OpGen, Inc. (NASDAQ:OPGN) Q3 2022 Earnings Call Transcript

OpGen, Inc. (NASDAQ:OPGN) Q3 2022 Earnings Call Transcript November 10, 2022

OpGen, Inc. misses on earnings expectations. Reported EPS is $-0.3 EPS, expectations were $-0.12.

Operator: Welcome to the OpGen Third Quarter 2022 Earnings Call and Business Update. Today, OpGen management will provide an update on the company’s current business and outlook for the future. Following options prepared remarks, there will be a live Q&A Session. As a reminder, this conference call is being recorded today November 10 2022, and all participants are in listen only mode. At this time, we will turn the call over to Alyssa Factor, IR Representative to provide opening statements.

Alyssa Factor: Good afternoon, everyone. And thank you operator for the introduction. Before we begin, I would like to note that any comments made by management during this conference call may contain forward looking statements regarding the operations and future results of objects, including its subsidiaries curious, and RS genetics. I encourage you to review options filings with the Securities and Exchange Commission, including without limitation, the company’s most recent form 10k and form 10 Q for the third quarter of 2022 that will be filed with the SEC, which will identify specific factors that may cause actual results or events to differ materially from those described in the forward looking statements. factors that may affect the company’s results include, but are not limited to the success of the company’s commercialization efforts and partnering strategy.

Its ability to successfully timely and cost effectively developed seek and obtain regulatory clearance for and commercialize its products and service offerings. The company’s ability to continue to successfully achieve the expected synergies from the company’s completed business combination with curators and to implement its commercial strategy, the impact of the continuing global COVID-19 pandemic on your company’s business and operations and on capital markets and general economic conditions. Their company’s Use of Proceeds from recent financings as well as its ability to access additional financing in the future, the company’s ability to satisfy its debt obligations under its loan with the European Investment Bank, the rate of adoption of its products and services by hospitals and other health care providers in general, as well as during the COVID 19 pandemic and geopolitical situation in particular, the effect of the military action in Russia and Ukraine on its distributors, collaborators and service providers, the effects of the company’s business of existing and new regulatory requirements and other economic and competitive factors.

The content for this conference call contains time sensitive information that is accurate only of the date of this call November 10 2022. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call except as required by law. Joining the call today are Oliver shacked up Jones, President and CEO and Albert Weaver it CFO. Now I will turn the call over to Oliver for introductory remarks.

Oliver Schacht: Thank you, Alyssa. And thank you, everyone for joining us this afternoon. On today’s call, I will begin with a recap of previous highlights discussed on the second quarter earnings call, followed by recent updates on our products and r&d pipeline. Alberich will review the financial highlights from the third quarter and offer an updates to our guidance. I will then provide an outlook on options ongoing and upcoming milestones and business development followed by a q&a session. The beginning of this quarter OpGen subsidiary RS genetics side a research collaboration agreement with the Belgian National Reference Center for invasive Streptococcus pneumoniae at the university hospitals. The US Center for Disease Control CDC is classified as drug resistant streptococcus pneumonia as a serious antimicrobial resistance or AMR threat.

And AMR is one of the top 10 global public threats. This presents an unmet need for effective diagnostics. Under the agreements, the partners aim to employ machine learning tools for antibiotic susceptibility testing. In August, we launched the RSI assess isolated sequencing services from our Rockville Maryland lab at OpGen are now able to serve us customers directly in the US, providing easy access to our RS technologies from options commercial lab. By expanding our services and offerings in the United States, we’re continuing on the path to generating revenue producing opportunities, or US lab facilities will also enable an expedited turnaround on the next generation sequencing or NGS work related to the Univera urinary tract infection. chin or UTI clinical trial.

In October, we announced completion of enrollment of our major prospective multicenter clinical trial in the US on the univeral, a 50 platform for the universal UTI town. We enrolled over 1800 patient samples and exceeded our goal of 1500 prospective samples. We expect to conclude reference testing in the next few weeks, and anticipate the unblinding of data in December of this year, which we will discuss in more detail later in this call. Following the univeral 860 uti product, we’ll be looking to develop our first products on the universal 830 platform. These will include bringing into clinical trials and invasive joints infection or IGI panel, as well as working on a panel focused on AMR markers from blood cultures for low and middle income countries or LMI seas under our fine collaboration which began in September.

The initial feasibility phase of the collaboration with find is expected to be completed at the end of March 2023. and is forecast to deliver six proof of concept deliverables, such as panel definition for an AMR focused cartridge, certain essay development work, prototype definition and development towards an 830 touchscreen cockpit. The find program will focus on detecting pathogens and AMR markers from common blood culture bottles. The 700,000 euros and CO funding by fines and German KfW bank will also allow us to develop prototypes of a dedicated 830 touchscreen cockpit that will be suitable for use in LMI C settings. Options signed at second commercial customer contracts for the Acuitas AMR gene panel in the third quarter. Additionally, we have several ongoing contract negotiations in the final stages undergoing legal and commercial review.

We recently announced a collaboration agreement between bio versus ag from Switzerland, and curators for the development and use of the universal platform. And bio versus upcoming phase two clinical trial of novel drug candidate the V 100. V V. 100, is used to treat serious infections and patients with mortality rate of around 50% with little to no effective and safe treatment options. In the phase two clinical trial all hospital sites will be using our universal hospitalized pneumonia or HPn cartridge is a rapid diagnostic test to help optimize enrollment. We estimate that the first trial sites will start coming online early next year, and estimate at least 18 months for a trial at somewhere around 10 to 20 trials sites across different European countries.

We anticipate revenues of a couple $100,000 over the duration of the trial for universal systems that will be rented cartridges sold support as well as training delivered to bio verses and their clinical research organization. This week, options board elected human Slappy as a new independent non executive member of the company’s Board of Directors. Ms. Slappy brings legal governance, life sciences and international experience to the board. Since 2011, he has served as a managing partner of strategize LLC, an international strategic advisory firm that she co founded prior to founding strategize SCHLAPP he served as general counsel at global enterprise technologies, passport and ID a high security document printing solutions provider and systems integrator from 2007 to 2011.

And as executive vice president, General Counsel and corporate IP officer at Organon biosciences, a global pharmaceutical, animal health and biotech group based in the Netherlands, from 2006 until its sale in 2007. Prior to that, Slappy was a partner at the Boston based law firm of Palmer and dodge LLP, where she served as chairperson of that firm’s international practice group. Shakti has been recognized by the National Association of Corporate Directors as directorships certified has served on the board of directors of several public companies, and currently is a member of the Board of external bank. I will now turn the call over to Alberta labor options chief financial officer. People review financial results for the third quarter and recent financial developments.

Albert?

Albert Weber: Thank you all. And welcome to everyone on the call. I will briefly discuss the third quarter 20 is going to highlight our balance sheet provision and underlying gross Roberts for the business and conclude with some thoughts on guidance. Our revenue for the third quarter 2022 was $0.4 million. This time last year we ended the quarter with $1.2 million. The decrease in revenue is largely attributed to the contribution of the New York State Department of Health Project in the third quarter of 2021 the no comparable project in the reporting quarter, as well as lower univariable systems revenue internationally, which by their nature fluctuate significantly quarter by quarter, or third quarter 2022 revenues does not yet reflect the impact from the phone collaboration, which is expected to be recognized over the term of the agreement, it was the first half of 2023.

Additionally, the acuity of sales did not contribute at a material level since the first customer sites did not become operational until October of this year. Therefore, those sales will be reflected going forward in the upcoming quarters. Later in the call, Oliver will discuss our expanding pipeline for increasing sales within the US and internationally. In the third quarter of 2022, we have to recognize a goodwill impairment charge of $7 million, due to the sharp decrease of options share price over the last month, and a corresponding drop in our company’s market capitalization. Thus, our operating expenses for the three months ending September 30 2022, increased notably to $14 million, compared to nearly 6.3 million in the third quarter of 2021.

Leaving with a special one off effect, the side operating expenses would have been $7 million in this reporting period, and the increase would have been 11.1%. Due to a $1.4 million reserve charge for our inventory built up in anticipation of a faster progress with the market approval process for universal in China. For the first nine months of 2022, we saw an increase of 29.9% in operating expenses, from 20 point 4 million in the nine months of 2021 to $26.5 million in the comparable period this year, but operating expenses would have been would have decreased more than 4% if the goodwill impairment charge was excluded. In fact, we have reduced regular operating expenses in 2022. By means of strict cost management even more, which was not apparent at first glance in the nine months triggered due to the aforementioned inventory reserve charge.

Third quarter 2022 r&d expenses were to $2.0 million, compared to $2.4 million in q3 of 2021. A 16.7% reduction. r&d expenses in the first nine months of 2022 were $6.6 million down by 18.5% from $8.2 million in the nine months of 2021. The decreases were primarily due to lower personal costs of focus towards smaller and more efficient r&d teams has proven to be safe. So in addition to our focus, shifting increasingly towards commercial efforts, and our future NGS lab services. So at quarter 2022 GNA expenses were $2.0 million down by over 3% from our q3 2021 GNA expenses of $2.1 million. In the first nine months of 2022 GNA expenses amounted to $6.8 million, which corresponds to a decrease of about 8% from $7.4 million in the first nine months of the previous year.

Level leveraging affinities following the completion of our business integration has allowed us to reduce GNA expenses. Third quarter and nine months of 2022. Sales and marketing expenses were $1 million flat and $3.3 million, respectively, compared to 1.0 million during the third quarter of 2021 and $2.7 million in the first nine months of 2021. We are convinced that our sales and business development team will be crucial in expanding our partnerships and driving overall revenue. We have also seen the return of life in person conferences and exhibitions internationally as well as here in the US, which has also contributed to increased marketing spend in return for much improved customer access and interaction. Turning to our operating loss, it has also been impacted by the goodwill impairment charge and increased in the third quarter of 2022 to $13.5 million, compared to $5.1 million in the same time last year.

Our net loss available to common stockholders in the third quarter of 2022 was 14 point 1 million or 30 cents per share as compared to $6.1 million or 16 cents per share in the third quarter of 2021. Nevertheless, the nine months net loss available As the common stockholders decreased to $26.7 million, or 57 cents per share and the current year compared to $28 million, or 79 cents per share in 2021. This was positively impacted by much lower interest expenses from a loan from the European Investment Bank, or VIB, which has been partially repaid in the second and third quarter of 2022. Finishing off with our cash cash provision, we ended the nine months of 2022 with approximately $10.3 million, a decrease compared to our cash position at the end of 2021 of $36.1 million.

We continue to closely monitor our cash burn rate. The successful financing that closed on October 2022, meant that as of the date, we had $13.3 million in cash available two option. As mentioned on our last earnings call, our subsidiary graters and the ARB have agreed to amortize that tranche originally view in April 2022 over a 12 month period until April 2023. We repaid 5 million euros in April 2022, and in May began monthly installment payments for the remainder of the debt tranche of approximately 8.4 million euros over the 12 months period until April 2023. So as of today, we have about 4.2 million euros in debt repayment obligations left from the first tranche. There are two additional tranches of 3 million and 5 million euros principal plus accumulated and deferred interest as well as the PPI that becomes due in June 2023 And June 2024, respectively.

At this point, these changes remain unchanged by the agreement with EIB. Additionally, the company currently may sell up to $3.5 million of its shares of common stock under the company’s ATM agreement with HC Wainwright. In October, we chose to register for direct offering for gross proceeds of about $3.4 million. We plan to use the net proceeds from the offering to continue commercialization of the FDA cleared Acuitas AMR gene panel test for isolates in the US focus on commercializing the unibody. Platform and diagnostic tests support further the development and commercialization of the iris database. Support direct sales and marketing efforts to the customers and collaborators for our products and services, invest in manufacturing and operations infrastructure to support sales of product and repay so it’s an outstanding indebtedness of the company.

We intend to use the remaining net proceeds for working capital and other general corporate purposes. The company will continue to explore additional strategic and tactical equity and debt financing opportunities, as well as potential strategic alternative options throughout the remainder of the year and into 2023 to possibly further strengthen its cash position. mentioned on our previous earnings goals, our operating expenses remain in line with our expectations and prequel against our guidance for yearly net consumption. We anticipate continuing that track record this year at an expected net gross consumption of around five to $6 million per quarter from our operations. Following the restructuring of our EIB debt, we continue to see an additional cash outflow of approximately $700,000 per month until April 2023.

We are continuing to see growth opportunities, especially with product sales and with our our services here in the US. We believe our genetics have a strong business development and collaboration opportunity funnel, which will remain optimistic about what’s potential partnering deals that each could begin to contributing to revenue growth from 2023 onwards. As a result of our progress, and a third quarter of 2022 and hit to date, we expect future growth and the commercial rollout of univariable nt Acuitas AMR gene panel, we are focused on expanding and progressing or commercial pipeline, or the AMR gene panel as well as univariable LRP and UTI with several ongoing discussions with hospitals. This year, we have signed the first two commercial Acuitas agreements in Q two and Q three and also added a new universal UTI lab customer contract in q3.

We expect these numbers to increase in the weeks and months ahead. There are several new commercial contracts With Us customer accounts across universal and Acuitas product with a combined seven figure dollar value annually that we believe are currently in final review. And we believe this indicates a significant revenue growth potential for option. We are looking forward to our final UTI clinical trial data and readout and a subsequent regulatory submission for universal UTI to the FDA. Our goals for the longer term include expanding our our services business, as well as collaborations and partnerships with multiple ongoing conversations with potential us accounts and leading organizations in NGS diagnostics and pharma are newly opened with us next generation sequencing services lab here in Rockville, Maryland, is currently processing hundreds of samples for NGS sequencing for the UTI clinical trial, which was lower than anticipated 2022 signing of new contracts and ramp up of revenue on the signed contracts and collaboration agreements.

We now expect revenue from our products and services and collaborate collaborations globally for 2022, to be in a range of somewhere around 2.5 to $3 million. While this is lower than expected, we still have a strong pipeline of opportunities with significant revenue growth expected in 2023. Our income statement will soon reflect the proceeds from the fine collaboration, which will be recognized in q4 and into 2023. Also, we expect revenue recognition from the new buyer versus collaboration to begin in early 2020. For you. In August NASDAQ branded options requests for a 100 day extension to regain compliance with X nest x minimum bid price requirement. Under NASDAQ Listing rule. We have until the end of February 2023. To regain compliance with the minimum bid price rule, which we are confident about.

There will be a special meeting of stockholders on November 30 2022, to vote upon a proposal to authorize the board to implement a reverse stock split at a ratio not less than five to one and not now more than 20 to one. With that I’ll turn back but call to Oliver to discuss the company’s achievements and upcoming modules. Oliver.

Oliver Schacht: Thank you, Albert. I will now focus on upcoming milestones and how we plan to execute on our upcoming plans. For many months OpGen has recently received an update from Beijing clear biotech PCB regulatory advisors about feedback from China’s National Medical Products administration nmpa and new regulatory procedures that nmpa has recently implemented in China. We’ve been informed that they have a new electronic filing regime that we need to resubmit our filing for market approval for our pneumonia product. We’re in conversations with them to determine the exact impact on timelines and processes. Initial indications are that with the restart of the new submission, we could be looking at a 24 to 30 months overall process.

And within that, the ECB and their advisors estimate the duration for the clinical study to be around 10 to 12 months. We see this as a positive because there is now a much clearer path and well defined process that we like everyone else with new or pending submissions in China must follow. We’re looking forward to progressing with a clinical study and working towards a final nmpa submission and review and eventual clearance. Following an nmpa approval. There is still an unchanged commercial contract worth potentially up to $180 million to auction already in place over an eight year period. We hope to have more information in the near future and proceed with moving this forward. We have many milestones to look forward to regarding our universal platform.

Earlier this quarter we completed clinical trial enrollment for the universal UTI panel in the US. Due to the complexity and comprehensive nature of the datasets. We expect to conclude reference testing in the next few weeks, and then anticipate unblinding The study results in December of this year. Following final data readout, we will prepare the submission package for the FDA in early 2023 and target a submission by the end of the first quarter of 2023. The FDA usually takes about six to 12 months for its review and clearance decision. And we will have better visibility on timing and an update once we received their initial feedback in 2023. Also on the clinical front, we’re on track with our universal 830 platform on an IGI panel from synovial fluids We’re currently finalizing the development of the IGI panel cartridge, as well as working on the AMR test from blood culture under the find collaboration.

Our goal is to initiate a prospective multicenter clinical trial for the IGI product in the United States on the univeral 830 platform in the second quarter of 2023, ie after completion of the Find r&d collaboration project in preparation of a subsequent FDA submission of the IGI product. Our find r&d collaboration involves a feasibility study that is expected to conclude in the first half of 23. Find collaboration agreement already envisaged as a potential additional contract in order to develop any products through the required clinical trials and regulatory submissions towards a commercial arrangement for a number of selected LMI C’s. Both parties rate us and find would require a separate contract to address those aspects. And we would expect to begin talking about such additional contract in the first half of 23 and would then finalize it once the feasibility data is available.

This initial five contract is an exciting milestone for auction. And our subsidiary creators because find has a track record of doing deals that range from low to mid single digit millions, all the way up to several 10s of millions of dollars of funding in individual strategic collaborations. Therefore, Following successful feasibility data, there is potential for future collaboration opportunities here. In closing, we’re looking forward to several key catalysts and milestones upcoming for options. We plan to continue our progress throughout the end of this year and into 2023. On both the commercial and r&d front with collaborations, we look forward to updating everybody on our developments. Thank you for your continued support and for participating in this afternoon’s call.

I would now like to turn the call back to the operator for questions.

Q&A Session

Operator: Thank you. Our first question comes from V Chen with HC Wainwright . Please proceed with your question. I think he might be on mute.

Unidentified Analyst: Sorry. Sorry about that. Thank you for taking my questions. My first question is just for clarification. You mentioned the news deletions of Acuitas AMR gene panel. So does that mean the customers will have a new instrument installed and whether it’s going to tell us whether the customers are obligated to purchase a certain amount of the panel within a certain period?

Oliver Schacht: Sure. Good question. Yes. So, each of the contracts has a clearly defined minimum number of cartridges. In fact, we have seen purchase orders for the consumable cartridge or kits I should rather say not cartridges, Acuitas AMR gene panel kits come through, we have actually supplied those kits to the customers. But in order for them to begin testing, we first had to install the systems. If you remember, the Acuitas AMR gene panel does not run on our universal Plus system. It runs on a Kaijin easy one. So the sample prep and the Thermo Fisher quants studio five for the PCR, those instruments, both the Kaijin EZ one and the Thermo Fisher Qs five first have to be gone taken through IQ OQ testing by the respective Kaijin and thermo fisher field service engineering representatives that happens during the month of October at both sites, only then can we at OpGen upload the FDA cleared software and basically turn these systems into OpGen qualified systems for the Acuitas AMR gene panel testing, which basically means from contract signature to beginning to recognize revenues, there is a certain time lag to anticipate for the installation, the IQ OQ by external third parties, and then basically ordering shipping kits until the site begin testing but both of them have received consumables.

And yes, the contracts have clearly defined numbers for each of the contracts.

Unidentified Analyst: Got it? And regarding areas genetics, heiresses isolate sequencing services that is that has been launched in the US, is it generating a revenue studying the current quarter it’s hard to prove it right now the first quarter although you know, that’s not going to Gotta be recognized as revenue?

Oliver Schacht: Although it’s done at arm’s length as a as a commercial service, we’re processing the Univera UTI samples really, as a service by by the RS genetics US team. For for curators that is preparing that dataset. Again, you’re looking at, in fact, that’s over 1000 isolates that are being deep sequenced. If you look at sort of standard market pricing, the couple of 100 grand in an actual services, sales cycles for the isolettes sequencing service, hard to predict, you know, between now and the holidays, I wouldn’t speculate on whether we see revenue recognition begin in the fourth quarter or maybe early, early 23. But again, the sales funnel for ours isolettes sequencing services in the US, as well as in Europe, is growing, expanding, and there are some very attractive and very significant opportunities that are currently being pursued.

Unidentified Analyst: Got it? Got it. And finally, regarding the collaboration agreements with BNR, see if I am D and bio versus are these collaborations expected to generate revenue for the company?

Oliver Schacht: Yes, so start with the bio versus we anticipate that their clinical trial for their drug should get underway. And that’s the phase two clinical trial should get on the way here in the first quarter of next year. And we will begin recognizing revenue. As soon as you know, we basically start with initial trainings, they start renting a defined number of universal systems, essentially a system for each of the trial sites. And then we supply each of the each of the trial sites via their CRO with cartridges at, you know, essentially full, full price for these universal cartridges. So again, we expect that revenue recognition, as I said, it’s over the total total clinical trial duration, which again, for typical phase two and infectious disease, you’re likely going to look at at least 18 months overall trial duration, but that’s going to be a couple 100,000.

From from that find the 700,000. You know, again, we haven’t recognized anything in terms of revenue here in the third quarter. Now that the project is on the way, in the fourth quarter, and then into q1 and maybe into the early parts of q2 Next year, we anticipate the the impact on the on the p&l to get recognized again that seven out of 1000s over those couple of months will show up in the in a p&l being being recognized.

Unidentified Analyst: And then what was the other which was the Calabria. The first one was being the RNC. The Belgian national reference?

Oliver Schacht: Yeah, that that is that’s me. So that one is actually a true r&d collaboration with that, that will not be revenue generating. But both of the other bio verses and defined clearly have top line, top line growth potential. Okay, thank you.

Operator: That’s all the time we have today. I will now turn the call back over to options CEO Oliver Schacht first closing remarks.

Oliver Schacht: Well, thank you everyone for joining today. And please visit the investor section of our websites or our SEC filings for updates on the company. Thank you very much and have a great day.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.