Amendment to Marketing Authorization Holder Agreement dated September 1, 2013 between Riken Genesis Co., Ltd. and Oxford Immunotec Limited (Filed as Exhibit 10.26 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.24		Amendment to Marketing Authorization Holder Agreement dated April 1, 2016 between Riken Genesis Co., Ltd. and Oxford Immunotec Limited (Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q on May 4, 2016, and incorporated herein by reference.)
10.25		Amendment to Marketing Authorization Holder Agreement dated July 7, 2017 between Riken Genesis Co., Ltd. and Oxford Immunotec Limited (Filed as Exhibit 10.1 of our Form 8-K on July 28, 2017 and incorporated herein by reference.)
10.26		Credit, Security and Guaranty Agreement (Term Loan), dated October 4, 2016, among Oxford Immunotec Global PLC, Oxford Immunotec, Inc., Oxford Immunotec Limited, the lenders from time to time party thereto and MidCap Financial Trust, individually as a lender and as administrative agent (Filed as Exhibit 10.1 of our Form 8-K on October 7, 2016 and incorporated herein by reference.)
10.27		Credit, Security and Guaranty Agreement (Revolving Loan), dated October 4, 2016, among Oxford Immunotec Global PLC, Oxford Immunotec, Inc., Oxford Immunotec Limited, the lenders from time to time party thereto and MidCap Financial Trust, individually as a lender and as administrative agent (Filed as Exhibit 10.2 of our Form 8-K on October 7, 2016 and incorporated herein by reference.)

 

Exhibit number		Description of exhibit
10.28		Amended and Restated 2008 Stock Incentive Plan (Filed as Exhibit 10.35 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.29		Form of Incentive Stock Option Award for executive officers under the Amended and Restated 2008 Stock Incentive Plan (Filed as Exhibit 10.36 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.30		Form of Non-Statutory Stock Option Award for Non-Executive Directors under the Amended and Restated 2008 Stock Incentive Plan (Filed as Exhibit 10.37 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.31		Form of Enterprise Management Incentive Stock Option Agreement for Chief Executive Officer under the Amended and Restated 2008 Stock Incentive Plan (Filed as Exhibit 10.38 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.32		Oxford Immunotec Global PLC 2013 Share Incentive Plan (Filed as Exhibit 10.39 of Amendment No. 6 of our Registration Statement on Form S-1 (File No. 333-191737) on November 14, 2013 and incorporated herein by reference.)
10.33		Oxford Immunotec Global PLC 2013 Amended Share Incentive Plan.
10.34		Form of Restricted Share Award Certificate under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United Kingdom (Filed as Exhibit 10.1 of our Form 8-K on March 6, 2014 and incorporated herein by reference.)
10.35		Form of First Amendment to Officer Restricted Share Award under Appendix C of the 2013 Share Incentive Plan (Filed as Exhibit 10.1 of our Form 8-K on January 2, 2015 and incorporated herein by reference.)
10.36		Form of Amendment to the Restricted Share Award (Revised Vesting) under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United Kingdom (Filed as Exhibit 10.36 of our Form 10-K on March 1, 2016 and incorporated herein by reference).
10.37		Form of Restricted Share Award Certificate under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United States (Filed as Exhibit 10.2 of our Form 8-K on March 6, 2014 and incorporated herein by reference.)
10.38		Form of CSOP award certificate under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United Kingdom (Filed as Exhibit 10.3 of our Form 8-K on March 6, 2014 and incorporated herein by reference.)
10.39		Form of CSOP Option Certificate (Annual Vesting) under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United Kingdom (Filed as Exhibit 10.39 of our Form 10-K on March 1, 2016 and incorporated herein by reference).
10.40		Form of unapproved option under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United Kingdom (Filed as Exhibit 10.4 of our Form 8-K on March 6, 2014 and incorporated herein by reference.)
10.41		Form of Unapproved Stock Option Award (Annual Vesting) under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United Kingdom (Filed as Exhibit 10.41 of our Form 10-K on March 1, 2016 and incorporated herein by reference).
10.42		Form of stock option agreement under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United States (Filed as Exhibit 10.5 of our Form 8-K on March 6, 2014 and incorporated herein by reference.)
10.43		Form of Stock Option Agreement (Annual Vesting) under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers resident in the United States (Filed as Exhibit 10.43 of our Form 10-K on March 1, 2016 and incorporated herein by reference).
10.44		Form of Unapproved Stock Option Award (Double Trigger) under the Oxford Immunotec Global PLC 2013 Share Incentive Plan.
10.45		Form of Restricted Share Unit Award under the Oxford Immunotec Global PLC 2013 Share Incentive Plan for officers (Filed as Exhibit 10.44 of our Form 10-K on March 1, 2016 and incorporated herein by reference).

 

 

Exhibit number		Description of exhibit
10.46		Service Agreement dated October 21, 2002 between Oxford Immunotec Limited and Peter Wrighton-Smith, as amended through 2013 (Filed as Exhibit 10.45 of our Form 10-K on March 27, 2014 and incorporated herein by reference.)
10.47		Deed of Novation of Agreement for Services dated November 8, 2013 by and among Oxford Immunotec Limited, Oxford Immunotec Global PLC and Peter Wrighton-Smith (Filed as Exhibit 10.49 of Amendment No. 5 to our Registration Statement on Form S-1 (File No. 333-191737) on November 8, 2013 and incorporated herein by reference.)
10.48		Amended and Restated Employment Agreement dated October 1, 2013 between Oxford Immunotec, Inc. and Jeff R. Schroeder (Filed as Exhibit 10.42 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.49		Amended and Restated Employment Agreement dated October 1, 2013 between Oxford Immunotec, Inc. and Richard M. Altieri (Filed as Exhibit 10.43 of our Registration Statement on Form S-1 (File No. 333-191737) on October 15, 2013 and incorporated herein by reference.)
10.50		Form of Employment Agreement for Senior Executives.
10.51		Form of Deed of Indemnity for Directors (Filed as Exhibit 10.44 of Amendment No. 5 to our Registration Statement on Form S-1 (File No. 333-191737) on November 8, 2013 and incorporated herein by reference.)
10.52		Form of Deed of Indemnity for Officers (Filed as Exhibit 10.45 of Amendment No. 5 to our Registration Statement on Form S-1 (File No. 333-191737) on November 8, 2013 and incorporated herein by reference.)
10.53		Form of Non-Executive Director Appointment Letter (Filed as Exhibit 10.46 of Amendment No. 2 to our Registration Statement on Form S-1 (File No. 333-191737) on November 4, 2013 and incorporated herein by reference.)
10.54		Form of Director Stock Option Award under Oxford Immunotec Global PLC Share Incentive Plan (Filed as Exhibit 10.48 of Amendment No. 5 to our Registration Statement on Form S-1 (File No. 333-191737) on November 8, 2013 and incorporated herein by reference.)
10.55		Form of First Amendment to Officer Stock Option Award under Appendix D of the 2013 Share Incentive Plan (Filed as Exhibit 10.2 of our Form 8-K on January 2, 2015 and incorporated herein by reference.)
21.1		List of Subsidiaries
23.1		Consent of Ernst & Young LLP
24.1		Power of Attorney executed by Directors and Officers (included on signature page)
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated balance sheets as of December 31, 2017 and 2016; (ii) Consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015; (iii) Consolidated statements of other comprehensive loss for the years ended December 31, 2017, 2016 and 2015; (iv) Consolidated statements of shareholders’ equity for the years ended December 31, 2017, 2016 and 2015; (v) Consolidated statements of cash flows for the years ended December 31, 2017, 2016 and 2015; and (vi) Notes to consolidated financial statements.

 

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

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

 

Item 16. Form 10-K Summary

 

None.

 

 

 

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Abingdon, England, on February 27, 2018. 

 

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

 

Power of Attorney

 

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

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on February 27, 2018 in the capacities indicated below.

Signature	Title	Date
/s/ Peter Wrighton-Smith, Ph.D.	Chief Executive Officer and Director	February 27, 2018
Peter Wrighton-Smith, Ph.D.	(Principal Executive Officer)
/s/ Richard M. Altieri	Chief Financial Officer	February 27, 2018
Richard M. Altieri	(Principal Financial and Accounting Officer)
/s/ Richard A. Sandberg	Chairman of the Board of Directors	February 27, 2018
Richard A. Sandberg
/s/ Ronald Andrews Jr.	Director	February 27, 2018
Ronald Andrews Jr.
/s/ Patrick J. Balthrop, Sr.	Director	February 27, 2018
Patrick J. Balthrop, Sr.
/s/ Patricia Randall	Director	February 27, 2018
Patricia Randall
/s/ Herm Rosenman	Director	February 27, 2018
Herm Rosenman
/s/ Stephen L. Spotts	Director	February 27, 2018
Stephen L. Spotts
/s/ James R. Tobin	Director	February 27, 2018
James R. Tobin
/s/ A. Scott Walton	Director	February 27, 2018
A. Scott Walton
/s/ Richard M. Altieri	Authorized Representative in the United States	February 27, 2018
Richard M. Altieri

 

 

Oxford Immunotec Global PLC

 

Index to financial statements

 

Audited consolidated financial statements

 

	Page
Report of independent registered public accounting firm	F-2
Consolidated balance sheets as of December 31, 2017 and 2016	F-3
Consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015	F-4
Consolidated statements of other comprehensive loss for the years ended December 31, 2017, 2016 and 2015	F-5
Consolidated statements of shareholders’ equity for the years ended December 31, 2017, 2016 and 2015	F-6
Consolidated statements of cash flows for the years ended December 31, 2017, 2016 and 2015	F-7
Notes to the consolidated financial statements	F-9

 

 

 

Report of Independent Registered Public Accounting Firm

 

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

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Oxford Immunotec Global PLC (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations, other comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

 

Basis for Opinion

 

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

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Ernst & Young LLP

 

We have served as the Company’s auditor since 2006.

 

Reading, United Kingdom

 

February 27, 2018

 

 

Oxford Immunotec Global PLC

Consolidated balance sheets

(in thousands, except share and per share data)

---

 

 

 

See accompanying notes to these consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Consolidated statements of operations

(in thousands, except share and per share data)

---

 

 

See accompanying notes to these consolidated financial statements.

 

 

 

Oxford Immunotec Global PLC

Consolidated statements of other comprehensive loss

(in thousands)

---

 

 

See accompanying notes to these consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Consolidated statements of shareholders’ equity

(in thousands)

---

 

 

 

See accompanying notes to these consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Consolidated statements of cash flows

(in thousands)

---

 

 

See accompanying notes to these consolidated financial statements.

 

Oxford Immunotec Global PLC

Consolidated statements of cash flows (continued)

(in thousands)

---

 

 

See accompanying notes to these consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Notes to consolidated financial statements

 

 

 

 

 

F-32