UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the date of June 15, 2020
Commission File Number 001-39124
Centogene N.V.
(Translation of registrant’s name into English)
Am Strande 7
18055 Rostock
Germany
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
Centogene N.V.
On June 15, 2020, Centogene N.V. (the “Company”) issued a press release reporting its financial results for the three months ended March 31, 2020. A copy of the press release is attached hereto as Exhibit 99.1.
Attached hereto as Exhibit 99.2, 99.3 and 99.4 are also the financial statements of the Company for the three months ended March 31, 2020, the Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three months ended March 31, 2020 and risk factors on COVID-19 and litigation, respectively.
All exhibits attached hereto are incorporated by reference herein.
Exhibits 99.2 and 99.3 to this Report on Form 6-K shall be deemed to be incorporated by reference into the registration statement on Form S-8 (Registration Number 333-234551) of the Company and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.
Exhibit 99.1 to this Report on Form 6-K shall not be deemed “filed” for purposes of Section 18 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the U.S. Securities Act of 1933, as amended, or the Exchange Act.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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CENTOGENE N.V. | ||
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Date: June 15, 2020 |
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By: |
/s/ Richard Stoffelen | |
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Name: |
Richard Stoffelen |
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Title: |
Chief Financial Officer |
Exhibit Index
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Exhibit |
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Description of Exhibit |
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99.1 |
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Press Release dated June 15, 2020 |
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99.2 |
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Unaudited Condensed Consolidated Interim Financial Statements as of and for the Three Months ended March 31, 2020 |
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99.3 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three Months ended March 31, 2020 |
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99.4 |
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Risk Factors on COVID-19 and Litigation |
CENTOGENE Reports First-Quarter 2020 Financial Results and Corporate Progress
Cambridge, MA, USA & Rostock/Berlin, Germany, June 15, 2020 (GLOBE NEWSWIRE) — Centogene N.V. (Nasdaq: CNTG), a commercial-stage company focused on rare diseases that transforms real-world clinical and genetic data into actionable information for patients, physicians, and pharmaceutical companies, today provided an update on its corporate progress and reported its financial results for the three months ended March 31, 2020.
· €12.1 million in revenues, an increase of 13% compared to three months ended March 31, 2019
· Continued expansion of global proprietary rare disease platform with approximately 3.0 billion weighted data points from over 530,000 patients representing 120 different countries as of March 31, 2020
· Over 60 biomarker programs, with over 25 biomarker programs (covering more than 22 diseases) having completed the first validation with mass spectrometry as of March 31, 2020
· Expansion of our COVID-19 testing, and commencement of production and distribution of a sample collection kit, CentoSwab™, to support global efforts to address the pandemic
Prof. Arndt Rolfs, CEO of CENTOGENE, said, “During the first quarter of 2020, we continued our focus on our core business of providing precise medical diagnosis of and accelerating drug development for rare hereditary diseases, while taking important steps to operate our business effectively during COVID-19 and support broader efforts to address this pandemic. We are pleased to report a growth of revenues by 13% for the first quarter 2020, driven by the continuous improvement in businesses of both our Pharma and Diagnostics segments.”
Prof. Arndt Rolfs continued, “As we continue to operate in a COVID-19 environment, it is our pleasure to report that while our quick, initial actions enabled 75% of employees to work from home, we have recently been able to bring back nearly all of our staff into the office by implementing regular testing. Additionally, we have further leveraged our diagnostic expertise to develop and offer a SARS-CoV-2 testing solution for patients around the world — beginning with the sampling system ‘CentoSwab™’ and ending with the CENTOGENE-developed app for patient registration and medical reporting. We expect this diagnostic solution will help global communities begin to return to a new normal and prevent a further outbreak. With COVID-19 pandemic continued spreading across the globe, we have started to see its negative impact to our incumbent business, but expect our commercial COVID-19 testing will help offsetting such negative impact.”
Nimble Response to COVID-19 and Continued Rare Disease Diagnostic Operations
Spearheading Sustainable COVID-19 Testing Capabilities
In March 2020, CENTOGENE announced the commencement of its COVID-19 testing. Starting with employees and essential workers in Rostock, Germany, the Company further expanded the test offering to the nursing homes as well as to the high school students throughout Germany. Since May 2020, the Company is offering its tests to the rest of the world. In addition, CENTOGENE secured necessary reagents and supplies, such as CentoSwab™, to support the logistics and fast diagnosis of COVID-19 since April 2020.
Acquisition of Hamburg Laboratory to Expand Testing Capacities
In April 2020, CENTOGENE announced the opening of a new laboratory in Hamburg, Germany to increase its testing capacity for the COVID-19 virus. The Rostock laboratory will continue to focus on the Company’s core business in rare hereditary diseases and its research efforts in biomarker development.
Three Months Ended March 31, 2020 Financial Highlights
Cash and Cash Equivalents
Cash and cash equivalents as of March 31, 2020 were €33.4 million, compared to €41.1 million as of December 31, 2019.
Revenue
Our revenue is principally derived from the provision of pharmaceutical solutions and diagnostic tests enabled by our knowledge and interpretation-based platform.
Revenue for the three months ended March 31, 2020 was €12.1 million, an increase of approximately €1.4 million, or 13% as compared to the three months ended March 31, 2019. Revenue from our pharmaceutical segment was €4.6 million for the three months ended March 31, 2020, an increase of approximately €0.4 million, or 10.2% as compared to that of the prior period, while the revenue from our diagnostics segment was €7.5 million for the three months ended March 31, 2020, an increase of approximately €1 million, or 14.7% as compared to that of the prior period.
Pharmaceutical segment
Our pharmaceutical segment provides a variety of services to our pharmaceutical partners, including target discovery, early patient recruitment and identification, epidemiological and patient population sizing insights, biomarker discovery and patient monitoring and follow-up. Our information platforms, our access to rare diseases patients and their biomaterials and our ability to develop proprietary technologies including biomarkers enable us to provide services to our pharmaceutical partners in all phases of the drug development process as well as post-commercialization.
We have been successful in entering into collaborations with pharmaceutical partners in the early stages of drug development, which puts us in a position to provide more support to the development process and increases our potential to secure further collaborations for the same drugs.
Revenues in our pharmaceutical segment are generated primarily from collaboration agreements with our pharmaceutical partners, which are structured on a fee per sample basis, milestone basis, fixed fee basis, royalty basis or a combination of these.
The graphs below show our revenues for the three months ended March 31, 2020 and 2019 resulting from our collaborations with our pharmaceutical partners split between drug development stage, as well as split between different fee structure:
Biomarkers are key in orphan drug development, as they can be used to support a diagnosis, demonstrate the efficacy of a treatment and to monitor the progress of rare disease patients. Biomarkers can also be used to enhance treatment solutions and guide dose titration. As of March 31, 2020, we have over 60 biomarker programs, with over 25 biomarker programs (covering more than 22 diseases) completed the first validation with mass spectrometry. Out of these biomarker programs, 33 biomarkers were used in connection with our active pharmaceutical collaborations as of March 31, 2020, as compared to 28 in March 31, 2019.
Diagnostics segment
Our clinical diagnostics segment provides targeted genetic sequencing and diagnostics services to patients through our distribution partners or our clients, who are typically physicians, labs or hospitals. The increase in revenue from our diagnostics segment for the three months ended March 31, 2020, as compared to the same period of 2019, is mainly driven by an increase in order requests for whole exome sequencing (WES) and whole genome sequencing (WGS).
For the three months ended March 31, 2020, we received approximately 13,000 test requests by our diagnostics segment, similar to the prior period. However, if we exclude the test requests for non-invasive prenatal testing (NIPT), a non-core diagnostics product, the test requests received in the three months ended March 31, 2020 by our diagnostics segment would amount to over 10,300, representing approximately 49.3% increase as compared to prior period. The graphs below show our order requests revenues split between testing products for the three months ended March 31, 2020 and 2019:
We anticipate the proportion of WES and WGS as a percentage of total test requests in the future will continue to increase. The data collected from our diagnostics services, together with the biomaterials, allow us to continue to grow our global biorepository and our rare disease platform repository.
Research and development expenses (“R&D”)
Our R&D expenses for the three months ended March 31, 2020 were €2.7 million, an increase of approximately €1 million, or 58.2% as compared to the prior period. The increase is primarily attributable to expenses associated with the expansion of our proprietary information platform, as well as development of new products and solutions.
General administrative expenses (“G&A”)
Our G&A expenses for the three months ended March 31, 2020 were €7.9 million, an increase of approximately €2 million, or 33.6% as compared to the prior period. The increase is primarily due to an increase in personnel costs and operating expenses as a result of the expansion of the business. The increase was also due to costs associated with operating as a public company, such as additional legal, accounting, corporate governance and investor relations expenses, and higher directors’ and officers’ insurance premiums. The general administrative expenses also included share-based compensation expenses of €1.1 million for the three months ended March 31, 2020, as compared to €2.1 million for the three months ended March 31, 2019.
Other operating expenses
Considering the impact of the COVID-19 pandemic to the global economy and the unforeseeable potential magnitude of the ultimate disruptions to different businesses, we have taken this into consideration when assessing the credit risk, in particular regarding the MENA region for the diagnostic segment as it represents the majority of that segment’s revenue. Such assessment resulted in an additional credit loss of €1.2 million for the three months ended March 31, 2020. The amount of credit loss made for the three months ended March 31, 2019 amounted to €0.3 million.
Comprehensive loss attributable to equity holders
The comprehensive loss attributable to equity holders for the three months ended March 31, 2020 was €8.6 million or €0.43 per share, as compared to €5.2 million or €0.33 per share for the prior year.
Basic and diluted loss per share is calculated by dividing loss for the year attributable to equity holders of the Group by the weighted average number of shares outstanding of 19,861,340 and 15,861,340 during the three months ended March 31, 2020 and 2019 respectively.
Additional information regarding these financials is included in the notes to the unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2020 attached as Exhibit 99.2 to this Form 6-K, which can be found by visiting EDGAR on the U.S. Securities and Exchange Commission website at www.sec.gov.
Centogene N.V.
for the three months ended March 31, 2019 and 2020
Consolidated statements of comprehensive loss
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For the three months ended March 31, |
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2019 |
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2020 |
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(unaudited, € in thousands, except for loss per share) |
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Consolidated statement of comprehensive loss: |
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Revenue |
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10,715 |
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12,105 |
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Cost of sales |
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6,744 |
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7,018 |
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Gross profit |
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3,971 |
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5,087 |
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Research and development expenses |
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1,701 |
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2,691 |
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General administrative expenses |
|
5,910 |
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7,898 |
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Selling expenses |
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2,011 |
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2,326 |
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Other operating income |
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1,098 |
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945 |
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Other operating expenses |
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342 |
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1,275 |
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Operating loss |
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(4,895 |
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(8,158 |
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Interest and similar income |
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8 |
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— |
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Interest and similar expense |
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220 |
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449 |
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Finance costs, net |
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(212 |
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(449 |
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Loss before taxes |
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(5,107 |
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(8,607 |
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Income tax expenses |
|
174 |
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129 |
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Loss for the year |
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(5,281 |
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(8,736 |
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Other comprehensive income |
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2 |
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76 |
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Total comprehensive loss for the period |
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(5,279 |
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(8,660 |
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Total comprehensive loss for the period attributable to the equity holders of the parent |
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(5,210 |
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(8,599 |
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Loss per share — Basic and diluted (in €) |
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(0.33 |
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(0.43 |
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Centogene N.V.
for the three months ended March 31, 2019 and 2020
Supplemental selected segment information
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For the three months ended March 31, |
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2019 |
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2020 |
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(€ in thousands) |
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Revenue by Segment |
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Pharmaceutical |
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4,130 |
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4,550 |
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Diagnostics |
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6,585 |
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7,555 |
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Total Revenue |
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10,715 |
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12,105 |
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For the three months ended |
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2019 |
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2020 |
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(€ in thousands) |
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Segment Adjusted EBITDA |
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Pharmaceutical |
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2,944 |
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2,608 |
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Diagnostics |
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11 |
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87 |
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Total segment Adjusted EBITDA |
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2,955 |
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2,695 |
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Reconciliation of segment Adjusted EBITDA to |
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For the three months ended |
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Group loss for the period |
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2019 |
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2020 |
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(€ in thousands) |
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Reported Segment Adjusted EBITDA |
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2,955 |
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2,695 |
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Corporate expenses |
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(3,820 |
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(7,712 |
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(865 |
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(5,017 |
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Share-based payment expenses |
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(2,633 |
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(1,057 |
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Depreciation and amortization |
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(1,397 |
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(2,084 |
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Operating loss |
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(4,895 |
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(8,158 |
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Finance costs, net |
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(212 |
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(449 |
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Income tax expenses |
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(174 |
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(129 |
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Loss for the period |
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(5,281 |
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(8,736 |
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Centogene N.V.
As at December 31, 2019 and March 31, 2020
Consolidated statements of financial position
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Assets |
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Dec 31, 2019 |
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Mar 31, 2020 |
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(unaudited, € in thousands) |
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Non-current assets |
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Intangible assets |
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14,145 |
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14,518 |
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Property, plant and equipment |
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8,376 |
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8,709 |
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Right-of-use assets |
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24,932 |
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24,710 |
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Other assets |
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1,948 |
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2,098 |
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49,401 |
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50,035 |
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Current assets |
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Inventories |
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1,809 |
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5,849 |
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Trade receivables |
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16,593 |
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14,646 |
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Other assets |
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8,612 |
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8,890 |
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Cash and cash equivalents |
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41,095 |
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33,381 |
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68,109 |
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62,766 |
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117,510 |
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112,801 |
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Equity and liabilities |
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Dec 31, 2019 |
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Mar 31, 2020 |
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Equity |
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Issued capital |
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2,383 |
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2,383 |
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Capital reserve |
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98,099 |
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99,156 |
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Retained earnings and other reserves |
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(40,622 |
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(49,221 |
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Non-controlling interests |
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(938 |
) |
(731 |
) |
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58,922 |
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51,587 |
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Non-current liabilities |
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Non-current loans |
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1,578 |
|
768 |
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Lease liabilities |
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18,069 |
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18,826 |
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Deferred tax liabilities |
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— |
|
121 |
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Government grants |
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9,941 |
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9,773 |
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|
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29,588 |
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29,488 |
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Current liabilities |
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|
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|
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Government grants |
|
1,348 |
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1,364 |
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Current loans |
|
3,688 |
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3,852 |
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Lease liabilities |
|
3,635 |
|
3,625 |
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Trade payables |
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8,554 |
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10,173 |
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Other liabilities |
|
11,775 |
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12,712 |
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|
|
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29,000 |
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31,726 |
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|
|
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117,510 |
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112,801 |
|
Centogene N.V.
for the three months ended March 31, 2019 and 2020
Consolidated statements of cashflow
|
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For the three months |
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|
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2019 |
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2020 |
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(unaudited, € in thousands) |
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Loss before taxes |
|
(5,107 |
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(8,607 |
) |
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Amortization and depreciation |
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1,397 |
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2,084 |
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Interest income |
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(8 |
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— |
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Interest expense |
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220 |
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449 |
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Expected credit loss allowances on trade receivables |
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340 |
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1,174 |
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Share-based payment expenses |
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2,633 |
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1,057 |
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Other non-cash items |
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(268 |
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(192 |
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Changes in operating assets and liabilities: |
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Inventories |
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(275 |
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(4,040 |
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Trade receivables |
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(2,073 |
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773 |
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Other assets |
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(967 |
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(234 |
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Trade payables |
|
507 |
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1,619 |
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Other liabilities |
|
328 |
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1,751 |
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Cash flow used in operating activities |
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(3,273 |
) |
(4,166 |
) |
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Cash paid for investments in intangible assets |
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(1,113 |
) |
(1,191 |
) |
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Cash paid for investments in property, plant and equipment |
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(441 |
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(644 |
) |
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Grant received for investment in property, plant and equipment |
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— |
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207 |
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Interest received |
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8 |
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— |
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Cash flow used in investing activities |
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(1,546 |
) |
(1,628 |
) |
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|
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|
|
|
|
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Cash received from loans |
|
1,864 |
|
414 |
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Cash repayment of loans |
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(451 |
) |
(1,060 |
) |
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Cash repayments of lease liabilities |
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(461 |
) |
(1,044 |
) |
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Interest paid |
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(220 |
) |
(230 |
) |
|
Cash flow generated from/(used) in financing activities |
|
732 |
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(1,920 |
) |
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|
|
|
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|
|
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Changes in cash and cash equivalents |
|
(4,087 |
) |
(7,714 |
) |
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Cash and cash equivalents at the beginning of the period |
|
9,222 |
|
41,095 |
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Cash and cash equivalents at the end of the period |
|
5,135 |
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33,381 |
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Call Instructions
Centogene will host a conference call to discuss its financial results for the three months ended March 31, 2020 on Monday, June 15, 2020 at 8 a.m. Eastern Time. The call on June 15, 2020 can be accessed by dialing U.S. toll free +1 877 870 9135 or U.K. +44 (0) 800 279 6619 up to 10 minutes prior to the start of the call and providing the conference ID number 4799325. A presentation and webcast of the conference call can be accessed on the Investor Relations page of our website at http://investors.centogene.com.
About CENTOGENE
CENTOGENE engages in diagnosis and research around rare diseases transforming real-world clinical and genetic data into actionable information for patients, physicians, and pharmaceutical companies. Our goal is to bring rationality to treatment decisions and to accelerate the development of new orphan drugs by using our extensive rare disease knowledge, including epidemiological and clinical data, as well as innovative biomarkers. CENTOGENE has developed a global proprietary rare disease platform based on our real-world data repository with approximately 3.0 billion weighted data points from over 530,000 patients representing over 120 different countries as of March 31, 2020.
The Company’s platform includes epidemiologic, phenotypic, and genetic data that reflects a global population, and also a biobank of these patients’ blood samples. CENTOGENE believes this represents the only platform that comprehensively analyzes multi-level data to improve the understanding of rare hereditary diseases, which can aid in the identification of patients and improve our pharmaceutical partners’ ability to bring orphan drugs to the market. As of March 31, 2020, the Company collaborated with 39 pharmaceutical partners covering over 45 different rare diseases.
Important Notice and Disclaimer
This press release contains statements that constitute “forward looking statements” as that term is defined in the United States Private Securities Litigation Reform Act of 1995, including statements that express the Company’s opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results, in contrast with statements that reflect historical facts. Examples include discussion of our strategies, financing plans, growth opportunities and market growth. In some cases, you can identify such forward-looking statements by terminology such as “anticipate,” “intend,” “believe,” “estimate,” “plan,” “seek,” “project” or “expect,” “may,” “will,” “would,” “could” or “should,” the negative of these terms or similar expressions. Forward looking statements are based on management’s current beliefs and assumptions and on information currently available to the Company. However, these forward-looking statements are not a guarantee of our performance, and you should not place undue reliance on such statements. Forward-looking statements are subject to many risks, uncertainties and other variable circumstances, such as negative worldwide economic conditions and ongoing instability and volatility in the worldwide financial markets, the effects of the COVID-19 pandemic on our business and results of operations, possible changes in current and proposed legislation, regulations and governmental policies, pressures from increasing competition and consolidation in our industry, the expense and uncertainty of regulatory approval, including from the U.S. Food and Drug Administration, our reliance on third parties and collaboration partners, including our ability to manage growth and enter into new client relationships, our dependency on the rare disease industry, our ability to manage international expansion, our reliance on key personnel, our reliance on intellectual property
protection, fluctuations of our operating results due to the effect of exchange rates or other factors. Such risks and uncertainties may cause the statements to be inaccurate and readers are cautioned not to place undue reliance on such statements. Many of these risks are outside of the Company’s control and could cause its actual results to differ materially from those it thought would occur. The forward-looking statements included in this press release are made only as of the date hereof. The Company does not undertake, and specifically declines, any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments, except as required by law.
For further information, please refer to the Risk Factors section in our Annual Report for the year ended December 31, 2019 on Form 20-F filed with the SEC on April 23, 2020 and other current reports and documents filed with the U.S. Securities and Exchange Commission (SEC). You may get these documents by visiting EDGAR on the SEC website at www.sec.gov.
CENTOGENE Contact:
Sun Kim
Chief Strategy and Investor Relations Officer
investors.relations@centogene.com
Media Contact:
Bridie Lawlor
FTI Consulting
+1.917.929.5684
bridie.lawlor@fticonsulting.com
Centogene N.V.
Unaudited interim condensed consolidated statements of comprehensive loss
for the three months ended March 31, 2019 and 2020
(in EUR k)
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Note |
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2019 |
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2020 |
|
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Revenue |
|
4, 5 |
|
10,715 |
|
12,105 |
|
|
Cost of sales |
|
|
|
6,744 |
|
7,018 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
3,971 |
|
5,087 |
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
|
1,701 |
|
2,691 |
|
|
General administrative expenses |
|
|
|
5,910 |
|
7,898 |
|
|
Selling expenses |
|
|
|
2,011 |
|
2,326 |
|
|
Other operating income |
|
6.1 |
|
1,098 |
|
945 |
|
|
Other operating expenses |
|
6.2 |
|
342 |
|
1,275 |
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
|
(4,895 |
) |
(8,158 |
) |
|
|
|
|
|
|
|
|
|
|
Interest and similar income |
|
|
|
8 |
|
— |
|
|
Interest and similar expense |
|
|
|
220 |
|
449 |
|
|
|
|
|
|
|
|
|
|
|
Financial costs, net |
|
|
|
(212 |
) |
(449 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before taxes |
|
|
|
(5,107 |
) |
(8,607 |
) |
|
Income tax expenses |
|
|
|
174 |
|
129 |
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
|
|
(5,281 |
) |
(8,736 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, all attributable to equity holders of the parent |
|
|
|
2 |
|
76 |
|
|
Total comprehensive loss |
|
|
|
(5,279 |
) |
(8,660 |
) |
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
Equity holders of the parent |
|
|
|
(5,210 |
) |
(8,599 |
) |
|
Non-controlling interests |
|
|
|
(69 |
) |
(61 |
) |
|
|
|
|
|
(5,279 |
) |
(8,660 |
) |
|
|
|
|
|
|
|
|
|
|
Loss per share - Basic and diluted (in EUR) |
|
|
|
(0.33 |
) |
(0.43 |
) |
The accompanying notes form an integral part of these unaudited interim condensed consolidated financial statements.
Centogene N.V.
Unaudited interim condensed consolidated statements of financial position
as at December 31, 2019 and March 31, 2020
(in EUR k)
|
Assets |
|
Note |
|
Dec 31, 2019 |
|
Mar 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
|
14,145 |
|
14,518 |
|
|
Property, plant and equipment |
|
|
|
8,376 |
|
8,709 |
|
|
Right-of-use assets |
|
|
|
24,932 |
|
24,710 |
|
|
Other assets |
|
|
|
1,948 |
|
2,098 |
|
|
|
|
|
|
49,401 |
|
50,035 |
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
1,809 |
|
5,849 |
|
|
Trade receivables |
|
7 |
|
16,593 |
|
14,646 |
|
|
Other assets |
|
7 |
|
8,612 |
|
8,890 |
|
|
Cash and cash equivalents |
|
8 |
|
41,095 |
|
33,381 |
|
|
|
|
|
|
68,109 |
|
62,766 |
|
|
|
|
|
|
117,510 |
|
112,801 |
|
|
Equity and liabilities |
|
Note |
|
Dec 31, 2019 |
|
Mar 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued capital |
|
9 |
|
2,383 |
|
2,383 |
|
|
Capital reserve |
|
9 |
|
98,099 |
|
99,156 |
|
|
Retained earnings and other reserves |
|
|
|
(40,622 |
) |
(49,221 |
) |
|
Non-controlling interests |
|
|
|
(938 |
) |
(731 |
) |
|
|
|
|
|
58,922 |
|
51,587 |
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current loans |
|
10.1 |
|
1,578 |
|
768 |
|
|
Lease liabilities |
|
10.1 |
|
18,069 |
|
18,826 |
|
|
Deferred tax liabilities |
|
|
|
— |
|
121 |
|
|
Government grants |
|
10.2 |
|
9,941 |
|
9,773 |
|
|
|
|
|
|
29,588 |
|
29,488 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government grants |
|
10.2 |
|
1,348 |
|
1,364 |
|
|
Current loans |
|
10.1 |
|
3,688 |
|
3,852 |
|
|
Lease liabilities |
|
10.1 |
|
3,635 |
|
3,625 |
|
|
Trade payables |
|
10.2 |
|
8,554 |
|
10,173 |
|
|
Other liabilities |
|
10.2 |
|
11,775 |
|
12,712 |
|
|
|
|
|
|
29,000 |
|
31,726 |
|
|
|
|
|
|
117,510 |
|
112,801 |
|
The accompanying notes form an integral part of these unaudited interim condensed consolidated financial statements.
Centogene N.V.
Unaudited interim condensed consolidated statements of cash flows
for the three months ended March 31, 2019 and 2020
(in EUR k)
|
|
|
Note |
|
2019 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes |
|
|
|
(5,107 |
) |
(8,607 |
) |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile loss to cash flow from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation |
|
5 |
|
1,397 |
|
2,084 |
|
|
Interest income |
|
|
|
(8 |
) |
— |
|
|
Interest expense |
|
|
|
220 |
|
449 |
|
|
Expected credit loss allowances on trade receivables and contract assets |
|
6.2, 7 |
|
340 |
|
1,174 |
|
|
Share-based payment expenses |
|
11 |
|
2,633 |
|
1,057 |
|
|
Other non-cash items |
|
|
|
(268 |
) |
(192 |
) |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Inventories |
|
|
|
(275 |
) |
(4,040 |
) |
|
Trade receivables |
|
7 |
|
(2,073 |
) |
773 |
|
|
Other assets |
|
7 |
|
(967 |
) |
(234 |
) |
|
Trade payables |
|
10.2 |
|
507 |
|
1,619 |
|
|
Other liabilities |
|
10.2 |
|
328 |
|
1,751 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in operating activities |
|
|
|
(3,273 |
) |
(4,166 |
) |
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for investments in intangible assets |
|
5 |
|
(1,113 |
) |
(1,191 |
) |
|
Cash paid for investments in property, plant and equipment |
|
|
|
(441 |
) |
(644 |
) |
|
Grants received for investment in property, plant and equipment |
|
10.2 |
|
— |
|
207 |
|
|
Interest received |
|
|
|
8 |
|
— |
|
|
|
|
|
|
|
|
|
|
|
Cash flow used in investing activities |
|
|
|
(1,546 |
) |
(1,628 |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Cash received from loans |
|
10.1 |
|
1,864 |
|
414 |
|
|
Cash repayments of loans |
|
10.1 |
|
(451 |
) |
(1,060 |
) |
|
Cash repayments of lease liabilities |
|
10.1 |
|
(461 |
) |
(1,044 |
) |
|
Interest paid |
|
|
|
(220 |
) |
(230 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flow generated from/(used in) financing activities |
|
|
|
732 |
|
(1,920 |
) |
|
|
|
|
|
|
|
|
|
|
Changes in cash and cash equivalents |
|
|
|
(4,087 |
) |
(7,714 |
) |
|
Cash and cash equivalents at the beginning of the period |
|
|
|
9,222 |
|
41,095 |
|
|
Cash and cash equivalents at the end of the period |
|
|
|
5,135 |
|
33,381 |
|
The accompanying notes form an integral part of these unaudited interim condensed consolidated financial statements.
Centogene N.V.
Unaudited interim condensed consolidated statements of changes in equity for the three months ended March 31, 2019 and 2020
|
|
|
|
|
Attributable to the owners of the parent |
|
|
|
|
| ||||||||
|
in EUR k |
|
Note |
|
Issued |
|
Capital |
|
Currency |
|
Retained |
|
Total |
|
Non- |
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2019 |
|
|
|
1,903 |
|
45,342 |
|
(16 |
) |
(19,948 |
) |
27,281 |
|
(757 |
) |
26,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
|
|
— |
|
— |
|
— |
|
(5,212 |
) |
(5,212 |
) |
(69 |
) |
(5,281 |
) |
|
Other comprehensive loss |
|
|
|
— |
|
— |
|
2 |
|
— |
|
2 |
|
— |
|
2 |
|
|
Total comprehensive loss |
|
|
|
— |
|
— |
|
2 |
|
(5,212 |
) |
(5,210 |
) |
(69 |
) |
(5,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments |
|
11 |
|
— |
|
181 |
|
— |
|
— |
|
181 |
|
— |
|
181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019 |
|
|
|
1,903 |
|
45,523 |
|
(14 |
) |
(25,160 |
) |
22,252 |
|
(826 |
) |
21,426 |
|
|
|
|
|
|
Attributable to the owners of the parent |
|
|
|
|
| ||||||||
|
in EUR k |
|
Note |
|
Issued |
|
Capital |
|
Currency |
|
Retained |
|
Total |
|
Non- |
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2020 |
|
|
|
2,383 |
|
98,099 |
|
— |
|
(40,622 |
) |
59,860 |
|
(938 |
) |
58,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
|
|
— |
|
— |
|
— |
|
(8,675 |
) |
(8,675 |
) |
(61 |
) |
(8,736 |
) |
|
Other comprehensive loss |
|
|
|
— |
|
— |
|
76 |
|
— |
|
76 |
|
— |
|
76 |
|
|
Total comprehensive loss |
|
|
|
— |
|
— |
|
76 |
|
(8,675 |
) |
(8,599 |
) |
(61 |
) |
(8,660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments |
|
11 |
|
— |
|
1,057 |
|
— |
|
— |
|
1,057 |
|
— |
|
1,057 |
|
|
Disposal of non-wholly owned subsidiary |
|
6.2, 7 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
268 |
|
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020 |
|
|
|
2,383 |
|
99,156 |
|
76 |
|
(49,297 |
) |
52,318 |
|
(731 |
) |
51,587 |
|
The accompanying notes form an integral part of these unaudited interim condensed consolidated financial statements.
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
1 General company information
Centogene N.V. (“the Company”) and its subsidiaries focus on rare diseases that transforms real-world clinical and genetic data into actionable information for patients, physicians and pharmaceutical companies. The mission of the Company is to bring rationality to treatment decisions and to accelerate the development of new orphan drugs by using our knowledge of the global rare disease market, including epidemiological and clinical data and innovative biomarkers.
On November 7, 2019, the Company completed an initial public offering (“IPO”) and is listed on Nasdaq Global Market under stock code “CNTG”. 4 million common shares with a nominal value of EUR 0.12 per share were sold at a public offering price of USD 14 per share (i.e. EUR 12.58 per share), for aggregate net offering proceeds, after deducting underwriting discounts and commissions, of EUR 47 million. In connection with the IPO, common shares and preference shares of Centogene AG, the previous parent holding company of the Group and the principal operating subsidiary were exchanged to common shares of Centogene B.V., and Centogene B.V. changed its legal form and became Centogene N.V. and common shares of Centogene B.V. were converted to common shares of Centogene N.V. As a result, Centogene N.V. became the holding company with 100% interest in Centogene AG since November 12, 2019. Centogene N.V. is a public company with limited liabilities incorporated in the Netherlands, with registered office located at Am Strande 7 in 18055 Rostock, Germany and trade register number 72822872.
2 Basis of preparation
The interim condensed consolidated financial statements for the three months ended March 31, 2019 and 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting.
The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual consolidated financial statements as of December 31, 2018 and 2019 and for the three years ended December 31, 2019.
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended December 31, 2019, except for the adoption of new standards effective as of January 1, 2020 (see note 3). The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
Several other amendments and interpretations apply for the first time in 2020, but do not have an impact on the interim condensed consolidated financial statements of the Group.
These interim condensed consolidated financial statements are presented in euro, which is the Group’s functional currency. Unless otherwise specified, all financial information presented in euro is rounded to the nearest thousand (EUR k) in line with customary commercial practice.
3 Effects of new accounting standards
Amendments to IAS 1 and IAS 8: Definition of Material
The amendments provide a new definition of material that states “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.”
The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users.
These amendments had no impact on the consolidated financial statements of, nor is there expected to be any future impact to the Group since the amendment mainly clarifies the definition.
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
Other new accounting standards
In addition to Amendments to IAS 1 and IAS 8: Definition of Material, the following other amendments and interpretations also apply for the first time in 2020:
· Amendments to IFRS 3: Definition of a Business
· Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform
· References to the Conceptual Framework for Financial Reporting issued on 29 March 2018
These amendments and new standards had no impact on the consolidated financial statements of the Group.
4 Revenues from contracts with customers
|
|
|
Three months ended March 31, 2019 |
| ||||
|
in EUR k |
|
Pharmaceutical |
|
Diagnostics |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Rendering of services |
|
3,806 |
|
6,585 |
|
10,391 |
|
|
Sales of goods |
|
324 |
|
— |
|
324 |
|
|
Total Revenues from contracts with external customers |
|
4,130 |
|
6,585 |
|
10,715 |
|
|
|
|
|
|
|
|
|
|
|
Recognized over time |
|
3,456 |
|
6,585 |
|
10,041 |
|
|
Recognized at a point in time |
|
674 |
|
— |
|
674 |
|
|
Total Revenues from contracts with external customers |
|
4,130 |
|
6,585 |
|
10,715 |
|
|
|
|
|
|
|
|
|
|
|
Geographical information |
|
|
|
|
|
|
|
|
Europe |
|
2 |
|
1,528 |
|
1,530 |
|
|
- Germany* |
|
— |
|
62 |
|
62 |
|
|
Middle East |
|
— |
|
3,522 |
|
3,522 |
|
|
- Saudi Arabia# |
|
— |
|
1,687 |
|
1,687 |
|
|
North America |
|
4,128 |
|
677 |
|
4,805 |
|
|
- United States# |
|
4,128 |
|
408 |
|
4,536 |
|
|
Latin America |
|
— |
|
638 |
|
638 |
|
|
Asia Pacific |
|
— |
|
220 |
|
220 |
|
|
Total Revenues from contracts with external customers |
|
4,130 |
|
6,585 |
|
10,715 |
|
* country of the incorporation of Centogene AG
# countries contributing more than 10% of the Group’s total consolidated revenues for the three months ended March 31, 2019
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
|
|
|
Three months ended March 31, 2020 |
| ||||
|
in EUR k |
|
Pharmaceutical |
|
Diagnostics |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Rendering of services |
|
4,274 |
|
7,555 |
|
11,829 |
|
|
Sales of goods |
|
276 |
|
— |
|
276 |
|
|
Total Revenues from contracts with external customers |
|
4,550 |
|
7,555 |
|
12,105 |
|
|
|
|
|
|
|
|
|
|
|
Recognized over time |
|
4,274 |
|
7,555 |
|
11,829 |
|
|
Recognized at a point in time |
|
276 |
|
— |
|
276 |
|
|
Total Revenues from contracts with external customers |
|
4,550 |
|
7,555 |
|
12,105 |
|
|
|
|
|
|
|
|
|
|
|
Geographical information |
|
|
|
|
|
|
|
|
Europe |
|
44 |
|
1,617 |
|
1,661 |
|
|
- Germany* |
|
19 |
|
73 |
|
92 |
|
|
- Netherlands** |
|
— |
|
3 |
|
3 |
|
|
Middle East |
|
3 |
|
4,415 |
|
4,418 |
|
|
- Saudi Arabia# |
|
— |
|
3,033 |
|
3,033 |
|
|
North America |
|
4,503 |
|
620 |
|
5,123 |
|
|
- United States# |
|
4,503 |
|
471 |
|
4,974 |
|
|
Latin America |
|
— |
|
746 |
|
746 |
|
|
Asia Pacific |
|
— |
|
157 |
|
157 |
|
|
Total Revenues from contracts with external customers |
|
4,550 |
|
7,555 |
|
12,105 |
|
* country of the incorporation of Centogene AG
** country of the incorporation of Centogene N.V.
# countries contributing more than 10% of the Group’s total consolidated revenues for the three months ended March 31, 2020
We collaborated with the majority of our pharmaceutical partners on a worldwide basis in 2019 and 2020. In addition, in cases where our pharmaceutical partners are developing a new rare disease treatment, it is generally anticipated that the final approved treatment will be made available globally. As a result, we allocate the revenues of our pharmaceutical segment by geographical region by reference to the location where each pharmaceutical partner mainly operates, which is based on the region from which most of their revenues are generated. The allocation of revenues in our diagnostics segment is based on the location of each customer.
During the three months ended March 31, 2020, revenues from one pharmaceutical partner represented 26.4% of the Group’s total revenues (the three months ended March 31, 2019: 27.4%).
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
During the three months ended March 31, 2019, we have entered into a collaboration with an existing pharmaceutical partner, of which upfront fees totaling EUR 350k, representing the transaction price allocated to the one-off transfer of the Group’s intellectual property, were received and recognized as revenues. No such revenues were recognized in the three months ended March 31, 2020.
The Group recognized impairment losses on receivables and contract assets arising from contracts with customers, included under Other operating expenses in the consolidated statement of comprehensive loss, amounting to EUR 1,174k for the three months ended March 31, 2020 (for the three months ended March 31, 2019: EUR 340k).
5 Segment information
|
|
|
Three months ended March 31, 2019 |
| ||||||
|
in EUR k |
|
Pharmaceutical |
|
Diagnostics |
|
Corporate |
|
Total |
|
|
Total Revenues from contracts with external customers |
|
4,130 |
|
6,585 |
|
— |
|
10,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
2,944 |
|
11 |
|
(3,820 |
) |
(865 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment and right-of-use assets |
|
7 |
|
20 |
|
414 |
|
441 |
|
|
Additions to intangible assets |
|
768 |
|
— |
|
345 |
|
1,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other segment information |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
256 |
|
524 |
|
617 |
|
1,397 |
|
|
Research and development expenses |
|
— |
|
— |
|
1,701 |
|
1,701 |
|
|
|
|
Three months ended March 31, 2020 |
| ||||||
|
in EUR k |
|
Pharmaceutical |
|
Diagnostics |
|
Corporate |
|
Total |
|
|
Total Revenues from contracts with external customers |
|
4,550 |
|
7,555 |
|
— |
|
12,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
2,608 |
|
87 |
|
(7,712 |
) |
(5,017 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment and right-of-use assets |
|
— |
|
817 |
|
587 |
|
1,404 |
|
|
Additions to intangible assets |
|
1,002 |
|
— |
|
189 |
|
1,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other segment information |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
564 |
|
544 |
|
976 |
|
2,084 |
|
|
Research and development expenses |
|
— |
|
— |
|
2,691 |
|
2,691 |
|
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
Adjustments
Corporate expenses, depreciation and amortization, interest and similar income and expenses, as well as share-based payment expenses are not allocated to individual segments as the underlying instruments are managed on a group basis. Current taxes and deferred taxes are allocated to Corporate as they are also managed on a group basis.
Increases in corporate expenses for the three months ended March 31, 2020 are mainly due to our continued international growth and business expansion. The increase is also due to the costs of operating as a public company, such as additional legal, accounting, corporate governance and investor relations expenses, and higher directors’ and officers’ insurance premiums. Corporate expenses for the three months ended March 31, 2019 also included expenses incurred in relation to the IPO as described in note 1 of EUR 109k (included in General Administrative Expenses). No such expenses incurred in the three months ended March 31, 2020.
Capital expenditure consists of additions of property, plant and equipment, right-of-use assets and intangible assets. All of such assets are located in Germany, which is the country of the registered office of the Company, except for property, plant and equipment of EUR 276k (December 31, 2019: EUR 286k) and right-of-use assets of EUR 960k (December 31, 2019: EUR 1,042k), which is located in the United States.
Reconciliation of segment Adjusted EBITDA to Group loss for the period
|
For the three months ended March 31 |
|
2019 |
|
2020 |
|
|
Reported segment Adjusted EBITDA |
|
2,955 |
|
2,695 |
|
|
Corporate expenses |
|
(3,820 |
) |
(7,712 |
) |
|
|
|
(865 |
) |
(5,017 |
) |
|
Share-based payment expenses |
|
(2,633 |
) |
(1,057 |
) |
|
Depreciation and amortization |
|
(1,397 |
) |
(2,084 |
) |
|
Operating loss |
|
(4,895 |
) |
(8,158 |
) |
|
Financial costs, net |
|
(212 |
) |
(449 |
) |
|
Income tax expenses |
|
(174 |
) |
(129 |
) |
|
Loss for the three months ended March 31 |
|
(5,281 |
) |
(8,736 |
) |
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
6 Other income and expenses
6.1 Other operating income
|
|
|
For the three months ended |
| ||
|
in EUR k |
|
2019 |
|
2020 |
|
|
Government grants |
|
967 |
|
702 |
|
|
Income from the reversal of provisions |
|
89 |
|
— |
|
|
Others |
|
42 |
|
243 |
|
|
Total other operating income |
|
1,098 |
|
945 |
|
Government grants contain performance-based grants to subsidize research, development and innovation in the state of Mecklenburg-Western Pomerania from funds granted by the European Regional Development Fund. Furthermore, government grants contain the release of deferred income from investment related grants.
6.2 Other operating expenses
|
|
|
For the three months ended |
| ||
|
in EUR k |
|
2019 |
|
2020 |
|
|
Currency losses |
|
2 |
|
— |
|
|
Expected credit loss allowances on trade receivables |
|
340 |
|
1,174 |
|
|
Others |
|
— |
|
101 |
|
|
Total other operating expenses |
|
342 |
|
1,275 |
|
Considering the impact of COVID-19 pandemic to the global economy and the unforeseeable potential magnitude of the ultimate disruptions to different businesses, the Group has taken such into consideration when assessing the credit risk, in particular regarding the MENA region for the diagnostic segment as it represents the majority of that segment’s revenue. Such assessment resulted in additional credit loss of EUR 1,174k for the three months ended March 31, 2020 (the three months ended March 31, 2019: EUR 340k). See also note 7.
During the three months ended March 31, 2020, the Group disposed of its entire 51% interest in LPC GmbH (“LPC”) to the minority shareholders at a consideration of EUR 213k, among which EUR 200k is to be paid over a period of four years (and included in other assets, see note 7). The related non-controlling interest of EUR 268k (accumulated share of loss) were debited to profit or loss and the sale resulted in a loss of EUR 101k.
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
7 Trade and other receivables and other assets
|
in EUR k |
|
Dec 31, 2019 |
|
Mar 31, 2020 |
|
|
Non-current |
|
|
|
|
|
|
Other assets — Rental deposits |
|
1,948 |
|
1,948 |
|
|
Other assets — Others |
|
— |
|
150 |
|
|
|
|
1,948 |
|
2,098 |
|
|
Current |
|
|
|
|
|
|
Trade receivables |
|
12,709 |
|
11,089 |
|
|
Contract assets |
|
3,884 |
|
3,557 |
|
|
Receivables due from shareholders |
|
2,766 |
|
2,766 |
|
|
Other assets |
|
5,846 |
|
6,124 |
|
|
|
|
25,205 |
|
23,536 |
|
|
|
|
|
|
|
|
|
Total non-current and current trade and other receivables and other assets |
|
27,153 |
|
25,634 |
|
Trade receivables and contract assets
Trade receivables are non-interest bearing and are generally due in 30 to 90 days. In general, portfolio-based expected credit loss allowances are recognized on trade receivables and contract assets.
Considering the potential impact of COVID-19 to the economy, the Group has re-assessed the credit loss rates in relation to the outstanding trade receivables and contract assets as follows:
|
in EUR k |
|
Dec 31, 2019 |
|
Mar 31, 2020 |
|
|
Not past due |
|
11,102 |
|
9,725 |
|
|
Past due 1-30 days |
|
1,113 |
|
1,084 |
|
|
Past due 31-90 days |
|
1,708 |
|
2,031 |
|
|
Past due more than 90 days |
|
5,005 |
|
5,315 |
|
|
Total Gross amount of trade receivables and contract assets |
|
18,928 |
|
18,155 |
|
|
|
|
|
|
|
|
|
Expected credit loss rate |
|
|
|
|
|
|
Not past due |
|
0.3 |
% |
0.3 |
% |
|
Past due 1-30 days |
|
1.0 |
% |
1.3 |
% |
|
Past due 31-90 days |
|
1.2 |
% |
1.6 |
% |
|
Past due more than 90 days |
|
45.4 |
% |
64.7 |
% |
|
Expected credit loss rate on total gross trade receivables and contract assets |
|
12.3 |
% |
19.3 |
% |
|
|
|
|
|
|
|
|
Expected credit loss |
|
2,335 |
|
3,509 |
|
Receivables due from shareholders
In 2016, the Group established a virtual share option program (“2016 VSOP”) under Centogene AG that entitles the management board to grant virtual share options to individuals, in regard to services they provide and their continuous commitment to the Group. Upon the completion of IPO in November 2019, all options granted under the option program were vested immediately in full, and the holders of vested options are entitled to receive a direct cash payment from the Company according to the calculation as stipulated in the program, which is determined based on the IPO price of the shares of Centogene N.V. and the exercise prices of the vested options.
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
The payable by the Group to the holders of vested options was recorded as a liability with a carrying amount of EUR 2,766k (December 31, 2019: EUR 2,766k) (see note 10.2).
As the payment to the option holders will be reimbursed by the original shareholders to the Company, a respective receivable against shareholders was recorded. Such receivables were considered as additional capital from shareholders and recorded against equity (capital reserve).
Other assets
The non-current portion of other assets include cash deposit of EUR 1,500k (used to secure a bank guarantee of EUR 3,000k) relating to the leases of Rostock headquarters building, rental deposits of EUR 257k relating to the leases of Berlin offices and EUR 191k for the leases of certain plant and machineries. It also includes the consideration receivable for the sale of LPC of EUR 213k, among which EUR 150k is due after 1 year (see note 6.2).
The current portion of other assets also include VAT receivables of EUR 1,744k (December 31, 2019: EUR 1,311k), prepaid expenses of EUR 2,834k (December 31, 2019: EUR 3,481k) as well as receivables from grants of EUR 743k (December 31, 2019: EUR 409k).
8 Cash and short-term deposits
As of March 31, 2020, the Group has pledged its short-term deposits with carrying amount of EUR 1,500k (December 31, 2019: EUR 1,500k) and EUR 2,500k (December 31, 2019: EUR 2,500k) respectively, to fulfil collateral requirements in respect of existing secured bank loan and overdraft facility up to EUR 2,500k. In addition, the Group has pledged its short-term deposits of EUR 500k (December 31, 2019: EUR nil) related to another overdraft facility up to EUR 500k.
The restriction applying to the collateral may be terminated at any time subject to the full amount of the relevant bank loans and the overdrafts being repaid.
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
9 Equity
As discussed in note 1, Centogene N.V. became the parent holding company of the Group on November 12, 2019 as part of the IPO process. All share, per-share and related information presented in the financial statements and corresponding disclosure notes have been retrospectively adjusted, where applicable, to reflect the impact of the share split resulting from the reorganization.
Capital reserve
As of March 31, 2020, capital reserve included a share premium of EUR 90,297k, being amounts contributed by shareholders at the issuance of shares in excess of the par value of the shares issued, net of any transaction costs incurred for the share issuance.
In addition, it also included amounts recorded in respect of share-based payments. For additional information on the share-based payments, see note 11.
10 Financial liabilities
10.1 Interest-bearing liabilities
|
in EUR k |
|
Dec 31, 2019 |
|
Mar 31, 2020 |
|
|
Non-current liabilities |
|
|
|
|
|
|
Non-current portion of secured bank loans |
|
968 |
|
768 |
|
|
Municipal loans |
|
610 |
|
— |
|
|
Total non-current loans |
|
1,578 |
|
768 |
|
|
Lease liabilities |
|
18,069 |
|
18,826 |
|
|
Total non-current liabilities |
|
19,647 |
|
19,594 |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Current portion of secured bank loans |
|
802 |
|
802 |
|
|
Bank overdrafts |
|
2,636 |
|
3,050 |
|
|
Municipal loans |
|
250 |
|
— |
|
|
Total current loans |
|
3,688 |
|
3,852 |
|
|
Current portion of lease liabilities |
|
3,635 |
|
3,625 |
|
|
Total current liabilities |
|
7,323 |
|
7,477 |
|
|
|
|
|
|
|
|
|
Total non-current and current liabilities |
|
26,970 |
|
27,071 |
|
As of March 31, 2020, short-term cash deposits of EUR 1,500k (December 31, 2019: EUR 1,500k) were used to secure the secured bank loan outstanding (see note 8).
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
The following table is based on the original terms and conditions:
Conditions and statement of liabilities
The outstanding interest-bearing liabilities as of March 31, 2020 and December 31, 2019 have the following conditions:
|
|
|
|
|
|
|
|
|
Dec 31, 2019 |
|
Mar 31, 2020 |
| ||||
|
in EUR k |
|
Currency |
|
Nominal interest rate |
|
Maturity |
|
Nominal |
|
Carrying |
|
Nominal |
|
Carrying |
|
|
Secured bank loan |
|
EUR |
|
3.95% |
|
2018-25 |
|
1,770 |
|
1,770 |
|
1,570 |
|
1,570 |
|
|
Municipal loan |
|
EUR |
|
8.25%; plus 1.5% profit-related; 0.75% on losses |
|
2018-23 |
|
500 |
|
500 |
|
— |
|
— |
|
|
Municipal loan |
|
EUR |
|
8%; plus 1.5% profit-related; 0.75% on losses |
|
2021 |
|
360 |
|
360 |
|
— |
|
— |
|
|
Bank overdrafts |
|
EUR |
|
4.46% |
|
2022 |
|
476 |
|
476 |
|
476 |
|
476 |
|
|
Bank overdrafts |
|
EUR |
|
3.75% |
|
Rollover |
|
2,160 |
|
2,160 |
|
2,094 |
|
2,094 |
|
|
Bank overdrafts |
|
EUR |
|
3.59% |
|
Rollover |
|
— |
|
— |
|
480 |
|
480 |
|
|
Lease liabilities |
|
EUR |
|
3.5%*, 5.4%-8.9% |
|
2017-31 |
|
21,704 |
|
21,704 |
|
22,451 |
|
22,451 |
|
|
Total interest-bearing financial liabilities |
|
|
|
|
|
|
|
26,970 |
|
26,970 |
|
27,071 |
|
27,071 |
|
* represents the incremental borrowing rate of the Group at the commencement of the leases
The bank overdrafts of EUR 2,094k as of March 31, 2020 (December 31, 2019: EUR 2,160k) were secured by short-term deposits with a carrying amount of EUR 2,500k (December 31, 2019: EUR 2,500k) (see note 8). The bank overdrafts of EUR 476k (December 31, 2019: EUR 476k) were secured by guarantees provided by certain of the Company’s shareholders as of December 31, 2019, and were released providing security over a short-term deposit with a carrying amount of EUR 500k subsequent to the year end (see note 8).
The municipal loan due to MBMV (Mittelständische Bürgschaftsbank Mecklenburg-Vorpommern) of EUR 860k outstanding as of December 31, 2019 was secured by guarantees provided by the Group’s shareholders, and were released upon full repayment in February 2020.
10.2 Trade payables and other liabilities
|
in EUR k |
|
Dec 31, 2019 |
|
Mar 31, 2020 |
|
|
Trade payables |
|
8,554 |
|
10,173 |
|
|
Government grants (deferred income) |
|
11,289 |
|
11,137 |
|
|
Liability for Virtual Stock Option Program |
|
2,769 |
|
2,766 |
|
|
Contract liabilities |
|
3,748 |
|
3,523 |
|
|
Others |
|
5,258 |
|
6,423 |
|
|
Trade payables and other liabilities |
|
31,618 |
|
34,022 |
|
|
Non-current |
|
9,941 |
|
9,773 |
|
|
Current |
|
21,677 |
|
24,249 |
|
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
Government grants mainly include investment-related government grants. These were received for the purchase of certain items of property, plant and equipment for the research and development facilities in Mecklenburg-Western Pomerania, including the Rostock facility. The grants were issued in the form of investment subsidies as part of the joint federal and state program, “Verbesserung der regionalen Wirtschaftsstruktur” (improvement of the regional economic structure) in connection with funds from the European Regional Development Fund. Additional grants received during the three months ended March 31, 2020 are related to the purchase of certain items of property, plant and equipment amounted to EUR 207k (the three months ended March 31, 2019: EUR nil).
In addition, other liabilities include personnel-related liabilities for vacation and bonuses totaling EUR 2,734k (December 31, 2019: EUR 2,264k) as well as liabilities for wage and church tax of EUR 356k (December 31, 2019: EUR 376k). Other liabilities as of December 31, 2019 also include costs relating to IPO of EUR 565k.
11 Share-based payments
At March 31, 2020 the Group had the following share-based payment arrangements.
(i) Equity share option - Replacement (ESOP 2017)
In 2017, the Group established a second virtual share option program (“2017 VSOP”) that entitled the management board to grant virtual share options to individuals, in regard to services they provide and their continuous commitment to the Group.
In connection with the IPO (see note 1), a transfer agreement was entered into between the holders of the 2017 VSOP, Centogene AG and the Company in November 2019, under which the 2017 VSOP was terminated, and the option holders were granted new share options of the Centogene N.V. (“ESOP 2017”). The number of options granted to each holder under ESOP 2017 was based on the number of options granted to them under 2017 VSOP and the IPO price of Centogene N.V. Accordingly, 805,308 new share options were granted pursuant to the Centogene N.V. Long-term Incentive Plan, with each option representing one common share of Centogene N.V., and an exercise price equal to the nominal value of the share of Centogene N.V., which is EUR 0.12.
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
The options were considered vested upon the completion of the IPO, but are not exercisable in the first 180 days subsequent to the listing (lock-up period).
The contractual life for the share options as at March 31, 2020 is 9.7 years (December 31, 2019: 10 years).
The fair value of share options issued under ESOP 2017 are equity-settled and the fair value of the options were fully recognized in equity under capital reserve on the date of grant.
(ii) Equity share option 2019 (ESOP 2019)
In 2019, an agreement was entered into between the Company and an individual of the Supervisory Board. According to this agreement, a total of 396,522 options, each option representing one common share, were granted pursuant to the Centogene N.V. Long-term Incentive Plan to the individual Supervisory Board member with exercise price equaling to the IPO price, which is EUR 12.58 per option, on the date of the IPO of the Company. The vesting period shall be three years commencing on the day of grant, where one-third of the granted options shall be vested at the end of each year of grant, and the first year ending on March 31, 2020.
The contractual life for the share options as at December 31, 2019 is ten years and the weighted average fair value of options outstanding was EUR 9.08. The share options issued under “ESOP 2019” will be equity-settled and the fair value of the options were recognized in equity under capital reserve, based on the fair value on the date of grant, and will be charged to profit or loss over the vesting period. For the three months ended March 31, 2020, the Group recognized EUR 1,057k of share-based payment expense in the statement of comprehensive income.
For the three months ended March 31, 2019, the Group recognized EUR 2,633k of share-based payment expense in the statement of comprehensive income in relation to the cash-settled virtual share option programs of Centogene AG, which were cancelled upon completion of IPO.
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
12 Commitments
Future payments for non-cancellable leases
The Group has various lease contracts in relation to expansion of Rostock headquarters and leasing of Hamburg laboratory that have not yet commenced as at March 31, 2020. The future lease payments and utilities for these non-cancellable lease contracts are EUR 103k within one year, EUR 1,669k within five years and EUR 5,324k thereafter.
The Group has various non-cancellable lease contracts of office equipment and storage spaces which had a lease term of less than 12 months or were related to leases of low-value assets, and therefore the short-term lease recognition exemption was applied to these contracts. The future lease payments for these non-cancellable lease contracts are EUR 36k within one year (December 31, 2019: EUR 72k) and EUR 36k within five years (December 31, 2019: 36k).
Future payment obligations
As of March 31, 2020, the Group concluded agreements with suppliers, for goods and services to be provided subsequent to March 31, 2020 with a total payment obligation of approximately EUR 778k (December 31, 2019: EUR 802k).
13 Contingent Liabilities
In May 2016, the Company was informed in writing by the Universitair Medisch Centrum Utrecht (“UMCU”) that a claim had been initiated against UMCU regarding a prenatal diagnostic test that the Company conducted at their request which failed to identify a specific mutation present in a patient. On November 8, 2018, the UMCU and Neon Underwriting Limited formally filed a legal claim in the local court in Rostock, Germany against the Company alleging that the Company’s negligence in performing the test resulted in the misdiagnosis of the patient. UMCU is seeking recovery for compensatory damages as a result of the alleged misdiagnosis. By court order of November 8, 2018, the Regional Court of Rostock set the amount in dispute at EUR 880k.
The Company intends to rigorously defend its position and considers that it is not probable the legal claim towards the Company will be successful and as a result has not recognized a provision for this claim as of March 31, 2020. In addition, in case a settlement would be required, the Company believes that the corresponding liability will be fully covered by the respective insurance coverage.
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
14 Subsequent Event
Impact of COVID-19
The COVID-19 pandemic, which began in December 2019 in China, has spread across the globe and caused significant disruptions to the society and economy. Different measures, such as quarantines, maintaining social distance, travel restrictions, closure of borders etc. have been implemented by many governments only with the aim to avoid continuous outbreak of the disease.
As part of the Company’s initiative to help local, national and international authorities in their efforts to the earliest possible diagnosis of COVID-19 and thereby contribute to allowing societies to return to a “new” normal, the Company has commenced testing for COVID-19 in March 2020. Starting from the Mecklenburg-Western Pomerania region of Germany focusing on employees and essential workers in Rostock, the Company further expands the test offering to nursing homes as well as to high school students in Germany. Since May 2020, the Company is offering its tests to the rest of the world in accordance with local rules and regulations. Some of these initiatives are offered free of charge by the Company, while some of them are in collaboration with state government and other companies.
To support the expansion of test offering, the Company acquired laboratory facilities and equipment for a total consideration of EUR 1,800k and leased laboratory space in Hamburg, Germany, in April 2020. The lease is charged at a fixed rate and covers a fixed period of five years, with an option to extend. Such lease contract is accounted for under IFRS 16 and accordingly right-of-use assets and lease liabilities of approximately EUR 450k will be recognized. In addition, the Company commenced the production and distribution of a sample collection kit for COVID-19 test, CentoSwab.
In addition to its development and testing efforts, as the global COVID-19 pandemic continues to evolve, the Company has continuously been monitoring the situation and has taken a series of measures to protect the employees and safeguard the operations. By the end of May 2020, the Company was able to enable most of the employees to return and work at the office by implementing regular testing.
Although the Company is taking a series of measures aiming to minimize the disruptions to the business and operations and the provision of testing for the COVID-19 virus is anticipated to generate additional revenues to the Company, the impact of the pandemic to the global economy, international trade and business activities may also have a negative impact to its operating results.
Notes to the unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020
In particular, they could result in increased costs of execution with regards to operational plans. In addition, COVID-19 may disrupt our supply chain, particularly as it relates to the United States (from where a significant proportion of our sequencing products are sourced) as well other countries in which we operate and from where we receive tests, and otherwise adversely affect international trade and business activities. The impact of COVID-19 will depend on future developments, which are highly uncertain and cannot be predicted, such as the duration of the pandemic, the probability of occurrence of second outbreak, the ultimate impact on financial markets and the global economy etc. Accordingly, the Company is unable to provide a reasonable estimate of the related financial impact at this time.
These unaudited interim condensed consolidated financial statements were approved by management on June 15, 2020.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with Centogene N.V.’s unaudited interim condensed consolidated financial statements as of December 31, 2019 and March 31, 2020 and for the three months ended March 31, 2019 and 2020 included as Exhibit 99.2 to this report on Form 6-K. We also recommend that you read our management’s discussion and analysis and our audited consolidated financial statements and the notes thereto included in our annual report for the year ended December 31, 2019 on Form 20-F, filed with the U.S. Securities and Exchange Commission (the “SEC”) pursuant to the U.S. Securities and Exchange Act of 1934, as amended, on April 23, 2020 (the “Annual Report”).
Unless otherwise indicated or the context otherwise requires, all references to “Centogene N.V.” or the “Company”, “we,”, “our,” “ours,” “us” or similar terms refer to Centogene N.V. and its subsidiaries.
The following discussion is based on our financial information prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), which may differ in material respects from generally accepted accounting principles in the United States and other jurisdictions.
This discussion and analysis is dated as of June 15, 2020.
Overview
We are a commercial-stage company focused on rare diseases that transforms real-world clinical and genetic data into actionable information for patients, physicians and pharmaceutical companies. Our goal is to bring rationality to treatment decisions and to accelerate the development of new orphan drugs by using our knowledge of the global rare disease market, including epidemiological and clinical data and innovative biomarkers. We have developed a global proprietary rare disease platform based on our real-world data repository with approximately 3.0 billion weighted data points from over 530,000 patients representing 120 different countries as of March 31, 2020, or an average of over 630 data points per patient. Our platform includes multiomic data (such as epidemiologic, phenotypic, proteomic, metabolomic and genetic data) that reflects a global population, and also a biobank of these patients’ blood samples. We believe this represents the only platform that comprehensively analyzes multi-level data to improve the understanding of rare hereditary diseases, which can aid in the identification of patients and improve our pharmaceutical partners’ ability to bring orphan drugs to the market.
We have identified two reportable segments:
· Pharmaceutical. Our pharmaceutical solutions provide a variety of services to our pharmaceutical partners, including target discovery, early patient recruitment and identification, epidemiological insights, biomarker discovery and patient monitoring. Our information platforms, access to rare disease patients and their biomaterials, and ability to develop proprietary technologies and biomarkers enable us to provide services to our pharmaceutical partners in all phases of the drug development process as well as post-commercialization. Revenues from our pharmaceutical segment are generated primarily from collaboration agreements with our pharmaceutical partners. As of March 31, 2020, we collaborated with 39 pharmaceutical partners for over 45 different rare diseases. In addition, as of March 31, 2020, we had over 60 biomarker programs, of which 33 were used in connection with our pharmaceutical collaborations.
· Diagnostics. Our diagnostics segment provides targeted genetic sequencing and diagnostics services to our clients worldwide, who are typically physicians, laboratories or hospitals, either directly or through distributors. As of March 31, 2020, we believe we offer the broadest diagnostic testing portfolio for rare diseases, covering over 7,500 genes using over 10,000 different tests. In turn, the data collected from our diagnostics services and biomaterials allow us to continue to grow our repository and our CentoMD database.
Our business has continuously seen notable expansion in recent years. In the three months ended March 31, 2020, we received over 32,500 test requests, representing an approximate 9.4% increase as compared to approximately 29,700 test requests received during the three months ended March 31, 2019.
Our revenue for the three months ended March 31, 2020 was €12,105 thousand, an increase of €1,390 thousand, or 13.0%, from €10,715 thousand for the three months ended March 31, 2019. Our pharmaceutical and diagnostics segments contributed 37.6% and 62.4%, respectively, of our total revenues for the three months ended March 31, 2020, as compared to 38.5% and 61.5%, respectively, of our total revenues for the three months ended March 31, 2019. Test requests received by our pharmaceutical segment for the three months ended March 31, 2020 were approximately 17,600, representing an increase of approximately 23.9% as compared to over 14,200 test requests received for the three months ended March 31, 2019. Test requests received by our diagnostics segments for the three months ended March 31, 2020 were approximately 13,000, and remained unchanged to the three months ended March 31, 2019.
Since the inception of our business, our research and development has been substantially devoted to our biomarkers and interpretation-based solutions. For the three months ended March 31, 2020, we incurred research and development expenses of €2,691 thousand, an increase of €990 thousand, or 58.2%, from €1,701 thousand for the three months ended March 31, 2019. During the three months ended March 31, 2020 and 2019, we received over 1,900 and 2,500 test requests for our internal research and development projects, respectively.
For the three months ended March 31, 2020, our loss before taxes was €8,607 thousand, an increase of €3,500 thousand, or 68.5%, from €5,107 thousand for the three months ended March 31, 2019. The loss before taxes for the three months ended March 31, 2020 included share-based compensation expenses of €1,057 thousand, as compared to €2,633 thousand for the three months ended March 31, 2019. Our loss before taxes for the three months ended March 31, 2020 also included expected credit loss allowances on trade receivables of €1,174 thousand, as compared to €340 thousand for the three months ended March 31, 2019.
Recent Developments
The COVID-19 pandemic, which began in December 2019 in China, has spread across the globe and caused significant disruptions to the society and economy. Different measures, such as quarantines, maintaining social distance, travel restrictions and closure of borders have been implemented by many governments only with the aim to avoid continuous outbreak of the disease.
As part of our initiative to assist local, national and international authorities in their efforts to the earliest possible diagnosis of COVID-19 and thereby contribute to allowing societies to return to a “new” normal, we have commenced testing for COVID-19 in March 2020. Starting from the Mecklenburg-Western Pomerania region of Germany focusing on employees and essential workers in Rostock, we further expanded the test offering to nursing homes as well as to high school students in Germany. Since May 2020, we are offering our test to the rest of the world in accordance with local rules and regulations. Some of these initiatives are offered free of charge by us, while some of them are in collaboration with the state government and other companies.
To support the expansion of our test offering, we acquired laboratory facilities and equipment for a total consideration of €1,800 thousand and leased laboratory space in Hamburg, Germany, in April 2020. The lease is charged at a fixed rate and covers a fixed period of five years, with an option to extend. Such lease contract is accounted for under IFRS 16 and accordingly right-of-use assets and lease liabilities of approximately €450 thousand will be recognized. In addition, we commenced the production and distribution of a sample collection kit for COVID-19 test, CentoSwab.
Although we are taking a series of measures aiming to minimize the disruptions to the business and operations, and the provision of testing for the COVID-19 virus is anticipated to generate additional revenues to us, the impact of the pandemic to the global economy, international trade and business activities may also have a negative impact to our operating results. In particular, they could result in increased costs of execution with regards to operational plans. In addition, COVID-19 may disrupt our supply chain, particularly as it relates to the United States (from where a significant proportion of our sequencing products are sourced) as well other countries in which we operate and from where we receive tests, and otherwise adversely affect international trade and business activities. The impact of COVID-19 will depend on future developments, which are highly uncertain and cannot be predicted, such as the duration of the pandemic, the probability of occurrence of second outbreak, the ultimate impact on financial markets and the global economy. Accordingly, we are unable to provide a reasonable estimate of the related financial impact at this time.
Financial Operations Overview
Our revenue is principally derived from the provision of pharmaceutical solutions and diagnostic tests enabled by our knowledge and interpretation-based platform.
We expect our revenue to increase over time as we continue to expand our commercial efforts internationally with a focus on further growth in our pharmaceutical segment. As a result, we expect revenue from the pharmaceutical segment to increase as a proportion of total revenue over time. We expect revenue from our diagnostics segment to grow in absolute terms but decrease as a percentage of total revenue as we focus on growth in our pharmaceutical segment.
Changes in revenue mix between our pharmaceutical and diagnostics segments can impact our results period over period. We typically incur lower costs for the provision of solutions in our pharmaceutical segment and therefore generate higher returns from our pharmaceutical segment contracts than from our diagnostics segment contracts. As a result, we anticipate our gross profit as a percentage of total revenues to improve in the future.
For a discussion of our other key financial statement line items, please see “Item 5—Operating and Financial Review and Prospects—Operating Results—Financial Operations Overview” in the Annual Report.
Results of Operations
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
|
|
|
For the Three Months Ended |
| ||
|
|
|
2019 |
|
2020 |
|
|
|
|
(unaudited, |
| ||
|
Condensed consolidated statement of comprehensive loss: |
|
|
|
|
|
|
Revenue |
|
10,715 |
|
12,105 |
|
|
Cost of sales |
|
6,744 |
|
7,018 |
|
|
Gross profit |
|
3,971 |
|
5,087 |
|
|
Research and development expenses |
|
1,701 |
|
2,691 |
|
|
General administrative expenses |
|
5,910 |
|
7,898 |
|
|
Selling expenses |
|
2,011 |
|
2,326 |
|
|
Other operating income |
|
1,098 |
|
945 |
|
|
Other operating expenses |
|
342 |
|
1,275 |
|
|
Operating loss |
|
(4,895 |
) |
(8,158 |
) |
|
Interest and similar income |
|
8 |
|
— |
|
|
Interest and similar expenses |
|
220 |
|
449 |
|
|
Finance costs, net |
|
(212 |
) |
(449 |
) |
|
Loss before taxes |
|
(5,107 |
) |
(8,607 |
) |
|
Income tax expenses |
|
174 |
|
129 |
|
|
Loss for the period |
|
(5,281 |
) |
(8,736 |
) |
|
Other comprehensive income |
|
2 |
|
76 |
|
|
Total comprehensive loss for the period |
|
(5,279 |
) |
(8,660 |
) |
|
Total comprehensive loss for the period attributable to the equity holders of the parent |
|
(5,210 |
) |
(8,599 |
) |
|
|
|
|
|
|
|
|
Loss per share — Basic and diluted (in €) |
|
(0.33 |
) |
(0.43 |
) |
Revenue
Both our pharmaceutical and diagnostics segments demonstrated good performances and revenue increased by €1,390 thousand, or 13.0%, to €12,105 thousand for the three months ended March 31, 2020 from €10,715 thousand for the three months ended March 31, 2019. No material revenues related to COVID-19 testing were recognized in the three months ended March 31, 2020.
The graphic below shows the test requests for the diagnostics and pharmaceutical segments, as well as test requests received for our internal research projects during the three months ended March 31, 2019 and 2020.
*The testing expenses relating to requests received for our internal research projects were included in Corporate as they did not generate any revenue and cannot be allocated to either of our two business segments.
The breakdown of our revenue by segment was as follows:
|
|
|
For the Three Months |
| ||
|
|
|
2019 |
|
2020 |
|
|
|
|
(unaudited, |
| ||
|
Revenue by segment: |
|
|
|
|
|
|
Pharmaceutical |
|
4,130 |
|
4,550 |
|
|
Diagnostics |
|
6,585 |
|
7,555 |
|
|
Total Revenue |
|
10,715 |
|
12,105 |
|
Revenues from our pharmaceutical segment were €4,550 thousand for the three months ended March 31, 2020, an increase of €420 thousand, or 10.2%, from €4,130 thousand for the three months ended March 31, 2019. Our partnership agreements are structured on a fee per sample basis, milestone basis, fixed fee basis, royalty basis or a combination of these. The 10.2% increase was primarily attributable to additional milestones achieved in the three months ended March 31, 2020 related to collaboration agreements with our pharmaceutical partners. With 14 collaborations completed in the year ended December 31, 2019 and two new collaborations entered into during the three months ended March 31, 2020, the total number of active/completed collaborations as of March 31, 2020 amounted to 64, as compared to 53 as of March 31, 2019. As of March 31, 2020, we collaborated with 39 pharmaceutical partners, as compared to 33 pharmaceutical partners as of March 31, 2019.
The graphs below show our revenues for the three months ended March 31, 2020 and 2019 resulting from our collaborations with our pharmaceutical partners split between drug development stage, as well as between different fee structure:
During the three months ended March 31, 2019, we entered into a collaboration agreement with an existing pharmaceutical partner, as a result of which upfront fees totaling EUR 350 thousand, representing the transaction price allocated to the one-off transfer of intellectual property owned by us, were received and recognized as revenues. No such revenues were recognized in the three months ended March 31, 2020. During the three months ended March 31, 2020, revenues from one pharmaceutical partner represented 26.4% of our total revenues, as compared to 27.4% for the three months ended March 31, 2019.
Revenues from our diagnostics segment were €7,555 thousand for the three months ended March 31, 2020, an increase of €970 thousand, or 14.7%, from €6,585 thousand for the three months ended March 31, 2019. This increase in revenues from our diagnostics segment was primarily attributable to an increase in order requests for whole exome sequencing (WES) and whole genome sequencing (WGS).
The graphic below shows the test requests received in the diagnostics segment for the three months ended March 31, 2020 and 2019:
For the three months ended March 31, 2020, our total diagnostic segment revenues were split amongst our primary testing products as follows:
The revenues for the diagnostics segment are recognized over time by reference to the percentage of completion of the service on the reporting date, assessed on the basis of the work rendered. The increase in revenues was primarily driven by an increase in test requests for WES and WGS, as well as the work rendered for the test requests received, during the three months ended March 31, 2020. Total revenues from WES and WGS for the three months ended March 31, 2020 amounted to €4,162 thousand, representing an increase of 40.5% as compared to €2,963 thousand for the three months ended March 31, 2019. The total number of WES and WGS test requests received in the diagnostics segment for the three months ended March 31, 2020 was approximately 4,500, representing an increase of 70.5% as compared to approximately 2,640 test requests received for the three months ended March 31, 2019.
The breakdown of our revenue from both of our segments, in the aggregate, by geographical region was as follows:
|
|
|
For the Three Months |
| ||
|
|
|
2019 |
|
2020 |
|
|
|
|
(unaudited, |
| ||
|
Revenue by geographical region: |
|
|
|
|
|
|
Europe |
|
1,530 |
|
1,661 |
|
|
of which: Germany |
|
62 |
|
92 |
|
|
of which: Netherlands |
|
— |
|
3 |
|
|
Middle East |
|
3,522 |
|
4,418 |
|
|
of which: Saudi Arabia |
|
1,687 |
|
3,033 |
|
|
North America |
|
4,805 |
|
5,123 |
|
|
of which: United States |
|
4,536 |
|
4,974 |
|
|
Latin America |
|
638 |
|
746 |
|
|
Asia Pacific |
|
220 |
|
157 |
|
|
Total Revenue |
|
10,715 |
|
12,105 |
|
In cases where our pharmaceutical partners are developing a new rare disease treatment, we generally anticipate that the final approved treatment will be made available globally. As a result, we allocate the revenues of our pharmaceutical segment by geographical region by reference to the location where each pharmaceutical partner mainly operates, which is based on the region from which most of their revenues are generated. The allocation of revenues in our diagnostics segment is based on the location of each customer.
Our North America region contributed €5,123 thousand to revenue for the three months ended March 31, 2020, an increase of €318 thousand, or 6.6%, from €4,805 thousand for the three months ended March 31, 2019, primarily driven by the increase in revenues from our pharmaceutical segment, of which over 95% are allocated to the North America region . Revenues from the North America region represented 42.3% of our total revenues for the three months ended March 31, 2020 as compared to 44.8% for the three months ended March 31, 2019.
Our Middle East region contributed €4,418 thousand to revenue for the three months ended March 31, 2020, an increase of €896 thousand, or 25.4%, from €3,522 thousand for the three months ended March 31, 2019. This was primarily attributable to the increase in sales of WES and WGS in our diagnostics segment, due to successful account management with existing clients, in particular in Saudi Arabia, as well as a further expansion of our footprint by our internal sales force and through our distributors. The increase is partially offset by the decrease in sales of NIPT tests after we cancelled our fixed fee contract in September 2019.
Our Europe region contributed €1,661 thousand to revenue for the three months ended March 31, 2020, an increase of €131 thousand, or 8.6%, from €1,530 thousand for the three months ended March 31, 2019.
Cost of Sales
Cost of sales increased by €274 thousand, or 4.1%, to €7,018 thousand for the three months ended March 31, 2020, from €6,744 thousand for the three months ended March 31, 2019. Cost of sales for the three months ended March 31, 2020 represented 58.0% of total revenue, a decrease of 4.9 percentage points as compared to 62.9% for the three months ended March 31, 2019.
Cost of sales incurred by our pharmaceutical and diagnostics segments for the three months ended March 31, 2020 represented 41.6% and 67.8% of the revenues from the respective segments, representing an increase of 22.3 percentage points as compared to 19.3% for the three months ended March 31, 2019 for our pharmaceutical segment, and a decrease of 22.5 percentage points as compared to 90.3% for the three months ended March 31, 2019 for our diagnostics segment.
The increase for our pharmaceutical segment was mainly due to a higher portion of revenues from clinical study and clinical trial related collaborations, where higher staff costs and consumable costs are incurred as compared to patient screening collaborations in the past where the consumable costs were comparatively low due to different technologies being used in the testing.
The decrease for the diagnostics segment was mainly due to a change in the product mix, with fewer NIPT tests (which have comparatively higher costs per test) were being performed in the three months ended March 31, 2020. Certain share-based compensation amounting to €555 thousand for the three months ended March 31, 2019 related to options granted to the management member overseeing the diagnostic process which also contributed to the higher cost of sales for the prior period.
Gross Profit
As a result of the above factors, our gross profit increased by €1,116 thousand, or 28.1%, to €5,087 thousand for the three months ended March 31, 2020, from €3,971 thousand for the three months ended March 31, 2019.
Research and Development Expenses
The table below gives a breakdown of our research and development expenses for the three months ended March 31, 2020 and 2019.
|
|
|
For the Three Months |
| ||
|
|
|
2019 |
|
2020 |
|
|
|
|
(unaudited, |
| ||
|
Wages and salaries and social security expenses |
|
880 |
|
920 |
|
|
Laboratory supplies and consumable costs |
|
18 |
|
218 |
|
|
IT development costs |
|
556 |
|
1,007 |
|
|
Depreciation and amortization expenses |
|
202 |
|
387 |
|
|
Others |
|
45 |
|
159 |
|
|
Total research and development expenses |
|
1,701 |
|
2,691 |
|
Research and development expenses increased by €990 thousand, or 58.2%, to €2,691 thousand for the three months ended March 31, 2020, from €1,701 thousand for the three months ended March 31, 2019. This mainly represents personnel costs, consumable costs and IT-related expenses incurred in our research that do not qualify for capitalization. This also includes software and hardware costs, consultation and legal expenses and depreciation of equipment
General Administrative Expenses
The table below gives a breakdown of our general administrative expenses for the three months ended March 31, 2020 and 2019.
|
|
|
For the Three Months |
| ||
|
|
|
2019 |
|
2020 |
|
|
|
|
(unaudited, |
| ||
|
Wages and salaries, social security and termination expenses |
|
1,583 |
|
2,340 |
|
|
Share-based payment expenses |
|
2,078 |
|
1,057 |
|
|
Legal and consulting expenses |
|
466 |
|
1,019 |
|
|
Travelling, corporate communication and event expenses |
|
317 |
|
502 |
|
|
IT operational costs |
|
190 |
|
450 |
|
|
Insurance premiums |
|
89 |
|
806 |
|
|
Depreciation and amortization expenses |
|
386 |
|
589 |
|
|
Others |
|
801 |
|
1,135 |
|
|
Total general administrative expenses |
|
5,910 |
|
7,898 |
|
General administrative expenses increased by €1,988 thousand, or 33.6%, to €7,898 thousand for the three months ended March 31, 2020, from €5,910 thousand for the three months ended March 31, 2019, principally due to an increase in personnel costs and operating expenses as a result of the expansion of the business. The increase was also due to costs of operating as a public company, such as additional legal, accounting, corporate governance and investor relations expenses, and higher directors’ and officers’ insurance premiums. Share-based compensation expenses for the three months ended March 31, 2019 were calculated based on the estimated fair values of the share-based awards as of March 31, 2019, as well as the estimated number of awards expected to vest, while the share-based compensation expenses for the three months ended March 31, 2020 were based on the estimated fair values of the share-based awards at the grant date. The share-based compensation expenses for the three months ended March 31, 2020 included in general administrative expenses amounted to €1,057 thousand, a decrease of €1,021 thousand as compared to €2,078 thousand for the three months ended March 31, 2019.
Selling Expenses
Selling expenses increased by €315 thousand, or 15.7%, to €2,326 thousand for the three months ended March 31, 2020, from €2,011 thousand for the three months ended March 31, 2019, principally due to the expansion of our business development team for the pharmaceutical segment, as well as additional marketing expenses.
Other Operating Income / (Expenses)
Other operating income decreased by €153 thousand, or 13.9%, to €945 thousand for the three months ended March 31, 2020, from €1,098 thousand for the three months ended March 31, 2019, principally due to less grant income received during the period.
Other operating expenses increased by €933 thousand, or 272.8%, to €1,275 thousand for the three months ended March 31, 2020, from €342 thousand for the three months ended March 31, 2019, mainly relating to a credit loss of €1,174 thousand for the three months ended March 31, 2020, as compared to €340 thousand for the three months ended March 31, 2019. Considering the impact of the COVID-19 pandemic to the global economy and the unforeseeable impact and disruption to different businesses, we have taken this into consideration when assessing the credit risk, in particular regarding the MENA region for the diagnostic segment as it represents the majority of that segment’s revenue, resulting in additional credit losses.
Interest and Similar Income / (Expenses)
Interest and similar income decreased by €8 thousand, or 100.0%, to nil for the three months ended March 31, 2019, from €8 thousand for the three months ended March 31, 2019.
Interest and similar expenses increased by €229 thousand, or 104.1%, to €449 thousand for the three months ended March 31, 2020, from €220 thousand for the three months ended March 31, 2019, principally due to interest expenses in conjunction with the lease liabilities accounted for upon the adoption of IFRS 16 effective since January 1, 2019.
Loss Before Taxes
As a result of the factors described above, our loss before taxes for the three months ended March 31, 2020 was €8,607 thousand, an increase of €3,500 thousand, or 68.5%, from a loss before taxes of €5,107 thousand for the three months ended March 31, 2019.
Segment Adjusted EBITDA
We evaluate segment performance based on segment results and measure it with reference to Adjusted EBITDA, which we define as operating loss presented in the consolidated statements of comprehensive loss, adjusted for corporate expenses, depreciation and amortization as well as share-based payment expenses. Our Segment Adjusted EBITDA was as follows:
|
|
|
For the Three Months |
| ||
|
|
|
2019 |
|
2020 |
|
|
|
|
(unaudited, |
| ||
|
Segment Adjusted EBITDA: |
|
|
|
|
|
|
Pharmaceutical |
|
2,944 |
|
2,608 |
|
|
Diagnostics |
|
11 |
|
87 |
|
|
Total segment Adjusted EBITDA |
|
2,955 |
|
2,695 |
|
Adjusted EBITDA from our pharmaceutical segment was €2,608 thousand for the three months ended March 31, 2020, a decrease of €336 thousand, or 11.4%, from €2,944 thousand for the three months ended March 31, 2019. This decrease was primarily attributable to an increase in cost of sales, as well as continuous expansion of our business development team.
Adjusted EBITDA from our diagnostics segment was €87 thousand for the three months ended March 31, 2020, an increase of €76 thousand, from €11 thousand for the three months ended March 31, 2019.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.
Contractual Obligations and Commitments
The table below presents the residual contractual terms of the financial liabilities, including estimated interest payments. The figures are undiscounted gross amounts, including estimated interest payments and interest on undrawn loan funds as of March 31, 2020, but without showing the impact of offsetting.
|
|
|
|
|
|
|
Payments due by Period |
| ||||||
|
|
|
Carrying |
|
Total |
|
Less than |
|
Between 1 |
|
Between 3 |
|
More |
|
|
|
|
(unaudited, |
| ||||||||||
|
Secured bank loans |
|
1,570 |
|
1,636 |
|
852 |
|
784 |
|
— |
|
— |
|
|
Bank overdraft |
|
3,050 |
|
3,050 |
|
3,050 |
|
— |
|
— |
|
— |
|
|
Lease liabilities(1) |
|
22,451 |
|
26,595 |
|
4,475 |
|
6,195 |
|
3,812 |
|
12,113 |
|
|
Trade payables |
|
10,173 |
|
10,173 |
|
10,173 |
|
— |
|
— |
|
— |
|
|
Total |
|
37,244 |
|
41,454 |
|
18,550 |
|
6,979 |
|
3,812 |
|
12,113 |
|
(1) Lease liabilities include leases related to lease contracts for land and buildings, offices as well as various items motor vehicles and other equipment which are accounted for according to IFRS 16, and measured at the present value of lease payments over the lease term at the commencement date of the leases.
In addition, to the contractual obligations disclosed above, we also have various lease contracts in relation to expansion of Rostock headquarters and leasing of Hamburg laboratory that have not yet commenced as at March 31, 2020. The future lease payments and utilities for these non-cancellable lease contracts are €103 thousand within one year, €1,669 thousand within five years and €5,324 thousand thereafter.
We also have various non-cancellable lease contracts of office equipment and storage spaces which had a lease term of less than 12 months or were related to leases of low-value assets, and therefore the short-term lease recognition exemption was applied to these contracts. The future lease payments for these non-cancellable lease contracts are €36 thousand within one year and €36 thousand within five years.
As of March 31, 2020, we have concluded agreements with suppliers, for goods and services to be provided subsequent to March 31, 2020 with a total payment obligation of approximately €778 thousand.
For further information on our material loan agreements, please see “Item 5. Operating and Financial Review and Prospects—F. Tabular Disclosure of Contractual Obligations” in our Annual Report.
Critical Accounting Policies and Estimates
There have been no material changes to the critical accounting policies and estimates described in “Item 5. Operating and Financial Review and Prospects—H. Critical Accounting Policies and Estimates” in our Annual Report.
JOBS Act Exemption
As a company with less than US$1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we are not required to provide an auditor attestation report on our system of internal controls over financial reporting. This exemption will apply for a period of five years following the completion of our initial public offering (November 6, 2019) or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier. We would cease to be an emerging growth company if we have more than US$1.07 billion in annual revenue, have more than US$700 million in market value of our common shares held by non-affiliates or issue more than US$1.0 billion of non-convertible debt over a three-year period.
Cautionary Statement Regarding Forward Looking Statements
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the heading “Risk Factors” in our Annual Report. These risks and uncertainties include factors relating to:
· our ability to effectively manage our future growth and to execute our business strategy;
· our ability to generate sufficient revenue from our relationships with our pharmaceutical partners and clients, and to otherwise maintain our current relationships, or enter into new relationships, with pharmaceutical partners and clients;
· the effects of the COVID-19 pandemic on our business and results of operations;
· economic, political or social conditions and the effects of these conditions on our pharmaceutical partners’ and diagnostics clients’ businesses and levels of business activity;
· our expectations for our products and solutions achieving commercial market acceptance, and our ability to keep pace with the rapidly evolving industry in which we operate;
· our assumptions regarding market size in the rare disease industry and our growth potential;
· our pharmaceutical partners’ and clients’ need for rare disease information products and solutions and any perceived advantage of our products over those of our competitors;
· our ability to manage our international expansion, including our exposure to new and complex business, regulatory, political, operational, financial, and economic risks, and numerous and conflicting legal and regulatory requirements;
· our continued reliance on our senior management team, in particular our CEO, and other qualified personnel and our ability to retain such personnel;
· our ability to obtain, maintain, protect and enforce sufficient patent and other intellectual property protection for any products or solutions we develop and for our technology;
· the ongoing protection of our trade secrets, know-how, and other confidential and proprietary information;
· our ability to remediate our material weakness on internal control over financial reporting;
· general economic, political, demographic and business conditions in North America, the Middle East, Europe and other regions in which we operate;
· changes in government and industry regulation and tax matters;
· other factors that may affect our financial condition, liquidity and results of operations; and
· other risk factors discussed under “Item 3. Key Information—D. Risk Factors” in our Annual Report.
You should refer to the section in our Annual Report titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements included herein or incorporated by reference herein will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act do not protect any forward-looking statements that we make in connection with this offering.
The COVID-19 pandemic may continue to adversely impact our business and results of operations.
In December 2019, the COVID-19 virus, commonly known as “coronavirus”, surfaced in Wuhan, China. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 disease has spread from China to many other countries including the U.S., the U.K. and the E.U., with the number of reported cases and related deaths still increasing daily and, in many countries, at a very rapid pace.
As the COVID-19 virus continues to grow, including in the countries in which we operate, the outbreak and related counter-measures have had and will continue to have an adverse effect on our results of operations. For example, in the second half of March 2020, we have seen a considerable decrease in our sample volume related to our diagnostics segment. In late April 2020, when the slowdown was at its peak, we experienced a temporary decline of more than 50% below our normal volume, which had a negative impact on our revenues for the diagnostics segment.
There is a continued risk that COVID-19 may disrupt our supply chain, particularly as it relates to the United States (from where a significant proportion of our sequencing products are sourced) as well as other countries in which we operate and from where we receive tests, as well as international trade and business activities more generally. The magnitude of the impact on us will depend on future developments, which remain highly uncertain and can still not be predicted with confidence, including, among other things, the duration of the outbreak, the occurrence of a second wave, and counter-measures. The effects of COVID-19 on us, and on the environment in which we operate, has resulted, and may continue to result, in significant volatility of the trading price of our common shares.
The COVID-19 pandemic has materially and adversely affected economies all over the world, with financial markets globally experiencing material declines and very elevated volatility, signaling a likely economic downturn and adverse impact on GDP and broader economic conditions, including in Germany and the United States. Various governments have reacted with legislative and regulatory measures including unprecedented monetary and fiscal policy actions across all sectors, and there remains significant uncertainty as to timing of stabilization and recovery and no assurance that the responses from central banks (which include reductions in interest rates and liquidity support) and financial support and fiscal spending by certain governments will be sufficient to support the U.S. or other economies or that financial markets will return to normal.
As there remains significant uncertainty relating to the potential effect of the COVID-19 virus on the economies worldwide and our business, we are unable to provide a reasonable estimate of the related financial impact at this time. Any of the factors above could have a material adverse effect on our business, financial condition, rating and results of operations and may also have the effect of heightening many of the other risks described in the “Risk Factors” section in our annual report for the year ended December 31, 2019, filed with the United States Securities Exchange Commission on Form 20-F on April 23, 2020. For further information on the impact of COVID-19 on our business and results of operations, please also see the notes to our unaudited condensed consolidated interim financial statements for the three months ended March 31, 2020 attached to this Form 6-K as Exhibit 99.3.
We are and may continue to be involved in legal proceedings in the course of our business, and while we cannot predict the outcomes of those proceedings and other contingencies with certainty, some of these outcomes may adversely impact our business.
We are and may continue to be involved in legal proceedings such as intellectual property, consumer, employment, contractual and other litigation that may arise from time to time in the course of our business. We may also be affected by legal proceedings between third parties (such as challenges to governmental procurement contracts or intellectual property disputes between third parties). Litigation is inherently unpredictable, and the outcome of some of these proceedings and other contingencies could require us to take or refrain from taking actions which could adversely impact our business or could result in excessive verdicts. Additionally, involvement in these lawsuits and related inquiries and other proceedings may involve significant expense, divert management’s attention and resources from other matters, and negatively affect our reputation.