As filed with the Securities and Exchange Commission on January 15, 2020

Registration No. 333-234657 

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

OpGen, Inc.
(Exact name of registrant as specified in its charter)

Delaware	8071	06-1614015
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

 

708 Quince Orchard Road, Suite 205
Gaithersburg, MD 20878
(301) 869-9683

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Evan Jones

Chief Executive Officer

708 Quince Orchard Road, Suite 205
Gaithersburg, MD 20878
(301) 869-9683

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

With a copy to:

Mary J. Mullany, Esq. Ballard Spahr LLP 1735 Market Street, 51st Floor Philadelphia, PA 19103 (215) 665-8500

Oliver Schacht Curetis N.V. Max-Eyth-Str. 42 71088 Holzgerlingen Germany +49 (0) 7031 49195 10

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement and upon completion of the transaction described in the accompanying proxy statement/prospectus.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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 ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth 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 7(a)(2)(B) of Securities Act. ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

Exchange Act Rule 14d-l(d) (Cross-Border Third-Party Tender Offer) ☐

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

 

Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful.

SUBJECT TO COMPLETION—DATED JANUARY 15, 2020

OPGEN, INC.
708 Quince Orchard Road, Suite 205
Gaithersburg, MD 20878

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On [•], [●]

Dear Stockholder:

NOTICE IS HEREBY GIVEN of, and you are cordially invited to attend a Special Meeting of Stockholders, or the Special Meeting, of OpGen, Inc., a Delaware corporation, or the Company. The Special Meeting will be held on [•], [•], at [•] local time at [•] for the following purposes:

1.                   To approve the business combination transaction pursuant to an Implementation Agreement dated September 4, 2019, or the Implementation Agreement, by and among the Company, Curetis N.V., a public company with limited liability under the Laws of the Netherlands, or the Seller, and Crystal GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany and wholly owned subsidiary of the Company, or the Purchaser. We refer to this proposal as the “Transaction Proposal.”

2.                   To approve the issuance or reservation for issuance of 2,662,564 shares of the Common Stock to be issued or reserved for issuance in connection with the transaction contemplated by the Implementation Agreement, or the Transaction Shares, in accordance with the Implementation Agreement and as required by and in accordance with the applicable rules of The Nasdaq Capital Market, or Nasdaq. We refer to this proposal as the “Share Issuance Proposal.”

3.                   To approve a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Special Meeting, the Company is not authorized to consummate the transactions contemplated by Proposals No. 1 and 2. We refer to this proposal as the “Adjournment Proposal.”

These items of business are more fully described in the proxy statement/prospectus accompanying this Notice. We encourage you to read the enclosed proxy statement/prospectus carefully, including the section titled “Risk Factors” beginning on page 8.

Stockholders of record at the close of business on [•], [●], or the Record Date, are entitled to notice of, and to attend and to vote at, the Special Meeting and any postponement or adjournment thereof. This Notice of Special Meeting of Stockholders and the attached proxy statement/prospectus are first being mailed to the Company’s stockholders on or about [•], [●].

Based on the price of the OpGen common stock as of January 13, 2020 of $1.52 per share, the market value of the Transaction Shares is approximately $3.7 million. Such market value will vary with any change in the OpGen common stock price. We cannot assure you the value will remain the same. Based on the fixed number of Transaction Shares, and assuming that OpGen does not issue additional shares before the closing of the proposed Transaction, Curetis will own approximately 32% of the OpGen shares and the legacy OpGen stockholders will own approximately 68% of the OpGen shares on a fully diluted basis.

All stockholders are cordially invited to attend the Special Meeting in person. Stockholders of record as of the Record Date will be admitted to the Special Meeting and any postponement or adjournment thereof upon presentation of identification. Please note that if your shares are held in the name of a bank, broker, or other nominee, and you wish to vote in person at the Special Meeting, you must bring to the Special Meeting a statement or letter from your bank, broker or other nominee showing your ownership of shares as of the Record Date and a proxy from the record holder of the shares authorizing you to vote at the Special Meeting.

The Board of Directors unanimously recommends that you vote:

1.                   “FOR” Proposal One – the Transaction Proposal;

2.                   “FOR” Proposal Two – the Share Issuance Proposal; and

3.                   “FOR” Proposal Three – the Adjournment Proposal.

Whether or not you plan to attend the Special Meeting in person, you are encouraged to read the proxy statement/prospectus accompanying this Notice and then cast your vote as promptly as possible in accordance with the instructions contained in the proxy statement/prospectus. Even if you have given your proxy, you may still vote in person if you attend the Special Meeting and follow the instructions contained in the attached proxy statement/prospectus. 

Your vote is important whether or not you expect to attend the Special Meeting. We urge you to vote by proxy to ensure your vote is counted. You are urged to vote either via the internet, or to mark, sign and date and promptly return the proxy in the stamped return envelope provided with these materials. Voting promptly will help avoid the additional expense of further solicitation to assure a quorum at the meeting.

By Order of the Board of Directors: Timothy C. Dec Corporate Secretary Gaithersburg, Maryland [●], [●]

 

 

The accompanying proxy statement/prospectus is dated [●] and is first being mailed to stockholders on or about [●].

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about the Company that has been filed with the U.S. Securities and Exchange Commission and is not included in or delivered with this document. You may obtain this information without charge through the SEC website (www.sec.gov) or upon your written or oral request by contacting the Corporate Secretary of the Company, 708 Quince Orchard Road, Suite 205, Gaithersburg, MD 20878 or by calling 301.869.9683.

OpGen stockholders may also consult the website of OpGen for more information concerning the business combination with Curetis GmbH and other transactions described in the accompanying proxy statement/prospectus. The website of OpGen is www.opgen.com. Information included on this website is not incorporated by reference into the accompanying proxy statement/prospectus.

To ensure timely delivery of these documents, any request should be made no later than [•], [●] to receive them before the special meeting.

This proxy statement/prospectus is dated [●], [●]. You should not assume that the information contained in this prospectus is accurate as of any date other than that date.

We own various U.S. federal trademark registrations and applications and unregistered trademarks and servicemarks, including OpGen®, Acuitas®, Acuitas Lighthouse®, AdvanDx®, QuickFISH® and PNA FISH®. The Curetis trademarks include Curetis®, Unyvero®, ARES® and ARES GENETICS®. All other trademarks, servicemarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this proxy statement/prospectus are sometimes referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies, products or services.

Except as otherwise indicated herein in “Curetis Business Summary Financial Data” and “Unaudited Pro Forma Condensed Combined Financial Information,” all Curetis financial results and measures in this proxy statement/prospectus have been converted from Euros to U.S. dollars using an exchange rate of $1.13667 to €1.00 as of June 30, 2019, based on Oanda.com. OpGen makes no representation that the Euro amounts could have been, or could be, converted, realized or settled in U.S. dollars at that rate on June 30, 2019, or at any other rate.

For additional details about where you can find information about the Company, please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus beginning on page 208.

 

TABLE OF CONTENTS

Page

PROXY STATEMENT/PROSPECTUS SUMMARY	1
RISK FACTORS	8
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND SPECIAL MEETING	36
INFORMATION REGARDING FORWARD-LOOKING INFORMATION	44
PROPOSAL ONE THE TRANSACTION PROPOSAL	45
PROPOSAL TWO THE SHARE ISSUANCE PROPOSAL	67
PROPOSAL THREE THE ADJOURNMENT PROPOSAL	69
THE IMPLEMENTATION AGREEMENT	70
OPGEN SUMMARY FINANCIAL DATA	81
CURETIS BUSINESS SUMMARY FINANCIAL DATA	82
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION	84
OPGEN’S BUSINESS	95
OPGEN’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	113
CURETIS’ BUSINESS	123
CURETIS’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	163
MANAGEMENT OF NEWCO	173
EXECUTIVE COMPENSATION	178
DIRECTOR COMPENSATION	184
NO APPRAISAL RIGHTS	184
REGULATORY APPROVALS	184
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES	184
DISTRIBUTION OF OPGEN SHARES AND WINDDOWN OF CURETIS N.V.	184
DESCRIPTION OF OPGEN CAPITAL STOCK	185
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF CURETIS N.V. AND STOCKHOLDERS OF OPGEN	196
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON	205
SOLICITATION OF PROXIES	206
LEGAL MATTERS	206
EXPERTS	206
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	207
HOUSEHOLDING OF PROXY MATERIALS	208
WHERE YOU CAN FIND MORE INFORMATION	209
INDEX TO FINANCIAL STATEMENTS	F-1
APPENDICES:
A. IMPLEMENTATION AGREEMENT
B. FAIRNESS OPINION OF CROSSTREE CAPITAL OF NEW YORK, LLC

 

 

 

OPGEN, INC.
708 Quince Orchard Road, Suite 205
Gaithersburg, MD 20878

The following information is furnished to each stockholder in connection with the foregoing Notice of Special Meeting of Stockholders of OpGen, Inc., a Delaware corporation, to be held on [•], [•],[•] at [•] local time at [•]. The enclosed proxy is for use at the special meeting of stockholders and any postponement or adjournment thereof. This proxy statement/prospectus and form of proxy are being mailed to stockholders on or about [•], [•]. Unless the context requires otherwise, references in this proxy statement/prospectus to “OpGen,” the “Company,” “we,” “our,” and “us” refer to OpGen, Inc.

In accordance with the Amended and Restated Bylaws of the Company, or the Bylaws, the Special Meeting has been called for the following purposes:

1.                   To approve the business combination transaction pursuant to an Implementation Agreement, dated September 4, 2019, or the Implementation Agreement, by and among the Company, Curetis N.V., a public company with limited liability under the Laws of the Netherlands, or the Seller, and Crystal GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany and wholly owned subsidiary of the Company, or the Purchaser. We refer to this proposal as the “Transaction Proposal.”

2.                   To approve the issuance of shares of the Common Stock to be issued or reserved for issuance in connection with the transaction contemplated by the Implementation Agreement, or the Transaction Shares, in accordance with the Implementation Agreement and as required by and in accordance with the applicable rules of The Nasdaq Capital Market, or Nasdaq. We refer to this proposal as the “Share Issuance Proposal.”

3.                   To approve a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Special Meeting, the Company is not authorized to consummate the transactions contemplated by Proposals No. 1 and 2. We refer to this proposal as the “Adjournment Proposal.”

Pursuant to the Bylaws of the Company, no business is proper for consideration, or may be acted upon, at the Special Meeting, except as set forth in the Notice of Special Meeting of Stockholders.

Shares represented by duly executed and unrevoked proxies will be voted at the Special Meeting and any postponement or adjournment thereof in accordance with the specifications made therein. If no such specification is made, shares represented by duly executed and unrevoked proxies will be voted “FOR” each of Proposals 1, 2 and 3.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

RISK FACTORS

Investing in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this proxy statement/prospectus, including our financial statements, the unaudited pro forma condensed combined financial information, the Curetis Business combined financial statements, and, in each case, the related notes included herein, before making an investment decision or voting on the proposals. If any of these risks occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline and you could lose part or all of your investment.

Risks Related to the Pending Transaction

We may not be successful in consummating the proposed Transaction, which failure could have a material adverse effect on us.

The proposed combination with Curetis is subject to the approval of our stockholders and debt holder, and by the shareholders and debt holders of Curetis N.V. and Curetis GmbH, and we cannot provide any assurance that such approvals will be obtained. If the proposed transaction is not approved by our stockholders at the Special Meeting, we may become liable to reimburse Curetis N.V. for its expenses up to a maximum amount of $250,000. Curetis N.V. has undertaken the same obligations with respect to us if the shareholders of Curetis N.V. do not approve the proposed transaction. In case of termination of the Implementation Agreement in accordance with its terms, Curetis N.V. would also be required to repay us under the Interim Facility, and we would need to re-focus our attention on OpGen as a stand-alone business. Any of these events would have a material adverse impact on our financial condition.

Completion of the proposed Transaction is subject to the fulfillment or the waiver, as the case may be, of a number of conditions precedent, which may prevent, delay, hinder or otherwise adversely affect the proposed Transaction.

Completion of the proposed Transaction is subject to the fulfillment or the waiver, as the case may be, of a number of conditions precedent as described in the Implementation Agreement. These include, in addition to customary closing conditions, the necessary shareholder approvals by the requisite majority of shareholders of Curetis N.V. and the stockholders of OpGen; the assumption by us of the obligation under the Curetis Convertible Notes, including the need to provide for the conversion of the Curetis Convertible Notes into shares of OpGen’s common stock; the entry into the Interim Facility and the funding thereunder; and the receipt of the applicable consents or waivers to be received or granted by certain debt financing providers of Curetis N.V., Curetis GmbH and OpGen. Failure to satisfy any of the conditions may result in the Transaction not being closed.

We have agreed to use a significant portion of the capital raised in the October 2019 Offering to support the operations of Curetis in the period prior to the closing of the Transaction. This reduces the proceeds invested in OpGen’s operations, which could have a negative impact on OpGen if the proposed Transaction is not consummated, or if the approval process takes longer than anticipated.

Pursuant to the Implementation Agreement, we have entered into the Interim Facility and agreed provide $4 million from the proceeds of the October 2019 Offering to fund and support the operations, and satisfy the current obligations, of Curetis in the period prior to closing. If such period extends for a longer period than anticipated or the amount loaned to Curetis is higher than expected, such commitment could negatively impact the availability of resources to devote to the OpGen business or to the business of Newco if the closing occurs, and we may be required to raise additional capital.

We entered into the Interim Facility, a short-term, subordinated credit facility with Curetis. The Interim Facility is unsecured, subordinated to the existing and future indebtedness of Curetis, including the EIB debt, and provides a mechanism for us to lend funds to Curetis to support its current business and pay its short-term obligations. We may need to lend more money to Curetis than anticipated. If that happens, we will have less money available to fund Newco, or to fund OpGen if the transactions contemplated by the Implementation Agreement do not close. If the transactions contemplated by the Implementation Agreement do not close, we anticipate that it will be difficult for Curetis to repay us under the Interim Facility, if at all. Any unanticipated loans under the Interim Facility, or failure to be repaid under the Interim Facility would have a material adverse effect on our financial condition.

 

 

The date on which the proposed Transaction will close is uncertain.

The date on which the Transaction will close depends on the satisfaction of the conditions set forth in the Implementation Agreement, or the waiver of certain of those conditions by OpGen or Curetis N.V. While OpGen expects to complete the Transaction during the first quarter of 2020, the closing date of the Transaction might be earlier or later than expected because of unforeseen events.

If the proposed Transaction does not close, our financial condition will be materially adversely affected.

If we or Curetis N.V. cannot meet all of the conditions to close under the Implementation Agreement, and the proposed Transaction does not occur, we will be in a difficult financial position. We will have lent funds to Curetis under the Interim Facility, and there is a real possibility that Curetis would not be able to repay us some or all of such debt. In addition, we would have to refocus our attention on OpGen as a stand-alone business and would likely need to raise additional funds to support that business going forward. We cannot assure you that we would be able to continue OpGen as a stand-alone business or be able to raise sufficient capital to do so. If we are unable to raise equity capital, we may need to incur debt financing, if possible, sell assets, curtail business programs, seek bankruptcy protection or dissolve.

We will incur significant indebtedness as a result of the combination with Curetis, which could have a material adverse effect on our financial condition.

If the combination with Curetis closes, we will assume the indebtedness of Curetis N.V. and Curetis. As of November 1, 2019, Curetis N.V. owed indebtedness of $1.4 million to lenders under the Curetis Convertible Notes and as of June 30, 2019, Curetis owed indebtedness of $20.4 million of principal (plus interest of $1.6 million) under a loan provided by the EIB. In addition, OpGen has secured indebtedness to Merck Global Health Innovation Fund, or MGHIF, under the amended and restated promissory note issued in June 2017 to MGHIF, or the MGHIF Note. Pursuant to the Implementation Agreement, OpGen will be required to assume the indebtedness of Curetis N.V. (subject to approval of the holder of the Curetis Convertible Notes) and of Curetis, and Newco will therefore be obligated under substantially more indebtedness than OpGen currently owes. Newco may not be able to generate sufficient cash to service all of its indebtedness and may be forced to take other actions to satisfy its obligations under indebtedness that may not be successful. The inability in the future to repay such indebtedness when due would have a material adverse effect on Newco.

We will incur significant transaction costs as a result of the proposed Transaction, which could have a material adverse effect on our financial condition.

We expect to incur significant one-time transaction costs related to the proposed business combination with Curetis. These transaction costs include legal and accounting fees and expenses and filing fees, printing expenses and other related charges. We may also incur additional unanticipated transaction costs in connection with the Transaction. A portion of the transaction costs related to the proposed business combination will be incurred regardless of whether the Transaction is completed. Additional costs will be incurred in connection with integrating the two companies’ businesses. Costs in connection with the Transaction and integration may be higher than expected. These costs could adversely affect OpGen’s financial condition, operating results or prospects of Newco.

The proposed Transaction will significantly change the business and operations of OpGen. We may face challenges integrating the businesses.

Following the consummation of the proposed Transaction, OpGen will continue as the operating entity and both the size and geographic scope of OpGen’s business will significantly increase. Most of the Curetis business is currently conducted in Europe, Asia and other countries outside of the United States, and many of the Curetis employees are located outside of the United States. In addition, the majority of the initial board of directors will consist of individuals appointed by Curetis N.V., and we expect that the focus of Newco may shift to Curetis operations. We may face challenges integrating such geographically diverse businesses and implementing a smooth transition of business focus and governance in a timely or efficient manner. In particular, if the effort we devote to the integration of our businesses with that of Curetis diverts more management time or other resources from carrying out our operations than we originally planned, our ability to maintain and increase revenues as well as manage our costs could be impaired. Furthermore, our capacity to expand other parts of our existing businesses may be impaired. We also cannot assure you that the combination of the OpGen and Curetis businesses will function as we anticipate, or that significant synergies will result from the business combination. Any of the above could have a material adverse effect on our business.

 

Management and the board of directors will change upon the consummation of the Transaction. We cannot assure you that this will not have a material impact on the Newco.

The current chief executive officer of Curetis N.V., Oliver Schacht, Ph.D., will be the chief executive officer of Newco, and Timothy C. Dec will continue to serve as chief financial officer. The Implementation Agreement provides that four members of the initial board of directors of Newco following the closing will be appointed by Curetis N.V. and two by the board of directors of OpGen. The parties have agreed to add a seventh director, to be recommended by OpGen, but that process has not started. The current members of the management board of Curetis N.V. have experience serving on the boards of companies listed on Euronext and German Frankfurt Stock Exchange companies, but not on U.S. publicly-listed companies and this could impact the transition of Newco.

Some executive officers and directors of OpGen and Curetis N.V. have interests in the Transaction that are different from ordinary investors and that may influence them to support or approve the Transaction without regard to the interests of ordinary investors.

Some officers and directors of OpGen and Curetis N.V. are parties to arrangements that provide them with interests in the Transaction that are different from other investors, including, among others, service as an officer or director of Newco following the closing of the Transaction, severance and retention plan benefits, the acceleration of equity award vesting, and continued indemnification.

The combination of the OpGen and Curetis businesses may not lead to the growth and success of the combined business that we believe will occur.

Although we believe the combination of the OpGen and Curetis businesses provides a significant commercial opportunity for growth, we may not realize all of the synergies that we anticipate and may not be successful in implementing our commercialization strategy. Our combined business will be subject to all of the risks and uncertainties inherent in the pursuit of growth in our industry and we may not be able to successfully sell our products, obtain the regulatory clearances and approvals we apply for or, or realize the anticipated benefits from our distribution, collaboration and other commercial partners. If we are not able to grow the business of Newco as a commercial enterprise, our financial condition will be negatively impacted.

Integrating the businesses of OpGen and Curetis may disrupt or have a negative impact on Newco.

We could have difficulty integrating the assets, personnel, operations and business of OpGen and Curetis. The proposed transaction is complex and we will need to devote significant time and resources to integrating the businesses. Risks that could impact us negatively include:

·

the difficulty of integrating the acquired companies, and their concepts and operations;

·

the difficulty in combining our financial operations and reporting;

·

the potential disruption of the ongoing businesses and distraction of our management;

·

changes in our business focus and/or management;

·

risks related to international operations;

·

the potential impairment of relationships with employees and partners as a result of any integration of new management personnel; and

·

the potential inability to manage an increased number of locations and employees.

If we are not successful in addressing these risks effectively, the business of Newco could be severely impaired.

If OpGen or Curetis receives a proposal for an alternative transaction, and one of us accepts such proposal, the Transaction will not close.

OpGen may be liable to pay Curetis N.V. a termination fee of $500,000 if our board of directors changes its recommendation to approve the proposed transaction at the Special Meeting, or if following a refusal by our stockholders to approve the proposed Transaction at the Special Meeting, we enter into a definitive agreement implementing an alternative transaction with a third party. Curetis N.V. has undertaken the same obligations with respect to us if the shareholders of Curetis N.V. do not approve the proposed transaction or if the boards of Curetis N.V. change their recommendation to approve the proposed transaction. Any such alternative transaction could divert the attention of our board of directors and management team, and would, if accepted, cause the termination of the Transaction.

 

 

The opinion of OpGen’s financial advisor does not reflect changes in circumstances that may have occurred or that may occur between the signing of the Implementation Agreement and the closing of the Transaction.

The opinion rendered to the OpGen Board by Crosstree was provided in connection with, and at the time of, the OpGen Board of Director’s evaluation of the Transaction. This opinion was based on the financial analysis performed, which considered market and other conditions then in effect, and financial forecasts and other information made available to them, as of the date of their opinion, which may have changed, or may change, after the date of the opinion. The OpGen Board of Directors has not obtained an updated opinion from Crosstree as of the date of this proxy statement/prospectus or as of any other date, nor does it expect to receive an updated, revised or reaffirmed opinion prior to the closing of the Transaction. Changes in the operations and prospects of OpGen, general market and economic conditions and other factors that may be beyond the control of OpGen, and which changes were not taken into account by OpGen’s financial advisor in rendering its opinion, may significantly alter the value of OpGen or the prices of OpGen shares by the time the Transaction closes. The opinion does not speak as of the time the Transaction will be closed or as of any date other than the date of such opinion. Because there is no plan for OpGen’s financial advisor to update its opinion, the opinion does not address the fairness of the Transaction consideration, from a financial point of view, at any time other than the time such opinion was issued, even though the OpGen Board of Director’s recommendation that OpGen shareholders vote “FOR” the proposals related to the Transaction is made as of the date of this proxy statement/prospectus.

We expect our ability to utilize our net operating loss carryforwards will be limited as a result of an “ownership change,” as defined in Section 382 of the Internal Revenue Code triggered by consummation of the Transaction.

As of December 31, 2018, we had approximately $178.2 million of net operating loss, or NOL, carryforwards for U.S. federal tax purposes. Under U.S. federal income tax law, we generally can use our NOL carryforwards (and certain tax credits) to offset ordinary taxable income, thereby reducing our U.S. federal income tax liability, for up to 20 years from the year in which the losses were generated, after which time they will expire. State NOL carryforwards (and certain tax credits) generally may be used to offset future state taxable income for 20 years from the year in which the losses are generated, depending on the state, after which time they will expire. The rate at which we can utilize our NOL carryforwards is limited (which could result in NOL carryforwards expiring prior to their use) each time we experience an “ownership change,” as determined under Section 382 of the Internal Revenue Code. A Section 382 ownership change generally occurs if a shareholder or a group of shareholders who are deemed to own at least 5% of our common stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. If an ownership change occurs, Section 382 generally would impose an annual limit on the amount of post-ownership change taxable income that may be offset with pre-ownership change NOL carryforwards equal to the product of the total value of our outstanding equity immediately prior to the ownership change (reduced by certain items specified in Section 382) and the U.S. federal long-term tax-exempt interest rate in effect at the time of the ownership change. A number of special and complex rules apply in calculating this Section 382 limitation. While the complexity of Section 382 makes it difficult to determine whether and when an ownership change has occurred, and if a portion of our NOLs is subject to an annual limitation under Section 382, we believe that an additional ownership change may occur upon the consummation of the transaction with Curetis. In addition, our ability to use our NOL carryforwards will be limited to the extent we fail to generate enough taxable income in the future before they expire. Existing and future Section 382 limitations and our inability to generate enough taxable income in the future could result in a substantial portion of our NOL carryforwards expiring before they are used. In addition, under the 2017 Tax Cut and Jobs Act, effective for losses arising in taxable years beginning after December 31, 2017, the deduction for NOLs is limited to 80% of taxable income, NOLs can no longer be carried back, and NOLs can be carried forward indefinitely.

Current OpGen stockholders will have a reduced ownership and voting interest after the business combination and will exercise less influence over management.

Current OpGen stockholders have the right to vote in the election of the OpGen Board of Directors and on other matters affecting OpGen. Immediately after the business combination is completed, it is estimated that then current OpGen stockholders, including purchasers in the October 2019 Offering, will own approximately 67.7%, and Curetis N.V. will own approximately 32.3% of the outstanding shares of OpGen, in each based on the sale of 2,590,170 units and 2,109,830 pre-funded units in the October 2019 Offering and the exercise of all pre-funded warrants. As a result of the business combination, current OpGen stockholders will have less influence on the management and policies of OpGen post-closing than they currently have.

The unaudited pro forma financial statements included in this proxy statement/prospectus are presented for illustrative purposes only and the actual financial condition and results of operations of Newco following the business combination may differ materially.

The unaudited pro forma financial statements contained in this proxy statement/prospectus are presented for illustrative purposes only, are based on various adjustments, assumptions and preliminary estimates and may not be an indication of the Newco’s financial condition or results of operations following the business combination for several reasons. The actual financial condition and results of operations of Newco following the business combination may not be consistent with, or evident from, these unaudited pro forma financial statements. In addition, the assumptions used in preparing the unaudited pro forma financial information may not prove to be accurate, and other factors may affect Newco’s financial condition or results of operations following the business combination. Any potential decline in Newco financial condition or results of operations may cause significant variations in the stock price of Newco.

 

 

The market price of Newco common stock after the business combination may be affected by factors different from those affecting the shares of OpGen currently.

Curetis’ business differs in important respects from that of OpGen, and, accordingly, the results of operations of Newco and the market price of Newco common stock after the completion of the business combination may be affected by factors different from those currently affecting the results of operations of each of OpGen. For a discussion of the business of OpGen and of certain factors to consider in connection with OpGen’s business, see OpGen’s Business” and the consolidated financial statements of OpGen elsewhere in this proxy statement/prospectus. For a discussion of the business of Curetis and of certain factors to consider in connection with Curetis’ business, see “Curetis’ Business” and the financial statements of Curetis included elsewhere in this proxy statement/prospectus.

Risks Related to Newco’s Business

We have a history of losses, and we expect to incur losses for the next several years. The report of our independent registered public accounting firm on our financial statements for the years ended December 31, 2018 and 2017 contains explanatory language that substantial doubt exists about our ability to continue as a going concern.

We have incurred substantial losses since our inception, and we expect Newco will continue to incur additional losses for the next several years. For the years ended December 31, 2018 and 2017, we had net losses of $13.4 million and $15.4 million, respectively. Net loss for the nine months ended September 30, 2019 was $9.9 million. From our inception through September 30, 2019, we had an accumulated deficit of $172.0 million. The report of our independent registered public accounting firm on our financial statements for the years ended December 31, 2018 and 2017 contains explanatory language that substantial doubt exists about our ability to continue as a going concern. We completed a number of financings in 2019, 2018 and 2017, including offerings in October 2019, March 2019, October 2018, February 2018, July 2017, and an at-the-market, or ATM, public offering commenced in September 2016 and terminated in October 2018. The net proceeds from such financings were approximately $44.2 million.

We expect to continue to incur significant operating expenses relating to, among other things:

·

commercializing the Unyvero A50 LRT test for BAL specimens and expand the base of commercial customers;

·

entering into strategic partnering and licensing agreements to provide funding and support further development of the Unyvero A30 RQ platform;

·

completing development and clinical evaluations, obtaining necessary regulatory approvals, and successfully commercializing the Acuitas AMR Gene Panel (Urine) for cUTIs;

·

commercializing the Acuitas AMR Gene Panel tests for RUO, which started in January 2018 and for which on May 13, 2019, we filed a 510(k) submission with the FDA for clearance for the detection of antimicrobial resistance genes in bacterial isolates;

·

making additional FDA 510(k) submissions for the Acuitas AMR Gene Panel (Urine) test and the Acuitas Lighthouse Software (AMR Gene Panel Prediction) anticipated during 2020;

·

further advancing the development of ARESdb and the ARES Technology Platform and NGS-based development and clinical validation of infectious disease applications based on these assets;

·

conducting additional clinical trials as we seek regulatory approval for some of our product offerings;

·

developing, presenting and publishing additional clinical and economic utility data intended to increase clinician adoption of our current and future products and services;

·

expanding our operating capabilities;

·

developing additional collaborative arrangements;

·

maintaining, expanding and protecting our intellectual property portfolio and trade secrets;

 

 

 

·

expanding the size and geographic reach of our sales force and our marketing capabilities to commercialize potential future products and services; and

·

recruiting and retaining our quality assurance and compliance personnel and maintaining compliance with regulatory requirements.

Even if we achieve significant revenues, we may not become profitable, and even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain consistently profitable could adversely affect the market price of our common stock and could significantly impair our ability to raise capital, expand our business or continue to pursue our growth strategy. We believe that current cash on hand will be sufficient to fund operations into the first quarter of 2020. If, during the first quarter of 2020 we are unable to raise additional capital we would be compelled to reduce general and administrative expenses and delay research and development projects, including the purchase of scientific equipment and supplies, until we are able to obtain sufficient financing. We have no committed sources of capital and may find it difficult to raise money on terms favorable to us or at all. The failure to obtain sufficient capital to support our operations until we can achieve profitability would have an adverse effect on our business and financial condition, potentially force us to cease operations and/or liquidate.

Newco expects to make significant additional investment in the future related to its diagnostic products and services, which investments will require additional financing transactions through the issuance of equity or debt. If we are unable to make such investments our business will suffer.

We anticipate that we will need to make significant investments in the Unyvero platform, ARESdb, Acuitas AMR Gene Panel tests in development and Acuitas Lighthouse Software products in order to make our business profitable. We need to expend significant investments to develop such products and services. There can be no assurance that we can obtain sufficient resources or capital from operations or future financings to support these development activities.

To meet our capital needs, we are considering multiple alternatives, including, but not limited to, additional equity financings, debt financings and other funding transactions, licensing and/or partnering arrangements and business combination transactions. We believe that additional equity financings are the most likely source of capital. There can be no assurance that we will be able to complete any such financing transaction on acceptable terms or otherwise.

In July 2015, in connection with OpGen’s acquisition of its subsidiary, AdvanDx, MGHIF made investments in the Company, including the $1 million MGHIF Note, secured by a security interest in substantially all of our assets, including our intellectual property assets. The debt is due to be paid in six semi-annual payments of $166,667 beginning on January 2, 2019 and ending on July 1, 2021. Such secured creditor rights could negatively impact our ability to raise money in the future. If we default on payments under the MGHIF Note, MGHIF has the rights of a secured creditor. If those rights are exercised, it could have a material adverse effect on our financial condition.

If the Transaction closes, Newco will have significant additional indebtedness through the assumption of owed indebtedness of $1.4 million under the Curetis Convertible Notes and, as of June 30, 2019, of $20.4 million of principal (plus interest of $1.6 million) under a loan provided by the EIB. We may find it difficult to repay such indebtedness in the future, and the inability to pay such debt would have a material adverse effect on our financial condition.

The process to obtain and maintain FDA clearances or approvals for Newco’s products is complex and time-consuming. If Newco fails to obtain such clearances or approvals, its business and results of operations will be materially adversely impacted.

The process of obtaining regulatory clearances or approvals to market a medical device can be costly and time consuming, and we may not be able to obtain these clearances or approvals on a timely basis, if at all. Anyone who wants to market in the United States a Class I, II, or III device intended for human use for which a Premarket Approval application, or a PMA, is not required, must make a 510(k) submission to the FDA unless the device is exempt from 510(k) requirements of the Federal Food, Drug, and Cosmetic Act, or the FD&C Act. The FDA will clear marketing of a lower risk medical device through the 510(k) process if the manufacturer demonstrates that the new product is “substantially equivalent” to an existing, or “predicate,” FDA-cleared product. A device may not be marketed in the United States until the applicant receives a letter declaring the device substantially equivalent. If the FDA declares a device as not substantially equivalent, the device is automatically classified as a Class III (high-risk) device for which a PMA or de novo clearance is required. After an FDA determination that a device is not substantially equivalent, the 510(k) applicant may: (i) resubmit another 510(k) with new data; (ii) request a Class I or II designation through the de novo classification process; (iii) file a reclassification petition; or (iv) submit a PMA. The PMA process is more costly, lengthy and uncertain than the 510(k) clearance process. A PMA application must be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing and labeling data, to demonstrate to the FDA’s satisfaction the safety and efficacy of the device for its intended use.

 

 

We submitted a 510(k) submission seeking FDA clearance for our Acuitas AMR Gene Panel (Isolates) product in May 2019. In connection with the FDA’s Substantive Review, we received an AI Request in July 2019, effectively placing our submission on hold until we submit a complete response, which must be issued within 180 days of the date listed on the AI Request. Questions from the FDA have focused on the intended use of the test including the correlation between marker detection and antibiotic resistance, the level of evidence to support resistance marker/organism claims, whole genome sequencing (WGS) test validation and use as a comparator method, clinical performance of the test compared to WGS and further analysis of individual study results, in silico analysis to support test evaluations, further analysis of analytical study results, additional information regarding instrumentation for use with the test, and test reporting and labeling. We have been working interactively with the FDA to address the deficiencies and questions from the AI correspondence as well as additional questions that have arisen during the interactive response process. As of January 6, 2020, OpGen had filed its formal response to the FDA’s July 2019 AI Request. OpGen will continue to work interactively with the FDA to submit any remaining requests for additional information during the period remaining in the 510(k) review process following the formal response though it is possible that additional questions may arise during the remaining review period. If additional questions arise during the remainder of the review process, we may be unable to meet the established deadline. If we are unable to meet this deadline, we could be required to either let the submission lapse or withdraw our 510(k) submission for re-submission at such time when the requested data are available. Consequently, the refile process could add several months to the anticipated clearance timeline.

We anticipate making an additional FDA submission in the summer of 2020 for our Acuitas AMR Gene Panel (Urine) product followed by a submission for the Acuitas Lighthouse software.

If we or Curetis are not able to achieve clearance of such products and services on a timely basis, or at all, we and Curetis will not be able to pursue our business strategy on the anticipated timeline and OpGen’s business, results of operations and financial condition following the Transaction will be materially adversely impacted.

There is no guarantee that the FDA will grant 510(k) clearance or PMA approval of OpGen’s Acuitas AMR Gene Panel tests or Acuitas Lighthouse Software or for any future products Newco may develop, and failure to obtain necessary clearances or approvals for such future products would adversely affect our ability to grow Newco’s business.

Before we begin to label and market our products for use as clinical diagnostics in the United States, unless an exemption applies, we are required to obtain prior 510(k) clearance or a PMA from the FDA. In 2019 we made one submission and we are currently in the process of completing and intend to submit two additional 510(k) filings with the FDA for our Acuitas AMR Gene Panel tests and Acuitas Lighthouse Software. Such process is complex, time consuming and expensive. The FDA may not clear or approve these products for the indications that are necessary or desirable for successful commercialization. Failure to receive, or a significant delay in receiving, a required clearance or approval for our products would have a material adverse effect on our ability to expand our business.

Any 510(k) clearance, de novo authorization or PMA approval we obtain for any future product would place substantial restrictions on how our device is marketed or sold. The FDA will continue to place considerable restrictions on our products, including, but not limited to, the obligation to comply with the Quality System Regulation, or QSR, registering manufacturing facilities, listing the products with the FDA, and complying with labeling, marketing, complaint handling, medical device reporting requirements, and reporting certain corrections and removals. Obtaining FDA clearance or approval for diagnostics can be expensive and uncertain, and generally takes from several months to several years from submission, and generally requires detailed and comprehensive scientific and clinical data, as well as compliance with FDA regulations. In addition, we have limited experience in obtaining PMA approval from the FDA and are therefore supplementing our operational capabilities to manage the more complex processes needed to obtain and maintain PMAs. Notwithstanding the expense, these efforts may never result in FDA approval, de novo authorizations, or 510(k) clearance. Even if we were to obtain regulatory approval, authorization or clearance, it may not be for the uses we believe are important or commercially attractive, in which case we would not market our product for those uses.

 

Newco may be subject to fines, penalties, injunctions or other enforcement actions if the FDA determines that we are promoting unapproved devices or marketing our products for unapproved or “off-label” uses.

We are currently offering for sale our FDA-cleared QuickFISH and PNA FISH products for clinical diagnostic use and our Acuitas AMR Gene Panel tests and Acuitas Lighthouse Software for RUO to CROs, pharmaceutical companies, hospitals and other healthcare facilities. An RUO product may not be marketed for clinical diagnostic use and must be labeled accordingly. Products that are intended for research use only and are properly labeled as RUO are exempt from compliance with the FDA’s pre- and post-market requirements to which traditional devices are subject, including the requirement that the product be cleared or approved before commercialization and QSR requirements. However, merely including the required RUO labeling will not necessarily exempt the device from the FDA's 510(k) clearance, premarket approval, or other requirements if the circumstances surrounding the distribution of the product indicate an objective intent to market the product for clinical diagnostic use.

According to the FDA’s November 2013 Guidance, circumstances indicating manufacturer intent to market an in vitro device for diagnostic use may include written or verbal marketing claims regarding a product's clinical efficacy or performance in clinical applications, instructions for clinical interpretation, clinical information, product names, or descriptors that claim or suggest that the IVD product may be used for any clinical diagnostic use, including a clinical investigation that is not exempt from the FDA’s investigational device exemption regulations. Other indications include a manufacturer's provision of technical support for clinical validation or clinical applications or solicitation of business from clinical laboratories that do not conduct research activities.

We believe that our promotional activities for our products fall within the scope of the FDA’s enforcement discretion, as described in its November 2013 Guidance, and applicable premarket exemptions. However, the FDA could disagree and require us to stop promoting our Acuitas AMR Gene Panel tests and Acuitas Lighthouse Software as RUO devices and obtain FDA clearance or approval for such tests. We could be subject to regulatory or enforcement actions for any of the violations described above, including, but not limited to, the issuance of an untitled letter, a Form 483 letter, a warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and adoption of the products would be impaired.

A number of the rapid diagnostic products are regulated by the FDA and non-U.S. regulatory authorities. If Newco or its suppliers fail to comply with ongoing FDA, or other foreign regulatory authority, requirements, or if we experience unanticipated problems with the products, these products could be subject to restrictions or withdrawal from the market.

In vitro diagnostic products are generally regulated as medical devices, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities for such products, are subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and foreign regulatory bodies. In particular, for any of Newco’s products commercialized as medical devices, we and our suppliers are and will be required to comply with the following regulatory requirements, among others:

·

the registration and listing regulation, which requires manufacturers to register all manufacturing facilities and list all medical devices placed into commercial distribution;

·

the QSR, which requires manufacturers, including third party manufacturers, to follow elaborate design, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures during the manufacturing process;

·

labeling regulations and unique device identification requirements;

·

advertising and promotion requirements;

·

restrictions on sale, distribution or use of a device;

·

PMA annual reporting requirements;

·

the FDA’s general prohibition against promoting products for unapproved or “off-label” uses;

·

the Medical Device Reporting, or MDR, regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to reoccur;

·

medical device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;

 

 

 

 

 

·

recall requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health consequences or death;

·

an order of repair, replacement or refund;

·

device tracking requirements; and

·

post approval study and post market surveillance requirements.

The FDA enforces the QSR and similarly, other regulatory bodies with similar regulations enforce those regulations through periodic inspections. The failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions against us: (1) untitled letters, Form 483 observation letters, warning letters, fines, injunctions, consent decrees and civil penalties; (2) unanticipated expenditures to address or defend such actions; (3) customer notifications for repair, replacement and refunds; (4) recall, detention or seizure of our products; (5) operating restrictions or partial suspension or total shutdown of production; (6) refusing or delaying our requests for 510(k) clearance or premarket approval of new products or modified products; (7) operating restrictions; (8) withdrawing 510(k) clearances or PMA approvals that have already been granted; (9) refusal to grant export approval for our products; or (10) criminal prosecution.

If any of these actions were to occur, it could harm our reputation and cause our product sales and profitability to suffer and may prevent us from generating revenue. Furthermore, if any of our key component suppliers are not in compliance with all applicable regulatory requirements, we may be unable to produce our products on a timely basis and in the required quantities, if at all.

Some of the clearances obtained are subject to limitations on the intended uses for which the product may be marketed, which can reduce our potential to successfully commercialize the product and generate revenue from the product. If the FDA determines that our promotional materials, labeling, training or other marketing or educational activities constitute promotion of an unapproved use, it could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.

In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products, and we must comply with medical device reporting requirements, including the reporting of adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR, may result in changes to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results and prospects.

If we were to lose, or have restrictions imposed on, FDA clearances received to date, or clearances we may receive in the future, our business, operations, financial condition and results of operations would likely be significantly adversely affected.

OpGen’s and Curetis’ products have in the past been, and Newco’s products may in the future be, subject to product recalls and other similar actions that could harm its reputation, business and financial results.

The FDA and similar foreign governmental authorities have the authority to require the recall of regulated products in the event of certain health risks and/or material deficiencies or defects in design or manufacture. Medical device recalls are typically conducted voluntarily by the manufacturer. to correct a material product deficiency, improve device performance, or correct violations of applicable FDA regulations. When a recall is initiated to reduce a risk to health posed by the device or to remedy a violation of the FD&C Act caused by the device which may present a risk to health, the FDA requires that certain classifications of recalls be reported to the FDA within 10 working days after the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA.

 

We have voluntarily initiated a number of device recalls in the past. For example, on May 14, 2018, we issued a recall of certain QuickFISH products due to a quality-control failure that occurred prior to distribution, which would have invalidated test results, and, on March 18, 2019, we issued a recall of a batch of our PNA FISH products due to the potential for diminished performance that could result in an invalid control result. The 2018 recall was terminated on April 8, 2019, and the 2019 recall was terminated on August 5, 2019.

For example, as a manufacturer of CE-IVD-marked medical devices sold on the European market, Curetis must maintain a vigilance system that enables it to notify relevant regulatory authorities of incidents which may lead to (or may have led to) death or serious health consequences for individuals, or to a recall of the relevant product. This includes obligations to submit reports to the relevant national competent authority for recording and evaluating when incidents (e.g. any malfunction or deterioration in the characteristics or performance of a device) occur, to disseminate information that could be used to prevent a recurrence of the incident or to alleviate the consequences of such incidents, and, where appropriate, to implement a “Field Safety Corrective Action” (such as a product recall) to reduce the risk of death or serious injury associated with the use of the device.

We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted. Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations.

Newco’s products and services may never achieve significant commercial market acceptance.

Newco’s products and services may never gain significant acceptance in the marketplace and, therefore, may never generate substantial revenue or profits for us. Our ability to achieve commercial market acceptance for our products will depend on several factors, including:

·

our ability to convince the medical community of the clinical utility of our products and services and their potential advantages over existing tests, including our surveillance services offering, despite the lack of reimbursement for such services;

·

our ability to successfully develop automated rapid pathogen identification and antibiotic resistance testing products and services, including bioinformatics, and convince hospitals and other healthcare providers of the patient safety, improved patient outcomes and potential cost savings that could result;

·

our ability to grow our microbial isolate and antibiotic resistance genes knowledgebase;

·

our ability to convince the medical community of the accuracy and speed of our products and services, as contrasted with the current methods available; and

·

the willingness of hospitals and physicians to use our products and services.

The market potential and opportunities for Curetis’ lead products may be smaller than currently anticipated, lowering potential revenue for Newco.

Curetis makes projections on the number of people who have severe disease incidences such as pneumonia, implant and tissue infections and other indications that Curetis is targeting. These projections are derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations, governmental statistics and market research but are highly contingent on a number of variables that are difficult to predict and may prove to be too high, resulting in a smaller population of patients who could benefit from Curetis lead products, than Curetis currently anticipates, which would result in lower potential revenue for Newco.

Newco’s future success is dependent upon its ability to expand its customer base.

The current customers OpGen is targeting for its Acuitas AMR Gene Panel (RUO) and Acuitas Lighthouse Software (RUO) test products and services are hospital systems, acute care hospitals, particularly those with advanced care units, such as intensive care units, community-based hospitals and governmental units, such as public health facilities. If the Acuitas AMR Gene Panel and Acuitas Lighthouse Software products are approved for diagnostic use, we will need to provide a compelling case for the savings, patient safety and recovery, reduced lengths of stay and reduced costs, among other benefits, that come from adopting our MDRO diagnosis and antibiotic stewardship products and services. If we are not able to successfully increase our customer base and lawfully commercialize these products for diagnostic use, sales of our products and our margins may not meet expectations. Attracting new customers and introducing new products and services requires substantial time and expense. Any failure to expand our existing customer base, or launch new products and services, would adversely affect our ability to improve our operating results.

We have seen declining revenues from our current customers for our QuickFISH products as we work to transition to Acuitas automated rapid pathogen identification products. Continued decline without additional product offerings could materially, adversely affect our business.

 

 

The current customers Curetis is targeting for its Unyvero IVD test products and Ares Genetics services are hospital systems, acute care hospitals, particularly those with advanced care units, such as intensive care units, community-based hospitals and governmental units, such as public health facilities, as well as pharmaceutical companies, research products and BioIT companies and large IVD companies. Curetis will need to provide a compelling case for the savings, patient safety and recovery, reduced lengths of stay and reduced costs, among other benefits, that come from adopting our MDRO diagnosis and antibiotic stewardship products and services. If we are not able to successfully increase our customer base and lawfully commercialize these products for diagnostic use, sales of our products and services and our margins may not meet expectations. Attracting new customers and introducing new products and services requires substantial time and expense. Any failure to expand our existing customer base, or launch new products and services, would adversely affect our ability to improve our operating results.

OpGen and Curetis are each developing new in vitro diagnostic tests for more rapid identification of MDROs and antibiotic resistance genomic information. If Newco is unable to successfully develop, receive regulatory clearance or approval for or commercialize such new products and services, Newco’s business will be materially, adversely affected.

We are developing the Acuitas AMR Gene Panel (Urine) as a new under-three-hour antibiotic resistance diagnostic product that we believe, if cleared for clinical diagnostic use, could help address many of the current issues with the need for more rapid identification of infectious diseases and testing for antibiotic resistance. Development of new diagnostic products is difficult, and we cannot assure you that we will be successful in such product development efforts, or, if successful, that we will receive the necessary regulatory clearances to commercialize such products. We have identified up to 47 antibiotic resistance genes that, if cleared for clinical diagnostic use, could help guide clinician antibiotic therapy decisions when test results are evaluated using the Acuitas Lighthouse Software, if similarly cleared. Although we have demonstrated preliminary feasibility, and confirmed genotype/phenotype predictive algorithms, such product development efforts will require us to work collaboratively with other companies, academic and government laboratories, and healthcare providers to access sufficient numbers of microbial isolates, develop the diagnostic tests, successfully conduct the necessary clinical trials and apply for and receive regulatory clearances or approvals for the intended use of such diagnostic tests. In addition, we would need to successfully commercialize such products. Such product development, clearance or approval and commercialization activities are time-consuming and expensive and there can be no assurance that we will have sufficient funds to successfully complete such efforts. We currently plan to complete development and submit for FDA clearance to market such antibiotic resistance diagnostic tests in the United States in 2020. Any significant delays or failures in this process could have a material adverse effect on our business and financial condition.

We offer these products in development to the RUO market and for other non-clinical research uses prior to receiving clearance or approval to commercialize these products in development for use in the clinical setting. As such, we are required to comply with the applicable laws and regulations regarding such other uses. Failure to comply with such laws and regulations may have a significant impact on the Company.

Curetis began marketing and selling its Unyvero products in Europe in 2012. Over the years Curetis has built up its commercial channel infrastructure and distribution for the Unyvero System and Application Cartridges addressing hospitalized pneumonia, or HPN, implant and tissue infection, or ITI, bloodstream infection from positively flagged blood cultures, BCU, intra-abdominal infection, or IAI and UTI mainly in Europe and Asia, and has only recently begun to commercialize its Unyvero System and the LRT Application Cartridge by way of direct sales and marketing in the United States following the clearance by the FDA in April 2018. Thus, it has relatively limited experience in marketing and selling.

Except for the United States, in all other markets Curetis relies on a third-party distribution model. As of September 30, 2019, Curetis has entered into distribution agreements with 18 distributors covering 43 countries. Although Curetis has made progress in expanding its network of distributors, if Curetis should be unable to find suitable distributors, loses these distributors or if Curetis’ distributors fail to sell its products in sufficient quantities, on commercially viable terms or in a timely manner, Newco’s commercialization of the Application Cartridges and other future products could be materially delayed or harmed.

Curetis’ future sales of diagnostic products will depend in large part on Curetis’ ability to successfully commercialize its current and future products in its target markets and sustain sufficient market acceptance. In particular, its future sales will depend on the ability to sell its products in the United States However, development of a sales force in the United States was only recently initiated by Curetis. Curetis’ ability to forecast demand in the United States and to develop and maintain the infrastructure required to support such demand and the sales cycle of potential customers is largely unproven. If Newco does not maintain an efficient and effective sales force and distribution network in the United States or cannot successfully expand its distribution network in Europe or elsewhere, its business, results of operations, financial position, cash flows and prospects may be materially and adversely affected.

 

 

In addition, Newco may not be able to sufficiently demonstrate to physicians, hospitals and other healthcare providers that its currently available Application Cartridges and future Application Cartridges are appropriate or preferable options for aiding in the diagnosis of infectious diseases. In particular, the price of Application Cartridges is much higher than, and will be incurred in addition to, the costs for conventional microbiology culture tests. There can be no assurance that hospitals will be willing to incur the direct costs to purchase Newco’s products or that the government or commercial payers will be willing or able to reimburse hospitals for them. If tightened budgets prevent hospitals from being able to pay for Newco’s products, or if government or commercial payers refuse to reimburse such hospitals for these payments, it could have a material adverse effect on Newco’s business, results of operations, financial position, cash flows and prospects.

Furthermore, Newco may encounter significant difficulty in having current and future Application Cartridges included in treatment guidelines of hospitals worldwide, as well as in complying with applicable local regulations and guidelines, which is often a prerequisite for hospitals purchasing such products in any significant quantity, or in gaining broad market acceptance by healthcare providers, third-party payers and patients using the Unyvero System and Application Cartridges. Furthermore, changes in reimbursements policies in one or more markets, may impact the ability of Newco’s customers to purchase its products.

If Newco fails to successfully commercialize its products, it may not be able to receive a return on the significant investments that have been made and will continue to be made in product development, sales and marketing, regulatory clearance, manufacturing and quality assurance, and it may fail to generate sufficient revenues and gain economies of scale from such investments, all of which could have a material adverse effect on Newco’s business, results of operations, financial position, cash flows and prospects.

Newco will generate a larger portion of future revenue internationally and would then be subject to increased risks relating to international activities which could adversely affect operating results.

We believe that a significant portion of Newco’s future revenue growth will come from international sources following the closing of the Transaction, including Europe, the Middle East, Asia and South America. Engaging in international business involves a number of difficulties and risks, including:

·

required compliance with existing and changing foreign health care and other regulatory requirements and laws, such as those relating to patient privacy;

·

required compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act, or FCPA, and U.K. 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;

·

foreign exchange controls;

 

 

 

·

difficulties and costs of staffing and managing foreign operations; and

·

difficulties protecting or procuring intellectual property rights.

As we expand internationally, our results of operations and cash flows would become increasingly subject to fluctuations due to changes in foreign currency exchange rates. Our expenses are generally denominated in the currencies in which our operations are located, which, for Newco, will be in the United States, Germany and Austria. If the value of the U.S. dollar increases relative to foreign currencies in the future, in the absence of a corresponding change in local currency prices, our future revenue could be adversely affected as we convert future revenue from local currencies to U.S. dollars. If we dedicate resources to our international operations and are unable to manage these risks effectively, our business, operating results and prospects will suffer.

Curetis is exposed to changes in foreign currency exchange rates.

Curetis currently records its transactions, prepares its financial statements and incurs the main portion of its costs in Euro. Its results of operations and cash flows will however increasingly become subject to fluctuations due to changes in foreign currency exchange rates, in particular the U.S. dollar but potentially also other currencies such as the Swiss franc and certain Asian currencies such as the Chinese Yuan as Curetis expands its operations in China as a result of the recent signing of a distribution agreement with Beijing Clear Biotech for Greater China. Curetis’ expenses are mainly denominated in Euro because Curetis’ operations are located in Germany and in U.S. dollars (e.g. for the costs incurred in clinical trials in the United States). Curetis currently does not apply any currency-hedging strategies. If the value of the Euro increases relative to foreign currencies in the future, and Curetis does not otherwise increase the prices of its products in such local markets, Newco’s future revenues could be adversely affected as it converts future revenues from local currencies to Euro.

Newco will face the risk of potential liability under the FCPA for past international distributions of products and to the extent it distributes products or otherwise operate internationally in the future.

In the past, we have distributed certain of our products internationally, and in the future Newco will distribute products internationally and engage in additional international operations. The FCPA prohibits companies such as us from engaging, directly or indirectly, in making payments to foreign government and political officials for the purpose of obtaining or retaining business or securing any other improper advantage, including, among other things, the distribution of products and other international business operations. Like other U.S. companies operating abroad, we may face liability under the FCPA if we, or third parties we have used to distribute our products or otherwise advance our international business, have violated the FCPA. Any violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction, involve significant costs and expenses, including legal fees, and could result in a material adverse effect on our business, prospects, financial condition or results of operations. We could also suffer severe penalties, including criminal and civil penalties, disgorgement and other remedial measures.

We may enter into agreements with United States or other government agencies, which could be subject to uncertain future funding.

The presence of MDROs and the need for antibiotic stewardship activities have prompted state, federal and international government agencies to develop programs to combat the effects of MDROs. In 2019, we have been party to a collaboration, called The New York State Infectious Disease Digital Health Initiative, with The New York State DOH and ILÚM to develop a research program to detect, track, and manage antimicrobial-resistant infections at healthcare institutions in New York State.

In the future, we may seek to enter into additional agreements with governmental funding sources or contract with government healthcare organizations to sell our products and services. Under such agreements, we would rely on the continued performance by these government agencies of their responsibilities under these agreements, including adequate continued funding of the agencies and their programs. We have no control over the resources and funding that government agencies may devote to these agreements, which may be subject to annual renewal.

Curetis GmbH and Ares Genetics have received, currently receive or expect to receive grant funding and subsidies including but not limited to two De-minimis Grants by the German Federal Government for Curetis GmbH in 2019. Grants for Ares Genetics include the ARES&CO Pharma Partnering Program and the ongoing TRIPLE A project both co-funded by the Vienna Business Agency, and the ongoing project, The Digital Microbe, co-funded by the Austrian Research Promotion Agency (FGG). Further, Ares Genetics is eligible for a research premium by the Austrian Government of 14% on all research and development expenses not funded or subsidized otherwise. Overall, over EUR 3 million of research and development costs of Ares Genetics were co-funded or are expected to be co-funded by grants and subsidies. If these grants or subsidies do not continue, or the programs are terminated, it could have a material adverse effect on Newco’s financial condition.

Government agencies may fail to perform their responsibilities under these agreements, which may cause them to be terminated by the government agencies. In addition, we may fail to perform our responsibilities under these agreements. Any government agreements would be subject to audits, which may occur several years after the period to which the audit relates. If an audit identified significant unallowable costs, we could incur a material charge to our earnings or reduction in our cash position. As a result, we may be unsuccessful entering, or ineligible to enter, into future government agreements.

 

 

If the utility of OpGen’s and Curetis’ current products and products in development are not supported by studies published in peer-reviewed medical publications, the rate of adoption of Newco’s current and future products and services by clinicians and healthcare facilities may be negatively affected.

The results of our clinical and economic validation studies involving our Acuitas AMR Gene Panel tests and Acuitas Lighthouse Software, and the Curetis products have been presented at major infectious disease and infection control society meetings. We need to maintain and grow a continued presence in peer-reviewed publications to promote clinician adoption of our products. We believe that peer-reviewed journal articles that provide evidence of the utility of our current and future products and services, and adoption by key opinion leaders in the infectious disease market, are very important to our commercial success. Clinicians typically take a significant amount of time to adopt new products and testing practices, partly because of perceived liability risks and the uncertainty of a favorable cost/benefit analysis. It is critical to the success of our sales efforts that we educate a sufficient number of clinicians and administrators about our products and demonstrate their clinical benefits. Clinicians may not adopt our current and future products and services unless they determine, based on published peer-reviewed journal articles and the experience of other clinicians, that our products provide accurate, reliable, useful and cost-effective information that is useful in MDRO diagnosis, screening and outbreak prevention. If our current and future products and services or the technology underlying our products and services or our future product offerings do not receive sufficient favorable exposure in peer-reviewed publications, the rate of clinician adoption could be negatively affected. The publication of clinical data in peer-reviewed journals is a crucial step in commercializing our products, and our inability to control when, if ever, results are published may delay or limit our ability to derive sufficient revenue from any product that is the subject of a study.

The sales cycle for Newco’s marketed products and services is lengthy and variable, which makes it difficult for Newco to forecast revenue and other operating results.

We believe the sales cycles for Newco’s products will be lengthy, which will make it difficult for us to accurately forecast revenues in a given period, and may cause revenue and operating results to vary significantly from period to period. Potential customers for our products typically need to commit significant time and resources to evaluate our products, and their decision to purchase our products may be further limited by budgetary constraints and numerous layers of internal review and approval, which are beyond our control. For example, sales of Newco’s products often involve purchasing decisions by large public and private institutions and any purchases can require multiple levels of pre-approval. In addition, those large institutions, such as public universities, frequently depend on government grants or public funding themselves, indirectly making Newco’s sales dependent on those funding sources.

We spend substantial time and effort assisting potential customers in evaluating our products. Even after initial approval by appropriate decision makers, the negotiation and documentation processes for the actual adoption of our products on a facility-wide basis can be lengthy. As a result of these factors, based on our experience to date, our sales cycle, the time from initial contact with a prospective customer to routine commercial use of our products, has varied and could be 12 months or longer, which has made it difficult for us to accurately project revenues and operating results. In addition, the revenue generated from sales of our products may fluctuate from time to time due to changes in the testing volumes of our customers. As a result, our results may fluctuate on a quarterly basis, which may adversely affect the price of our common stock.

Newco may be unable to recruit, train and retain key personnel.

Newco’s future success depends on its ability to recruit, train, retain and motivate key personnel, including Newco’s research and development, science and engineering, manufacturing and sales and marketing personnel. In particular, Curetis N.V. is highly dependent on the technology expertise of its Chief Technology Officer, Chief Operating Officer, and the Ares Genetics Chief Executive Officer, as well as certain key R&D employees. As competition for qualified sales personnel is intense in the United States and Europe, Newco’s growth will depend, in particular, on retaining, or attracting and retaining and motivating highly trained sales personnel with the necessary scientific background and ability to understand Newco’s products at a technical level. In addition, Newco may need additional employees at its manufacturing facilities to meet the demand for its products as Newco scales up its sales and marketing operations. Because of the complex and technical nature of Curetis’ products and the dynamic market in which it will compete, any failure to attract, train, retain and motivate qualified personnel could materially harm Newco’s growth prospects and could have a material adverse effect on Newco’s business, financial position, cash flows and results of operations.

OpGen and Curetis are each currently party to, and Newco may enter into additional, collaborations with third parties to develop product and services candidates. If these collaborations are not successful, Newco’s business could be adversely affected.

Curetis is party to a number of collaborations and OpGen is currently party to a few collaborations. We anticipate that Newco will enter into additional collaborations, related to its MDRO and informatics products and services. Such collaborations are and may be with pharmaceutical companies, platform companies or other participants in our industry. We have limited control over the amount and timing of resources that any such collaborators could dedicate to the development or commercialization of the subject matter of any such collaboration. Our ability to generate revenues from these arrangements would depend on our and our collaborators’ abilities to successfully perform the functions assigned to each of us in these arrangements. Our relationships with collaborators may pose several risks, including the following:

·

collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

·

collaborators may not perform their obligations as expected;

 

 

·

we may not achieve any milestones, or receive any milestone payments, under our collaborations, including milestones and/or payments that we expect to achieve or receive;

·

the clinical trials, if any, conducted as part of these collaborations may not be successful;

·

a collaborator might elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors, such as an acquisition, that diverts resources or creates competing priorities;

·

we may not have access to, or may be restricted from disclosing, certain information regarding product or services candidates being developed or commercialized under a collaboration and, consequently, may have limited ability to inform our stockholders about the status of such product or services candidates;

·

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

·

product or services candidates developed in collaboration with us may be viewed by our collaborators as competitive with their own product or services, which may cause collaborators to cease to devote resources to the commercialization of our product or services candidates;

·

a collaborator with marketing and distribution rights to one or more of our product or services candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of any such product candidate;

·

disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development of any product or services candidates, may cause delays or termination of the research, development or commercialization of such product or services candidates, may lead to additional responsibilities for us with respect to such product or services candidates or may result in litigation or arbitration, any of which would be time-consuming and expensive;

·

collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;

·

disputes may arise with respect to the ownership of intellectual property developed pursuant to a collaboration;

·

collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and

·

collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product or services candidates.

If our collaborations do not result in the successful development and commercialization of products or services, we may not receive any future research funding or milestone or royalty payments under the collaborations. If we do not receive the funding we would expect under these agreements, our development of product and services candidates could be delayed and we may need additional resources to develop our product candidates.

 

 

Newco may not be successful in finding strategic collaborators for continuing development of certain of our product or services candidates or successfully commercializing or competing in the market for certain indications.

Newco may seek to develop strategic partnerships for developing certain of our product or services candidates, due to capital costs required to develop the product or services candidates or manufacturing constraints. We may not be successful in our efforts to establish such a strategic partnership or other alternative arrangements for our product or services candidates because our research and development pipeline may be insufficient, our product or services candidates may be deemed to be at too early of a stage of development for collaborative effort or third parties may not view our product or services candidates as having the requisite potential to demonstrate commercial success.

If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms or at all, we may have to curtail the development of a product or service candidate, reduce or delay our development program, delay our potential commercialization, reduce the scope of any sales or marketing activities or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates and our business, financial condition, results of operations and prospects may be materially and adversely affected.

Newco will be an early commercial stage company and may never be profitable.

Newco will rely principally on the commercialization of the QuickFISH and Acuitas Gene Panel (RUO) test products and Acuitas Lighthouse Software (RUO) as well as the Unyvero IVD test kits and ARESdb based services and licenses to generate future revenue growth. To date, such products and services have delivered only minimal revenue. Also, Unyvero test sales and Ares Genetics service offerings and partnering revenues are in their very early stages. We believe that our commercialization success is dependent upon our ability to significantly increase the number of hospitals, long-term care facilities and other inpatient healthcare settings as well as partners that use our products and services. If demand for products does not increase as quickly as we have planned, we may be unable to increase our revenue levels as expected. We are currently not profitable. Even if we succeed in increasing adoption of our products by our target markets, maintaining and creating relationships with our existing and new customers and developing and commercializing additional molecular testing products, we may not be able to generate sufficient revenue to achieve or sustain profitability.

Newco will have limited experience in marketing and selling products, and if it is unable to adequately address its customers’ needs, it could negatively impact sales and market acceptance of Newco’s products and it may never generate sufficient revenue to achieve or sustain profitability.

We sell our products through our own direct sales force, which sells our Acuitas AMR Gene Panel (RUO) tests and Acuitas Lighthouse Software and our QuickFISH products. Curetis sells its Unyvero products directly in the United States and via distributors in EMEA and Asia as well as ROW. Ares Genetics sells its services and collaborations and licenses directly in a business to business model. All of these products and services may be offered and sold to different potential customers or involve discussions with multiple personnel in in-patient facilities. Our future sales will depend in large part on our ability to increase our marketing efforts and adequately address our customers’ and collaborators’ needs. The inpatient healthcare industry is a large and diverse market. We will need to attract and develop sales and marketing personnel with industry expertise. Competition for such employees is intense. We may not be able to attract and retain sufficient personnel to maintain an effective sales and marketing force. If we are unable to successfully market our products and services, and adequately address our customers’ and collaborators’ needs, it could negatively impact sales and market acceptance of our products and services, and we may never generate sufficient revenue to achieve or sustain profitability.

If Newco’s manufacturing facilities becomes inoperable, Newco’s business will be harmed.

OpGen manufactures its Acuitas, QuickFISH and PNA FISH products in its facility in Gaithersburg, Maryland. Curetis manufactures its Unyvero test kits and cartridges at its manufacturing facility in Bodelshausen, Germany. Neither has redundant facilities. The facility and the equipment we use manufacture our products would be costly to replace and could require substantial lead time to repair or replace if damaged or destroyed. A facility may be harmed or rendered inoperable by natural or man-made disasters, including flooding and power outages, which may render it difficult or impossible for us manufacture our products for some period of time. The inability to manufacture our products may result in the loss of customers or harm our reputation, and we may be unable to regain those customers in the future. Although we possess insurance for damage to our property and the disruption of our business, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, if at all.

 

 

In order to establish a redundant facility, we would have to spend considerable time and money securing adequate space, constructing the facility, recruiting and training employees, and establishing the additional operational and administrative infrastructure necessary to support a second facility. Additionally, any new manufacturing facility opened by us would be subject to certification procedures and inspection by the FDA and other regulatory bodies. If we fail to maintain our certification(s) or if our certification(s) are suspended, limited or revoked, we would not be able manufacture our products.

If demand for these products increases beyond our current forecasts or, regulatory requirements arise, we may not be able to meet our obligations to manufacture these products, and a backlog or reduced demand for such products could occur. If any of these issues occur, it could have a material adverse effect on our financial condition and results of operations.

Curetis has entered into a lease agreement for a manufacturing plant in which its laboratory facilities are located. The unexpected termination or non-renewal of this lease agreement could have a significant adverse effect on Newco’s business, financial position and results of operations.

Curetis entered into a lease agreement with Joma-Polytec GmbH for 1,600 square meters of manufacturing and logistics space for its manufacturing plant in which its Bodelshausen laboratory facilities are located. The lease term was extended until June 30, 2025. Curetis has invested significantly in the installation of tailored clean rooms, automated Application Cartridge manufacturing equipment and laboratory facilities in the buildings located at this plant. As a consequence, untimely termination or failure to renew its lease agreement with Joma-Polytec GmbH would force Curetis to invest significant monetary and managerial resources to move to an alternative manufacturing facility and Curetis may have difficulty in meeting deadlines for customer orders due to the significant production downtime such relocation would cause. As a result, the unexpected termination or non-renewal of this lease agreement could have a significant adverse effect on Curetis' business, financial position and results of operations.

Newco may be unable to successfully manage its growth.

During the past few years, Curetis has significantly expanded its operations with regard to sales and the manufacturing of a greater variety of product offerings, especially in the DACH region (Germany, Austria and Switzerland) as well as in Eastern and Western Europe and the Middle East. It recently expanded into the Asian market by entering into distribution agreements for certain ASEAN markets and Greater China and, after receiving FDA clearance, commercially launched its Unyvero System in the United States beginning in June 2018. Curetis expects this expansion to continue as its Ares Genetics business line continues to expend it offerings in the DACH.

Curetis’ growth has placed on Curetis, and is expected to continue to place, a significant strain on Newco’s management, operating and financial systems and Newco’s sales, marketing and administrative resources. As a result of Newco’s growth, operating costs may escalate even faster than planned, and some of Newco’s internal systems and processes, including those related to manufacturing Newco’s products, may need to be enhanced, updated or replaced. If Newco cannot effectively manage its expanding operations, manufacturing capacity and costs, including scaling to meet increased demand, Newco may not be able to continue to grow or may grow at a slower pace than expected.

Newco will rely on a limited number of suppliers or, in some cases, a sole supplier, for some of its materials and may not be able to find replacements or immediately transition to alternative suppliers.

OpGen relies on several sole suppliers and manufacturers, including Thermo Fisher Scientific, QIAGEN, and Fluidigm Corporation, for supplying certain reagents, raw materials, supplies and substances that it uses to manufacture its products. Curetis relies on a number of key suppliers for critical product components, including Zollner El-ektronik AG for the manufacture of its Unyvero Systems, Contexo GmbH and Scholz HTIK GmbH for the application-specific cartridges and consumables plastic parts as well as certain single source suppliers for specific Unyvero amplification primers, detection probes and the mastermix, which is the enzyme required to start any PCR, and thus is one of the critical components of any PCR based molecular diagnostic test. An interruption in Newco’s operations could occur if it encounters delays or difficulties in securing these items or manufacturing its products, if any one of these suppliers were to terminate its business relationship with Newco, or if we are unable to obtain an acceptable substitute in the event of such delays or difficulties. Any such interruption could significantly affect Newco’s business, financial condition, results of operations and reputation.

For example, during the first half of 2013, Curetis encountered unexpected issues with its Original Equipment Manufacturer supplier of the Unyvero System, Zollner El-ektronik AG, which had significant problems supplying Curetis with the ordered quantities at the required quality. While Newco may technically be able to modify product candidates to utilize a new source of such critical reagents, raw materials, supplies and substances it uses to manufacture its products, Newco would need to secure CE-IVD-marking and regulatory clearance from the FDA and any other relevant regulatory body in other markets for the modified product, and it could take considerable time and necessitate significant expenses to perform the requisite tasks prior to and in connection with petition for renewed market clearance.

 If Newco has issues or faces delays in delivery of materials from a supplier, Newco’s commercialization plans and financial condition could be significantly harmed.

 

If Newco cannot compete successfully, it may be unable to increase or sustain its revenue or achieve and sustain profitability.

Newco’s competitors include rapid diagnostic testing and traditional microbiology companies, commercial laboratories, information technology companies, and hospital laboratories who may internally develop testing capabilities. Principal competitive factors in our target market include: organizational size, scale, and breadth of product offerings; rapidity of test results; quality and strength of clinical and analytical validation data and confidence in diagnostic results; cost effectiveness; ease of use; and regulatory approval status.

Newco’s principal competition comes from traditional methods used by healthcare providers to diagnose and screen for MDROs and from other molecular diagnostic companies creating screening and diagnostic products such as Cepheid, Becton-Dickinson, bioMérieux, Accelerate Diagnostics, T2 Biosystems, GenMark, and Luminex.

Newco also faces competition from commercial laboratories, such as Bio-Reference Laboratories, Inc., Laboratory Corporation of America Holdings, Quest Diagnostics Incorporated, Pathnostics, and EuroFins, which we believe have strong infrastructure to support the commercialization of diagnostic laboratory services.

Competitors may develop their own versions of competing products in countries where we do not have patents, where our patents do not cover competitor products, or where our intellectual property rights are not recognized.

Many of our potential competitors have widespread brand recognition and substantially greater financial, technical, research and development and selling and marketing capabilities than we do. Others may develop products with prices lower than ours that could be viewed by hospitals, physicians and payers as functionally equivalent to our product and service offering, or offer products at prices designed to promote market penetration, which could force us to lower the list prices of our product and service offerings and affect our ability to achieve profitability. If we are unable to change clinical practice in a meaningful way or compete successfully against current and future competitors, we may be unable to increase market acceptance and sales of our products, which could prevent us from increasing our revenue or achieving profitability and could cause our stock price to decline.

The selling price level in the molecular diagnostics market could decrease in the future which would adversely affect Newco’s business, financial position and results of operations.

The molecular diagnostic market is relatively young and Curetis competes with a large number of commercial diagnostics companies in this market. Curetis expects that, with the molecular diagnostic market becoming more mature, the use of scale effects and continuous technological improvements, the prices for molecular diagnostic products and Curetis’ products are likely to decline over the course of time. If Newco is not able to offset a decrease in product prices by a corresponding reduction of its costs of goods sold, this could have a material adverse effect on Newco’s business, financial position, cash flows and results of operations.

Certain of Newco’s current and future customers are highly dependent on payments from third-party payers. Inadequate coverage and reimbursement for Newco’s diagnostic tests as well as a faster increase of Newco’s costs of production compared to increases in reimbursement levels could compromise the commercial success of Newco’s products.

Successful commercialization of certain of Newco’s diagnostic products will depend, in large part, on the extent to which the costs of Newco’s products are reimbursed to its customers, either separately or through bundled payment, by third-party private and governmental payers, private health insurances as well as public health systems. Coverage and reimbursement will also depend on the applicable healthcare policy framework in the relevant jurisdiction. For example, in the EU and the United States, there is significant uncertainty surrounding third-party coverage and reimbursement for the use of tests that incorporate new technology, such as the Unyvero Platform, as it is uncertain whether and to which extent third-party payers will reimburse Newco’s customers for the use of the Unyvero Platform under current legal frameworks

Hospitals, clinical laboratories and other healthcare providers generally bill various third-party payers to cover all or a portion of the costs and fees associated with diagnostic tests, including the cost of the purchase of products. Curetis current products are used in a hospital inpatient setting, where in most geographic areas governmental payers, health insurances or funds and other national equivalents in the respective countries, generally reimburse hospitals a single bundled payment per patient case. However, third-party payers may deny coverage if they determine that Newco’s products are not cost-effective compared to the use of alternative testing methods or deem them to be experimental or medically unnecessary. Even if third-party payers make coverage and reimbursement available, such reimbursement may not be adequate, which could have an adverse effect on Newco’s business, financial position, cash flows and results of operations. 

Certain of Newco’s products and services are not covered by reimbursement by Medicare, Medicaid and other governmental and third-party payors. If we cannot convince our customers that the savings from use of our products and services will increase their overall reimbursement, our business could suffer.

Certain of Newco’s products and services do not currently receive reimbursement from Medicare, Medicaid, other governmental payors or commercial third-party payors. Policy and rule changes in reimbursement announced by the United States Department of Health and Human Services, or HHS, Centers for Medicare and Medicaid Services, or CMS, including potential financial incentives for reductions in hospital acquired infection, and penalties and decreased Medicare reimbursement for patients with hospital acquired infections provide us with an opportunity to establish a business case for the purchase and use of our screening and diagnostic products and services. If we cannot convince our customers that the savings from use of our products and services will increase or stabilize their overall profitability and improve clinical outcomes, our business will suffer.

Failure in Newco’s information technology, storage systems, Curetis’ ARESdb or our Acuitas Lighthouse Software could significantly disrupt Newco’s operations and our research and development efforts, which could adversely impact its revenues, as well as research, development and commercialization efforts.

Newco’s ability to execute it business strategy depends, in part, on the continued and uninterrupted performance of our information technology systems, which support our operations and our research and development efforts, as well as our storage systems and our analyzers. Due to the sophisticated nature of the technology we use in our products and service offerings, including the ARESdb and Acuitas Lighthouse Software services, we are substantially dependent on our information technology systems. Information technology systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our information technology systems, sustained or repeated system failures that interrupt our ability to generate and maintain data, and in particular to operate the ARESdb and Acuitas Lighthouse Software, could adversely affect our ability to operate our business. Any interruption in the operation of the ARESdb or Acuitas Lighthouse Software, due to information technology system failures, part failures or potential disruptions in the event we are required to relocate our instruments within our facility or to another facility, could have an adverse effect on our operations.

 

Security breaches, loss of data and other disruptions could compromise sensitive information related to Newco’s business or prevent it from accessing critical information and expose us to liability, which could adversely affect its business and reputation.

In the ordinary course of our business, we collect and store sensitive data, including legally protected health information and personally identifiable information about our customers and their patients. We also store sensitive intellectual property and other proprietary business information, including that of our customers. We manage and maintain our applications and data utilizing a combination of on-site systems and cloud-based data center systems. These applications and data encompass a wide variety of business-critical information, including research and development information, commercial information and business and financial information.

We face four primary risks relative to protecting this critical information: loss of access risk, inappropriate disclosure risk, inappropriate modification risk and the risk of our being unable to identify and audit our controls over the first three risks.

We are highly dependent on information technology networks and systems, including the Internet, to securely process, transmit and store this critical information. Security breaches of this infrastructure, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure or modification of confidential information. The secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business strategy, and we devote significant resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other disruptions.

A security breach or privacy violation that leads to disclosure or modification of or prevents access to consumer information (including personally identifiable information or protected health information) could harm our reputation, compel us to comply with disparate state breach notification laws, require us to verify the correctness of database contents and otherwise subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information, including sensitive consumer data. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.

Any such breach or interruption could compromise our networks, and the information stored there could be inaccessible or could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such interruption in access, improper access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as the federal HIPAA and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to perform tests, provide test results, bill facilities or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, collect, process and prepare Company financial information, provide information about our current and future solutions and other patient and clinician education and outreach efforts through our website, and manage the administrative aspects of our business and damage our reputation, any of which could adversely affect our business. Any such breach could also result in the compromise of our trade secrets and other proprietary information, which could adversely affect our competitive position.

In addition, the interpretation and application of consumer, health-related, privacy and data protection laws in the United States and elsewhere are often uncertain, contradictory and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business.

 

Newco will be subject to potential enforcement actions involving false claims, kickbacks, physician self-referral or other federal or state fraud and abuse laws, and we could incur significant civil and criminal sanctions, which would hurt its business.

The government has made enforcement of the false claims, anti-kickback, physician self-referral and various other fraud and abuse laws a major priority. In many instances, private whistleblowers also are authorized to enforce these laws even if government authorities choose not to do so. In most of these cases, private whistleblowers brought the allegations to the attention of federal enforcement agencies. The risk of our being found in violation of these laws and regulations is increased by the fact that some of the laws and regulations have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. We could be subject to enforcement actions under the following laws:

·

the federal Anti-Kickback Statute, which constrains certain marketing practices, educational programs, pricing policies and relationships with healthcare providers or other entities by prohibiting, among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

·

federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third party payors that are false or fraudulent;

·

federal physician self-referral laws, such as the Stark Law, which prohibit a physician from making a referral to a provider of certain health services with which the physician or the physician’s family member has a financial interest, and prohibit submission of a claim for reimbursement pursuant to a prohibited referral;

·

the federal transparency requirements under The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, enacted into law in the United States in March 2010 (known collectively as the “Affordable Care Act”), including the provision commonly referred to as the Physician Payments Sunshine Act, which requires manufacturers of drugs, biologics, devices and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to the U.S. Department of Health and Human Services information related to payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

·

federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and

·

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third party payor, including commercial insurers, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If we or our operations are found to be in violation of any of these laws and regulations, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in U.S. federal or state healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. We will monitor changes in government enforcement as we grow and expand our business. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and hurt our reputation. If we were excluded from participation in U.S. federal healthcare programs, we would not be able to receive, or to sell our tests to other parties who receive reimbursement from Medicare, Medicaid and other federal programs, and that could have a material adverse effect on our business.

 

If Newco is unable to protect its intellectual property effectively, its business would be harmed.

We rely on patent protection as well as trademark, copyright, trade secret and other intellectual property rights protection and contractual restrictions to protect our proprietary technologies, all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. If we fail to protect our intellectual property, third parties may be able to compete more effectively against us and we may incur substantial litigation costs in our attempts to recover or restrict use of our intellectual property.

In July 2015, we issued a senior secured promissory note, in the principal amount of $1 million to MGHIF. Such promissory note is secured by a lien on our assets, including our intellectual property assets. If we default on our payment obligations under this secured promissory note, MGHIF has the right to control the disposition of our assets, including our intellectual property assets. If such default occurs, and our intellectual property assets are sold or licensed, our business could be materially adversely affected.

We apply for patents covering our products and technologies and uses thereof, as we deem appropriate, however we may fail to apply for patents on important products and technologies in a timely fashion or at all, or we may fail to apply for patents in potentially relevant jurisdictions. It is possible that none of our pending patent applications will result in issued patents in a timely fashion or at all, and even if patents are granted, they may not provide a basis for intellectual property protection of commercially viable products, may not provide us with any competitive advantages, or may be challenged and invalidated by third parties. It is possible that others will design around our current or future patented technologies. We may not be successful in defending any challenges made against our patents or patent applications. Any successful third-party challenge to our patents could result in the unenforceability or invalidity of such patents and increased competition to our business. The outcome of patent litigation can be uncertain and any attempt by us to enforce our patent rights against others may not be successful, or, if successful, may take substantial time and result in substantial cost, and may divert our efforts and attention from other aspects of our business.

The patent positions of life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States or elsewhere. Courts frequently render opinions in the biotechnology field that may affect the patentability of certain inventions or discoveries, including opinions that may affect the patentability of methods for analyzing or comparing DNA.

In particular, the patent positions of companies engaged in the development and commercialization of genomic diagnostic tests, like ours, are particularly uncertain. Various courts, including the U.S. Supreme Court, have recently rendered decisions that affect the scope of patentability of certain inventions or discoveries relating to certain diagnostic tests and related methods. These decisions state, among other things, that patent claims that recite laws of nature (for example, the relationship between blood levels of certain metabolites and the likelihood that a dosage of a specific drug will be ineffective or cause harm) are not themselves patentable. What constitutes a law of nature is uncertain, and it is possible that certain aspects of genetic diagnostics tests would be considered natural laws. Accordingly, the evolving case law in the United States may adversely affect our ability to obtain patents and may facilitate third-party challenges to any owned and licensed patents. The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and we may encounter difficulties protecting and defending such rights in foreign jurisdictions. The legal systems of many other 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 in such countries. 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.

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. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. We may not develop additional proprietary products, methods and technologies that are patentable.

 

 

In addition to pursuing patents on our technology, we take steps to protect our intellectual property and proprietary technology by entering into agreements, including confidentiality agreements, non-disclosure agreements and intellectual property assignment agreements, with our employees, consultants, academic institutions, corporate partners and, when needed, our advisors. Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure. If we are required to assert our rights against such party, it could result in significant cost and distraction.

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 enforce 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. In addition, courts outside the United States may be less willing to protect trade secrets.

We may also be subject to claims that our employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of third parties, or to claims that we have improperly used or obtained such trade secrets. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights and face increased competition to our business. A loss of key research personnel work product could hamper or prevent our ability to commercialize potential products, which could harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Further, competitors could attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. Others may independently develop similar or alternative products and technologies or replicate any of our products and technologies. If our intellectual property does not adequately protect us against competitors’ products and methods, our competitive position could be adversely affected, as could our business.

We have not yet registered certain of our trademarks in all of our potential markets. If we apply to register these trademarks, our applications may not be allowed for registration in a timely fashion or at all, and our registered trademarks may not be maintained or enforced. In addition, opposition or cancellation proceedings may be filed against our trademark applications and registrations, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.

To the extent our intellectual property offers inadequate protection, or is found to be invalid or unenforceable, we would be exposed to a greater risk of direct competition. If our intellectual property does not provide adequate coverage of our competitors’ products, our competitive position could be adversely affected, as could our business. Both the patent application process and the process of managing patent disputes can be time consuming and expensive.

Newco may be involved in litigation related to intellectual property, which could be time-intensive and costly and may adversely affect its business, operating results or financial condition.

We may receive notices of claims of direct or indirect infringement or misappropriation or misuse of other parties’ proprietary rights from time to time. Some of these claims may lead to litigation. We cannot assure you that we will prevail in such actions, or that other actions alleging misappropriation or misuse by us of third-party trade secrets, infringement by us of third-party patents and trademarks or other rights, or challenging the validity of our patents, trademarks or other rights, will not be asserted or prosecuted against us.

We might not have been the first to make the inventions covered by each of our pending patent applications and we might not have been the first to file patent applications for these inventions. To determine the priority of these inventions, we may have to participate in interference proceedings, derivation proceedings, or other post-grant proceedings declared by the United States Patent and Trademark Office that could result in substantial cost to us. No assurance can be given that other patent applications will not have priority over our patent applications. In addition, recent changes to the patent laws of the United States allow for various post-grant opposition proceedings that have not been extensively tested, and their outcome is therefore uncertain. Furthermore, if third parties bring these proceedings against our patents, we could experience significant costs and management distraction.

 

 

Litigation may be necessary for us to enforce our patent and proprietary rights or to determine the scope, coverage and validity of the proprietary rights of others. The outcome of any litigation or other proceeding is inherently uncertain and might not be favorable to us, and we might not be able to obtain licenses to technology that we require on acceptable terms or at all. Further, we could encounter delays in product introductions, or interruptions in product sales, as we develop alternative methods or products. In addition, if we resort to legal proceedings to enforce our intellectual property rights or to determine the validity, scope and coverage of the intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if we were to prevail. Any litigation that may be necessary in the future could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results or financial condition.

As we move into new markets and applications for our products, incumbent participants in such markets may assert their patents and other proprietary rights against us as a means of slowing our entry into such markets or as a means to extract substantial license and royalty payments from us. Our competitors and others may now and, in the future, have significantly larger and more mature patent portfolios than we currently have. In addition, future litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may provide little or no deterrence or protection. Therefore, our commercial success may depend in part on our non-infringement of the patents or proprietary rights of third parties. Numerous significant intellectual property issues have been litigated, and will likely continue to be litigated, between existing and new participants in our existing and targeted markets and competitors may assert that our products infringe their intellectual property rights as part of a business strategy to impede our successful entry into or growth in those markets. Third parties may assert that we are employing their proprietary technology without authorization. In addition, our competitors and others may have patents or may in the future obtain patents and claim that making, having made, using, selling, offering to sell or importing our products infringes these patents. We could incur substantial costs and divert the attention of our management and technical personnel in defending against any of these claims. Parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize and sell products, and could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and ongoing royalties, and obtain one or more licenses from third parties, or be prohibited from selling certain products. We may not be able to obtain these licenses on acceptable terms, if at all. We could incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our financial results. In addition, we could encounter delays in product introductions while we attempt to develop alternative methods or products to avoid infringing third-party patents or proprietary rights. Defense of any lawsuit or failure to obtain any of these licenses could prevent us from commercializing products, and the prohibition of sale of any of our products could materially affect our business and our ability to gain market acceptance for our products.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

In addition, our agreements with some of our customers, suppliers or other entities with whom we do business require us to defend or indemnify these parties to the extent they become involved in infringement claims, including the types of claims described above. We could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our business relationships. If we are required or agree to defend or indemnify third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results, or financial condition.

If Newco is unable to develop products to keep pace with rapid technological, medical and scientific change, its operating results and competitive position could be harmed. New test development involves a lengthy and complex process, and Newco may not be successful in its efforts to develop and commercialize diagnostic and screening products and services. The further development and commercialization of additional diagnostic and screening product and service offerings are key to its growth strategy.

A key element of Newco’s strategy is to discover, develop, validate and commercialize a portfolio of additional diagnostic and screening products and services to rapidly diagnose and effectively treat MDRO infections and reduce the associated costs to patients, inpatient facilities and the healthcare industry. We cannot assure you that we will be able to successfully complete development of, or commercialize any of our planned future products and services, or that they will be clinically usable. The product development process involves a high degree of risk and may take up to several years or more. Our new product development efforts may fail for many reasons, including:

·

failure of the tests at the research or development stage;

·

lack of clinical validation data to support the effectiveness of the tests;

 

 

·

delays resulting from the failure of third-party suppliers or contractors to meet their obligations in a timely and cost-effective manner;

·

failure to obtain or maintain necessary certifications, licenses, clearances or approvals to market or perform the test; or

·

lack of commercial acceptance by in-patient healthcare facilities.

Few research and development projects result in commercial products, and success in early clinical studies often is not replicated in later studies. At any point, we may abandon development of new products, or we may be required to expend considerable resources repeating clinical studies or trials, which would adversely impact the timing for generating potential revenues from those new products. In addition, as we develop new products, we will have to make additional investments in our sales and marketing operations, which may be prematurely or unnecessarily incurred if the commercial launch of a product is abandoned or delayed.

OpGen’s insurance policies are expensive and protect it only from some business risks, which could leave Newco exposed to significant uninsured liabilities.

We do not carry insurance for all categories of risk that our business may encounter, and do not anticipate that Newco will carry additional insurance. Some of the policies we currently maintain include general liability, employee benefits liability, property, umbrella, business interruption, workers’ compensation, product liability, errors and omissions and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.

If Newco uses hazardous materials in a manner that causes injury, it could be liable for damages.

Our activities currently require the use of hazardous materials and the handling of patient samples. We cannot eliminate the risk of accidental contamination or injury to employees or third parties from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our resources or any applicable insurance coverage we may have. Additionally, we are subject on an ongoing basis to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. We are, or may in the future be, subject to compliance with additional laws and regulations relating to the protection of the environment and human health and safety, including those relating to the handling, transportation and disposal of medical specimens, infectious and hazardous waste and Occupational Safety and Health Administration requirements. The requirements of these laws and regulations are complex, change frequently and could become more stringent in the future. Failure to comply with current or future environmental laws and regulations could result in the imposition of substantial fines, suspension of production, alteration of our production processes, cessation of operations or other actions, which could severely harm our business.

If Newco is sued for product liability or errors and omissions liability, we could face substantial liabilities that exceed our resources.

The marketing, sale and use of our products could lead to product liability claims if someone were to allege that a product failed to perform as it was designed. We may also be subject to liability for errors in the results we provide to physicians or for a misunderstanding of, or inappropriate reliance upon, the information we provide. For example, if we diagnosed a patient as having an MDRO but such result was a false positive, the patient could be unnecessarily isolated in an in-patient setting or receive inappropriate treatment. We may also be subject to similar types of claims related to products we may develop in the future. A product liability or errors and omissions liability claim could result in substantial damages and be costly and time consuming for us to defend. Although we maintain product liability and errors and omissions insurance, we cannot assure you that our insurance would fully protect us from the financial impact of defending against these types of claims or any judgments, fines or settlement costs arising out of any such claims. Any product liability or errors and omissions liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability lawsuit could cause injury to our reputation or cause us to suspend sales of our products and services. The occurrence of any of these events could have an adverse effect on our business and results of operations.

 

 

Newco may be adversely affected by the current economic environment and future adverse economic environments.

Our ability to attract and retain customers, invest in and grow our business and meet our financial obligations depends on our operating and financial performance, which, in turn, is subject to numerous factors, including the prevailing economic conditions and financial, business and other factors beyond our control, such as the rate of unemployment, the number of uninsured persons in the United States and inflationary pressures. We cannot anticipate all the ways in which the current economic climate and financial market conditions, and those in the future, could adversely impact our business.

We are exposed to risks associated with reduced profitability and the potential financial instability of our customers, many of which may be adversely affected by volatile conditions in the financial markets. For example, unemployment and underemployment, and the resultant loss of insurance, may decrease the demand for healthcare services and diagnostic testing. If fewer patients are seeking medical care because they do not have insurance coverage, we may experience reductions in revenues, profitability and/or cash flow. In addition, if economic challenges in the United States result in widespread and prolonged unemployment, either regionally or on a national basis, a substantial number of people may become uninsured or underinsured. To the extent such economic challenges result in less demand for our proprietary tests, our business, results of operations, financial condition and cash flows could be adversely affected.

Risks Related to OpGen’s Securities

We received deficiency notices from the Nasdaq Capital Market. Although we have regained compliance with the ongoing listing requirements of the Nasdaq Capital Market, if we are unable to maintain compliance with the ongoing listing requirements, we could be delisted from the Nasdaq Capital Market, which would negatively impact the trading of our common stock.

On May 6, 2019, the Listing Qualifications Staff of the Nasdaq Capital Market notified us that the closing bid price of our common stock had, for 30 consecutive business days preceding the date of such notice, been below the $1.00 per share minimum required for continued listing on the Nasdaq Capital Market pursuant to the Minimum Bid Price Rule. In accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), we were provided 180 calendar days, or until November 4, 2019, to regain compliance. We effected the 2019 Reverse Stock Split of our common stock on August 28, 2019, with the primary intent of increasing the price of our common stock in order to meet the price criteria for continued listing on the Nasdaq Capital Market. There can be no assurance that the market price per share of our common stock after the Reverse Stock Split will remain above the Minimum Bid Price Rule requirement.

On August 19, 2019, OpGen received a written notification from Nasdaq notifying the Company that it has failed to comply with Nasdaq Marketplace Rule 5550(b)(1) because the Company’s stockholders’ equity as of June 30, 2019 fell below the required minimum of $2,500,000, and as of June 30, 2019, the Company did not meet the alternative compliance standards of market value of listed securities or net income from continuing operations for continued listing. We submitted a plan to Nasdaq to regain compliance with the Nasdaq minimum stockholders’ equity standard on October 3, 2019. We believe we regained compliance with this listing requirement as a result of the closing of the October 2019 Offering. However, if we cannot maintain compliance with such continuing listing standard through December 31, 2019, our common stock will be delisted.

Maintaining compliance with the Nasdaq listing requirements is a closing condition under the Implementation Agreement. If we do not maintain our compliance, the Transaction may not close.

If our common stock is delisted by Nasdaq, our common stock may be eligible for quotation on an over-the-counter quotation system or on the pink sheets. Upon any such delisting, our common stock would become subject to the regulations of the SEC relating to the market for penny stocks. A penny stock is any equity security not traded on a national securities exchange that has a market price of less than $5.00 per share. The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit the ability of stockholders to sell securities in the secondary market. In such a case, an investor may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock, and there can be no assurance that our common stock will be eligible for trading or quotation on any alternative exchanges or markets.

 

 

Delisting from Nasdaq could adversely affect our ability to raise additional financing through public or private sales of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

You will experience immediate dilutions as a result of the proposed issuance of the Transaction Shares and may experience future dilution as a result of future equity offerings or other equity issuances.

The issuance of the Transaction Shares and the resale of the Transaction Shares, or even the potential of such issuance and resale, may have a depressive effect on the market price of our common stock and the issuance of such Transaction Shares will cause dilution to our stockholders. In addition, in order to raise additional capital, we believe that we will offer and issue additional shares of our common stock or other securities convertible into or exchangeable for our common stock in the future. We cannot assure you that we will be able to sell shares or other securities in any offering at a price per share that is equal to or greater than the price per share paid by existing investors, and investors purchasing other securities in the future could have rights superior to existing stockholders.

In addition, we have a significant number of stock options, restricted stock units and warrants outstanding, have agreed to assume the outstanding stock option awards of Curetis N.V. in the Transaction, and anticipate that we will grant additional equity awards following the closing of the Transaction. To the extent that outstanding stock options or warrants have been or may be exercised or other shares issued, you may experience further dilution. Further, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

The market price of our common stock has been, and may continue to be, highly volatile, and such volatility could cause the market price of our common stock to decrease and could cause you to lose some or all of your investment in our common stock.

During the period from our initial public offering in May 2015 through January 13, 2020, the market price of our common stock fluctuated from a high of $2,720.00 per share to a low of $0.92 per share, and our stock price continues to fluctuate. The market price of our common stock may continue to fluctuate significantly in response to numerous factors, some of which are beyond our control, such as:

·

our ability to grow our revenue and customer base;

·

the announcement of new products or product enhancements by us or our competitors;

·

the trading volume of our common stock;

·

developments concerning regulatory oversight and approvals;

·

variations in our and our competitors’ results of operations;

·

changes in earnings estimates or recommendations by securities analysts, if our common stock is covered by analysts;

·

successes or challenges in our collaborative arrangements or alternative funding sources;

·

developments in the health care and life science industries;

·

the results of product liability or intellectual property lawsuits;

 

 

 

·

future issuances of common stock or other securities;

·

the addition or departure of key personnel;

·

announcements by us or our competitors of acquisitions, investments or strategic alliances; and

·

general market conditions and other factors, including factors unrelated to our operating performance.

Further, the stock market in general, and the market for health care and life science companies in particular, has recently experienced extreme price and volume fluctuations. The volatility of our common stock is further exacerbated due to its low trading volume. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock and the loss of some or all of your investment.

Trading of our common stock is limited, and trading restrictions imposed on us by applicable regulations may further reduce trading in our common stock, making it difficult for our stockholders to sell their shares; and future sales of common stock could reduce our stock price.

Trading of our common stock is currently conducted on the Nasdaq Capital Market. The liquidity of our common stock is limited, not only in terms of the number of shares that can be bought and sold at a given price, but also as it may be adversely affected by delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us, if any. These factors may result in different prices for our common stock than might otherwise be obtained in a more liquid market and could also result in a larger spread between the bid and asked prices for our common stock. In addition, without a large public float, our common stock is less liquid than the stock of companies with broader public ownership, and, as a result, the trading prices of our common stock may be more volatile. In the absence of an active public trading market, an investor may be unable to liquidate his investment in our common stock. Trading of a relatively small volume of our common stock may have a greater impact on the trading price of our stock than would be the case if our public float were larger. We cannot predict the prices at which our common stock will trade in the future, if at all.

The exercise of outstanding common stock purchase warrants and stock options will have a dilutive effect on the percentage ownership of our capital stock by existing stockholders.

As of September 30, 2019, we had outstanding warrants to acquire 175,982 shares of our common stock, and stock options to purchase 9,936 shares of our common stock. The expiration of the terms of such options and warrants range from November 2019 to June 2028. A significant number of such warrants are out of the money, but the holders have the right to effect a cashless exercise of such warrants. If a significant number of such warrants and stock options are exercised by the holders, the percentage of our common stock owned by our existing stockholders will be diluted.

In addition, we issued 4,700,000 common warrants in the October 2019 Offering at an exercise price of $2.00 per share, and issued 235,000 underwriter warrants at an exercise price of $2.60 per share. The term of these warrants is five years from issuance. If a significant number of such warrants are exercised by the holders, the percentage of our common stock owned by our existing stockholders will be diluted.

We have agreed to assume all outstanding stock options issued by Curetis N.V. As of July 1, 2019, 1,771,500 stock options have been granted since the start of the Curetis stock option program, 359,390 of those have been forfeited, as at the date of this proxy statement/prospectus, which is expected to leave 1,412,110 stock options outstanding. OpGen has agreed to assume the stock option awards using the .0959 conversion factor set forth in the Implementation Agreement and, therefore, these stock options are expected to convert into up to 135,421 OpGen shares upon exercise. If a significant number of such equity awards are exercised by the holders, the percentage of our common stock owned by our existing stockholders will be diluted.

We have never paid dividends on our capital stock, and we do not anticipate paying dividends in the foreseeable future.

We have never paid dividends on any of our capital stock and currently intend to retain any future earnings to fund the growth of our business. In addition, an amended and restated promissory note issued in June 2017 to Merck Global Health Innovation Fund, a principal investor, or the MGHIF Note, and the related security agreement restricts our ability to pay cash dividends on our common stock. We may also enter into credit agreements or other borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our common stock. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant. As a result, capital appreciation, if any, of our common stock will be the sole source of gain, if any, for the foreseeable future.

OpGen’s Certificate of Incorporation will govern Newco following the closing of the proposed Transaction and provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between Newco and its stockholders, which could limit its stockholders' ability to obtain a favorable judicial forum for disputes with Newco or its directors, officers or other employees.

OpGen’s Certificate of Incorporation will govern Newco following the closing of the proposed Transaction and provides that, unless Newco consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of Newco, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Newco or its stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or the Company’s Certificate of Incorporation or Bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine. This exclusive forum provision is intended to apply to claims arising under Delaware state law and would not apply to claims brought pursuant to the Securities Act or Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction. The exclusive forum provision in OpGen’s Certificate of Incorporation will not relieve Newco of its duties to comply with the federal securities laws and the rules and regulations thereunder, and stockholders of Newco will not be deemed to have waived Newco’s compliance with these laws, rules and regulations.

 

This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with Newco or its directors, officers or other employees, which may discourage lawsuits against Newco and its directors, officers and other employees. In addition, stockholders who do bring a claim in the Court of Chancery of the State of Delaware could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The Court of Chancery of the State of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder would otherwise choose to bring the action, and such judgments or results may be more favorable to Newco than to its stockholders. However, the enforceability of similar exclusive forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find this type of provision to be inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings. If a court were to find the exclusive forum provision contained in OpGen’s Certificate of Incorporation to be inapplicable or unenforceable in an action, Newco might incur additional costs associated with resolving such action in other jurisdictions.

Risks Related to OpGen’s Public Company Status

We incur increased costs and demands on management as a result of compliance with laws and regulations applicable to public companies, which could harm our operating results.

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010, as well as rules implemented by the SEC and the Nasdaq Stock Market, impose a number of requirements on public companies, including with respect to corporate governance practices. Our management and other personnel need to devote a substantial amount of time to these compliance and disclosure obligations. Moreover, compliance with these rules and regulations has increased our legal, accounting and financial compliance costs and has made some activities more time-consuming and costly. It is also more expensive for us to obtain director and officer liability insurance.

If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our reported financial information and the market price of our common stock may be negatively affected.

As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on internal control over financial reporting. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.

When we are no longer an emerging growth company and a smaller reporting company, our independent registered public accounting firm will be required to issue an attestation report on the effectiveness of our internal control over financial reporting. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed.

When we are no longer an emerging growth company and a smaller reporting company, if our auditors were to express an adverse opinion on the effectiveness of our internal control over financial reporting because we had one or more material weaknesses, investors could lose confidence in the accuracy and completeness of our financial disclosures, which could cause the price of our common stock to decline. Internal control deficiencies could also result in a restatement of our financial results in the future.

We are an emerging growth company and have elected to comply with reduced public company reporting requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

We are an emerging growth company, as defined under the Securities Act. We will remain an emerging growth company until December 31, 2020. As an emerging growth company, we take advantage of exemptions from various reporting requirements applicable to certain other public companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial statement and financial-related disclosures, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirement of holding a nonbinding advisory vote on executive compensation and obtaining stockholder approval of any golden parachute payments not previously approved by our stockholders. We cannot predict whether investors will find our common stock less attractive if we choose to rely on any of these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure we may make, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

 

QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND SPECIAL MEETING

Q:  What is the date and time of the Special Meeting and where is it being held?

A:  We will hold the Special Meeting at [•] at [•] local time at [•], unless postponed or adjourned to a later date in accordance with the Adjournment Proposal or otherwise.

Q:  Why am I receiving these materials?

A:   We sent you this proxy statement/prospectus and enclosed proxy card because the OpGen Board of Directors is soliciting your proxy to vote at the Special Meeting. We intend to mail this proxy statement/prospectus and accompanying proxy card on or about [•], [•] to all stockholders of record entitled to vote at the Special Meeting. This document serves as:

·

a proxy statement of OpGen used to solicit proxies for the Special Meeting; and

·

a prospectus of OpGen used to offer the shares of Common Stock to be issued to the Seller, or reserved for future issuance in connection with the Transaction, or the Transaction Shares.

This document contains important information about the proposed Transaction and the Special Meeting and you should read it carefully.

Q:  What is the purpose of the Special Meeting?

A:  At the Special Meeting, OpGen’s stockholders will act upon the following matters outlined in the Notice of Special Meeting of Stockholders and discussed in this proxy statement/prospectus:

·

Proposal One – The Transaction Proposal. Approval of the Transaction pursuant to the Implementation Agreement whereby OpGen will acquire all of the outstanding shares of Curetis and the related business assets of the Seller to create a combined business within OpGen.

·

Proposal Two – The Share Issuance Proposal. Approval of the issuance and reservation for future issuance of the Transaction Shares to the Seller in accordance with the Implementation Agreement and as required by and in accordance with the applicable rules of Nasdaq.

·

Proposal Three – The Adjournment Proposal. Approval of a proposal to adjourn the Special Meeting to a later date or dates, if necessary to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Special Meeting, OpGen is not authorized to consummate the transactions contemplated by Proposals No. 1 and 2.

This transaction must be approved by the shareholders of Curetis N.V.

Q:  What are the recommendations of the OpGen Board of Directors?

A:  The OpGen Board of Directors unanimously recommends that you vote:

1.                   “FOR” Proposal One – the Transaction Proposal;

2.                   “FOR” Proposal Two – the Share Issuance Proposal; and

3.                   “FOR” Proposal Three – the Adjournment Proposal.

Q:  What is the Record Date?

 

A:  Holders of record of our common stock as of the close of business on [•], the Record Date, will be entitled to notice of and to vote at the Special Meeting and at any adjournments or postponements thereof. Holders of record of shares of common stock are entitled to vote on all matters brought before the Special Meeting.

As of the Record Date, there were [•] shares of common stock outstanding and entitled to vote on each proposal presented at the Special Meeting. Holders of common stock will vote on all matters as a class. Holders are entitled to one vote for each share of common stock outstanding as of the Record Date.

You do not need to attend the Special Meeting to vote your shares. Instead, you may vote your shares by marking, signing, dating and returning the enclosed proxy card or voting through the internet.

 

Q:  What shares may I vote?

A:  You may vote all shares of common stock of the Company that you owned as of the close of business on the Record Date.

These shares include:                  

1.

those held directly in your name as the stockholder of record; and

2.

those held for you as the beneficial owner through a bank, broker or other financial intermediary at the close of business on the Record Date.

Each share of common stock is entitled to one vote.

Q:  What is the difference between holding shares as a stockholder of record and as a beneficial owner?

A:  Most stockholders hold their shares through a bank, broker or other financial intermediary rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and shares held beneficially.

            Stockholder of Record: If your shares are registered directly in your name with OpGen’s transfer agent, Philadelphia Stock Transfer, Inc., or the Transfer Agent, you are considered, with respect to those shares, the stockholder of record. As the stockholder of record, you have the right to grant your proxy directly to OpGen or to vote your shares in person at the Special Meeting.

            Beneficial Owner: If you hold shares in a stock brokerage account or through a bank or other financial intermediary, you are considered the beneficial owner of shares held in street name.

•

Your bank, broker or other financial intermediary is considered, with respect to those shares, the stockholder of record.

•

As the beneficial owner, you have the right to direct your bank, broker or other financial intermediary on how to vote your shares, but because you are not the stockholder of record, you may not vote these shares in person at the Special Meeting unless you obtain a signed proxy from the stockholder of record giving you the right to vote the shares.

•

As a beneficial owner, you are, however, welcome to attend the Special Meeting.

Q:  How do I vote?

A:  If you are a stockholder of record, you may vote in person at the Special Meeting, vote by proxy through the internet or vote by proxy using the enclosed proxy card. To vote through the internet, go to [●] and complete an electronic proxy card. You will be asked for a Control Number, which has been provided with the Notice of Internet Availability.

Whether you plan to attend the Special Meeting or not, we urge you to vote by proxy to ensure your vote is counted. Voting by proxy will not affect your right to attend the Special Meeting and vote. If you vote via the internet or properly complete your proxy card and submit it to us in time, the “proxy” (one of the individuals named on the proxy card) will vote your shares as you have directed. If you sign the proxy card but do not make specific choices, the proxy will vote your shares as recommended by the Board of Directors and, as to any other matters properly brought before the Special Meeting, in the sole discretion of the proxy.

If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you should have received a voting instruction form with these proxy materials from that organization rather than from us. Simply complete and mail the voting instruction form to ensure that your vote is counted. Alternatively, you may vote over the internet as instructed by your broker, bank or other agent. To vote in person at the Special Meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the instructions from your broker, bank or other agent included with these proxy materials, or contact your broker, bank or other agent to request a proxy form.

 

 

Q:  Can I change my vote after submitting my proxy?

A:  Yes. You may change your proxy instructions or revoke your proxy at any time prior to the vote at the Special Meeting. For shares held directly in your name, you may accomplish this by: (a) delivering a written notice of revocation to the Secretary of the Company or the Secretary’s designated agent bearing a later date than the proxy being revoked, (b) signing and delivering a later dated written proxy relating to the same shares, or (c) attending the Special Meeting and voting in person (although attendance at the Special Meeting will not in and of itself constitute a revocation of a proxy). For shares held in street name, you may change your vote by submitting new voting instructions to your broker, trustee or nominee.

Q:  What constitutes a quorum at the Special Meeting?

A:  The presence in person or by proxy of the holders of a majority of the issued and outstanding common stock and entitled to vote at the Special Meeting is necessary to constitute a quorum at the Special Meeting. As of the Record Date, there were [•] shares of our common stock issued and outstanding, representing the same number of votes. Accordingly, the presence of the holders of at least [•] shares of our common stock will be required to establish a quorum. Both abstentions and broker non-votes, if any, are counted as present for determining the presence of a quorum. If there is no quorum, the chairman of the meeting may adjourn the meeting to another date.

Q:  What is the vote required to approve each proposal?

A:  The vote required for the proposals to be considered at the Special Meeting are as follows:

Proposal One - The Transaction Proposal. Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting and entitled to vote.

Proposal Two - The Share Issuance Proposal. Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting and entitled to vote.

Proposal Three - The Adjournment Proposal. Approval of this proposal requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting and entitled to vote.

Q:  What is the effect of abstentions and broker non-votes?

A:  An “abstention” occurs when a stockholder sends in a proxy with explicit instructions to decline to vote regarding a particular matter or attends the Special Meeting and elects not to vote or fails to cast a ballot. Abstentions are treated as shares present in person or by proxy and entitled to vote, so abstaining has the same effect as a negative vote for purposes of determining whether the Transaction Proposal, the Share Issuance Proposal and the Adjournment Proposal are adopted.

A “broker non-vote” occurs when a broker has not received voting instructions from the beneficial owner and the broker does not have discretionary authority to vote the shares because the proposal is non-routine. Brokers do not have discretionary authority to vote on the Transaction Proposal, the Share Issuance Proposal or on the Adjournment Proposal. Broker non-votes have no effect on the votes on the Transaction Proposal, the Share Issuance Proposal or on the Adjournment Proposal.

 

 

Q:  Are there any federal or state regulatory requirements that must be complied with or federal or state regulatory approvals or clearances that must be obtained in connection with the Transaction?

A:  In the United States we must comply with applicable federal and state securities laws and Nasdaq rules and regulations in connection with the issuance of the Transaction Shares, including the filing with the SEC of this proxy statement/prospectus and receipt of the required stockholder approvals under Nasdaq rules.

Q:  How can I find out the results of the voting at the Special Meeting?

A:  Preliminary voting results will be announced at the Special Meeting. In addition, final voting results will be published in a Current Report on Form 8-K that we expect to file within three business days after the completion of the Special Meeting. If final voting results are not available to us in time to file a Form 8-K within three business days after the Special Meeting, we intend to file a Form 8-K to publish preliminary results and, within three business days after the final results are known to us, file an additional Form 8-K to publish the final results of the Special Meeting.

Q:  Am I entitled to appraisal rights?

A:  No appraisal rights are available under the General Corporation Law of the State of Delaware, our Amended and Restated Certificate of Incorporation, as amended, or our Bylaws to any stockholder with respect to any of the matters proposed to be voted on at the Special Meeting.

Q:  What is the proposed Transaction with Curetis?

A:  As announced on September 4, 2019, OpGen has entered into an Implementation Agreement with the Seller. Under the Implementation Agreement, OpGen has agreed to purchase, through the Purchaser, the Transferred Shares and the Transferred Assets to create a combined business of OpGen and Curetis within OpGen.

We have also agreed to assume (1) the 2016 Stock Option Plan and the outstanding awards thereunder, and (2) the outstanding indebtedness of Curetis N.V. under the Curetis Convertible Notes, including providing for conversion of such notes into shares of OpGen common stock. We will also assume all of the liabilities of Curetis N.V. that are solely and exclusively related to the business being acquired. Since the date of the Implementation Agreement, Curetis has issued additional shares to the holders of the PSOPs, and all have been retired. The shares previously reserved to cover the PSOPs will be issued to Curetis N.V. as part of the Consideration.

Under the Implementation Agreement, we have agreed to issue, as the sole Consideration, 2,662,564 shares of common stock, less the number of shares of common stock the issuance of which shall be reserved by the Company in connection with (a) up to 135,421 shares of OpGen common stock reserved for its assumption of the 2016 Stock Option Plan and (b) up to 500,000 shares of common stock reserved for future issuance upon the conversion, if any, of the Curetis Convertible Notes. The number of shares of Common Stock to be reserved for the deductions described above are based on a conversion ratio of 0.0959, which is the ratio of the Consideration as contrasted with the number of Seller’s ordinary shares on a fully diluted basis. The number of shares of common stock to be reserved for the Consideration represents 32.3% of the outstanding common stock of OpGen if issued on the date of this proxy statement/prospectus. The number of shares included in the Consideration is fixed, therefore, the percentage ownership of the Company as of the date of closing will be different.

For a more complete description of the Transaction and the Implementation Agreement, please see the section titled “Proposal One: The Transaction Proposal” in this proxy statement/prospectus.

 

Q:  What will happen to OpGen if, for any reason, the proposed Transaction does not occur?

A: If we or Curetis N.V. cannot meet all of the conditions to close under the Implementation Agreement, and the proposed Transaction does not close, we will be in a difficult financial position. We have loaned, and will continue to loan, funds to Curetis under the Interim Facility, and there is a real possibility that Curetis would not be able to repay us some or all of such debt. In addition, we would have to refocus our attention on OpGen as a stand-alone business and would need to raise additional funds to support that business going forward. We cannot assure you that we would be able to continue OpGen as a stand-alone business or be able to raise sufficient capital to do so. If we are unable to raise equity capital, we may need to incur debt financing, if possible, sell assets, curtail business programs, seek bankruptcy protection or dissolve.

Q:  What are the reasons for the proposed Transaction with Curetis?

A: We believe the proposed Transaction represents a unique opportunity to more rapidly and cost effectively develop the OpGen business than we would have been able to on a stand-alone basis. We believe that this will enhance shareholder value compared with building the business on a stand-alone basis. The combined business will create a leading position in the market to capitalize on global opportunities in infectious disease and antimicrobial resistance detection. We believe the combined business will have a broader portfolio of proprietary molecular diagnostic tests and platforms and premier AI-powered bioinformatics solutions for multi-drug resistance diagnostics. OpGen will be able to leverage the established global commercial channel capabilities and partners of Curetis. The combination creates financial leverage and operational synergies by eliminating overlap and avoiding new investment that would have been required by OpGen and by combining the product offerings of the two companies we believe that the combined business will have an improved growth-driven business outlook. The OpGen and Curetis N.V. boards of directors considered a number of factors that supported their respective decision to approve the Transaction in the course of deliberations. The OpGen and Curetis N.V. boards of directors also considered a variety of risks and other countervailing factors related to entering into the Implementation Agreement.

For a more complete description of the reasons for the proposed Transaction, please see the section titled “Proposal One: The Transaction Proposal – Reasons for the Transaction” on page 45 in this proxy statement/prospectus.

Q:  What do you anticipate will be the focus of Newco’s business after the closing of the Transaction?

A:  We anticipate that the focus of Newco will be on its combined broad portfolio of products, which include high impact rapid diagnostics and bioinformatics to interpret AMR genetic data. The two lead products we expect Newco to focus on are for lower respiratory infection and urinary tract infection:

·

The Unyvero LRT test, which is the first FDA cleared test that has a panel that covers more than 90% of infection cases of hospitalized pneumonia patients. According to the National Center for Health Statistics (2018), pneumonia is a leading cause of admissions to the hospital and is associated with substantial morbidity and mortality. The Unyvero LRT automated test detects 19 pathogens within less than five hours and with approximately two minutes of hands-on time and provides clinicians with a comprehensive overview of 10 genetic antibiotic resistance markers. We believe the Unyvero LRT test has the ability to help address a significant, previously unmet medical need that causes over $10 billion in annual costs for the U.S. healthcare system, according to the Centers for Disease Control, or CDC.

·

The Acuitas AMR Gene Panel (Urine) test, which is being developed for patients at risk for cUTI, and is designed to test for up to five pathogens and up to 47 antimicrobial resistance genes. When paired with the Acuitas Lighthouse software, we believe the test will be able to help improve management of the more than one million patients in the United States with cUTI. The AMR Gene Panel (Urine) is in testing in preparation for FDA 510(k) submission. We are pursuing 510(k) clearance for the test in connection with an initial clinical indication to test bacterial isolates.

For a more complete description of the expected focus of Newco, please see the section titled “Proxy Statement/Prospectus Summary - Overview of Newco” in this proxy statement/prospectus.

 

 

Q:  What risks should I consider in deciding whether to vote in favor of the Transaction Proposal or the Stock Issuance Proposal?

A:  Our business is subject to numerous risks and uncertainties. These risks include, but are not limited to, the following:

·

we have a history of losses and expect to incur losses for the next several years;

·

the Transaction may not close because of failure to meet one of the conditions to closing;

·

we have lent, and will need to lend additional money to Curetis during the period between the October 2019 financing and closing, and if the Transaction fails to close, it may be difficult for Curetis to repay such funds;

·

we will need to pursue additional financings to fund Newco’s operations after the closing;

·

the process of obtaining FDA clearance and/or approval is time-consuming and expensive, and we may not be successful in obtaining such clearances or approvals in a timely manner or at all;

·

our products may never achieve significant commercial market acceptance;

·

our contracts with government agencies could be subject to uncertain future funding;

·

our sales cycle is lengthy and variable; and

·

we may not be able to compete successfully with the products and services sold by other companies in our industry, who are better capitalized than we are.

You should carefully review the section of this proxy statement/prospectus titled “Risk Factors,” which sets forth certain uncertainties and risks relating to the Transaction, our business, our securities and other matters.

Q: What are the risks of the Interim Facility to OpGen?

A:  OpGen entered into the Interim Facility with Curetis as required under the Implementation Agreement to provide Curetis with capital, from the October 2019 Offering, to operate the Curetis business and stay current on its obligations during the period between November 2019 and the closing of the Transaction. The loans to be made under the Interim Facility will be deeply subordinated to existing and future indebtedness of Curetis. If the Transaction does not close for any reason, and the Implementation Agreement is terminated, Curetis will be obligated to repay the Interim Facility loans. However, there is substantial doubt as to the ability of Curetis to repay the loans. In addition, any funds lent to Curetis under the Interim Facility will not be available to fund OpGen’s operations. Finally, depending on the length of time to prior to the closing of the Transaction, if it occurs, the proceeds from the October 2019 Offering may be depleted and OpGen may need to raise additional capital.

Q:  Who are expected to be the directors of Newco following the Transaction?

A: Currently, the OpGen Board of Directors consists of four directors. Following the closing of the proposed Transaction, we expect that the Newco Board of Directors will include a total of seven directors. Pursuant to the terms of the Implementation Agreement, four of the directors are designated by Curetis N.V. and two of the directors are designated by OpGen. The parties have agreed to include a seventh director, who will be recommended by OpGen. As of the date of this proxy statement/prospectus, the expected directors of Newco are as follows:

Name	Age	Expected Positions with Newco	Recommended by:
William Rhodes	65	Director and Chair of the Board	Curetis
Oliver Schacht, Ph.D.	49	Director and Chief Executive Officer	Curetis
Mario Crovetto	66	Director	Curetis
R. Donald Elsey	66	Director and Audit Committee Chair	OpGen
Prabhavathi Fernandes, Ph.D.	70	Director	Curetis
Evan Jones	62	Director	OpGen

 

 

Q:  Who are expected to be the executive officers of Newco following the Transaction?

A Following the closing of the proposed Transaction, Evan Jones, the current Chairman, President and Chief Executive Officer of OpGen will continue on the Newco Board of Directors in a non-executive role. Oliver Schacht, the current Chief Executive Officer of Curetis N.V. will serve as the Chief Executive Officer, and Timothy C. Dec, the current Chief Financial Officer of OpGen, will continue to serve in that role. As of the date of this proxy statement/prospectus, the expected executive officers of Newco are as follows:

Name	Age	Expected Position with Newco
Oliver Schacht, Ph.D.	49	Chief Executive Officer
Timothy C. Dec	60	Chief Financial Officer and Corporate Secretary
Johannes Bacher	51	Chief Operating Officer
Vadim Sapiro	48	Chief Information Officer

 

Q:  What are the challenges involved in combining a German/Austrian company and a U.S. company?

A: Following the closing of the proposed Transaction, OpGen will continue as the operating entity and both the size and geographic scope of OpGen’s business will significantly increase. Most of the Curetis business is currently conducted in Europe, Asia and other countries outside of the United States, and many of the Curetis employees are located outside of the United States. In addition, the majority of the initial board of directors will consist of individuals appointed by Curetis N.V., and we expect that the focus of Newco may shift to Curetis operations. We may face challenges integrating such geographically and culturally diverse businesses and implementing a smooth transition of business focus and governance in a timely or efficient manner. In particular, if the effort we devote to the integration of our business with that of Curetis diverts more management time or other resources from carrying out our operations than we originally planned, our ability to maintain and increase revenues as well as manage our costs could be impaired. Furthermore, our capacity to expand other parts of our existing business may be impaired. We also cannot assure you that the combination of the OpGen and Curetis businesses will function as we anticipate, or that significant synergies will result from the business combination. We could have difficulty integrating the assets, personnel, operations and business of OpGen and Curetis.

Q:  When do you expect the Transaction to be consummated?

A: Assuming that we can hold the Special Meeting of stockholders in February 2020 to approve the Transaction and the Transaction Shares issuance, and Curetis N.V. can hold its extraordinary general meeting in February 2020 to approve the Transaction, and all other closing conditions are satisfied or waived, we anticipate the Transaction will close in the first quarter of 2020. We cannot guarantee the closing of the proposed Transaction will occur in this time frame.

Q: What is required to consummate the Transaction?

A: In addition to approval of the Transaction Proposal, Share Issuance Proposal and Adjournment Proposal by OpGen stockholders, the closing of the proposed Transaction is subject to the satisfaction or waiver by OpGen and Curetis N.V. of a number of other conditions, including the assumption by OpGen of the obligations under the Curetis Convertible Notes, including the need to provide for the conversion of the Curetis Convertible Notes into shares of OpGen’s common stock; the entry into the Interim Facility and the funding thereunder; and the receipt of the applicable consents or waivers to be received or granted by certain debt financing providers of Curetis N.V., Curetis GmbH and OpGen. Each of OpGen and Curetis N.V. may waive any or all of the conditions to the closing of the proposed Transaction that are for its benefit to the extent permitted by applicable law. OpGen and Curetis N.V. do not believe that applicable law would permit them to waive (i) the condition for obtaining approval of the Transaction Proposal and Share Issuance Proposal from OpGen’s stockholders or (ii) the condition for obtaining approval of the proposed Transaction from Curetis N.V.’s shareholders and debt holders. See “The Implementation Agreement” beginning on page 70 of this proxy statement/prospectus.

 

Q: What are the material U.S. federal income tax consequences of the Transaction to us and our stockholders?

A: The proposed Transaction consists of the issuance of the Consideration by OpGen in exchange for the acquisition by Crystal GmbH, its wholly owned German subsidiary, of all of the capital stock of Curetis GmbH and assumption of certain liabilities of Curetis N.V. by OpGen or Crystal GmbH. A corporation does not recognize gain or loss when it issues stock in exchange for property under Section 1032(a) of the U.S. Internal Revenue Code of 1986, as amended, or the Code. OpGen therefore believes that neither OpGen nor its stockholders will recognize taxable gain or loss on OpGen’s issuance of shares in the proposed Transaction. OpGen has not sought a tax opinion regarding the U.S. federal income tax consequences of the proposed Transaction, and it provides no information regarding the tax treatment of the proposed Transaction to OpGen or its stockholders in jurisdictions other than the United States. The foregoing summary is for general information only and does not discuss any state, local, foreign or other tax consequences.

The U.S. federal income tax consequences described above may not apply to all stockholders. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your tax advisor for a full understanding of the particular tax consequences of the Transaction to you.

Q: Who is paying for this proxy solicitation?

A: OpGen is paying for this proxy solicitation. Our officers and other regular employees may solicit proxies by mail, in person or by telephone or telecopy. These officers and other regular employees will not receive additional compensation. The Company has retained a third party proxy solicitor for the Special Meeting and estimates cost of $5,000.00. We will reimburse banks, brokers, nominees, custodians and fiduciaries for their reasonable out-of-pocket expenses incurred in sending the proxy materials to beneficial owners of the shares.

 

 

INFORMATION REGARDING FORWARD-LOOKING INFORMATION

This proxy statement/prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this proxy statement/prospectus, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” or the negative version of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this proxy statement/prospectus may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

·

our ability to successfully complete and close the Transaction;

·

our need to apply a significant amount of the proceeds of our recent offering to support Curetis operations through the Interim Facility, and our ability to be repaid if the Transaction does not close;

·

the commercialization of Newco’s products;

·

the completion of the development efforts for the Acuitas AMR Gene Panel tests and Acuitas Lighthouse Software, and the timing of FDA 510(k) clearance filings;

·

our ability to successfully integrate the OpGen and Curetis businesses;

·

our liquidity and working capital requirements, including cash requirements over the next 12 months for us and Newco;

·

our ability to regain compliance with the ongoing listing requirements for the Nasdaq Capital Market;

·

anticipated trends and challenges in our business and the competition that we face;

·

the execution of Newco’s business plan and growth strategy;

·

Newco’s expectations regarding the size of and growth in potential markets;

·

Newco’s opportunity to successfully enter into new collaborative agreements;

·

regulations and changes in laws or regulations applicable to our business, including regulation by the FDA and the EU;

·

compliance with the U.S. and international regulations applicable to our business; and

·

our expectations regarding future revenue and expenses.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. These risks should not be construed as exhaustive and should be read in conjunction with our other disclosures, including but not limited to the risk factors described in this proxy statement/prospectus. Other risks may be described from time to time in our filings made under the securities laws. New risks emerge from time to time. It is not possible for our management to predict all risks. All forward-looking statements in this proxy statement/prospectus speak only as of the date made and are based on our current beliefs and expectations. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable securities laws.

 

PROPOSAL ONE
THE TRANSACTION PROPOSAL

Reasons for the Transaction

There are multiple reasons for contemplating and implementing the Transaction between OpGen and Curetis. The business combination with represents a unique opportunity for both companies to more rapidly and cost effectively develop their businesses than they would have been able to on a stand-alone basis. We believe that this will enhance shareholder value compared with building the individual businesses on a stand-alone basis. We believe the combined business will:

·

establish a leading AMR precision medicine business with the goal of becoming a market leader positioned to capitalize on global opportunities in infectious disease and rapid AMR detection;

·

possess a broad portfolio of proprietary molecular diagnostics tests and platforms with high impact rapid diagnostics;

·

have premier AMR bioinformatics and premier AI powered bioinformatics solutions for multi-drug resistance diagnostics;

·

capitalize financial leverage, operational synergies, and positive growth-driven business opportunities; and

·

combine sales, distribution, bioinformatics and operating infrastructure.

We believe that OpGen will be able to leverage the established global commercial channel capabilities and partners of Curetis. We also believe that the combined business will have improved access to the U.S. capital markets as a result of the larger scale of the business and the Company’s Nasdaq stock exchange listing.

We anticipate that Newco will achieve significant financial, operational, technical, and commercial synergies through the combination of the OpGen and Curetis businesses. We intend to derive commercial synergy by using a single sales and marketing infrastructure and distributing the OpGen products through the Curetis international distribution channels. Potential financial and operational synergies include the consolidation of the companies’ separate infrastructures into one streamlined organization. We envision the technical organizations building off the capabilities of each individual organization and leveraging best practices and common systems.

Overview of Newco

We anticipate that the focus of Newco will be on its combined broad portfolio of products, which include high impact rapid diagnostics and bioinformatics to interpret AMR genetic data. The two main products we expect Newco to focus on are for lower respiratory infection and urinary tract infection, which specifically include:

·

The Unyvero Lower Respiratory Tract, or LRT, test is the first FDA cleared test with a panel of pathogens that Curetis believes covers more than 90% of infection cases of hospitalized pneumonia patients. According to the National Center for Health Statistics (2018), pneumonia is a leading cause of admissions to the hospital and is associated with substantial morbidity and mortality. The Unyvero LRT automated test detects 19 pathogens within less than five hours and with approximately two minutes of hands-on time and provides clinicians with a comprehensive overview of 10 genetic antibiotic resistance markers. We believe the Unyvero LRT test has the ability to help address a significant, previously unmet medical need that causes over $10 billion in annual costs for the U.S. healthcare system, according to the Centers for Disease Control, or CDC.

·

The Acuitas AMR Gene Panel (Urine) test is being developed for patients at risk for cUTI, and is designed to test for up to five pathogens and up to 47 antimicrobial resistance genes. When paired with the Acuitas Lighthouse software, we believe the test will be able to help improve management of the more than one million patients in the United States with cUTI. The AMR Gene Panel (Urine) is in testing in preparation for FDA 510(k) submission. We are pursuing 510(k) clearance for the test in connection with an initial clinical indication to test bacterial isolates.

 

We anticipate that Newco will have an extensive offering of additional in vitro diagnostic tests including CE-marked Unyvero tests for implant and tissue infections, intra-abdominal infections, cUTI, and blood stream infections, and the QuickFISH and PNA FISH FDA-cleared and CE-marked diagnostics used to rapidly detect pathogens in positive blood cultures, which we believe have an established market position in the United States.

We believe Newco’s combined AMR informatics offerings, once all such products are cleared for marketing, if ever, will offer important new tools to clinicians treating patients with AMR infections. OpGen has collaborated with Merck, Inc. to establish the Acuitas Lighthouse Knowledgebase, which is currently commercially available in the United States for RUO. The Acuitas Lighthouse Knowledgebase includes approximately 15,000 bacterial isolates from the Merck SMART surveillance network of 192 hospitals in 52 countries and other sources. The Curetis ARESdb is a comprehensive database of genetic and phenotypic information. ARESdb was originally designed based on the SIEMENS microbiology strain collection covering resistant pathogens over the last 30 years and its development has significantly expanded to now include approximately 40,000 sequenced isolate strains and phenotypic correlation data against over 100 antibiotics. In September 2019, Ares Genetics signed a technology evaluation agreement with an undisclosed global IVD corporation. In the first phase of the collaboration, expected to take about 10 months, Ares Genetics expects to further enrich ARESdb with a focus on certain pathogens relevant in a first, undisclosed infectious disease indication. We anticipate that Newco will utilize the proprietary biomarker content in these databases, as well as to build an independent business in NGS- and AI-based offerings for AMR research and diagnostics in collaboration with partners in the life science, pharmaceutical and diagnostics industries.

The Unyvero A50 tests for up to 130 diagnostic targets (pathogens and resistance genes) in under five hours with approximately two minutes of hands-on time. The system was first CE Marked in 2012 and was FDA cleared in 2018 along with the LRT test through de novo clearance. As of September 30, 2019, an installed base of 165 Unyvero A50 Analyzers globally. The Unyvero A30 RQ is a new device designed to address the low to mid-plex testing market for 5 to 30 DNA targets and to provide results in 45 to 90 minutes with 2 to 5 minutes of hands on time. The Unyvero A30 RQ has a small laboratory footprint and has an attractive cost of goods profile. Curetis has been executing a partnering strategy for the Unyvero A30 RQ, and the first partnering agreement is anticipated to be negotiated in 2020.

We expect that Newco will have extensive partner and distribution relationships to help accelerate the establishment of a global infectious disease diagnostic testing and informatics business. We expect its partners will include A. Menarini Diagnostics for pan-European distribution to currently 11 countries; MGI/BGI for NGS-based molecular microbiology applications in China; and Beijing Clear Biotech Co. Ltd. for Unyvero A50 product distribution in China. In total, as of September 30, 2019, Curetis had a network consisting of 18 distributors covering 43 countries.

We anticipate that Newco will continue to develop and seek FDA and other regulatory clearances or approvals, as applicable, for the Acuitas AMR Gene Panel (Urine) diagnostic test and the Acuitas Lighthouse Software products. We expect that Newco will continue to offer the Acuitas AMR Gene Panel (Isolates) and Acuitas Lighthouse Software as RUO products to hospitals, public health departments, clinical laboratories, pharmaceutical companies and contract research organizations, or CROs.

Pursuant to the Implementation Agreement, we have agreed to assume the Curetis Convertible Notes from Curetis N.V. and outstanding indebtedness of Curetis GmbH under a loan provided by the European Investment Bank, or EIB. As of November 1, 2019, the outstanding indebtedness under the Curetis Convertible Notes was $1.4 million. Pursuant to the Implementation Agreement, after the closing, the Curetis Convertible Notes that remain outstanding will be convertible into shares of OpGen common stock. The assumption of the Curetis Convertible Notes and the determination of the conversion rate adjustment are subject to the approval of the holders of the Curetis Convertible Notes. As of June 30, 2019, the outstanding indebtedness under the EIB loan is $20.4 million of principal and $1.6 million in accrued interest.

In September 2018, OpGen announced a collaboration with The New York State Department of Health, or DOH, and ILÚM Health Solutions, LLC, or ILÚM, an entity created by Merck’s Healthcare Services division to develop a state-of-the-art research program to detect, track, and manage antimicrobial-resistant infections at healthcare institutions in New York State. The collaboration is called The New York State Infectious Disease Digital Health Initiative. The first stage of the collaboration, which commenced in February 2019, is the completion of a demonstration project, expected to last until March 2020. We believe a successful demonstration project will lead to a statewide program. Under the demonstration project, OpGen is working with DOH’s Wadsworth Center and ILÚM to develop an infectious disease digital health and precision medicine platform that connects healthcare institutions to DOH and uses genomic microbiology for statewide surveillance and control of antimicrobial resistance. The DOH, ILÚM and OpGen are working collaboratively to build a sustainable, flexible infectious diseases reporting, tracking and surveillance tool for antimicrobial resistance that can be applied across New York State. The goal of this research project is to improve patient outcomes and save healthcare dollars by integrating real-time epidemiologic surveillance with rapid delivery of resistance results to care-givers via web-based and mobile platforms. ILÚM is leading the project with the implementation of its technology platform. OpGen is providing its Acuitas AMR Gene Panel (RUO) for rapid detection of multidrug-resistant bacterial pathogens along with its Acuitas Lighthouse Software (RUO) for high resolution pathogen tracking. Under the agreement, OpGen will receive approximately $1.6 million for the 12-month demonstration portion of the project.

 

 

We expect that Newco will continue to incur losses for the next few years and will incur significant operating expenses relating to, among other things:

·

developing additional Unyvero tests and the Acuitas AMR Gene Panel products and services for antibiotic resistance testing;

·

commercializing the Unyvero LRT tests as an FDA-cleared test, and the Acuitas AMR Gene Panel tests and Acuitas Lighthouse Software, additional Unyvero tests and ARESdb informatics services, as RUO products and, if cleared, as diagnostic products and services;

·

conducting additional clinical trials as Newco seeks regulatory approval for certain product offerings;

·

developing, presenting and publishing additional clinical and economic utility data intended to increase clinician adoption of Newco’s current and future products and services;

·

further advancing the development of ARESdb and the ARES Technology Platform and NGS-based development and clinical validation of infectious disease applications based on these assets;

·

developing additional collaborative arrangements;

·

maintaining, expanding and protecting its intellectual property portfolio and trade secrets;

·

expanding the size and geographic reach of Newco’s sales force and marketing capabilities to commercialize potential future products and services; and

·

recruiting and retaining quality assurance and compliance personnel and maintaining compliance with regulatory requirements.

Newco’s Strategy

We believe that by combining the Curetis and OpGen product offerings and products in development, we can build and commercialize a comprehensive precision medicine solution for combatting infectious disease with a focus on developing diagnostic tests for rapid pathogen identification and genetic profiling, antibiotic resistance analysis and advanced informatics to store and analyze MDRO and other infectious disease data for hospitals, out-patient settings and other healthcare providers. We believe that Newco will establish a market leadership position and will be able to capitalize on global opportunities in infectious disease and AMR detection. Key elements of Newco’s anticipated strategy are to:

·

continue to gain regulatory approvals and establish a market position for proprietary molecular diagnostic tests and platforms;

·

capitalize on unique AMR bioinformatics solutions based on the Acuitas Lighthouse Software and ARESdb to help differentiate Newco’s molecular diagnostic offerings and establish stand-alone product offerings directly or through strategic partners;

·

leverage global commercial channel capabilities and partners to help accelerate growth and establish a global footprint for Newco’s tests and informatics;

 

 

·

pursue partner relationships to help fund product development and to support commercialization of products and services; and

·

capitalize on the financial leverage, operational and research synergies to help improve return on capital and achieve future profitability.

The two core components of Newco’s strategy are the development and commercialization of rapid diagnostic tests and leveraging AMR information services into new markets and channels.

We believe that antimicrobial resistance is an urgent global healthcare issue. MDROs have been prioritized as an urgent national and global threat by the CDC, the executive branch of the federal government and the World Health Organization. In March 2015, The White House issued a National Strategy for Combating Antibiotic-Resistant Bacteria. This strategy calls for the strengthening of surveillance efforts to combat resistance, the development and use of innovative diagnostic tests for identification and characterization of resistant bacteria and antibiotic stewardship and development.

The CDC estimates that in the United States more than two million people are sickened every year with antibiotic-resistant infections, with at least 23,000 dying as a result. Antibiotic-resistant infections add considerable but often avoidable costs to the U.S. healthcare system. In most cases, these infections require prolonged and/or costlier treatments, extended hospital stays, additional doctor visits and healthcare facilities use, and result in greater disability and death compared with infections that are treatable with antibiotics. Estimates for the total economic cost to the U.S. economy are difficult to calculate but the CDC has estimated such costs to be as high as $20 billion in excess direct healthcare costs annually. As described in a December 2014 report issued by the Review on Antimicrobial Resistance commissioned by the U.K. Prime Minister, titled “Antimicrobial Resistance: Tackling a Crisis for the Health and Wealth of Nations,” there are estimated to be 700,000 deaths each year from antimicrobial resistance, including 50,000 deaths annually in the United States and Europe.

·

Rapid diagnostics – The two lead products for Newco’s rapid diagnostics business are for lower respiratory infection and urinary tract infection. The LRT test is based on the Unyvero A50 and was FDA cleared in 2018 for use with tracheal aspirates as a sample type. In July 2019, Curetis filed for the 510(k) clearance of an LRT application cartridge optimized for use with BAL as an additional sample type. BAL is another common sample type for the diagnosis of lower respiratory tract infections. In response to its July 2019 510(k) submission, Curetis received an AI request from the FDA in September 2019. After resolving the deficiencies identified in the AI request, FDA clearance was received in December 2019. Curetis believes that receipt of FDA clearance of an Unyvero LRT Application Cartridge for this additional sample type will significantly increase the total addressable market for Unyvero in the United States. Newco plans to continue to expand the commercial opportunity for the Unyvero products by developing new tests, running additional clinical trials, pursuing expanded regulatory approvals and through sales and marketing activities intended to help increase commercial adoption and test usage. OpGen is developing OpGen-branded Acuitas AMR Gene Panel tests for use on the Thermo Fisher Scientific Applied Biosystems™ QuantStudio™ 5 Real-Time PCR System. The first of these new tests will be for antibiotic resistance testing of bacterial isolates. The second indication for the Acuitas AMR Gene Panel is for management of patients with UTI.

·

ARESdb and Acuitas Lighthouse informatics and services – Newco plans to pursue commercial opportunities to provide bio-informatics and companion genomic testing services to pharmaceutical companies, CROs, health systems, third party in vitro diagnostic companies, and government agencies based on the Acuitas Lighthouse and ARESdb. Through OpGen’s participation in The New York State Infectious Disease Digital Health Initiative we anticipate deploying the Acuitas Lighthouse Software throughout the State of New York to help identify and track patients with Superbug infections. The focus in the health system segment is on helping guide antibiotic decision-making and supporting patient safety initiatives. Newco intends to actively pursue government funding for development and deployment of solutions based on the Acuitas Lighthouse and ARESdb bioinformatics platforms in the United States and internationally.

 

 

In support of its strategy, we anticipate that Newco will focus on:

·

commercializing the Unyvero A50 LRT test for BAL specimens and expand the base of commercial customers following FDA clearance in December 2019;

·

entering into strategic partnering and licensing agreements to provide funding and support further development of the Unyvero A30 RQ platform;

·

obtaining FDA clearance to market the Acuitas AMR Gene Panel test for the detection of antimicrobial resistance genes in bacterial isolates and expand the base of commercial customers;

·

completing development and clinical evaluations, obtaining necessary regulatory approvals, and successfully commercializing the Acuitas AMR Gene Panel (Urine) for cUTIs, with a goal of achieving three-hour antibiotic resistance analysis from the time of specimen collection;

·

commercializing the Acuitas AMR Gene Panel tests for RUO, which started in January 2018 and for which on May 13, 2019, we filed a 510(k) submission with the FDA for clearance for the detection of antimicrobial resistance genes in bacterial isolates;

·

making additional FDA 510(k) submissions for the Acuitas AMR Gene Panel (Urine) test anticipated in the first quarter of 2020, and the Acuitas Lighthouse Software (AMR Gene Panel Prediction) anticipated in the first half of 2020;

·

successfully completing the demonstration project of The New York State Digital Health Initiative to support Statewide deployment in subsequent years;

·

progressing the development of ARESdb-based solutions for AMR prediction for public health, pharma, and diagnostics in collaboration with and partially funded by established in vitro diagnostic and pharmaceutical companies;

·

obtaining third-party funding to expand the ARESdb offerings in conjunction with established in vitro diagnostic companies;

·

expanding our business collaborations with Merck, Sandoz and other pharmaceutical companies;

·

capitalizing on opportunities to deploy the Acuitas Lighthouse informatics and genomic testing for pharmaceutical/CRO services;

·

growing the ARESdb and Acuitas Lighthouse data warehouse offerings for resistance and susceptibility data in hospital, hospital system, or broader community applications;

·

seeking government funding to advance programs focused on identification and treatment of MDROs; and

·

continuing development of the Acuitas Lighthouse Software and work to install Acuitas Lighthouse Software to customer sites in the United States and globally.

Background of the Transaction

Highlighted below is a detailed chronology of events leading up to and subsequent to the execution of the Implementation Agreement.

In summer of 2017, the Management Board, or Curetis MB, and Supervisory Board, or Curetis SB, of Curetis N.V. met and discussed the strategic and commercial future as well as financial aspects of Curetis N.V. as a stand-alone company. The Curetis SB approved retaining a banking advisor to run a structured process to determine whether there would be any interested parties in acquiring Curetis N.V., as a whole. Following a structured process where several banks presented to the Curetis MB and Curetis SB in August 2017, RW Baird was chosen to run the process. Following the preparation of certain non-confidential pitch materials, an outreach was conducted from the fourth quarter of 2017 through the first quarter of 2018. Following a series of meetings and telephone conference calls around the JP Morgan healthcare conference in January 2018, it became obvious that Curetis N.V. would be unable to attract meaningful bids from global IVD companies prior to receipt of FDA clearance of Unyvero LRT in the United States and some significant amount of commercial traction. Also, during a meeting between representatives of H.C. Wainwright & Co., LLC, or HC Wainwright, and the Curetis MB during the 2018 JP Morgan conference, the idea of having an informal discussion about possible areas of mutual interest and providing an introduction to the OpGen management team were floated.

 

 

Around that time, Curetis N.V. ran a dual track process of preparing Curetis N.V. for a possible future Nasdaq listing. PwC was retained to audit the IFRS IASB or U.S. GAAP financial statements. The project was initiated in the fall 2017 and ran into the first quarter of 2018.

At a meeting of the Curetis SB on February 22, 2018 the feedback and status of both of these projects were discussed in depth. Given the estimated required time and resource commitment towards a possible Nasdaq IPO by Curetis pursuant to a Form F-1 filing, a decision was made to abandon the idea of a Nasdaq IPO and instead focus on capital raising measures using the existing Euronext listing. The primary reason at the time was that it was believed that a Euronext follow-on offering might be possible to complete in the second or third quarter of 2018. It was decided to retain Goetzpartners and Trout Capital for a private placement financing, or PIPE, to be completed in the first half of 2018. In addition, several of the potential leads and discussions from the strategic outreach track process put on hold, to be pursued independently by Curetis management directly.

Once the decision to not pursue the Nasdaq IPO track further was made, RW Baird determined that it would not be best positioned to support a Euronext follow-on offering. The bank ended its engagement letter and waived any tail obligations that Curetis would have otherwise had.

On April 27, 2018, Curetis successfully closed a PIPE financing raising EUR 4.1 million by issuing 854.166 new shares at EUR 4.80 per share. A new anchor investor was found with Milaya Capital, the family office of a well-known Belgium life science and diagnostics investor.

On May 2, 2018, as part of a regularly scheduled Board meeting, the OpGen Board of Directors, or the OpGen Board, discussed OpGen’s strategic focus, planned regulatory and business activities and short and long-term financing needs. As part of such discussion, the Board reviewed information regarding a number of companies with a business focus similar to OpGen’s, including Curetis N.V. and companies in OpGen’s general industry with which OpGen could potentially collaborate. The OpGen Board determined that it was advisable to consider all strategic alternatives available to OpGen, including entry into collaboration agreements, licensing transactions, or a business combination transaction, either as an acquirer or a seller.

Over the ensuing months in the spring and summer of 2018 Curetis N.V. completed a number of non-deal road shows in China with both institutional investors as well as potential strategic collaboration partners. Special emphasis was put on opportunities that could leverage some of the assets in the Curetis N.V. R&D pipeline such as the Unyvero A30 RQ platform as well as ARESdb.

At the Curetis SB meetings in May 2018 and June 2018, as well as several Curetis SB conference calls in the third quarter of 2018 an intensive dialogue was held between the Curetis MB and Curetis SB to determine the best possible course of action. Also over the course of several months from May 2018 until September 2018, various banking syndicate alternatives were evaluated and discussed and following significant re-structuring of engagements and composition of syndicates after evaluating a total of six banking and advisory firms, final engagement letters were signed with Baader Bank and Goetzpartners, respectively, to complete the process for a prospectus driven Euronext follow-on offering. The financing successfully closed on November 7, 2018 raising EUR 8.9 million in gross proceeds. Given that these gross proceeds were significantly below the desired target, the Curetis MB and Curetis SB discussed and implemented significant re-organization and strategic re-direction in December 2018 and January 2019 with a significant reduction in force, putting all EMEA direct sales territories into the hands of Menarini Diagnostics, down-sizing the U.S. commercial team and operations and optimizing R&D programs for partnering and third party commercialization rather than internal IVD development and commercialization e.g. of the Unyvero A30 RQ platform.

During June and July 2018, the OpGen Board reviewed information provided by management regarding potential industry partners and competitors, and determined that it would be helpful to engage banking advisors to assist the Board with its determinations. On June 8, 2018, the OpGen Board retained John Kuzmishin, a consultant with knowledge of the industry, to assist the Board in evaluating the alternatives available to the Board. In July 2018, OpGen entered into non-disclosure agreements with a number of investment banking firms to seek advice regarding next steps. The OpGen Board, with John Kuzmishin’s assistance, spoke with representatives of seven banking firms during July and August 2018.

 

 

During July and August 2018, the OpGen Board considered a number of alternatives available to the Company, including capital-raising transactions, business collaboration transactions with pharmaceutical companies or other, larger companies with complimentary diagnostic and platform product offerings, or some combination of such alternatives. The Board also discussed the interplay of these considerations with the potential collaboration being negotiated among the Company, the New York State Department of Health, or DOH, and ILÚM Health Solutions, LLC, or ILÚM, an entity created by Merck’s Healthcare Services division to develop a state-of-the-art research program to detect, track, and manage antimicrobial-resistant infections at healthcare institutions in New York State.

In a parallel track over the summer and fall of 2018 a series of informal discussions and meetings were held between the management teams of OpGen and Curetis N.V, after an informal introductory meeting during ASM Microbe in Atlanta in late June 2018. A strategic brainstorming session about possible areas of mutual interest and collaboration opportunities was held in Chicago in July 2018 ahead of the American Association of Clinical Chemistry annual conference. All of these discussions were held under a non-disclosure agreement between OpGen and Curetis N.V. signed on June 25, 2018.

In addition, during the period from June through September 2018, the Compensation Committee of the Board engaged in an analysis of OpGen’s executive compensation and the need to implement a retention plan to assist in the retention of OpGen leadership to assist with the potential process. The Compensation Committee approved a number of retention-related compensation changes including: restoring Mr. Jones’ base salary to $425,000/year in July 2018; providing four executive officers, including Mr. Jones, with a Change in Control/Severance Agreement (approved in September 2018) that provided all four executive officers with six months' base salary severance on a termination outside of a change in control period and increased to 12 months' base salary, plus acceleration of outstanding equity awards on a termination related to a change in control; and putting in place a retention plan that reserved 5% of the acquisition value of OpGen in a consummated change in control transaction to be paid by the acquiring company, in cash, if any of the four executive officer’s employment was terminated without cause or for "good reason" in the six months before or two years after a change in control.  The retention plan, approved and disclosed in September 2018, was an addition to the severance to be paid, if any, under the Change in Control/Severance Agreements.  The retention plan also provided that if any of the four executive officers are retained by the acquiring company for two years after a change in control, the payment would be made at the end of that period, and severance would not be paid. 

At a regularly scheduled OpGen Board meeting held on August 1, 2018, the Board received presentations from two investment bankers and advice from a third relayed by management. During such presentations the advisors provided information regarding their experience, advice regarding market activity, the possibilities for a successful transaction and the types of strategic transactions they believed were available to the Company, include sale transactions and collaborations. After discussion, the Board determined that it would engage Crosstree as a financial advisor and authorized management to work with counsel to negotiate an engagement letter with Crosstree.

On August 21, 2018, the Transaction Committee of the OpGen Board met to discuss the Company’s financial position and anticipated cash reach over the remainder of calendar 2018 and into the first quarter of 2019. The financing alternatives discussed included use of the Company’s existing at-the-market offering, or the implementation of a public offering of securities, private placement with an investor or industry participant, a warrant exchange transaction or a rights offering. The Transaction Committee authorized management to secure financing through the at-the-market offering to the extent appropriate and possible over the next month.

The engagement letter with Crosstree was executed on August 27, 2018. The fee structure included a transaction fee and, if requested, a separate fee for the issuance of a fairness opinion. Crosstree representatives were given access to an electronic data room and due diligence commenced.

During the ongoing discussions the Curetis MB determined that there might be significant value in exploring a more strategic nature of the collaboration with OpGen and possibly also a business combination. In late August 2018, Curetis N.V. was informed by OpGen management of the formal and structured bidding process that OpGen and its board had implemented. Curetis was invited by Crosstree to submit an initial non-binding indicative offer for OpGen by December 2018.

 

 

During late August, September and October 2018, Crosstree, John Kuzmishin and OpGen management worked to develop introductory materials describing OpGen and its strategic interests and developing a list of potential financing sources, collaborators, targets and potential acquirors. Crosstree, John Kuzmishin and OpGen management also drafted and refined a Confidential Information Memorandum, or CIM, regarding the Company. The OpGen Board was kept informed of the progress of such activities with weekly updates and approved the introductory materials and CIM in October 2018.

On September 17, 2018, the Compensation Committee of the OpGen Board met to review and finalize the executive officer Change in Control/Severance Agreements and the Retention Plan for Senior Executives. The agreements and plan were approved by the full OpGen Board on September 21, 2018. A Current Report Form 8-K disclosing the agreements and retention plan was filed by the Company on September 25, 2018.

Beginning on October 4, 2018, OpGen’s management and counsel worked with representatives of Aegis Capital Corp. to effect a public offering of common stock using OpGen’s existing shelf registration statement. On October 22, 2018, OpGen closed a public offering, or the October 2018 Public Offering, of 111,000 shares of common stock at a public offering price of $29.00 per share. The offering raised gross proceeds of approximately $3.2 million and net proceeds of $2.8 million.

On October 18, 2018, Crosstree circulated to the OpGen Board a presentation of potential strategic and financial partnering opportunities for OpGen, ranked by business focus, potential interest, and deal capacity, as well as information on alternative candidates. Crosstree representatives were available to the OpGen Board members to discuss the materials over the next week. On October 23, 2018, the OpGen Board met and discussed the materials in detail. Mr. Kuzmishin also updated the OpGen Board regarding ongoing conversations with a global pharmaceutical company regarding a potential business combination or collaboration transaction with a subsidiary. After discussion, the Board authorized Crosstree to contact a designated number of companies and financing sources to provide the approved OpGen materials and enter into confidentiality agreements with the companies who expressed interest in receiving additional information. The OpGen Board also authorized Mr. Kuzmishin to continue conversations with the pharmaceutical company.

Over the next month, Crosstree contacted 62 strategic buyers and 40 financial buyers. Of such companies, 19 executed non-disclosure agreements with the Company and received the CIM. Other than Curetis, none of such 19 companies delivered an indication of interest or term sheet to OpGen. On November 7, 2018, at a regularly scheduled Board meeting, Crosstree provided an update on the process, and management provided an update on conversations and evaluation of potential transactions with the subsidiary of a global pharmaceutical company, a large medical equipment supplier and a multi-national diagnostic testing and device manufacturer regarding potential collaboration and/or financing transactions.

On November 16, 2018, Harry D’Andrea, the Chair of the Audit Committee and the Chair of the Transaction Committee resigned from the OpGen Board and Committee membership. He confirmed that his resignation was not due to disagreements with management. Tina Nova was appointed to the Audit Committee and Misti Ushio was appointed as Chair of the Transaction Committee.

In September through December 2018 the Curetis MB and Curetis SB held several meetings and conference calls and determined that it would be in the best interest of Curetis N.V. to submit such a non-binding and initial indicative offer letter to OpGen, This was done in the light of a smaller than anticipated equity capital raise in November 2018 when actual gross proceeds of EUR 8.9 million fell significantly short of a targeted amount in the range of EUR 16 to 18 million, and the need to gain more critical mass and commercial traction especially in the United States faster than otherwise possible as a stand-alone company.

On December 17, 2018, Curetis N.V. provided a non-binding indicative letter outlining some key terms under which Curetis N.V. would be willing to further explore the idea of a business combination with OpGen. These indicative terms included a relative share exchange ratio of 2:1 to 3:1 in favor of Curetis N.V. and required sufficient financing becoming available for the business combination prior to proceeding, leading to relative share ownership of between 67% and 75% for the Curetis N.V. shareholders. The indication of interest also noted that an important component of any deal was the ability to adequately finance both companies and the potential business combination, either before or after the negotiation of any transaction. The ability of OpGen to maintain its Nasdaq listing was mentioned as a material consideration for Curetis N.V.

 

The Curetis SB held a meeting on December 5, 2018 and authorized the Curetis MB to proceed with discussions and negotiations towards a more detailed view on a potential business combination.

During JP Morgan healthcare conference in January 2019, an informal meeting was held between the OpGen chairman Evan Jones, OpGen Chief Financial Officer Timothy Dec, Curetis SB’s chairman William Rhodes and Curetis N.V.’s Chief Executive Officer Oliver Schacht. Following the discussion Curetis N.V. signaled to OpGen that it would await formal feedback on whether, based on the terms outlined in the non-binding letter, there would be merit in continuing the discussions.

The first regularly scheduled OpGen Board meeting of 2019 was held on January 9, 2019. The focus of the meeting was the strategic combination project, including a detailed discussion of the Curetis N.V. proposal, due diligence to date and potential transaction issues. The OpGen Board also discussed an update from Mr. Kuzmishin and representatives of Crosstree on the ongoing collaboration and potential business combination transaction discussions with other interested parties.

During the period from mid-February 2019 until May 2019 the Curetis MB and Curetis SB discussed various financial and business scenario analyses on a possible business combination with OpGen. In addition, the strategic decision to put pan European commercial activities into the hands of one single larger distributor was implemented. Curetis, in late March 2019, signed an exclusive multiyear distribution agreement for all of its Unyvero A50 product portfolio covering 11 countries initially. At a Curetis SB meeting on February 24, 2019, the progress to date with the interactions with OpGen were discussed and the Curetis MB was given the green light to proceed with the idea of a potential business combination. The progress was discussed in regular bi-weekly telephone calls between Curetis SB chairman Bill Rhodes and Curetis N.V. Chief Executive Officer Oliver Schacht.

The OpGen Board was provided with updates on the process every one-to-two weeks over the next month. On February 13, 2019, the OpGen Board met to evaluate the alternatives available for OpGen, including continuing to negotiate with Curetis, N.V., engaging with other companies, expanding the strategic alternatives process, pursuing the future on a stand-alone basis, and the projected financing needs of the Company and the combined business with Curetis in the short- and long-term. Crosstree representatives and management provided analyses of each scenario and the pros and cons of each approach, including the finance-ability of each alternative, timing considerations and the potential impact on OpGen’s stockholders. The OpGen Board discussed OpGen’s stand-alone transaction in detail, including a discussion of the financing needs, the likelihood of financing OpGen on a stand-alone basis, and the anticipated product development timeline and length and expense of the related regulatory process. After a lengthy discussion, the OpGen Board asked the Crosstree representatives to secure Curetis N.V.’s thoughts on the viability of a business combination process, and the ability to develop a solid financial forecast for the proposed business combination and financing plan, while OpGen took the steps necessary to secure financing for OpGen.

On February 19, 2019, the OpGen Board elected R. Donald Elsey to the Board and appointed him as Chair of the Audit Committee of the Board.

OpGen management concentrated on finalizing and filing OpGen’s Annual Report on Form 10-K for the year ended December 31, 2018. On management’s recommendation, management and the Board suspended all management participation in discussions with Curetis N.V. and other potential parties while OpGen focused on financing the Company. During March 2019, Crosstree representatives and Mr. Kuzmishin continued to address questions and provide information without input or further assistance from OpGen.

On March 28, 2019, OpGen closed a common stock financing, raising net proceeds of $4.8 million through the sale of 450,000 shares at $12.00 per share. The over-allotment option granted to the underwriter was not exercised.

On April 2, 2019, and again on April 11, 2019, OpGen management and representatives of Crosstree provided the OpGen Board with an update on the strategic alternatives process over the prior six weeks. The update focused on the financial viability of a transaction with Curetis N.V. and a potential collaboration or going private transaction with the subsidiary of a global pharmaceutical company to meld OpGen’s diagnostics tests and informatics products with software technology of another company with funding provided by third party investors in the industry. The expense of the March 2019 public offering, coupled with the small amount of capital raised was discussed. The OpGen Board also received an update on a potential business transaction with a multi-national diagnostic testing and medical device manufacturer. OpGen management notified the OpGen Board that the focus of each of these efforts was finding financing sources needed to finance any business combination or other transaction, and that the business combination with Curetis was increasingly viewed as the most attractive alternative available to OpGen.

At the OpGen Board meeting held on May 1, 2019, Mr. Kuzmishin and representatives of Crosstree updated the Board on a joint investor presentation being developed by OpGen and Curetis N.V. to present the proposed business combination financing needs to investors to gauge potential interest. Mr. Jones also reported that conversations with investors for the potential transaction with a subsidiary of a global pharmaceutical company had revealed that the timeline for any such transaction was too extended for OpGen to pursue given its then-current financial condition.

 

On May 6, 2019, the Listing Qualifications Staff of The Nasdaq Stock Market LLC notified the Company that the closing bid price of the Company’s common stock had, for 30 consecutive business days preceding the date of such notice, been below the $1.00 per share minimum required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Marketplace Rule 5550(a)(2). OpGen had until November 4, 2019 to regain compliance with the Minimum Bid Price Rule.

During May and June 2019, the efforts of each of OpGen and Curetis focused on investor meetings for a potential combination, and considerations by each party of stand-alone strategies and likelihood of success. Representatives of HC Wainwright and Crosstree, and counsel from Linklaters LLP and Ballard Spahr LLP, counsel to the parties, participated in a few calls regarding possible transaction structure alternatives for a business combination between Curetis N.V. and OpGen. The analyses considered the complexity of the proposed transaction, various structuring alternatives, the anticipated time-lines and the approval requirements associated with each possible transaction structure.

At the Curetis SB meeting held on May 15, 2019, the Curetis MB updated the Curetis SB on a joint investor presentation being developed by OpGen and Curetis N.V. to present the proposed business combination financing needs to investors to gauge potential interest. The entire Curetis SB reviewed the status once again in detail at this meeting. Other key topics discussed at that Curetis SB meeting included the commercial progress in the United States, hand-over of European customers and business to Menarini, other strategic business development and partnering opportunities for Unyvero A30 RQ platform and ARESdb. Regular conversations were also held between the Curetis MB and Crosstree as well as the OpGen team to fine tune ideas of possible business combination scenarios.

During May 2019, OpGen determined that the proposed time frame for a potential transaction with a global pharmaceutical company was too long to consider this as a viable alternative in the near term. The consulting agreement with Mr. Kuzmishin was terminated by OpGen in May 2019.

Following receipt of the information that the OpGen Board had decided to continue discussions with Curetis N.V., the Curetis MB and Curetis SB discussed retaining a bank as an advisor and also for any potentially associated capital raise. On May 29, 2019, Curetis signed an engagement letter with HC Wainwright to become its M&A advisor and, on June 6, 2019, in a separate engagement letter also to serve as its investment bank for capital raising. Furthermore, PwC as auditors and Linklaters LLP as legal counsel were retained for the project. In a Curetis SB meeting on June 27, 2019 a detailed strategic discussion was held on prioritization and possible next steps of the discussions.

Representatives of OpGen, including Mr. Jones, attended the ASM Microbe 2019 conference from June 20-24, 2019. Mr. Jones engaged in a number of conversations with companies and investment banking firms regarding potential collaboration or transaction alternatives. He reported these conversations to the OpGen Board on June 25, 2019.

During May and June 2019, the efforts of each of OpGen and Curetis focused on investor meetings for a potential business combination, and considerations by each party of stand-alone strategies and likelihood of success. Representatives of HC Wainwright and Crosstree, and counsel to the parties, participated in a few calls regarding possible transaction structure alternatives for a business combination between Curetis N.V. and OpGen. The analyses considered the complexity of the proposed transaction, the anticipated time-lines and the approval requirements associated with each possible transaction structure. In June 2019, in a series of meetings and conference calls HC Wainwright had reached out to multiple institutional investors, and the prevailing feedback that HC Wainwright provided to the Curetis MB and Curetis SB during a conference call on June 27, 2019 was that an up-front commitment by one or multiple investors to invest $20 million or more would not likely be obtainable as investors would only consider an investment closer to or following the closing of a business combination.

The Curetis SB during the June 27, 2019 meeting also requested that the Curetis MB prepare a detailed analysis of various alternative scenarios including various asset monetization and licensing or partnering scenarios for the Unyvero A30 RQ platform, for Ares Genetics and a scenario under which Curetis N.V. would wind down its operations into a hibernation mode in order to maximize cash reach and determine asset selling activities in parallel. Such scenarios were prepared by the Curetis MB and provided to the Curetis SB by July 19, 2019. These analyses included status updates provided by the Curetis MB to the Curetis SB on various ongoing strategic licensing and partnering discussions. Amongst those were several Unyvero A30 RQ platform-related negotiations and discussions with three parties from China, one from Asia Pacific, two from Europe and one from the United States. Furthermore, a pipeline of strategic business development negotiations around ARESdb and Ares Genetics assets were discussed. These included strategic discussions with a big pharmaceutical company, a strategic biotechnology transaction, a major global leading IVD corporation, existing partners QIAGEN and Sandoz and several other parties.

 

The input management of the companies received from the investor outreach process by the end of June 2019 was that a pre-business combination financing transaction was unlikely to raise sufficient funds within the time frame required by OpGen and Curetis N.V., and the boards and management of each party determined that a business combination of the two companies was the best alternative available to their respective shareholders and stockholders.

Based upon this analysis, a formal decision was taken by Curetis N.V. to focus its energies on a potential business combination transaction with OpGen and to abandon remaining alternatives, such as asset sales, monetization deals and the like. Curetis N.V. decided to proceed with next steps and have Linklaters LLP draft certain implementation plans for selection by the wider working group towards preparing a non-binding letter of intent and subsequently a definitive implementation agreement. The Curetis SB was kept informed throughout the process by means of regular bi-weekly calls between William Rhodes as chairman of the Curetis SB and Chief Executive Officer Oliver Schacht, as well as regular email updates and calls where needed.

Effective June 30, 2019, each of Timothy Harris and David Rubin resigned from the Board of OpGen due to other commitments. Neither director communicated any disagreement with management of the Company.

The OpGen Board determined in late June 2019 to abandon pursuit of any alternatives and to focus OpGen’s activities on securing a business combination transaction with Curetis.

On July 8, 2019, Curetis N.V. provided OpGen and its counsel, Ballard Spahr LLP, with a term sheet that proposed an asset acquisition transaction in which OpGen would acquire 100% of the assets and liabilities of Curetis N.V. and its subsidiaries in exchange for the issuance of OpGen common stock to Curetis N.V. shareholders, with OpGen surviving as a Nasdaq-listed company. The proposed ownership ratio for Curetis was 72.5% of the outstanding OpGen stock, as the closing of the transaction, to be held by Curetis N.V. shareholders, with 27.5% to be held by OpGen stockholders on a fully diluted basis. These percentages were based on the relative market capitalizations of Curetis N.V. and OpGen over 30, 60, 90, 180 and 360 day periods prior to the term sheet date. At this point, no additional valuation work was conducted. The proposal included corporate governance provisions related to the post-closing Board and management team of OpGen consisting of representative of each of Curetis and OpGen. The term sheet included the need for an interim financing of OpGen, to be used to fund the operations of both companies during the period between signing and closing of the definitive agreement, and a 45-day exclusivity period. The proposed ownership ratio discussed in the term sheet did not include any adjustment for the dilutive impact of the proposed interim financing. As noted in this proxy statement/prospectus, the actual ratio will be closer to 32.3% for Curetis N.V. and 67.7% for OpGen’s stockholders following the Interim Financing.

The executive teams of Curetis and OpGen, along with their respective advisors and counsel (HC Wainwright and Linklaters LLP for Curetis, and Crosstree and Ballard Spahr LLP for OpGen) negotiated the non-binding term sheet. The deal structure was refined to be an acquisition of the business of Curetis N.V., which consisted of the business of its subsidiaries, notably Curetis GmbH and its down-stream subsidiaries, Ares Genetics GmbH and Curetis USA Inc. The term sheet was revised to reflect the issuance of the OpGen stock consideration to Curetis N.V. with the understanding that Curetis N.V. would ask its shareholders at an EGM to resolve to move to dissolve shortly after the closing of the transaction and liquidate in order to distribute the maximum number of OpGen shares available for distribution under Dutch law to its shareholders.

Management of Curetis N.V. and OpGen, based in large part on the anticipated ownership percentages post-closing without consideration of the impact of the Interim Financing, determined that the proposed transaction structure would be likely treated as a reverse acquisition of the carved out business of Curetis GmbH and its subsidiaries, necessitating the need for an evaluation of the financial statements that would be required for the transaction.

Over the next two weeks the chief executive officers of the companies, along with counsel and advisors negotiated the term sheet provisions and determined whether the required carved-out financial statements could be developed, audited and delivered within the time frame needed by the companies. In addition, the parties negotiated the impact on the ownership ratio of the required interim financing transaction, and the cash needs of the two companies over the next three months. The final non-binding term sheet was executed on July 29, 2019. The principal terms of the term sheet were, subject to completion of due diligence:

·

OpGen to acquire all of the assets and liabilities of the Curetis business through the purchase of all of the equity interests of Curetis GmbH from Curetis N.V.;

·

OpGen would file, as soon as possible after announcement of the transaction, a registration statement for an interim financing of at least $10 million, the proceeds of which would be used to support the business operations of the two companies prior to the closing, and Newco after the closing;

·

The number of shares to be issued by OpGen (or reserved for issuance by OpGen to cover stock option exercises under the 2016 Stock Option Plan and conversion of the Curetis Convertible Notes), would be a fixed number of shares that would, as of the date of the Implementation Agreement, result in 72.5% of the equity of Newco being held by Curetis N.V. or reserved for future issuance as described above, and 27.5% of the equity held by OpGen legacy stockholders on a fully diluted basis; such ratios not to be adjusted to reflect the Interim Financing, the dilutive impact of which could not be reasonably estimated;

 

 

 

·

the shares to be issued to Curetis N.V. or reserved for issuance under the Curetis 2016 Stock Option Plan and conversion of Curetis Convertible Notes would be registered on a Form S-4 Registration Statement;

·

retention of an independent registered public account firm by Curetis N.V. to audit the required financial statements;

·

post-closing governance would include a six-member Newco Board of Directors with two members named by OpGen, including Evan Jones, and four, including Board chair William Rhodes, named by Curetis N.V., all in compliance with Nasdaq requirements;

·

Oliver Schacht, Ph.D. would become Chief Executive Officer of Newco and Timothy C. Dec would continue as Chief Financial Officer of Newco;

·

standard due diligence, confidentiality, access to information and a commitment for the definitive agreement to contain customary representations, warranties, covenants and indemnification language for a transaction of the type contemplated; and

·

agreement to a 20-day exclusivity period.

Counsel to the parties commenced legal due diligence and the parties continued business due diligence promptly after execution of the non-binding term sheet. On August 16, 2019, Linklaters LLP, counsel to Curetis N.V. provided a first draft of the Implementation Agreement to the working group. Working group conference calls were held on August 20, 2019 and August 27, 2019 with each company and their advisors and counsel. Legal calls occurred on August 27, 29 and 30, 2019. Drafts of the Implementation Agreement were exchanged between Linklaters LLP and Ballard Spahr LLP, counsel to OpGen, during this period.

Oliver Schacht was the principal negotiator for Curetis N.V. and Evan Jones for OpGen, Inc. Each of OpGen and Curetis kept their respective board members updated regarding negotiations as negotiations progressed between August 16, 2019 and September 2, 2019. OpGen was represented by attorneys from Ballard Spahr LLP, for United States, securities and M&A purposes, and from Weidema van Tol (Switzerland) GmbH for Dutch and German-related matters. Curetis was represented by attorneys from Linklaters LLP and its affiliates. Linklaters took the lead on document drafting.

The principal points of negotiation related to the Implementation Agreement, a discussion summary, and the resolution of such points were:

 

 

Negotiating Point	Discussion	Resolution
The number of shares to be issued to Curetis N.V. and, the impact, if any, of the Interim Financing on the actual ownership of OpGen common stock by Curetis N.V. upon closing of the proposed Transaction	After much discussion, it was determined that it was impractical to attempt to adjust the Consideration for the Interim Financing.	The Consideration is a fixed number of shares - no adjustment was to be made to reflect the Interim Financing.  The overall percentage ownership cannot be determined until closing.
How the assumption of the outstanding equity awards of Curetis N.V. under the 2016 Stock Option Plan and PSOP would be handled	Negotiations focused on the relative in-the-money value of the stock options and PSOPs, the tax implications to the PSOP holders and the difficulty of adding additional shares to Curetis N.V.	A conversion factor of 0.0959 (based on the number of fully diluted Curetis N.V. shares and fully diluted OpGen shares) was agreed upon to be used in such calculations.   Since the date of the Implementation Agreement, Curetis has issued additional shares to the holders of the PSOPs, and all have been retired. The shares previously reserved to cover the PSOPs will be issued to Curetis N.V. as part of the Consideration.
The extent to which OpGen would assume all liabilities of Curetis N.V. related to the Curetis business	Curetis N.V. took the position that all liabilities must be transferred to Curetis GmbH or otherwise assumed by OpGen because of Curetis’ dissolution plans.   The potential for some sort of indemnification from Curetis N.V. and/or certain Curetis N.V. shareholders was discussed and rejected.   The fact that the businesses were combining and would be operated together was an important discussion point	OpGen agreed to assume the Curetis Convertibles Notes and the EIB Finance Agreement, and to forego any indemnification for known or unknown, accrued or unaccrued liabilities.
The timing of the Interim Financing and the amount of capital to be raised; and the potential reverse acquisition accounting for the Transaction	The timing of the availability of carved out financial statements for the Curetis Business, and the need for such financial statements in order to progress the Interim Financing and, therefore, the overall transaction, was a vital point discussed during the negotiations. Accountants from PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, or PwC, were retained to audit and review the carved-out financial statements.   In addition, the OpGen Finance team researched and evaluated the accounting for the proposed transaction and CohnReznick LLP, OpGen’s independent auditors, provided oversight of such review.	The availability of the Curetis Business financial statements were the principal gating item to the filing of the Form S-1 registration statement for the Interim Financing.                     During the negotiations, and, until the Interim Financing was consummated, the parties operated under the assumption that the Transaction would be accounted for as a reverse acquisition of OpGen by Curetis GmbH.

 

 

 

 

 

 

 

 

Negotiating Point	Discussion	Resolution
The anticipated cash needs of the parties prior to the closing and the method by which OpGen would provide funds to the Curetis business from the Interim Financing in order to operate the Curetis business prior to the closing	Both parties identified the need for capital financing to operate its business in the period prior to the closing of the proposed Transaction as the most important aspect of continuing discussions.   Curetis N.V. noted that once the proposed Transaction was announced, it would not be able to raise capital independently to support the Curetis Business.   OpGen noted that it needed to regain and then maintain compliance with the Nasdaq Capital Markets listing requirements.	OpGen agreed to conduct the Interim Financing and to share the proceeds with Curetis GmbH through a subordinated credit facility that was subordinated to the existing and future indebtedness of Curetis in order to allow the parties to continue operations during the period prior to the closing of the proposed Transaction.
The extent of the representations and warranties made by each party and whether any indemnification would be available to support such representations and warranties post-closing	The representations and warranties were heavily negotiated, particularly once it was clear, early in the process, that Curetis N.V. would not provide indemnification.   The representations and warranties were used as additional diligence inquiries as well.
The anticipated timing of the filing of the Form S-4, the Special Meeting of OpGen stockholders and extraordinary general meeting of the Curetis N.V. shareholders	The parties discussed the impact of the Interim Financing and its timing on the Form S-4 filing, and the approval needs.   Aside from discussions regarding the implementation of the proposed Transaction pursuant to a Form S-4 registration statement, there were no other thorough discussions of alternative methods.

 

 

 

 

 

 

Negotiating Point	Discussion	Resolution
The termination rights of each party during the period between signing and closing if the Interim Financing did not occur, if an unsolicited third-party offer was received, if the necessary consents and approvals were not received, and a drop dead date for the closing of the proposed Transaction	In addition to standard termination rights, the parties negotiated a tight time frame for completion of the Interim Financing and the amount of the Financing.   Each party requested the right to interact with any unsolicited third-party offer, given the anticipated timeline for the closing of the proposed Transaction.   The parties negotiated a tight timeline for closing the proposed Transaction to try and minimize the expense of operating as separate businesses.	Standard termination rights for breach by the other party (with a cure) are included.   Each party had the right to terminate if the Interim Financing was not consummated by October 31, 2019. The parties have subsequently agreed that closing condition has been met.   Each party has the right to respond to unsolicited third party offers, but must follow a process of notification to the other.   Either party can terminate if the proposed Transaction does not close by January 31, 2020.

 

On August 19, 2019, OpGen received written notification from The Nasdaq Stock Market LLC that the Company failed to comply with Nasdaq’s Marketplace Rule 5550(b)(1) because the Company’s stockholders’ equity as of June 30, 2019 fell below the required minimum of $2,500,000 and as of June 30, 2019, the Company did not meet the alternative compliance standards of market value of listed securities or net income from continuing operations for continued listing.

On August 22, 2019, OpGen held its annual meeting of stockholders at which the four continuing directors were re-elected to one-year terms and the stockholders authorized the OpGen Board to effect a reverse stock split of the Company’s common stock to assist the Company in regaining compliance with the Nasdaq Minimum Bid Price Rule. The OpGen Board authorized a twenty-for-one reverse stock split, which was effected on August 28, 2019. On September 13, 2019, the Company regained compliance with the Nasdaq Minimum Bid Price Rule.

Negotiations and discussions continued over the Labor Day weekend to resolve all remaining issues. On September 2, 2019, the OpGen Board met with representatives of Ballard Spahr LLP and Crosstree in attendance. The representatives of Crosstree made a presentation to the OpGen Board regarding Crosstree’s assessment of whether the proposed transaction was fair, from a financial point of view to the OpGen stockholders, including a review of the valuation methodologies used, the alternatives available to the Company, and the conclusions. The valuation methods included selected comparable companies, including the limitations using this method, selected transaction analysis, discounted cash flow analysis, and M&A premium analysis. Crosstree representatives also discussed its assumptions, qualifications and limiting conditions, including the current cash position of OpGen and the fact that budgeted positive cash flow and EBITDA estimates provided by OpGen did not occur until the final year in the five year projections. Following its analysis Crosstree noted that the valuation analysis showed the proposed transaction provided a premium to the OpGen stockholders. The representatives of Crosstree noted it was able to provide the OpGen Board with an opinion that the proposed transaction was fair to the stockholders from a financial point of view. Following such presentation, and a presentation by counsel of the principal terms of the Implementation Agreement and the contemplated transactions, including the Interim Financing, and after discussion, the OpGen Board unanimously approved the Implementation Agreement, the filing of the Form S-1 for the Interim Financing, the filing of the Form S-4 and the matters related to the approval of the Implementation Agreement.

 

The Curetis MB and Curetis SB discussed the status of the negotiations, and all critical issues with regards to the draft implementation agreement. The Curetis MB and Curetis SB engaged HC Wainwright to provide the Curetis MB and Curetis SB with an opinion as to the fairness, from a financial point of view, to Curetis N.V. of the consideration to be paid by OpGen pursuant to the terms of the proposed implementation agreement. HC Wainwright delivered the fairness opinion to the Curetis MB and Curetis SB which was received on September 3, 2019. In arriving at its opinion, HC Wainwright (i) reviewed the draft implementation agreement; (ii) reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets liabilities and prospects of Curetis N.V. and OpGen that were furnished to HC Wainwright by management of Curetis N.V. and OpGen, respectively; (iii) conducted discussions with members of senior management and representatives of Curetis N.V. and OpGen concerning the information provided; (iv) reviewed publicly available information relating to the respective businesses of Curetis N.V. and OpGen; (v) reviewed the pro forma ownership structure of the combined entity resulting from the transaction; (vi) discussed the past and current operations and financial condition and the prospects of Curetis N.V. and OpGen with members of senior management of Curetis N.V. and OpGen, respectively; and (vii) performed such other analyses and considered such other factors as HC Wainwright deemed appropriate for the purpose of rendering its opinion. The opinion was prepared solely for the information of the Curetis MB and Curetis SB for their use in connection with the consideration of the transaction and was not intended to be and did not constitute a recommendation to any shareholder of Curetis N.V. as to how such shareholder should vote on any matter relating to the transactions contemplated by the implementation agreement or any other matter. HC Wainwright disclosed to the Curetis MB and Curetis SB that it had been engaged by OpGen pursuant to an engagement letter dated September 2, 2019 to assist OpGen with financing for a term of six months after the consummation of the Transaction. HC Wainwright obtained signed conflict waivers from both Curetis N.V. and OpGen in connection with this financing engagement by OpGen. In the light of the fairness opinion delivered by HC Wainwright, as well as any other alternative and options discussed in terms of other scenarios such as asset sales, licensing deals, hibernation mode or a potential taking private of Curetis N.V., all of which prior to signing the term sheet and letter of intent had not led to any immediately available option that would have been superior, the Curetis SB on September 4, 2019 approved the Curetis MB decision and resolution to sign the definitive Implementation Agreement and issue corresponding public announcements.

OpGen and Curetis N.V. executed the Implementation Agreement on September 4, 2019, and announced the entry into the Implementation Agreement on September 4, 2019. The management of OpGen and Curetis N.V. held a conference call on September 4, 2019 to provide information about the Implementation Agreement and the plans for Newco. OpGen filed a Current Report on Form 8-K on September 4, 2019.

Opinion of OpGen’s Financial Advisor

Pursuant to an engagement letter dated August 27, 2018, the OpGen Board retained Crosstree, to deliver a fairness opinion, or the Opinion, in connection with the proposed Transaction.

At a meeting of the OpGen Board on September 3, 2019, Crosstree rendered its oral opinion to the Board that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the Consideration to be paid in the proposed Transaction was fair, from a financial point of view, to the stockholders of OpGen. Crosstree confirmed its September 3, 2019 oral opinion by delivering the Opinion.

The full text of the Opinion, dated September 3, 2019, which sets forth the assumptions made, matters considered, and limits on the review undertaken, is attached as Appendix B to this proxy statement/prospectus and is incorporated herein by reference. The summary of the Opinion set forth in this proxy statement/prospectus is qualified in its entirety by reference to the full text of the Opinion. OpGen stockholders are urged to read the Opinion in its entirety.

The Opinion was addressed to the OpGen Board in connection with and for the purposes of their evaluation of the proposed Transaction, was directed only to the Consideration to be issued by OpGen in the proposed Transaction and did not address any other aspect of the proposed Transaction. Crosstree expressed no opinion as to the fairness of the Consideration to the holders of any class of securities, creditors, or other constituencies of the Company. The issuance of the Opinion was approved by a fairness committee of Crosstree. The Opinion does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the proposed Transaction or any other matter.

 

In arriving at the Opinion, Crosstree, among other things:

·

reviewed a draft Implementation Agreement as of September 3, 2019;

·

reviewed certain financial and other information about the Company that was publicly available;

·

reviewed information furnished to us by the Company’s management, including certain internal financial analyses, budgets, reports, and other information;

·

held discussions with various members of senior management of the Company concerning historical and current operations, financial conditions, and prospects, including recent financial performance;

·

reviewed the recent share trading price history of the Company;

·

reviewed the valuation of the Company implied by the Consideration;

·

reviewed the valuations of publicly- traded companies that we deemed comparable in certain respects to the Company;

·

reviewed the financial terms of selected acquisition transactions involving companies in lines of business that we deemed comparable in certain respects to the business of the Company;

·

reviewed the premiums paid in selected acquisition transactions;

·

prepared a discounted cash flow analysis of the Company on a stand- alone basis;

·

assessed the general economic, market, and financial conditions;

·

took into consideration our experience in other similar transactions and securities valuations; and

·

performed such other analyses and considered such other factors as we deemed appropriate.

In giving the Opinion, Crosstree relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with Crosstree by OpGen or otherwise reviewed by or for Crosstree. Crosstree did not independently verify any such information or its accuracy or completeness and, pursuant to Crosstree’s engagement letter with OpGen, Crosstree did not assume any obligation to undertake any such independent verification. Crosstree did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did Crosstree evaluate the solvency of OpGen under any state or federal laws relating to bankruptcy, insolvency, or similar matters. In relying on financial analyses and forecasts provided to Crosstree or derived therefrom, Crosstree assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of OpGen to which such analyses or forecasts relate. Crosstree expressed no view as to such analyses or forecasts or the assumptions on which they were based. Crosstree also assumed that the Transaction contemplated by the Implementation Agreement will be consummated as described in the Implementation Agreement. Crosstree also assumed that the representations and warranties made by OpGen in the Implementation Agreement and related agreements were and will be true and correct in all respects material to its analyses. Crosstree is not a legal, regulatory, or tax expert and relied on the assessments made by advisors to OpGen with respect to such issues.

The Opinion was necessarily based on economic, market, and other conditions as in effect on, and the information made available to Crosstree, as of the date of the Opinion. The Opinion noted that subsequent developments may affect the Opinion and that Crosstree does not have any obligation to advise any person of any change in any fact or matter affecting the Opinion. The Opinion is limited to the fairness, from a financial point of view, of the Consideration to be issued in the Transaction, and Crosstree has expressed no opinion as to the fairness of any consideration paid in connection with the Transaction other than the Consideration. Furthermore, Crosstree expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the Transaction, with respect to the fairness of any such compensation.

 

The terms of the Implementation Agreement were determined through arm’s-length negotiations between OpGen and Curetis N.V., and, with respect to the Company, the decision to enter into the Implementation Agreement was solely that of the Board. The Opinion and financial analyses were only one of the many factors considered by the Board in their evaluation of the proposed Transaction and should not be viewed as determinative of the Board or the Company’s management with respect to the proposed Transaction or the Consideration.

In accordance with customary investment banking practice, Crosstree employed generally accepted valuation methodologies in: (1) rendering the Opinion to the Board; and (2) the presentation delivered to the Board in connection with the rendering of the Opinion. This does not purport to be a complete description of the analyses or data presented by Crosstree. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to understand more fully the financial analyses used by Crosstree, the tables must be read together with the full text of each summary. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Crosstree’s analyses.

The projections furnished to Crosstree for OpGen were prepared by OpGen’s management.

Public Trading Multiples Analysis

Using publicly available information, Crosstree compared selected financial data of OpGen with similar data for the following selected publicly-traded companies engaged in businesses that Crosstree judged to be sufficiently analogous to OpGen:

·

QIAGEN N.V.;

·

GenMark Diagnostics, Inc.;

·

Quidel Corporation;

·

Accelerate Diagnostics, Inc.;

·

Luminex Corporation;

·

bioMerieux S.A.;

·

Genomic Health, Inc.;

·

T2 Biosystems, Inc.; and

·

Curetis N.V.

These companies were selected, among other reasons, because they are publicly- traded companies with operations and businesses that, for purposes of Crosstree’s analysis, may be considered similar to those of OpGen based on business- sector participation, operational characteristics, and financial metrics. None of the selected companies were excluded from the analysis. However, none of the selected companies reviewed is identical to OpGen and certain of these companies may have financial and operating characteristics that are materially different from those of OpGen. For the companies included in the public trading multiples analysis, the following table discloses employees (worldwide) and number of products or services offered or sold, based on information collected by CapIQ as of December 2019:

Comparable Company		Employees Worldwide				Products or Services Offered
QIAGEN N.V.			5,200				154
GenMark Diagnostics, Inc.			477				8
Quidel Corporation			1,224				86
Accelerate Diagnostics, Inc.			287				3
Luminex Corporation			988				98
bioMérieux S.A.			11,200				234
Genomic Health, Inc.			829				7
T2 Biosystems, Inc.			153				10
Curetis N.V.			80				17
OpGen, Inc.			47				23	*

 

* Includes four future products and products currently awaiting clearance by the FDA. Also includes legacy AdvanDx products.

 

Using publicly available information, Crosstree calculated, for each selected company, the multiple of enterprise value as of September 3, 2019 to historical standardized data that Crosstree obtained from S&P Capital IQ for revenue for the trailing twelve months from latest reported period (June 30, 2018 in most cases) (“EV/Revenue TTM-latest”); and the multiple of share price as of September 3, 2019 to historical standardized data obtained from S&P Capital IQ for tangible book value as reported in the latest period available (“P/Tangible BV- latest”). A multiple of enterprise value to EBITDA was not used for the analysis because OpGen is not currently profitable and has incurred substantial losses since inception.

 

Company Name	EV/Revenue TTM-latest	P/Tangible BV- latest
QIAGEN N.V.	5.9x	n.m.
GenMark Diagnostics, Inc.	4.8x	26.4x
Quidel Corporation	5.3x	221.2x
Accelerate Diagnostics, Inc.	150.3x	39.4x
Luminex Corporation	2.8x	3.7x
bioMerieux S.A.	3.7x	10.8x
Genomic Health, Inc.	6.2x	9.0x
T2 Biosystems, Inc.	10.4x	n.m.
Curetis N.V.	15.6x	n.m.

 

Based on the results of this analysis and other factors that Crosstree considered appropriate, Crosstree selected multiple reference ranges:

·

for EV/Total Revenue TTM- latest of 5.6x – 6.5x; and

·

for Price/Tangible BV- latest of 10.8x – 17.9x.

These multiple ranges were then applied to OpGen’s trailing twelve months’ revenue from June 30, 2019 and Tangible Book Value as reported on June 30, 2019, which indicated an implied enterprise value range for OpGen, rounded to the nearest $0.1 million, of $19.2 million to $27.2 million.

Transaction Multiples Analysis

Using both publicly available and proprietary internal information, Crosstree examined selected transactions involving companies in lines of business that we deemed comparable in certain respects to the business of OpGen. Based upon the availability of relevant data, Crosstree calculated the enterprise value to be paid for the target company in such transaction as a multiple of Revenue. The transactions considered are as follows:

Deal Date		Target		Buyer		Revenue Multiple
07/29/2019		Genomic Health, Inc.		Exact Sciences (NAS: EXAS)			6.3x
03/01/2019		Medical Neurogenetics, LLC		Laboratory Corporation of America Holdings (NYSE:LH)			n.a.
12/10/2018		Genoptix		NeoGenomics Laboratories (NAS: NEO)			n.a.
08/01/2018		Exosome Diagnostics		Bio-Techne (NAS: TECH)			n.a.
06/19/2018		Foundation Medicine (NAS: FMI)		Roche (SWX: RO)			31.3x
05/28/2018		Counsyl		Myriad Genetics (NAS: MYGN)			2.8x
10/18/2017		Cleveland HeartLab, LLC		Quest Diagnostics Inc.			n.a.
07/31/2017		Good Start Genetics, Inc.		InVitae Corporation			1.8x
07/31/2017		CombiMatrix Corporation		InVitae Corporation			1.9x
07/06/2017		Ambry Genetics Corp.		Konica Minolta Healthcare Americas, Inc. and Innovation Network Corporation of Japan			3.5x
06/12/2017		Med Fusion LLC		Quest Diagnostics Inc.			n.a.
06/06/2017		Genetics of Memphis, Inc.		Poplar Healthcare			n.a.
12/21/2016		Yourgene Bioscience Co., Ltd.		Premaitha Health PLC			n.a.
07/27/2016		Sequenom Inc.		Laboratory Corp. of America Holdings			3.2x
06/23/2016		IMUGEN, Inc.		Oxford Immunotec Ltd.			2.0x
05/25/2016		Recombine, Inc.		CooperSurgical, Inc.			4.3x
10/21/2015		Clarient, Inc.		NeoGenomics Laboratories, Inc.			2.4x
10/13/2015		DNA Diagnostics Center, Inc.		Ardian and GHO Capital Partners LLP			n.a.
06/29/2015		Emory Genetics Laboratory (majority stake)		Eurofins Scientific SA			3.6x
06/22/2015		Biomnis		Eurofins Scientific SA			1.4x
06/01/2015		DIATHERIX Laboratories, Inc.		Eurofins Scientific SA			1.3x
01/11/2015		Foundation Medicine, Inc. (majority stake)		Roche Holdings, Inc.			39.3x
01/06/2015		Diagnovus, LLC		Aegis Sciences Corporation			n.a.
08/12/2014		Boston Heart Diagnostics		Eurofins Scientific SA			2.1x
05/09/2014		Viracor-IBT Laboratories		Eurofins Scientific SA			3.2x
02/19/2014		Centogene (Canadian Business)		LifeLabs			n.a.

 

 

 

 

Based on the results of this analysis and other factors that Crosstree considered appropriate, Crosstree selected a multiple reference range for EV/Revenue of 3.0x – 6.9x. The EV/ Revenue multiples were then applied to OpGen’s historical LTM revenue at June 30, 2019, which indicated an implied enterprise value range for OpGen, rounded to the nearest $0.1 million, of $10.0 million to $23.1 million.

Discounted Cash Flow Analysis

Crosstree conducted a discounted cash flow, or DCF, analysis for the purpose of calculating a range of theoretical enterprise values for OpGen.

A DCF analysis is a method of evaluating an asset by estimating the future unlevered free cash flows generated by an asset and taking into consideration the time value of money with respect to those future cash flows by calculating their “present value.” The “unlevered free cash flows” refers to a calculation of the future cash flows generated by an asset without including in such calculation any debt- servicing costs. “Present value” refers to the current value of the cash flows generated by the asset and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro- economic assumptions, estimates of risk, the opportunity cost of capital, and other appropriate factors. “Terminal value” refers to the present value of all future cash flows generated by the asset for periods beyond the projection period, and is often calculated as a multiple of EBITDA.

Crosstree calculated the unlevered free cash flows that OpGen is expected to generate during the remainder of fiscal year 2019 through fiscal year 2023. Crosstree also calculated a range of terminal values by applying a terminal growth rate range of 5.0% to 10.0% at the end of fiscal year 2023. The unlevered free cash flows and the range of terminal values were then discounted to present values using a range of discount rates from 13.0% to 15.0%, which was chosen by Crosstree based upon an analysis of the weighted average cost of capital of OpGen. The DCF analysis indicated an implied enterprise value for OpGen, rounded to the nearest $0.1 million, of $(6.7) million to $27.7 million.

OpGen does not make public long-term projections as to future revenues, earnings or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, in connection with OpGen’s evaluation of the proposed Transaction, OpGen made available to Crosstree, its financial advisor, certain unaudited prospective financial information of OpGen on a stand-alone, pre-transaction basis. The unaudited prospective financial information was not prepared with a view toward public disclosure and the inclusion of this information should not be regarded as an indication that any of OpGen or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results.

The unaudited prospective financial information was, in general, prepared solely for internal use and is subjective in many respects and thus subject to interpretation. While presented with numeric specificity, the unaudited prospective financial information reflects numerous estimates and assumptions, including risk adjustments, made by management of OpGen to the proposed Transaction with respect to industry performance and competition, general business, economic, market and financial conditions and matters specific to its business, all of which are difficult to predict and many of which are beyond its control. In particular, the unaudited prospective financial information assumed, among other things, that the then-current macro-economic outlook would remain constant and that OpGen’s strategic growth plan, in particular in regulatory approval of products, would be successfully executed. Many of these assumptions are subject to change, including among other factors, clinical trial results and regulatory approval out of OpGen’s control, and the unaudited prospective financial information does not reflect revised prospects for its business, changes in general business or economic conditions or any other transaction or event that has occurred or that may occur and that was not anticipated at the time such financial information was prepared. As a result, there can be no assurance that the results reflected in the unaudited prospective financial information will be realized or that actual results will not materially vary from this unaudited prospective financial information. In addition, since the unaudited prospective financial information covers multiple years, such information by its nature becomes less predictive with each successive year. Therefore, the inclusion of the unaudited prospective financial information in this proxy statement/prospectus should not be relied on as necessarily predictive of actual future events nor construed as financial guidance. OpGen and Curetis’ stockholders are urged to review OpGen’s risk factors with respect to OpGen’s business located elsewhere in this proxy statement/prospectus.

 

The unaudited prospective financial information was not prepared with a view toward complying with the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, but, in the view of OpGen’s management, was prepared on a reasonable basis, reflects the best available estimates and judgments at the time of preparation, and presents, to the best of management's knowledge and belief at the time of preparation, the expected course of action and the expected future risk adjusted financial performance of each such party. Neither OpGen’s independent registered public accounting firm nor any other independent accountants have compiled, examined, or performed any procedures with respect to the unaudited prospective financial information contained herein (including the unaudited prospective financial information presented below), nor have they expressed any opinion or any other form of assurance on such information or the achievability of the results reflected in such information, and assume no responsibility for, and disclaim any association with, the unaudited prospective financial information. Accordingly, neither OpGen’s independent registered public accounting firm nor any other independent accountants provide any form of assurance with respect thereto for the purpose of this proxy statement/prospectus.

Readers of this proxy statement/prospectus are cautioned not to unduly rely on the unaudited prospective financial information. Some or all of the assumptions which have been made regarding, among other things, the timing or probability of certain occurrences or impacts, may have changed since the date such information was prepared. OpGen has not updated and does not intend to update or otherwise revise the unaudited prospective financial information to reflect circumstances existing after the date when such information was prepared or to reflect the occurrence of future events, except to the extent required by applicable law. OpGen has not made any representation to Curetis or any other person involved with the proposed Transaction or otherwise concerning the unaudited prospective financial information.

The unaudited prospective financial information set forth below does not give effect to the proposed Transaction.

OpGen Income Statement Projections

		YTD 12/31/2018				YTD 12/31/2019				YTD 12/31/2020				YTD 12/31/2021				YTD 12/31/2022				YTD 12/31/2023
Revenue:
Product Revenue		$	2,400,000			$	2,300,000			$	7,300,000			$	14,700,000			$	24,200,000			$	35,400,000
Collaboration revenue			400,000				1,300,000				2,500,000				1,800,000				1,000,000				1,000,000
Total revenue			2,800,000				3,600,000				9,800,000				16,500,000				25,200,000				36,400,000
Gross profit			1,000,000				2,100,000				4,900,000				10,600,000				17,200,000				25,000,000
Gross margin			33.3	%			58.3	%			50.0	%			64.2	%			68.3	%			68.7	%
Operating expenses
Research and development			5,700,000				6,500,000				6,000,000				6,200,000				6,400,000				6,600,000
General and administrative			7,100,000				6,700,000				6,900,000				7,500,000				8,200,000				8,500,000
Sales and marketing			1,500,000				1,600,000				2,200,000				4,000,000				4,600,000				5,400,000
Total operating expenses			14,300,000				14,800,000				15,100,000				17,700,000				19,200,000				20,400,000
Operating income (loss)			(13,300,000	)			(12,700,000	)			(10,200,000	)			(7,100,000	)			(2,100,000	)			4,600,000
Other income (expense)
Total other income (expense)			(200,000	)			(700,000	)			(100,000	)			—				—				—
Provision for income taxes			—				—				—				—				—				1,800,000
Net loss		$	(13,300,000	)		$	(13,400,000	)		$	(10,300,000	)		$	(7,100,000	)		$	(2,100,000	)		$	2,800,000

 

Premiums Paid Analysis

Crosstree conducted a premiums paid analysis for the purpose of calculating a range of premiums to the price of OpGen’s common stock as of September 3, 2019.

Crosstree reviewed the premiums paid for M&A transactions involving public healthcare companies in North America over the last 24 months from August 29, 2019. Transactions were limited to deal sizes below $100 million and were further segmented as $0-50 million and $50-100 million. Crosstree calculated the premium per common share paid by the acquirer for each representative transaction compared to the closing unaffected common share price of the target, in order to determine a baseline price per common share on which to calculate the implied premium per share of common stock. Based upon the results of this analysis, Crosstree applied a range of premiums paid of 10.0% to 22.5% to the historical share price of OpGen to calculate an implied enterprise value for OpGen, rounded to the nearest $0.1 million, of $8.0 million to $8.7 million.

 

 

Miscellaneous

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by Crosstree. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description.

Crosstree believes that the foregoing summary and its analyses must be considered as a whole, and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and the Opinion. As a result, the ranges of valuations resulting from any particular analysis, or combination of analyses, described above were utilized merely to create points of reference for analytical purposes and should not be taken to be the view of Crosstree with respect to the actual value of OpGen.

The order of analyses described does not represent the relative importance or weight given to those analyses by Crosstree. In arriving at the Opinion, Crosstree did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported, or failed to support, the Opinion. Rather, Crosstree considered the totality of the factors and analyses performed in determining the Opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by Crosstree are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, Crosstree’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be acquired or sold. None of the selected companies reviewed as described in the above summary are identical to OpGen, and none of the selected transactions reviewed were identical to the Transaction. However, the companies selected were chosen because they are publicly- traded companies with operations and businesses that, for purposes of Crosstree’s analyses, may be considered similar to those of OpGen. The transactions selected were similarly chosen because their participants, transaction structures, sizes, and other factors, for purposes of Crosstree’s analyses, may be considered similar to the Transaction. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to OpGen and the transactions compared to the Transaction.

As a part of its investment banking business, Crosstree and its affiliates are continually engaged in the valuation of businesses and their securities in connection with M&A, investments for passive and control purposes, private placements, and valuations for corporate and other purposes. Crosstree was selected to advise OpGen with respect to the Transaction and deliver a fairness opinion to the Board with respect to the Transaction on the basis of, among other things, such experience and its qualifications and reputation in connection with such matters, and its familiarity with OpGen and the industries in which it operates.

For services rendered in connection with the Transaction and the delivery of the Opinion, OpGen has agreed to pay Crosstree fees of approximately $475,000, of which $50,000 has been paid in the form of retainer payments and of which $200,000 has been paid or became payable upon delivery of the Opinion. The remainder will be payable only upon the completion of the Transaction. In addition, OpGen has agreed to reimburse Crosstree for its reasonable expenses incurred in connection with its services, including reasonable fees and disbursements of counsel, and will indemnify Crosstree against certain liabilities arising out of Crosstree’s engagement.

The Implementation Agreement

Please refer to the description of the Implementation Agreement beginning on page 70 of this proxy statement/prospectus.

Closing of the Transaction

The Transaction will be completed as promptly as practicable after all the conditions to closing of the Transaction are satisfied or waived, including the approval of the stockholders of OpGen and Curetis N.V. OpGen and Curetis are working to complete the Transaction as quickly as practicable. OpGen and Curetis N.V. estimate that the Transaction will close in the first quarter of 2020, but cannot predict the exact timing of the closing of the Transaction because it is subject to various conditions.

Anticipated Accounting Treatment

If it closes, the Transaction would be accounted for as a business combination in accordance with U.S. GAAP. Under this method of accounting, OpGen would be deemed to be the accounting acquirer for financial reporting purposes. In making this determination of the accounting treatment, we have considered, among other factors, the following: (i) the number of shares to be issued to the Seller, and reserved for issuance under the Implementation Agreement; (ii) the outstanding shares of OpGen common stock following the October 2019 Offering; (iii) whether the percentage of voting rights held by OpGen’s stockholders would continue to constitute a majority of the voting rights of Newco after the October 2019 Offering and after closing under the Implementation Agreement; (iv) the contractual right held by the Seller to designate a majority of the members of the initial board of directors of OpGen after the closing; and (v) the change in the chief executive officer of OpGen after the closing to be the chief executive officer of the Seller. This anticipated accounting treatment differs from the anticipated accounting treatment as of the date of the execution of the Implementation Agreement, primarily as a result of the dilution caused by the October 2019 Offering.

 

 

Nasdaq Stock Market Listing

OpGen’s common stock currently is listed on the Nasdaq Capital Market under the symbol “OPGN”.

The Implementation Agreement provides that the approval for the listing on the Nasdaq Capital Market of the Transaction Shares to be issued in connection with the Transaction is a condition precedent of the Transaction, and either party may waive this condition.

Vote Required

The affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting and entitled to vote is required to approve the Transaction Proposal.

THE OPGEN BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
“FOR” THE TRANSACTION PROPOSAL

 

 

PROPOSAL TWO
THE SHARE ISSUANCE PROPOSAL

The Share Issuance Proposal is a proposal to approve, under the listing rules of Nasdaq, the issuance the Transaction Shares in connection with the Transaction to be voted on in the Transaction Proposal.

The Company’s Common Stock is listed on the Nasdaq Capital Market and, as such, the Company is subject to the Nasdaq listing rules.

Under Nasdaq listing rules, a company whose stock is listed on Nasdaq, such as the Company, is required to obtain stockholder approval prior to certain issuances of common stock or securities convertible into or exchangeable for common stock, in connection with an acquisition, if such issuance (i) equals 20% or more of the common stock or voting power of the company outstanding before the transaction or (ii) in connection with the acquisition of assets of another company where any director, officer or a “substantial shareholder” (generally defined as a 5% or greater shareholder) has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the consideration to be paid in the transaction, and the present or potential issuance of common shares could result in an increase in outstanding common shares or voting power of 5% or more.

Immediately after the completion of the Transaction, the number of outstanding shares of Common Stock and the outstanding voting power of the Company will exceed 20% of the shares of Common Stock outstanding before such issuance and issuances to certain stockholders will result in an increase in such stockholders’ outstanding common shares or voting power of 5% or more. For this reason, OpGen must obtain the approval of its stockholders, in accordance with the Nasdaq listing rules, for the issuance of the Transaction Shares in connection with the Transaction. Accordingly, the Company is asking its stockholders to approve the issuance of the Transaction Shares in the Transaction.

Effects of the Share Issuance Proposal on Stockholders

The issuance of the Transaction Shares will result in an additional 2,662,564 shares of OpGen Common Stock being issued or reserved for issuance of up to 135,421 shares under the 2016 Stock Option Plan to be assumed and up to 500,000 for the Curetis Convertible Notes. After giving effect to all shares of Common Stock issued in or reserved for future issuance in connection with the Transaction, Company stockholders immediately before completion of the Transaction will hold approximately 67.7% of the issued and outstanding Common Stock and the Seller or its equity awards and debt holders will hold approximately 23.3% of the issued and outstanding OpGen Common Stock.

Curetis N.V. intends to dissolve promptly after the Transaction closes and distribute the Transaction Shares to its shareholders. See “Distribution of OpGen Shares and Winddown of Curetis N.V.” beginning on page 184 of this proxy statement/prospectus.

Because the shares of Common Stock issued to the Seller will be issued in a transaction registered under the Securities Act, the Seller may be able to resell the shares issued to it at the Closing. Subsequent resales of such shares of Common Stock may cause the market price of our Common Stock to decline. The issuance would also increase the number of shares of Common Stock outstanding, which may have the effect of reducing the Company’s loss per share.

Consequences if Stockholder Approval is Not Obtained

If the Company’s stockholders do not approve the Share Issuance Proposal, the Transaction Shares will not be issued unless the Company’s stockholders subsequently approve the Share Issuance Proposal by the required vote under the Nasdaq listing rules.

The Share Issuance Proposal is conditioned upon and subject to the approval of the Transaction Proposal. If the Transaction Proposal is not approved, the Share Issuance Proposal will have no effect, even if approved by our stockholders.

 

 

Federal Securities Laws Consequences

The Transaction Shares to be issued in connection with the Transaction will be registered under the Securities Act of 1933. The Transaction Shares will be distributed by Curetis N.V. to its shareholders in a dissolution of Curetis N.V. See “Distribution of OpGen Shares and Winddown of Curetis N.V.” on page 184 of this proxy statement/prospectus.

Vote Required

The affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting and entitled to vote is required to approve the Share Issuance Proposal.

THE OPGEN BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
“FOR” THE SHARE ISSUANCE PROPOSAL

 

 

 

PROPOSAL THREE
THE ADJOURNMENT PROPOSAL

The Adjournment Proposal allows OpGen’s Board of Directors to submit a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation of proxies in the event, based on the tabulated votes, there are not sufficient votes at the time of the special meeting to approve Proposals No. 1 and 2. In no event will OpGen solicit proxies to adjourn the Special Meeting or consummate the Transaction beyond the date by which it may properly do so under Delaware law. The purpose of the adjournment proposal is to provide more time for OpGen to solicit proxies in favor of the proposals.

In addition to an adjournment of the Special Meeting upon approval of an Adjournment Proposal, the OpGen Board of Directors is empowered under Delaware law to postpone the meeting at any time prior to the meeting being called to order. In such event, OpGen will issue a press release and take such other steps as it believes are necessary and practical in the circumstances to inform its stockholders of the postponement.

Consequences if the Adjournment Proposal is not Approved

If the Adjournment Proposal is presented at the Special Meeting and such proposal is not approved by its stockholders, OpGen’s Board of Directors may not be able to adjourn the Special Meeting to a later date in the event, based on the tabulated votes, there are not sufficient votes at the time of the Special Meeting to approve Proposals No. 1 and 2.

Vote Required

The affirmative vote of a majority of the shares present in person or represented by proxy at the Special Meeting and entitled to vote is required to approve the Adjournment Proposal.

THE OPGEN BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
“FOR” THE ADJOURNMENT PROPOSAL

 

THE IMPLEMENTATION AGREEMENT

This description of the Implementation Agreement is only a summary and is qualified in its entirety by reference to the complete text of the Implementation Agreement, which is attached as Appendix A to this proxy statement/prospectus and incorporated by reference herein. The Implementation Agreement is not intended to provide any factual information about the Company, the Purchaser or the Seller. In particular, the representations, warranties and covenants of each party set forth in the Implementation Agreement have been made only for the purposes of, and were and are solely for the benefit of the parties to, the Implementation Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosure schedules delivered by the parties, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Accordingly, the representations and warranties may not describe the actual state of affairs at the date they were made or at any other time, and investors should not rely on them as statements of fact. The confidential disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties and certain covenants set forth in the Implementation Agreement.

On September 4, 2019, the Company entered into a business combination transaction pursuant to an Implementation Agreement by and among the Company, Curetis N.V., a public company with limited liability under the Laws of the Netherlands, or the Seller, and Crystal GmbH, a private limited liability company organized under the laws of the Federal Republic of Germany and wholly owned subsidiary of the Company, or the Purchaser.

Pursuant to the Implementation Agreement, the business of the Seller and the business of the Company will be combined by the Purchaser’s acquisition of (i) all of the Transferred Shares of Curetis GmbH, and (ii) the Transferred Assets. The Company has agreed to assume (i) the Seller’s Stock Option Plan , (ii) the obligation to issue equity to the holders of awards under the Seller’s PSOP, and (iii) the outstanding indebtedness of the Seller under the Curetis Convertible Notes, including providing for conversion of such notes into shares of the Company’s Common Stock. The Purchaser will also assume all of the liabilities of the Seller solely and exclusively related Business.

At the closing of the transaction, the Company will pay, as the sole consideration for the Business, 2,662,564 shares of Common Stock, less the number of shares of Common Stock the issuance of which shall be reserved by the Company in connection with (i) its assumption of the Seller’s Stock Option Plan, (ii) any future issuance of shares of Common Stock under the PSOP, and (iii) shares of Common Stock reserved for future issuance upon the conversion, if any, of the Curetis Convertible Notes, or together, the Consideration. The number of shares of Common Stock to be reserved for the deductions described above are based on a conversion ratio of 0.0959, or the Conversion Ratio, which is the ratio of the Consideration as contrasted with the number of Seller’s ordinary shares on a fully diluted basis. The Consideration is equal to 32.2% of the common stock of the Company as of October 28, 2019, the date OpGen closed the October 2019 Offering. Since the date of the Implementation Agreement, Curetis has issued additional shares to the holders of the PSOPs, and all have been retired. The shares previously reserved to cover the PSOPs will be issued to Curetis N.V. as part of the Consideration.

The Company has agreed to file this Registration Statement on Form S-4 to register the Consideration. The Transaction is subject to approval by the stockholders of the Company and the shareholders and debt holders of the Seller.

 

 

Representations and Warranties

The Implementation Agreement contains representations and warranties made by the parties to such agreement. Certain of the representations and warranties in the Implementation Agreement are subject to knowledge qualifications, which means that those representations and warranties would not be deemed untrue, inaccurate or incorrect as a result of matters of which specified representatives and certain members of key management of the parties do not have actual knowledge (provided such key management has made due inquiries with certain individuals reporting to such key management). In addition, the representations and warranties contained in the Implementation Agreement are subject to specified exceptions and qualifications and the disclosure schedules that the parties have provided in connection with signing the Implementation Agreement. The representations and warranties should not be read alone but, instead, should be read only in conjunction with the information provided elsewhere in this proxy statement/prospectus. The parties’ representations and warranties will not survive the closing of the Transaction.

For purposes of the Implementation Agreement, a “Material Adverse Effect” means any fact, circumstance, change, event, occurrence, development or effect, or a Change, that, individually or in the aggregate with all other Changes, has, or could reasonably be expected to have (with or without notice or the passage of time, or both), a material adverse effect on the business, assets, properties, financial condition, or results of operations of Curetis and its subsidiaries, taken as a whole, or the Company and its subsidiaries, taken as a whole, as the case may be; provided, however, that Material Adverse Effect will not be deemed to include:

·                     any Changes in general United States or global economic conditions, including any Changes affecting financial, credit, foreign exchange or capital market conditions;

·                     any Changes in economic conditions generally affecting the industry or industries in which such party operates;

·                     any Changes in political conditions, including any prolonged federal government furlough, shutdown or lack of funding;

·                     any Changes after the date of the Implementation Agreement in applicable Laws, GAAP, IFRS or the interpretation thereof;

·                     any Changes in geopolitical conditions, acts of terrorism or sabotage, war (whether or not declared), the commencement, continuation or escalation of a war, acts of armed hostility, weather conditions, natural disasters or other force majeure events, including any material worsening of such conditions threatened or existing as of the date of the Implementation Agreement;

·                     any Changes caused by the public announcement or pendency of the transactions contemplated by the Implementation Agreement; and

·

the effects of any action required to be taken by the Implementation Agreement by one of the parties of the Implementation Agreement or actions taken (including any adverse Change that results from the other party’s unreasonable refusal to permit the applicable party, upon request to the other party, to take any of the actions set forth in Section 6.1 of the Implementation Agreement, as described below under “Conduct of Business Prior to Closing,”) or omitted to be taken by one of such parties with the written consent of the other party hereto;

provided, however, that the effect of any of the Changes described above will not be excluded from the definition of “Material Adverse Effect” to the extent they have a disproportionate impact on Curetis or its subsidiaries as a whole, on the one hand, or the Company and its subsidiaries as a whole, on the other hand, as measured relative to companies operating in the industry or industries in which such party operates.

 

Representations and Warranties of the Seller

The Implementation Agreement contains representations and warranties made by the Seller to the Company and the Purchaser relating to a number of matters, including, among other things, the following:

·

organization, good standing and qualification of Seller, Curetis and each of its subsidiaries;

·

authority of the Seller with respect to the execution and delivery of the Implementation Agreement and the consummation of the transactions contemplated by the Implementation Agreement;

·

consents and approvals relating to the execution and delivery of the Implementation Agreement and the consummation of the transactions contemplated by the Implementation Agreement;

·

capitalization of Curetis;

·

financial statements of the Seller;

·

absence of certain changes in the business of the Seller, Curetis and its subsidiaries;

·

matters with respect to certain material contracts;

·

real property of the Seller, Curetis and its subsidiaries;

·

intellectual property matters;

·

absence of litigation or governmental proceedings;

·

compliance with applicable laws and permits;

·

environmental matters;

·

labor and employment matters;

·

employee benefit plans and related matters;

·

tax matters;

·

insurance matters;

·

sufficiency of assets;

·

the fairness opinion received by the Seller;

·

the absence of any broker, investment banker or financial advisor to the Seller; and

·

with respect to information supplied by the Seller for inclusion in the Form S-4, the absence of any untrue statement of a material fact or omission to state any material fact required or necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

 

Representations and Warranties of the Company

The Implementation Agreement also contains representations and warranties by the Company and the Purchaser, jointly and severally, to the Seller relating to a number of matters, including, among other things, the following:

·

organization, good standing and qualification of the Company and the Purchaser;

·

authority of the Company and the Purchaser with respect to the execution and delivery of the Implementation Agreement and the consummation of the transactions contemplated by the Implementation Agreement;

·

consents and approvals relating to the execution and delivery of the Implementation Agreement and the consummation of the transactions contemplated by the Implementation Agreement;

·

capitalization of the Company;

·

the Company’s filings with the SEC;

·

financial statements of the Company;

·

internal controls of the Company;

·

absence of certain changes in the business of the Company and its subsidiaries;

·

matters with respect to certain material contract;

·

real property of Company and its subsidiaries;

·

intellectual property matters;

·

absence of litigation or governmental proceedings;

·

compliance with applicable laws and permits;

·

environmental matters;

·

labor and employment matters;

·

employee benefit plans and related matters;

·

tax matters;

·

insurance matters;

·

the absence of any broker, investment broker or financial advisor to the Company;

·

the common stock of the Company to be issued in connection with the Transaction;

·

with respect to the Form S-4, the absence of any untrue statement of a material fact or omission to state any material fact required or necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and

·

the fairness opinion received by the Company.

 

Conduct of Business Prior to Closing

Each of the Purchaser, the Company and the Seller has agreed that, during the period from the date of the Implementation Agreement to the closing or the termination of the Transaction:

·

it will conduct its operations in the ordinary course of business consistent with past practice;

·

it will use commercially reasonable efforts to preserve its business organization and goodwill and maintain satisfactory relationships with those having business relationships with it;

·

it will not, and will not permit any of its subsidiaries, to:

o    adopt or propose amendments to its governing documents;

o    issue or sell any of its equity securities;

o    acquire or redeem any of its equity securities;

o    recapitalize its capital stock;

o    make any material change to its accounting methods;

o    make certain changes with respect to taxes;

o    make certain changes with respect to its employees’ compensation or arrangements;

o    enter into any loan transaction with any officer, director or employee;

o    enter into any material new line of business outside its existing business;

o    commence any legal proceeding or settle any material legal proceeding;

o    sell, pledge, mortgage, dispose of, transfer, lease, license or encumber any property or assets other than sales of inventory in the ordinary course of business;

o    maintain inventory other than in the ordinary course of business;

o    incur, modify or assume any indebtedness;

o    adopt a plan of liquidation or acquire any other business organization;

o    incur any liabilities other than in the ordinary course of business;

o    amend, extend, renew or terminate any real property lease or enter into any new leases;

o    write up, write down or write off the book value of any material amount of assets;

o    enter into any material contract, or modify, amend, terminate or cancel any material contract;

o    enter into any transaction or take any action that would reasonably be expected to prevent or materially delay the completion of the Transaction;

o    fail to timely file any SEC filing required to be filed by the Company;

o    enter into or materially amend a contract with any of its affiliates, officers or directors;

o    enter into a collective bargaining agreement;

o    transfer or license to any person any intellectual property;

o    take certain actions with respect to its intellectual property; or

o    authorize, commit or agree to take any of the foregoing actions,

 

 

except (i) as required or contemplated under the Implementation Agreement, (ii) as required by applicable law, or (iii) with the written consent of the Seller (in the case of the Company and the Purchaser) or the Company (in the case of the Seller).

No Solicitation Covenants

From the date of the Implementation Agreement until the closing or the termination of the Transaction no party will, directly or indirectly:

·                     solicit, initiate or knowingly encourage or facilitate (including by way of furnishing information) the submission of any inquiries, proposals or offers that constitute or could reasonably be expected to lead to, any Acquisition Proposal or engage in any discussions or negotiations with respect thereto or otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, discussions or negotiations or provide access to its books, records, properties or employees or furnish any nonpublic or confidential information or data with respect to any Acquisition Proposal; or

·                     approve or recommend, or publicly propose to approve or recommend, an Acquisition Proposal or any agreement, arrangement or understanding relating to an Acquisition Proposal (or resolve or authorize or propose to agree to do any of the foregoing), or enter into any merger agreement, letter of intent, confidentiality agreement (other than as specified in the Implementation Agreement), agreement in principle, share purchase agreement, asset purchase agreement or share exchange agreement, option agreement or other similar agreement, understanding or arrangement relating to an Acquisition Proposal or enter into any agreement, understanding or arrangement, whether or not in writing or binding on any party, requiring the party to abandon, terminate or fail to consummate the transactions contemplated by the Implementation Agreement or breach its obligations under the Implementation Agreement.

An “Acquisition Proposal” is defined as any inquiry, proposal or offer from any person (other than a party to the Implementation Agreement or any of its affiliates) relating to any direct or indirect acquisition, in one transaction or a series of transactions, including by way of any merger, consolidation, tender offer, exchange offer, binding share exchange, business combination, sale of substantially all assets, recapitalization, restructuring, investment, liquidation, dissolution or similar transaction, of (i) assets that constitute or represent 25% or more of the total assets or total revenues of the party in question, taken as a whole, or (ii) 25% or more of the common equity then outstanding.

If a party is approached prior to obtaining the applicable stockholder vote, if and the either the Seller’s management board and supervisory board or Company’s Board of Directors, as applicable, the Board, party’s Board determines in good faith (after consultation with its outside financial and legal advisors and after taking into account the person making the Acquisition Proposal and all legal, financial, regulatory and other aspects of such Acquisition Proposal, including the financing terms thereof), that such Acquisition Proposal constitutes or would reasonably be expected to result in a “Superior Proposal” (meaning a bona fide Acquisition Proposal for assets comprising more than 50% of the total assets or total revenue of the party in question or more than 50% of the common equity then-outstanding of the party in question), then, subject to compliance with the Implementation Agreement, the party may (i) furnish information (including non-public information) to the person making such Acquisition Proposal and (ii) participate in discussions or negotiations with the person making such Acquisition Proposal regarding such Acquisition Proposal; provided that the person making the Acquisition Proposal must have provided a waiver under any non-disclosure agreement entered into with the applicable party to permit the party that was approached to make any disclosures to the other party to the Implementation Agreement and must enter into a confidentiality agreement that is acceptable under the Implementation Agreement. The Implementation Agreement sets forth the requirements of any party that receives an Acquisition Proposal must follow, including notification to the other party to the Implementation Agreement, in order to continue discussions with any person making an Acquisition Proposal.

 

The Board receiving an Acquisition Proposal may, at any time prior to obtaining the required vote of its stockholders or shareholders, withdraw, modify, qualify, or propose publicly to withdraw, modify or qualify in a manner adverse to the other party, the Board’s recommendation, or a Change of Board Recommendation, if (i) in each case, the Board concludes in good faith, after taking into consideration the advice of its outside legal advisors, that taking such action is required for the Board to comply with its fiduciary obligations under applicable law, and (ii) (A) in the case of a Change of Board Recommendation in respect to an Acquisition Proposal made after the date hereof, the Board determines in good faith (after consultation with its outside financial and legal advisors and after taking into account the person making the Acquisition Proposal and all legal, financial, regulatory and other aspects of such Acquisition Proposal, including the financing terms thereof) that such Acquisition Proposal constitutes a Superior Proposal, or (B) in the case of a Change of Board Recommendation in the absence of an Acquisition Proposal, solely in response to a material event, fact, development, circumstance or occurrence that affects the business, assets or operations of the party that was not known to the party prior to the execution of the Implementation Agreement and occurs after the execution of the Implementation Agreement and prior to the time that the applicable stockholder or shareholder vote is obtained, or an Intervening Event.

The Implementation Agreement provides further requirements to be followed prior to terminating the Implementation Agreement to accept a Superior Proposal or because of an Intervening Event. If either party terminates the Implementation Agreement as a result of the foregoing, it is obligated to pay a termination fee of $500,000 to the other party.

Other Covenants Between Signing and Closing; Post-Closing Covenants

In addition, each of the parties has covenanted to comply with the following covenants between the signing of the Implementation Agreement and the closing of the Transaction to:

·

provide the other party with access to information;

·

cooperate to develop, file and disseminate this registration statement on Form S-4;

·

hold an extraordinary general meeting of the shareholders of each of the Seller and the Company for the purpose of obtaining the requisite shareholder vote to approve the Transaction;

·

use commercially reasonable efforts to obtain approval of such party’s stockholders or shareholders;

·

use commercially reasonable efforts to obtain all governmental and third party consents and approvals;

·

provide notification if designated events occur, including litigation;

·

provide further assurances to progress the Transaction; and

·

provide an opportunity to review press releases and other public disclosures by the parties.

The Company has agreed to assume the Seller 2016 Stock Option Plan and each option outstanding thereunder immediately prior to the Closing, each a Seller Stock Option. Immediately prior to the closing of the Transaction, each Seller Stock Option, whether vested or exercisable, will be converted into an option to purchase Common Stock, or a Company Stock Option granted under any of the 2008 Stock Option and Restricted Stock Plan, as amended (under which no further grants can be made) or the Amended and Restated 2015 Equity Incentive Plan. Each Company Stock Option so converted and granted pursuant to the assumption of the Seller 2016 Stock Option Plan will be equal to the number of whole shares of Common Stock, rounded down to the nearest whole share, equal to the number of shares of the Seller subject to such Seller Stock Option multiplied by the Conversion Ratio, at an exercise price per share of Common Stock so converted and granted equal to the exercise price per share of the Seller’s shares subject to such Seller Stock Option divided by the Conversion Ratio. The Company has additionally agreed to reserve for future issuance a number of shares of Common Stock at least equal to the number of shares of Common Stock that will be subject to, assumed, or granted equity awards to the holders of options under the Seller 2016 Stock Option Plan.

 

 

The Implementation Agreement contains additional covenants related to the composition of the OpGen Board of Directors following the closing of the Transaction, the integration of the companies’ employees and employee benefit plans, the treatment of stock options and other stock-based compensation, the treatment of outstanding indebtedness, tax matters, transitional agreements, including changing of the name of OpGen following the closing of the Transaction.

Corporate Governance Following the Transaction

The parties have agreed that the Board of Directors following the completion of the Transaction is expected to be comprised of seven members. Four members will be appointed by the Seller, including William E. Rhodes III to serve as the Chairman of the Board of Directors, and the remaining three members are expected to be comprised by Evan Jones and R. Donald Elsey, who currently serve as members of the OpGen Board of Directors, and a third director to be recommended by OpGen.

As soon as practicable after the completion of the Transaction, the Board of Directors will appoint Oliver Schact, Ph.D. as the Chief Executive Officer of the Company and Tim Dec as the Chief Financial Officer of the Company. Johannes Bacher is expected to become the Chief Operating Officer of the Company and Vadim Sapiro is expected to be the Chief Information Officer. The other officers and senior management of the Company will be appointed with the recommendation of Oliver Schact, Ph.D.

Conditions to Each Party’s Obligations

The respective obligations of the parties to effect the Transaction are subject to the satisfaction or waiver at or prior to the closing of the Transaction of the following conditions:

·

the Implementation Agreement and the transactions contemplated thereby has been adopted by the vote of the stockholders of the Seller and the Company;

·

there is no stay, injunction or decree of any court or governmental authority making the Transaction illegal or prohibiting the consummation of the Transaction;

·

the Form S-4 has been declared effective by the SEC and no stop order shall have been issued by the SEC;

·

the shares of common stock to be issued by the Company to the Seller shall has been approved for listing on Nasdaq Capital Market;

·

the registration, sale and issuance of the Company’s common stock with gross proceeds to the Company of at least $10,000,000, or the Interim Financing, has been completed;

·

the documentation implementing the assumption by the Company of the Curetis Convertible Notes, including providing for the conversion of the Curetis Convertible Notes into shares of the Company’s common stock, or the Convertible Debt Rollover, has executed by the Seller, the Company and the relevant investors; and

·

the Seller has received all required consents, authorizations, qualifications and orders of all third parties.

 

Conditions to Obligations of the Company and the Purchaser

The obligations of the Company and the Purchaser to effect the Transaction are subject to the satisfaction or waiver at or prior to the closing of the Transaction of the following conditions:

·

the representations and warranties of the Seller in the Implementation Agreement shall be true and correct as of the closing date;

·

the Seller shall have performed in all material respects its covenants and agreements in the Implementation Agreement;

·

the Company shall have received an officer’s certificate from the Seller certifying as to certain matters;

·

the Seller shall have executed and delivered to the Purchaser the share transfer agreement to assign the Transferred Shares to the Purchaser, or the German Transfer Agreement;

·

the Seller shall have executed and delivered to the Purchaser the assignment and assumption agreement to assign the Transferred Assets to the Purchaser, or the Assignment and Assumption Agreement;

·

since the date of the Implementation Agreement, there shall not have occurred any Material Adverse Effect with respect to Curetis; and

·

the Company shall have received each other document reasonably requested by the Company.

Conditions to Obligations of the Seller

The obligations of the Seller to effect the Transaction is subject to the satisfaction or waiver at or prior to the closing of the Transaction of the following conditions:

·

the representations and warranties of the Company and the Purchaser in the Implementation Agreement are true and correct as of the closing date;

·

the Company and the Purchaser has performed in all material respects the covenants and agreements in the Implementation Agreement;

·

the Seller has received an officer’s certificate from the Company certifying as to certain matters;

·

the credit facility agreement pursuant to which the Company or the Purchaser will make available to Curetis funds necessary to operate the Business until the closing date shall have been put in place within five business days of the completion of the Interim Financing;

·

the Seller has received the Consideration in the form of book-entry shares of the Company’s common stock from the Company’s transfer agent;

·

the Purchaser has executed and delivered to the Seller the German Transfer Agreement;

·

the Purchaser has executed and delivered to the Seller the Assignment and Assumption Agreement;

·

since the date of the Implementation Agreement, no Material Adverse Effect with respect to the Company has occurred; and

·

the Seller has received each other document reasonably requested by the Seller.

Each of OpGen and Curetis N.V. may waive any or all of the foregoing conditions to the closing of the proposed Transaction that are for its benefit to the extent permitted by applicable law. OpGen and Curetis N.V. do not believe that applicable law would permit them to waive (i) the condition for obtaining approval of the Transaction Proposal and Share Issuance Proposal from OpGen’s stockholders or (ii) the condition for obtaining approval of the proposed Transaction from Curetis N.V.’s shareholders and debt holders.

 

Termination of the Implementation Agreement

The Implementation Agreement may be terminated and the Transaction may be abandoned at any time prior to the closing of the Transaction:

·

by mutual written consent of the Seller and the Company;

·

by the Seller or the Company if the Interim Financing has not been completed on or before October 15, 2019;

·

by the Seller if the Interim Facility has not been put in place within five business days of completion of the Interim Financing;

·

by either the Seller or the Company, if the Transaction has not been consummated on or before January 31, 2020;

·

by either the Seller or the Company, if the meeting of the Seller’s shareholders has been convened and the approval of the Transaction has not been obtained;

·

by either the Seller or the Company, if the meeting of the Company’s stockholders shall have been convened and the approval of the Transaction has not been obtained;

·

by the Seller, if there has been a breach of any covenants or agreements or any of the representations or warranties of the Purchaser or the Company, which breach is not cured within the period set forth in the Implementation Agreement;

·

by the Company, if there has been a breach of any of the covenants or agreements or any of the representation or warranties on the part of the Seller, which breach is not cured within the period set forth in the Implementation Agreement;

·

by the Seller or the Company in order to effect a Change of Board Recommendation, and substantially concurrently enter into a definitive agreement providing for a Superior Proposal; or

·

by the Seller if the Company’s Board, or the Company if the Seller’s Board, as the case may be, effects a Change of Board Recommendation.

Effect of Termination

If the Implementation Agreement is terminated prior to the closing and the Transaction is abandoned, the Implementation Agreement shall, subject to certain exceptions, immediately become null and void and have no effect, provided that no party shall be relieved from any liability for any willful breach of a representation or warranty or the breach of any covenant in the Implementation Agreement arising prior to termination.

Termination Fees and Expenses

If the Implementation Agreement is terminated by either the Seller or the Company, if the meeting of the Seller’s shareholders was convened and did not result in approval of the Transaction, or if the meeting of the Company’s stockholders was convened and did not result in approval of the Transaction, then the party whose shareholders or stockholders did not approve the Transaction will pay certain expenses incurred in connection with the authorization, preparation, negotiation, execution and performance of the Implementation Agreement up to an amount not to exceed $250,000.

 

If the Implementation Agreement is terminated (i) by the Company if the Seller’s shareholders do not vote to approve the Transaction and (x) any person has made or announced an intention to make an Acquisition Proposal for the Curetis Group companies or equity interests in Curetis that becomes public after the date of the Implementation Agreement and (y) within 12 months of such termination the Seller enters into a definitive agreement with respect to, or consummates such an, Acquisition Proposal, (ii) by the Seller to effect a Change of Board Recommendation and substantially concurrently enter into a definitive agreement providing for a Superior Proposal, or (iii) by the Company if the Seller’s Board effects a Change of Board Recommendation or publicly announces any intention to do so, then the Seller will pay the Company an amount in cash equal to $500,000.

If the Implementation Agreement is terminated (i) by the Seller if the Company’s stockholders do not vote to approve the Transaction and (x) any person has made or announced an intention to make an Acquisition Proposal that becomes public after the date of the Implementation Agreement and (y) within 12 months of such termination the Company enters into a definitive agreement with respect to, or consummates such an, Acquisition Proposal, (ii) by the Company to effect a Change of Board Recommendation and substantially concurrently enter into a definitive agreement providing for a Superior Proposal, or (iii) by the Seller if the Company’s Board effects a Change of Board Recommendation or publicly announces any intention to do so, then the Company will pay the Seller an amount in cash equal to $500,000.

In the event that either the Seller or the Company are entitled to be paid both a reimbursement for its expenses following the failure of the other party’s shareholders or stockholders to approve the Transaction and a termination fee pursuant to the foregoing, the amount of such reimbursement will be deducted from the termination fee.

Amendment of the Implementation Agreement

The Implementation Agreement may be amended by the parties at any time before or after the Seller’s shareholders and the Company’s stockholders approve the Transaction but, after any such Seller Stockholder Vote or the Company Stockholder Vote, no amendment may be made that requires the approval of the stockholders of the Seller or the Company without the approval of such stockholders under applicable Law. Further, the Implementation Agreement may not be amended, changed, supplemented or otherwise modified except by an instrument in writing signed on behalf of all of the parties.

Expenses of the Parties

Except for the costs and expenses incurred by the Seller and the Company in connection with the preparation, review, filing, printing and mailing of the Company’s Form S-1 Registration Statement and this Form S-4 Registration Statement, which will be borne in equal proportion by the Seller and the Company, each party to the Implementation Agreement will pay all costs and expenses incurred by itself in connection with the Transaction.

 

OPGEN SUMMARY FINANCIAL DATA

The following summary financial data should be read together with our financial statements and related notes, and “OpGen’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this proxy statement/prospectus. The summary statements of operations data for the years ended December 31, 2018 and 2017 and the nine months ended September 30, 2019 and 2018, and the balance sheet data as of September 30, 2019 have been derived from our audited financial statements and unaudited interim condensed financial statements included in this proxy statement/prospectus. Historical results are not necessarily indicative of the results that may be expected in the future.

		Year Ended December 31,								Nine Months Ended September 30,
		2018				2017				2019				2018
		(In thousands, except per share data)
Statements of Operation Data:										(Unaudited)
Revenue		$	2,946			$	3,211			$	2,678			$	2,187
Operating expenses:
Cost of products sold			1,223				1,613				682				940
Cost of services(1)			626				520				593				446
Research and development(1)			5,677				6,883				4,069				3,821
General and administrative(1)			7,069				6,693				4,901				5,365
Sales and marketing(1)			1,532				2,768				1,143				1,117
Transaction costs			—				—				538				—
Impairment of right-of-use asset			—				—				521				—
Total operating expenses(1)			16,127				18,477				(12,447	)			(11,689	)
Operating loss			(13,181	)			(15,266	)			(9,769	)			(9,502	)
Interest and other (expense) income			5				(87	)			(8	)			5
Interest expense			(191	)			(233	)			(143	)			(140	)
Foreign currency transaction gains (losses)			(10	)			23				(9	)			7
Change in fair value of derivative financial instruments			8				144				—				8
Provision for income taxes			—				—				—				—
Net loss		$	(13,369	)		$	(15,419	)		$	(9,929	)		$	(9,636	)
Net loss per common share, basic and diluted		$	(44.49	)		$	(195.96	)		$	(13.32	)		$	(36.09	)
Weighted average shares outstanding—basic and diluted			300				79				745				267

 

(1)

Includes stock-based compensation as follows:

 

		Year Ended December 31,								Nine Months Ended September 30,
		2018				2017				2019				2018
										(Unaudited)
Cost of services		$	1			$	14			$	1			$	1
Research and development			241				237				56				188
General and administrative			574				604				203				434
Sales and marketing			46				57				16				36
Total stock-based compensation		$	862			$	912			$	276			$	659

 

 

 

 

CURETIS BUSINESS SUMMARY FINANCIAL DATA

For purposes of the Curetis Business combined financial statements included in this proxy statement/prospectus, we refer to the business of Curetis N.V., principally operated by Curetis GmbH and its subsidiaries, or the Curetis Group, as the Curetis Business. In the Curetis Business combined financial statements included in the proxy statement/prospectus, the Curetis Business is presented, which comprises the Curetis Group as well as the Curetis Convertible Notes that are assumed by OpGen pursuant to the Implementation Agreement and certain costs related to the Curetis Business, primarily related to the compensation of certain members of senior management and its supervisory board that were historically incurred by Curetis N.V. but not charged to the Curetis Group.

The following summary financial data should be read together with the combined financial statements and related notes of the Curetis Business included in this proxy statement/prospectus. The combined statements of operations and other comprehensive income for the years ended December 31, 2018 and 2017, have been derived from the audited, combined financial statements of the Curetis Business for the years ended December 31, 2018 and 2017 included in this proxy statement/prospectus. All Curetis financial results and measures in this proxy statement/prospectus, other than the Curetis Business combined financial statements, have been translated from Euros to U.S. dollars using the translation rates listed below or, otherwise, of $1.13667 to €1.00 as of June 30, 2019, based on Oanda.com. These translation rates are provided for convenience only, and OpGen makes no representation that the Euro amounts could have been, or could be, converted, realized or settled in U.S. dollars at that rate on June 30, 2019, or at any other rate.

The unaudited combined interim financial statements of the Curetis Business for the six months ended June 30, 2019 and 2018, and the combined statement of financial position data as of June 30, 2019, have been derived from the unaudited interim condensed combined financial statements of the Curetis Business as of and for the six months ended June 30, 2019. The combined financial statements as of and for the years ended December 31, 2018 and 2017 were prepared in accordance with IFRS as issued by the IASB. The unaudited interim condensed combined financial statements of the Curetis Business were prepared in accordance with IFRS as issued by the IASB applicable for interim reporting (IAS 34). Historical results are not necessarily indicative of the results that may be expected in the future.

		Year Ended								Six Months Ended
		December 31,								June 30,
		2018				2017				2019				2018
Statements of Operations:		(In thousands of USD (1))
Revenue		$	1,623			$	1,422			$	1,237			$	940
Cost of sales			(1,558	)			(1,582	)			(1,525	)			(1,275	)
Gross loss			65				(160	)			(288	)			(335	)
Distribution costs			(9,318	)			(8,632	)			(3,717	)			(4,903	)
Administrative expenses			(4,092	)			(3,815	)			(1,832	)			(2,175	)
Research & development expenses			(12,085	)			(8,786	)			(4,752	)			(5,451	)
Other income			715				206				130				220
Operating loss			(24,715	)			(21,187	)			(10,459	)			(12,644	)
Finance income			39				13				8				58
Finance costs			(1,374	)			(835	)			(846	)			(575	)
Finance result – net			(1,335	)			(822	)			(838	)			(517	)
Loss before income taxes			(26,050	)			(22,009	)			(11,297	)			(13,161	)
Income tax expense			(41	)			65				(64	)			30
Loss for the period		$	(26,091	)		$	(21,944	)		$	(11,361	)		$	(13,131	)
(1) Convenience translation performed from Euros to U.S. Dollars using the following exchange rate in effect as of each period end:			1.14379				1.19786				1.13667				1.16478

 

 

 

 

		As of June 30, 2019
Combined Statement of Financial Position Data		(In thousands of USD (1))
Cash and cash equivalents				5,432
Working capital				5,719
Total assets				26,478
Accumulated deficit				(193,632	)
Total equity				(3,347	)
(1) Convenience translation performed from Euros to U.S. Dollars using the following exchange rate in effect as of June 30, 2019:				1.13667

 

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting under U.S. GAAP.

For purposes of this unaudited pro forma condensed combined financial information, we refer to the business of Curetis N.V., principally operated by Curetis GmbH and its subsidiaries as the Curetis Business. In the Curetis Business combined financial statements included in the proxy statement/prospectus, the Curetis Business is presented, which comprises the Curetis Group as well as the Curetis Convertible Notes that will be assumed by OpGen pursuant to the Implementation Agreement and certain costs related to the Curetis Business, primarily related to the compensation of certain members of senior management and its supervisory board that were historically incurred by Curetis N.V. but not charged to the Curetis Business.

We believe the business combination contemplated by the Implementation Agreement will be accounted for as a business combination in accordance with U.S. GAAP. Under this method of accounting, OpGen would be deemed to be the accounting acquirer for financial reporting purposes. In presenting this unaudited pro forma condensed combined financial information with OpGen as the accounting acquirer, we have considered, among other factors, the following: (i) the number of shares to be issued to Curetis N.V. under the Implementation Agreement; (ii) the number of units and pre-funded units sold in the October 2019 Offering; (iii) the fact that the percentage of voting rights held by OpGen’s stockholders will continue to constitute a majority of the voting rights of Newco after the October 2019 Offering and after closing under the Implementation Agreement, currently estimated at 67.7%; (iv) the contractual right held by Curetis N.V. to designate a majority of the members of the initial board of directors of OpGen after the closing; (v) the change in the chief executive officer of OpGen after the closing to be the chief executive officer of Curetis N.V; (vi) the retention of the chief financial officer of OpGen as the chief financial officer of Newco; and (vii) the agreement between OpGen and Curetis N.V. to add a seventh director to the OpGen Board of Directors following the closing of the Transaction, with such person recommended by OpGen. One of the conditions to closing the business combination under the Implementation Agreement is that OpGen raise at least $10 million in interim financing. The parties have agreed that the $9.4 million raised in the October 2019 Offering satisfies this closing condition. This closing condition was met with the closing of the October 2019 Offering. The consummation of the October 2019 Offering had a substantial impact on the final determination as to the accounting treatment of the business combination. We are presenting this unaudited pro forma condensed combined financial information as a business combination in accordance with U.S. GAAP for accounting purposes. This unaudited pro forma condensed combined financial information, as presented, includes the number of shares to be issued to Curetis N.V. under the Implementation Agreement and the number of units and pre-funded units sold in the October 2019 Offering, at an offering price of $2.00 per unit and $1.99 per pre-funded unit. As of the closing date of the business combination, the net assets of the Curetis Business would be recorded at their acquisition-date fair values in the financial statements of OpGen and the reported operating results prior to the business combination would be those of OpGen. In addition, transaction costs incurred by OpGen in connection with the business combination would be expensed as incurred.

The unaudited pro forma condensed combined financial information is based on the assumptions and adjustments that are described in the accompanying notes. Accordingly, the pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analyses are performed, including but not limited to the final assessment of the accounting acquirer, of the determination of differences between IFRS and U.S. GAAP, and of the application of purchase price adjustments, and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final accounting, expected to be completed after the closing of the business combination, will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and Newco’s future results of operations and financial position.

The interim combined financial statements of the Curetis Business were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, or IFRS. The consolidated financial statements of OpGen were prepared in accordance with U.S. GAAP. OpGen has performed a preliminary analysis and has not identified significant differences identified between IFRS and U.S. GAAP for the purposes of presenting the unaudited pro forma condensed combined financial statements. In addition, the unaudited condensed combined financial statements reflect reclassifications to conform the Curetis Business historical accounting presentation to OpGen’s accounting presentation.

 

 

The consolidated financial statements of OpGen are presented in U.S. dollars, or USD, whereas, the financial statements of the Curetis Business are presented in Euros. Therefore, the unaudited pro forma condensed combined financial information includes adjustments to convert the Curetis Business’ financial information from Euros to USD.

The Curetis Business’ assets and liabilities will be measured and recognized at their fair values as of the transaction date and combined with the assets, liabilities and results of operations of OpGen after the consummation of the business combination. The allocation of the purchase price to acquired assets and assumed liabilities based on their underlying fair values requires the extensive use of significant estimates and management’s judgment. The allocation of the purchase price is preliminary at this time, and will remain as such until management completes valuations and other studies in order to finalize the valuation of the net assets acquired. These provisional estimates will be adjusted upon the availability of further information regarding events or circumstances which exist at the acquisition date and such adjustments may be significant. The Curetis Business’ intangible assets have not yet been determined and, therefore, the allocation of the purchase price in excess of the Curetis Business’ net assets is shown entirely as goodwill.

The unaudited pro forma condensed combined financial information is based on the assumptions and adjustments that are described in the accompanying notes. Accordingly, the pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analyses are performed, including but not limited to the final assessment of the accounting acquirer, of the determination of differences between IFRS and U.S. GAAP, and of the application of purchase price adjustments, and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final accounting, expected to be completed after the closing of the business combination, will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and Newco’s future results of operations and financial position.

The unaudited pro forma condensed combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the integration of the business of OpGen and the Curetis Business. The unaudited pro forma condensed combined financial information is preliminary and has been prepared for illustrative purposes only and is not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had OpGen and the Curetis Business been a combined company during the specified periods. The actual results reported in periods following the business combination may differ significantly from those reflected in the unaudited pro forma condensed combined financial information presented herein for a number of reasons, including, but not limited to, differences in actual performance compared to the assumptions used to prepare this pro forma financial information.

The unaudited pro forma condensed combined financial information, including the notes thereto, should be read in conjunction with the separate historical financial statements of OpGen and the Curetis Business, included elsewhere in this proxy statement/prospectus.

Accounting rules require evaluation of certain assumptions, estimates, or determination of financial statement classifications which are completed during the measurement period as defined in current accounting standards. The accounting policies of the Curetis Business may materially vary from those of OpGen. During preparation of the unaudited pro forma condensed combined financial information, management has performed a preliminary analysis and is not aware of any material differences, and accordingly, this unaudited pro forma condensed combined financial information assumes no material differences, in accounting policies. Following the acquisition, management will conduct a final review of the Curetis Business accounting policies in order to determine if differences in accounting policies require adjustment or reclassification of the Curetis Business’ results of operations or reclassification of assets or liabilities to conform to OpGen’s accounting policies and classifications. As a result of this review, management may identify differences that, when conformed, could have a material impact on these unaudited pro forma condensed combined financial statements.

Following receipt of approval from stockholders at a special meeting of stockholders held on August 22, 2019, on August 28, 2019, OpGen filed an amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split of the issued and outstanding shares of our common stock, at a ratio of one share for twenty shares. All financial information in this pro forma financial information has been adjusted to reflect the 2019 Reverse Stock Split.

 

 

OpGen, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2019
(in thousands)
		OpGen				Curetis Business				Pro Forma Adjustments				Notes				Pro Forma Combined
Assets
Current assets
Cash and cash equivalents		$	626			$	1,451			$	8,336				G			$	10,413
Accounts receivable, net			377				889				—								1,266
Due from parent			—				538				—								538
Inventory, net			468				5,225				—								5,693
Contractual assets			—				180				—								180
Prepaid expenses and other current assets			533				547				—								1,080
Total current assets			2,004				8,830				8,336								19,170
Property and equipment, net			202				4,215				—								4,417
Finance lease right-of-use assets, net			1,097				—				—								1,097
Operating lease right-of-use assets			1,215				1,305				—								2,520
Goodwill			601				—				9,922				E				10,523
Intangible assets, net			885				7,992				—				E				8,877
Deferred tax assets			—				11				—								11
Other noncurrent assets			427				175				—								602
Total assets		$	6,431			$	22,528			$	18,258							$	47,217
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	1,873			$	2,219			$	—							$	4,092
Due to parent			—				203				—								203
Accrued compensation and benefits			1,387				—				—								1,387
Accrued and other current liabilities			1,041				808				1,566				A,B,H				3,415
Deferred revenue			10				—				—								10
Short-term notes payable			508				2,166				—								2,674
Short-term finance lease liabilities			628				—				—								628
Short-term operating lease liabilities			988				478				—								1,466
Total current liabilities			6,435				5,874				1,566								13,875
Notes payable			329				21,642				—								21,971
Long-term finance lease liabilities			411				—				—								411
Long-term operating lease liabilities			813				839				—								1,652
Other noncurrent liabilities			—				48				—								48
Total liabilities			7,988				28,403				1,566								37,957
Stockholders' equity
Common stock			9				6,074				(6,000	)			C,D,G				83
Additional paid-in capital			170,449				179,819				(167,510	)			C,D,G				182,758
Accumulated deficit			(172,007	)			(191,709	)			190,143				A,B,C,H				(173,573	)
Accumulated other comprehensive loss			(8	)			(59	)			59				C				(8	)
Total stockholders’ equity (deficit)			(1,557	)			(5,875	)			16,692								9,260
Total liabilities and stockholders’ equity		$	6,431			$	22,528			$	18,258							$	47,217

 

 

 

OpGen, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the nine months ended September 30, 2019

(in thousands, except share and per share data)

 

			OpGen				Curetis Business				Pro Forma Adjustments (E)			Notes			Pro Forma Combined
Revenue		$	2,678			$	1,513			$	—					$	4,191
Operating expenses:
Cost of products sold			682				1,602				—						2,284
Cost of services			593				—				—						593
Research and development			4,069				6,727				—						10,796
General and administrative			4,901				2,356										7,257
Sales and marketing			1,143				5,021				—						6,164
Transaction costs			538				1,255				(1,793	)		F			—
Impairment of right-of-use asset			521				—				—						521
Total operating expenses			12,447				16,961				(1,793	)					27,615
Operating loss			(9,769	)			(15,448	)			1,793						(23,424	)
Other (expense) income			(8	)			529				—						521
Interest expense			(143	)			(1,346	)			—						(1,489	)
Foreign currency transaction losses			(9	)			—				—						(9	)
Change in fair value of derivative financial instruments			—				—				—						—
Provision for income taxes			—				(68	)			—						(68	)
Net loss		$	(9,929	)		$	(16,333	)		$	1,793					$	(24,469	)
Net loss applicable to common stockholders		$	(9,929	)		$	(16,333	)		$	1,793					$	(24,469	)
Net loss per common share - basic and diluted		$	(13.32	)												$	(3.02	)
Weighted average shares outstanding - basic and diluted			745,471								7,362,564			D, G			8,108,035

 

 

 

 

 

 

 

 

 

OpGen, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 2018
(in thousands, except share and per share data)

 

		OpGen				Curetis Business				Pro Forma Adjustments (H)				Notes				Pro Forma Combined
Revenue		$	2,946			$	1,623			$	—							$4,569
Operating expenses:
Cost of products sold			1,223				1,558				—							2,781
Cost of services			626				—				—							626
Research and development			5,677				12,085				—							17,762
General and administrative			7,069				4,092				—							11,161
Sales and marketing			1,532				9,318				—							10,850
Total operating expenses			16,127				27,053				—							43,180
Operating loss			(13,181	)			(25,430	)			—							(38,611)
Other income			5				754				—							759
Interest expense			(191	)			(1,374	)			—							(1,565)
Foreign currency transaction losses			(10	)			—				—							(10)
Change in fair value of derivative financial instruments			8				—				—							8
Provision for income taxes			—				(41	)			—							(41)
Net loss		$	(13,369	)		$	(26,091	)		$	—							$(39,460)
Net loss applicable to common stockholders		$	(13,369	)		$	(26,091	)		$	—							$(39,460)
Net loss per common share - basic and diluted		$	(44.50	)														$(5.15)
Weighted average shares outstanding - basic and diluted			300,453								7,362,564				D,G			7,663,017

 

 

 

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1.       Description of Transaction

As announced on September 4, 2019, OpGen and Curetis N.V. entered into the Implementation Agreement. Under the Implementation Agreement, OpGen has agreed to purchase all of the outstanding shares and acquire all of the related business assets of the Curetis Business to create a combined business within OpGen, which we refer to as “Newco” in this proxy statement/prospectus.

Pursuant to the Implementation Agreement, OpGen will acquire (i) all of the issued and outstanding capital stock, or the Transferred Shares of Curetis GmbH, and (ii) all of the assets of Curetis N.V. that are solely and exclusively related to the Curetis Business, or the Transferred Assets. OpGen has also agreed to assume (1) the 2016 Stock Option Plan and the outstanding awards thereunder, and (2) the outstanding indebtedness of Curetis N.V. under certain Curetis Convertible Notes, including providing for conversion of such Curetis Convertible Notes into shares of OpGen’s common stock. OpGen will also assume all of the liabilities of Curetis N.V. solely and exclusively related to the Curetis Business.

Under the Implementation Agreement, OpGen will issue, as the sole consideration, 2,662,564 shares of common stock, less the number of shares of common stock the issuance of which shall be reserved by OpGen in connection with (a) up to 135,421 shares of common stock reserved for its assumption of the 2016 Stock Option Plan and (b) up to 500,000 shares of common stock reserved for future issuance upon the conversion of certain of the Curetis Convertible Notes, or together, the Consideration. The number of shares of common stock to be reserved for the deductions described above are based on a conversion ratio of 0.0959, which is the ratio of the Consideration as contrasted with the number of the Curetis N.V. ordinary shares on a fully diluted basis. Since the date of the Implementation Agreement, Curetis has issued additional shares to the holders of the PSOPs, and all have been retired. The shares previously reserved to cover the PSOPs will be issued to Curetis N.V. as part of the Consideration.

 

 

 

In the Implementation Agreement, OpGen committed to raise at least $10,000,000 of interim equity financing to support the continuing operations of both OpGen and the Curetis Business. The October 2019 Offering is such interim equity financing. We will use proceeds from the October 2019 Offering to support the operations of each of OpGen and the Curetis Business during the period between signing and closing of the Transaction and to support the combined operations of Newco after the closing occurs.

2.        Curetis Business

The accompanying unaudited pro forma condensed combined financial statements reflect, what OpGen assumes would be the results and financial position on a U.S. GAAP basis, of the combined financial statements of the interim combined statement of financial position and interim combined statement of operations of the Curetis Business prepared in accordance with IFRS as issued by the IASB, which have been prepared solely for the unaudited pro forma condensed combined financial statements. OpGen has performed a preliminary analysis and has not identified significant differences identified between IFRS and U.S. GAAP for the purposes of presenting the unaudited pro forma condensed combined financial statements. In addition, the unaudited condensed combined financial statements reflect reclassifications to conform the Curetis Business historical accounting presentation to OpGen’s accounting presentation and translation from Euros to USD based on OpGen’s U.S. GAAP policies as follows.

 

 

 

OpGen, Inc.
Unaudited Curetis Business Condensed Combined Statement of Financial Position
September 30, 2019
(in thousands)

		Curetis Business (Euros)				Curetis Business (USD) (1)
Assets
Current assets
Cash and cash equivalents		€	1,327			$	1,451
Trade receivables			813				889
Other receivables, related party			492				538
Contractual assets			165				180
Inventories			4,777				5,225
Prepaid expenses and other current assets			500				547
Total current assets			8,074				8,830
Intangible assets			7,307				7,992
Property, plant and equipment			3,854				4,215
Right of use assets			1,193				1,305
Other non-current financial assets			160				175
Deferred tax assets			10				11
Total assets		€	20,598			$	22,528
Liabilities and Stockholders’ Equity
Current liabilities
Trade and other payables		€	2,029			$	2,219
Other liabilities, related party			186				203
Provisions current			151				165
Tax liabilities			—				—
Other current liabilities			588				643
Other current financial liabilities			1,980				2,165
Current lease liabilities			437				478
Total current liabilities			5,371				5,873
Provisions non-current			44				48
Other non-current financial liabilities			19,788				21,642
Non-current lease liabilities			767				839
Total liabilities			25,970				28,402
Equity
Subscribed capital			5,554				6,074
Capital reserve			164,416				179,819
Currency translation differences			(54	)			(59	)
Retained earnings			(175,288	)			(191,708	)
Total stockholders’ equity			(5,372	)			(5,874	)
Total liabilities and stockholders’ equity		€	20,598			$	22,528
(1) Convenience translation performed using the following exchange rate in effect as of September 30, 2019:			1.09368

 

 

 

 

 

 

OpGen, Inc.
Unaudited Curetis Business Condensed Combined Statement of Operations
For the nine months ended September 30, 2019 (in thousands, except share and per share data)

 

		Curetis Business (Euros)				Curetis Business (USD) (1)
Revenue		€	1,383			$	1,513
Cost of sales			(1,465	)			(1,602	)
Gross loss			(82	)			(89	)
Distribution costs			(4,591	)			(5,021	)
Administrative expenses			(2,154	)			(2,356	)
Research & development expenses			(6,151	)			(6,727	)
Transaction costs			(1,147	)			(1,255	)
Other income			331				362
Operating loss			(13,794	)			(15,086	)
Finance income			153				167
Finance costs			(1,231	)			(1,346	)
Finance result -- net			(1,078	)			(1,179	)
Loss before income taxes			(14,872	)			(16,265	)
Income tax expense			(62	)			(68	)
Loss for the period		€	(14,934	)		$	(16,333	)
(1) Convenience translation performed using the following exchange rate in effect as of September 30, 2019:			1.09368

 

 

 

OpGen, Inc.

Unaudited Curetis Business Condensed Combined Statement of Operations

For the year ended December 31, 2018

(in thousands, except share and per share data)

 

			Curetis Business (Euros)				Curetis Business (USD) (1)
Revenue		€	1,419			$	1,623
Cost of sales			(1,362	)			(1,558	)
Gross loss			57				65
Distribution costs			(8,147	)			(9,318	)
Administrative expenses			(3,578	)			(4,092	)
Research & development expenses			(10,566	)			(12,085	)
Other income			625				715
Operating loss			(21,609	)			(24,715	)
Finance income			34				39
Finance costs			(1,201	)			(1,374	)
Finance result -- net			(1,167	)			(1,335	)
Loss before income taxes			(22,776	)			(26,050	)
Income tax expense			(36	)			(41	)
Loss for the period		€	(22,812	)		$	(26,091	)
(1) Translation performed using the following exchange rate in effect as of December 31, 2018:			1.14379

 

 

 

 

The accompanying unaudited pro forma condensed combined financial statements reflect Curetis Business unaudited combined financial statements prepared in accordance with IFRS mapped to OpGen’s financial statements as follows:

Curetis Business Statement of Operations Descriptions		OpGen Consolidated Statements of Operations and Comprehensive Loss Descriptions
Revenue		Revenue
Cost of sales		Cost of products sold
Distribution costs		Sales and marketing
Administrative expenses		General and administrative
Research & development expenses		Research and development
Transaction costs		Transaction costs
Other income		Other income
Operating loss		Operating loss
Finance income		Other income
Finance costs		Interest expense
Income tax expense		Provision for income taxes
Loss for the period		Net loss

 

Curetis Business Statement of Financial Position Descriptions		OpGen Balance Sheet Descriptions
Cash and cash equivalents		Cash and cash equivalents
Trade receivables		Accounts receivable, net
Other receivables, related party		Due from parent
Contractual assets		Contractual assets *
Inventories		Inventory, net
Prepaid Expenses and other current assets		Prepaid expenses and other current assets
Total current assets		Total current assets
Intangible assets		Intangible assets, net
Property, plant and equipment		Property and equipment, net
Right of use assets		Operating lease right-of-use assets
Other non-current assets		Other noncurrent assets
Other non-current financial assets		Other noncurrent assets
Deferred tax assets		Deferred tax assets
Total assets		Total assets
Liabilities and Stockholders’ Equity		Liabilities and Stockholders’ Equity
Current liabilities		Current liabilities
Trade and other payables		Accounts payable
Other liabilities, related party		Due to parent
Provisions current		Provisions current
Tax liabilities		Accrued and other current liabilities
Other current liabilities		Accrued and other current liabilities
Other current financial liabilities		Accrued and other current liabilities
Current lease liabilities		Short-term operating lease liabilities
Total current liabilities		Total current liabilities
Provisions non-current		Other noncurrent liabilities*
Other non-current financial liabilities		Notes payable
Non-current lease liabilities		Long-term operating lease liabilities
Total liabilities		Total liabilities
Equity		Equity
Subscribed capital		Common stock
Capital reserve		Additional paid-in capital
Currency translation differences		Accumulated other comprehensive loss
Accumulated deficit		Accumulated deficit
Total stockholders’ equity		Total stockholders’ equity (deficit)
Total liabilities and stockholders’ equity		Total liabilities and stockholders’ equity
* Denotes Curetis description added to proforma balance sheet

 

 

 

3.        Estimated Purchase Price

The accompanying unaudited pro forma condensed combined financial statements reflect an estimated acquisition price of approximately $4.0 million based on the current OpGen stock price and the number of shares to be issued as Consideration. Given that the estimated purchase price is variable depending upon the price of OpGen’s common stock, management performed a sensitivity analysis over the change in purchase consideration based on +/– 10% fluctuation in OpGen's stock price. An increase or decrease in the price of OpGen’s common stock by 10% would increase or decrease the purchase consideration by approximately $405 thousand.

The total estimated purchase price and allocated purchase price is summarized as follows (in thousands, except share and per share data):

Number of shares to be issued under the implementation agreement (i)			2,662,564
Multiplied by the fair market value per share of OpGen’s common stock (ii)		$	1.52
Total		$	4,047

(i)

Under the Implementation Agreement, OpGen will issue, as the sole consideration, 2,662,564 shares of common stock, less the number of shares of common stock the issuance of which shall be reserved by OpGen in connection with (a) up to 135,421 shares of common stock reserved for its assumption of the 2016 Stock Option Plan, and (b) up to 500,000 shares of common stock reserved for future issuance upon the conversion of the Curetis Convertible Notes.

(ii)

The estimated purchase price was based on the closing price as reported on the Nasdaq Capital Market on January 13, 2020. The final purchase price arising from the actual fair market value of OpGen common stock outstanding immediately prior to the closing of the business combination could result in a total purchase price different from that assumed in this unaudited pro forma condensed combined financial information, and that difference may be material. Therefore, the estimated consideration expected to be transferred reflected in this unaudited pro forma condensed combined financial information does not purport to represent what the actual consideration transferred will be when the business combination is completed. The actual purchase price will fluctuate until the closing date of the business combination, and the final valuation of the purchase consideration could differ significantly from the current estimate.

For purposes of this pro forma analysis, the above estimated purchase price has been allocated based on a preliminary estimate of the fair value of assets and liabilities to be acquired.

Net assets as of September 30, 2019			$	(5,875	)
Goodwill				9,922
Total			$	4,047

4.        Pro Forma Adjustments

Adjustments included in the column under the heading “Pro forma Adjustments” are primarily based on information contained within the Implementation Agreement. Further analysis will be performed after the completion of the business combination to confirm the necessity of these estimates.

The pro forma adjustments relate to the following:

A.

To record OpGen’s estimated transaction costs, such as legal, audit, advisory fees and transactional fees that were not incurred as of September 30, 2019.

B.

To record the Curetis Business’s estimated transaction costs, such as legal, audit, advisory fees and transactional fees that were not incurred as of September 30, 2019.

C.

To eliminate the Curetis Business’ common stock, historical paid-in-capital, accumulated other comprehensive loss, and accumulated deficit balances.

D.

To reflect potential shares to be issued at closing of the business combination. Under the Implementation Agreement, OpGen will issue, as the sole consideration, 2,662,564 shares of common stock, less the number of shares of common stock the issuance of which shall be reserved by OpGen in connection with (a) up to 135,421 shares of common stock reserved for its assumption of the 2016 Stock Option Plan and (b) up to 500,000 shares of common stock reserved for future issuance upon the conversion of certain of the Curetis Convertible Notes. Since the date of the Implementation Agreement, Curetis has issued additional shares to the holders of the PSOPs, and all have been retired. The shares previously reserved to cover the PSOPs will be issued to Curetis N.V. as part of the Consideration.

E.

To reflect the fair value of consideration transferred as part of the business combination in excess of the net assets acquired by OpGen. The Curetis Business’s intangible assets have not yet been determined and, therefore, the allocation of the purchase price in excess of the Curetis Business’s net assets is shown entirely as goodwill. Separately identifiable intangible assets may be determined to exist that may require amortization expense to be recognized in future periods.

 

 

 

 

F.

To reflect transaction costs incurred by OpGen and the Curetis Business during the nine months ended September 30, 2019.

G.

To record the receipt of $9,400,000 in gross proceeds, and $8,336,000 estimated net proceeds, in cash for the issuance of 2,590,170 units and 2,109,830 pre-funded units in the October 2019 Offering, based on an offering price of $2.00 per unit and $1.99 per pre-funded unit.

H.

To record retention payments to be made to OpGen executives with change in control.

 

Adjustments to accrued expenses are as follows (in thousands):

		September 30, 2019
OpGen's estimated transaction costs (A)		$	650
Curetis Business estimated transaction costs (B)			492
Retention benefits to be paid to OpGen executives (H)			424
Total		$	1,566

 

Adjustments to additional paid-in capital are as follows (in thousands):

		September 30, 2019
Eliminate Curetis Business' historical additional paid-in-capital balance (C)		$	(179,819	)
To reflect shares to be issued under the implementation agreement (D)			4,020
To reflect shares to be issued to investors in a $10 million public offering, net of offering costs (G)			8,289
Total		$	(167,510	)

 

Adjustments to common stock are as follows (in thousands):

		September 30, 2019
Eliminate Curetis Business' historical common stock balance (C)		$	(6,074	)
To reflect shares to be issued under the implementation agreement (D)			27
To reflect shares to be issued to investors in a $10 million public offering, net of offering costs (G)			47
Total		$	(6,000	)

 

Adjustments to accumulated deficit are as follows (in thousands):

		September 30, 2019
OpGen's estimated transaction costs (A)		$	(650	)
Curetis Business estimated transaction costs (B)			(492	)
Eliminate Curetis Business' historical accumulated deficit balance (C)			191,709
Retention benefits to be paid to OpGen executives (H)			(424	)
Total		$	190,143

 

 

 

 

 

OPGEN’S BUSINESS

Overview

We are a precision medicine company harnessing the power of molecular diagnostics and informatics to help combat infectious disease. We are developing molecular information products and services for global healthcare settings, helping to guide clinicians with more rapid and actionable information about life threatening infections, improve patient outcomes, and decrease the spread of infections caused by MDROs. Our proprietary DNA tests and informatics address the rising threat of antibiotic resistance by helping physicians and other healthcare providers optimize care decisions for patients with acute infections.

Our molecular diagnostics and informatics products, product candidates and services combine our Acuitas® molecular diagnostics and Acuitas Lighthouse® informatics platform for use with our proprietary, curated MDRO knowledgebase. We are working to deliver our products and services, some in development, to a global network of customers and partners.

·

Our molecular diagnostic tests provide rapid microbial identification and antibiotic resistance gene information. These products include the Acuitas antimicrobial resistance, or AMR, Gene Panel (Urine) test in development for patients at risk for complicated urinary tract infections, or cUTI, the Acuitas AMR Gene Panel (Isolates) test in development for testing bacterial isolates, and the QuickFISH and PNA FISH FDA-cleared and CE-marked diagnostics used to rapidly detect pathogens in positive blood cultures. Each of our Acuitas AMR Gene Panel tests is currently available for sale in the United States for research use only, or RUO, and none have been granted FDA clearance to date. This means that, currently, we cannot market these tests for clinical diagnostic uses.

·

Our Acuitas Lighthouse informatics systems are cloud-based HIPAA compliant informatics offerings that are designed to combine clinical lab test results with patient and hospital information to provide analytics and actionable insights to help manage MDROs in the hospital and patient care environment. Components of the informatics systems include the Acuitas Lighthouse Knowledgebase and the Acuitas Lighthouse Software. The Acuitas Lighthouse Knowledgebase is a relational database management system and a proprietary data warehouse of genomic data matched with antibiotic susceptibility information for bacterial pathogens. The Acuitas Lighthouse Software system includes the Acuitas Lighthouse Portal, a suite of web applications and dashboards, the Acuitas Lighthouse Prediction Engine, which is a data analysis software, and other supporting software components. The Acuitas Lighthouse Software can be customized and made specific to a healthcare facility or collaborator, such as a pharmaceutical company. The Acuitas Lighthouse Software has not yet been cleared for marketing in the United States. It is currently available for RUO and may not be distributed commercially for antibiotic resistance prediction and is not for use in diagnostic procedures

In May 2019, OpGen filed a 510(k) application with the FDA seeking clearance of its Acuitas AMR Gene Panel (Isolates) diagnostic test. In July 2019, we received an Additional Information, or AI, Request from the FDA detailing a number of questions related to such submission. Questions from the FDA focus on the intended use of the test including the correlation between marker detection and antibiotic resistance, the level of evidence to support resistance marker/organism claims, whole genome sequencing (WGS) test validation and use as a comparator method, clinical performance of the test compared to WGS and further analysis of individual study results, in silico analysis to support test evaluations, further analysis of analytical study results, additional information regarding instrumentation for use with the test, and test reporting and labeling. Since the receipt of the AI request from the FDA, we have been working interactively with the FDA to provide the information necessary to address questions related to the submission as well as additional questions that have arisen through the interactive response review process. On January 6, 2020, OpGen filed its formal response to the FDA’s July 2019 AI Request. OpGen will continue to work interactively with the FDA to submit any remaining requests for additional information during the period remaining in the 510(k) review process following the formal response. 

We have established a number of commercial arrangements to support execution of our business strategy as we work to address the more than $2 billion potential market for precision medicine MDRO solutions. Our relationship with Merck & Co., Inc. includes investment from Merck Global Health Innovation Fund, or MGHIF, and a research agreement with Merck Sharp & Dohme, or MSD, to provide access to MSD’s 250,000 clinical isolate SMART bacterial surveillance archive. In December 2017, we entered into a subcontractor agreement with ILÚM Health Solutions, LLC, an entity created by Merck’s Healthcare Services and Solutions division, whereby ILÚM Health Solutions provided us with services to the Company in the performance of the Company’s CDC contract to deploy ILÚM’s commercially-available cloud- and mobile-based software platform for infectious disease management in three medical sites in Colombia with the aim of improving antibiotic use in resource-limited settings.

 

 

In October 2018, OpGen entered into a supply agreement with QIAGEN GmbH, or QIAGEN, to advance OpGen’s rapid diagnostics for antimicrobial resistance. Under the agreement, OpGen will work to commercialize QIAGEN’s EZ1 Advanced XL automated nucleic acid purification instrumentation (EZ1) and reagent kits in the United States to be used with the Acuitas AMR Gene Panel products for research purposes. Under the terms of the agreement, OpGen will purchase EZ1 instruments and reagent kits from QIAGEN and sell or place them with customers in the United States for use with the Acuitas AMR Gene Panel products for RUO and, if the necessary 510(k) clearances are obtained, as diagnostic products. The EZ1 is a Class II Medical Device listed with the FDA that provides full automation with sample preparation throughput of up to 14 samples per one-hour run. QIAGEN is the global leader for nucleic acid sample preparation with a full line of instruments and reagents. There are thousands of EZ1 instruments currently used in laboratories worldwide.

In September 2018, OpGen announced a collaboration with The New York State DOH and ILÚM to develop a state-of-the-art research program to detect, track, and manage antimicrobial-resistant infections at healthcare institutions in New York State. The collaboration is called The New York State Infectious Disease Digital Health Initiative. The first stage of the collaboration is the completion of a demonstration project, which commenced in February 2019 and is expected to last until March 2020. We believe a successful demonstration project will lead to a statewide program. Under the demonstration project, OpGen will work with DOH’s Wadsworth Center and ILÚM to develop an infectious disease digital health and precision medicine platform that connects healthcare institutions to DOH and uses genomic microbiology for statewide surveillance and control of antimicrobial resistance. The DOH, ILÚM and OpGen will work collaboratively to build a sustainable, flexible infectious diseases reporting, tracking and surveillance tool for antimicrobial resistance that can be applied across New York State. The goal of this research project is to improve patient outcomes and save healthcare dollars by integrating real-time epidemiologic surveillance with rapid delivery of resistance results to care-givers via web-based and mobile platforms. ILÚM is leading the project with the implementation of its technology platform. OpGen is providing its Acuitas AMR Gene Panel (RUO) for rapid detection of multidrug-resistant bacterial pathogens along with its Acuitas Lighthouse Software (RUO) for high resolution pathogen tracking. Under the agreement, OpGen will receive approximately $1.6 million for the 12-month demonstration portion of the project.

In June 2017, OpGen entered into a supply agreement to use Thermo Fisher Scientific’s technology in the United States and Europe to support the commercialization of its rapid molecular products for RUO. Under the terms of the agreement, OpGen provides customer access to Thermo Fisher Scientific’s products to support the commercialization of our Acuitas QuickFISH Rapid Test and Acuitas Lighthouse Software to combat MDROs. In January 2018, the Company entered into a second supply agreement to incorporate Thermo Fisher Scientific’s real-time PCR technology in the Company’s Acuitas AMR Gene Panel tests. Specific products covered under these agreements include the QuantStudio 5 Real-Time PCR System, TaqMan® Fast Advanced Master Mix and TaqMan® MGB Probes for quick, multiplexed gene detection.

OpGen’s relationship with Merck & Co., Inc. includes investment from Merck Global Health Innovation Fund, or MGHIF, and a research agreement with Merck Sharp & Dohme, or MSD, to provide access to MSD’s 250,000 clinical isolate SMART bacterial surveillance archive. In December 2017, we entered into a subcontractor agreement with ILÚM, whereby ILÚM provided services to the Company in the performance of the Company’s CDC contract to deploy ILÚM’s commercially-available cloud- and mobile-based software platform for infectious disease management in three medical sites in Colombia with the aim of improving antibiotic use in resource-limited settings.

Lead Rapid Diagnostics and Acuitas Lighthouse Software

We believe more rapid genetic identification methods will reduce morbidity from MDROs, reduce healthcare costs through reduced length of stay, and assist in the identification of targeted antibiotic therapy. Current conventional microbiology, largely unchanged in 50 years, requires one to two days for growth and phenotypic analysis and often leads to the use of broad spectrum antibiotic therapy in the early stages of infection.

 

 

The Acuitas AMR Gene Panel is a development-stage, qualitative and semi-quantitative nucleic acid-based in vitro diagnostic test that is designed for simultaneous detection and identification of multiple bacterial nucleic acids and select genetic determinants of antimicrobial resistance in urine specimens or bacterial colonies isolated from urine and other body sites. The Acuitas AMR Gene Panel (Urine) is intended as an aid in the diagnosis of specific agents of cUTIs for patients at risk of cUTI. The Acuitas AMR Gene Panel (Urine) employs automated deoxyribonucleic acid, or DNA, extraction on the Qiagen EZ1 Advanced XL and multiplex real-time PCR on the Applied Biosystems QuantStudio 5 PCR System. The Acuitas AMR Gene Panel (Urine) test detects up to 47 gene targets which span 600 subtypes and convey resistance to nine classes of antibiotics directly from urine and isolated colonies, and is currently sold as a RUO test. Gene families detected include: KPC, NDM, VIM, IMP, OXA, CTXM-1, CTXM-9, CMY, MCR, and resistance genes to fluoroquinolone antibiotics. From urine specimens, the Acuitas AMR Gene Panel (Urine) will semi-quantitatively detect the most common bacterial causes of cUTI (E. coli, K. pneumoniae, P. aeruginosa, P. mirabilis, E. faecalis). The Acuitas AMR Gene Panel (Urine) is designed to provide test results in under three hours, compared with traditional microbiology methods, which can take two to three days.

OpGen is also developing the Acuitas AMR Gene Panel (Isolates) test for testing bacterial isolates. This test is currently available in the United States for RUO and is being used in such capacity in connection with The New York State Infectious Disease Digital Health Initiative for testing of bacterial isolates. The test is contributing to the initiative’s research mission by genotyping carbapenem resistant isolates from three health systems in the New York City Metro Area. Results are subsequently analyzed by the Acuitas Lighthouse Software (RUO) to support a series of infection control tracking capabilities that are of interest to The New York State Department of Health and healthcare providers. On May 13, 2019, OpGen filed a 510(k) submission with the FDA for clearance for its Acuitas AMR Gene Panel test for the detection of antimicrobial resistance genes in bacterial isolates. The FDA responded to our submission with an AI Request in July 2018, to which we have 180 days to submit a complete response. In the meantime, our 510(k) submission is on hold. If we are able to obtain FDA clearance of the Acuitas AMR Gene Panel (Isolates) test, we expect use of the test to expand from current research uses to include the clinical diagnostic use of test information to support antibiotic decision making in acute care patient management of patients with MDRO infections.

The Acuitas Lighthouse Software (RUO) manages and evaluates data that identify the most common microbial causes of cUTI and key genetic determinants of antibiotic drug resistance, based on the amplification data of gene targets extracted from urine specimens. Through analysis of this data, the Acuitas Lighthouse Software can identify five bacterial species and predict resistance to up to fourteen different antibiotics from across nine antibiotic classes including: Aminoglycosides, Carbapenems, Cephalosporins, Fluoroquinolones, Polymyxins, Penicillins, Sulfonamides, Trimethoprim and Vancomycin. The Acuitas Lighthouse Software consists of the Acuitas Lighthouse Portal, a web application; the Acuitas Lighthouse Prediction Engine, data analysis software; and draws from the Lighthouse Knowledgebase, a relational database management system; and minor supporting software components. The Acuitas Lighthouse Software (RUO) was selected by The New York State Department of Health Wadsworth Center for the genomic microbiology component of The New York State Infectious Disease Digital Health Initiative. All components of the Acuitas Lighthouse Software are hosted in a cloud-based web application that is protected by security measures. The input to Acuitas Lighthouse Software is a data file generated by processing the results from the Acuitas AMR Gene Panel (Urine) test through the Acuitas AMR Gene Panel (Urine) Gene Analysis Software. This input file indicates which gene targets were detected by the assay and is loaded into the Acuitas Lighthouse Software via an interface of the Acuitas Lighthouse Portal, accessed by the user through a web browser. The Acuitas AMR Gene Panel (Urine) Gene Analysis Software results are retained by the Acuitas Lighthouse Knowledgebase and are sent to the Acuitas Lighthouse Prediction Engine for analysis. The Acuitas Lighthouse Prediction Engine contains software implementations of data models that were derived using a training panel of thousands of bacterial isolates with detailed genotypic and phenotypic characterizations, all stored within the Acuitas Lighthouse Knowledgebase. These models, each specific to one microbial species and antibiotic drug pairing, are used to make predictions of antibiotic resistance by analyzing the loaded input data. The results from the Acuitas Lighthouse Prediction Engine indicate whether there is evidence of resistance detected through the presence of specific genes, and if there is known intrinsic resistance to certain drugs. These final results are reported to the user via a Prediction Report and the Resistance Dashboard interface in the Acuitas Lighthouse Portal; both displays present the Acuitas Lighthouse Prediction Engine output in combination with selected input data and metadata, as well as the semi-quantitative counts of gene copies / mL for urine specimens. Our development of the Acuitas Lighthouse Software and the Acuitas AMR Gene Panel (Urine) test, thus far, has resulted from a comprehensive, multi-year effort, which remains ongoing, to help address urgent clinical needs for improved rapid antibiotic decision-making capabilities.

 

 

The figure below describes the workflow for the Acuitas AMR Gene Panel (Urine) test and the Acuitas Lighthouse Software.

 

 

FISH Products

We have commercialized 12 QuickFISH and PNA FISH diagnostic test products in the United States and Europe for the identification of various infectious pathogens. The pathogens identified and differentiated by our FISH products are:

QuickFISH	PNA FISH
Staphylococcus	Staphylococcus
Enterococcus	Enterococcus
Gram-negative bacteria	Gram-negative bacteria
Candida	Candida

 

Our FISH products can provide pathogen identification and differentiation within 20 to 90 minutes of positive blood culture results. The tests provide actionable information that can be used by the healthcare provider to determine appropriate antibiotic therapy.

Approximately 70 U.S. hospital customers purchased our FISH products over the past twelve months, and we sell our FISH products to hospitals in 8 countries with antibiotic stewardship programs. Our hospital customers include academic medical centers, tertiary care hospitals and community hospitals.

OpGen’s FDA cleared and CE marked QuickFISH and PNA FISH products are powered by PNA technology and provide rapid pathogen identification, typically in less than 30 minutes from a positive blood culture result.

Other Business Initiatives

In October 2017, the Company announced that it was awarded a contract from the Centers for Disease Control and Prevention, or CDC, to develop smartphone-based clinical decision support solutions for antimicrobial stewardship, or AMS, and infection control in low- and middle-income countries. The one-year $860,000 award began September 30, 2017 and funded development and evaluation of cloud-based mobile software. The Company worked with partners ILÚM and Universidad El Bosque, or UEB, of Bogota, Colombia. The Company’s teaming partner ILÚM provided its cloud- and mobile-based software platform, which integrates electronic patient data and local empiric treatment guidelines to support antimicrobial stewardship. The ILÚM platform is state-of-the-art mobile AMS software that is commercially available and in use in major medical centers. The mobile platform was translated into Spanish and was extended to quickly identify patients requiring infection control precautions, assist with the implementation of appropriate precautions, and assist with the collection and tracking of indicators for monitoring implementation of infection control precautions. During 2018 we deployed the software in three medical sites in Colombia to assess the effectiveness of the effort. Through the initial pilot, we gained experience and positive results to support the expansion of this important initiative further. The three sites from the project are using the Acumen software tool, to help develop outcomes data to support further implementation of the software.

 

 

Molecular Information Business

We are working to build a unique and highly proprietary molecular information business. Our approach combines FDA-cleared and CE-marked rapid diagnostics with our Acuitas Lighthouse Software. We are developing an integrated solution based on a genomic knowledgebase of drug-resistant pathogens. Our approach involves sourcing thousands of pathogens from hospitals worldwide and completing genomic analysis including DNA sequencing and drug susceptibility testing of each individual pathogen. These data are combined along with hospital patient data and other information in our Acuitas Lighthouse Knowledgebase. We anticipate using this information and insights we derive from it to help power our rapid diagnostic products, healthcare management solutions and new applications to support pharmaceutical companies.

Market Overview

Antibiotic Resistance – An Urgent Global Issue

We believe that antimicrobial resistance is an urgent global healthcare issue. MDROs have been prioritized as an urgent national and global threat by the CDC, the executive branch of the federal government and the World Health Organization. In September 2014, The White House issued a National Strategy for Combating Antibiotic-Resistant Bacteria. This strategy calls for the strengthening of surveillance efforts to combat resistance, the development and use of innovative diagnostic tests for identification and characterization of resistant bacteria and antibiotic stewardship and development.

The CDC estimates that in the United States more than two million people are sickened every year with antibiotic-resistant infections, with at least 23,000 dying as a result. Antibiotic-resistant infections add considerable but often avoidable costs to the U.S. healthcare system. In most cases, these infections require prolonged and/or costlier treatments, extended hospital stays, additional doctor visits and healthcare facilities use, and result in greater disability and death compared with infections that are treatable with antibiotics. Estimates for the total economic cost to the U.S. economy are difficult to calculate but have been estimated to be as high as $20 billion in excess direct healthcare costs annually. As described in a December 2014 report issued by the Review on Antimicrobial Resistance commissioned by the U.K. Prime Minister, titled “Antimicrobial Resistance: Tackling a Crisis for the Health and Wealth of Nations,” 300 million people are expected to die prematurely because of drug resistance over the next 35 years, which could result in $60 to $100 trillion worth of lost economic output if the problem of antimicrobial drug resistance is not resolved.

Over the last decade, multidrug-resistant Gram-negative bacteria, frequently referred to as Superbugs, have been implicated in severe HAIs and their occurrence has increased steadily. For example, Klebsiella pneumoniae, or K. pneumoniae, is responsible for roughly 15% of Gram-negative infections in hospital intensive care units. Infections caused by KPC strains have few treatment options and are associated with a mortality rate upwards of 50%.

Exacerbating the problems associated with the emergence of these highly resistant KPC strains is their propensity to cause outbreaks in healthcare institutions. These pathogens persist both in the flora of hospitalized patients and in the hospital environment, and they have the capacity to silently colonize patients or hospital personnel by establishing residence in the gastrointestinal tract without causing any signs of infection. Individuals can be silently colonized or become asymptomatic carriers for long periods of time, with detection of these carriers often proving difficult. These silent carriers act as reservoirs for continued transmission, which makes subsequent spread difficult to control and outbreaks difficult to stop. In addition, KPC strains can survive for several hours on the hands of hospital personnel, which likely facilitates the spread of organisms from patient to patient. Effective control of KPC outbreaks requires a detailed understanding of how transmission occurs, but current technologies do not allow healthcare providers to routinely perform these investigations on a timely basis.

 

 

The lack of currently available treatment options and scarcity of new treatment options in development are compounding the emerging Superbug problem. It has been close to 30 years since a new class of antibiotics was developed and successfully introduced. As a result, we believe that rapid, accurate identification of the pathogen and its genetic make-up, screening, infection control and antibiotic stewardship have become one of the most powerful weapons in the fight to contain this threat.

The emergence of multidrug resistant pathogens has made the treatment of patients with UTIs a growing problem in the United States and internationally. There are approximately 10 million patients each year in the United States with UTIs and more than one million of these patients have cUTI often requiring hospitalization intravenous antibiotic therapy. Among these patients E.Coli represents the most common pathogen, and recent data indicate that 18.3% of U.S. E. Coli isolates extended spectrum β-lactamase (ESBL) resistant. These patients present complicated therapeutic choices for clinicians and often require last resort carbapenem antibiotics. The rate of ESBL resistant E. Coli increased 34% annually between 2010 – 2014. Therapy with carbapenem antibiotics has contributed to growing Carbapenem resistance (CRE) rates and high patient treatment costs. A large outcomes study recently completed by the Company indicated that average cost to treat an ESBL E. Coli patient was $25,000 while patients with ESBL K. pneumonia infections cost over $60,000.

Based on industry analyses, we believe the global HAI market is a $2 billion dollar market with the molecular diagnostic segment representing a fast growing segment of such market with multiple high acuity patients and significant infectious sites, including UTIs, surgical site infections, pneumonia and bloodstream infections.

Research and Development

We intend to continue to invest in the development of additional Acuitas AMR Gene Panel tests and our Acuitas Lighthouse informatics platform, and to support commercial sales of our QuickFISH rapid identification tests. Our current focus is on completing the development of the Acuitas AMR Gene Panel (Urine) and our other product offerings to provide actionable, precise diagnostics powered by our Acuitas Lighthouse Software for rapid diagnostics of pathogens, determination of the appropriate antibiotics to treat the infection and accumulation of actionable surveillance data to provide information useful for monitoring and controlling outbreaks and promoting antibiotic stewardship. The figure below highlights our current products, products under development, and their regulatory status.

 

 

Our ongoing and anticipated research and development efforts include:

·

development of the Acuitas AMR Gene Panel tests for additional indications and sample types; clinical trial work to support FDA submissions for commercial launch of the Acuitas AMR Gene Panel tests;

 

 

·

continued investments in our Acuitas Lighthouse informatics platform, focused on (i) data warehouse and portal for MDRO data and (ii) antibiotic analysis;

·

expanding our clinical decision support capabilities by completing the work under the CDC contract to develop smartphone-based clinical decision support solutions for antimicrobial stewardship and infection control in low- and middle-income countries; and

·

working with pharmaceutical companies to add new or recently FDA approved antibiotics to the Acuitas Lighthouse Software.

The following summarizes our regulatory approach for commercializing the initial Acuitas AMR Gene Panel tests and the Acuitas Lighthouse Software. We filed the 510(k) application for the Acuitas AMR Gene Panel (Isolates) in May 2019. We anticipate completing clinical trials and filing two additional 510(k) submissions during the first quarter of 2020. 2019. Details and final labeling are subject to change during the FDA review process and negotiation with the FDA upon actual instruction for use labeling.

Acuitas AMR Gene Panel (Isolates) – 510(k), FDA Class II (filed May 2019)

·

Indication: Identification of bacterial nucleic acids and gene sequences associated with antimicrobial resistance in pure bacterial colonies and detection of forty-seven gene sequences associated with antimicrobial resistance to nine antibiotic classes. In vitro diagnostics and infection control.

·

Sample type: Isolates from any primary sample (blood, urine, lung, wounds, other)

·

Clinical trial: ~900 stock isolates, 75 fresh isolates, 4 sites

Acuitas AMR Gene Panel (Urine) – De Novo 510(k), FDA Class II

·

Indication: Aid in the diagnosis of specific agents of UTIs for patients at risk of cUTI. Semi-quantitation of Escherichia coli, Klebsiella pneumoniae, Proteus mirabilis, Pseudomonas aeruginosa and Enterococcus faecalis and forty-seven gene sequences associated with antimicrobial resistance to nine antibiotic classes.

·

Sample type: Urine

·

Clinical trial: 1,500 fresh urine samples, ~300 contrived urine samples, 9 sites

Acuitas Lighthouse Software – De Novo 510(k), Class II

·

Indication: Evaluation of data from the Acuitas AMR Gene Panel (Urine) test using a series of predictive models and, based on species identified to predict resistance for nine classes of antibiotics.

·

Clinical trial: 2,000 globally and phenotypically representative stock isolates, 1,500 urine samples and resulting isolates, ~300 contrived urine samples.

Commercial Sales

We currently sell and market our products and services directly in the United States through a dedicated sales and marketing support team. Internationally, we sell our products through a network of distributors in eight countries. We operate a subsidiary in Denmark that provides support for our European customers and to distributors. In 2018, we established OpGen Colombia SAS to commercialize our products in Colombia and to support sales on a direct basis and through distributors in South America and Central America. We anticipate expanding our commercial organization in conjunction with the anticipated FDA clearance to commercialize our Acuitas AMR Gene Panel and Acuitas Lighthouse Software products. Our strategy to build demand for our products following receipt of such regulatory clearance includes completing clinical verification studies, sales of the Acuitas AMR Gene Panel tests for RUO, and in conjunction with such FDA clearance entering into channel partner co-marketing and distribution agreements.

 

 

We are generating data to support the commercialization of our Acuitas AMR Gene Panel (Urine) and Acuitas Lighthouse Software products through a structured clinical verification program including academic medical centers and clinical collaborators. In November 2018 we announced that we have completed specimen accrual and testing of urine specimens for the clinical verification study with the Acuitas AMR Gene Panel (Urine) test and Acuitas Lighthouse Software. The three participating clinical sites were Beth Israel Deaconess Medical Center, Geisinger Health System, and Intermountain Healthcare. The results of the study, which tested 670 remnant urine specimens from patients at increased risk for cUTI, will be summarized and discussed in a peer-reviewed manuscript anticipated to be published in 2020.

In the first quarter of 2018, we introduced the Acuitas AMR Gene Panel (RUO) for infection control purposes and pharmaceutical surveillance research as research use only tests. The Acuitas AMR Gene Panel (RUO) tests will be available while the Company completes clinical trials and regulatory submissions to support FDA clearance to commercialize such products for broader clinical use. We anticipate that customers who use the products as RUO tests for infection control and clinical research will serve as a potential installed base for the FDA cleared products. Our rapid pathogen identification FISH products are used by approximately 65 customers in the United States and internationally. Many of these customers are potential customers for our FDA-cleared Acuitas AMR Gene Panel tests. We are working to expand our market reach by entering into strategic co-marketing relationships with larger diagnostic and pharmaceutical companies and by expanding our network of distributors globally.

We operate in one segment. Substantially all of our operations are in the United States.

Competition

We are developing a molecular information business focused on leading a transformation in microbiology and infectious disease through precision medicine products and services that combine genomi