UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
☐
For the transition period from to
Commission File Number 001-36415
QUOTIENT LIMITED
(Exact name of registrant as specified in its charter)
Jersey, Channel Islands
(State or Other Jurisdiction of
Incorporation or Organization)
B1, Business Park Terre Bonne,
Route de Crassier 13,
1262 Eysins, Switzerland
(Address of Principal Executive Offices)
Not Applicable
(I.R.S. Employer
Identification No.)
Not Applicable
(Zip Code)
Title of each class
Ordinary Shares, nil par value
011-41-22-716-9800
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol
QTNT
Securities registered pursuant to Section 12(g) of the Act
None
Name of exchange on which registered
The Nasdaq Global Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
☐
☒
☒
Large accelerated filer
Non-accelerated filer
☐
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report.
Emerging growth company
Accelerated filer
☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of September 30, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the
registrant’s ordinary shares held by non-affiliates was approximately $364.3 million based on the closing sales price of the registrant’s ordinary
shares on September 30, 2019 as reported on The Nasdaq Global Market.
On June 11, 2020 the registrant had a total of 80,585,451 ordinary shares, nil par value, outstanding.
Portions of the registrant’s definitive proxy statement for the 2020 annual meeting of shareholders are incorporated by reference into Part III of this
Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
PART I
TABLE OF CONTENTS
Page
Item 1. Business ...................................................................................................................................................................
Item 1A. Risk Factors ...........................................................................................................................................................
Item 1B. Unresolved Staff Comments ..................................................................................................................................
Item 2. Properties .................................................................................................................................................................
Item 3. Legal Proceedings ....................................................................................................................................................
Item 4. Mine Safety Disclosures ..........................................................................................................................................
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities .........................................................................................................................................................................
Item 6. Selected Consolidated Financial Data ......................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation ....................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...............................................................................
Item 8. Financial Statements and Supplementary Data ........................................................................................................
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................................
Item 9A. Controls and procedures ........................................................................................................................................
Item 9B. Other information ..................................................................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance .....................................................................................
Item 11. Executive Compensation ........................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...............
Item 13. Certain Relationships and Related Transactions and Director Independence ........................................................
Item 14. Principal Accounting Fees and Services ................................................................................................................
PART IV
Item 15. Exhibits, Financial Statement Schedules................................................................................................................
Item 16. Form 10-K Summary .............................................................................................................................................
Signatures .............................................................................................................................................................................
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, and exhibits thereto, contains estimates, predictions, opinions, projections and other statements
that may be interpreted as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended,
or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve
substantial risks and uncertainties. The forward-looking statements are contained principally in Part 1, Item 1: “Business,” Part I,
Item 1A: “Risk Factors,” and Part II, Item 7: “Management’s Discussion and Analysis of Final Condition and Results of Operations,”
but are also contained elsewhere in this Annual Report. Forward-looking statements can be identified by words such as “strategy,”
“objective,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,”
“would,” “could,” “should,” “continue,” “contemplate,” “might,” “design” and other similar expressions, although not all forward-
looking statements contain these identifying words. 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 are subject to numerous known and
unknown risks and uncertainties.
Forward-looking statements include statements about:
the continuing development, regulatory approval and commercialization of the MosaiQTM technology, or “MosaiQ”;
the design of blood grouping and disease screening capabilities of MosaiQ, the potential for the expansion of MosaiQ into
the larger clinical diagnostics market and the benefits of MosaiQ for both customers and patients (including using MosaiQ
to test for novel coronavirus disease 2019, or COVID-19, antibodies);
future demand for and customer adoption of MosaiQ, the factors that we believe will drive such demand and our ability to
address such demand;
our expected profit margins for MosaiQ;
the size of the market for MosaiQ;
the regulation of MosaiQ by the U.S. Food and Drug Administration, or the FDA, or other regulatory bodies, or any
unanticipated regulatory changes or scrutiny by such regulators;
future plans for our conventional reagent products;
the status of our future relationships with customers, suppliers, and regulators relating to our products;
future demand for our conventional reagent products and our ability to meet such demand;
our ability to manage the risks associated with international operations;
anticipated changes, trends and challenges in our business and the transfusion diagnostics market;
continued or worsening adverse conditions in the global economic and financial markets, including as a result of the
recent COVID-19 pandemic;
the impact on our business of the United Kingdom ceasing to be a member of the European Union;
the effects of competition;
the expected outcome or impact of pending or threatened arbitration or litigation, including our ongoing dispute with
Ortho-Clinical Diagnostics, Inc., or Ortho;
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property
rights of others;
the status of our business relationship with Ortho;
our anticipated cash needs, including the adequacy of our available cash and short-term investment balances relative to
our forecasted cash requirements for the next twelve months, our expected sources of funding, and our estimates regarding
our capital requirements and capital expenditures; and
our plans for executive and director compensation for the future.
You should refer to Part I, 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.
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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.
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Item 1. Business
Overview
PART I
We are a commercial-stage diagnostics company committed to reducing healthcare costs and improving patient care through the
provision of innovative tests within established markets. Our initial focus is on blood grouping and donor disease screening, which is
commonly referred to as transfusion diagnostics. Blood grouping involves specific procedures performed at donor or patient testing
laboratories to characterize blood, which includes antigen typing and antibody detection. Disease screening involves the screening of
donor blood for unwanted pathogens using two different methods, a serological approach (testing for specific antigens or antibodies)
and a molecular approach (testing for DNA or RNA). We believe that the MosaiQ platform may also have application beyond
transfusion diagnostics in the larger clinical diagnostics market where testing currently performed using separate immunoassay and
molecular testing techniques for a single diagnosis could be combined on one testing technology permitting multiple tests
simultaneously with a simplified workflow.
We have over 35 years of experience developing, manufacturing and commercializing conventional reagent products used for blood
grouping within the global transfusion diagnostics market. We are developing MosaiQ, our proprietary technology platform, to better
address the comprehensive needs of this large and established market. MosaiQ will initially comprise two separate microarrays, one
for immunohematology (blood grouping), or IH, and one for serological disease screening, or SDS, and a high-throughput instrument.
We are also developing a third microarray for molecular disease screening. We believe MosaiQ has the potential to transform
transfusion diagnostics, significantly reducing the cost of blood grouping in the donor and patient testing environments, while
improving patient outcomes.
We have designed MosaiQ to offer a breadth of diagnostic tests that is unmatched by existing commercially available transfusion
diagnostic instrument platforms. Time to result for MosaiQ is expected to be significantly quicker than existing methods for extended
antigen typing and antibody detection and is expected to be equivalent to the time to result for current instrument platforms
performing basic antigen typing. We believe that customer adoption of MosaiQ will lead to improved patient outcomes through better
and easier matching of donor and patient blood, given cost-effective extended antigen typing offered by MosaiQ. Improved patient
outcomes using MosaiQ include the potential for reduced incidence of alloimmunization, where the patient develops antibodies to
foreign antigens introduced to the body through transfused blood. Cost savings and efficiencies should also be available to customers
that adopt MosaiQ, as a result of:
consolidation of multiple instrument platforms in donor testing laboratories;
automation, which will help to address shortages of skilled technicians;
better workflow, which will lead to a better cost position, addressing budget constraints;
comprehensive characterization of donor or patient blood, eliminating the need for routine manual testing typically
undertaken by skilled technicians; and
higher throughput and productivity per square meter.
We have designed MosaiQ to match the existing performance of automated platforms used by donor testing laboratories for
serological disease screening. We also believe the incorporation of molecular disease screening on MosaiQ will offer considerable
advantages over existing approaches in use by donor testing laboratories, delivering operational cost savings and a reduced time to
result, while also eliminating the need to pool samples.
Our initial aim is to provide donor testing laboratories with a single instrument platform to be utilized for blood grouping and, if
applicable, both serological and molecular disease screening for donated red blood cells and plasma. Based on historical annual blood
donations collected by our key target donor testing customers, we estimate that the potential market for MosaiQ microarrays (for
blood grouping, serological disease screening and molecular disease screening) should exceed 100 million microarrays per annum
following receipt of applicable regulatory clearances and approvals for MosaiQ.
We also believe that MosaiQ may have the potential for use beyond transfusion diagnostics in the larger clinical diagnostics market,
and are evaluating the potential for our technology as a platform for diagnosis and monitoring of other disease states. We have
identified opportunities for future partnership and development in relation to disease states for which a broad array of tests are
required using multiple testing modalities for a single diagnosis or for ongoing therapy monitoring.
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We have a proven track record and significant expertise in product development, manufacturing and quality assurance, tailored to the
highly regulated transfusion diagnostics market. We currently derive revenue from a portfolio of products used for blood grouping, as
well as whole blood controls used daily for quality assurance testing of third-party blood grouping instruments. We have introduced a
range of FDA-licensed products in the United States under the Quotient brand, which we sell directly to donor testing laboratories,
hospitals and independent patient testing laboratories. We also develop, manufacture and sell conventional reagent products to original
equipment manufacturers, or OEMs, such as Ortho-Clinical Diagnostics, Inc. (or Ortho), Bio-Rad Laboratories, Inc. (or Bio-Rad) and
Grifols S.A. (or Grifols). In July and December 2019, the FDA licensed a range of conventional reagent products developed and
manufactured by us for use on instrument platforms commercialized by Ortho.
From our incorporation in 2012 to March 31, 2020, we have raised $160.0 million of gross proceeds through the private placement of
our ordinary and preference shares and warrants, $346.7 million of gross proceeds from public offerings of our ordinary shares and
issuances of ordinary shares upon exercise of warrants and $145.0 million of gross proceeds from the issuance of 12% Senior Secured
Notes due 2024 (which we refer to as the Secured Notes). In addition, on March 23, 2018, we raised $20.9 million from the sale and
leaseback of our recently completed conventional reagents manufacturing facility near Edinburgh, Scotland, which we refer to as the
Allan Robb Campus, or ARC, facility.
Our Market Opportunity
The global transfusion diagnostics market is large and well established. Total annual product sales in this market amounted to $3.4
billion in 2018, of which the United States accounted for $0.9 billion of sales. Product sales comprise the sale of kits and reagents and
instruments. In 2018, we believe blood grouping accounted for $1.4 billion of product sales, disease screening using serological
methods accounted for $0.9 billion of sales and disease screening using molecular methods accounted for $1.1 billion of sales. We
believe product sales in 2018 to the highly concentrated donor testing market, which includes diagnostic laboratories, accounted for
approximately $2.3 billion of sales, while patient testing and others accounted for the remaining $1.1 billion of sales. Performed
primarily within hospitals, the patient testing market is highly fragmented.
According to the World Health Organization, 45 million blood donations were collected globally in 2018 within “high-income”
countries located in North America, Europe and Eastern Asia. In the United States, between 11 and 12 million units of whole blood
and red blood cells were donated during 2018, based on data from the American Association of Blood Banks and the American Red
Cross. In addition, over 50 million plasma donations are collected each year in the United States and Europe. Plasma is subject to
blood grouping and disease screening. We estimate that over 90 million patients are blood grouped annually in the developed world,
although less than half of these patients actually receive a blood transfusion.
Combined, the cost of procuring and characterizing blood for transfusion represents a significant cost to the global healthcare system.
The costs and expenses related to blood grouping and disease screening are typically included in the price a hospital pays for a unit of
blood. In the United States, the average price paid by a hospital for a unit of red blood cells is approximately $207, based on the 2017
National Blood Collection and Utilization Survey. Where a hospital requests units of blood with a specific antigen profile (for patients
with blood group antibodies) the average price of those antigen negative units of blood in the United States is estimated to increase by
$80 for each antigen screened. The costs and expenses related to patient blood grouping at hospitals are not specifically reimbursed by
a third party payor, but are typically absorbed within the reimbursement structure of a broader medical procedure. According to the
Centers for Medicare and Medicaid Services 2020 laboratory fee schedule, the reimbursement rate for outpatient services associated
with basic antigen typing and an antibody screen is $50 per sample. When an antibody screen is positive, an antibody identification
procedure will be undertaken on the patient sample for which the reimbursement rate is an additional $283 per sample.
Blood grouping and disease screening techniques have remained generally unchanged for many years. Varying levels of automation
are offered by existing instrument platforms, although more complex blood grouping procedures such as extended antigen typing and
antibody identification are more typically undertaken manually, especially in the United States. The need for ongoing routine manual
testing continues to impose a significant cost burden on the healthcare system.
Beyond transfusion diagnostics we plan to pursue the development of immunoassay and molecular testing opportunities for the
MosaiQ platform technology within the broader clinical diagnostics market place, forecasted to reach $40 billion annually by 2023.
The industry and market data, forecasts and estimates used in this section and elsewhere in this Annual Report had been published
before or do not otherwise take into account the COVID-19 pandemic and therefore do not reflect any impact of COVID-19 on any
specific market or globally.
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Our Strategy
Our strategy is based on the development and commercialization of a flexible and unique microarray technology and manufacturing
capability for serological and molecular testing across a broad array of medical and life science applications. Our initial strategic
focus is on the development and commercialization of a range of consumables (or microarrays) to address the global transfusion
diagnostics market. Each microarray will incorporate existing, well characterized assays to undertake:
(i)
(ii)
a comprehensive characterization of donor and patient blood, including extended antigen typing and antibody
detection/identification. Ultimately, we expect there to be two blood grouping microarrays, one for the donor testing market and
one for the patient testing market. We refer to the blood grouping microarrays as the MosaiQ IH Microarray;
all mandated serological disease screening tests for donor red blood cells or source plasma. We refer to the serological disease
screening microarrays as the MosaiQ SDS Microarray. The initial MosaiQ SDS Microarray will comprise assays to detect CMV
(cytomegalovirus) and Syphilis. We expect to follow our initial MosaiQ SDS Microarray launch with the launch of a range of
additional expanded MosaiQ SDS Microarrays incorporating all remaining mandated serological disease screening assays,
depending upon the final application for the product; and
(iii) all mandated molecular disease screening tests for donor red cells or source plasma. We refer to the molecular disease screening
microarray as the MosaiQ MDS Microarray.
In addition, in response to the COVID-19 global pandemic, in March 2020, we began development of a microarray-based SARS-CoV-
2 antibody test for use on the MosaiQ platform. The SARS-CoV-2 antibody test is designed as a serological disease screen specific to
COVID-19 antibody detection. The assay detects the Immunoglobulin G (IgG) and Immunoglobulin M (IgM) antibodies directed at
SARS-CoV-2. We refer to the SARS-CoV-2 antibody test as the MosaiQ COVID-19 Microarray.
Together, we refer to the MosaiQ IH Microarray, MosaiQ SDS Microarray, MosaiQ MDS Microarray and MosaiQ COVID-19
Microarray as MosaiQ Microarrays.
We manufacture the MosaiQ Microarrays at our state-of-the-art manufacturing facility located in Eysins, Switzerland, which received
its ISO 13485: 2016 certification in December 2018.
Development of the MosaiQ Instrument and formal validation was completed during 2018 and we took delivery of the first
commercially ready MosaiQ Instrument in 2018. The MosaiQ Instrument was self certified and received CE Marking approval in
Europe during 2018.
We have initiated the pre-market launch, combined with support to customers, or hypercare, of the initial MosaiQ SDS Microarray
into the European and United States donor testing markets (with the MosaiQ Instrument). We plan to follow this initial launch with: (i)
an expanded MosaiQ IH Microarray comprising an expanded antigen typing panel for the donor testing market; (ii) a second expanded
MosaiQ IH Microarray comprising the extended antigen typing panel and an expanded antibody detection panel for the patient testing
market; and (iii) an expanded MosaiQ SDS Microarray incorporating assays for the detection of CMV; Syphilis; Hepatitis B, or HBV,
comprising HBV Surface Antigen and HBV Core Antibody; Hepatitis C, or HCV; Human Immunodeficiency Virus, or HIV,
comprising HIV Type 1 and HIV Type 2; Human T-Lymphotropic Antibodies, or HTLV; and Chagas disease.
In Europe, the MosaiQ Instrument, the initial MosaiQ IH Microarray and the initial MosaiQ SDS Microarray have received, and the
expanded MosaiQ IH Microarray, the expanded MosaiQ SDS Microarray and the MosaiQ MDS Microarray will be subject to, CE
Marking. In the United States, we submitted 510(k) filings in respect of the initial MosaiQ SDS Microarray, comprising tests for CMV
and Syphilis, and the MosaiQ Instrument in December 2019. The MosaiQ Instrument is classified as a Class II medical device by the
FDA. The FDA has also indicated to us that the MosaiQ IH Microarray and the expanded MosaiQ SDS Microarray will be subject to
biologics license applications, or BLAs.
In April 2019, we received CE Mark approval for the initial MosaiQ IH Microarray, and in February 2020, we received CE Mark
approval for the initial MosaiQ SDS Microarray. We have commenced field trials for the expanded MosaiQ IH Microarray in Europe.
These trials were suspended due to the COVID-19 pandemic in March 2020, but in May 2020 quarantine and containment measures
and restrictions were eased in two of the three trial locations allowing the work to recommence. Further, these two trials have
recommenced from the point at which they were suspended with no requirement to repeat any of the work already performed. CE
Mark submission for the expanded MosaiQ IH Microarray is expected by the end of the fourth quarter of calendar year 2020. The
commencement of field trials in the United States for the expanded MosaiQ IH Microarray has also been postponed due to the
COVID-19 pandemic. These trials will commence as soon as the circumstances permit, which we expect will be in the second half of
calendar year 2020, with regulatory submissions expected in the first half of calendar year 2021. The European regulatory submission
for the expanded MosaiQ SDS Microarray is expected in the second half of calendar year 2021.
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Hypercare care launch of MosaiQ has commenced in Europe and the United States. In addition, we intend to continue:
to engage with our key potential customers on the functionality of the MosaiQ platform;
our dialogue with regulators to obtain required regulatory licenses and clearances; and
to build a highly focused sales and support infrastructure to successfully commercialize MosaiQ for the donor testing
market in North America, the European Union and certain territories in the Asia-Pacific region.
Furthermore, in April 2020, we published the final performance data for the MosaiQ COVID-19 Microarray, achieving 100%
sensitivity and 99.8% specificity, and in May 2020 we announced the CE Mark for this Microarray. In addition, in May 2020 we
submitted an application for an Emergency Use Authorization (EUA) of the MosaiQ COVID-19 Microarray in the United States.
Having completed the required notification and submitted the EUA within the required timeframe, our test is officially listed on the
FDA webpage as a test that is now allowed to be distributed in the United States. We signed the first commercial contract for the sale
of the MosaiQ COVID-19 Microarray in May 2020 and we have subsequently entered into several additional contracts with customers
in Europe and the United States.
In our conventional reagent business, we have FDA approvals to sell 79 reagent products in the United States and have 71 products
with a CE Mark. Through this business, we intend to continue to strengthen the Quotient brand, expand our customer base, reinforce
our relationship with the FDA and other key regulators and continue to service our key OEM and direct customers.
Blood Grouping
Prior to blood transfusion, or when there is likelihood that a blood transfusion might be required, extensive blood grouping procedures
are undertaken on patient and donor blood using in vitro diagnostic products. These procedures ascertain the blood group of the
patient and ensure the compatibility of donor blood. The testing regime is designed to prevent transfusion reactions, which can range
from mild to fatal.
Red blood cells (the cellular portion) and plasma (the fluid portion) are the principal components of blood. On the exterior of red
blood cells are blood group antigens that determine an individual’s blood group (A, B, AB, O), or ABO group, and type (RhD positive
or RhD negative), or Rh type. In addition, there are other clinically significant blood group antigens that may be present on patient and
donor red blood cells. Plasma contains many different kinds of proteins, including: (i) blood group antibodies, such as Anti-A and
Anti-B; (ii) unexpected blood group antibodies developed by the body in response to foreign red blood cell antigens introduced during
transfusion (alloantibodies); or (iii) blood group antibodies developed following pregnancy. Blood group antibodies mirror the antigen
families that are present on red blood cells. In its normal state, blood does not contain antibodies that will react with its own red blood
cell antigens (autoantibodies).
Because of the potential for a transfusion reaction, it is crucial that clinicians correctly identify the blood group antigens and
antibodies present in donor and patient blood prior to transfusion. If a donor’s red blood cells contain antigens that are recognized by
and react with existing blood group antibodies in the patient’s plasma, the transfused red blood cells could be destroyed in a
potentially life-threatening reaction. The identification of blood group antigens on donor and patient red blood cells is typically
referred to as blood typing or basic antigen typing, with a more comprehensive characterization being referred to as extended antigen
typing. The identification of blood group antibodies in plasma is typically referred to as antibody identification.
All patients potentially requiring a blood transfusion will generally be blood grouped, including pregnant women, cancer patients
undergoing chemotherapy, patients undergoing surgery or patients suffering from chronic diseases that require regular blood
transfusions, such as thalassemia or sickle cell disease.
Patient blood will typically be subject to a basic antigen typing and an antibody screen. Less than 1% of patients that have not received
a blood transfusion will screen positive for an antibody. The incidence of blood group antibodies, however, increases significantly to 3
to 8% in patients who have previously received a blood transfusion and women that have given birth to two or more children. When
an antibody screen proves positive, a complex and time-consuming procedure will be performed by skilled technicians to identify all
clinically significant blood group antibodies in the patient’s plasma. This largely manual process may take two to six hours to
complete, although more complex cases can take one or more days to complete. Antibody identification represents a significant cost to
hospitals, particularly those that treat large numbers of chronically transfused patients. Reagents used for antibody identification also
have a short shelf life, typically being shipped on a 28-day cycle, making management of blood grouping reagent inventories more
complex with increased waste.
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The increasing incidence of alloantibodies developing in patients who have received multiple transfusions, commonly referred to as
alloimmunization, has prompted clinicians to request costly, extended antigen matching of donor blood for at-risk patient groups, such
as those suffering from thalassemia or sickle cell disease. The incidence of antibodies present in these patient groups is estimated to be
20 to 30%. These patients typically also present with multiple antibodies, making the process of antibody identification more complex
and time consuming and the procurement of antigen specific units of donor blood much more expensive.
According to a study published in January 2014, the estimated total cost of extended antigen typing for patients is $364, based on a
screen for 14 antigens at an estimated cost of $26 per antigen.
Donor blood will typically be subject to a basic antigen typing and an antibody screen. Clinicians will request specific antigen
negative donor blood for patients with one or more blood group antibodies. In this instance, multiple donor units will be selected from
inventory by the donor collection agency and subjected to an extended antigen typing procedure to identify the most appropriate units
for the patient. This procedure is completed to ensure that the corresponding antigen to the patient’s antibody is not present on the
donor’s red blood cells.
The number of donor units that need to be screened to identify specific antigen negative units varies depending upon blood group. In
the Caucasian population, for example, ten donor units on average would need to be screened to find two units of donor blood
negative for the Duffy-A antigen. Similarly, to identify two units of donor blood negative for the little-e antigen, one hundred
donations would need to be screened and, to identify two units of blood negative for the little-k antigen one thousand donations would
need to be screened. Additionally, the number of units needed to be screened increases significantly if the patient has two or more
antibodies.
The identification of antigen negative units of blood is largely a manual and labor-intensive process. Because of the additional testing
procedures required and the large numbers of donor units that must be screened, antigen negative donor units are more expensive for
hospitals to purchase. The average premium charged for antigen negative units of blood in the United States is estimated to be $80 for
each antigen screened.
We believe both donor collection agencies and hospitals would prefer to fully characterize donor units and patient blood through
extended antigen typing prior to transfusion, although the time and expense required to undertake such procedures is currently
prohibitive. As a consequence, extended antigen typing is only undertaken as needed (i.e., where the patient has a specific antibody)
on a small percentage of donor units. Extended antigen typing for patients is also typically undertaken only in patients expected to be
chronically transfused.
Disease Screening
The safety of donor red blood cells and source plasma is ultimately the responsibility of donor collection agencies, with regulatory
agencies in individual countries establishing safeguards and standards to ensure patient safety. In the developed world, donor red
blood cells and source plasma is subject to mandatory screening for infectious diseases before it can be released for transfusion or
further manufacture. Two different methods of testing have been adopted—a serological approach (testing for specific antigens or
antibodies) and, for certain viruses, a molecular approach (testing for DNA or RNA). The United States, many countries in Western
Europe and Japan require both serological and molecular disease screening be performed on donor blood. In the United States, it is
mandatory to screen donor blood using serological techniques for the following: Syphilis, HBV Surface Antigen, HBV Core
Antibody, HCV Antibody, HIV Type 1 and Type 2 Antibodies and HTLV Antibodies. Most blood collection agencies will also screen
for CMV, using the same serological approach and the FDA recommends donor blood to be screened for Chagas disease. Molecular
disease screening is required to be performed on donated blood to screen for HBV, HCV, HIV, West Nile virus and Zika. Other
pathogens, such as Babesia, Dengue and Malaria are transmissible by blood, but there is no test currently available, given cost or
technology limitations.
Serological and molecular disease screening is already largely automated. However, it is typically undertaken using instrument
platforms that are not integrated with commonly used blood grouping instruments.
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Donor Testing
In the developed world, the testing of donated blood is primarily completed by donor collection agencies. In the United States,
following the merger of the testing laboratory operations of the American Red Cross with Creative Testing Solutions, effective on
January 1, 2018, one organization tests approximately 75% of the U.S. blood supply. Throughout Western Europe, Japan, Australia
and Canada, national collection agencies, or a small number of regional collection agencies, typically collect and test all donated
blood. Currently, donor testing laboratories must adopt multiple instrument platforms, as well as undertake complex manual testing
procedures for extended antigen typing or antibody identification, to complete the required testing for donated blood. Maintaining
multiple instrument platforms requires complex quality control and assurance procedures, along with costly service and support
infrastructures.
Single instrument platforms for each testing procedure have typically been adopted within and across laboratory networks. In addition,
donor testing laboratories typically utilize costly manual testing techniques to identify antigen negative donor units and to carry out
any antibody identification procedures required.
Patient Testing
Patients are typically blood grouped in hospitals. Large-to-medium-sized hospitals will generally adopt one of several semi-automated
instrument platforms to perform basic blood grouping procedures. These instruments employ either column agglutination technology
supplied by companies such as Ortho, Bio-Rad and Grifols, or solid-phase microplate technologies supplied by companies such as
Immucor. These platforms offer only a limited number of blood grouping tests per testing run and are therefore cumbersome,
especially if a more comprehensive characterization of the patient’s blood is required. Consequently, laboratories that have adopted a
blood grouping instrument platform will continue to use manual or semi-manual techniques to undertake more complex procedures,
such as antibody identification or extended antigen typing.
Because of the continued need for manual testing, many small-to-medium-sized hospitals choose not to adopt existing instrument
platforms. Instead, they will use manual or semi-manual techniques for basic blood grouping. Complex procedures, such as antibody
identification, may also be outsourced to independent testing laboratories by these hospitals. We believe the continued requirement for
manual testing and drawbacks of existing instrument platforms for blood grouping have limited the attraction of offering blood
grouping services to hospitals by large independent testing laboratories, such as LabCorp and Quest Diagnostics.
The MosaiQ Solution for Transfusion Diagnostics
We have initially developed MosaiQ to address the comprehensive needs of the global transfusion diagnostics market. We believe
MosaiQ has the potential to transform transfusion diagnostics by substantially reducing costs and offering a range of operational
efficiencies within donor and patient testing laboratories, while improving patient outcomes through the more complete
characterization of donor and patient blood.
Specifically, we have initially developed MosaiQ to:
Comprehensively characterize donor and patient blood; and
Screen donor blood for specific viruses using serological and molecular methods.
We intend to pursue a “razor/razor blade” business model for MosaiQ, placing MosaiQ Instruments and securing long-term
agreements for the supply of MosaiQ IH Microarrays and/or MosaiQ SDS Microarrays and MosaiQ MDS Microarrays used by those
instruments. We expect donor and patient laboratories to adopt MosaiQ because it is designed to offer a comprehensive
characterization of clinically significant blood group antigens and antibodies, while also offering the opportunity for substantial cost
savings and a range of operational efficiencies. We believe these customers would prefer to more fully characterize the blood of all
donors and patients to facilitate better blood matching. While MosaiQ is designed to be a highly cost-effective solution for our
customers, delivering substantial cost savings, we also expect to generate attractive, long-term profit margins on the sale of MosaiQ
Microarrays.
We have designed MosaiQ leveraging our expertise in transfusion diagnostics. MosaiQ combines novel manufacturing techniques and
well-characterized blood grouping and disease screening tests to create multiplex testing microarrays for use on a high-throughput
instrument, the MosaiQ Instrument. Through miniaturization, we plan to combine a full portfolio of existing serological tests on two
distinct microarrays for use on MosaiQ – one for blood grouping or immunohematology (or IH) and one for serological disease
screening (or SDS). We are also developing a third microarray for molecular disease screening (or MDS). We expect there to be
multiple variants of each microarray depending upon the stage of development and the end markets in which we expect the MosaiQ
Microarrays will be adopted.
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In a donor testing environment, the MosaiQ IH Microarray and the MosaiQ SDS Microarray have been designed to run
simultaneously, utilizing the same donor sample and the same MosaiQ Instrument. The MosaiQ MDS Microarray would also be
utilized in a donor testing environment. In a patient testing environment, only MosaiQ IH Microarrays would be utilized.
Our novel approach incorporates existing, well-characterized tests for blood group antigens and antibodies on a single consumable for
the global market. Each MosaiQ IH Microarray consists of two microarrays – one for antigen typing (comprising printed monoclonal
antibodies) and one for antibody detection/identification (comprising printed human red blood cells). We believe MosaiQ, when
launched, will be the only commercially available automation platform capable of offering this breadth of testing on a single
consumable.
The MosaiQ SDS Microarray has been designed to incorporate all tests required to meet current regulatory requirements for
serological disease screening of donor blood and source plasma in the markets in which we intend to operate. Initially we will include
tests to screen serologically for Syphilis and CMV, and subsequently in the expanded MosaiQ SDS microarray, we plan to include
additional tests for HBV, HCV, HIV, HTLV and Chagas disease. The MosaiQ SDS Microarray has additional capacity to incorporate
further serological disease screening tests should it be necessary in the future.
The MosaiQ MDS Microarray is being designed to incorporate all mandated tests required to meet current regulatory requirements for
molecular disease screening for donor blood and source plasma in the markets in which we intend to operate. We plan to include
molecular tests to screen for HBV, HCV, HIV, West Nile virus and Zika.
MosaiQ Microarrays are manufactured using a novel, patented printing technology we have further developed with TTP plc, or TTP, a
leading European technology development company. This print technology enables us to industrialize the manufacture of MosaiQ
Microarrays. We have an exclusive license for the use of this technology in our fields of use and we are not aware of any alternative
technology suitable and commercially available for this purpose.
We have developed a high-throughput, floor standing MosaiQ Instrument for use by both donor collection agencies and medium to
large-sized hospitals. The MosaiQ Instrument has been designed to process up to 3,000 microarrays per day (assuming three eight-
hour shifts), giving a capacity to test up to 1,500 donor samples (utilizing a MosaiQ IH Microarray and a MosaiQ SDS Microarray) or
3,000 patient samples (utilizing MosaiQ IH Microarrays only). The MosaiQ Instrument can complete the comprehensive
characterization of donor or patient blood in less than 35 minutes and has the capability to prioritize urgent patient sample testing,
commonly referred to as STAT testing.
The MosaiQ Instrument is designed to fully automate blood grouping and perform a simultaneous serological disease screen in a
donor testing laboratory. Consistent with the typical workflow of donor or patient testing laboratories, centrifuged tubes of whole
blood will be placed on the MosaiQ Instrument for processing. The instrument will then complete a comprehensive blood group
characterization of each sample, combined with a parallel serological disease screen in a donor testing environment, with the results
being reported through existing laboratory information management systems (or LIMS).
We have partnered with STRATEC, a leading global developer of diagnostics instruments, to design, develop and manufacture the
MosaiQ Instrument. STRATEC has been operating for over 30 years and has significant experience designing, developing and
manufacturing in vitro diagnostics instruments, including a number of existing instruments used today for blood grouping and disease
screening. Through March 31, 2020 we have taken delivery of 21 commercially ready MosaiQ Instruments.
We are also collaborating with key potential donor and patient testing customers on the development of MosaiQ. This group includes
the American Red Cross and Creative Testing Solutions, along with several other major hospitals, donor collection organizations and
reference laboratories.
COVID-19 Antibody Detection
At the end of December 2019, Chinese public health authorities reported several cases of acute respiratory syndrome in Wuhan City,
Hubei province, China. Chinese scientists soon identified a novel coronavirus as the main causative agent. The disease is now referred
to as novel coronavirus disease 2019, or COVID-19, and the causative virus is called severe acute respiratory syndrome coronavirus 2,
or SARS-CoV-2. The virus is a new strain of coronavirus that has not been previously identified in humans.
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SARS-CoV-2 is a beta coronavirus that causes COVID-19. SARS-CoV-2 is mainly transmitted through droplets and contact routes,
and the virus infects human cells via binding to angiotensin converting enzyme 2, or ACE2.
Infection with SARS-CoV-2 can cause
mild symptoms including a runny nose, sore throat, cough and fever. However, symptoms can be more severe for some people and
can lead to pneumonia or breathing difficulties. The elderly and people with pre-existing medical conditions (such as, diabetes and
heart disease) appear to be more vulnerable to becoming severely ill with the virus. Based on previous studies on SARS, an incubation
period from three to 14 days after onset of symptoms may be expected.
Specific antibodies to SARS-CoV-2 may be detectable in COVID-19 patients during the symptomatic phase of the disease after RNA
is no longer detectable.
have recovered from the illness. It is unknown if IgG antibodies to SARS-CoV-2 confer immunity to re-infection. We believe IgG
detection and other serological assays will play an important role in research and surveillance of SARS-CoV-2, and have developed
and are commercializing our MosaiQ COVID-19 Microarray to address these needs.
The persistence of IgG antibodies allows identification of people who have been infected in the past, and likely
Our Conventional Reagent Business
We have over 35 years of experience in the development, manufacturing and commercialization of conventional reagent products for
blood grouping. Our conventional reagent products, which are branded as Alba by Quotient, are used primarily to identify blood group
antigens and antibodies in donor and patient blood and to perform daily quality assurance testing for third-party blood grouping
instrument platforms. We also undertake product development projects for our OEM customers, generating product development fees.
Following development, we enter into long-term supply contracts with our OEM customers to manufacture and supply the products
we have developed.
We currently develop, manufacture and commercialize the following key products:
Antisera Products —These products contain antibodies used to identify blood group antigens. The majority of our
antisera products are monoclonal antibodies manufactured from master cell lines we own;
Reagent Red Blood Cells —These products are composed of human red blood cells formulated to enable the
identification of blood group antibodies. We source human red blood cells with the desired antigen profiles globally,
primarily from donor collection organizations;
Whole Blood Controls —We are an industry leader in the development and manufacture of whole blood control products,
with a significant relationship with Ortho and other major OEM customers. These products contain both human red blood
cells and antisera specifically formulated for use as daily quality assurance tests on third-party blood grouping instrument
platforms; and
Ancillary Products —These products and solutions are used to support blood grouping, but are not directly involved in
blood group determination. They include Anti-Human Globulin, enhancement media, and kits for training and staff
certification.
We manufacture our conventional reagent products at our new Allan Robb Campus (ARC) facility located near Edinburgh, Scotland
using our own cell lines or from raw materials purchased from a limited number of suppliers. We believe we have good relationships
with our suppliers.
Our Customers
In the United States, we currently offer directly to our customers a portfolio of 79 conventional reagent products focused on blood
grouping. Conventional reagent products sold in the United States under the Quotient brand include antisera products, reagent red
blood cells and other ancillary products. We currently serve 1,471 hospitals, donor collection agencies and independent testing
laboratory customers throughout the United States. Global direct sales, including sales to distributors, accounted for 33% of our
product sales in the year ended March 31, 2020, and 29% of our product sales in the year ended March 31, 2019.
We sell the majority of our conventional reagent products to our OEM customers for use with their blood grouping instruments as
specific tests or controls. Products sold to OEM customers range from bulk material incorporated into the customer’s own products to
finished, vialled products sold under our customer’s label. We retain ownership of the intellectual property for these finished, vialled
products and their associated regulatory licenses. OEM customers accounted for 67% of product sales in the year ended March 31,
2020 and 71% of product sales in the year ended March 31, 2019. We have long-standing relationships with three leading global
transfusion diagnostics companies: Ortho, Bio-Rad and Grifols.
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We have developed several conventional reagent products launched by Ortho over the past five years. As a result, Ortho accounted for
61% and 60% of our product sales in the years ended March 31, 2020 and 2019, respectively. We have recently developed a range of
rare antisera products for use on Ortho’s instrument platforms. These products have now received CE Marking for sale in Europe and
have been approved for sale in the United States by the FDA. We also sell a range of whole blood control products, red blood cell
products and ancillary products to Ortho worldwide, many of which have been launched over the past five years.
We are currently involved in an arbitration dispute with Ortho regarding our termination of our prior distribution and supply
agreement with Ortho, which related to the commercialization of certain MosaiQ products. For more information see “Part I. Item 3.
Legal Proceedings”.
MosaiQ Manufacturing and Supply
We have leased a facility in Eysins, Switzerland (near Geneva), which is the initial manufacturing site for MosaiQ Microarrays.
TTP plc (“TTP”)
We have entered into an exclusive, royalty-bearing, worldwide license with TTP to certain patented technologies and trade secrets to
enable high volume manufacturing of MosaiQ Microarrays. The license is for uses that include antigen typing, antibody detection and
serological disease screening of donated blood for infectious diseases (collectively, the initial purpose), as well as all human blood
sample diagnostic testing on batch processing instruments (collectively, the additional purposes), with the exception of companion
diagnostics, epigenetics and nucleic acid sequencing. Pursuant to this license agreement, we are paying TTP a $10 million license fee
(the TTP License Fee), which is payable in installments through September 30, 2021. We have paid $4.5 million under this agreement
to date, with the balance due in annual instalments which commence in September 2020. If the TTP License Fee payments are not
made by us when due, we will lose the license to the additional purposes, but not to the initial purpose. We will pay a low single digit
royalty to TTP based on our net sales for 20 years or for so long as the licensed intellectual property is protected by patent in the
country of sale. We expect to begin paying this royalty during the fiscal year ended March 31, 2021 in connection with the
commercialization of the MosaiQ COVID-19 Microarray.
TTP has also granted us a non-exclusive, fully paid, royalty-free, perpetual, irrevocable, worldwide license to use certain other
intellectual property TTP owns and has incorporated into bespoke components of the manufacturing system for MosaiQ Microarrays.
The agreement will remain in effect so long as the licensed intellectual property is subject to patent or other intellectual property
protection. TTP may terminate the agreement if we assist another party in disputing the validity and/or scope of any of TTP’s patented
intellectual property covered by the agreement. Either party may terminate the agreement with immediate effect by notice to the other
party upon the occurrence of bankruptcy events. Any fee disputes are subject to mandatory dispute resolution.
STRATEC Biomedical AG (“STRATEC”)
We have entered into a manufacturing agreement with STRATEC pursuant to which we are required to purchase a fixed minimum
number of MosaiQ Instruments during the six years following delivery of the first field trial instruments. Our aggregate remaining
obligation under this agreement totals €57.0 million, or $62.7 million using exchange rates on March 31, 2020. The agreement is
terminable by either party for certain breaches by the other party or in the event of certain bankruptcy events involving the other party.
If STRATEC terminates the manufacturing agreement, certain termination payments are payable by us depending upon the number of
the instruments purchased at the time of termination, and we are also responsible for certain costs.
We also entered into a development agreement with STRATEC pursuant to which it developed the MosaiQ Instrument. Pursuant to
the development agreement, STRATEC has granted us an irrevocable, fully-paid, perpetual, royalty-free, worldwide license to
intellectual property that is developed for use by, or the manufacture of, the MosaiQ Instrument, as well as an exclusive right to
market and sell the MosaiQ Instrument. STRATEC has additionally granted us, or agreed to grant, similar rights to its pre-existing
technologies for use in development and manufacturing activities for the MosaiQ Instrument. We may only exercise our rights to
manufacture in limited circumstances when STRATEC fails to perform under the manufacturing agreement and such rights are subject
to a to be negotiated license fee.
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Quality
Our quality function (composed of quality assurance, quality control and validation) oversees the quality of our manufacturing as well
as the quality systems used in research and development and sales and marketing. We have established a control system that oversees
implementation and maintenance, document control, supplier qualification, corrective and preventative actions, as well as employee
training processes that we believe ensures quality across our operations. We continuously monitor and seek to improve quality over
time and believe the implementation of these processes has supported product performance, customer satisfaction, and a culture of
continuous improvement.
Sales, Marketing and Distribution
We market our conventional reagent products directly in the United States. Outside of this territory, we sell our products to a range of
third-party distributors and OEM customers. In the United States, we use a combination of sales managers, sales representatives,
customer service staff and technical experts to interact with laboratory managers and administrative staff, purchasing directors,
medical directors and other individuals and groups involved in the implementation of blood testing programs. We market our MosaiQ
products directly in both Europe and the United States through a similar combination of field based sales representatives and technical
experts, supported by client services staff.
Our goal is to educate our customers about the technical and economic benefits of switching from competing offerings to our
products. Our customer service staff and technical experts are also involved in the practical training of customers, as well as answering
customer questions. These teams are supported by various marketing activities, which include advertising, medical education,
attendance at scientific meetings and other awareness-raising activities. As of March 31, 2020, we had 33 employees engaged
worldwide in sales, marketing and customer service functions.
Research and Development
Our research and development efforts are focused on the further development of MosaiQ and new conventional reagent products. We
believe we have assembled an experienced research and development team with the scientific talent needed to develop new products
that leverage our significant blood grouping expertise. We believe our experience in developing tests based on existing serological
testing methods will allow us to conceive, develop and validate comprehensive multiplex tests utilizing MosaiQ.
As of March 31, 2020, we had 193 employees engaged in research and development functions.
Customer Funding and Reimbursement
In the United States, our products are not directly subject to reimbursement by governmental or commercial third-party payors for
health care services. The costs and expenses related to donor blood grouping and disease screening are typically included in the price
to a hospital of a unit of blood. The costs and expenses related to patient blood grouping at hospitals are not specifically reimbursed by
a third-party payor, but absorbed within the reimbursement structure of a broader medical procedure. We supply products to our
customers, including hospitals, donor testing laboratories, independent testing laboratories and OEM customers based on negotiated
prices.
Competition
In the past 15 to 20 years, the transfusion diagnostics market has experienced considerable consolidation, particularly in the United
States. Given significant barriers to entry, there are only a small number of vendors currently addressing this market. These vendors
can be divided into four groups: (i) those offering instrument platforms for blood grouping and related microarrays, in addition to
conventional reagent products for manual testing; (ii) those only offering conventional reagent products for manual blood grouping;
(iii) those offering raw materials for inclusion in products used on instrument platforms for blood grouping and in conventional
reagent products; and (iv) those offering instruments for disease screening and related microarrays. A small number of donor
collection agencies continue to manufacture a limited range of products, primarily for internal use.
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In our view, barriers to entry for the transfusion diagnostics market include:
the need to manufacture a broad range of complex antisera products, with annual volume requirements ranging from
hundreds of milliliters to hundreds of liters, depending upon individual blood group specificities;
the ability to reliably procure and formulate red blood cell donations with the appropriate antigen profiles to support the
manufacture of red blood cells for antibody identification and whole blood control products;
rigorous global regulatory requirements; and
customers who can be reluctant to change product suppliers.
Our principal competitors in the United States are Immucor, Ortho and Grifols. The principal market participants in Europe are Bio-
Rad, Ortho, Grifols and Immucor and the principal market participants in Japan are Ortho and Immucor.
For serological disease screening, only two vendors have instruments approved for sale in the United States – Abbott and Ortho.
Outside the United States, Abbott, Ortho, Roche and Bio-Rad are the principal instrument providers for serological disease screening.
For molecular disease screening, only two vendors have instruments approved for sale in the United States – Grifols and Roche.
Outside the United States, Grifols and Roche are the principal instrument providers for molecular disease screening.
For COVID-19 antibody detection, our principal competitors are Roche, Abbott, Ortho and Bio-Rad.
For products sold to OEM customers, the cost of switching vendors (raw material and/or finished costs) can be considerable, given
regulatory scrutiny of the manufacturing process and the potential need to modify instrument platforms and software. For our OEM
business, we consider Merck/Millipore and Diagast to be our primary competitors. We are also a customer of each of these two
organizations. We believe the complexity and high cost of switching suppliers, together with our ownership of key products and
associated regulatory licenses, reduce the risk of loss of our important OEM business. We believe the FDA-licensed status of our
manufacturing facility also offers major benefits as our key OEM customers seek to either establish or defend their position in the
United States market.
Intellectual Property
We have relied, and expect to continue to rely, on various exclusive and non-exclusive license agreements, granting rights to patent-
protected technologies relating to the manufacture of MosaiQ Microarrays and instruments. We have entered into an exclusive license
with TTP to patented technologies to enable high volume manufacture of MosaiQ Microarrays. In addition, STRATEC has agreed to
grant us licenses to certain of its pre-existing technologies and has granted us licenses to technologies developed under our
development agreement with it, for use in the sale of MosaiQ instruments, and in the development and manufacture of the MosaiQ
instrument, which it will undertake on our behalf. See “Business— MosaiQ Manufacturing and Supply—TTP plc” and “—STRATEC
Biomedical AG” for additional information about these agreements. These licenses are material to the development and
commercialization of MosaiQ. The remaining lives of the patents for key existing technologies that we have licensed currently exceed
10 years.
We have an issued U.S. patent related to blood typing that expires in September 2027. This patent provides methods of detecting the
presence of red blood cells coated (or sensitized) with host antibody and/or components of the complement system. We received
counterpart patents for this U.S. patent in Canada, Europe, Australia and Japan, which also expire in September 2027.
In February 2015, we filed two patent applications. The first providing a new method for detecting red blood cells thereby providing a
basis of positive controls to confirm the addition of red blood cells to a microarray, and the second for crossmatching blood samples,
finding particular application in immunological assays, where it can be used to assess compatibility of donor and patient blood. In
November 2015, we filed a patent application providing for a purification method which can be applied to sourcing antibodies from
human material, the result of which can be used in the manufacture of the MosaiQ Microarrays.
In January 2018, we filed a provisional U.S. patent application relating to methods and kits for detecting nucleic acids, antigens and
antibodies in a sample using a microarray platform, in addition to a method for the amplification of nucleic acids. We made a further
filing in December 2018 designating the European Patent Office as the International Searching Authority for this patent application.
We also rely upon copyright protection, trade secrets, know-how, continuing technological innovation and licensing opportunities to
develop and maintain our competitive position. Our success will depend in part on our ability to obtain patent protection for our
products and processes, to preserve our copyrights and trade secrets, and to operate without infringing the proprietary rights of third
parties.
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We have developed several conventional reagent products launched by Ortho over the past five years. We generally retain ownership
of the intellectual property for these products and their associated regulatory licenses.
Government Regulation
In the United States, medical products are subject to extensive regulation by the U.S. Food and Drug Administration, or the FDA. The
Federal Food, Drug, and Cosmetic Act, or the FDC Act, the Public Health Service Act, or the PHSA, and other federal and state
statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping,
approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of
medical products. Prior to marketing certain medical products, manufacturers are required to obtain permission from the FDA via a
product approval or clearance. Failure to comply with applicable U.S. requirements may subject a company to a variety of
administrative or judicial sanctions, such as FDA refusal to file submissions, refusal to approve or clear products, warning or untitled
letters, product recalls, field actions, product seizures, total or partial suspension of production or distribution, refusal to permit the
importation of product, injunctions, fines, civil penalties, and criminal prosecution.
The FDA regulates in vitro diagnostic, or IVD, products intended to evaluate blood as either biological products or medical devices. In
general, reagents used to identify blood types, including extended antigen typing, and detect and identify antibodies in plasma, as well
as assays intended for disease screening of the blood supply are regulated as biological products, while the instruments that conduct
the analyses and quality assurance products intended to test the accuracy of instrument platforms are regulated as medical devices.
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 not part of the EEA and have voluntarily adopted laws and regulations that
generally 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. On May 26, 2017, the European Union
adopted a new regulatory framework, the In Vitro Diagnostic Regulation (IVDR 2017/746), or IVDR, which replaces the IVD
Directive. Our products in the European Union will have to comply with the IVDR requirements after May 26, 2022. Until that time,
our products must continue to meet the requirements of IVD Directive for commercialization in the European Union.
Outside of the United States and 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. The process in these 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.
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 monitor our facilities carbon emissions, use of water, electricity and gas, as well as waste production and disposal, including
maximizing opportunities to recycle waste streams.
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Information about our Executive Officers
Below is a list of the names, ages as of March 31, 2020 and positions, and a brief account of the business experience of the individuals
who serve as our executive officers.
Name
Franz Walt
Peter Buhler
Jeremy Stackawitz
Edward Farrell
Ernest Larnach
Age
Position
60 Chief Executive Officer
50 Chief Financial Officer
45 Chief Commercial Officer
50 Chief Operating Officer
50 Head of Financial Accounting & Treasury
Franz Walt, Chief Executive Officer
Mr. Walt joined the Board of Directors in February 2018 and was appointed Interim Chief Executive Officer in March 2018 and was
subsequently appointed Chief Executive Officer in May 2018. Mr. Walt served as President of Siemens Healthineers Laboratory
Diagnostics, the laboratory diagnostics provider within the healthcare division of Siemens AG, the German based conglomerate, from
March 2014 to December 2017. From January 2012 to February 2014, Mr. Walt was the Senior Vice President and head of Siemen
Healthineers’ Diagnostic Division North America. Prior to joining Siemens Healthineers, from June 1989 to November 2011, Mr.
Walt served in various capacities at F. Hoffman-La Roche Ltd., a Swiss based healthcare company that develops diagnostics and
therapeutic products, including as Geschäftsführer (CEO) of Roche Diagnostics GmbH in Mannheim from January 2007 to November
2011, and as a board member of the Roche Diagnostic Executive Committee (DiaEC), from November 1998 to December 2006.
During his time as a board member of the DiaEC, Mr. Walt served, among other capacities, as President and Consejero Delegado
(CEO) of Roche Diagnostics Spain and Regional President for the LATAM Region from October 2004 to December 2006, and as
Managing Director of Roche Diagnostics Asia Pacific Pte Ltd. and Regional President for the APAC Region from November 1998 to
September 2004. Mr. Walt holds undergraduate degrees in management from the IMAKA Institute of Management in Zürich, and in
marketing from the Swiss Institute of Economics in Zürich, and an MBA from City University of Seattle.
Peter Buhler, Chief Financial Officer
Peter Buhler has over 30 years of financial experience gained through various roles in industry and public accounting. Mr. Buhler was
appointed Chief Financial Officer in February 2020 upon the resignation of Christopher Lindop from such position. From 2017 to
2019, Mr. Buhler served as Group Chief Financial Officer at Zaluvida Corporate AG, a life sciences company focused on obesity,
antibiotic resistance and other global health challenges. From 2013 to 2017, Mr. Buhler served as Group Chief Financial Officer for
Stallergenes Greer SA, a global life sciences company focused on allergy immunotherapy, where he led a complex merger project
combining a French and a U.S. group. From 2010 to 2013, Mr. Buhler held the role of Finance Director, EMEA for Logitech
International SA, a manufacturer of computer peripherals and software. From 2008 to 2010, Mr. Buhler held the role of Chief
Financial Officer at Anteis SA, a mid-sized medical technology company. From 2001 to 2008, Mr. Buhler held various roles at Merck
Serono, a biopharmaceutical company, including Head of Finance Commercial Europe and Senior Director, Corporate Strategic
Development. From 1999 to 2001, Mr. Buhler held the role of Manager General Accounting and Control for a division of Eli Lilly and
Company. Prior to that, Mr. Buhler spent over 10 years in public accounting with BDO Visura. Mr. Buhler is a Swiss Chartered
Accountant, a member of the Swiss Institute of Certified Accountants and Tax Consultants and received an MBA from SBS Swiss
Business School.
Jeremy Stackawitz, Chief Commercial Officer
Jeremy Stackawitz joined us in March 2009 and serves as our Chief Commercial Officer. Mr. Stackawitz served as one of our two
Presidents prior to assuming his current role in January 2020. Mr. Stackawitz has over 20 years of healthcare industry experience
gained through various consulting and industry roles. From 2007 to 2009, Mr. Stackawitz was Worldwide Commercial Director for
Immunohematology of Ortho Clinical Diagnostics, a Johnson & Johnson company. Prior to joining Quotient, Mr. Stackawitz held
positions from 2006 to 2007 at Therakos, a biotechnology company, from 2004 to 2006 at Ortho Biotech, and from 2000 to 2003 at
Purdue Pharma L.P. He also held consulting positions at ISO Healthcare Group (now part of Monitor Group) from 1997 to 2000 and
McKinsey & Company in 2003. Mr. Stackawitz received a B.A. in chemistry from Dartmouth College and an M.B.A. from The
Wharton School at the University of Pennsylvania.
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Edward Farrell, Chief Operating Officer
Edward Farrell joined us in February 2013 and serves as our Chief Operating Officer. Mr. Farrell served as one of our two Presidents
prior to assuming his current role in January 2020. Mr. Farrell has over 20 years of engineering and manufacturing experience gained
through various industry roles with a particular emphasis on medical diagnostics. From March 2001 to February 2013, Mr. Farrell held
several senior positions with Bayer Diagnostics, which was acquired by Siemens Healthcare Diagnostics in 2007. Starting in 2010,
Mr. Farrell was Managing Director and Vice President of Manufacturing for a high volume immunoassay reagent manufacturing plant
in the United Kingdom. From 2007 to 2010, Mr. Farrell was Managing Director and Vice President of Manufacturing for a facility in
the United Kingdom that develops and manufactures point-of-care diagnostic instruments and microarrays. From 2005 to 2007, he
worked in the United States as Director of Distribution, Service and Repair and initially worked in 2001 as a Senior Manufacturing
Manager in a large instrument manufacturing plant in Ireland. Prior to Bayer Diagnostics, Mr. Farrell worked at Ingersoll Rand as a
Production Manager from 1999 to 2001, Intel as a Manufacturing Engineer and Supervisor from 1995 to 1999, and Barlo plc as a
Project Engineer from 1993 to 1995. Mr. Farrell received a B.E (Mechanical) and a Masters in Engineering Science from University
College Dublin.
Ernest Larnach, Head of Financial Accounting and Treasury
Mr. Larnach joined us in September 2018 and serves as our Head of Financial Accounting and Treasury. Mr Larnach served as our
Executive Vice President of Finance prior to assuming his current role in January 2020. Mr. Larnach has over 25 years of financial
experience gained through various roles in industry and public accounting. From 2004 to 2017, Mr. Larnach held a number of roles
with Charles River Laboratories Inc., including European Controller (Preclinical Services and Research Model Services) and Senior
Director Business Finance (Safety Assessment). From 2001 to 2004, Mr. Larnach held positions at Inveresk Research Group before
Charles River’s 2004 acquisition of Inveresk. Prior to that, Mr. Larnach spent over 10 years with Arthur Andersen. Mr. Larnach is a
member of the Institute of Chartered Accountants of Scotland and received a B.Com (Hons) in Accounting and Business Studies from
The University of Edinburgh.
In addition, Christopher Lindop, who served as our Chief Financial Officer from February 2017 to February 2020, retired from his
position as our Executive Vice President on May 31, 2020.
Employees
As of March 31, 2020, we had 418 employees. None of our employees are represented by a labor union or covered under a collective
bargaining agreement, nor have we experienced any work stoppages. We believe our employee relations are good.
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 Securities and Exchange Commission, or SEC, may be obtained through the investor
section of our website at www.quotientbd.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,
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
Quotient Limited is a limited liability no par value company incorporated under the laws of Jersey, Channel Islands. Our registered
address is 28 Esplanade, St Helier, JE2 3QA, Jersey, Channel Islands. Our agent for service of process is our wholly owned U.S.
subsidiary, Quotient Biodiagnostics, Inc., 301 South State Street, Suite S-204, Newtown, Pennsylvania 18940. We were incorporated in
Jersey, Channel Islands in 2012. Our principal executive offices are located at B1, Business Park Terre Bonne, Route de Crassier 13,
1262 Eysins, Switzerland, and our telephone number is 011-41-22-716-9800. Our website address is www.quotientbd.com. The
information on, or that can be accessed through, our website is not part of this Annual Report on Form 10-K.
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Item 1A. Risk Factors
Risks Related to Our Business, Industry and Future Plans
You should consider our business and prospects in light of the risks and difficulties we expect to encounter in the markets in which we
compete, and the prospects of our development projects, particularly MosaiQ. Factors that may contribute to fluctuations in our
operating results include many of the risks described in this section. These fluctuations may make financial planning and forecasting
difficult. In addition, these fluctuations may result in unanticipated decreases in our available cash, which could negatively affect our
business and prospects. You should not rely on our operating results for any prior periods as an indication of our future operating
performance.
We have incurred losses since our commencement of operations and expect to incur losses in the future.
We have incurred net losses and negative cash flows from operations in each year since we commenced operations in 2007. As of
March 31, 2020, we had an accumulated deficit of $483.4 million. We expect our operating losses to continue for at least the next
fiscal year as we continue our investment in the development and commercialization of MosaiQ. Because of the numerous risks and
uncertainties associated with developing and commercializing MosaiQ and the other products we may develop, we are unable to
predict the magnitude of any future operating losses or if or when we will become profitable. 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. Our ability to achieve or sustain profitability is based on numerous factors, many of which are beyond our control, including
market acceptance of our products, future product development, and our market penetration and margins. Even if we achieve
profitability, we may not be able to sustain it.
We may need to raise additional capital, which may not be available on favorable terms, if at all, and which may cause dilution to
shareholders, restrict our operations or adversely affect our ability to operate our business.
We expect to fund our operations in the near-term, including the ongoing development of MosaiQ through successful field trial
completion, achievement of required regulatory authorizations and commercialization, from a combination of funding sources,
including with available cash and short-term investment balances, cash generated through sales of our COVID-19 Microarray, and the
issuance of new equity or debt. Our ability to raise additional capital may be significantly affected by general market conditions, the
market price of our ordinary shares, our financial condition, uncertainty about the future commercial success of MosaiQ, regulatory
developments, the status and scope of our intellectual property, any ongoing arbitration or litigation, our compliance with applicable
laws and regulations and other factors, many of which are outside our control. Furthermore, the indenture governing the Secured
Notes contains limitations on our ability to incur debt and issue preferred and/or disqualified stock. Accordingly, we cannot be certain
that we will be able to obtain additional financing on favorable terms or at all. If we are unable to obtain needed financing on
acceptable terms, or otherwise, we may not be able to implement our business plan, which could have a material adverse effect on our
business, financial condition and results of operations, including a decline in the trading price of our ordinary shares. Any additional
equity financings could result in additional dilution to our then existing shareholders. In addition, we may enter into additional
financings that restrict our operations or adversely affect our ability to operate our business and, if we issue equity, debt or other
securities to raise additional capital, the new equity, debt or other securities may have rights, preferences and privileges senior to those
of our existing shareholders.
If we do not achieve, sustain or successfully manage our anticipated growth, our business and prospects will be harmed.
If we are unable to maintain adequate revenue growth, our financial results could suffer. Furthermore, significant growth will place
strains on our management and our operational and financial systems and processes. If we do not successfully forecast the timing of
regulatory authorization for product marketing and subsequent demand for our products or manage our anticipated expenses
accordingly, our operating results will be harmed.
The development of MosaiQ includes many factors, including factors beyond our control, and we may not commercialize it on a
timely basis, or at all.
Our future revenue growth and profitability will substantially depend on our ability to successfully commercialize MosaiQ. Our ability
to successfully commercialize MosaiQ may be affected by the following factors, among others:
the scope of and progress made in our development activities;
our ability to successfully complete field trial studies;
our ability to obtain and maintain FDA and other regulatory authorizations;
threats posed by competing technologies;
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our, or any commercial partner’s, ability to market MosaiQ to donor collection agencies, hospitals and independent testing
laboratories;
our ability to successfully optimize the individual tests to be included on the MosaiQ Microarrays;
the occurrence of unforeseen technical difficulties associated with the operation of the manufacturing system for the
MosaiQ Microarrays, the manufacture or operation of the MosaiQ Instrument, or the design or development of software
and the integration of the MosaiQ Microarrays, the MosaiQ Instrument and software;
delays resulting from the failure of third-party suppliers or contractors to meet their obligations in a timely and cost-
effective manner; and
endorsement and acceptance by donor collection agencies, hospitals and independent testing laboratories.
Development and commercialization of novel products, such as MosaiQ, is inherently uncertain. At any point, we may abandon
development of MosaiQ or we may be required to expend considerable resources addressing unforeseen technical challenges or
otherwise to complete and commercialize MosaiQ, which would adversely impact potential revenue and our expenses. In addition, any
delay in the commercialization of MosaiQ would provide others with additional time to commercialize competing products, which in
turn may adversely affect our growth prospects and operating results. Although we believe that our cost estimates and our project
completion and commercialization schedule for MosaiQ are reasonable, we cannot assure you that the actual costs or time required to
complete the project will not substantially exceed our current estimates.
Obtaining regulatory authorization for MosaiQ will take time, require material expenditures and ultimately may not succeed.
MosaiQ will be subject to CE Marking in Europe. In the United States, the FDA has indicated that it will require MosaiQ to obtain
approval of a biologics license application, or BLA, for the MosaiQ IH Microarrays and traditional 510(k) clearances for the
instrument and the initial MosaiQ SDS Microarray, comprising two tests, CMV and syphilis. The MosaiQ SDS II Microarray,
comprising additional tests, will be subject to BLA approval. The process of complying with the requirements of the FDA and
comparable agencies is generally costly, time consuming and burdensome, and regulatory authorization is never guaranteed,
irrespective of time and financial expenditures. Furthermore, given the complexities of the regulatory pathway for MosaiQ, there may
be delays in obtaining marketing authorization, or we may not be able to obtain marketing authorization at all. Moreover, the
manufacturing process of the MosaiQ Microarrays is based on novel technologies and the FDA and regulatory agencies in other
jurisdictions may have limited experience reviewing product candidates using these technologies, which may also result in delays in
obtaining regulatory authorization for MosaiQ. In addition, global health crises, such as the current COVID-19 pandemic, may divert
regulatory resources and attention away from the approval process for our products. Any such diversion could materially lengthen the
regulatory process for MosaiQ, which would delay expected commercialization.
We are required to perform field trial studies to obtain regulatory authorizations for MosaiQ. Field trial studies are subject to factors
within and outside of our control and the outcome of these studies is uncertain. For example, success in performance evaluation
studies may not be replicated in later field trial studies. There is no guarantee that our analytical testing will meet the FDA’s or other
regulatory authorities’ requirements, that our field trial studies will be successful, that the FDA or other regulatory authorities will
provide marketing authorization for MosaiQ based on the studies we have completed or, if we obtain market authorization, that the
prognostic information that may be reported will differentiate MosaiQ from alternatives in the United States or other markets. Even if
our field trials are successful and we obtain the necessary regulatory authorizations, the regulatory review process will still take time
and require material expenditures.
MosaiQ Microarrays have not been manufactured on a commercial scale and are subject to unforeseen scale-up risks.
While we have developed the manufacturing system for MosaiQ Microarrays, there can be no assurance that we will be able to
manufacture MosaiQ Microarrays at a scale that is adequate for our increasing commercial needs. We may face significant or
unforeseen difficulties in manufacturing the MosaiQ Microarrays, including but not limited to:
technical issues relating to manufacturing products on a commercial scale at reasonable cost, and in a reasonable time
frame;
difficulty meeting demand or timing requirements for Microarray orders due to excessive costs or lack of capacity for part
or all of an operation or process;
lack of skilled labor or unexpected increases in labor costs needed to produce or maintain our manufacturing systems or
perform certain required operations;
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changes in government regulations or in quality or other requirements that lead to additional manufacturing costs or an
inability to supply product in a timely manner, if at all; and
increases in raw material or component supply cost or an inability to obtain certain critical supplies needed to complete
our manufacturing processes.
These and other difficulties may only become apparent when scaling up the manufacturing of the MosaiQ Microarrays to more
substantive commercial scale. In the event our MosaiQ Microarrays cannot be manufactured in sufficient commercial quantities,
market acceptance of MosaiQ could be harmed, our prospects could be significantly impacted and our financial prospects would be
materially harmed.
We cannot accurately predict the volume or timing of any future sales for MosaiQ, making the timing of any such revenues
difficult to predict.
Our limited commercialization experience makes it difficult to evaluate our business and predict our prospects. We may be faced with
lengthy customer evaluation and approval processes associated with MosaiQ. Consequently, we may incur substantial expenses and
devote significant management effort and expense in developing customer adoption of MosaiQ, which may not result in revenue
generation. As such, we cannot accurately predict the volume or timing of any future sales for MosaiQ.
We expect to rely on third parties to conduct studies of MosaiQ and our other transfusion diagnostics products that will be required
by the FDA or other regulatory authorities and those third parties may not perform satisfactorily.
We do not have the ability to independently conduct the field trial studies or other studies that may be required to obtain FDA and
other regulatory clearances or approvals for MosaiQ as well as our conventional reagent products. Accordingly, we expect to rely on
third parties, such as independent testing laboratories and hospitals, to conduct such studies. Our reliance on these third parties will
reduce our control over these activities. These third-party contractors may not complete activities on schedule or conduct studies in
accordance with regulatory requirements or our study design. We cannot control whether they devote sufficient time, skill and
resources to our studies. Our third-party contractors may also be impacted by factors outside their or our control, such as delays
associated with the COVID-19 pandemic. In particular, the pandemic has resulted in certain delays for our ongoing field trials for our
expanded MosaiQ IH Microarray. Our reliance on third parties that we do not control will not relieve us of any applicable requirement
to prepare, and ensure compliance with, various procedures required under good clinical practices. If these third parties do not
successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be
replaced or if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to our clinical protocols or
regulatory requirements or for other reasons, our studies may be extended, delayed, suspended or terminated, and we may not be able
to obtain regulatory approval for MosaiQ or our other transfusion diagnostic products.
Our commercial success will largely depend upon the degree of market acceptance of MosaiQ by donor collection agencies,
hospitals and independent testing laboratories.
MosaiQ may not gain sufficient market acceptance by donor collection agencies, hospitals and independent testing laboratories. If the
product does not achieve an adequate level of acceptance by these critical customer groups, our future revenue growth and
profitability would be materially impacted. The degree of market acceptance of MosaiQ will depend on many factors, including:
the efficacy and potential advantages of MosaiQ over alternative technologies, techniques and products, including both
conventional technologies such as existing testing methods from Ortho, Immucor, Bio-Rad, Grifols, Danaher, Abbott and
Roche, as well as new technologies from such companies or new competitors;
limitations contained in the approved labeling for MosaiQ;
the willingness of our target customers to transition from existing technologies, products and procedures and to adopt
MosaiQ;
our ability to offer attractive pricing for MosaiQ;
the strength of marketing and distribution support and the timing of market introduction of competitive products; and
outcomes from field trial studies, the regulatory approval process, and other publicity concerning MosaiQ or competing
products.
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Our efforts to educate donor collection agencies, hospitals, independent testing laboratories and other members of the medical
community on the benefits of MosaiQ may require significant resources and may never be successful. Such efforts to educate the
marketplace may require more resources than are required by conventional or new technologies marketed by our competitors. If we
were to incorrectly forecast our ability to penetrate various 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 MosaiQ is the subject of industry or clinical
guidelines, field trial studies or scientific publications that are unhelpful or damaging, or otherwise call into question the benefits of
MosaiQ, we may have difficulty convincing prospective customers to adopt MosaiQ.
Our commercialization plan for MosaiQ in the patient testing market may depend on entering into arrangements with one or more
commercial partners.
Our initial MosaiQ IH Microarray and our second, expanded MosaiQ IH Microarray are being developed for the donor testing market,
with our initial focus being on Europe and the United States, while our third MosaiQ IH Microarray is being developed for the patient
testing market. We had previously contracted with Ortho to commercialize the MosaiQ IH Microarray in the patient testing market
pursuant to a distribution and supply agreement, which we refer to as the Ortho Agreement. However, we terminated the Ortho
Agreement, effective as of December 27, 2019, and are currently not party to a commercialization arrangement for the MosaiQ IH
Microarray in the patient testing market. In addition, we are also currently involved in an arbitration dispute with Ortho regarding our
termination of the Ortho Agreement and, while this dispute has been ongoing, we have not pursued alternatives for commercializing
our MosaiQ IH Microarray in the patient testing market.
Commercializing MosaiQ in the patient testing market, which is highly fragmented, will require a global sales and support
infrastructure. Our future commercialization plan for this market may include identifying and engaging one or more partners with an
existing global commercial infrastructure. Unless we engage such a partner to assist us, we do not believe we would choose to
commercialize MosaiQ ourselves without significant additional funds to build our own global sales and support team. Even if we
successfully establish new commercialization arrangements, these relationships may never result in the successful commercialization
of MosaiQ in the patient testing market.
Other companies or institutions may develop and market novel or improved methods for transfusion diagnostics, which may make
MosaiQ less competitive or obsolete.
The market for transfusion diagnostics is large and established, and our competitors may possess significantly greater financial
resources and have larger development and commercialization capabilities than we do. Although we are not aware of any companies
that are pursuing an alternative fully automated blood grouping and disease screening platform like MosaiQ, a platform or technology
that competes with MosaiQ may be developed. We may be unable to compete effectively against these competitors either because
their diagnostic platforms are superior or because they may have more expertise, experience, financial resources or stronger business
relationships.
Our near-term success is dependent upon our ability to expand our customer base and introduce new conventional reagent
products.
Our current customer base is primarily composed of donor testing laboratories and hospitals that use our conventional reagent
products for blood grouping, along with original equipment manufacturers, or OEMs (for example, Ortho, Bio-Rad and Grifols). Our
success will depend, in part, upon our ability to expand our customer base and increase our market penetration of existing customers
through the development and commercialization of new products after obtaining regulatory authorization. Attracting new customers
and introducing new products requires substantial time and expense. Any failure to expand our existing customer base, or launch new
products, would adversely affect our operating results.
Our financial performance depends in part upon our ability to successfully develop and market new products in a rapidly changing
technological and economic environment. If we fail to successfully introduce new conventional reagent products, we could lose
market share. We could also lose market share if our competitors introduce new products or technologies that render our conventional
reagent products less competitive or obsolete. In addition, delays in the introduction of new products due to regulatory, developmental
or other obstacles could negatively impact our revenue and market share, as well as our earnings.
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We are dependent upon our three largest OEM clients for a substantial portion of our total revenues. If any of our key OEM
customers terminates or reduces the scope of its relationship with us, our product sales will suffer.
We develop, manufacture and sell a range of our conventional reagent products to customers who are major OEMs. These products
are sold in bulk, for inclusion in products manufactured by these OEM customers, or as finished, vialled products. Product sales to our
three largest OEM customers accounted for 64% of our total revenues and product sales to Ortho accounted for 61% of our total
revenues in the year ended March 31, 2020.
If any of our OEM customer agreements for our conventional reagents products are terminated, particularly our agreement with Ortho,
or the scope of our OEM customer relationships is otherwise reduced, our product sales could decrease, and our results of operations
may be negatively impacted. In particular, a change of control of any of our OEM customers could negatively impact our relationship.
Further, we may not be able to enter into new customer agreements on satisfactory terms, or at all. In addition, we are currently
involved in an arbitration dispute with Ortho regarding our termination of the Ortho Agreement, which related to the
commercialization and distribution of certain MosaiQ products. We cannot predict the impact this dispute with Ortho may have on our
conventional reagent business. For more information see “Part I. Item 3. Legal Proceedings”.
Our OEM customers, including Ortho, are also our competitors. Our conventional reagent business may be harmed if, as a result of the
commercialization of MosaiQ, Ortho or our other OEM customers perceive MosaiQ as a competitor product, resulting in a
discontinuation of Ortho’s or our other OEM customers’ purchases from us.
Gross margin volatility in our conventional reagent business may negatively impact our profitability.
Gross margins on our conventional reagent products vary depending upon the product, with whole blood control products, rare
antibodies and reagent red blood cell products generating higher margins. Depending upon the sales mix of these products, our gross
margin could vary significantly from period to period. Our conventional reagent products are manufactured by us. As such, gross
margins for these products could be impacted by a rise in the costs of raw materials and labor, as well as overhead and the efficiency
of our manufacturing operations. Our gross margin may also be negatively impacted by increased competition. Specifically, suppliers
in the market seeking to maintain or grow market share may foster a competitive environment of pricing pressures that could
negatively impact the profitability of product sales.
If we are unable to maintain or redeploy our network of direct sales representatives, we may not be able to generate anticipated
sales of our current or future products.
We expect our direct sales representatives to develop long-lasting relationships with the customers they serve. If our direct sales
representatives fail to adequately promote, market and sell our conventional reagent products, our sales could significantly decrease. If
a substantial number of our direct sales representatives were to leave us within a short period of time, our sales could be adversely
affected. If a direct sales representative 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. We may be
unable 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 would
prevent us from expanding our business and generating sales.
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 manufacturing of our conventional reagent products that could 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 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 products, reduce our product gross margin and adversely impact our
business. If we are unable to keep up with demand for our products by successfully manufacturing and shipping our products in a
timely manner, our revenue could be impaired, market acceptance for our products 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.
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Demand for our products depends in part on the operating budgets of our customers and their spending levels, a reduction in
which could limit demand for our products and adversely affect our business.
In the near term, we expect that our revenue will be derived primarily from sales of our conventional reagent products to hospitals and
independent testing laboratories for blood grouping, either directly or through our OEM customers. The demand for our products will
depend in part upon the operational budgets of these customers, which are impacted by factors beyond our control, such as:
global macroeconomic conditions;
changes in the regulatory environment;
differences in budgetary cycles;
market-driven pressures to consolidate operations and reduce costs; and
market acceptance of new technologies.
Our operating results may fluctuate due to reductions and delays in expenditures by our customers. Any decrease in our customers’
budgets or expenditures, or in the size, scope or frequency of operating expenditures, could materially and adversely affect our
business, operating results and financial condition.
The transfusion diagnostics market is highly competitive. If we fail to compete effectively, our business and operating results will
suffer.
We face significant competition in the transfusion diagnostics market. We currently compete with established diagnostic companies
that design, manufacture and market instruments and microarrays for blood grouping. We believe our principal competitors in the
transfusion diagnostics market are Ortho, Immucor, Bio-Rad, Grifols, Danaher, Abbott and Roche.
Most of our current competitors have greater financial resources than we do, making them better equipped to fund research and
development, manufacturing and marketing efforts or license technologies and intellectual property from third parties. Our
competitors can be expected to continue to improve the performance of their products and to introduce new products with competitive
price and performance characteristics. Although we believe we have advantages over our competitors, maintaining these advantages
will require us to continue to invest in research and development, sales and marketing and customer service and support.
Our current competitors are either privately owned, publicly-traded companies or are divisions of publicly-traded companies, and
enjoy many competitive advantages over us, including:
greater name and brand recognition, financial and human resources;
broader product lines;
larger sales forces and more established distributor networks;
substantial intellectual property portfolios;
larger and more established customer bases and relationships; and
better established, larger scale, and lower cost manufacturing capabilities.
We believe that the principal competitive factors in all of our target markets include:
cost of capital equipment;
cost of microarrays and supplies;
reputation among customers;
innovation in product offerings;
flexibility and ease-of-use;
accuracy and reproducibility of results;
compatibility with existing laboratory processes, tools and methods;
breadth of clinical decisions that can be influenced by information generated by tests; and
economic benefit accrued to customers based on testing services enabled by products.
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We cannot assure investors that we will be successful in the face of competition from new products and technologies introduced by
our existing competitors or new companies entering our markets. In addition, we cannot assure investors that our competitors do not
have or will not develop products or technologies that currently or in the future will enable them to produce competitive products with
greater capabilities or at lower costs than ours.
New technologies, techniques or products could emerge that might offer better combinations of price and performance than our
current or future products and systems.
It is critical to our success that we anticipate changes in technology and customer requirements and to successfully introduce, on a
timely and cost-effective basis, new, enhanced and competitive technologies that meet the needs of current and prospective customers.
If we do not successfully innovate and introduce new technology into our product lines or manage the transitions to new product
offerings, our revenues, results of operations and business will be adversely impacted. Competitors may be able to respond more
quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. We may face
increased competition in the future if existing companies and competitors develop new or improved products and if new companies
enter the market with new technologies.
We are dependent on single source suppliers for some of the components and materials used in our products, and supply chain
interruptions could negatively impact our operations and financial performance.
Our products are manufactured by us and we obtain supplies from a limited number of suppliers. In some cases, critical components
required to manufacture our products may only be available from a sole supplier or limited number of suppliers, any of whom would
be difficult to replace. The supply of any of our manufacturing materials may be interrupted because of poor vendor performance or
other events outside our control, which may require us, among other things, to identify alternate vendors and result in lost sales and
increased expenses. In addition, if as a result of global economic or political instability or health pandemics, such as the COVID-19
pandemic, our suppliers may experience shortages or delays for materials sourced and manufactured in the affected countries, their
ability to supply us with product components may be affected.
Even if the manufacturing materials that we source are available from other parties, the time and effort involved in validating the new
supplies and obtaining any necessary regulatory approvals for substitutes could impede our ability to replace such components in a
timely manner or at all.
In particular, some of our conventional reagent products are derived from blood having particular or rare combinations of antigens,
which are found in a limited number of individuals. If we had difficulty in obtaining sufficient quantities of such blood, we would
need to establish a viable alternative, which may take both time and expense to either identify and/or develop.
The loss of a sole 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.
If any of our manufacturing facilities become unavailable or inoperable, we will be unable to produce and ship many of our
products.
All our conventional reagent products are currently produced in our ARC facility located near Edinburgh, Scotland. While we believe
we have reliable suppliers of raw materials, our reagent production is highly dependent on the uninterrupted and efficient operation of
our ARC facility and we currently have no alternative manufacturing capabilities qualified. Therefore, if a catastrophic event occurred
at our ARC facility, such as a fire or contamination, many of our products could not be produced until the manufacturing portion of
the facility was restored and cleared by the FDA and other regulatory authorities. We maintain a disaster plan to minimize the effects
of such a catastrophe and we have obtained insurance to protect against certain business interruption losses. However, there can be no
assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all.
Our customers, including our U.S. commercial operations, receive all of their conventional reagent products from our ARC facility. If
circumstances arose that disrupted our international distribution of products from Edinburgh, we would need to establish an alternate
distribution channel, which may take both time and expense to establish.
We have leased a manufacturing facility in Eysins, Switzerland, which is presently the principal manufacturing site for MosaiQ
Microarrays and we currently have no alternative manufacturing capabilities. Therefore, if a catastrophic event occurred at the Eysins,
Switzerland facility, such as a fire or contamination, we would not be able to produce MosaiQ Microarrays until the manufacturing
portion of the facility was restored and cleared by the FDA and other regulatory authorities. We maintain a disaster plan to minimize
the effects of such a catastrophe and we have obtained insurance to protect against certain business interruption losses.
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We generate a substantial portion of our revenue internationally and are subject to various risks relating to our international
activities.
A significant proportion of our revenues are earned in U.S. Dollars but the costs of our manufacturing operations are payable mainly
in Pounds Sterling while the costs of MosaiQ development are payable mainly in Swiss Francs. As a result, fluctuations in foreign
currency exchange rates against the U.S. Dollar could impact our financial results adversely. A significant percentage of our future
costs will be incurred in international locations.
Engaging in international business also involves many difficulties and risks, including:
required compliance with existing and changing foreign regulatory requirements and laws;
required compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act and UK Bribery Act, data
privacy requirements, labor laws and anti-competition regulations;
export or import restrictions;
various reimbursement and insurance regimes;
laws and business practices favoring local companies;
longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal
systems;
political and economic instability;
potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements and other trade barriers;
difficulties and costs of staffing and managing foreign operations; and
difficulties protecting or procuring intellectual property rights.
The occurrence of any of these factors in the countries in which we operate could materially adversely affect our business, results of
operations and financial condition.
We face risks related to health pandemics, epidemics and outbreaks, including the current COVID-19 pandemic, which could
significantly disrupt our operations and could have a material adverse impact on us.
Our business could be adversely impacted by the effects of pandemics, epidemics or outbreaks, and such impacts may be material. In
particular, the COVID-19 pandemic has created significant volatility, uncertainty and economic disruption on a global scale, and
particularly in geographies where we conduct a significant portion of our business, including the United States and Europe. The extent
to which the COVID-19 pandemic will impact our business, operations and financial results will depend on future developments and
numerous evolving factors, which are highly uncertain and difficult to predict, including:
the duration and scope of the pandemic;
governmental, business and individual actions that have been and continue to be taken in response to the pandemic;
the impact of the pandemic on economic activity and actions taken in response;
the effect of the pandemic on patients and healthcare providers, as well as our business partners;
demand for, and our ability to supply, our products, including as a result of travel restrictions, social distancing,
quarantines and other containment measures;
our and our service providers' ability to conduct field trials, including further delays to our planned field trials for our
MosaiQ IH and SDS Microarrays, and other potential delays in the development of MosaiQ;
our employees' and other service providers' ability to travel and to meet with customers;
delays in obtaining regulatory approvals for MosaiQ and conventional reagent products and disruptions in regulatory
oversight and other actions if regulators and industry professionals are expending significant and unexpected resources
addressing COVID-19;
restrictions on the export or shipment of our products;
significant cutback of delivery from impacted countries and regions or other impacts on our ability to obtain sufficient and
timely supplies; and
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any closures of our manufacturing facilities and those used in our supply chain processes or other disruptions to our or our
suppliers' production capacities.
Further, the COVID-19 outbreak has resulted in a widespread health crisis that has adversely affected and could continue to adversely
affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our
products in the United States, Europe and other territories, and may materially impact our results of operations and financial condition.
Moreover, many risk factors set forth in this Annual Report should be interpreted as heightened risks as a result of the impact of the
COVID-19 pandemic.
Our debt and other financings contain restrictive covenants and other provisions that may limit our operating flexibility.
As of March 31, 2020, we had $145.0 million aggregate principal amount of the Secured Notes outstanding. The Secured Notes are
secured by substantially all of our property and assets (subject to certain exclusions). The indenture governing the Secured Notes
contains certain restrictive covenants that limit our ability to incur debt, issue preferred and/or disqualified stock, pay dividends,
repurchase shares and make certain other restricted payments, prepay, repurchase or redeem subordinated debt, merge, amalgamate or
consolidate with other companies, engage in certain transactions with affiliates and make investments other than those permitted by
the indenture. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of the note
holders or redeem all the Secured Notes that are then outstanding. There is no guarantee that we will be able to generate sufficient
cash flow or sales to pay the principal and interest under the Secured Notes. Furthermore, there is no guarantee that future working
capital, borrowings or equity financing will be available to repurchase, redeem or otherwise refinance the Secured Notes.
In addition, upon the occurrence of certain change of control events and, subject to certain conditions, certain asset sales events,
holders of the Secured Notes may require us to repurchase for cash all or part of their Secured Notes at a repurchase price equal to
101.0% or 100.0%, respectively, of the principal amount of the Secured Notes to be repurchased, plus accrued and unpaid interest to
the date of repurchase. Furthermore, our outstanding 666,665 7% cumulative redeemable preference shares are subject to automatic
redemption in the event of certain changes of control involving us. In connection with such redemption, we are required to first pay
the amount of the accrued and unpaid preferential dividend on the preference shares and then redeem the preference shares at a
redemption price of $22.50 per preference share. There is no guarantee that we will have sufficient funds legally available to
repurchase the Secured Notes or redeem the preference shares under such circumstances.
Undetected errors or defects in our products could expose us to product liability claims, harm our reputation or decrease market
acceptance of our products.
The sale and use of products or services based on our technologies could lead to the filing of product liability claims if someone were
to allege that one of our products contained a design or manufacturing defect, which resulted in the failure to adequately perform the
analysis for which it was designed. A product liability claim could result in substantial damages and be costly and time consuming to
defend, either of which could materially harm our business or financial condition. We maintain product liability insurance that we
believe is adequate for our business. However, there can be no assurance that insurance coverage for these risks will continue to be
available or, if available, that it will be sufficient to cover potential claims or that the present level of coverage will continue to be
available at a reasonable cost. Our existing insurance may have to be increased in the future if we are successful at introducing new
transfusion diagnostics products and this will increase our costs. Under certain of our customer and license agreements, we have
agreed to provide indemnification for product liability claims arising out of the use of our products. If 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:
decreased demand for our products and product candidates;
injury to our reputation;
costs of related litigation;
substantial monetary awards to patients and others;
loss of revenue; and
the inability to commercialize our products and product candidates.
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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.
We may also be subject to warranty claims for damages related to errors or defects in our products. A material liability claim or other
occurrence that harms our reputation or decreases market acceptance of our products could harm our business and operating results. If
we experience a product performance problem, we may be required to, or may voluntarily recall or suspend selling the products until
the problem is resolved. Depending on the product as well as the availability of acceptable substitutes, such a product recall or
suspension could significantly impact our operating results.
We could experience a breach in the confidentiality of the information we hold or of the security of our computer systems and any
failure to comply with the applicable privacy laws to which we are subject could result in losses.
We operate large and complex computer systems that contain significant amounts of client data. As a routine element of our business
we collect and retain substantial amounts of data pertaining to the work we undertake for customers. Unauthorized third parties could
attempt to gain entry to such computer systems for the purpose of stealing the data or disrupting the systems. We believe we have
taken appropriate measures to protect them from intrusion, and we continue to improve and enhance our systems in this regard
(including how we process and report any breaches), but in the event we are unsuccessful we could suffer significant harm. Our
contracts with our customers typically contain provisions that require us to keep confidential any information generated from our
work. In the event that the confidentiality of such information was compromised, we could suffer significant harm.
We are also required to comply with the data privacy and security laws in several jurisdictions. For example, we are required to
comply with the European Union (EU) General Data Protection Regulation, or GDPR, which became effective on May 25, 2018.
GDPR extends the geographical scope of European Union data protection law to non-E.U. entities under certain conditions, tightens
existing European Union data protection principles, creates new obligations for companies and new rights for individuals, and imposes
enhanced penalties for non-compliance. The potential for fines and penalties in the event of a violation of GDPR may have a
significant adverse impact on our business and operations. In addition, the State of California has also enacted a consumer privacy law
which imposes similar data privacy and security requirements. Substantial expenses and operational changes may be required in
connection with maintaining compliance with such laws, and in particular certain emerging privacy laws are still subject to a high
degree of uncertainty as to their interpretation and application.We have made changes to, and continue to make enhancements of, our
business practices to help attain compliance with these evolving and complex regulations. Any failure by us or our business partners to
comply with U.S. federal or state or international privacy, data protection or security laws or regulations relating to the collection, use,
retention, security and transfer of personally identifiable information could result in regulatory or litigation-related actions against us,
legal liability, fines, damages, ongoing audit requirements and other significant costs.
The outcome of any current or future disputes, claims, arbitration and litigation could have a material adverse effect on our
business, financial condition and results of operations.
We are currently involved in an arbitration dispute with Ortho regarding our termination of the Ortho Agreement. See Part I, Item 3.
“Legal Proceedings.” In addition, we may, from time to time, be party to arbitration or litigation in the normal course of business,
including class action and product liability lawsuits. Due to the inherent uncertainties of litigation and arbitration, it is not possible to
predict the final outcome of these arbitrations, lawsuits and proceedings or determine the amount of any potential losses we may incur.
In the event we are required or determine to pay amounts in connection with any such arbitrations, lawsuits or other proceedings, such
amounts could be significant and could have a material adverse impact on our liquidity, business, financial condition and results of
operations.
We are highly dependent on our senior management team and other key employees, and our success depends on our ability to
retain our managerial personnel and to attract additional personnel.
Our success is dependent upon the efforts of our senior management and staff, including sales, technical and management personnel,
many of whom have very specialized industry and technical expertise that is not easily replaced. If key individuals leave us, we could
be adversely affected if suitable replacement personnel are not quickly recruited. We have entered into employment agreements with
our executive officers and senior managers, but none of these agreements guarantees the service of the individual for a specified
period. Our future success depends on our ability to continue to attract, retain and motivate qualified personnel. There is intense
competition for medical technologists and in some markets there is a shortage of qualified personnel in our industry. If we are unable
to continue to attract or retain highly qualified personnel, the development, growth and future success of our business could be
adversely affected.
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We may 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 us.
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:
problems assimilating the purchased 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 no current commitments with respect to any acquisition or investment. Any acquisitions we undertake 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 acquired businesses, products or technologies effectively, our business, results
of operations and financial condition may be materially adversely affected.
We may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships with third parties
that may not result in the development of commercially viable products or the generation of significant future revenues.
In the ordinary course of our business, we may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances
or partnerships to develop proposed products and to pursue new markets. Proposing, negotiating and implementing collaborations, in-
licensing arrangements, joint ventures, strategic alliances or partnerships may be a lengthy and complex process. Other companies,
including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for
these opportunities or arrangements. We may not identify, secure, or complete any such transactions or arrangements in a timely
manner, on a cost-effective basis, on acceptable terms or at all. We have limited institutional knowledge and experience with respect
to these business development activities, and we may also not realize the anticipated benefits of any such transaction or arrangement.
In particular, these collaborations may not result in the development of products that achieve commercial success or result in
significant revenues and could be terminated prior to developing any products.
Additionally, we may not be able to exercise sole decision-making authority regarding the transaction or arrangement, which could
create the potential risk of creating impasses on decisions, and our collaborators may have economic or business interests or goals that
are, or that may become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our collaborators,
such as conflicts concerning the achievement of performance milestones, or the interpretation of significant terms under any
agreement, such as those related to financial obligations, the ownership or control of intellectual property developed during the
collaboration or the scope of our or our collaborators' other rights or obligations related to development or commercialization
activities. If any conflicts arise with our current or future collaborators, they may act in their self-interest, which may be adverse to our
best interest, and they may breach their obligations to us. In addition, we have limited control over the amount and timing of resources
that our current collaborators or any future collaborators devote to our collaborators’ or our future products. Disputes between us and
our collaborators may result in litigation or arbitration which would increase our expenses and divert the attention of our management.
For example, we are currently involved in an arbitration dispute with Ortho regarding our termination of the Ortho Agreement, which
related to the commercialization and distribution of certain MosaiQ products. See Part I, Item 3. “Legal Proceedings.” Further, these
transactions and arrangements are contractual in nature and may be terminated or dissolved under the terms of the applicable
agreements and, in such event, we may not continue to have rights to the products relating to such transaction or arrangement or may
need to purchase such rights at a premium.
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Risks Related to Government Regulation
Recent global economic and political conditions could result in significant changes to legislation, government policies, rules and
regulations, which may have a material adverse effect on our business.
The impact of recent political and economic developments in the United States, the United Kingdom and Europe, including the
legislative and trade policy agenda of President Donald Trump and the United Kingdom’s exit from the European Union, commonly
referred to as “Brexit,” are uncertain. These political and economic developments could result in changes to legislation or reformation
of government policies, rules and regulations pertaining to the U.S. healthcare system, tax and trade. Such changes could have a
significant impact on our business by increasing the cost of doing business, affecting our ability to sell our products and negatively
impacting our profitability. In addition, these developments, or continuing uncertainty surrounding these developments, could result in
significant financial market volatility, and could also exacerbate, or result in, a slow-down of growth in global, U.S. and other
economies, which could have a material adverse effect on our operating performance and the market price of our ordinary shares.
Efforts to repeal and replace the U.S. Patient Protection and Affordable Care Act (or the PPACA) have been ongoing since the 2016
election, but it is unclear if these efforts will be successful. Since January 2017, President Trump has signed two Executive Orders and
other directives designed to delay, circumvent or loosen the implementation of certain requirements mandated by the PPACA or
otherwise circumvent some of the requirements for health insurance mandated by the PPACA. In addition, as part of the December
2017 Tax Cuts and Jobs Act, the “individual mandate,” which required individuals to purchase insurance, was repealed. On December
18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was
unconstitutional and remanded the case to the District Court to determine whether the remaining provisions of the PPACA are invalid.
The PPACA significantly impacts the pharmaceutical and medical device industries and clinical laboratories, and the repeal,
replacement or modification of the PPACA, or other legislative or regulatory actions, could meaningfully further change the way
healthcare services are delivered and may materially impact aspects of our business. We cannot predict whether future healthcare
initiatives will be implemented at the federal or state level or in countries outside of the United States in which we may do business, or
the effect any future legislation or regulation will have on us.
Our conventional reagent products are manufactured in Scotland and our MosaiQ Instruments and Microarrays are manufactured in
Germany and Switzerland, respectively. In the United States, President Trump's administration has discussed, and in some cases
implemented, changes with respect to certain tax and trade policies, tariffs and other government regulations affecting trade between
the United States and other countries. For example, trade relations between the United States and China were, at times, significantly
strained during calendar year 2019, as both countries imposed increased tariffs on the importation of certain product categories. While
it is not possible to predict whether or when any additional changes will occur or what form they may take, the implementation of a
border tax, tariff or higher customs duties on our products imported into the United States, or any potential corresponding actions by
other countries in which we do business, could negatively impact our financial performance.
Furthermore, on January 31, 2020, the United Kingdom ceased to be a member state of the European Union. As of that date, the
United Kingdom entered a transitional period with the European Union, which is expected to continue through December 31, 2020.
During this transitional period the United Kingdom retains access to the E.U. single market and customs union and the United
Kingdom and the European Union are expected to attempt to negotiate various aspects of their future relationship following the
transitional period, including a free trade deal. The long-term effects of Brexit will depend on the agreements or arrangements
between the United Kingdom and the European Union, and the extent to which the United Kingdom retains access to the E.U. markets
both during and after the transitional period. The longer term economic, legal, political and social framework to be put in place
between the United Kingdom and the European Union is unclear at this stage and it is likely to lead to ongoing political and economic
uncertainty and periods of exacerbated volatility in both the United Kingdom and in the wider European markets for some time.
While we believe we have developed plans to manage the Brexit-related risks to our business and operations, including in the event
that the United Kingdom and the European Union fail to finalize an agreement on the United Kingdom’s future relationship with the
European Union before the end of the transitional period, it is unknown what the final terms of the relationship will be. If no
agreement can be reached before the end of the transitional period there will be a period of considerable uncertainty, particularly in
relation to the U.K. financial and banking markets, the regulatory process in Europe and movement of goods and people between the
United Kingdom and European Union. It is also possible that, even if there is an agreement, there will be greater restrictions and
transportation delays on imports and exports between the United Kingdom and European Union countries and increased regulatory
complexities, which could result in delays and increased expenses relating to the regulatory approval of our products. In addition,
depending on the terms of the agreement, the United Kingdom could lose the benefits of global trade agreements negotiated by the
European Union on behalf of its members, which may result in increased trade barriers which could make our doing business
worldwide more difficult. Furthermore, currency exchange rates in the pound sterling and the euro with respect to each other and the
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U.S. dollar have already been adversely affected by Brexit. Should this foreign exchange volatility continue, it could cause volatility
in our financial results.
If we, or any commercial partners we engage fail to comply with extensive foreign and domestic regulations, sales of our products
in new and existing markets and the development and commercialization of any new product candidates, including MosaiQ, could
be delayed or prevented.
Our reagents and other products are subject to regulation by governmental and private agencies in the United States and abroad,
which, among other things, regulate the testing, manufacturing, packaging, labeling, distribution, promotion, marketing, import and
export of medical supplies and devices. Certain international regulatory bodies also impose import and tax restrictions, tariff
regulations, and duties on imported products. Delays in agency review can significantly delay new product introduction and may result
in a product becoming “outdated” or losing its market opportunity before it can be introduced.
If any of our products were to fail to perform in the manner represented during review of the product application, particularly
concerning clinical performance, one or more of these agencies could place restrictions on the labeling, marketing, distribution or use
of the product, require us to modify or cease manufacturing and selling that product, or even recall previously-placed products, and, if
the product must be modified in order to resolve the problem, to resubmit the product for market authorization before we could sell it
again. Depending upon the product, and the availability of acceptable substitutes, such an agency action could result in significantly
reduced revenues and earnings for an indefinite period.
Federal, state and foreign regulations regarding the manufacture and sale of our products are subject to change. We cannot predict
what impact, if any, such changes might have on our business. In addition, there can be no assurance that regulation of our products
will not become more restrictive in the future and that any such development would not have a material adverse effect on our business.
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 or clearance in the United States or in international jurisdictions, along with the
manufacturing processes 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. Our failure or the failure of one of our suppliers
to comply with statutes and regulations administered by the FDA and other regulatory bodies, or our failure to take adequate action in
response to any observations, could result in, among other things, any of the following enforcement actions, any one of which could
harm our reputation and could cause our product sales and profitability to suffer:
fines and civil penalties;
the requirement to take corrective actions;
delays in approving or clearing, or refusal to approve or clear, our products;
withdrawal or suspension of approval or clearances by the FDA or other regulatory bodies;
product recall or seizures;
interruption of production;
restrictions on labeling, marketing, distribution or use of our products;
an import or export ban on our products;
injunctions; and
criminal prosecution.
We may also receive warning letters or untitled letters regarding compliance with current good manufacturing practices at one or more
of our manufacturing facilities.
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Any regulatory approval or clearance 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 act 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 may 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, manufacturing problems or
failure to comply with regulatory requirements may result in restrictions on such products or manufacturing processes. Other potential
consequences include revisions to the approved labeling, 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. If materials
used in our products become unavailable because of new government regulations, substitute materials may be less effective and may
require significant cost to incorporate in our products.
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 transfusion diagnostics 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 warning or
untitled letters, fines, product recalls, field actions, product seizures or, in extreme cases, criminal sanctions.
Additionally, healthcare policy has been a subject of extensive discussion in the executive and legislative branches of the federal and
many state governments and healthcare laws and regulations are subject to change. Our reagent product business strategy, and the
development of the commercialization strategy for MosaiQ, have been based on existing healthcare policies. We cannot predict what
additional changes, if any, will be proposed or adopted or the effect that such proposals or adoption may have on our business,
financial condition and results of operations.
Approval and/or clearance by the FDA and foreign regulatory authorities for our transfusion diagnostics products could take
significant time and require significant development expenditures.
FDA approval of a BLA or clearance of a 510(k) generally is required before we can market new reagents in the United States or
make significant changes to existing products.
Obtaining FDA and other regulatory clearances or approvals for MosaiQ and our newly developed conventional reagent products can
be time-consuming, expensive and uncertain. It can take from several months to several years from the date of submission of the
application, and generally requires detailed and comprehensive scientific and clinical data. As with all blood transfusion products, the
FDA and other regulatory authorities reserve the right to redefine the regulatory path at the time of submission or during the review
process, and could require a more burdensome approach than we currently anticipate. Notwithstanding the time and expense, there is
no assurance that marketing authorizations will be granted or that agency reviews will not involve delays that would adversely affect
our ability to commercialize our products, including MosaiQ. Even if we were to obtain regulatory approval or clearance, it may not
be for the uses we believe are important or commercially attractive, in which case we would not be permitted to market our product
for those uses.
Our use of biological and hazardous materials and wastes requires us to comply with regulatory requirements, including
environmental, health and safety laws, regulations and permitting requirements and subjects us to significant costs and exposes us
to potential liabilities.
The handling of materials used in the manufacture of transfusion diagnostics products involves the controlled use of biological and
hazardous materials and wastes. The primary hazardous materials we handle or use include human blood donations. 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, the collection and use of health data in the European Union is governed by the GDPR. The
GDPR may increase our responsibility and liability in relation to personal data that we process and we may be required to put in place
additional mechanisms ensuring compliance with the GDPR. This may be onerous and if our efforts to comply with GDPR or other
applicable European Union laws and regulations are not successful, we may be subject to substantial fines and other administrative
penalties, which could adversely affect our business in the European Union.
Additionally, 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
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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 relationships with customers are subject to applicable anti-kickback, fraud and abuse and other domestic healthcare laws and
regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished
profits and future earnings.
Healthcare providers, physicians at hospitals and public health departments play a primary role in the recommendation and ordering of
our reagents and other products, and may play an important role in the recommendation and ordering of the MosaiQ system. Our
arrangements with customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may
constrain the business or financial arrangements and relationships through which we market, sell and distribute our product.
The 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.
The federal 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 material to a
false or fraudulent action or improperly avoiding, decreasing or concealing an obligation to pay money to the federal government.
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. In addition, HIPAA created 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.
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.
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 federal
False Claims Act, with potential liability including mandatory treble damages and significant per-claim penalties, currently set at
$5,500 to $11,000 per false claim. Additionally, it is possible that governmental authorities will conclude that our business practices
may 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 UK 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 UK 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.
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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 operate, and we expect our commercial partners will operate, in many 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, 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 and Trade Control laws. If we are not in compliance with the Bribery
Act, the FCPA and 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 of any potential violations of the Bribery Act, the FCPA,
other anti-corruption laws or Trade Control laws by UK, U.S. or other authorities could also have an adverse impact on our reputation,
our business, results of operations and financial condition.
Risks Related to Intellectual Property
The extent to which we can protect our products and technologies through intellectual property rights that we own, acquire or
license is uncertain.
We employ a variety of proprietary and patented technologies and methods in connection with the products we sell or are developing,
including MosaiQ. We license some of these technologies from third parties. We cannot provide any assurance that the intellectual
property rights that we own or license provide effective protection from competitive threats or that we would prevail in any litigation
in which our intellectual property rights are challenged. In addition, we cannot provide any assurances that we will be successful in
obtaining new proprietary or patented technologies or methods in the future, whether through acquiring ownership or through licenses
from third parties.
We cannot assure investors that any of our currently pending or future patent applications will result in issued patents, and we cannot
predict how long it may take for a patent to issue on any of our pending patent applications, assuming a patent does issue. Further, we
cannot assure investors that other parties will not challenge any patents issued or exclusively licensed to us or that courts or
administrative agencies will hold our patents or the patents we license on an exclusive basis to be valid and enforceable. We cannot
guarantee investors that we will be successful in defending challenges made against our patents and other intellectual property rights.
Any third-party challenge to any of our patents could result in the unenforceability or invalidity of some or all of the claims of such
patents and could be time consuming and expensive.
The extent to which the patent rights of life sciences companies effectively protect their products and technologies is often highly
uncertain and involves complex legal and factual questions for which important legal principles remain unresolved. No consistent
policy regarding the proper scope of allowable claims of patents held by such companies has emerged to date in the United States.
Various courts, including the U.S. Supreme Court, have rendered decisions that impact the scope of patentability of certain inventions
or discoveries relating to diagnostics tests or 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 a law of
nature itself. What constitutes a “sufficient” additional feature for this purpose 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 exclusively licensed patents.
We cannot predict the breadth of claims that may be allowed or enforced in patents we own or in those to which we have exclusive
license rights. For example:
the inventor(s) named in one or more of our patents or patent applications might not have been the first to have made the
relevant invention;
the inventor (or his assignee) might not have been the first to file a patent application for the claimed invention;
others may independently develop similar or alternative products and technologies or may successfully replicate our
product and technologies;
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it is possible that the patents we own, or in which have exclusive license rights may not provide us with any competitive
advantages or may be challenged by third parties and found to be invalid or unenforceable;
any patents we obtain or exclusively license may expire before, or within a limited period after, the products and services
relating to such patents are commercialized;
we may not develop or acquire additional proprietary products and technologies that are patentable; and
others may acquire patents that could be asserted against us in a manner that could have an adverse effect on our business.
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. 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. Patent applications in the United States and many foreign jurisdictions
are not published until at least eighteen months after filing and it is possible for a patent application filed in the United States to be
maintained in secrecy until a patent issues on the application. In addition, publications in the scientific literature often lag behind
actual discoveries. We therefore cannot be certain that others have not filed patent applications that cover inventions that are the
subject of pending applications that we own or exclusively 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 that is similar to or the same as our technology. Any such patent application may have priority over patent
applications that we own or exclusively license and, if a patent issues on such patent application, we could be required to obtain a
license to such patent to carry on our business. If another party has filed a U.S. patent application covering an invention this is similar
to, or the same as, an invention 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 our inability to obtain or retain any U.S. patent rights with respect to such invention.
Some of our competitors may be better able to sustain the costs of complex patent disputes and litigation 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 and non-disclosure 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”.
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.
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 exclusively licensed intellectual property rights may not be sufficient to prevent others from
manufacturing, using or selling competing products. For example, our manufacturing process for MosaiQ Microarrays depends in part
on intellectual property that we in-license on an exclusive basis, and such rights may be limited. Our competitors may have obtained
or be able to develop or obtain a license to similar intellectual property. 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 and thereby avoid infringing our
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intellectual property rights. If our intellectual property is not sufficient to effectively prevent our competitors from developing and
selling similar products, our competitive position and our business could be adversely affected.
MosaiQ depends on certain technologies that are licensed to us. We do not control these technologies and any loss of our rights to
them could prevent us from manufacturing our products.
We rely on licenses to various proprietary technologies that are material to our business, including the development of MosaiQ. We
have entered into an exclusive license with TTP, to use patented technologies to enable high volume manufacturing of MosaiQ
Microarrays. In addition, STRATEC Biomedical AG, or STRATEC, has agreed to grant us licenses to certain of its pre-existing
technologies, and has granted us licenses to its technologies that were developed under our development agreement with it for the
MosaiQ Instrument. Our rights to use these technologies will be subject to the continuation of and our compliance with the terms of
those licenses. If we were to lose access to these licenses, we would be unable to manufacture MosaiQ Microarrays or commercialize
MosaiQ Instruments until we obtained access to a comparable technology.
We may not control the prosecution, maintenance or filing of the patents to which we now hold or in the future intend to acquire
licenses. Enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents may be 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 relevant licensors have been or will be conducted in compliance with
applicable laws and regulations, will result in valid and enforceable patents or that any patents or patents that may issue in the future
on any patent applications owned by or exclusively licensed to us will provide any competitive advantage.
Certain of our licenses contain, and any future licenses may contain, provisions that allow the licensor to terminate the license upon
the occurrence of certain events, such as material breach by us or our insolvency. For example, the TTP license is for uses that include
antigen typing, antibody detection and serological screening of donated blood for infectious diseases (collectively, the initial purpose),
as well as all human blood sample diagnostic testing on batch processing instruments (collectively, the additional purposes), with the
exception of companion diagnostics, epigenetics, and nucleic acid sequencing. If any of certain agreed upon license payments are not
made by us when due, we will lose the license to the additional purposes, but not the initial purpose. TTP may terminate its license
agreement with us if we assist another party in disputing the validity and/or scope of any of TTP’s patented intellectual property
covered by the agreement. If the licensors of the technologies we rely on were to terminate our license agreements, the
commercialization of MosaiQ could be prevented or delayed, and we may be unable to find a suitable replacement technology at an
acceptable cost or at all. Our rights under each of the licenses may be subject to our continued compliance with the terms of the
license, including certain diligence, disclosure and confidentiality obligations and the payment of fees. If we breach any of our license
agreements and fail to cure the breach within any applicable cure period, our licensors may take action against us, including
termination of the applicable license. Determining the scope of our licenses and related obligations can be difficult and could lead to
disputes between us and the licensors. An unfavorable resolution of such a dispute could lead to termination of the license to which a
dispute relates. If a licensor terminates a license agreement because of a breach by us that we fail to timely cure, we might no longer
have the right to produce or sell some or all of our products and we may be subject to other liabilities, which could have a material
adverse effect on our business.
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.
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, 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 re-examination) in the United States and internationally involve complex legal and
factual questions. As a result, such proceedings are costly and time consuming to pursue, and their outcome is uncertain.
Even if we prevail in such a proceeding in which we assert our intellectual property rights against third parties, 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, 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 exclusively license could also
have an impact on our business. Further, if any of our other owned or exclusively licensed patents are declared invalid, unenforceable
or narrowed in scope, our competitive position could be adversely affected.
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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 damages or licensing fees and limit our ability to sell some or all of our products and services.
Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property
rights of third parties. Other entities may have or obtain patents or other intellectual property rights that could limit our ability to
manufacture or commercialize MosaiQ, or may claim that our research, development and commercialization activities infringe patents
or other intellectual property rights owned by them of which we may be unaware because the relevant patent applications may have
been filed but not yet published. 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. 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. 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.
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
patents and for licensors, if they were to seek to do so, to stop infringement of patents that are licensed to us. 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 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 products 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 products and product
candidates.
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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 us or made known to the other party by us during the course of the other 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 and therefore be free to use such 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 because 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 products 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 our industry, we employ individuals who were previously employed at other companies in our industry or in related
industries, 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 a smaller reporting company and we cannot be certain that the reduced disclosure requirements
applicable to smaller reporting companies will not make our ordinary shares less attractive to investors.
We are a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act. As a smaller reporting company the
disclosure we are required to provide in our SEC filings is less than it would be if we were not considered a smaller reporting
company.
Rule 12b-2 of the Exchange Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-
backed issuer or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:
(1) had a public float of less than $250 million; or
(2) had annual revenues of less than $100 million during the most recently completed fiscal year for which audited financial
statements are available and either had no public float or a public float of less than $700 million.
In the case of reporting companies like us, public float is calculated as of the last business day of the issuer's most recently completed
second fiscal quarter and calculated by multiplying the aggregate world wide number of shares of its voting and non-voting common
equity held by non affiliates by the price at which the common equity was last sold, or the average. Smaller reporting companies are
able to provide simplified executive compensation disclosures in their filings, and have certain other decreased disclosure obligations
in their SEC filings, including, among other things, being required to provide only two years of audited financial statements in annual
reports.
Moreover, we are a smaller reporting company by virtue of our having less than $100 million in annual revenues for the year ended
March 31, 2020 and a public float of less than $700 million as of September 30, 2019 and, as a result, we are deemed to be a “non-
accelerated filer” under applicable SEC rules. By virtue of this filer status, we are not required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes Oxley Act of 2002, or the Sarbanes-Oxley Act.
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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 the price of our
ordinary shares may be more volatile.
The price of our ordinary shares is likely to be volatile, and purchasers of our ordinary shares could incur substantial losses.
Like other emerging life sciences companies, the market price of our ordinary shares is likely to 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;
delays in the planned commercialization of MosaiQ;
speed and timing of adoption of MosaiQ by key target customers;
our ability to enter new markets;
negative publicity;
the outcome of our arbitration dispute with Ortho;
changes in securities or industry analyst recommendations regarding our company, the sectors in which we operate, the
securities market generally, conditions in the financial markets and the perception of our ability to raise additional
funding;
regulatory developments affecting MosaiQ or our industry, including announcement of new adverse regulatory decisions
affecting our industry or MosaiQ;
announcements of studies and reports relating to our products, including MosaiQ, or those of our competitors;
changes in economic performance or market valuations of our competitors;
actual or anticipated fluctuations in our annual and quarterly financial 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 subject to such restrictions;
and
sales or perceived sales of additional ordinary shares.
In addition, the securities of life sciences companies have in recent years experienced significant volatility. 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 addition, more recently, the stock market has experienced significant price and volume fluctuations as a result of the
COVID-19 pandemic. This volatility has had a significant impact on the market price of securities issued by many companies across
many industries. 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.
If securities analysts do not continue to cover our ordinary shares or publish unfavorable research or reports about our business,
this may have a negative impact on the market price of our ordinary shares.
The trading market for our ordinary shares depends on the research and reports that securities analysts publish about our business and
our company. We do not have any control over these analysts. There is no guarantee that securities analysts will continue to cover our
ordinary shares. If securities analysts do not cover our ordinary shares, the lack of research coverage may adversely affect the market
price of our ordinary shares. If our shares are the subject of an unfavorable report, our share price and trading volume would likely
decline. If one or more of these analysts ceases to cover our company or fails to publish regular reports on our company, we could lose
visibility in the financial markets, which could cause our share price or trading volume to decline.
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Substantial future sales of our ordinary shares in the public market, or the perception that these sales could occur, could cause the
price of our ordinary shares to decline, irrespective of the underlying performance of our business.
Additional sales of our ordinary shares in the public market, and in particular sales by our directors, executive officers and principal
shareholders, or the perception that these sales could occur, could cause the market price of our ordinary shares to decline. We had
outstanding 80,398,326 ordinary shares as of March 31, 2020, of which approximately 71,240,009 ordinary shares were sold or issued
pursuant to effective registration statements or resold pursuant to Rule 144 under the Securities Act, or Rule 144, or are registered for
public resale under an effective registration statement under the Securities Act and are freely transferable without restriction or
additional registration under the Securities Act. A significant number of shares were restricted or control securities that are available,
or will be available, for resale subject to volume and other restrictions as applicable under Rule 144. In addition, as of March 31, 2020,
175,525 ordinary shares were subject to outstanding warrants at a weighted average exercise price of $13.67 per share and 1,848,052
ordinary shares were subject to outstanding options at a weighted exercise price of $7.73 per share. To the extent any of these shares
are sold into the market, particularly in substantial quantities, the market price of our ordinary shares could decline.
We have never paid cash dividends and 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. In addition, the indenture governing the Secured Notes contains covenants that limit our ability to pay dividends on
our ordinary shares. Under Jersey, Channel Islands law, any payment of dividends would be subject to relevant legislation and our
Amended Articles of Association 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.
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.
Companies that are "large accelerated filers" or "accelerated filers" under applicable SEC rules are also required to provide an
attestation report on internal control over financial reporting issued by their independent registered public accounting firm. We are a
smaller reporting company by virtue of our having less than $100 million in annual revenues for the year ended March 31, 2020 and a
public float of less than $700 million as of September 30, 2019 and, as a result, we are not deemed to be either a “large accelerated
filer” or an “accelerated filer” under applicable SEC rules. By virtue of this filer status, we are not required to include in this Annual
Report an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
Once we become a “large accelerated filer” or an “accelerated filer”, we will be required to include this attestation report. We cannot
assure you that there will not be material weaknesses or significant deficiencies in our internal controls in the future.
We cannot guarantee that we will be able to satisfy the continued listing standards of The Nasdaq Global Market going forward.
Our ordinary shares are listed on Nasdaq. However, we cannot ensure that we will be able to satisfy the continued listing standards of
Nasdaq 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 Nasdaq. 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 the ability of a holder of our ordinary shares to trade or obtain quotations on our
ordinary 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 ordinary shares at or above the price you paid for such ordinary shares or at all.
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The dilutive effect of our warrants and options could have an adverse effect on the future market price of our ordinary shares or
otherwise adversely affect the interests of our ordinary shareholders.
As of March 31, 2020, there were outstanding warrants to purchase (i) 64,000 of our ordinary shares at an exercise price of $9.375 per
share and (ii) 111,525 of our ordinary shares at an exercise price of $16.14 per share. In addition, as of March 31, 2020, there were
outstanding options to purchase 1,848,052 ordinary shares at a weighted average exercise price of $7.73 per share. These warrants and
options are likely to be exercised if the market price of our ordinary shares equals or exceeds the applicable warrant’s or option's
exercise price. To the extent such warrants and options are exercised, additional ordinary shares will be issued, which would dilute the
ownership of existing shareholders.
Risks Related to Being a Jersey, Channel Islands Company Listing Ordinary Shares
Our ordinary shares are issued under the laws of Jersey, Channel Islands, which may not provide the level of legal certainty and
transparency afforded by incorporation in a United States state.
We are organized under the laws of the Jersey, Channel Islands, a British crown dependency that is an island located off the coast of
Normandy, France. Jersey is not a member of the European Union. Jersey, Channel Islands legislation regarding companies is largely
based on English corporate law principles. However, there can be no assurance that Jersey, Channel Islands law will not change in the
future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the United States, which
could adversely affect the rights of investors.
A change in our tax residence could have a negative effect on our future profitability.
We are organized under the laws of Jersey, Channel Islands. Our directors seek to ensure that our affairs are conducted in such a
manner that we are not resident in any other jurisdiction for tax purposes. It is possible that in the future, whether as a result of a
change in law or the practice of any relevant tax authority or as a result of any change in the conduct of our affairs following a review
by our directors or for any other reason, we could become, or be regarded as having become, a resident in another higher tax
jurisdiction. Should we become a tax resident in another jurisdiction, we may be subject to unexpected tax charges in such
jurisdiction. Similarly, if the tax residency of any of our subsidiaries were to change from their current jurisdiction for any of the
reasons listed above, we may be subject to similar tax consequences.
We may be or become classified as a passive foreign investment company for U.S. federal income tax purposes, which could result
in materially adverse U.S. federal income tax consequences to U.S. investors in our ordinary shares.
A non-U.S. corporation will be a passive foreign investment company, or PFIC, for any taxable year in which (1) at least 75% of its
gross income is passive income or (2) at least 50% of the value (determined on a quarterly basis) of its assets is attributable to assets
that produce or are held for the production of passive income. Our status as a PFIC depends on certain facts outside of our control and
the application of U.S. federal income tax rules that are not entirely clear. Accordingly, there can be no assurance that we will not be
classified as a PFIC for our current taxable year or any future taxable year. If we are treated as a PFIC for any taxable year during
which you hold our ordinary shares, such treatment could result in materially adverse U.S. federal income tax consequences to you if
you are a U.S. taxable investor. For example, if we are or become a PFIC, you may become subject to increased tax liabilities under
U.S. federal income tax laws and regulations, and will become subject to additional reporting requirements. Although we do not
believe we were a PFIC for our taxable year ended March 31, 2020 and do not expect to be a PFIC for the taxable year ending March
31, 2021 or any future taxable year, we cannot assure you that we have not been or will not be a PFIC for any particular taxable year.
U.S. investors considering an investment in our ordinary shares are urged to consult their tax advisors regarding our possible status as
a PFIC.
U.S. withholding tax could apply to a portion of certain payments on the ordinary shares.
The United States has enacted rules, commonly referred to as “FATCA,” that generally impose a reporting and withholding regime
with respect to certain U.S. source payments (including dividends and interest) and certain payments made by entities that are
classified as financial institutions under FATCA ("foreign passthru payments"). The governments of Jersey, Channel Islands and the
United States have entered into an agreement with respect to the implementation of FATCA. Under this agreement, we do not expect
to be subject to withholding under FATCA on any payments we receive. Similarly, as currently drafted, we do not expect that
withholding under FATCA will apply to payments on the ordinary shares. However, significant aspects of whether or how FATCA
will apply to non-U.S. issuers like us remain unclear, and no assurance can be given that withholding under FATCA will not become
relevant with respect to payments on the ordinary shares in the future. Even if FATCA were to become relevant to payments on the
shares, it would not be applicable earlier than the second anniversary of the date on which final regulations defining the term "foreign
passthru payments" are published in the U.S. Federal Register. Prospective investors should consult their own tax advisors regarding
the potential impact of FATCA, including the agreement relating to FATCA between the governments of Jersey and the United States,
to an investment in the ordinary shares.
- 39 -
U.S. shareholders may not be able to enforce civil liabilities against us.
A number of our directors and executive officers and a number of directors of certain of our subsidiaries are not residents of the
United States, and a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be
possible for investors to effect service of process within the United States upon such persons.
Judgments of U.S. courts may not be directly enforceable outside of the United States and the enforcement of judgments of U.S.
courts outside of the United States may be subject to limitations. Investors may also have difficulties pursuing an original action
brought in a court in a jurisdiction outside the United States for liabilities under the securities laws of the United States.
- 40 -
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters, including our principal manufacturing site for MosaiQ Microarrays are located in Eysins, Switzerland.
Our UK corporate offices and other office facilities, a development laboratory facility and our manufacturing facility for conventional
reagent products are located near Edinburgh, Scotland. Our U.S. corporate offices are located in Newtown, Pennsylvania. The table
below provides selected information regarding our existing facilities, all of which are leased.
Facility /Use
UK Corporate Offices/Development Laboratory
and Conventional Reagents Manufacturing
Facility
Corporate Headquarters and Manufacturing
Operations—MosaiQ
MosaiQ Sales Operation
U.S. Corporate Offices
U.S. Direct Sales Operation
Location
Office
Laboratory
Expiration
Size (sq. ft.)
Edinburgh, Scotland
27,400
59,800 September 30, 2052
Eysins, Switzerland
Eysins, Switzerland
Newtown, PA, USA
Chapel Hill, NC, USA
13,600
6,700
1,200
1,000
March 15, 2025
31,600
—
March 31, 2022
— November 30, 2021
July 31, 2020
—
We believe our current facilities are suitable and adequate to meet our current needs and that suitable additional or substitute space
will be available to accommodate future growth of our business.
Item 3. Legal Proceedings
Our subsidiaries, Quotient Suisse and QBD (QS-IP) Limited were party to a distribution and supply agreement with Ortho-Clinical
Diagnostics, Inc., or “Ortho”, related to the commercialization and distribution of certain MosaiQ products, which we refer to as the
Ortho Agreement. We also entered into a subscription agreement with an affiliate of Ortho pursuant to which the affiliate subscribed
for our newly issued ordinary shares and newly issued 7% cumulative redeemable preference shares, of no par value, for an aggregate
subscription price of approximately $25 million.
On November 27, 2019, we delivered a notice to Ortho that we had terminated the Ortho Agreement, effective as of December 27,
2019. We had not realized any revenue under the Ortho Agreement prior to its termination.
On or about November 17, 2019, Ortho initiated an arbitration proceeding in which it seeks a declaration that we do not have the right
to terminate the Ortho Agreement, specific performance of certain provisions of the Ortho Agreement, and damages including in
respect of the difference in amounts Ortho invested in our shares and their market value. We are pursuing counterclaims against
Ortho, including that we have the right to terminate the Ortho Agreement and damages that include the milestone payments due under
the Ortho Agreement. In addition, on December 20, 2019, we entered into an agreement, or the Ortho Dispute Agreement, with Ortho
pursuant to which we agreed, while the arbitration is pending, not to grant commercialization rights in respect of products that overlap
with Ortho’s rights under the Ortho Agreement without prior written notice to Ortho.
An arbitration hearing is scheduled for September 2020 and is to be held in the United States. The Ortho Agreement provides that any
arbitration award shall be final and binding on the parties and shall not be appealable to any court in any jurisdiction.
- 41 -
We believe that Ortho’s allegations are without merit and we intend to defend ourselves vigorously against Ortho’s claims. However,
because of the complexities and uncertainties inherent in arbitration proceedings and the nature of the claims, we cannot predict with
certainty whether we will prevail in our defences and counterclaims or the impact of this arbitration on our business, results of
operations or financial condition.
As discussed in more detail in Note 6 to our consolidated financial statements, because we cannot predict the outcome of this
arbitration, we do not believe it is possible to provide a meaningful estimate of a reasonably possible loss at this time in connection
with the preparation of those financial statements. Nevertheless, if Ortho prevailed on its claim that we did not have the right to
terminate the Ortho Agreement, the arbitral tribunal might issue a declaration that the Ortho Agreement remains in effect and/or an
award compelling Quotient to specifically perform obligations under the Ortho Agreement. Similarly, if Ortho prevailed on its
damages claim related to its investment in our shares, we could be obligated to pay those damages. The damages include the
difference in amounts Ortho invested in the Company’s ordinary and preference shares of $25 million and their market value (see
Note 8 to our consolidated financial statements for more information on our shares). As discussed above, Ortho has made additional
claims in connection with the arbitration, including damages claims in unspecified amounts.
Our initial MosaiQ IH Microarray and our second, expanded MosaiQ IH Microarray are being developed for the donor testing market,
with our initial focus being on Europe and the United States, while our third MosaiQ IH Microarray is being developed for the patient
testing market. Under the Ortho Agreement, Ortho had rights to distribute the MosaiQ IH Microarrays in the patient testing market in
Europe and the United States. While our dispute with Ortho has been ongoing, we have not pursued alternatives for commercializing
our MosaiQ IH Microarrays in the patient testing market.
We may also be subject to other claims and legal actions arising in the ordinary course of business from time to time.
Item 4. Mine Safety Disclosures
Not applicable.
- 42 -
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our ordinary shares are traded on the Nasdaq Global Market under the symbol “QTNT”. On June 11, 2020, the last reported sale price
of our ordinary shares on Nasdaq was $6.94 per share.
Shareholders
On June 11, 2020, there were 21 shareholders of record of our ordinary shares. This number does not include shareholders for whom
shares were held in a “nominee” or “street” name.
Dividends
We have never declared or paid cash dividends on our ordinary shares. We currently intend to retain all available funds and any 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. In addition, the indenture governing the Secured Notes contains certain restrictive covenants that limit our ability to
pay dividends. Any future determination as to the declaration and payment of dividends, if any, will be made at the complete
discretion of our Board of Directors and will depend on then existing conditions, including our results of operations, financial
conditions, contractual restrictions (including under the indenture for the Secured Notes), capital requirements, business prospects and
other factors our Board of Directors may deem relevant.
- 43 -
Performance Graph
Below is a graph which compares the cumulative shareholder return on our ordinary shares from March 31, 2015 through March 31,
2020 against the cumulative total return for the same period on the Nasdaq Stock Market Composite Index and the Nasdaq Healthcare
Index. The results are based on an assumed $100 invested on March 31, 2015.
COM PARI SON OF 60 MONTH CU MULATIVE TOTAL RETURN * AMONG QUOTIENT LIMITED, THE NA SDAQ STOCK MARKE T CO MPO SITE INDEX AND THE NA SDAQ HEAL THCA RE INDEX $0 $20 $4 0 $60 $ 80 $100 $120 $ 140 $1 60 $180 $200 0 3/31 /2015 04/30 /2015 05/3 1/201 5 06/30/2015 0 7/31 /2015 08/31 /2015 09/3 0/201 5 10/31/20 15 11/30/20 15 12 /31/2 015 01 /31/2016 0 2/29 /2016 03/31 /2016 04/30 /2016 05/3 1/201 6 06/30/20 16 07 /31/2 016 08 /31/2016 0 9/30/2016 1 0/31 /2016 11/30 /2016 12/3 1/201 6 01/31/20 17 02/28/20 17 03 /31/2 017 04 /30/2017 0 5/31 /2017 0 6/30/20 17 07 /31/2 017 08 /31/2017 0 9/30 /2017 10/31 /2017 11/30 /2017 12/3 1/201 7 01/31/20 18 02 /28/2 018 03 /31/2018 0 4/30/2018 0 5/31 /2018 06/30 /2018 07/3 1/201 8 08/31/20 18 09/30/20 18 10 /31/2 018 11 /30/2018 1 2/31 /2018 01/31 /2019 02/28 /2019 03/3 1/201 9 04/30/20 19 05 /31/2 019 06 /3 0/2019 0 7/31 /2019 08/31 /2019 09/3 0/201 9 10/31/20 19 11 /30/20 19 12 /31/2 019 01 /31/2020 0 2/29 /2020 03/31 /2020 QUOTIENT LIMITED NA SDAQ HEALTH CARE INDEX NASDAQ COM PO SITE * $10 0 inves ted on March 31, 2015 in stock or index including reinvestmen t of div ide nds. 6 0 Mo nths ended March 31, 2 020.
- 44 -
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents certain information about our equity compensation plans as of March 31, 2020:
Equity compensation plans approved
by shareholders (1)
Equity compensation plans not approved
by shareholders (2)
Number of securities to
be issued upon exercise
of outstanding options
and rights
Weighted
average exercise
price of
outstanding
options and
rights
Number of
shares remaining
available for
future issuance
2,467,399 $
75,000 $
5.79
2.52
299,777
—
(1) Composed of the 2012 Option Plan, pursuant to which 300,751 ordinary shares are issuable upon exercise of outstanding
options and rights at a weighted average exercise price of $1.90, and the 2014 Stock Incentive Plan, pursuant to which
2,166,648 ordinary shares are issuable upon exercise of outstanding options and rights at a weighted average exercise price
of $6.25. At March 31, 2020, 299,777 ordinary shares remain available for future issuance under the 2014 Stock Incentive
Plan.
(2) On February 5, 2020, in connection with the appointment of Mr. Peter Buhler as our Chief Financial Officer, we granted
Mr. Buhler 50,000 restricted share units and 25,000 options to purchase ordinary shares at an exercise price of $7.57 per
share. The grants, which were issued outside of our 2014 Stock Incentive Plan, were approved by our Board of Directors
and the Remuneration Committee of our Board pursuant to the inducement grant exception under Nasdaq Rule 5635(c)(4),
as an inducement that is material to Mr. Buhler’s entering into employment with our company. The restricted share units
and the options vest in three equal installments on each first, second and third anniversary of the grant date. The options
have a term of ten years and will be forfeited if not exercised before the expiration of their term. In addition, in the event Mr
Buhler’s employment is terminated, any restricted share units or options not vested shall be forfeited upon termination.
Recent Sales of Unregistered Securities
None
Item 6. Selected Consolidated Financial Data
The following tables summarize our consolidated financial and other data. The consolidated statement of income data for the years
ended March 31, 2020, 2019 and 2018 and the consolidated balance sheet data as of March 31, 2020 and 2019 have been derived from
our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. The consolidated statement of
income data for the year ended March 31, 2017 and 2016 and the consolidated balance sheet data as of March 31, 2018, 2017 and
2016 have been derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K.
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
- 45 -
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.
Consolidated statement of loss:
Revenue:
Product sales
Other revenues
Total revenue
Cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development, net of government grants
General and administrative expense:
Compensation expense in respect of share
options and management equity incentives
Other general and administrative expenses
2020
Year ended March 31,
2018
(in thousands, except share and per share data)
2017
2019
2016
$
31,601 $
1,055
32,656
(17,800 )
14,856
28,665 $
469
29,134
(17,230 )
11,904
23,913 $
819
24,732
(10,471 )
14,261
20,127 $
2,100
22,227
(10,844 )
11,383
18,022
500
18,522
(9,658 )
8,864
(9,853 )
(53,744 )
(8,637 )
(50,677 )
(7,347 )
(51,202 )
(5,660 )
(57,064 )
(3,073 )
(28,781 )
(4,467 )
(27,483 )
(31,950 )
(95,547 )
(80,691 )
(4,957 )
(26,588 )
(31,545 )
(90,859 )
(78,955 )
(4,156 )
(21,544 )
(25,700 )
(84,249 )
(69,988 )
(4,221 )
(18,497 )
(22,718 )
(85,442 )
(74,059 )
(2,004 )
(24,094 )
(26,098 )
(57,952 )
(49,088 )
Total general and administrative expense
Total operating expense
Operating loss
Other income (expense):
(4,151 )
Interest expense, net
15,857
Change in financial liability for share warrants
3,504
Other, net
15,210
Other income (expense), net
(33,878 )
Loss before income taxes
—
Provision for income taxes
(33,878 )
$
Net loss
(33,878 )
Net loss available to ordinary shareholder - basic and diluted $
$
Loss per share - basic and diluted
(1.73 )
71,610,035 54,874,391 40,839,309 28,145,472 19,558,152
Weighted-average shares outstanding - basic and diluted
(20,018 )
—
(6,369 )
(26,387 )
(105,342 )
(44 )
(105,386 ) $
(105,386 ) $
(1.92 ) $
(23,859 )
—
2,438
(21,421 )
(102,112 )
(661 )
(102,773 ) $
(102,773 ) $
(1.44 ) $
(9,903 )
—
(1,107 )
(11,010 )
(85,069 )
—
(85,069 ) $
(85,069 ) $
(3.02 ) $
(15,365 )
—
2,366
(12,999 )
(82,987 )
649
(82,338 ) $
(82,338 ) $
(2.02 ) $
2020
2019
As of March 31,
2018
(in thousands)
2017
2016
Consolidated balance sheet data:
Cash and cash equivalents
Short-term investments
Total assets
Long-term debt
Total liabilities
Total shareholders' funds (deficit)
$
$
3,923
116,871
226,463
153,024
231,990
$
4,096
90,729
177,770
121,855
176,056
1,714
$
$
4,754
16,057
$ 20,165
5,669
44,100
—
123,841 109,971 119,750
27,910
73,027
46,723
85,063
138,472
$ (14,631 ) $ (24,091 ) $
80,704
134,062
(5,527 ) $
- 46 -
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the
financial statements and the related notes to those statements included later in this Annual Report on Form 10-K. In addition to
historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs
and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those
discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed
below and elsewhere in this Annual Report, particularly in “Risk Factors.”
Overview
We were incorporated in Jersey, Channel Islands on January 18, 2012. On February 16, 2012, we acquired the entire issued share
capital of Alba Bioscience Limited (or Alba), Quotient Biodiagnostics, Inc. (or QBDI) and QBD (QS IP) Limited (or QSIP) from
Quotient Biodiagnostics Group Limited (or QBDG), our predecessor.
Our Business
We are a commercial-stage diagnostics company committed to reducing healthcare costs and improving patient care through the
provision of innovative tests within established markets. Our initial focus is on blood grouping and donor disease screening, which is
commonly referred to as transfusion diagnostics. Blood grouping involves specific procedures performed at donor or patient testing
laboratories to characterize blood, which includes antigen typing and antibody detection. Disease screening involves the screening of
donor blood for unwanted pathogens using two different methods, a serological approach (testing for specific antigens or antibodies)
and a molecular approach (testing for DNA or RNA).
We have over 35 years of experience developing, manufacturing and commercializing conventional reagent products used for blood
grouping within the global transfusion diagnostics market. We are developing MosaiQ, our proprietary technology platform, to better
address the comprehensive needs of this large and established market. We believe MosaiQ has the potential to transform transfusion
diagnostics, significantly reducing the cost of blood grouping in the donor and patient testing environments, while improving patient
outcomes.
We currently operate as one business segment with over 415 employees in the United Kingdom, Switzerland and the United States as
of March 31, 2020. Our principal markets are the United States, Europe and Japan. Based on the location of the customer, revenues
outside the United States accounted for 45%, 49% and 48% of total revenue during the years ended March 31, 2020, 2019 and 2018,
respectively.
We have incurred net losses and negative cash flows from operations in each year since we commenced operations in 2007. As of
March 31, 2020, we had an accumulated deficit of $483.4 million. We expect our operating losses will continue for at least the next
fiscal year as we continue our investment in the commercialization of MosaiQ. Our total revenue was $32.7 million for the year ended
March 31, 2020, $29.1 million for the year ended March 31, 2019 and $24.7 million for the year ended March 31, 2018. Our net loss
was $102.8 million for the year ended March 31, 2020, $105.4 million for the year ended March 31, 2019 and $82.3 million for the
year ended March 31, 2018.
From our incorporation in 2012 to March 31, 2019, we have raised $160.0 million of gross proceeds through the private placement of
our ordinary and preference shares and warrants, $250.1 million of gross proceeds from public offerings of our shares and issuances of
ordinary shares upon exercise of warrants and $120.0 million of gross proceeds from the issuance of 12% Senior Secured Notes, or the
“Secured Notes”.
On May 15, 2019, we issued an additional $25.0 million aggregate principal amount of the Secured Notes. On May 15, 2019, we paid
$1.5 million of the net proceeds of the issuance into the cash reserve account maintained with the collateral agent under the terms of
the indenture governing the Secured Notes, which together with the $7.2 million paid into the cash reserve account in respect of
previous issuances, brought the total in the cash reserve account to $8.7 million at December 31, 2019.
On November 12, 2019, we completed a public offering of 13,800,000 newly issued ordinary shares at a price of $7.00 per share,
which raised $96.6 million of gross proceeds before underwriting discounts and other offering expenses.
As of March 31, 2020, we had available cash, cash equivalents and short-term investments of $120.8 million and $9.0 million of
restricted cash held as part of the arrangements relating to our Secured Notes and the lease of our property in Eysins, Switzerland.
- 47 -
Regulatory and Commercial Milestones
You should read the following regulatory and commercial milestones update in conjunction with the discussion included under the
sections “Item 1. Business” and “Item 1A. Risk Factors”.
•
•
Initial European Regulatory Approval – we filed for European regulatory approval for our initial MosaiQ IH Microarray in late
September 2018 and were notified of its approval on April 30, 2019. We also filed for European regulatory approval of the initial
MosaiQ SDS Microarray in June 2019 and were notified of its approval on February 14, 2020.
European and U.S. Hypercare Launch – following the CE mark for our initial MosaiQ IH Microarray, we have commenced and
completed hypercare testing with four selected customers.
•
• Ongoing Microarray Menu Development – our activities for the expansion of our IH and SDS, testing menus included the
completion of the validation and verification, or “V&V”, concordance study for the expanded MosaiQ IH Microarray menu, which
we announced in October 2019. The V&V study for the expanded MosaiQ SDS Microarray is planned for the third quarter of
calendar year 2020.
Field Trials – we commenced field trials for the expanded MosaiQ IH Microarray in Europe in the first quarter of calendar year
2020. These trials were suspended due to the COVID-19 pandemic in March 2020, but in May 2020 quarantine and containment
measures and restrictions were eased in two of the three trial locations allowing the work to recommence. Further, these two trials
have recommenced from the point at which they were suspended with no requirement to repeat any of the work already performed.
The commencement of field trials in the United States for the expanded MosaiQ IH Microarray has also been postponed due to the
COVID-19 pandemic. These trials will commence as soon as the circumstances permit, which we expect will be in the second half
of calendar year 2020. We expect field trials for the expanded MosaiQ SDS Microarray to commence in the second half of calendar
year 2020 in Europe, and in the first half of calendar year 2021 in the United States.
• Ongoing Regulatory Approval Process – we filed for U.S. regulatory approval for our initial MosaiQ SDS Microarray on December
23, 2019. Initial European regulatory submissions for our expanded MosaiQ IH Microarray are expected during the fourth quarter
of calendar year 2020 with U.S. regulatory submissions following in the first half of calendar year 2021. European regulatory
submission for the expanded MosaiQ SDS Microarray is expected in the second half of calendar year 2021.
COVID-19 Pandemic
You should read the following update regarding the COVID-19 pandemic in conjunction with the discussion included under the
sections “Item 1. Business” and “Item 1A. Risk Factors”.
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and
recommended containment and mitigation measures worldwide. The governments of each of the major locations in which we operate,
the United Kingdom, Switzerland and the United States, have implemented varying measures and restrictions to combat the COVID-
19 pandemic.
These restrictions have directly impacted our on-going clinical trials for our expanded MosaiQ IH Microarray in Europe and the
commencement of clinical trials for our expanded MosaiQ IH Microarray in the United States. All external work on these trials was
suspended in March 2020 until such time as the existing restrictions in the relevant jurisdictions are removed or moderated. In May
2020, quarantine and containment measures and restrictions were eased in two of the three European trial locations allowing the work
to recommence. These two trials have recommenced from the point at which they were suspended with no requirement to repeat any
of the work already performed.
In addition, on April 6, 2020, we announced the completion of the development phase of the MosaiQ COVID-19 Microarray, in
response to the COVID-19 pandemic. On April 27, 2020, we published the final performance data for the MosaiQ COVID-19
Microarray, achieving 100% sensitivity and 99.8% specificity, and on May 1, 2020 we annaounced the CE Mark for this Microarray.
In addition, in May 2020, we submitted an application to the FDA for an Emergency Use Authorization (EUA) of the MosaiQ
COVID-19 Microarray in the United States. Having completed the required notification and submitted the EUA within the required
timeframe, our test is officially listed on the FDA webpages as a test that is now allowed to be distributed in the United States. We
signed the first commercial contract for the sale of the MosaiQ COVID-19 Microarray in May, 2020 and we have subsequently
entered into several additional contracts with customers in Europe and the United States.
- 48 -
To date, the COVID-19 pandemic and the associated restrictions have not had a material adverse impact on our conventional reagent
business. Customer demand has remained robust over the last two months and, to date, supply chain disruptions have been minimal.
Our manufacturing operations in Edinburgh, Scotland have been adapted to meet social distancing requirements, and we continue to
be able to meet our customer requirements. Nevertheless, we are continuing to closely monitor the performance of our conventional
reagent business in light of the uncertainty created by the COVID-19 pandemic.
The extent to which the COVID-19 pandemic will impact our business, operations and financial results will depend on future
developments and numerous evolving factors, which are highly uncertain and difficult to predict. See Item 1A. Risk Factors – "We
face risks related to health pandemics, epidemics and outbreaks, including the outbreak of the current COVID-19 pandemic, which
could significantly disrupt our operations and could have a material adverse impact on us."
Revenue
We generate product sales revenue from the sale of conventional reagent products directly to hospitals, donor collection agencies and
independent testing laboratories in the United States, the United Kingdom and to distributors in Europe and the rest of the world, and
indirectly through sales to our OEM customers. We recognize revenues in the form of product sales when the goods are shipped.
Products sold by standing purchase orders as a percentage of product sales revenue were 70%, 68% and 75% for the years ended
March 31, 2020, 2019 and 2018, respectively. We also provide product development services to our OEM customers. We recognize
revenue from these contractual relationships in the form of product development fees, which are included in Other revenues. In
addition, as a result of the CE Marking of the MosaiQ COVID-19 Microarray, we expect to generate product sales revenue from this
product in Europe during the fiscal year ended March 31, 2021. For a description of our revenue recognition policies, see “—Critical
Accounting Policies and Significant Judgments and Estimates—Revenue Recognition and Accounts Receivable.” In the year ended
March 31, 2018, other revenues also included the sale of two MosaiQ instruments to a development partner.
Our revenue is denominated in multiple currencies. Sales in the United States and to certain of our OEM customers are denominated
in U.S. Dollars. Sales in Europe and the rest of the world are denominated primarily in U.S. Dollars, Pounds Sterling or Euros. Our
expenses are generally denominated in the currencies in which our operations are located, which are primarily in the United Kingdom,
Switzerland and the United States. We operate globally and therefore changes in foreign currency exchange rates may become
material to us in the future due to factors beyond our control. See “—Quantitative and Qualitative Disclosure About Market Risk—
Foreign Currency Exchange Risk.”
Cost of revenue and operating expenses
Cost of revenue consists of direct labor expenses, including employee benefits, overhead expenses, material costs and freight costs,
along with the depreciation of manufacturing equipment and leasehold improvements. Our gross profit represents total revenue less
the cost of revenue, gross margin represents gross profit expressed as a percentage of total revenue, and gross margin on product sales
represents gross margin excluding other revenues as a percentage of revenues excluding other revenues. We expect our overall cost of
revenue to increase in absolute U.S. Dollars as we continue to increase our product sales volumes. However, we also believe that we
can achieve efficiencies in our manufacturing operations, primarily through increasing production volumes.
Our sales and marketing expenses include costs associated with our sales organization for conventional reagent products, including
our direct sales force, as well as our marketing and customer service personnel, and the costs of the MosaiQ commercial team. These
expenses consist principally of salaries, commissions, bonuses and employee benefits, as well as travel and other costs related to our
sales and product marketing activities. We expense all sales and marketing costs as incurred. We expect sales and marketing expense
to increase in absolute U.S. Dollars, primarily as a result of commissions on increased product sales in the United States and as we
grow the MosaiQ commercial team.
Our research and development expenses include costs associated with performing research, development, field trials and our
regulatory activities, as well as production costs incurred in advance of the commercial launch of MosaiQ. Research and development
expenses include research personnel-related expenses, fees for contractual and consulting services, travel costs, laboratory supplies
and depreciation of laboratory equipment.
- 49 -
We expense all research and development costs as incurred, net of government grants received and tax credits. Our UK subsidiary
claims certain tax credits on its research and development expenditures and these are included as an offset to our research and
development expenses. Our research and development efforts are focused on developing new products and technologies for the global
transfusion diagnostics market. We segregate research and development expenses for the MosaiQ project from expenses for other
research and development projects. We do not maintain detailed records of these other costs by activity. We are nearing completion of
the initial development of MosaiQ and expect our costs associated with field trials and regulatory approvals will increase at the same
time as our development costs decrease. As we move to commercialization of MosaiQ in the donor testing market, we expect our
overall research and development expense to decrease.
Our general and administrative expenses include costs for our executive, accounting and finance, legal, corporate development,
information technology and human resources functions. We expense all general and administrative expenses as incurred. These
expenses consist principally of salaries, bonuses and employee benefits for the personnel performing these functions, including travel
costs. These expenses also include share-based compensation, professional service fees (such as audit, tax and legal fees), costs related
to our Board of Directors, and general corporate overhead costs, which include depreciation and amortization. We expect our general
and administrative expenses to increase as our business develops and also due to the costs of operating as a public company, such as
additional legal, accounting and corporate governance expenses, including expenses related to compliance with the Sarbanes-Oxley
Act, directors’ and officers’ insurance premiums and investor relations expenses.
Net interest expense consists primarily of interest charges on our Secured Notes and the amortization of debt issuance costs (which
includes amortization of the one-time consent payment of $3.9 million paid to holders of our Secured Notes in December 2018), as
well as accrued dividends on the 7% cumulative redeemable preference shares issued in January 2015. We amortize debt issuance
costs over the life of the note and report them as interest expense in our statements of operations. Net interest also includes the
expected costs of the royalty rights agreements we entered into in October 2016, June 2018, December 2018 and May 2019 with the
purchasers or holders of the Secured Notes, as applicable. See Note 3 “Debt” and Note 8 “Ordinary and Preference Shares –
Preference shares” to our consolidated financial statements included in this Annual Report for additional information.
Other income (expense), net consists primarily of exchange fluctuations. These include realized exchange fluctuations resulting from
the settlement of transactions in currencies other than the functional currencies of our businesses. Monetary assets and liabilities that
are denominated in foreign currencies are measured at the period-end closing rate with resulting unrealized exchange fluctuations. The
functional currencies of our business are Pounds Sterling, Swiss Franc and U.S. Dollars depending on the entity. Other income
(expense) also includes exceptional costs related to deferred debt issue costs expensed on the repayment of debt facilities and certain
other non-recurring items as mentioned below under “—Results of Operations— Comparison of Years ended March 31, 2020 and
2019— Other income (expense)” and “—Results of Operations— Comparison of Years ended March 31, 2019 and 2018— Other
income (expense).”
Provision for income taxes in the years ended March 31, 2020 and March 31, 2019 reflected a reduction in the net operating losses
available to be carried forward in a subsidiary as a result of the offset of historic tax losses against the profits of this subsidiary and
adjustments for uncertain tax positions. Provision for income taxes in the year ended March 31, 2018 reflected a reduction in the
valuation allowance against deferred tax assets in a subsidiary as a result of an improvement in the profitability of this subsidiary.
- 50 -
Results of Operations
Comparison of Years ended March 31, 2020 and 2019
The following table sets forth, for the periods indicated, the amounts of certain components of our statements of operations and the
percentage of total revenue represented by these items, showing period-to-period changes.
Year ended March 31,
Amount
2020
% of revenue
2019
% of revenue
(in thousands, except percentages)
Amount
Change
Amount
%
$
31,601
1,055
32,656
17,800
14,856
9,853
53,744
31,950
95,547
(80,691 )
(23,859 )
2,438
(21,421 )
(102,112 )
(661 )
$ (102,773 )
97 % $
3 %
100 %
55 %
45 %
28,665
469
29,134
17,230
11,904
30 %
165 %
98 %
293 %
-247 %
8,637
50,677
31,545
90,859
(78,955 )
-73 %
7 %
-66 %
-313 %
-2 %
(20,018 )
(6,369 )
(26,387 )
(105,342 )
(44 )
-315 % $ (105,386 )
98 % $
2 %
100 %
59 %
41 %
30 %
174 %
108 %
312 %
-271 %
-69 %
-22 %
-91 %
-362 %
—
-362 % $
2,936
586
3,522
570
2,952
1,216
3,067
405
4,688
(1,736 )
(3,841 )
8,807
4,966
3,230
(617 )
2,613
10 %
125 %
12 %
3 %
25 %
14 %
6 %
1 %
5 %
2 %
19 %
-138 %
-19 %
-3 %
1402 %
-2 %
Revenue:
Product sales
Other revenues
Total revenue
Cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Operating (loss)
Other income (expense):
Interest expense, net
Other, net
Total other expense, net
Loss before income taxes
Provision for income taxes
Net loss
Revenue
Product sales revenue increased by 10% to $31.6 million for the year ended March 31, 2020, compared with $28.7 million for the year
ended March 31, 2019. The increase in product sales revenue was primarily attributable to incremental direct sales of conventional
reagent products to customers in the United States and product sales to OEM customers. Products sold by standing purchase order
were 70% of product sales for the year ended March 31, 2020, compared with 68% for the year ended March 31, 2019. Total revenue
for the year ended March 31, 2020 increased by 12% to $32.7 million compared with $29.1 million in the year ended March 31, 2019,
and included other revenues of $1.1 million and $0.5 million, respectively.
The below table sets forth revenue by product group:
Revenue:
Product sales - OEM customers
Product sales - direct customers
and distributors
Other revenues
Total revenue
Year ended March 31,
Amount
2020
% of revenue
2019
% of revenue
(in thousands, except percentages)
Amount
Change
Amount
%
$
21,217
65 % $
20,287
70 % $
930
5 %
10,384
1,055
32,656
$
32 %
3 %
100 % $
8,378
469
29,134
29 %
2 %
100 % $
2,006
586
3,522
24 %
125 %
12 %
OEM Sales. Product sales to OEM customers increased 5% to $21.2 million for the year ended March 31, 2020, compared with
$20.3 million for the year ended March 31, 2019. The increase was due to increased sales to existing customers and the impact of
recently launched new products.
Direct Sales to Customers and Distributors. Direct product sales increased 24% to $10.4 million for the year ended March 31, 2020
compared with $8.4 million for the year ended March 31, 2019. This mainly consisted of direct sales in the United States which
- 51 -
increased to $9.5 million in the year ended March 31, 2020 compared with $7.7 million in the year ended March 31, 2019 as a result
of recent product launches and the expansion of our customer base.
Other Revenues. Other revenues of $1.1 million for the year ended March 31, 2020 and $0.5 million for the year ended March 31,
2019 mainly consisted of product development fees. The product development fees in both years arose as the result of the achievement
of product development milestones under the terms of our umbrella supply agreement with Ortho. See Note 1 "Summary of
Significant Accounting Policies – Revenue Recognition" to our consolidated financial statements included in this Annual Report for
additional information.
Cost of revenue and gross margin
Cost of revenue increased by 3% to $17.8 million for the year ended March 31, 2020, compared with $17.2 million for the year ended
March 31, 2019. The increase in cost of revenue partially reflected incremental costs associated with greater sales volumes. In
addition, in the year ended March 31, 2019, we were in the process of moving our conventional reagents manufacturing operations to
our new ARC facility in Edinburgh, Scotland from our other Edinburgh manufacturing facility and we incurred additional expenditure
of $1.5 million as a result of operating two facilities. We completed the relocation at the start of calendar year 2019 and we no longer
bear any costs related to our previous facility in Edinburgh.
Gross profit on total revenue in the year ended March 31, 2020 was $14.9 million, an increase of 25% when compared with
$11.9 million for the year ended March 31, 2019. This increase was attributable to the increase in gross margin on product sales
described below and a $0.6 million increase in other revenues to $1.1 million in the year ended March 31, 2020 as compared with $0.5
million of other revenues in the year ended March 31, 2019 (the associated cost of which was included in research and development
expenses).
Gross profit on product sales, which excludes other revenues, was $13.8 million for the year ended March 31, 2020 compared with
$11.4 million for the year ended March 31, 2019. This increase was due to the gross profit on increased sales to existing OEM
customers and the impact of recently launched new products. In addition, as described above, in the year ended March 31, 2019, we
were in the process of moving our conventional reagents manufacturing operations to our new ARC facility in Edinburgh, Scotland
and we incurred additional expenditure of $1.5 million as a result of operating two facilities. Gross margin on product sales, which
excludes other revenues, was 44% for the year ended March 31, 2020 compared with 40% for the year ended March 31, 2019.
Sales and marketing expenses
Sales and marketing expense increased by 14% to $9.9 million for the year ended March 31, 2020, compared with $8.6 million for the
year ended March 31, 2019. The growth in sales and marketing expenses in the year ended March 31, 2020 was mainly attributable to
greater personnel and other expenses related to the planned commercial launch of MosaiQ.
Research and development expenses
Year ended March 31,
Amount
2020
% of revenue
2019
% of revenue
(in thousands, except percentages)
Amount
Change
Amount
%
Research and development expenses:
MosaiQ research and development
Other research and development
Tax credits
Total research and development
expenses
$
52,202
2,035
(493 )
160 % $
6 %
-2 %
48,903
2,123
(349 )
168 % $
7 %
-1 %
3,299
(88 )
(144 )
7 %
-4 %
41 %
$
53,744
165 % $
50,677
174 % $
3,067
6 %
- 52 -
Research and development expenses increased by 6% or $3.1 million to $53.7 million for the year ended March 31, 2020, compared
with $50.7 million for the year ended March 31, 2019. Our research and development expenses included an expense of $1.0 million in
the year ended March 31, 2020 and an expense of $0.5 million in the year ended March 31, 2019 related to the costs of our intellectual
property license with TTP for MosaiQ. Activities associated with completed and on-going field trials increased research and
development expenses by $0.8 million in the year ended March 31, 2020. Termination benefit costs of $0.7 million were also included
in the year ended March 31, 2020. There were no termination benefit costs in the year ended March 31, 2019. The remainder of the
year on year increase in research and development expenses related to higher expenditure with development partners.
General and administrative expenses
General and administrative expenses increased 1% to $32.0 million for the year ended March 31, 2020, compared with $31.5 million
for the year ended March 31, 2019. Our general and administrative expenses included termination and transition benefit costs of $1.3
million in the year ended March 31, 2020. We also incurred additional legal and advisory expenses in the year ended March 31, 2020
compared to the year ended March 31, 2019 related to our dispute with Ortho and the termination of the Ortho Agreement, as well as
incremental costs associated with operating as a public company. In the year ended March 31, 2019, we incurred approximately $1.6
million of costs associated with the relocation of our conventional reagents manufacturing operations to our new ARC facility, which
did not recur in the year ended March 31, 2020. We recognized $4.5 million of stock compensation expense in the year ended March
31, 2020 compared with $5.0 million in the year ended March 31, 2019. Stock compensation expense is recognized over the expected
vesting period of incentive awards. As a percentage of total revenue, general and administrative expenses decreased to 99% for the
year ended March 31, 2020, compared with 107% for the year ended March 31, 2019.
Other income (expense)
Net interest expense was $23.9 million for the year ended March 31, 2020, compared with $20.0 million for the year ended March 31,
2019. Interest expense in the year ended March 31, 2020 included $17.1 million of interest charges on our Secured Notes compared
with $13.3 million in the year ended March 31, 2019. The increase was due to the additional issuance of $25 million of Secured Notes
on May 15, 2019. Interest expense in the years ended March 31, 2020 and March 31, 2019 included amortization of deferred debt
issue costs of $7.0 million and $5.9 million, respectively, which included, in the year ended March 31, 2020, amortization of the
expected costs of the royalty rights agreements entered into in October 2016, June 2018, December 2018 and May 2019 in connection
with the issuances of the Secured Notes and the amendment of the indenture relating to the Secured Notes and, in the year ended
March 31, 2019, amortization of the expected costs of the royalty rights agreements entered into in October 2016, June 2018 and
December 2018 in connection with the issuance of the Secured Notes and the amendment of the indenture relating to the Secured
Notes. The additional royalty rights agreements entered into in May 2019 increased in aggregate the amount of royalties payable
pursuant to royalty rights agreements from 3% to 3.4% of net sales of MosaiQ instruments and consumables made in the donor testing
market in the United States and the European Union. In each of the years ended March 31, 2020 and March 31, 2019, net interest
expense also included $1.1 million of accrued dividends on the 7% cumulative redeemable preference shares issued in January 2015.
In addition, in the year ended March 31, 2020 we earned interest income of $1.3 million on our money market deposits as compared
with $0.3 million in the year ended March 31, 2019.
Other income for the year ended March 31, 2020 included $2.4 million of foreign exchange gains arising on monetary assets and
liabilities denominated in foreign currencies. Other expense for the year ended March 31, 2019 included $5.4 million of foreign
exchange losses arising on monetary assets and liabilities denominated in foreign currencies and $1.0 million of fees related to the
amendment of the indenture relating to the Secured Notes in December 2018.
Provision for income taxes
Provision for income taxes in the year ended March 31, 2020 reflects both adjustments to net operating losses carried forward and
current tax accruals in a subsidiary as a result of an uncertain tax position. Provision for income taxes in the year ended March 31,
2019 reflected a reduction in the net operating losses available to be carried forward in a subsidiary as a result of the offset of historic
tax losses against the profits of this subsidiary.
- 53 -
Results of Operations
Comparison of Years ended March 31, 2019 and 2018
The following table sets forth, for the periods indicated, the amounts of certain components of our statements of operations and the
percentage of total revenue represented by these items, showing period-to-period changes.
Year ended March 31,
Amount
2019
% of revenue
2018
% of revenue
(in thousands, except percentages)
Amount
Change
Amount
%
$
28,665
469
29,134
17,230
11,904
8,637
50,677
31,545
90,859
(78,955 )
(20,018 )
(6,369 )
(26,387 )
(105,342 )
(44 )
$ (105,386 )
98 % $
2 %
100 %
59 %
41 %
23,913
819
24,732
10,471
14,261
30 %
174 %
108 %
312 %
-271 %
-69 %
-22 %
-91 %
-362 %
0 %
-362 % $
7,347
51,202
25,700
84,249
(69,988 )
(15,365 )
2,366
(12,999 )
(82,987 )
649
(82,338 )
97 % $
3 %
100 %
42 %
58 %
30 %
207 %
104 %
341 %
-283 %
4,752
(350 )
4,402
6,759
(2,357 )
1,290
(525 )
5,845
6,610
(8,967 )
-62 %
10 %
-53 %
-336 %
3 %
-333 % $
(4,653 )
(8,735 )
(13,388 )
(22,355 )
(693 )
(23,048 )
20 %
-43 %
18 %
65 %
-17 %
18 %
-1 %
23 %
8 %
13 %
30 %
-369 %
103 %
27 %
-107 %
28 %
Revenue:
Product sales
Other revenues
Total revenue
Cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Operating (loss)
Other income (expense):
Interest expense, net
Other, net
Total other expense, net
Loss before income taxes
Provision for income taxes
Net loss
Revenue
Product sales revenue increased by 20% to $28.7 million for the year ended March 31, 2019, compared with $23.9 million for the year
ended March 31, 2018. The increase in product sales was primarily attributable to growth in product sales to OEM customers and
incremental direct sales of conventional reagent products to customers in the United States. Products sold by standing purchase order
were 68% of product sales for the year ended March 31, 2019, compared with 75% for the year ended March 31, 2018. Total revenue
for the year ended March 31, 2019 increased by 18% to $29.1 million compared with $24.7 million in the year ended March 31, 2018,
and included other revenues of $0.5 million and $0.8 million, respectively.
The below table sets forth revenue by product group:
Revenue:
Product sales - OEM customers
Product sales - direct customers
and distributors
Other revenues
Total revenue
Year ended March 31,
Amount
2019
% of revenue
2018
% of revenue
(in thousands, except percentages)
Amount
Change
Amount
%
$
20,287
70 % $
16,900
68 % $
3,387
20 %
8,378
469
29,134
$
29 %
2 %
100 % $
7,013
819
24,732
28 %
3 %
100 % $
1,365
(350 )
4,402
19 %
-43 %
18 %
OEM Sales. Product sales to OEM customers increased 20% to $20.3 million for the year ended March 31, 2019, compared with
$16.9 million for the year ended March 31, 2018. The increase was due to increased sales to existing customers and the impact of
recently launched new products.
- 54 -
Direct Sales to Customers and Distributors. Direct product sales increased 19% to $8.4 million for the year ended March 31, 2019
compared with $7.0 million for the year ended March 31, 2018. This mainly consisted of direct sales in the United States which
increased to $7.7 million in the year ended March 31, 2019 compared with $5.9 million in the year ended March 31, 2018 as a result
of recent product launches and the expansion of our customer base.
Other Revenues. Other revenues of $0.5 million for the year ended March 31, 2019 mainly consisted of product development fees.
Other revenues of $0.8 million in the year ended March 31, 2018 consisted of $0.6 million of product development fees and $0.2
million of sales of MosaiQ instruments and related products to a development partner. The product development fees in both years
arose as the result of the achievement of product development milestones under the terms of our umbrella supply agreement with
Ortho. See Note 1 "Summary of Significant Accounting Policies – Revenue Recognition" to our consolidated financial statements
included in this Annual Report for additional information. In the year ended March 31, 2018, the cost of the instruments sold to our
development partner was included in research and development expenses.
Cost of revenue and gross margin
Cost of revenue increased by 65% to $17.2 million for the year ended March 31, 2019, compared with $10.5 million for the year
ended March 31, 2018. The increase in cost of revenue partially reflected incremental costs associated with greater sales volumes. In
addition, in the year ended March 31, 2019, we were in the process of moving our conventional reagents manufacturing operations to
the ARC facility, our new facility in Edinburgh, Scotland, the construction of which was completed early in 2018, from our other
Edinburgh manufacturing facility. In the year ended March 31, 2019, we incurred additional costs of operating our new ARC facility
as well as our previous facility amounting to approximately $3.8 million, $1.6 million of which were non-cash expenses, as compared
with the single facility that existed in the year ended March 31, 2018. We vacated our previous Edinburgh facility in January 2019.
Gross profit on total revenue in the year ended March 31, 2019 was $11.9 million, a decrease of 17% when compared with
$14.3 million in the year ended March 31, 2018. This decrease was attributable to the decrease in gross margin on product sales
described below and a decrease of $0.3 million in other revenues to $0.5 million in the year ended March 31, 2019 as compared with
$0.8 million of other revenues in the year ended March 31, 2018 (the associated cost of which was included in research and
development expenses).
Gross profit on product sales, which excludes other revenues, was $11.4 million for the year ended March 31, 2019 compared with
$13.4 million for the year ended March 31, 2018. This decrease was due to the additional costs of approximately $3.8 million, $1.6
million of which were non-cash expenses, of operating two conventional reagent manufacturing facilities in the year ended March 31,
2019 as compared with the single facility that existed in the year ended March 31, 2018, partially offset by the effect of increased sales
to existing customers and the impact of recently launched new products. Gross margin on product sales, which excludes other
revenues, was 40% for the year ended March 31, 2019 compared with 56% for the year ended March 31, 2018.
Sales and marketing expenses
Sales and marketing expense increased by 18% to $8.6 million for the year ended March 31, 2019, compared with $7.3 million for the
year ended March 31, 2018. The growth in sales and marketing expenses in the year ended March 31, 2019 was mainly attributable to
expansion of the MosaiQ commercial team.
Research and development expenses
Year ended March 31,
Amount
2019
% of revenue
2018
% of revenue
(in thousands, except percentages)
Amount
Change
Amount
%
Research and development expenses:
MosaiQ research and development
Other research and development
Tax credits
Total research and development
expenses
$
48,903
2,123
(349 )
168 % $
7 %
-1 %
50,187
1,293
(278 )
203 % $
5 %
-1 %
(1,284 )
830
(71 )
-3 %
64 %
26 %
$
50,677
174 % $
51,202
207 % $
(525 )
-1 %
- 55 -
Research and development expenses decreased by $0.5 million to $50.7 million for the year ended March 31, 2019, compared with
$51.2 million for the year ended March 31, 2018. The decrease in costs mainly reflected reduced expenditure with our development
partners as the initial development of MosaiQ nears completion. Research and development expenses for the year ended March 31,
2019 included a $0.5 million expense related to the cost of our intellectual property license with TTP for MosaiQ. There was no
equivalent TTP license expense in the year ended March 31, 2018.
General and administrative expenses
General and administrative expenses increased 23% to $31.5 million for the year ended March 31, 2019, compared with $25.7 million
for the year ended March 31, 2018, reflecting greater personnel-related costs as a result of our preparations for the commercialization
of MosaiQ, increased advisory fees and costs of $1.6 million associated with the relocation to our ARC facility. We recognized $5.0
million of stock compensation expense in the year ended March 31, 2019 compared with $4.2 million in the year ended March 31,
2018. Stock compensation expense is recognized over the expected vesting period of incentive awards. As a percentage of total
revenue, general and administrative expenses increased to 107% for the year ended March 31, 2019, compared with 104% for the year
ended March 31, 2018.
Other income (expense)
Net interest expense was $20.0 million for the year ended March 31, 2019, compared with $15.4 million for the year ended March 31,
2018. Interest expense in the year ended March 31, 2019 included $13.3 million of interest charges on our Secured Notes compared
with $10.1 million in the year ended March 31, 2018. The increase was due to the additional issuance of $36 million of Secured Notes
on June 29, 2018 Interest expense in the years ended March 31, 2019 and March 31, 2018 included amortization of deferred debt
issue costs of $5.9 million and $4.4 million, respectively, which included, in the year ended March 31, 2019, amortization of the
expected costs of the royalty rights agreements entered into in October 2016, June 2018 and December 2018 in connection with the
issuances of the Secured Notes and the amendment of the indenture relating to the Secured Notes and, in the year ended March 31,
2018, amortization of the expected costs of the royalty rights agreements entered into in October 2016 in connection with the issuance
of the Secured Notes. In each of the years ended March 31, 2019 and March 31, 2018, net interest expense also included $1.1 million
of accrued dividends on the 7% cumulative redeemable preference shares issued in January 2015. In addition, in the year ended March
31, 2019 we earned interest income of $0.3 million on our money market deposits as compared with $0.2 million in the year ended
March 31, 2018.
Other expense for the year ended March 31, 2019 included $5.4 million of foreign exchange losses arising on monetary assets and
liabilities denominated in foreign currencies and $1.0 million of fees related to the amendment of the indenture relating to the Secured
Notes in December 2018. Other income for the year ended March 31, 2018 included $2.4 million of foreign exchange gains arising on
monetary assets and liabilities denominated in foreign currencies.
Provision for income taxes
Provision for income taxes in the year ended March 31, 2019 reflected a reduction in the net operating losses available to be carried
forward in a subsidiary as a result of the offset of historic tax losses against the profits of this subsidiary. Provision for income taxes in
the year ended March 31, 2018 reflected a reduction in the valuation allowance against deferred tax assets in a subsidiary as a result of
an improvement in the profitability of this subsidiary.
Quarterly Results of Operations
The following table sets forth selected unaudited consolidated quarterly statements of operations data for our eight most recent
completed fiscal quarters. We have prepared the consolidated quarterly operations data on a basis consistent with the audited
consolidated financial statements included elsewhere in this Annual Report. In the opinion of management, the quarterly consolidated
operations data reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of
this data. Historical results are not necessarily indicative of the results to be expected in future periods and the results for a quarterly
- 56 -
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.
2020
Mar-31
2019
Dec-31
Sep-30
June 30
Mar 31
Dec-31
(in thousands, except percentages)
2018
Sep-30
June 30
Mar 31
—
—
—
—
19
450
305
750
$ 8,700 $ 7,636 $ 7,096 $ 8,169 $ 7,831 $ 6,723 $ 6,247 $ 7,864 $ 6,124
13
8,700 7,941 7,846 8,169 8,281 6,723 6,247 7,883 6,137
(4,736 ) (4,532 ) (3,969 ) (4,563 ) (4,427 ) (4,186 ) (4,552 ) (4,065 ) (2,528 )
3,964 3,409 3,877 3,606 3,854 2,537 1,695 3,818 3,609
Revenue:
Product sales
Other revenues
Total revenue
Cost of revenue
Gross profit
Operating expenses:
Sales and marketing
(2,731 ) (2,289 ) (2,253 ) (2,580 ) (2,278 ) (2,233 ) (1,845 ) (2,281 ) (1,886 )
Research and development (14,847 ) (14,160 ) (13,083 ) (11,654 ) (13,321 ) (11,788 ) (12,998 ) (12,570 ) (13,259 )
General and administrative (7,855 ) (9,316 ) (6,981 ) (7,798 ) (8,580 ) (7,545 ) (7,916 ) (7,505 ) (6,391 )
(25,433 ) (25,765 ) (22,317 ) (22,032 ) (24,179 ) (21,566 ) (22,758 ) (22,356 ) (21,536 )
Total operating expenses
Operating profit (loss)
(21,469 ) (22,356 ) (18,440 ) (18,426 ) (20,325 ) (19,029 ) (21,064 ) (18,538 ) (17,927 )
Other income (expense):
Interest expense, net
Other, net
Total other income
(expense), net
Loss before income taxes
Provision for income taxes
Net loss
% of Product Sales from
Standing Purchase Orders
(2,636 ) (5,115 ) (8,535 ) (5,135 ) (6,257 ) (7,215 ) (6,287 ) (6,628 ) (2,821 )
(24,105 ) (27,471 ) (26,975 ) (23,561 ) (26,582 ) (26,243 ) (27,351 ) (25,166 ) (20,748 )
649
$ (24,725 ) $ (27,485 ) $ (26,989 ) $ (23,574 ) $ (26,593 ) $ (26,254 ) $ (27,362 ) $ (25,177 ) $ (20,099 )
(3,474 ) (7,009 ) (7,290 ) (6,086 ) (5,404 ) (6,617 ) (5,819 ) (3,116 ) (3,709 )
888
838 1,894 (1,245 )
(468 ) (3,512 )
(620 )
(598 )
(853 )
951
(14 )
(11 )
(11 )
(13 )
(11 )
(14 )
(11 )
71 %
65 %
70 %
72 %
68 %
67 %
68 %
70 %
77 %
Our quarterly product sales can fluctuate depending upon the shipment cycles for our red blood cell-based products, which account for
approximately two-thirds of our current product sales. For these products, we typically experience 13 shipping cycles per year. This
equates to three shipments of each product per quarter, except for one quarter per year when four shipments occur. In fiscal 2020 and
in fiscal 2019, the greatest impact of extra product shipments occurred in our first quarter. The timing of shipment of bulk antisera
products to our OEM customers may also move revenues from quarter to quarter. We also experience some seasonality in demand
around holiday periods in both Europe and the United States. As a result of these factors, we expect to continue to see seasonality and
quarter-to-quarter variations in our product sales.
The timing of product development fees included in other revenues is mostly dependent upon the achievement of pre-negotiated
project milestones.
Liquidity and Capital Resources
Since our commencement of operations in 2007, we have incurred net losses and negative cash flows from operations. As of March
31, 2020, we had an accumulated deficit of $483.4 million. During the year ended March 31, 2020, we incurred a net loss of $102.8
million and used $80.6 million of cash for operating activities. During the year ended March 31, 2019, we incurred a net loss of
$105.4 million and used $75.7 million of cash for operating activities. During the year ended March 31, 2018, we incurred a net loss
of $82.3 million and used $68.4 million of cash for operating activities. As described under results of operations, our use of cash
during the years ended March 31, 2020 and March 31, 2019 was primarily attributable to our investment in the development of
MosaiQ and corporate costs, including costs related to being a public company.
- 57 -
From our incorporation in 2012 to March 31, 2019, we have raised $160.0 million of gross proceeds through the private placement of
our ordinary and preference shares and warrants, $250.1 million of gross proceeds from public offerings of our shares and issuances of
ordinary shares upon exercise of warrants and $120.0 million of gross proceeds from the issuance of the Secured Notes.
On May 15, 2019, we issued an additional $25.0 million aggregate principal amount of the Secured Notes. On May 15, 2019, we paid
$1.5 million of the net proceeds of the issuance into the cash reserve account maintained with the collateral agent under the terms of
the indenture governing the Secured Notes, which together with the $7.2 million paid into the cash reserve account in respect of
previous issuances, brought the total in the cash reserve account to $8.7 million at March 31, 2020.
On November 12, 2019, we completed a public offering of 13,800,000 newly issued ordinary shares at a price of $7.00 per share,
which raised $96.6 million of gross proceeds before underwriting discounts and other offering expenses.
As of March 31, 2020, we had available cash, cash equivalents and short-term investments of $120.8 million and $9.0 million of
restricted cash held as part of the arrangements relating to our Secured Notes and the lease of our property in Eysins, Switzerland.
12% Senior Secured Notes Due 2024
On October 14, 2016, we completed a private placement of our Secured Notes. Our obligations under the Secured Notes and the
related indenture are unconditionally guaranteed on a secured basis by the guarantors, which include all our subsidiaries, and the
indenture contains customary events of default. We are also required to comply with certain customary affirmative and negative
covenants, including a requirement to maintain six-months of interest in a cash reserve account maintained with the collateral agent.
We issued $84 million aggregate principal amount of the Secured Notes on October 14, 2016, an additional $36 million aggregate
principal amount of the Secured Notes on June 29, 2018 and an additional $25 million of the Secured Notes on May 15, 2019.
Upon the occurrence of a Change of Control, subject to certain conditions, or certain Asset Sales (each, as defined in the indenture),
holders of the Secured Notes may require us to repurchase for cash all or part of their Secured Notes at a repurchase price equal to
101% or 100%, respectively, of the principal amount of the Secured Notes to be repurchased, plus accrued and unpaid interest to the
date of repurchase.
We paid $7.2 million of the total proceeds of the October 2016 and June 2018 issuances into the cash reserve account maintained with
the collateral agent under the terms of the indenture, $2.2 million of which related to the second issuance. We paid a further $1.5
million into the cash reserve account on May 15, 2019 in connection with the issuance of the additional $25 million of Secured Notes
on that date.
Interest on the Secured Notes accrues at a rate of 12% per annum and is payable semi-annually on April 15 and October 15 of each
year commencing on April 15, 2017. Commencing on April 15, 2021, we will also pay an installment of principal of the Secured
Notes on each April 15 and October 15 until April 15, 2024 pursuant to a fixed amortization schedule.
In connection with the October 2016, June 2018 and May 2019 issuances of the Secured Notes as well as the December 2018
amendment of the related indenture, we entered into royalty rights agreements, pursuant to which we agreed to pay 3.4% of the
aggregate net sales of MosaiQ instruments and consumables made in the donor testing market in the United States and the European
Union. The royalties will be payable beginning on the date that we make our first sale of MosaiQ consumables in the donor testing
market in the European Union or the United States and will end on the last day of the calendar quarter in which the eighth anniversary
of the first sale date occurs.
Cash Flows for the Years Ended March 31, 2020 and 2019
Operating activities
Net cash used in operating activities was $80.6 million during the year ended March 31, 2020, which included net losses of $102.8
million and non-cash items of $26.3 million. Non-cash items were depreciation and amortization expense of $12.3 million, share-
based compensation expense of $4.5 million, deferred lease rentals of $0.3 million, Swiss pension costs of $0.8 million, amortization
of deferred debt issue costs of $7.0 million, accrued preference share dividends of $1.0 million and deferred income taxes of $0.4
million. We also experienced a net cash outflow of $4.1 million from changes in operating assets and liabilities during the period,
consisting of a $5.0 million increase in inventories, a $0.7 million increase in other assets and a $2.1 million increase in accounts
receivable, offset by a $2.5 million increase in accounts payable and accrued liabilities and a $1.2 million increase in accrued
compensation and benefits.
- 58 -
Net cash used in operating activities was $75.7 million during the year ended March 31, 2019, which included net losses of $105.4
million and non-cash items of $25.7 million. Non-cash items were depreciation and amortization expense of $12.8 million, share-
based compensation expense of $5.0 million, deferred lease rentals of $0.4 million, Swiss pension costs of $0.6 million, amortization
of deferred debt issue costs of $5.9 million and accrued preference share dividends of $1.0 million. We also experienced a net cash
inflow of $4.1 million from changes in operating assets and liabilities during the period, consisting of a $3.3 million decrease in other
assets, a $0.4 million increase in accounts payable and accrued liabilities and a $1.1 million increase in accrued compensation and
benefits offset by a $0.1 million increase in inventories and a $0.6 million increase in accounts receivable.
Investing activities
Net cash used in investing activities was $30.2 million in the year ended March 31, 2020 and $89.1 million in the year ended
March 31, 2019. We invested $25.6 million net and $84.3 million net in short-term money market funds in the years ended March 31,
2020 and March 31, 2019, respectively. Purchases of property and equipment in the year ended March 31, 2020 were $4.6 million and
were mainly related to payments for an additional assembly unit for our MosaiQ manufacturing facility. Purchases of property and
equipment in the year ended March 31, 2019 were $4.8 million, and were mainly related to the payment of final costs related to the
construction of our new ARC conventional reagents manufacturing facility.
Financing activities
Net cash provided by financing activities was $114.6 million during the year ended March 31, 2020, consisting of $24.1 million of net
proceeds from the issuance of additional Secured Notes on May 15, 2019, $90.5 million of net proceeds from the issuance of ordinary
shares on November 12, 2019 and $0.5 million of proceeds from the exercise of share options, offset by $0.5 million of repayments on
finance leases.
Net cash provided by financing activities was $145.4 million during the year ended March 31, 2019, consisting of $34.8 million of net
proceeds from the issuance of additional Secured Notes on June 29, 2018, payment of $3.9 million of consent fees in December 2018
related to the amendment of the indenture governing the Secured Notes and $115.0 million of proceeds from the issuance of ordinary
shares (including $50.1 million in connection with the exercise of warrants and share options), offset by $0.5 million of repayments on
finance leases.
Cash Flows for the Years Ended March 31, 2019 and 2018
Operating activities
Net cash used in operating activities was $75.7 million during the year ended March 31, 2019, which included net losses of $105.4
million and non-cash items of $25.7 million. Non-cash items were depreciation and amortization expense of $12.8 million, share-
based compensation expense of $5.0 million, deferred lease rentals of $0.4 million, Swiss pension costs of $0.6 million, amortization
of deferred debt issue costs of $5.9 million and accrued preference share dividends of $1.0 million. We also experienced a net cash
inflow of $4.1 million from changes in operating assets and liabilities during the period, consisting of a $3.3 million decrease in other
assets, a $0.4 million increase in accounts payable and accrued liabilities and a $1.1 million increase in accrued compensation and
benefits offset by a $0.1 million increase in inventories and a $0.6 million increase in accounts receivable.
Net cash used in operating activities was $68.4 million during the year ended March 31, 2018, which included net losses of $82.3
million and non-cash items of $19.5 million. Non-cash items were depreciation and amortization expense of $10.4 million, share-
based compensation expense of $4.2 million, Swiss pension costs of $0.7 million, amortization of deferred debt issue costs of $4.4
million and accrued preference share dividends of $1.0 million, offset by deferred income taxes of $0.6 million and amortization of
lease incentives of $0.4 million. We also experienced a net cash outflow of $5.6 million from changes in operating assets and
liabilities during the period, consisting of a $3.3 million reduction in accounts payable and accrued liabilities, a $1.7 million increase
in inventories, a $0.1 million increase in accounts receivable and a $2.1 million increase in other assets offset by a $1.6 million
increase in accrued compensation and benefits.
Investing activities
Net cash used in investing activities was $89.1 million in the year ended March 31, 2019 and net cash from investing activities was
$3.3 million in the year ended March 31, 2018. We invested $84.3 million net in a short-term money market fund in the year ended
March 31, 2019 and withdrew $10.4 million net in the year ended March 31, 2018. Purchases of property and equipment in the years
ended March 31, 2019 and March 31, 2018 were $4.8 million and $21.6 million, respectively. Most of these expenditures related to
the construction of the ARC facility and we generated $14.7 million, net of a rent deposit payment in the year ended March 31, 2018
from the sale and leaseback of this building. We also invested $0.2 million in the year March 31, 2018 on new product licenses within
our conventional reagent operations.
- 59 -
Financing activities
Net cash provided by financing activities was $145.4 million during the year ended March 31, 2019, consisting of $34.8 million of net
proceeds from the issuance of additional Secured Notes on June 29, 2018, payment of $3.9 million of consent fees in December 2018
related to the amendment of the indenture governing the Secured Notes and $115.0 million of proceeds from the issuance of ordinary
shares (including $50.1 million in connection with the exercise of warrants and share options), offset by $0.5 million of repayments on
finance leases.
Net cash provided by financing activities was $83.3 million (including our April 2017 public offering of ordinary shares and our
October 2017 private placement of ordinary shares and warrants) during the year ended March 31, 2018, consisting of $85.0 million of
net proceeds from the issuance of ordinary shares and warrants and exercise of share options offset by $1.7 million of repayments on
finance leases.
Operating and Capital Expenditure Requirements
We have not achieved profitability on an annual basis since we commenced operations in 2007 and we expect to incur net losses for at
least the next fiscal year. As we move towards the commercial launch of MosaiQ in the donor testing market, we expect our operating
expenses during the year ended March 31, 2021 to be similar to those of the year ended March 31, 2020, as we continue to invest in
growing our customer base, expanding our marketing and distribution channels, completing field trials and regulatory filings, hiring
additional employees and investing in other product development opportunities while development expenditure on MosaiQ reduces.
As of March 31, 2020, we had available cash, cash equivalents and short-term investments of $120.8 million and $9.0 million of
restricted cash held as part of the arrangements relating to our Secured Notes and the lease of our property in Eysins, Switzerland.
Our future capital requirements will depend on many factors, including:
our progress in developing and commercializing MosaiQ and the cost required to complete development, obtain
regulatory approvals and complete our manufacturing scale up;
our ability to pursue successful alternatives for commercializing MosaiQ in the patient market;
our ability to manufacture and sell our conventional reagent products, including the costs and timing of further expansion
of our sales and marketing efforts;
the impact of the COVID-19 pandemic on the global economy, our business and our development timeline for MosaiQ;
the outcome of our ongoing arbitration with Ortho;
our ability to collect our accounts receivable;
our ability to generate cash from operations;
any acquisition of businesses or technologies that we may undertake; and
our ability to penetrate our existing market and new markets.
We expect to fund our operations, including the ongoing development of MosaiQ through successful field trial completion,
achievement of required regulatory authorizations and commercialization from the use of existing available cash and short-term
investment balances, cash generated through sales of our MosaiQ COVID-19 Microarray, and the issuance of new equity or
debt, and accordingly have prepared the financial statements on the going concern basis. However, there can be no assurance
that we will be able to obtain adequate financing when necessary and the terms of any financings may not be advantageous to us
and may result in dilution to our shareholders.
- 60 -
Contractual Obligations
We have contractual obligations for non-cancelable facilities leases, our Secured Notes and related royalty rights agreements,
equipment leases and purchase commitments. The following table sets forth a summary of our contractual obligations as of March 31,
2020.
Contractual Obligations
12% Senior Secured Notes due 2024
Interest on 12% Senior Secured Notes
Royalty rights agreements with note
purchasers
7% Cumulative Redeemable Preference
Shares (1)
Dividends on 7% Cumulative
Redeemable Preference Shares (1)
Operating and capital leases
STRATEC Biomedical manufacturing
agreement (2)
Other
Total contractual obligations
$
Total
145,000 $
57,275
Less than
1 year
Payment by period
1 to 3
years
3 to 5
years
After 5
years
— $
17,400
66,459 $
30,087
78,541 $
9,788
—
—
85,986
—
1,859
12,081
72,046
15,000
—
15,000
—
—
5,425
83,916
—
4,055
5,425
7,556
—
6,167
—
66,138
62,735
21,365
476,702 $
2,503
17,384
41,342 $
16,714
3,981
147,081 $
24,383
—
130,960 $
19,135
—
157,319
$
(1) The 7% Cumulative Redeemable Preference Shares are redeemable at the option of the shareholders on a date not before
January 29, 2022, which can be extended at our option in one year increments until January 29, 2025. We can pay dividends on
the 7% Cumulative Redeemable Preference Shares at any time, but are not obligated to do so until redemption.
(2) We have entered into a manufacturing agreement with STRATEC in connection with the supply of MosaiQ instruments over a
six year period. The total remaining purchase obligation under this agreement is $62.7 million (€57.0 million) using March 31,
2020 exchange rates.
Critical Accounting Policies and Significant Judgments and Estimates
We have prepared our consolidated financial statements in accordance with U.S. GAAP. Our preparation of these consolidated
financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities,
expenses and related disclosures at the date of the consolidated financial statements, as well as revenue and expenses during the
reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and
on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could
therefore differ materially from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 1 to our consolidated financial statements included in
this Annual Report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation
of our financial statements.
Revenue recognition and accounts receivable
Revenue is recognized in accordance with Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers.
Product revenue is recognized at a point in time upon transfer of control of a product to a customer, which is generally at the time of
delivery at an amount based on the transaction price. Customers have no right of return except in the case of damaged goods and the
Company has not experienced any significant returns of its products.
- 61 -
We also earn revenue from the provision of development services to a small number of OEM customers. These development service
contracts are reviewed individually to determine the nature of the performance obligations and the associated transaction prices. In
recent years, our product development revenues have been commensurate with achieving milestones specified in the respective
development agreements relating to those products. These milestones may include the approval of new products by the European or
U.S. regulatory authorities, which are not within our control. While there can be no assurance that this will continue to be the case, the
nature of the milestones has been such that they effectively represent completion of our performance obligations under a particular
part of a development program. Should we fail to achieve these milestones we are not entitled under the terms of the development
agreements to any compensation related to the work undertaken to date. As a result, we typically fully recognize milestone-related
revenues as the contractual milestones are achieved.
Under certain development contracts, we also manufacture and supply the customer with finished products once they have been
approved for use by relevant regulatory agencies. These agreements reflect both arrangements for product development and the sales
prices and other contractual terms for subsequent supply of the product to the customer. Under these development contracts, we view
the development service revenue as distinct from subsequent product sales revenue, and we recognize each separately as described
above.
Accounts receivable consist primarily of amounts due from OEM customers, hospitals, donor testing laboratories, and distributors.
Accounts receivable are reported net of an allowance for uncollectible accounts, which we also refer to as doubtful accounts. The
allowance for doubtful accounts represents a reserve for estimated losses resulting from our inability to collect amounts due from our
customers. Direct sales, where we may make many low value sales to a large number of customers, represents a larger risk of doubtful
accounts, as opposed to OEM customer sales consisting primarily of a small number of well established businesses with whom we
have a long trading history. The collectability of our trade receivables balances is regularly evaluated based on a combination of
factors such as the aging profile of our receivables, past history with our customers, changes in customer payment patterns, customer
credit-worthiness and any other relevant factors. Based on these assessments, we adjust the reserve for doubtful accounts recorded in
our financial statements.
Inventories
We record inventories at the lower of cost (at standard costs, approximating average costs) or market (net realizable value), net of
reserves. We record adjustments to inventory based upon historic usage, expected future demand and shelf life of the products held in
inventory. We also calculate our inventory value based on the standard cost of each product. This approach requires us to analyze
variances arising in the production process to determine whether they reflect part of the normal cost of production, and should
therefore be reflected as inventory value, or whether they are a period cost and should thus not be included in inventory.
Income taxes
We account for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be
provided for temporary differences between the tax basis of our assets and liabilities and their financial statement reported amounts. In
addition, deferred tax assets are recorded for the future benefit of utilizing NOLs and research and development credit carry forwards.
A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
We follow the accounting guidance for uncertainties in income taxes, which prescribes a recognition threshold and measurement
process for recording uncertain tax positions taken, or expected to be taken, in a tax return in the financial statements. Additionally,
the guidance also prescribes the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain
tax positions. We accrue for the estimated amount of taxes for uncertain tax positions if it is more likely than not that we would be
required to pay such additional taxes. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being
sustained. We did not have any accrued interest or penalties associated with any unrecognized tax positions, and there were no such
interest or penalties recognized during the years ended March 31, 2020, 2019 or 2018.
Stock compensation expense
Stock compensation expense is measured at the grant date based on the fair value of the award and is recognized as an expense in the
income statement over the vesting period of the award. The calculation of the stock compensation expense is sensitive to the fair value
of the underlying ordinary shares. The fair value of option awards and multi-year performance based restricted share units or MRSUs
at the grant date is calculated using the Black-Scholes model or other valuation models, which use a number of assumptions to
determine the fair value. Details of the assumptions used are set out in the notes to the financial statements included in this Annual
Report.
- 62 -
Defined benefit pension obligations
We account for the pension obligations of our Swiss subsidiary as a defined benefit plans under Accounting Standards Codification, or
ASC, 715 Compensation – Retirement Benefits. This requires that an actuarial valuation be performed to determine the funded status
of the pension arrangements. The actuarial valuation is based on a number of assumptions, details of which are set out in the notes to
the financial statements included in this Annual Report.
Royalty liability
The royalty rights agreements entered into in connection with the issue of the Secured Notes are treated as sales of future revenues that
meet the requirements of ASC Topic 470 “Debt” to be treated as debt. The estimated future cash outflows under the royalty rights
agreements have been combined with the issuance costs and interest payable to calculate the effective interest rate of the Secured
Notes and will be expensed through interest expenses using the effective interest rate method over the term of the Secured Notes and
royalty rights agreements. Estimating the future cash outflows under the royalty rights agreements requires us to make certain
estimates and assumptions about future sales of MosaiQ products. These estimates of the magnitude and timing of MosaiQ sales are
subject to significant variability due to the current status of development of MosaiQ products, and thus are subject to significant
uncertainty. Therefore, the estimates are likely to change as we gain experience of marketing MosaiQ, which may result in future
adjustments to the accretion of the interest expense and the amortized cost based carrying value of the Secured Notes.
Leases
In February 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-02, Leases, to enhance the transparency and
comparability of financial reporting related to leasing arrangements. We adopted ASU 2016-02 on April 1, 2019, or the effective date,
and used the effective date as our date of initial application.
At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and
circumstances present. We also review the terms of the lease in accordance with ASU 2016-02 in order to determine whether the lease
concerned is a finance or an operating lease. Most leases with a term greater than one year are recognized on the balance sheet as
right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. We have elected not to recognize on the balance sheet
leases with terms of one year or less.
For finance leases, an asset is included within property and equipment and a lease liability equal to the present value of the minimum
lease payments is included in current or long-term liabilities. Interest expense is recorded over the life of the lease at a constant rate.
Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over
the expected remaining lease term. The operating lease right-of-use assets also include any lease payments made prior to the
commencement date and any initial direct costs incurred, less any lease incentives received. The interest rate implicit in lease contracts
is typically not readily determinable. As a result, we utilize our incremental borrowing rates, which are the rates incurred to borrow on
a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The incremental
borrowing rate is determined at lease commencement, or as of April 1, 2019 for operating leases existing upon the adoption of ASU
2016-02. The incremental borrowing rate is subsequently reassessed upon modification to the lease arrangement. Operating lease
expense is recognized on a straight-line basis over the lease term.
In accordance with the guidance in ASU 2016-02, components of a lease should be split into three categories: lease components (e.g.,
land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components
(e.g., property taxes, insurance, etc.). Although separation of lease and non-lease components is required, certain practical expedients
are available. In particular, entities may elect a practical expedient to not separate lease and non-lease components and instead account
for each lease component and the related non-lease component together as a single component. We have elected to account for the
lease and non-lease components of each of its operating leases as a single lease component and allocate all of the contract
consideration to the lease component only. The lease component results in an operating lease right-of-use asset being recorded on the
balance sheet and amortized on a straight-line basis as lease expense.
- 63 -
The finance lease assets and operating lease right-of-use assets are assessed for impairment in accordance with our accounting policy
for long-lived assets.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured
finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements
or for any other contractually narrow or limited purpose.
Recent Accounting Pronouncements
Refer to Note 1 to our accompanying audited financial statements included elsewhere in this report for a discussion of recently issued
accounting pronouncements.
- 64 -
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. These market risks are principally limited to interest rate
fluctuations and foreign currency exchange rate fluctuations.
Interest rate sensitivity
We are exposed to market risk related to changes in interest rates as it impacts our interest income.
Cash, cash equivalents and cash reserve account. At March 31, 2020, we had cash and cash equivalents of $120.8 million and we
also held $9.0 million of restricted cash. Our exposure to market risk includes interest income sensitivity, which is impacted by
changes in the general level of U.S. and European interest rates. Our cash and cash equivalents and the cash reserve account are held
in interest-bearing savings accounts and bank accounts. We do not enter into investments for trading or speculative purposes. Due to
the current levels of interest rates, we do not believe an immediate one percentage point change in interest rates would have a material
effect on the fair market value of our holdings, and therefore we do not expect our operating results or cash flows to be significantly
affected by changes in market interest rates.
Secured Notes. At March 31, 2020, we had term debt of $145.0 million outstanding under the Secured Notes. The Secured Notes are
fixed-rate instruments and, as a result, a change in market interest rates has no impact on our interest expense incurred or cash flows.
Foreign currency exchange risk
The main currencies that we use for our trading operations are the U.S. Dollar, the Pound Sterling, the Swiss Franc and to a lesser
extent, the Euro. Our meaningful cash balances are held in a mixture of U.S. Dollars, Euros, Pounds Sterling and Swiss Francs. These
cash balances may not be the same as the functional currencies of the Quotient entities in which they are held and as a result, exchange
rate fluctuations may result in foreign exchange gains and losses on our income statement.
We are subject to market risks arising from changes in foreign currency exchange rates between the U.S. Dollar and the Pound
Sterling and the U.S. Dollar and the Swiss Franc. Accordingly, fluctuations in the U.S. Dollar versus Pounds Sterling and the
U.S. Dollar versus the Swiss Franc exchange rate give rise to exchange gains and losses. These gains and losses arise from the
conversion of U.S. Dollars and Euros to Pounds Sterling and the retranslation of cash, accounts receivable, intercompany indebtedness
and other asset and liability balances. Based on our assets and liabilities held in Pounds Sterling at March 31, 2020, we estimate that a
5% strengthening of the Pound Sterling against the U.S. Dollar would give rise to a gain of approximately $0.5 million and a 5%
weakening of the Pound Sterling against the U.S. Dollar would give rise to loss of approximately $0.5 million. Based on our assets
and liabilities held in Swiss Francs at March 31, 2020, we estimate that a 5% strengthening of the Swiss Franc against the U.S. Dollar
would give rise to a gain of approximately $1.3 million and a 5% weakening of the Swiss Franc against the U.S. Dollar would give
rise to loss of approximately $1.3 million.
Most of our revenues are earned in U.S. Dollars, but the costs of our conventional reagent manufacturing operations are payable
mainly in Pounds Sterling. We therefore closely monitor the results of our UK operations to address this difference. During the year
ended March 31, 2020, the net operating expenses arising in Pounds Sterling from our UK conventional reagent manufacturing
operations amounted to approximately $36.2 million. This expenditure is offset by revenues arising in U.S. Dollars and other
currencies. We have entered into forward contracts to hedge against the effects of fluctuations in the U.S. Dollar versus the Pounds
Sterling exchange rate. The principal value of the hedges related to the results of fiscal year 2021 is $6.0 million and, based on this, a
hypothetical instantaneous 5% strengthening of the Pound Sterling against the U.S. Dollar would reduce our net income by $1.5
million in the year ending March 31, 2021 after taking account of the shelter provided by our existing hedging arrangements through
March 31, 2021. Similarly, a hypothetical instantaneous 5% weakening of the Pound Sterling against the U.S. Dollar would increase
group net income by $1.5 million over the same period.
We do not use financial instruments for trading or other speculative purposes.
Our management does not believe that inflation in past years has had a significant impact on our results from operations. In the event
inflation affects our costs in the future, we will offset the effect of inflation and maintain appropriate margins through increased
selling prices.
- 65 -
Item 8. Financial Statements and Supplementary Data
The quarterly financial data required by this item may be found in “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Quarterly Results of Operations.”
- 66 -
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Index to financial statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2020 and 2019
Consolidated Statements of Comprehensive Loss for the years ended March 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the years ended March 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended March 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Page
68
69
70
71
73
74
- 67 -
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Quotient Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Quotient Limited (the Company) as of March 31, 2020 and 2019,
the related consolidated statements of comprehensive loss, shareholders' equity (deficit) and cash flows for each of the three years in
the period ended March 31, 2020, 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 March
31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2020,
in conformity with U.S. generally accepted accounting principles.
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the Company is currently involved in an arbitration dispute with a
customer and an adverse outcome of this dispute in addition to the Company’s expenditure plans over the next 12 months could result
in net cash outflows over the next 12 months exceeding the Company’s existing available cash and short-term investment balances,
and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of
the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Adoption of ASU No. 2016 -02
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases as of April
1, 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842) and the related amendments.
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 2007.
Belfast, United Kingdom
June 12, 2020
- 68 -
QUOTIENT LIMITED
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of U.S. Dollars — except for share data and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Trade accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Restricted cash
Property and equipment, net
Operating lease right-of-use assets
Intangible assets, net
Deferred income taxes
Other non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable
Accrued compensation and benefits
Accrued expenses and other current liabilities
Current portion of operating lease liability
Current portion of deferred lease rental benefit
Current portion of finance lease obligation
Total current liabilities
Long-term debt
Operating lease liability, less current portion
Deferred lease rental benefit, less current portion
Finance lease obligation, less current portion
Defined benefit pension plan obligation
7% Cumulative redeemable preference shares
Total liabilities
Commitments and contingencies
Shareholders' (deficit) equity:
$
$
$
March 31,
2020
March 31,
2019
3,923 $
116,871
5,402
20,501
3,775
150,472
9,017
40,165
21,493
625
237
4,454
226,463 $
4,826 $
7,210
15,490
3,033
—
598
31,157
153,024
19,914
—
1,117
6,353
20,425
231,990
—
4,096
90,729
3,348
15,551
3,202
116,926
7,507
47,293
—
751
605
4,688
177,770
5,936
6,149
12,458
—
435
471
25,449
121,855
—
1,144
865
7,368
19,375
176,056
—
Ordinary shares (nil par value) 80,398,326 and 65,900,447 issued and outstanding at
March 31, 2020 and March 31, 2019 respectively
Additional paid in capital
Accumulated other comprehensive loss
Accumulated deficit
Total shareholders' (deficit) equity
Total liabilities and shareholders' (deficit) equity
$
459,931
33,132
(15,155 )
(483,435 )
(5,527 )
226,463 $
368,958
28,665
(14,884 )
(381,025 )
1,714
177,770
The accompanying notes form an integral part of these consolidated financial statements.
- 69 -
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Expressed in thousands of U.S. Dollars — except for share data and per share data)
Revenue:
Product sales
Other revenues
Total revenue
Cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development, net of government grants
General and administrative expense:
Compensation expense in respect of share
options and management equity incentives
Other general and administrative expenses
Total general and administrative expense
Total operating expense
Operating loss
Other income (expense):
Interest expense, net
Other, net
Other income (expense), net
Loss before income taxes
Provision for income taxes
Net loss
Other comprehensive income (loss):
Change in fair value of effective portion of
foreign currency cash flow hedges
Change in unrealized gain on short-term investments
Foreign currency gain (loss)
Provision for pension benefit obligation
Other comprehensive (loss) income, net
Comprehensive loss
Net loss available to ordinary shareholders
- basic and diluted
Loss per share - basic and diluted
Weighted-average shares outstanding - basic and
diluted
Year ended March 31,
2020
2019
2018
$
$
$
$
$
$
$
31,601
1,055
32,656
(17,800 )
14,856
(9,853 )
(53,744 )
$
28,665
469
29,134
(17,230 )
11,904
(8,637 )
(50,677 )
(4,467 )
(27,483 )
(31,950 )
(95,547 )
(80,691 )
(23,859 )
2,438
(21,421 )
(102,112 )
(661 )
(102,773 )
(157 )
554
(2,702 )
2,034
(271 )
(103,044 )
(102,773 )
(1.44 )
$
$
$
$
$
(4,957 )
(26,588 )
(31,545 )
(90,859 )
(78,955 )
(20,018 )
(6,369 )
(26,387 )
(105,342 )
(44 )
(105,386 )
(123 )
796
1,964
(887 )
1,750
(103,636 )
(105,386 )
(1.92 )
$
$
$
$
$
23,913
819
24,732
(10,471 )
14,261
(7,347 )
(51,202 )
(4,156 )
(21,544 )
(25,700 )
(84,249 )
(69,988 )
(15,365 )
2,366
(12,999 )
(82,987 )
649
(82,338 )
305
6
2,240
107
2,658
(79,680 )
(82,338 )
(2.02 )
71,610,035
54,874,391
40,839,309
The accompanying notes form an integral part of these consolidated financial statements.
- 70 -
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
(Expressed in thousands of U.S. Dollars — except for share data)
March 31, 2017
29,567,698
$
172,617
$
15,885
$
(19,292 )
$
(193,301 )
Ordinary shares
Shares
Amount
Additional Paid
In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Shareholders'
Equity (Deficit)
$
(24,091 )
Issue of shares, net of issue costs of $680
Issue of shares upon exercise of incentive share options and
vesting of RSUs
Issue of warrants
Net loss
Change in the fair value of the effective portion of foreign
currency cash flow hedges
Change in unrealized gain on short-term investments
Foreign currency gain (loss) on:
Long-term investment nature intra-entity balances
Retranslation of foreign entities
Provision for pension benefit obligation
Other comprehensive loss
Stock-based compensation
March 31, 2018
Issue of shares, net of issue costs of $4,502
Issue of shares upon exercise of incentive share options and
vesting of RSUs
Net loss
Change in the fair value of the effective portion of foreign
currency cash flow hedges
Change in unrealized gain on short-term investments
Foreign currency gain (loss) on:
Long-term investment nature intra-entity balances
Retranslation of foreign entities
Provision for pension benefit obligation
Other comprehensive loss
Stock-based compensation
March 31, 2019
15,914,683
81,206
164,043
—
—
—
—
—
—
—
45,646,424
19,635,068
$
618,955
—
—
—
—
—
—
—
—
111
—
—
—
—
—
—
—
253,934
113,724
1,300
—
$
—
—
—
—
—
—
—
65,900,447
$
368,958
$
—
—
3,667
—
—
—
—
—
4,156
23,708
—
$
—
—
—
—
—
—
—
—
4,957
28,665
—
—
—
—
305
6
(9,105 )
11,345
107
2,658
—
(16,634 )
—
$
—
—
(123 )
796
5,074
(3,110 )
(887 )
1,750
—
—
—
—
(82,338 )
—
—
—
—
—
(275,639 )
—
—
(105,386 )
$
—
—
—
—
—
—
—
81,206
111
3,667
(82,338 )
305
6
(9,105 )
11,345
107
2,658
4,156
(14,631 )
113,724
1,300
(105,386 )
(123 )
796
5,074
(3,110 )
(887 )
1,750
4,957
1,714
$
(14,884 )
$
(381,025 )
$
The accompanying notes form an integral part of these consolidated financial statements.
- 71 -
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
(Expressed in thousands of U.S. Dollars — except for share data)
March 31, 2019
65,900,447
$
368,958
$
28,665
$
(14,884 )
$
(381,025 )
Ordinary shares
Shares
Amount
Additional Paid
In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Shareholders'
Equity (Deficit)
$
1,714
Issue of shares, net of issue costs of $6,072
Issue of shares upon exercise of incentive share options and
vesting of RSUs
Net loss
Change in the fair value of the effective portion of foreign
currency cash flow hedges
Change in unrealized gain on short-term investments
Foreign currency gain (loss) on:
Long-term investment nature intra-entity balances
Retranslation of foreign entities
Provision for pension benefit obligation
Other comprehensive loss
Stock-based compensation
Cumulative effect of accounting changes
March 31, 2020
13,800,000
90,528
697,879
—
—
—
—
—
—
—
—
—
80,398,326
$
445
—
—
—
—
—
—
—
—
—
459,931
—
—
—
—
—
—
—
—
4,467
—
33,132
$
$
—
—
(157 )
554
18,394
(21,096 )
2,034
(271 )
—
—
(15,155 )
—
(102,773 )
—
—
—
—
—
—
—
363
$
(483,435 )
$
90,528
445
(102,773 )
(157 )
554
18,394
(21,096 )
2,034
(271 )
4,467
363
(5,527 )
The accompanying notes form an integral part of these consolidated financial statements.
- 72 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of U.S. Dollars)
OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation, amortization and loss on disposal of fixed assets
Share-based compensation
Increase (decrease) in deferred lease rentals
Swiss pension obligation
Amortization of deferred debt issue costs
Accrued preference share dividends
Deferred income taxes
Net change in assets and liabilities:
Trade accounts receivable, net
Inventories
Accounts payable and accrued liabilities
Accrued compensation and benefits
Other assets
Net cash used in operating activities
INVESTING ACTIVITIES:
Increase in short-term investments
Realization of short-term investments
Purchase of property and equipment
Sale of property and equipment
Payment of rent deposit
Purchase of intangible assets
Net cash from (used in) investing activities
FINANCING ACTIVITIES:
Repayment of finance leases
Proceeds from drawdown of new debt
Debt issue costs
Fee paid to noteholders
Proceeds from issuance of ordinary shares and warrants
Net cash generated from financing activities
Effect of exchange rate fluctuations on cash and cash equivalents
Change in cash and cash equivalents
Beginning cash and cash equivalents
Ending cash and cash equivalents
Supplemental cash flow disclosures:
Income taxes paid
Interest paid
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
Year ended March 31,
2020
2019
2018
$
(102,773 )
$
(105,386 )
$
(82,338 )
12,276
4,467
293
756
7,043
1,050
368
(2,177 )
(4,967 )
2,456
1,218
(656 )
(80,646 )
(95,000 )
69,412
(4,598 )
—
—
(2 )
(30,188 )
(524 )
25,000
(874 )
—
90,973
114,575
(2,404 )
1,337
11,603
12,940
—
15,776
3,923
9,017
12,940
$
$
$
$
$
$
12,767
4,957
372
575
5,908
1,050
44
(637 )
(93 )
370
1,121
3,297
(75,655 )
(119,000 )
34,735
(4,791 )
—
—
(3 )
(89,059 )
(486 )
36,000
(1,216 )
(3,900 )
115,024
145,422
5,690
(13,602 )
25,205
11,603
—
11,838
4,096
7,507
11,603
$
$
$
$
$
$
10,405
4,156
(435 )
659
4,359
1,050
(649 )
(87 )
(1,741 )
(3,310 )
1,596
(2,083 )
(68,418 )
(78,000 )
88,395
(21,604 )
19,741
(5,043 )
(150 )
3,339
(1,692 )
—
—
—
84,984
83,292
(2,802 )
15,411
9,794
25,205
—
10,144
20,165
5,040
25,205
$
$
$
$
$
$
The accompanying notes form an integral part of these consolidated financial statements.
- 73 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. Dollars — except for share data and per share data, unless otherwise stated)
Note 1. Organization and Summary of Significant Accounting Policies
Organization and Business
The principal activity of Quotient Limited and its subsidiaries (the “Group” and or the “Company”) is the development, manufacture
and sale of products for the global transfusion diagnostics market. Products manufactured by the Group are sold to hospitals, blood
banking operations and other diagnostics companies worldwide.
The Company has incurred net losses and negative cash flows from operations in each year since it commenced operations in 2007
and had an accumulated deficit of $483.4 million as of March 31, 2020. At March 31, 2020, the Company had available cash holdings
and short-term investments of $120.8 million. The Company is currently involved in an arbitration dispute with Ortho-Clinical
Diagnostics, Inc. (“Ortho), and an arbitration hearing is scheduled for September 2020 (see Note 6). An adverse outcome of this
dispute in addition to the Company’s expenditure plans over the next 12 months could result in an impact on the liquidity and financial
position of the business such that the net cash outflows over the next 12 months could exceed the Company’s existing available cash
and short-term investment balances, raising substantial doubt about its ability to continue as a going concern.
The Company expects to fund its operations, including the ongoing development of MosaiQ through successful field trial completion,
achievement of required regulatory authorizations and commercialization from the use of existing available cash and short-term
investment balances, cash generated through sales of the COVID-19 antibody test, and the issuance of new equity or debt, and
accordingly has prepared the financial statements on the going concern basis. However, there can be no assurance that the Company
will be able to obtain adequate financing when necessary and the terms of any financings may not be advantageous to the Company
and may result in dilution to its shareholders.
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of
intercompany transactions and balances. All gains and losses realized from foreign currency transactions denominated in currencies
other than the foreign subsidiary’s functional currency are included in foreign currency exchange gain (loss) as part of other income or
expenses in the Consolidated Statements of Comprehensive Loss. Adjustments resulting from translating the financial statements of
all foreign subsidiaries into U.S. dollars are reported as a separate component of accumulated other comprehensive loss and changes in
shareholders’ equity (deficit). The assets and liabilities of the Company’s foreign subsidiaries are translated from their respective
functional currencies into U.S. dollars at the rates in effect at the balance sheet date, and revenue and expense amounts are translated
at rates approximating the weighted average rates during the period. The translation effects of inter-company loans designated as long
term net investments in subsidiaries are included in accumulated other comprehensive loss.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”)
requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
- 74 -
measurement date. The Company’s valuation techniques used to measure fair value maximized the use of observable inputs and
minimized the use of unobservable inputs. The fair value hierarchy is based on the following three levels of inputs:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
See Note 4, “Fair Value Measurements,” for information and related disclosures regarding our fair value measurements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of
March 31, 2020 and 2019, all cash and cash equivalents comprised cash balances held with the banks used by the Company and its
subsidiaries. At March 31, 2020 and March 31, 2019, restricted cash comprised $8.7 million and $7.2 million, respectively, held in a
cash reserve account pursuant to the indenture governing the Company’s 12% Senior Secured Notes (the “Secured Notes”) and $317
and $307, respectively, held in a restricted account as security for the property rental obligations of the Company’s Swiss subsidiary.
Short-term Investments
Short-term investments represent investments in a money-market fund which is valued daily and which has no minimum notice period
for withdrawals. The fund is invested in a portfolio of holdings and the creditworthiness requirement for individual investment
holdings is a minimum of an A rating from a leading credit-rating agency. The Company records the value of its investment in the
fund based on the quoted value of the fund at the balance sheet date. Unrealized gains or losses are recorded in accumulated other
comprehensive loss and are transferred to the statement of comprehensive loss when they are realized.
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for
doubtful accounts to reserve for potentially uncollectible trade receivables. Additions to the allowance for doubtful accounts are
recorded as general and administrative expenses. The Company reviews its trade receivables to identify specific customers with
known disputes or collectability issues. In addition, the Company maintains an allowance for all other receivables not included in the
specific reserve by applying specific rates of projected uncollectible receivables to the various aging categories. In determining these
percentages, the Company analyzes its historical collection experience, customer credit-worthiness, current economic trends and
changes in customer payment terms. The allowance for doubtful accounts at March 31, 2020 and 2019 was $111 and $52,
respectively.
Concentration of Credit Risks and Other Uncertainties
The carrying amounts for financial instruments consisting of cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities approximate fair value due to their short maturities. Derivative instruments, consisting of foreign exchange contracts
and short-term investments are stated at their estimated fair values, based on quoted market prices for the same or similar instruments.
The counterparties to the foreign exchange contracts consist of large financial institutions of high credit standing. The short-term
investments are invested in a fund which is invested in a portfolio of holdings and the creditworthiness requirement for individual
investment holdings is a minimum of an A rating from a leading credit-rating agency.
The Company’s main financial institutions for banking operation held all of the Company’s cash and cash equivalents as of March 31,
2020 and March 31, 2019.
- 75 -
The Company’s accounts receivable are derived from net revenue to customers and distributors located in the United States and other
countries. The Company performs credit evaluations of its customers’ financial condition. The Company provides reserves for
potential credit losses but has not experienced significant losses to date. There was one customer whose accounts receivable balance
represented 10% or more of total accounts receivable, net, as of March 31, 2020 and March 31, 2019. This customer represented 70%
and 55% of the accounts receivable balances, as of March 31, 2020 and March 31, 2019, respectively.
The Company currently sells products through its direct sales force and through third-party distributors. There was one direct
customer that accounted for 10% or more of total product sales for the fiscal years ended March 31, 2020, 2019 and 2018. This
customer represented 61%, 60% and 63% of total product sales for the fiscal years March 31, 2020, 2019 and 2018, respectively.
Inventory
Inventory is stated at the lower of standard cost or market, net of reserves. Cost is determined at standard cost, approximating average
cost. Allocation of fixed production overheads to conversion costs is based on normal capacity of production. Abnormal amounts of
idle facility expense, freight, handling costs and spoilage are expensed as incurred and not included in overhead. Variances between
standard cost and actual cost, arising in the production process, are analyzed to determine whether they reflect part of the normal cost
of production, and should therefore be reflected as inventory value, or whether they are a period cost and should thus not be included
in inventory. Inventory reserves are recorded based upon historic usage, expected future demand and shelf life of the products held in
inventory. No stock-based compensation cost was included in inventory as of March 31, 2020 and 2019.
Property and Equipment
Property, equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation
and amortization are computed on a straight-line basis over the estimated useful lives of the related assets as follows:
Land—not depreciated.
Plant, machinery and equipment—4 to 25 years.
Leasehold improvements—the shorter of the lease term or the estimated useful life of the asset.
Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of property and
equipment, are expensed as incurred.
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of the
assets to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the
assets. During the fiscal years ended March 31, 2020, 2019 and 2018, no impairment losses have been recorded.
Intangible Assets
Intangible assets related to product licenses are recorded at cost, less accumulated amortization. Intangible assets related to technology
and other intangible assets acquired in acquisitions are recorded at fair value at the date of acquisition, less accumulated amortization.
Intangible assets are amortized over their estimated useful lives, on a straight-line basis as follows:
Customer relationships—5 years
Brands associated with acquired cell lines—40 years
Product licenses—10 years
Other intangibles—7 years
The Company reviews its intangible assets for impairment and conducts the impairment review when events or circumstances indicate
the carrying value of a long-lived asset may be impaired by estimating the future undiscounted cash flows to be derived from an asset
to assess whether or not a potential impairment exists. If the carrying value exceeds the Company’s estimate of future undiscounted
cash flows, an impairment value is calculated as the excess of the carrying value of the asset over the Company’s estimate of its fair
market value. Events or circumstances which could trigger an impairment review include a significant adverse change in the business
climate, an adverse action or assessment by a regulator, unanticipated competition, significant changes in the Company’s use of
acquired assets, the Company’s overall business strategy, or significant negative industry or economic trends. No impairment losses
have been recorded in any of the years ended March 31, 2020, 2019 or 2018.
- 76 -
Revenue Recognition
Revenue is recognized in accordance with ASU 2014-09, Revenue from Contracts with Customers.
Product revenue is recognized at a point in time upon transfer of control of a product to a customer, which is generally at the time of
delivery at an amount based on the transaction price. Customers have no right of return except in the case of damaged goods and the
Company has not experienced any significant returns of its products. Shipping and handling costs are expensed as incurred and
included in cost of product sales.
Revenue is also earned from the provision of development services to a small number of original equipment manufacturer (“OEM”)
customers. These development service contracts are reviewed individually to determine the nature of the performance obligations and
the associated transaction prices. In recent years, product development revenues have been commensurate with achieving milestones
specified in the respective development agreements relating to those products. These milestones may include the approval of new
products by the European or U.S. regulatory authorities, which are not within the Company’s control. While there can be no assurance
that this will continue to be the case, the milestones have been such that they effectively represent completion of the Company’s
performance obligations under a particular part of a development program. Should the Company fail to achieve these milestones the
Company would not be entitled under the terms of the development agreements to any compensation for the work undertaken to date.
As a result, the milestone-related revenues have been recognized as the contractual milestones are achieved.
Pursuant to an Umbrella Supply Agreement with Ortho-Clinical Diagnostics, Inc., the Company executed a product attachment
relating to the development of a range of rare antisera products. During the year ended March 31, 2018, the Company recognized a
milestone of $600 related to the receipt of FDA approval of certain rare antisera products and during the year ended March 31, 2019,
the Company recognized a milestone of $450 related to the submission to the FDA of an application to cover use of the products on an
Ortho automation platform. The Company recognized further milestones totaling $1,050 during the year ended March 31, 2020,
related to the approval by the FDA of the application submitted during the year ended March 31, 2019, and a further FDA submission
and approval related to the use of the products on another of Ortho’s automation platforms. There are no further milestone revenues
due under this agreement.
In January 2015, the Company entered into a supply and distribution agreement with Ortho related to the commercialization and
distribution of certain MosaiQ products. Under the terms of this agreement, the Company was entitled to receive milestone payments,
totaling in aggregate $59.0 million, upon CE-mark and FDA approval, as well as upon the first commercial sale of the relevant
MosaiQ products by Ortho within the European Union, United States and within any country outside of these two regions. The
Company had concluded that as each of these milestones required significant levels of development work to be undertaken and there
was no certainty at the start of the projects that the development work would be successful, these milestones were substantive and the
revenue would have been recognized when the milestones were achieved. The Company terminated this agreement effective as of
December 27, 2019. Ortho initiated arbitration proceedings against the Company for wrongful termination with the Company
subsequently pursuing counterclaims. Refer to Note 6 for details.
In the years ended March 31, 2020, 2019 and 2018 revenue recognized from performance obligations related to prior periods was not
material and, at March 31, 2020, revenue expected to be recognized in future periods related to remaining performance obligations
was also not material.
Research and Development
Research and development expenses consist of costs incurred for company-sponsored and collaborative research and development
activities. These costs include direct and research-related overhead expenses. Other than materials assessed as having alternative
future uses and which are recognized as prepaid expenses, the Company expenses research and development costs, including products
manufactured for research and development purposes and the expenses for research under collaborative agreements, as such costs are
incurred. Where government grants are available for the sponsorship of such research, the grant receipt is included as a credit against
the related expense.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a
straight-line basis over the requisite service period, which is generally the vesting period. The value of the portion of the award that is
ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statements of
Comprehensive Loss.
- 77 -
In determining fair value of the stock-based compensation payments, the Company uses the Black–Scholes model and a single option
award approach for share options and a barrier option pricing model for multi-year performance based restricted share units or
MRSUs, both of which require the input of subjective assumptions. These assumptions include: the fair value of the underlying share,
estimating the length of time employees will retain their awards before exercising them (expected term), the estimated volatility of the
Company’s ordinary share price over the expected term (expected volatility), risk-free interest rate (interest rate), expected dividends
and the number of shares subject to awards that will ultimately not complete their vesting requirements (forfeitures).
Where modifications are made to vesting conditions, the Company considers the nature of the change and accounts for the change in
accordance with ASC 715 Compensation – Stock Compensation. The Company determined that certain modifications made during
the year ended March 31, 2020 were type III in nature and accordingly the original compensation expense related to these awards was
reversed and the value of the awards was re-measured at the date of the change and was expensed over the vesting period of the
awards concerned.
Share Warrants
As of March 31, 2020, the Company had one class of warrants to purchase ordinary shares outstanding which comprised warrants that
were issued in December 2013 and August 2015 in connection with the establishment and subsequent increase of the Company’s then
existing secured term loan facility. None of these warrants contain any obligation to transfer value and, as such, the issuance of these
warrants has been recorded in additional paid in capital as part of shareholders’ (deficit) equity.
Leases
In February 2016, the Financial Accounting Standards Board, (“FASB”), issued Accounting Standard Update, (“ASU”), Leases,
(“ASU 2016-02”), to enhance the transparency and comparability of financial reporting related to leasing arrangements. The Company
adopted ASU 2016-02 on April 1, 2019, or the effective date, and used the effective date as its date of initial application.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts
and circumstances present. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property,
plant or equipment (an identified asset) for a period of time, in exchange for consideration. The Company determines if the contract
conveys the right to control the use of an identified asset for a period of time. The Company assesses throughout the period of use
whether the Company has both of the following: (1) the right to obtain substantially all of the economic benefits for use of the
identified asset, and (2) the right to direct the use of the identified asset. This determination is reassessed if the terms of the contract
are changed. The Company also reviews the terms of the lease in accordance with ASU 2016-02 in order to determine whether the
lease concerned is a finance or an operating lease. Most leases with a term greater than one year are recognized on the balance sheet as
right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the
balance sheet leases with terms of one year or less.
For finance leases, an asset is included within property and equipment and a lease liability equal to the present value of the minimum
lease payments is included in current or long-term liabilities. Interest expense is recorded over the life of the lease at a constant rate.
Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over
the expected remaining lease term. The operating lease right-of-use assets also include any lease payments made prior to the
commencement date and any initial direct costs incurred, less any lease incentives received. The interest rate implicit in lease contracts
is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to
borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The
incremental borrowing rate is determined at lease commencement, or as of April 1, 2019 for operating leases existing upon adoption
of ASU 2016-02. The incremental borrowing rate is subsequently reassessed upon modification to the lease arrangement. Operating
lease expense is recognized on a straight-line basis over the lease term.
In accordance with the guidance in ASU 2016-02, components of a lease should be split into three categories: lease components (e.g.,
land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components
(e.g., property taxes, insurance, etc.). Although separation of lease and non-lease components is required, certain practical expedients
are available. In particular, entities may elect a practical expedient to not separate lease and non-lease components and instead account
for each lease component and the related non-lease component together as a single component. The Company has elected to account
for the lease and non-lease components of each of its operating leases as a single lease component and allocate all of the contract
consideration to the lease component only. The lease component results in an operating lease right-of-use asset being recorded on the
balance sheet and amortized on a straight-line basis as lease expense.
- 78 -
The finance lease assets and operating lease right-of-use assets are assessed for impairment in accordance with the Company’s
accounting policy for long-lived assets.
Derivative Financial Instruments
In the normal course of business, the Company’s financial position is routinely subjected to market risk associated with foreign
currency exchange rate fluctuations. The Company’s policy is to mitigate the effect of these exchange rate fluctuations on certain
foreign currency denominated business exposures. The Company has a policy that allows the use of derivative financial instruments to
hedge foreign currency exchange rate fluctuations on forecasted revenue denominated in foreign currencies. The Company carries
derivative financial instruments (derivatives) on the balance sheet at their fair values. The Company does not use derivatives for
trading or speculative purposes. The Company does not believe that it is exposed to more than a nominal amount of credit risk in its
foreign currency hedges, as counterparties are large, global and well-capitalized financial institutions. To hedge foreign currency risks,
the Company uses foreign currency exchange forward contracts, where possible and prudent. These forward contracts are valued using
standard valuation formulas with assumptions about future foreign currency exchange rates derived from existing exchange rates,
interest rates, and other market factors.
The Company considers its most current forecast in determining the level of foreign currency denominated revenue to hedge as cash
flow hedges. The Company combines these forecasts with historical trends to establish the portion of its expected volume to be
hedged. The revenue and expenses are hedged and designated as cash flow hedges to protect the Company from exposures to
fluctuations in foreign currency exchange rates. If the underlying forecasted transaction does not occur, or it becomes probable that it
will not occur, the related hedge gains and losses on the cash flow hedge are reclassified from accumulated other comprehensive
loss to the consolidated statement of comprehensive loss at that time.
Income Taxes
The Company accounts for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements, but
have not been reflected in taxable income. A valuation allowance is established to reduce deferred tax assets to their estimated
realizable value. Therefore, the Company provides a valuation allowance to the extent that is more likely than not that it will generate
sufficient taxable income in future periods to realize the benefit of its deferred tax assets. Deferred tax assets and liabilities are
classified as noncurrent on the balance sheet.
The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain
tax positions. The Company evaluates uncertain tax positions on a quarterly basis and considers various factors, including, but not
limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of
matters subject to audit and changes in facts or circumstances related to the tax position.
Pension Obligation
The Company maintains a pension plan covering employees in Switzerland pursuant to the requirements of Swiss pension law.
Certain aspects of the plan require that it be accounted for as a defined benefit plan pursuant to ASC 715 Compensation – Retirement
Benefits. The Company recognizes an asset for the plan’s overfunded status or a liability for the plan’s underfunded status in its
Consolidated Balance Sheets. Additionally, the Company measures the plan’s assets and obligations that determine its funded status as
of the end of the year and recognizes the change in the funded status within ‘‘Accumulated other comprehensive loss’’.
The Company uses an actuarial valuation to determine its pension benefit costs and credits. The amounts calculated depend on a
variety of key assumptions, including discount rates and expected return on plan assets. Details of the assumptions used to determine
the net funded status are set out in Note 11. The Company’s pension plan assets are assigned to their respective levels in the fair value
hierarchy in accordance with the valuation principles described in the ‘‘Fair Value of Financial Instruments’’ section above.
- 79 -
Termination and Transition Charges
Termination charges are recognized as a result of actions to restructure operations. Transition charges are recognized as a result of the
retirement of senior employees. Such charges are recognized upon meeting certain criteria, including the finalization of committed
plans or agreements and discussions with the impacted employees.
Loss Contingencies
Loss contingencies from legal proceedings and claims may occur from contractual and other related matters. Accruals are recognized
when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. Gain contingencies are not
recognized until realized. Legal fees are expensed as incurred.
Debt Issuance Costs and Royalty Rights
The Company follows the requirements of Accounting Standards Update 2015-03, Interest — Imputation of Interest (Subtopic 835-30)
— Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from the debt liability rather than as an asset.
On October 14, 2016, June 29, 2018 and May 15, 2019, the Company issued Secured Notes, and, on December 4, 2018, the Company
amended the indenture governing the Secured Notes, which amendments became effective on December 18, 2018. In connection with
these issuances and this amendment, the Company entered into royalty rights agreements with the subscribers and the consenting note
holders, as applicable, which, as of March 31, 2020, provided for an aggregate amount of royalties payable thereunder of 3.4% of net
sales of MosaiQ instruments and consumables made in the donor testing market in the United States and the European Union. All of
these royalty rights agreements are treated as sales of future revenues that meet the requirements of Accounting Standards
Codification Topic 470 “Debt” (“ASC 470”) to be treated as debt. The future cash outflows under the royalty rights agreements have
been combined with the issuance costs (which includes the one-time consent payment of $3.9 million paid to holders of our Secured
Notes in December 2018) and interest payable to calculate the effective interest rate of the Secured Notes and is being expensed
through interest expense in the consolidated statement of comprehensive loss using the effective interest rate method over the term of
the Secured Notes and royalty rights agreements.
Adoption of New Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases that requires lessees to recognize a right-of-use asset and a lease liability on
their balance sheet for all leases with lease terms greater than 12 months but recognize expenses in their income statements in a
manner similar to the previous guidance. ASU 2016-02 also requires new qualitative and quantitative disclosures to help investors and
other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The Company’s
process of evaluating the impact of ASU 2016-02 has included reviewing all forms of leases and performing a completeness
assessment over the lease population. The Company also performed detailed analysis to determine the appropriate incremental
borrowing rates used to discount outstanding lease payments.
The Company adopted ASU 2016-02 on April 1, 2019. In adopting this standard the Company applied the package of practical
expedients in ASU 2016-02 which allow an entity to not reassess whether any expired or existing contracts are or contain leases, lease
classification of any expired or existing leases and the accounting for any initial direct costs on any expired or existing leases. The
Company also elected the additional transitional approach prescribed under ASU 2018-11 to allow the Company to apply the new
standard from the date of adoption, rather than adjusting comparative periods, and recognize a cumulative-effect adjustment to the
opening balance of retained earnings in the period of adoption.
The results for the year ended March 31, 2020 reflect the adoption of ASU 2016-02 guidance while the results for the years to March
31, 2019 and March 31, 2018 were prepared under the guidance of the previous leasing standard (Accounting Standard Codification
840). The adoption of ASU 2016-02 has not had a material impact on the Company’s consolidated statements of comprehensive loss
or consolidated statements of cash flows.
The adoption of ASU 2016-02 resulted in the following impact on its consolidated balance sheet:
(i)
(ii)
(iii)
no change in the carrying values of assets or liabilities related to the Company’s finance leases,
the recording of right-of-use assets and corresponding lease liabilities related to the Company’s operating leases, adjusted for
existing balances of accrued rent liabilities and deferred lease rental benefit, and
adjustments to reclassify the deferred gain on a sale and leaseback transaction to accumulated deficit as of the transition date.
- 80 -
The cumulative effect of adopting ASU 2016-02 to all leases that had commenced at or prior to April 1, 2019 was as follows:
Balance sheet captions impacted by ASU 2016-02
Operating lease right-of use assets (1)
Current portion of operating lease liability (2)
Operating lease liability less current portion (3)
Current portion of deferred lease rental benefit (4)
Deferred lease rental benefit, less current portion (5)
Accumulated deficit (6)
31 March 2019
(prior to
adoption of
ASU 2016-02)
Effect of the
adoption of
ASU 2016-02
March 31,
2019 (As
adjusted)
$
— $
—
—
435
1,144
(381,025 )
18,478 $
3,130
16,564
(435 )
(1,144 )
363
18,478
3,130
16,564
—
—
(380,662 )
(1) Recognition of operating lease right-of-use assets and adjusted for the accrued rent and deferred lease rental benefit
reclassifications referred to in footnotes (4) and (5) below.
(2) Recognition of current portion of operating lease liabilities.
(3) Recognition of the long-term portion of operating lease liabilities.
(4) Current portion of deferred gain on sale and lease back transaction transferred to accumulated deficit and reclassification of
current portion of deferred lease rental benefit to operating lease right-of-use assets.
(5) Long-term portion of deferred gain on sale and lease back transaction transferred to accumulated deficit and reclassification of
accrued rent to operating lease right-of-use assets.
(6) Transfer of deferred gain on sale and leaseback transaction to accumulated deficit.
The Company has included additional disclosures in Note 13 to its condensed consolidated financial statements regarding its leasing
portfolio.
In the consolidated statement of cash flows the non-cash amortization of deferred lease rental benefit and movements in other non-
cash operating lease accruals in the years ended March 31, 2109 and March 31, 2018 has been retitled as increase in deferred lease
rentals.
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-14, “Compensation Retirement Benefits - Defined Benefit Plans -General (Subtopic 715-
20)” or ASU 2018-14. ASU 2018-14 removes the requirements to disclose the amounts in accumulated other comprehensive income
(loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year and other disclosure requirements.
In addition, the ASU adds the requirement to disclose an explanation for any significant gains and losses related to changes in the
benefit obligation for the period. The ASU is effective for fiscal years ending after December 15, 2020 and will be applied on a
retrospective basis to all periods presented. Early adoption is permitted. The Company continues to evaluate the impact that adoption
of this guidance will have on its consolidated financial statements and related disclosures, but does not expect it to have a material
impact.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The standard requires a financial asset
measured on an amortized cost basis, such as accounts receivable, to be presented at the net amount expected to be collected based on
relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts
that affect the collectability of the reported amount. The ASU is effective for fiscal years beginning after December 15, 2019, and
interim periods within those fiscal years, and requires the modified retrospective approach. Early adoption is permitted. The Company
continues to evaluate the impact that adoption of this guidance will have on its consolidated financial statements and related
disclosures, but does not expect it to have a material impact.
- 81 -
Note 2. Intangible Assets
Customer relationships
Brands associated with acquired cell lines
Product licenses
Other intangibles
Total
Customer relationships
Brands associated with acquired cell lines
Product licenses
Other intangibles
Total
March 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
2,436
502
849
158
3,945
$
$
(2,436 )
(158 )
(568 )
(158 )
(3,320 )
$
$
—
344
281
—
625
March 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
2,564
529
890
167
4,150
$
$
(2,564 )
(153 )
(515 )
(167 )
(3,399 )
$
$
—
376
375
—
751
$
$
$
$
Weighted
Average
Remaining
Useful Life
—
27.4 years
3.5 years
—
16.3 years
Weighted
Average
Remaining
Useful Life
—
28.4 years
4.2 years
—
16.3 years
Amortization expense was $94, $104, and $94 in financial years 2020, 2019, and 2018, respectively. Total future amortization expense
for intangible assets that have definite lives, based upon the Company’s existing intangible assets and their current estimated useful
lives as of March 31, 2020, is estimated as follows:
2020
2021
2022
2023
2024
Thereafter
Total
Note 3. Debt
Long-term debt comprises:
Total debt
Less current portion
Long-term debt
Royalty liability
Deferred debt costs, net of amortization
$
$
97
97
97
39
13
282
625
March 31,
2020
March 31,
2019
$
$
$
$
145,000 $
—
145,000 $
15,473 $
(7,449 )
153,024 $
120,000
—
120,000
10,045
(8,190 )
121,855
- 82 -
The Company’s debt at March 31, 2020 and March 31, 2019 comprises the 12% Senior Secured Notes. On October 14, 2016, the
Company completed the private placement of up to $120 million aggregate principal amount of the Secured Notes and entered into an
indenture governing the Secured Notes with the guarantors party thereto and U.S. Bank National Association, a national banking
association, as trustee and collateral agent. The Company issued $84 million aggregate principal amount of the Secured Notes on
October 14, 2016 and an additional $36 million aggregate principal amount of the Secured Notes on June 29, 2018. On December 18,
2018, the Company also completed certain amendments to the indenture governing the Secured Notes. The amendments included an
increase to the aggregate principal amount of Secured Notes that can be issued under the indenture from $120 million to up to $145
million following the European CE Marking of the Company’s initial MosaiQ IH Microarray. On April 30, 2019, the Company was
notified that it had received the European CE Marking of the initial MosaiQ IH Microarray and, on May 15, 2019, the Company
issued the additional $25 million of Secured Notes.
The obligations of the Company under the indenture and the Secured Notes are unconditionally guaranteed on a secured basis by the
guarantors, which include all the Company’s subsidiaries, and the indenture governing the Secured Notes contains customary events
of default. The Company and its subsidiaries must also comply with certain customary affirmative and negative covenants, including a
requirement to maintain six-months of interest in a cash reserve account maintained with the collateral agent. Upon the occurrence of
a Change of Control, subject to certain conditions, or certain Asset Sales (each, as defined in the indenture), holders of the Secured
Notes may require the Company to repurchase for cash all or part of their Secured Notes at a repurchase price equal to 101% or 100%,
respectively, of the principal amount of the Secured Notes to be repurchased, plus accrued and unpaid interest to the date of
repurchase.
The Company paid $8.7 million of the total proceeds of the three issuances into the cash reserve account maintained with the collateral
agent under the terms of the indenture, $1.5 million of which related to the third issuance on May 15, 2019.
Interest on the Secured Notes accrues at a rate of 12% per annum and is payable semi-annually on April 15 and October 15 of each
year commencing on April 15, 2017. Commencing on April 15, 2021, the Company will also be required to pay an instalment of
principal of the Secured Notes on each April 15 and October 15 until April 15, 2024 pursuant to a fixed amortization schedule.
In connection with the three issuances of the Secured Notes as well as the December 2018 amendment of the related indenture, the
Company has entered into royalty rights agreements, pursuant to which the Company has agreed to pay 3.4% of the aggregate net
sales of MosaiQ instruments and consumables made in the donor testing market in the United States and the European Union. The
royalties will be payable beginning on the date that the Company or its affiliates makes its first sale of MosaiQ consumables in the
donor testing market in the European Union or the United States and will end on the last day of the calendar quarter in which the
eighth anniversary of the first sale date occurs. The royalty rights agreements are treated as sales of future revenues that meet the
requirements of Accounting Standards Codification Topic 470 “Debt” to be treated as debt. The future cash outflows under the royalty
rights agreements, estimated at $87.0 million at March 31, 2020 and $74.4 million at March 31, 2019, have been combined with the
Secured Notes issuance costs and interest payable to calculate the effective interest rate of the Secured Notes and will be expensed
through interest expenses using the effective interest rate method over the term of the Secured Notes and such royalty rights
agreements. Estimating the future cash outflows under the royalty rights agreements requires the Company to make certain estimates
and assumptions about future sales of MosaiQ products. These estimates of the magnitude and timing of MosaiQ sales are subject to
significant variability due to the current status of development of MosaiQ products, and thus are subject to significant uncertainty.
Therefore, the estimates are likely to change as the Company gains experience of marketing MosaiQ, which may result in future
adjustments to the accretion of the interest expense and amortized cost based carrying value of the Secured Notes.
The outstanding debt at March 31, 2020 falls due for repayment as follows:
Within 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Total debt
$
$
—
24,167
42,292
48,333
30,208
145,000
- 83 -
Note 4. Fair Value Measurements
Assets and liabilities measured and recorded at fair value on a recurring basis
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis, by level,
within the fair value hierarchy:
Assets:
Pension plan assets(1)
Short-term investments(2)
Foreign currency forward contracts(3)
Total assets measured at fair value
Liabilities:
Foreign currency forward contracts(3)
Total liabilities measured at fair value
Assets:
Pension plan assets(1)
Short-term investments(2)
Total assets measured at fair value
Liabilities:
Foreign currency forward contracts(3)
Total liabilities measured at fair value
Level 1
Level 2
Level 3
Total
March 31, 2020
— $
116,871
— $
$
116,871
12,436
—
—
12,436
$
$
$
—
—
—
—
$
$
$
12,436
116,871
—
129,307
Level 1
Level 2
Level 3
Total
March 31, 2020
— $
$
—
227
227
$
$
—
—
$
$
227
227
Level 1
Level 2
Level 3
Total
March 31, 2019
— $
90,729
$
90,729
10,416
—
10,416
$
$
—
—
—
$
$
10,416
90,729
101,145
Level 1
Level 2
Level 3
Total
March 31, 2019
— $
$
—
70
70
$
$
—
—
$
$
70
70
$
$
$
$
$
$
$
$
$
(1) The fair value of pension plan assets has been determined as the surrender value of the portfolio of active insured employees
held within the AXA LLP Foundation Suisse Romande collective investment fund.
(2) The fair value of short-term investments has been determined based on the quoted value of the units held in the money market
fund at the balance sheet date. See Note 1, “Summary of Significant Accounting Policies – Short-term Investments”.
(3) The fair value of foreign currency forward contracts has been determined by calculating the present value of future cash flows,
estimated using market-based observable inputs including forward and spot exchange rates and interest rate curves obtained
from third party market price quotations.
The total unrealized gains on the short-term investments were $1,881, $1,127 and $213 in financial years 2020, 2019 and 2018,
respectively. The amount of these unrealized gains reclassified to earnings were $1,327, $331 and $207 in the financial years 2020,
2019 and 2018, respectively.
Note 5. Consolidated Balance Sheet Detail
Inventory
The following table summarizes inventory by category for the periods presented:
Raw materials
Work in progress
Finished goods
Total inventories
March 31,
2020
March 31,
2019
$
$
9,737 $
8,522
2,242
20,501 $
8,216
4,959
2,376
15,551
- 84 -
Inventory at March 31, 2020 included $8,093 of raw materials, $4,395 of work in progress and $368 of finished goods related to the
MosaiQ project. Inventory at March 31, 2019 included $6,187 of raw materials, $2,311 of work in progress, and $235 of finished
goods related to the MosaiQ project.
Property and equipment
The following table summarizes property and equipment by categories for the periods presented:
Plant and equipment
Leasehold improvements
Total property and equipment
Less: accumulated depreciation
Total property and equipment, net
March 31,
2020
March 31,
2019
$
$
57,726 $
31,395
89,121
(48,956 )
40,165 $
51,327
32,047
83,374
(36,081 )
47,293
Depreciation expenses were $12,182, $12,663,and $10,311 in financial years 2020, 2019 and 2018, respectively.
Accrued compensation and benefits
Accrued compensation and benefits consist of the following:
Salary and related benefits
Accrued vacation
Accrued payroll taxes
Accrued incentive payments
Accrued termination and transition payments
Total accrued compensation and benefits
March 31,
2020
March 31,
2019
$
$
635 $
521
1,200
3,700
1,154
7,210 $
638
495
1,316
3,700
—
6,149
In the year ended March 31, 2020, the Company incurred termination benefit costs of $1,323 in respect of a restructuring of its
operations. The restructuring was completed during the year ended March 31, 2020. In the year ended March 31, 2020 the Company
also incurred transition benefit costs of $807 in respect of the transitional arrangements with its former chief financial officer and its
former group financial controller. No termination benefit or transition benefit costs were incurred in the years ended March 31, 2019
or March 31, 2018.
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
Accrued legal and professional fees
Accrued interest
Goods received not invoiced
Accrued capital expenditure
Other accrued expenses
Total accrued expenses and other current liabilities
Note 6. Commitments and Contingencies
Hedging arrangements
March 31,
2020
March 31,
2019
$
$
829 $
8,056
1,724
1,287
3,594
15,490 $
405
6,628
1,337
801
3,287
12,458
The Company’s subsidiary in the United Kingdom (“UK”) has entered into three foreign currency forward contracts to sell $500 and
purchase pounds sterling at a rate of £1:$1.30 in each calendar month through June 2020, three contracts to sell $500 in each calendar
month from July 2020 through September 2020 at £1:$1.28, three contracts to sell $500 in each calendar month from October 2020
through December 2020 at £1:$1.2520, and three contracts to sell $500 in each calendar month from January 2021 through March
2021 at £1:$1.3350, as hedges of its U.S. dollar denominated revenues. The fair values of these contracts in place at March 31, 2020,
and similar contracts in place at March 31, 2019, amounted to liabilities of $227 respectively.
- 85 -
The foreign currency forward contracts were entered into to mitigate the foreign exchange risk arising from the fluctuations in the
value of U.S. dollar denominated transactions entered into by our UK subsidiary. These foreign currency forward contracts are
designated as cash flow hedges and are carried on the Company’s balance sheet at fair value with the effective portion of the
contracts’ gains or losses included in accumulated other comprehensive loss and subsequently recognized in revenue/expense in the
same period the hedged items are recognized .
Ortho Arbitration
The Company’s subsidiaries, Quotient Suisse and QBD (QS-IP) Limited were party to a distribution and supply agreement with Ortho
related to the commercialization and distribution of certain MosaiQ products (the “Ortho Agreement”). See Note 1, “Summary of
Significant Accounting Policies—Revenue Recognition,” for information regarding this agreement. The Company and an affiliate of
Ortho also entered into a subscription agreement pursuant to which the affiliate subscribed for newly issued ordinary shares of the
Company and newly issued 7% cumulative redeemable preference shares, of no par value, of the Company for an aggregate
subscription price of approximately $25 million.
On November 27, 2019, the Company delivered a notice to Ortho that it had terminated the Ortho Agreement, effective as of
December 27, 2019. The Company did not realize any revenue under the Ortho Agreement prior to its termination.
On or about November 17, 2019 Ortho initiated an arbitration proceeding in which it seeks a declaration that the Company does not
have the right to terminate the Ortho Agreement, specific performance of certain provisions of the Ortho Agreement, and damages
including in respect of the difference in amounts Ortho invested in the Company’s shares and their market value. The Company is
pursuing counterclaims against Ortho, including that it has the right to terminate the Ortho Agreement and damages that include the
milestone payments due under the Ortho agreement (see Note 1 for details). In addition, on December 20, 2019, the Company entered
into an agreement, or the Ortho Dispute Agreement, with Ortho pursuant to which it agreed, while the arbitration is pending, not to
grant commercialization rights in respect of products that overlap with Ortho’s rights under the Ortho Agreement without prior written
notice to Ortho.
An arbitration hearing is scheduled for September 2020 and is to be held in the United States. The Ortho Agreement provides that any
arbitration award shall be final and binding on the parties and shall not be appealable to any court in any jurisdiction.
The Company believes that Ortho’s allegations are without merit and that a loss is not probable. However, because of the complexities
and uncertainties inherent in arbitration proceedings and the nature of the claims, it cannot predict with certainty whether it will
prevail in its defenses and counterclaims or the impact of this arbitration on its business, results of operations or financial condition.
As a result, the Company does not believe that it is possible to provide a meaningful estimate of reasonably possible loss at this time.
Accordingly, under ASC 450 “Contingencies”, no provision for an unfavorable outcome resulting from the arbitration hearing has
been recorded.
Sale-leaseback transaction
During the year ended March 31, 2018, the Company completed a sale-leaseback transaction and sold its conventional reagents
manufacturing facility, near Edinburgh, Scotland (the “Allan Robb Campus (“ARC”) facility”), but retained a leasehold interest as
tenant of the property. The transaction resulted in net cash proceeds of $19,741 and a gain of $373 which was initially deferred and
amortized on a straight-line basis over the lease term. On the implementation of ASU 2016-02, as described in Note 1, the
unamortized portion of the deferred gain was transferred to accumulated deficit. Additionally, the lease required the Company to
provide a rental deposit of £3,600 which amounted to $4,454 at March 31, 2020 and $4,688 at March 31, 2019 which is included
within other non-current assets in the Consolidated Balance Sheet.
Details of the Company’s commitments under leasing arrangements are shown in Note 13.
Purchase obligations
The Company has purchase obligations that are associated with agreements for purchases of goods or services. Management believes
that cancellation of these contracts is unlikely and thus the Company expects to make future cash payments according to the contract
terms.
- 86 -
The following is a schedule by years of purchase obligations as of March 31, 2020:
2021
2022
2023
2024
2025
Thereafter
Total minimum future purchase obligations
$
$
19,887
6,772
13,923
14,210
10,173
19,135
84,100
Note 7. Geographic Information
The Company operates in one business segment. Revenues are attributed to countries based on the location of the Company’s channel
partners as well as direct customers.
The following table represents revenue attributed to countries based on the location of the customer:
Revenue:
United States
France
Japan
Other foreign countries (1)
2020
2019
2018
$
$
17,831 $
7,105
4,333
3,387
32,656 $
14,754 $
6,501
3,846
4,033
29,134 $
12,917
5,608
3,335
2,872
24,732
(1) No individual country represented more than 10% of the respective totals.
The table below lists the Company’s property and equipment, net of accumulated depreciation, by country. With the exception of
property and equipment, the Company does not identify or allocate its assets by geographic area:
Long-lived assets:
United Kingdom
Switzerland
United States
March 31,
2020
March 31,
2019
$
$
17,388 $
22,777
—
40,165 $
19,924
27,366
3
47,293
Other income (expense), net includes foreign exchange gains and losses arising on the settlement of transactions in currencies other
than the functional currencies of the entity concerned and from retranslation of assets and liabilities denominated in foreign currencies
at period end rates. In the year ended March 31, 2020, there was a gain of $2,438. In the year ended March 31, 2019 there was a loss
of $5,410 and in the year ended March 31, 2018 a gain of $2,366.
Note 8. Ordinary and Preference Shares
Ordinary shares
The Company’s issued and outstanding ordinary shares consist of the following:
Ordinary shares
Total
Shares Issued
and Outstanding
March 31,
2020
March 31,
2019
Par value
80,398,326 65,900,447 $
80,398,326 65,900,447 $
—
—
- 87 -
On November 12, 2019 the Company completed a public offering of 13,800,000 newly issued ordinary shares at $7.00 per share
which raised $96.6 million of gross proceeds before underwriting discounts and other offering expenses of $6.1 million.
Preference shares
The Company’s issued and outstanding preference shares consist of the following:
7% Cumulative Redeemable
Preference shares
Total
Shares Issued
and Outstanding
Liquidation
amount per share
March 31,
2020
March 31,
2019
March 31,
2020
March 31,
2019
666,665 666,665 $
666,665 666,665
30.64 $ 29.06
The 7% Cumulative Redeemable Preference shares were issued to Ortho-Clinical Diagnostics Finco S.Á.R.L., an affiliate of Ortho on
January 29, 2015 at a subscription price of $22.50 per share. These preference shares are redeemable at the request of the shareholder
on the “Redemption Trigger Date” which is currently the date of the seventh anniversary of the date of issue of the preference shares,
but the Company may further extend the redemption date in one year increments up to the tenth anniversary of the date of issue.
Because the 7% Cumulative Redeemable Preference shares are redeemable at the option of the shareholders, they are shown as a
liability in the Consolidated Balance Sheet.
Note 9. Share-Based Compensation
The Company records share-based compensation expense in respect of options and restricted share units (“RSUs”), including multi-
year performance based restricted share units (“MRSUs”), issued under its share incentive plans and in respect of deferred shares
issued to employees. Share-based compensation expense amounted to $4,467 in the year ended March 31, 2020, $4,957 in the year
ended March 31, 2019 and $4,156 in the year ended March 31, 2018.
Option Plans
The 2012 Option Plan (the “Option Plan”) was designed in order to grant options on ordinary shares in the capital of the Company to
certain of its directors and employees. The purpose of the Option Plan is to provide employees with an opportunity to participate
directly in the growth of the value of the Company by receiving options for shares.
Each option may be exercised for one ordinary share of the Company.
The 2012 Option Plan was approved by the shareholders on February 16, 2012.
The total number of shares in respect of which options may be granted under the 2012 Option Plan is limited at 839,509. Options that
lapse or are forfeited are available to be granted again.
Options generally vest over a period of three years but certain employees have shorter vesting periods. The contractual life of all
options is 10 years. Options were not exercisable before the Company became a public company and all outstanding options become
exercisable in the event of an acquisition of 75% or more of the share capital of the Company by a third party. No further awards will
be granted under the 2012 Option Plan.
The 2014 Stock Incentive Plan was approved by the directors and shareholders immediately prior to the Company’s initial public
offering in April 2014. The 2014 Plan was designed to provide flexibility to attract and retain the services of qualified employees,
officers, directors, consultants and other service providers upon whose judgment, initiative and efforts the successful conduct and
development of the business depends, and to provide additional incentives to such persons to devote their effort and skill to the
advancement and betterment of the Company, by providing them an opportunity to participate in the ownership of the Company and
thereby have an interest in its success and increased value.
- 88 -
Under the 2014 Plan, 1,500,000 ordinary shares were initially reserved for issuance. This number is subject to adjustment in the event
of a recapitalization, share split, share consolidation, reclassification, share dividend or other change in the Company’s capital
structure and automatically increases annually on April 1 of each year. The number of shares reserved for issuance under the plan was
also increased by 750,000 as a result of a resolution passed at the Annual Shareholder meeting held on October 28, 2016 and by a
further 550,000 as a result of a resolution passed at the Annual Shareholder meeting held on October 31, 2018. The plan provides for
the issuance of share options, restricted shares, RSUs (including MRSUs) or share appreciation rights (“SARs”). The Company has
only issued options, RSUs and MRSUs under the plan prior to March 31, 2020. To the extent that an award terminates, or expires for
any reason, then any shares subject to the award may be used again for new grants. However, shares which are (i) not issued or
delivered as a result of the net settlement of outstanding SARs or options; (ii) used to pay the exercise price related to outstanding
options; (iii) used to pay withholding taxes related to outstanding options or SARs; or (iv) repurchased on the open market with the
proceeds from an option exercise, will not be available for grant under the 2014 Plan.
Share option activity
The following table summarizes share option activity:
Outstanding — March 31, 2017
Granted
Exercised
Forfeited
Outstanding — March 31, 2018
Granted
Exercised
Forfeited
Outstanding — March 31, 2019
Granted
Exercised
Forfeited
Outstanding —March 31, 2020
Exercisable — March 31, 2020
Number
of Share
Options
Outstanding
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
(Months)
1,948,917 $
406,480
(36,240 )
(222,874 )
2,096,283 $
189,552
(253,066 )
(96,372 )
1,936,397 $
110,623
(103,264 )
(95,704 )
1,848,052 $
1,527,662 $
8.04
6.93
3.07
9.16
7.79
6.59
5.14
12.69
7.77
8.44
4.77
12.53
7.73
7.84
90
120
—
—
84
120
—
—
78
120
—
—
70
63
The following table summarizes the options granted in the year ended March 31, 2020 with their exercise prices, the fair value of
ordinary shares as of the applicable grant date, and the intrinsic value, if any:
Grant Date
July 16, 2019
October 31, 2019
February 5, 2020 (1)
Number of
Options
Granted
Exercise Price
Ordinary
Shares
Fair Value
Per
Share at
Grant
Date
Per Share
Intrinsic
Value of
Options
28,517 $
57,106 $
25,000 $
10.52 $
7.78 $
7.57 $
10.52 $
7.78 $
7.57 $
6.48
4.90
6.48
(1) On February 5, 2020 the Company granted Mr Peter Buhler 50,000 RSUs and 25,000 options to purchase ordinary shares in
connection with the appointment of Mr. Buhler as the Company’s Chief Financial Officer. The grants, which were issued
outside of the Company’s 2014 Stock Incentive Plan, were approved by the Board and the Remuneration Committee of the
Board pursuant to the inducement grant exception under Nasdaq Rule 5635(c)(4), as an inducement that is material to
- 89 -
Mr. Buhler’s entering into employment with the Company. The RSUs and the share options vest in three equal installments
on each first, second and third anniversary of the grant date. The share options have a term of ten years.
Determining the fair value of share options
The fair value of each grant of share options was determined by the Company using the Black-Scholes options pricing model. The
total fair value of option awards in the years ended March 31, 2020, March 31, 2019 and March 31, 2018 amounted to $588, $676 and
$1,718, respectively.
Assumptions used in the option pricing models are discussed below. Each of these inputs is subjective and generally requires
significant judgment to determine.
Expected volatility. The expected volatility was based on the historical share volatilities of a selection of the Company’s publicly listed
peers over a period equal to the expected terms of the options as the Company did not have a sufficient trading history to use the
volatility of its own ordinary shares.
Fair value of ordinary shares. Since the Company’s initial public offering in April 2014, the fair value of ordinary shares has been
based on the share price of the Company’s shares on the Nasdaq Global Market immediately prior to the grant of the options
concerned.
Risk-Free Interest Rate. The risk-free interest rate is based on the UK Government 10 year bond yield curve in effect at the time of
grant prior to the initial public offering and 10 year U.S. Treasury Stock for awards from April 2014 onwards.
Expected term. The expected term is determined after giving consideration to the contractual terms of the share-based awards, graded
vesting schedules ranging from one to three years and expectations of future employee behavior as influenced by changes to the terms
of its share-based awards.
Expected dividend. According to the terms of the awards, the exercise price of the options is adjusted to take into account any
dividends paid. As a result, dividends are not required as an input to the model, as these reductions in the share price are offset by a
corresponding reduction in exercise price.
A summary of the weighted-average assumptions applicable to the share options is as follows:
Risk-free interest rate
Expected lives (years)
Volatility
Dividend yield
Grant date fair value (per share)
Number granted
RSU Activity
A summary of the RSUs in issue at March 31, 2020 is as follows:
RSUs subject to time based vesting
RSUs subject to milestone based vesting
Year ended March 31,
2020
2019
2018
1.84 %
6
69.43 %
—
8.44 $
110,623
3.08 %
6
67.19 %
—
6.14 $
189,552
2.34 %
6
66.03 %
—
6.93
406,480
$
Number
of RSUs
Outstanding
649,347
45,000
Weighted
Average
Remaining
Vesting Period
(Months)
11
N/A
Period in
which the
target must be
achieved
N/A
N/A
At March 31, 2020, 649,347 RSUs were subject to time based vesting and the weighted average remaining vesting period was 11
months. In addition, 45,000 RSUs were subject to vesting based on the achievement of various milestones relating to the
development, approval and marketing of MosaiQ.
The fair value of the Company’s ordinary shares was $3.95 per share on March 31, 2020.
- 90 -
As of March 31, 2020, total compensation cost related to share options and RSUs granted but not yet recognized was $4,107 net of
estimated forfeitures. This cost will be amortized to expense over a weighted average remaining period of 22 months and will be
adjusted for subsequent changes in estimated forfeitures.
Note 10. Income Taxes
The components of the provision for income taxes are as follows:
Income tax (provision) benefit:
Current - Federal
Deferred - Federal
Year ended March 31,
2020
2019
2018
$
$
$
(293 ) $
(368 ) $
(661 ) $
— $
(44 ) $
(44 ) $
—
649
649
The statutory standard corporate income tax rate of the Company in Jersey is 0%. The principal operating subsidiaries operate in the
United States, the United Kingdom and Switzerland and are subject to corporate income taxes in those countries. In the year ended
March 31, 2018, as a result of improvements in the profitability of a subsidiary, the valuation allowances held against the deferred tax
assets in that subsidiary, which principally comprised of net operating losses carried forward, have been reduced resulting in the
recognition of deferred tax assets of $649. Utilization of the net operating losses carried forward against the profits of the subsidiary in
the year ended March 31, 2019 resulted in a reduction in the deferred tax asset of $44, with a corresponding provision for income
taxes of the same amount. During the year ended March 31, 2020, the Company has reassessed its transfer pricing policies in certain
jurisdictions from 2015 to 2017. The reassessment resulted in the reversal of a deferred tax asset of $310 related to net operating
losses carried forward and the recording of a current tax accrual of $293.
A reconciliation of the income tax expense at the statutory rate to the provision for income taxes is as follows:
Income tax expense at statutory rate
Impact of tax uncertainties
Foreign tax rate differential
(Increase) decrease in valuation allowance against deferred
tax assets
Provision for income tax
$
2020
2019
2018
— $
(603 )
2,255
— $
—
5,287
—
—
4,841
(2,313 )
(661 ) $
(5,331 )
(44 ) $
(4,192 )
649
$
Significant components of deferred tax assets are as follows:
Provisions and reserves
Fixed asset basis difference
Operating lease liability
Net operating loss carry forwards
Gross deferred tax assets
Fixed asset basis difference
Operating lease right-of-use assets
Gross deferred tax liabilities
Net deferred tax asset
Valuation allowance
Total
March 31,
2020
March 31,
2019
$
$
$
$
$
$
$
1,315 $
—
3,409
19,526
24,250 $
(90 ) $
(3,409 ) $
(3,499 ) $
20,751 $
(20,514 )
237 $
1,442
34
—
17,330
18,806
—
—
—
18,806
(18,201 )
605
- 91 -
The balance sheet classification of net deferred tax assets is as follows:
Net noncurrent deferred tax assets
Total
2020
$
$
237
237
$
$
March 31,
2019
605
605
The Company maintains a valuation allowance on net operating losses and other deferred tax assets in jurisdictions for which it does
not believe it is more-likely-than-not to realize those deferred tax assets based upon all available positive and negative evidence,
including historical operating performance, carryback periods, reversal of taxable temporary differences, tax planning strategies, and
earnings expectations.
As of March 31, 2020, the Company has net operating loss carry forwards of approximately $245,114 and $93 of U.S. state net
operating losses, which will be available to offset future taxable income. If not used, losses with a tax effect of approximately $18,711
will expire between 2022 and 2028 and losses with a tax effect of $330 will expire in 2037. The remaining portion of the carry
forward losses arose in jurisdictions where losses do not expire.
The following table summarizes the activity related to the Company’s uncertain tax positions (excluding interest and penalties and
related tax attributes):
Balance at beginning of year
Increases related to current year tax positions
Increases related to prior years tax positions
Balance at end of year
Year ended March 31,
2020
2019
2018
$
$
— $
1,216
—
1,216 $
— $
—
—
— $
—
—
—
—
As of March 31, 2020, 2019, and 2018 the Company has an unrecognized benefit of $1,216, $0, and $0 respectively, that if recognized
would be recorded as a component of tax expense. The Company’s unrecognized tax benefits include exposures related to positions
taken on all jurisdictions income tax returns. The Company has interest expense carryforward from March 31, 2017 that potentially
would be disqualified as interest expense in the amount of $613. Additionally, the Company has reassessed its transfer pricing policies
in certain jurisdictions from 2015 to 2017, the impact of which is $603. In the normal course of business, the Company’s tax returns
are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these
taxing authorities and the Company has accrued a liability when it believes it is more likely than not that the tax position claimed on
tax returns will not be sustained by the taxing authorities on the technical merits of the position. Changes in the recognition of the
liability are reflected in the period in which the change in judgment occurs.
The Company files separate company income tax returns in its domestic and foreign jurisdictions. All necessary income tax filings in
all jurisdictions have been completed for all years up to and including March 31, 2019 and there are no ongoing tax examinations in
any jurisdiction.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. During the fiscal years
ended March 31, 2020, March 31, 2019 and March 31, 2018, the Company had no amounts accrued for interest and penalties. The
Company does not currently anticipate that the total amount of unrecognized tax benefits will result in material changes to its financial
position within the next 12 months.
In connection with the sale and leaseback transaction of the ARC facility that was completed in March 2018, the Company has agreed
to transfer tax allowances related to certain other property, plant and equipment to the purchaser of the facility. An election to effect
the transfer of these allowances to the purchaser has been made, but due to uncertainty regarding whether the election will be
effective, the tax effect of the transfer of the allowances has not been recorded in the financial statements as at March 31, 2020. If the
transfer of the allowances was regarded as being effective at March 31, 2020, the financial statements would reflect an additional
deferred tax expense of $870 and an equivalent deferred tax liability. The Company will continue to monitor the position regarding the
effectiveness of the election to transfer the allowances in order to determine whether the deferred tax liability should be recorded.
No tax charge arose on any element of other comprehensive loss.
- 92 -
Note 11. Pension Plans
The Company operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the
Company in an independently administered fund. The pension cost charge represents the contribution payable by the Company to the
fund during the year. Defined contribution pension costs during the years ended March 31, 2020, 2019 and 2018 amounted to $788,
$750 and $1,197, respectively.
In addition, the Company’s Swiss subsidiary is affiliated to the collective foundation of AXA LPP Foundation Suisse Romande,
having transferred funds from a previous arrangement with Swiss Life on January 1, 2020. Funding is granted by means of defined
saving contributions on individual retirement assets implementing a guaranteed interest and a fixed conversion rate for old age
pensions of the retirement asset. In Switzerland, pension plans are financed by contributions of both, employees and employer.
Contributions are defined by the plan regulations and cannot be decreased without amending the plan regulations. The risks of
disability and death before retirement are covered by AXA insurance. The assets are pooled for all affiliated companies; the
investment of assets is done by the governing bodies of the collective foundation or by mandated parties. The pension arrangements
are based on a contract of affiliation between the Company’s Swiss subsidiary and the AXA pension foundation, which can be
terminated by either party. In the event of a termination, the Company’s Swiss subsidiary would have an obligation to find alternative
pension arrangements for its employees. Because there is no guarantee that the Swiss employee pension arrangements would be
continued under the same conditions, there is a risk, albeit remote, that a pension obligation may fall on the Company’s Swiss
subsidiary.
These circumstances require that the Swiss employee pension arrangements be treated as a defined benefit plan under ASC 715
Compensation – Retirement Benefits. Accordingly, an actuarial valuation of the pension obligation has been performed. At March 31,
2020 and 2019, the accumulated pension obligation amounted to $18,789 and $17,784, respectively, as compared with plan assets of
$12,436 and $10,416, respectively. Therefore, the net funded status was an obligation of $6,353 and $7,368, as of March 31, 2020 and
March 31, 2019 respectively, which were recorded as liabilities on the consolidated balance sheets.
The following provides a reconciliation of the benefit obligations, the plan assets and the funded status.
Pension benefit obligation, beginning of year
Service cost
Contributions paid by plan participants
Interest cost
Benefits paid
Prior service cost / (credit)
Actuarial (gain) / loss
Foreign currency translation
Pension benefit obligation, end of year
Fair value of plan assets, beginning of year
Actual return on plan assets
Contributions paid by employer
Contributions paid by plan participants
Benefits paid
Foreign currency translation
Fair value of plan assets, end of year
Year ended
March 31,
2020
March 31,
2019
17,784 $
1,828
2,180
131
(2,841 )
836
(1,740 )
611
18,789 $
15,784
1,574
1,438
153
(1,462 )
(100 )
1,097
(700 )
17,784
Year ended
March 31,
2020
March 31,
2019
10,416 $
1,008
1,280
2,180
(2,841 )
393
12,436 $
9,616
89
1,156
1,438
(1,462 )
(421 )
10,416
$
$
$
$
Contributions paid by plan participants include $1,375 and $749 of payments into the scheme on new employees joining in the years
ended March 31, 2020 and March 31, 2019, respectively.
- 93 -
Pension benefit obligation, end of year
Fair value of plan assets, end of year
Net funding obligation, end of year
Year ended
March 31,
2020
March 31,
2019
$
$
18,789 $
12,436
6,353 $
17,784
10,416
7,368
The assumptions used to determine the pension benefit obligation at the end of each financial year are:
Price inflation
Discount rate
Expected return on plan assets
Average rate of salary increase
March 31,
2020
Year ended
March 31,
2019
March 31,
2018
1.00 %
0.60 %
1.75 %
1.00 %
1.00 %
0.70 %
1.20 %
1.00 %
1.00 %
1.00 %
1.40 %
1.00 %
Each employee participating in the plan has an individual portfolio that is managed by AXA under a collective arrangement. Plan
assets comprise the surrender value of the portfolio of active insured scheme participants. The expected return on plan assets was
determined after consideration of current and historical levels of return and discussions with AXA. The discount rate is based on bond
yields at March 31, 2020 and March 31, 2019 on the Swiss bond market over a fifteen to twenty-five year period.
The net pension costs for the year are based on the assumptions adopted at the start of each financial year and comprise:
Employer service cost
Interest cost
Expected return on plan assets
Amortization of prior service credit
Amortization of net loss
Net pension cost
March 31,
2020
Year ended
March 31,
2019
March 31,
2018
$
$
1,828 $
131
(130 )
(23 )
216
2,022 $
1,574 $
153
(131 )
(14 )
154
1,736 $
1,601
110
(115 )
(14 )
188
1,770
The provision for pension benefit obligation recognized in other comprehensive income comprises:
Net actuarial (gain) / loss
Amortization of prior service credit
Amortization of net loss
March 31,
2020
Year ended
March 31,
2019
March 31,
2018
$
$
(1,841 ) $
23
(216 )
(2,034 ) $
1,027 $
14
(154 )
887 $
67
14
(188 )
(107 )
The cumulative amounts recognized in other comprehensive income were $3,658 and $5,692 at March 31, 2020 and March 31, 2019
respectively. This represented a net loss of $2,995 and $5,902 at March 31, 2020 and March 31, 2019 respectively and a prior service
cost of $663 at March 31, 2020 and a prior service credit of $210 at March 31, 2019.
The following benefit payments are expected to be paid in the following periods:
2021
2022
2023
2024
2025
2026 to 2029
$
$
$
$
$
$
827
873
904
923
1,048
5,134
Expected annual employer contributions to the plan in the year ending March 31, 2021 amount to $1,255.
- 94 -
Note 12. Net Loss Per Share
In accordance with ASC 260 Earnings Per Share, basic earnings available to ordinary shareholders per share is computed based on
the weighted average number of ordinary shares outstanding during each period. Diluted earnings available to ordinary shareholders
per share is computed based on the weighted average number of ordinary shares outstanding during each period, plus potential
ordinary shares considered outstanding during the period, as long as the inclusion of such shares is not anti-dilutive. Potential ordinary
shares consist of the incremental ordinary shares issuable upon the exercise or conversion of share options (using the treasury shares
method), RSUs and warrants to acquire ordinary shares.
The following table sets forth the computation of basic loss per ordinary share. Diluted earnings per share figures are not applicable
due to losses.
Numerator:
Net loss
Net loss available to ordinary shareholders - basic and diluted
Denominator:
Weighted-average shares outstanding - basic and diluted
Loss per share - basic and diluted
2020
2019
2018
$
$
(102,773 ) $
(102,773 ) $
(105,386 ) $
(105,386 ) $
(82,338 )
(82,338 )
71,610,035 54,874,391 40,839,309
(2.02 )
$
(1.92 ) $
(1.44 ) $
The following sets out the numbers of the options, RSUs and warrants to purchase ordinary shares excluded from the above
computation of earnings per share for the years ended March 31, 2020, March 31, 2019 and March 31, 2018, as their inclusion would
have been anti-dilutive.
Ordinary shares issuable on exercise of options to purchase
ordinary shares
Restricted share units awarded, including the multi-year
performance related restricted share units
Ordinary shares issuable on exercise of warrants at $16.14 per
share
Ordinary shares issuable on exercise of warrants at $9.375 per
share
Ordinary shares issuable on exercise of warrants at $5.80 per
share
Ordinary shares issuable on exercise of warrants at $0.01 per
share
March 31,
2020
March 31,
2019
March 31,
2018
1,848,052 1,936,397 2,096,283
694,347 966,689
773,379
111,525 111,525
111,525
64,000
64,000
64,000
—
— 8,414,683
550,000
2,717,924 3,078,611 12,009,870
—
—
13. Lease Commitments
The Company has operating lease commitments for real estate and certain equipment in the United States, the United Kingdom, the
Republic of Ireland and Switzerland. There are no sublease agreements in place. The Company has finance lease commitments for
equipment in the United Kingdom and Switzerland.
The Company leases an 87,200 square foot conventional reagents manufacturing facility, the ARC facility, with integrated offices and
laboratories, in Edinburgh, Scotland. This lease commenced in March 2018, following completion of a sale and leaseback transaction,
and expires in September 2052. Rent is recognized in the consolidated statement of comprehensive loss on a straight-line basis over
the lease term. Additionally, the lease required the Company to provide a rent deposit of £3.6 million, which amounted to $4.5 million
at March 31, 2020 and $4.7 million at March 31, 2019, and is included within other non-current assets in the consolidated balance
sheets. In March 2015, the Company signed a five-year lease agreement for its corporate headquarters and MosaiQ manufacturing
facility in Eysins, Switzerland. This lease was extended for a further five-year period to March 14, 2025. The Company also leases
office space for commercial and development activities under one to three-year lease agreements in Newtown PA, Chapel Hill NC and
Dublin, Republic of Ireland.
- 95 -
The operating lease commitments relating to equipment are not material. The finance lease commitments relate to specialized
equipment required for manufacturing operations in both Edinburgh, Scotland and Eysins, Switzerland.
Many of the Company’s leases contain options to renew and extend lease terms and options to terminate leases early. Reflected in the
right-of-use asset and lease liability on the Company’s balance sheet are the periods provided by renewal and extension options that
the Company is reasonably certain to exercise, as well as the periods provided by termination options that the Company is reasonably
certain not to exercise. The Company does not have any existing lease agreements with variable lease components.
In calculating the present value of future lease payments, the Company has elected to utilize its incremental borrowing rate based on
the remaining lease term at the date of adoption. Incremental borrowing rates are the rates incurred to borrow on a collateralized basis
over a similar term an amount equal to the lease payments in a similar economic environment. The Company has elected to account
for each lease component and its associated non-lease component as a single lease component and has allocated all the contract
consideration across the lease component only. There are no material non-lease components. As of March 31, 2020, an operating lease
right-of-use asset of $21,493 and an operating lease liability of $22,947 (including a current portion of $3,033) were reflected on the
condensed consolidated balance sheet. As of March 31, 2020, the Company had entered into finance leases for the purchase of plant
and equipment that had net book values of $2,126. An associated finance lease liability of $1,715 (including a current portion of $598)
was reflected on the condensed consolidated balance sheet.
The elements of lease expense were as follows:
Operating lease cost
Finance lease cost
Amortization of right-of-use asset
Interest on lease liabilities
Short-term lease cost
Total lease cost
Other information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities
Operating leases - operating cash flows
Finance leases - finance cash flows
Finance leases - operating cash flows
Non-cash leases activity
Right-of-use assets obtained in exchange for new operating lease liabilities
Right-of-use assets obtained in exchange for new finance lease liabilities
Weighted average remaining lease terms (in years)
Operating leases
Finance leases
Weighted average discount rate
Operating leases
Finance leases
- 96 -
Year ended
March 31, 2020
3,694
$
832
119
69
4,714
$
Year ended
March 31, 2020
$
$
$
$
$
3,043
524
119
5,160
969
As at
March 31, 2020
30
2.3
10.8 %
4.5 %
Future lease payments required under non-cancellable operating leases in effect as of March 31, 2020 were as follows:
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less : imputed interest
Total operating lease liabilities
Future lease payments required under finance leases in effect as of March 31, 2020 were as follows:
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less : imputed interest
Total finance lease liabilities
March 31,
2020
3,335
3,319
3,050
3,055
3,105
66,138
82,002
(59,055 )
22,947
March 31,
2020
720
838
349
7
—
—
1,914
(199 )
1,715
$
$
$
$
$
$
The Company adopted ASU 2016-02 on April 1, 2019 and, as required, the following disclosure is provided for periods prior to
adoption. Future minimum lease payments required under non-cancellable operating leases in effect as of March 31, 2019 were as
follows:
2020
2021
2022
2023
2024
Thereafter
Total minimum future lease payments
March 31,
2019
$
$
3,387
1,861
1,858
1,830
1,841
71,507
82,284
Future annual lease payments required under finance leases in effect as of March 31, 2019 were as follows:
2020
2021
2022
2023
Thereafter
Total minimum future lease payments
March 31,
2019
471
369
306
190
—
1,336
$
- 97 -
14. Subsequent Events
In April 2020 the Company completed the development phase of a microarray-based SARS-CoV-2 antibody test for use on the
MosaiQ platform (the “MosaiQ COVID-19 Microarray”), in response to the COVID-19 pandemic. Following the necessary regulatory
approvals, the first commercial contract for the sale of the MosaiQ COVID-19 Microarray was signed in May 2020 and the Company
has subsequently entered into several additional contracts with customers in Europe and the United States.
- 98 -
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
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we have conducted an evaluation of our disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the
Exchange Act, as of March 31, 2020. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were effective as of March 31, 2020 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 Exchange Act Rule 13a-15(f). Our internal control system was designed to provide reasonable assurance to our
management and our directors regarding the preparation and presentation of our published financial statements.
Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2020. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in
Internal Control – Integrated Framework (2013). Because of its inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect misstatements. Management regularly monitors our
internal control over financial reporting, and actions are taken to correct any deficiencies as they are identified. Based on its
assessment, management has concluded that our internal control over financial reporting was effective as of March 31, 2020.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm
regarding internal control over financial reporting pursuant to an exemption for non-accelerated filers from the internal control audit
requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.
(c) Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that
occurred during the fourth quarter of the year ended March 31, 2020 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other information
None.
- 99 -
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated herein by reference to our definitive proxy statement, which will be filed not
later than July 31, 2020.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to our definitive proxy statement, which will be filed not
later than July 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to our definitive proxy statement, which will be filed not
later than July 31, 2020.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated herein by reference to our definitive proxy statement, which will be filed not
later than July 31, 2020.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference to our definitive proxy statement, which will be filed not
later than July 31, 2020.
- 100 -
Item 15. Exhibits, Financial Statement Schedules
1.
Financial Statements
PART IV
Our consolidated financial statements, together with the independent registered public accounting firm’s report thereon, are set forth
on pages 64 through 89 of this annual report on Form 10-K and are incorporated herein by reference. See Item 8, ‘‘Financial
Statements and Supplementary Data,” filed herewith, for a list of financial statements.
2.
Financial Statement Schedules
All financial statement schedules have been omitted because the required information is not applicable or deemed not material, or the
required information is presented in the consolidated financial statements or in the notes to consolidated financial statements filed in
response to Item 8 of this annual report on Form 10-K.
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
3.1
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
Amended Articles of Association (Filed as Exhibit 3.1 to Amendment No. 4 to our Registration Statement on Form S-1
(File No. 333-194390) on April 14, 2014 and incorporated herein by reference)
Form of Ordinary Shares Certificate (Filed as Exhibit 4.1 to Amendment No. 4 to our Registration Statement on Form S-1
(File No. 333-194390) on April 14, 2014 and incorporated herein by reference)
Warrant to Purchase C Preference Shares, dated December 26, 2013, issued to Midcap Funding V, LLC (Filed as
Exhibit 4.2 to our Registration Statement on Form S-1 (File No. 333-194390) on March 7, 2014 and incorporated herein
by reference)
Registration Rights Agreement, dated November 25, 2014, by and among Quotient Limited and the Subscribers named
therein (Filed as Exhibit 4.2 to our Current Report on Form 8-K on November 26, 2014 and incorporated herein by
reference)
Statement of Rights in relation to Preference Shares in the capital of Quotient Limited (Filed as Exhibit 4.1 to our Current
Report on Form 8-K on January 29, 2015 and incorporated herein by reference)
Warrant to Purchase 66,915 Ordinary Shares, dated September 25, 2015, issued to Midcap Financial Trust (filed as
Exhibit 4.1 to our Current Report on Form 8-K on October 1, 2015 and incorporated herein by reference)
Warrant to Purchase 26,023 Ordinary Shares, dated September 25, 2015, issued to Oxford Finance LLC (filed as Exhibit
4.2 to our Current Report on Form 8-K on October 1, 2015 and incorporated herein by reference)
Warrant to Purchase 14,126 Ordinary Shares, dated September 25, 2015, issued to Oxford Finance LLC (filed as Exhibit
4.3 to our Current Report on Form 8-K on October 1, 2015 and incorporated herein by reference)
Warrant to Purchase 4,461 Ordinary Shares, dated September 25, 2015, issued to Flexpoint MCLS SPV LLC (filed as
Exhibit 4.4 to our Current Report on Form 8-K on October 1, 2015 and incorporated herein by reference)
Indenture, dated as of October 14, 2016, among the Company, the Guarantors from time to time party thereto and U.S.
Bank National Association, as trustee and collateral agent (filed as exhibit 4.1 to our report on Form 8-K filed on October
14, 2016 and incorporated herein by reference)
Registration Rights Agreement, dated October 24, 2017, by and among Quotient Limited and the Subscribers named
therein (Filed as Exhibit 4.1 of our Current Report on 8-K on October 25, 2017 and incorporated herein by reference)
First Supplemental Indenture, dated as of December 4, 2018, among Quotient Limited, the Guarantors from time to time
party thereto and U.S. Bank National Association, as trustees and collateral agent (filed as exhibit 4.1 to our Form 8-K
filed on December 5, 2018 and incorporated herein by reference)
4.12*
Description of Share Capital
10.1
Employment Agreement, dated March 9, 2009, between Alba Bioscience Limited and Jeremy Stackawitz (Filed as Exhibit
10.3 to our Registration Statement on Form S-1 (File No. 333-194390) on March 7, 2014 and incorporated herein by
reference)
- 101 -
Exhibit
number
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11†
10.12†
10.13
10.14
10.15
10.16
10.17†
10.18†
10.19
10.20
10.21
Description of exhibit
Service Agreement, dated November 21, 2012, between Quotient Biodiagnostics Holding Limited (since renamed
Quotient Limited) and Edward Farrell (Filed as Exhibit 10.4 to our Registration Statement on Form S-1 (File No. 333-
194390) on March 7, 2014 and incorporated herein by reference)
Employment agreement, dated February 9, 2017, between Quotient Limited and Christopher Lindop (Filed as Exhibit 10.2
to our Current Report on Form 8-K on February, 14 2017 and incorporated herein by reference)
Amendment to employment agreement between Quotient Limited and Christopher Lindop dated April 5, 2018 (Filed as
Exhibit 10.1 to our Quarterly Report on Form 10-Q on August 7, 2018 and incorporated herein by reference)
Amendment to employment agreement between Quotient Limited and Christopher Lindop, dated as of September 19,
2018, (Filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q on November 6, 2018 and incorporated herein by
reference)
Eysins, Switzerland Lease Agreement, dated March 10, 2010, between Nemaco Fléchères B.V. and Quotient Suisse SA
(Filed as Exhibit 10.12 to our Registration Statement on Form S-1 (File No. 333-194390) on March 7, 2014 and
incorporated herein by reference)
Eysins, Switzerland, Lease Assignment Agreement, dated December 9, 2013, by and among Fidfund Management SA,
Mondelez Europe GmbH, Quotient Suisse SA and Quotient Limited. (Filed as Exhibit 10.13 to our Registration Statement
on Form S-1 (File No. 333-194390) on March 7, 2014 and incorporated herein by reference)
Form of Indemnification Agreement (Filed as Exhibit 10.16 to Amendment No. 4 to our Registration Statement on
Form S-1 (File No. 333-194390) on April 14, 2014 and incorporated herein by reference)
2012 Option Plan (Filed as Exhibit 10.17 to our Registration Statement on Form S-1 (File No. 333-194390) on March 7,
2014 and incorporated herein by reference)
Quotient Limited 2014 Stock Incentive Plan (as adopted on March 31, 2014 and amended and restated on October 28,
2016 and further amended and restated on October 31, 2018) (incorporated by reference to Exhibit A to Amendment No. 1
to the Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on August 31,
2018)
TTP Intellectual Property Rights Agreement, dated March 4, 2014, between The Technology Partnership plc and QBD
(QS-IP) Limited. (Filed as Exhibit 10.20 to Amendment No. 2 to our Registration Statement on Form S-1 (File No. 333-
194390) on April 3, 2014 and incorporated herein by reference)
STRATEC Supply and Manufacturing Agreement, dated April 1, 2014, between STRATEC Biomedical AG and QBD
(QS-IP) Limited. (Filed as Exhibit 10.22 to Amendment No. 3 to our Registration Statement on Form S-1 (File No. 333-
194390) on April 7, 2014 and incorporated herein by reference)
Form of Restricted Stock Unit Award Agreement (Filed as Exhibit 10.24 to Amendment No. 4 to our Registration
Statement on Form S-1 (File No. 333-194390) on April 14, 2014 and incorporated herein by reference)
Form of Restricted Stock Award Agreement (Filed as Exhibit 10.25 to Amendment No. 4 to our Registration Statement on
FormS-1 (File No. 333-194390) on April 14, 2014 and incorporated herein by reference)
Form of Option Award Agreement (Filed as Exhibit 10.26 to Amendment No. 4 to our Registration Statement on Form S-
1 (File No. 333-194390) on April 14, 2014 and incorporated herein by reference)
Form of Letter of Appointment for a Non-Executive Director (Filed as Exhibit 10.27 to Amendment No. 5 to our
Registration Statement on Form S-1 (File No. 333-194390) on April 15, 2014 and incorporated herein by reference)
Distribution and Supply Agreement, dated January 29, 2015, between QBD (QS IP) Limited, Quotient Suisse SA and
Ortho-Clinical Diagnostics, Inc. (Filed as Exhibit 10.34 to our Annual Report on Form 10-K on June 1, 2015 and
incorporated herein by reference)
First Amendment to TTP Intellectual Property Rights Agreement, dated March 28, 2016, between The Technology
Partnership plc and QBD (QS-IP) Limited (filed as Exhibit 10.38 to our Annual Report on Form 10-K on May 31, 2016
and incorporated herein by reference)
Form of Purchase Agreement, dated as of October 14, 2016 (filed as exhibit 10.1 to our report on Form 8-K filed on
October 14, 2016 and incorporated herein by reference)
Form of Royalty Rights Agreement, dated as of October 14, 2016 (filed as exhibit 10.2 to our report on Form 8-K filed on
October 14, 2016 and incorporated herein by reference)
Collateral Agreement, dated as of October 14, 2016, among the Company the Subsidiary Parties from time to time party
thereto and U.S. Bank National Association, as trustee and collateral agent (filed as exhibit 10.3 to our report on Form 8-K
filed on October 14, 2016 and incorporated herein by reference)
- 102 -
Exhibit
number
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34†
10.35†
10.36
10.37
10.38
10.39
10.40
Description of exhibit
Form of Change of Control Agreement dated as of August 7, 2017 between the Company and the following executive
officers: Christopher Lindop, Edward Farrell, and Jeremy Stackawitz (filed as Exhibit 10.1 to our report on Form 8-K filed
on August 10, 2017 and incorporated herein by reference)
Lease Agreement, dated July 14, 2017, by and between Quotient Biocampus Limited and Alba Bioscience Limited (filed
as Exhibit 10.1 to our report on Form 8-K filed on March 26, 2018 and incorporated herein by reference)
Minute of Variation of Lease, dated March 23, 2018, by and between Quotient Biocampus Limited and Alba Bioscience
Limited (filed as Exhibit 10.2 to our report on Form 8-K filed on March 26, 2018 and incorporated herein by reference)
Guarantee Agreement, dated March 23, 2018, by Quotient Limited and Quotient Suisse SA in favor of Roslin Assets
Limited (filed as Exhibit 10.3 to our report on Form 8-K filed on March 26, 2018 and incorporated herein by reference)
Disposition Agreement, dated March 23, 2018, by Quotient Biocampus Limited in favor of Roslin Assets Limited (filed as
Exhibit 10.4 to our report on Form 8-K filed on March 26, 2018 and incorporated herein by reference)
Rent Deposit Agreement, dated March 23, 2018, by and between Alba Bioscience Limited and Roslin Assets Limited
(filed as Exhibit 10.5 to our report on Form 8-K filed on March 26, 2018 and incorporated herein by reference)
Principal Offer, dated February 20, 2018, by Quotient Biocampus Limited and Roslin Assets Limited (filed as Exhibit
10.45 to our Annual Report on form 10-K filed on May 30, 2018 and incorporated herein by reference)
Form of Royalty Right Agreement dated as of June 29, 2018 (filed as exhibit 10.1 to our Form 8-K filed on June 29, 2018
and incorporated herein by reference)
Form of Amendment to Royalty Right Agreement, dated as of June 29, 2018 (filed as exhibit 10.3 to our Quarterly Report
on Form 10-Q on August 7, 2018)
Supply Agreement between Alba Bioscience Limited and Ortho-Clinical Diagnostics, Inc. entered into on December 17,
2018 (filed as exhibit 10.2 to our Quarterly Report on Form 10-Q filed on February 2, 2019 and incorporated herein by
reference)
Form of Royalty Right Agreements, dated as of December 18, 2018 (filed as exhibit 10.1 to our Form 8-K filed on
December 5, 2018 and incorporated herein by reference)
Form of Purchase Agreement, dated as of January 15, 2019 (filed as exhibit 10.1 to our report on Form 8-K filed on
January 16, 2019 and incorporated herein by reference)
Second Amendment to TTP Intellectual Property Rights Agreement, dated as of April 24, 2017, between The Technology
Partnership plc and QBD (QS-IP) Limited (filed as exhibit 99.2 to our Form 8-K filed on December 5, 2018 and
incorporated herein by reference)
First Amendment to STRATEC Supply and Manufacturing Agreement, dated as of December 19, 2016, between
STRATEC Biomedical AG and QBD (QS IP) Limited (filed as exhibit 99.3 to our Form 8-K filed on December 5, 2018
and incorporated herein by reference)
Employment Agreement, dated as of May 24, 2018, by and between Quotient Limited and Franz Walt (filed as exhibit 10.1
to our report on Form 8-K on May 29, 2018 and incorporated herein by reference)
Employment Agreement, dated September 3, 2018, between Alba Bioscience Limited and Ernest Larnach (filed as exhibit
10.2 to our report on Form 8-K on December 13, 2019 and incorporated herein by reference)
Amendment to Employment Agreement, dated as of November 2, 2018, by and between Quotient Limited and Franz Walt
(filed as exhibit 99.1 to our report on Form 8-K filed on July 3, 2019 and incorporated herein by reference)
Form of Amendment No. 1 to the Purchase Agreement, dated as of April 30, 2019 (filed as exhibit 10.1 to our report on
Form 8-K filed on May 1, 2019 and incorporated herein by reference)
Form of Royalty Right Agreement, dated as of May 15, 2019 (filed as exhibit 10.1 to our report on Form 8- K filed on
May 16, 2019 and incorporated herein by reference)
- 103 -
Exhibit
number
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
Description of exhibit
Amendment to Employment Agreement, dated as of July 2, 2019, by and between Quotient Limited and Franz Walt (filed
as exhibit 99.2 to our report on Form 8-K filed on July 3, 2019 and incorporated herein by reference)
Lease Extension Agreement, dated October 2, 2019, among Quotient Limited, FidFund Management SA, Quotient Suisse
SA, Nemaco Flecheres B.V., Nemaco Switzerland SA and Cadbury Europe SA amending the lease agreement dated
March 10, 2010, by and between Nemaco Flecheres B.V., Nemaco Suisse SA and Cadbury Europe SA (filed as exhibit
10.1 to our Quarterly Report on Form 10-Q filed on February 4, 2020 and incorporated herein by reference)
Change of Control Agreement, dated November 8, 2019, between Quotient Limited and Ernest Larnach (filed as exhibit 10.4
to our report on Form 8-K on December 13, 2019 and incorporated herein by reference)
Transition Agreement, dated December 10, 2019, between Quotient Limited and Roland Boyd (filed as exhibit 10.1 to our
report on Form 8-K on December 13, 2019 and incorporated herein by reference)
Amendment No. 1 to Employment Agreement, dated December 12, 2019, between Alba Bioscience Limited and Ernest
Larnach (filed as exhibit 10.3 to our report on Form 8-K on December 13, 2019 and incorporated herein by reference)
Registration Rights Agreement, dated December 13, 2019, among Quotient Limited, Heino von Prondzynski, Franz Walt
and Christopher J. Lindop (filed as exhibit 4.1 to our report on Form 8-K filed on December 13, 2019 and incorporated
herein by reference)
Agreement, dated December 20, 2019, among Ortho-Clinical Diagnostics, Inc., Quotient Suisse SA and QBD (QS-IP)
Limited (filed as exhibit 10.1 to our report on Form 8-K on December 27, 2019 and incorporated herein by reference)
Transition Agreement, dated January 3, 2020, between Quotient Limited and Christopher Lindop (filed as exhibit 10.1 to
our report on Form 8-K on January 7, 2020 and incorporated herein by reference)
Employment Agreement, dated January 3, 2020, between Quotient Limited and Peter Buhler (filed as exhibit 10.2 to our
report on Form 8-K on January 7, 2020 and incorporated herein by reference)
Form of Change of Control Agreement, dated January 7, 2020, between Quotient Limited and Peter Buhler (filed as
exhibit 10.3 to our report on Form 8-K on January 7, 2020 and incorporated herein by reference)
Amendment to the Service Agreement, dated January 7, 2020, between Quotient Biodiagnostics Holdings Limited (since
renamed Quotient Limited) and Edward Farrell (filed as exhibit 10.4 to our report on Form 8- K on January 7, 2020 and
incorporated herein by reference)
Amendment to the Employment Agreement, dated January 7, 2020, between Alba Bioscience Limited and Jeremy
Stackawitz (filed as exhibit 10.5 to our report on Form 8-K on January 7, 2020 and incorporated herein by reference)
Form of Option Award Agreement, dated as of February 5, 2020, by and between Quotient Limited and Peter Buhler (filed
as Exhibit 4.2 to our Registration Statement on Form S-8 (File No. 333-236295) on February 6, 2020 and incorporated
herein by reference)
Form of Restricted Stock Unit Award Agreement, dated as of February 5, 2020, by and between Quotient Limited and
Peter Buhler (filed as Exhibit 4.3 to our Registration Statement on Form S-8 (File No. 333- 236295) on February 6, 2020
and incorporated herein by reference)
List of Subsidiaries
Consent of Ernst & Young LLP
Certification of the Principal Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Principal Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Principal Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002
Certification of the Principal Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002
- 104 -
Exhibit
number
101#
Description of exhibit
The following financial statements from the Company’s Annual Report on Form 10-K for the year ended March 31, 2020,
formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2020 and
2019, (ii) Consolidated Statements of Comprehensive Loss for the years ended March 31, 2020, 2019 and 2018, (iii)
Consolidated Statements of Redeemable Convertible Preference Shares and Changes in Shareholders’ Equity for the years
ended March 31, 2020, 2019 and 2018, (iv) Consolidated Statements of Cash Flows for the years ended March 31, 2019,
2018 and 2017 and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
†
*
#
Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been submitted
separately to the Securities and Exchange Commission.
Filed herewith.
XBRL information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of
the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement,
prospectus or other document to which it relates and is not incorporated or deemed to be incorporated by reference into any
registration statement, prospectus or other document.
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Item 16. Form 10-K Summary
None.
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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 Eysins, Switzerland on June 12, 2020
Signatures
QUOTIENT LIMITED
By: /s/ Franz Walt
Franz Walt
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the
capacities and on the date indicated.
Signature
/s/ Franz Walt
Franz Walt
/s/ Peter Buhler
Peter Buhler
/s/ Ernest Larnach
Ernest Larnach
/s/ Heino von Prondzynski
Heino von Prondzynski
/s/ Thomas Bologna
Thomas Bologna
/s/ Frederick Hallsworth
Frederick Hallsworth
/s/ Brian McDonough
Brian McDonough
/s/ Sarah O’Connor
Sarah O’Connor
/s/ Zubeen Shroff
Zubeen Shroff
/s/ John Wilkerson
John Wilkerson
/s/ Jeremy Stackawitz
Jeremy Stackawitz
Title
Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Head of Financial Accounting and Treasury
(Principal Accounting Officer)
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
Date
June 12, 2020
June 12, 2020
June 12, 2020
June 12, 2020
June 12, 2020
June 12, 2020
June 12, 2020
June 12, 2020
June 12, 2020
June 12, 2020
Authorized Representative in the United States
June 12, 2020
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