OpGen, Inc.
Q2 2021 Earnings Call Transcript

Published: 12 Aug 2021

[Operator:]

Welcome to the OpGen Second Quarter 2021 Earnings Call and Business Update. At this time, all participants are in a listen-only mode. Following management's prepared remarks, there will be a Q&A session. As a reminder, this conference call is being recorded today, August 12, 2021. Before we begin, I'd like to caution you that any comments made during this conference call by management may contain forward-looking statements regarding the operations of and future results of OpGen, including its subsidiaries, Curetis and Ares Genetics. I encourage you to review OpGen's filings with the Securities and Exchange Commission, including, without limitation, the company's most recent Form 10-K and 10-Q for the second quarter of 2021 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, our ability to successfully achieve the expected synergies from the company's completed business combination with Curetis and to implement the combined company strategy, the impact of the continuing global COVID-19 pandemic on our business and operations, our use of proceeds from recent financings, pursuit of FDA clearance for the Acuitas AMR Gene Panel for use with bacterial isolates and for our other products and services, the rate of adoption of our products and services by hospitals and other health care providers in general as well as in the current COVID-19 pandemic situation in particular. The success of our commercialization efforts and partnering strategy, the effects on our 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 as of the date of this live call, August 12, 2021. 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 will be Oliver Shack, President and CEO; and Tim Dec, CFO of OpGen. I would now like to turn the call over to Oliver Shock for introductory remarks.

[Oliver Schacht:]

Thank you, operator, and thank you, everyone, for joining us this afternoon. As always, we appreciate your continued support of option. We're very pleased with our second quarter performance and strong momentum through 2021. We'll focus on our firm progress within our diversified portfolio of products combined with our growing partnerships. We look forward to increased activity in our pipeline in the near future as we continue executing on our strategy of becoming a leader in the molecular diagnostics and bioinformatics industry. On today's call, we'd like to begin with a recap of highlights briefly mentioned on the first quarter earnings call, followed by recent updates on our product and R&D pipeline. I'll then pass the call over to Tim to review financial highlights from the second quarter. We'll then wrap up the call with an outlook on the company's upcoming milestones, followed by a Q&A session. On our previous earnings call, we announced results from the very well-attended multi presentation webinar titled Pneumonia Diagnosis

[Tim Dec:]

Thank you, Oliver. On today's call, I will briefly touch on the highlights of the second quarter, discuss our balance sheet position and review underlying growth drivers for the business. Revenue for the second quarter of 2021 was $811,000, down 32% from $1.2 million for the prior year period. Even though revenue for the quarter was down, it is important to note by. Laboratory service revenues increased approximately 926%. The increase is primarily attributable to the inclusion of $200,000 of lab service subsequent to the transaction, including COVID testing services performed by the company's Curetis subsidiary. The increase in laboratory service revenue was offset by the following

[Oliver Schacht:]

Thanks, Tim. As a personal note, myself and the entire leadership team and Board of option are hugely appreciative of the great work you've done in recent years for option and your leadership in bringing option and Curetis together and completing the integration following last year's business combination. Knowing that you will literally be just two floors upstairs is great, and I wish you all the best for your new endeavor at Supernus. I would now like to talk about the company's recent and upcoming milestones. As stated earlier and on last quarter's call, we have submitted an updated 510(k) summary to the FDA for our Acuitas AMR Gene panel for isolates. We remain confident that OpGen has addressed all of the FDA's comments and edits to date. The FDA has previously stated that they expect to complete the review by the end of August 2021. Although the FDA said that their time lines can be affected by various factors, there have been no changes or amendments to the previously established time line, and we continue to expect to see a completed review by the aforementioned date. We delivered on our previously stated guidance and expectation to complete a batch of 10 final pre-series Unyvero-A30 analyzers. I can't stress enough how proud I am of the Curetis team achieving such an impressive milestone on time and within budget despite headwinds from COVID-19, global semiconductor shortages and other supply chain issues, testament to their flexibility and hard work, and it illustrates that our team can continue to execute and put our best foot forward while facing deep global challenges. We recently received additional feedback via our Chinese partners at Beijing Clear Bio, from the Chinese regulators at NMPA that the NMPA is asking for some supplementary clinical data on the Unyvero pneumonia cartridge to be generated in China and submitted to the NNPA to address ethnicity and prevalence differences in the U.S. and European data. Thus far, we're talking about a small-scale study of maybe around 600 samples to be tested. Together with BC, we're working on the next steps and logistics to ensure a swift execution of such a study, and we'll be providing further updates in due course. In closing, we're pleased with our R&D advancement and milestone achievements over the last few months. We'd like to thank all of our employees. Tim and I, along with the rest of the management team, are deeply appreciative of your continued commitment. Your dedication is integral to our success. To all our listeners, we're looking forward to updating you as we progress on our partnership strategy, R&D pipeline and pending clearance decision from the FDA as well as subsequent commercial launch of the Acuitas AMR Gene panel here in the U.S. heading into the third quarter of 2021. As always, thank you for your unwavering support and for participating in this afternoon's call. I would now like to turn the call back to the operator for questions. Operator?

[Operator:]

We will now begin the question-and-answer session. We'll take our first question from Ben Haynor with Alliance Global Partners. Please go ahead.

[Ben Haynor:]

First off for me, just on the PCB and the NMPA supplemental data that you'll need to be generating, it doesn't sound like it's going to take a long time to test 600 samples, but do you have any indication on how quickly the NMPA might be able to turn that around once you do submit the data that they've requested.

[Oliver Schacht:]

Ben, thanks for the question. So you're absolutely right. I mean, especially looking at the size and scale of some of these AAA hospitals in China and the high prevalence of pneumonia as a disease, we would anticipate enrollments for such a small supplementary study to be relatively short, definitely not more than a couple of months. Now the NMPA, however, at this point, still does not provide any clarity or guidance on their review time lines thereafter. They have, however, reviewed all of the submission data that we have provided from our FDA data, from our European data from the data that has already been generated in China, and this is sort of the ancillary or supplementary data set that they're asking for. So they're not going to be starting the review, but they're literally going to look at this incremental and supplementary data set.

[Ben Haynor:]

Okay. So that doesn't sound really all that bad, but I suppose you never know when you're dealing with any government agency. And then just - I apologize if you mentioned this, but just on the studies, the FDA studies for the UTI and IJI panels did you guys give an update on the time lines there? Are we still looking sometime later this summer for UTI and later this year for IJI?

[Oliver Schacht:]

Yes. So, good question. I didn't specifically comment, but we're absolutely on track with both clinical trials in terms of the preparation. - the UTI trial sites here in the U.S. are currently seeking IRB approvals and final clinical trial agreements are being reviewed by legal and finance. And we expect to get the UTI trial off to a good start here in the coming weeks. We already have sufficient instrument systems, Unyvero instruments here in the U.S. We're preparing large batches of UTI cartridges on the manufacturing side for the trial. And so everything is progressing as planned on track and no changes thus far.

[Ben Haynor:]

Great. And then on some of the clinical data that's come out here recently on LRT BAL 53% earlier adjustment of antimicrobial therapy escalation - appropriate escalation de-escalation and 42% of the cases. that seems like you're changing the therapy decision quite a bit. You do hear about other companies and similar studies saying, oh, well, we alter therapy 12% of the time or 26% of the time. Is there kind of a threshold that hospitals and facilities like to see before they even take a look at evaluating something in terms of alteration of therapy because I would think half the time would get everyone's attention pretty quickly.

[Oliver Schacht:]

It sure does. You're absolutely right. I mean when you - When you look at a lot of the literature and preconceived notions, probably people say, well, maybe it's 10% of cases, 15 on the outside. But we're seeing this time and time again, specific to pneumonia, which again is a critical disease and the current standard of care based on empiric broad-spectrum antibiotics is simply inadequate in a lot of cases. What we've seen with these data sets is a lot of kind of - not just raised eyebrows, but really sort of aha moments where clinicians, pharmacists and lab folks in some of the major hospitals that have generated these have gotten together, have pushed for some strong support towards their own hospital administration. So clearly, this type of data is extremely supportive of getting not only clinicians attention, but also the sense that, look, if we're inadequately treating half of our patients, I mean, that's a real problem. It's a problem clinically and from a patient management, but it's also a problem from any quality management metric from potential readmissions and CMS financial penalties. And the economics, if you look at, we've significantly spent time and energy working with several of these hospitals on some health economic modeling. If you look at some of that modeling, it typically takes - and again, it depends a bit on specific DRG coding and case numbers per hospital. But typically, anywhere from the mid- to high single-digit percentage into the very low double-digit percentage health economically, you have a clear justification. So if you're in the 40%, 50% - I mean this is economically a great support. So we're definitely excited by the data. We have an upcoming webinar on September 14, which we'll look at a study from Europe, which was an interventional trial, multicentric that looks again at sort of the clinical impact that Unyvero pneumonia testing can make. And again, I'd just encourage everybody to listen into that because of some really exciting data that speaks volumes to the problem and the solution that's right available.

[Ben Haynor:]

Yes. It's very intriguing for sure. And then lastly for me on the Ares signing up, I think you said five public health organizations in different European countries. Obviously, OpGen already had the New York State Department of Health agreement. It sounds like there's kind of - you guys are going to kind of have like an offering or almost a package that you'll be able to offer to other organizations and jurisdictions in public health. I mean, is that a fair assessment? Or what's the right way to think about it, if not?

[Oliver Schacht:]

Absolutely. I mean whether it's the Acuitas AMR Gene Panel for isolates which is very much focused on infection prevention and sort of public health monitoring, the Ares Genetics next-gen sequencing base is also very attractive as a tool, and you could potentially even imagine, as you said, packaging or combining some of these offerings. So yes, I mean, it is a strategic focus, bringing these types of solutions to public health institutions. And if we look forward here into the third and fourth quarter. In addition to these five public health institutions, the Ares Genetics team is already engaged with several national reference laboratories across Europe on several specific pathogens of concern that these national reference labs are responsible for. So again, you can definitely anticipate seeing more of that strategically getting the solutions into the hands of public health institutions, public health labs and then gradually moving from there into more patient-focused routine clinical routine, if you will.

[Ben Haynor:]

Okay. Makes sense. That's it for me. I just wanted to say, Tim, it's been a really enjoyable working with you, getting to know you over the years, and congrats on moving 2 floors up, and best of luck at the new age.

[Operator:]

Moving on we'll go to Chen with H.C. Wainwright.

[Analyst:]

This is Chad on behalf of Chen. I know that in your prepared remarks, you said you can't really get into the details of revenue expectations. But maybe help us understand some of the key catalysts or the key events that drive revenue expectations for the coming quarters? And specifically, if you could comment on the trend of operating expenses, that would be very helpful.

[Oliver Schacht:]

Let's start with the operating expenses. I think if you look at our G&A, R&D as well as marketing and sales have been extraordinarily consistent quarter-over-quarter. The guidance we've provided previously, and we definitely stand by that here today. So we're not expecting any significant changes. So we expect consistency in the third, fourth quarter and moving into early parts of next year on that sort of breakdown. I would say on the revenue side, you will continue to see that gradual shift as we move through the year, quarter after quarter, we'll have the fish business drop out. We completed and exited that, as we said in our previous earnings call at the end of Q1. So there will be no fish revenue, and it was just short of $2 million last year. that will be, over time, compensated by growing service revenue on the one hand and that services from the ours genetics offerings that we've just been discussing as well as some ongoing service offerings on the COVID testing side. But the real focus here is going to be on product sales and the key milestones here, I mean, obviously, being able to get back into hospitals and labs for the Unyvero. We've already seen a number of new and additional placements with some clinical reference labs here in the U.S. for the urinary tract infection. We've expanded that installed base here in the second quarter. I expect that to continue. And we also expect to drive forward with the clinical and commercial implementation at several of these institutions that have presented this great data. We now have that support and backing. So product revenue on the Unyvero side growing service revenue growing on the IRS genetics side. There's a couple of unknowns here. The current extension of the New York State Department of Health project runs through September 30. And as I commented, there's obviously the desire on all parties side to continue and think about extending and expanding that. But so far, we have obviously not signed anything or announced, but that's something to look for from the fourth quarter this year and onwards. And the obvious commercial catalyst here on the Acuitas AMR Gene panel is FDA clearance. Again, just to remind everybody, we have already manufactured multiple batches of product. It's sitting here in Rockville on the shelf. We're waiting for the final FDA clearance to be able to fix the final labels and basically start rolling out and launching that product. And then the other significant catalyst commercially will be China. And again, looking at those time lines, clearly, we're pushing forward as aggressively as we can to make sure that, that supplementary study gets done and gets done swiftly. And then once that approval comes through and the launch happens, again, over an 8-year period up to $180 million. But even in the first year, it should add materially to the top line revenue, both on instrument sales as well as pneumonia cartridge sales. But that's really the focus. U.S. direct sales on Unyvero, lower respiratory tract as well as UTI, continuing the distribution business in Europe internationally, China and then Ares Genetics. The other if you want to look at it as a potential catalyst, and there's certainly a few of them is partnering deals. And we have repeated and reiterated today that we are engaged with multiple parties around the Unyvero-A30 platform. Depending on the structure of such a deal, if you think about a classical licensing deal that may have elements such as an upfront license or technology access fee. It may or may not involve ongoing collaborative R&D funding. It may have certain milestones and then potentially future royalties, it's obviously difficult to project until you actually know the details of any such partnership, how the revenue recognition pattern from those types of deals would materialize into quarterly earnings. And the same holds true for any potential future deals with ours genetics. Again, they've continued to add deals, both with existing partners. They've added new partners, and it's our clear intention to continue adding strategic partnerships. And as I said, we have several specific proposals for collaborations and licensing opportunities from our genetics in front of several interested parties. And again, it will depend on the specifics of the deal, whether it's upfront lump sum payments, ongoing payments, royalty payments, revenue recognition on these will be hard to predict, and it will always be lumpy and deal-driven. But of course, from a cash flow perspective, any of these deals have significant potential to provide nondilutive cash and capital to option...

[Analyst:]

That was very helpful and comprehensive.

[Operator:]

And once again, it is star one at this time for questions. Moving on, we'll go to Max Jacobs with Edison Group.

[Max Jacobs:]

Actually, most of mine have already been answered. So I just was wondering what's the status of the New York Department of Health partnership? I know it expires on September 30. So just with some of the negotiations to go past that.

[Oliver Schacht:]

I'd venture a guess that the state of New York probably currently has bigger issues. But in all seriousness, this was a program that the previous governor had a strong interest in it at the Wadsworth there and at the New York State Department of Health, there is genuine and strong interest. They have gone through a lot of the data that has been generated already. They're working very closely with the three - in addition to Wadsworth, at the States lab. They're working with the three major labs, the Northwell NYU and Mount Sinai labs that have, if you remember, more than 35 affiliated hospitals that are feeding into that system. And we're working with them to really pull out and help in the interpretation of the impact this type of data can have on public health in terms of outbreak, tracing, tracking and monitoring. So we've certainly made it clear from OpGen's perspective that, to us, this is not a research interest per se. We're interested in driving this into clinical use and clinical routine and we're a commercial enterprise. So they full well understand that in order to keep the sort of metaphorically keep the lights on and the light house that we have deployed across the state. There needs to be an agreement that in an ideal world should be in place no later than October 1. From previous experience with the state, they're very reliable and constructive partner. Their legal team is not always the fastest. So we'll see where that stands. But again, all parties are genuinely working towards figuring out what the best path is here, and I'm not going to speculate on what that deal may look like. But as soon as we agree and to put something in place, we'll obviously let everybody know.

[Max Jacobs:]

Great. So that's it for my questions. And I just want to say best of luck Tim, with your fresher endeavor. We'll definitely miss you.

[Operator:]

That's all the time we have today. I will now turn the call back over to Mr. Schoch for any closing remarks.

[Oliver Schacht:]

Well, again, thank you, everyone, for joining us today. Please visit our Investors section on our website for all of our SEC filings for updates on the company. Really appreciate you taking part, and thank you very much.

[Operator:]

Thank you. And that does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.