OpGen, Inc.
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

Good morning and thank you for joining us today. I would now like to hand the call over to Megan Paul of Investor Relations. Megan, the floor is yours.

[Megan Paul:]

Welcome to the OpGen First Quarter 2021 Earnings Call and Business Update. At this time, all participants are in 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, May 13, 2021. Before we begin, I would like to caution you that comments made during this conference call by management may contain forward-looking statements regarding the operations of and future results of OpGen, including its subsidiary 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 Form 10-Q for the first quarter of 2021 that maybe filed with the SEC - that will be filled 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.

[Oliver Schacht:]

Thank you, operator and thank you everyone joining us this morning. We're very pleased with our first quarter performance and are undoubtedly off to a strong start to 2021. We have an exciting diversified portfolio of products and a strong cash position that supports an attractive combination of product revenue and partnership growth. We anticipate a robust pipeline of activity in the months ahead and look forward to establishing ourselves as industry leaders in the molecular diagnostics and bioinformatics space and believe we're well on the way. On today's call, we'll begin by discussing recent business highlights as they relate to the company's core capabilities and top line growth prospects. I will then pass the call over to Tim to review financial highlights from the first quarter, as well as recent financing activities. We'll then wrap up the call with an update on the company's strategic initiatives and pipeline outlook. I want to start by providing an update on one of the product portfolios OpGen has previously highlighted with an improved focus for the company, our proprietary Unyvero platform and unique bioinformatics capabilities. This focuses on expanding the platform to include complicated urinary tract infections and invasive joint infections in the United States, with two upcoming prospective multicenter clinical trials for future FDA submission.

[Tim Dec:]

Thank you, Oliver. On today's call, I will briefly touch on the highlights of the first quarter, discuss our balance sheet position, and read underlying growth drivers for the business. Please keep in mind that the business combination closed on April 01, 2020, therefore Q1 2021 results include the four quarters combined company, whereas Q1 2020 numbers are for OpGen's standalone only. Revenue for the first quarter of 2021 was $830,000, up 34.5% from $617,000 for the prior year period. The increase is largely due to the business combination of OpGen with Curetis offset in part by lower collaboration revenue related to our New York State project and lower FISH product revenue with final orders processed and delivered in Q1 2021. We have now closed out the FISH business entirely and not generate any further revenue from this product line in Q2 2021 and beyond. Operating expenses for OpGen for the first quarter of 2021 was $7.1 million compared to $4.6 million in the first quarter of 2020. Since the business combination our OpEx has been consistent and right on budget. R&D was $2.8 million, essentially flat over the last four quarters, G&A was $2.7 million also flat over the last four quarters, and sales and marketing was $900,000 likewise flat over the last four quarters. One item I would like to point out is in the other expense category. We reported a one-time non-cash accounting charge of $7.8 million associated with the real inducement which raised gross proceeds of approximately $10 million.

[Oliver Schacht:]

Thank you, Tim. I would now like to briefly highlight some of OpGen's key upcoming milestones in our development programs and commercial activities. As stated earlier and on previous calls, OpGen's has remained in constant dialogue with the FDA regarding the status of the Acuitas AMR Gene Panel for Isolates 510(k) submission, despite the ongoing delays in the review of non COVID-19 related submissions. Last October, OpGen had issued our formal response to the agency's additional information request, which we had received earlier in 2020. Following the submission in November 2020, we received notice from the FDA indicating they would be reallocating CDRH staff from open submission to prioritize emergency use authorization or EUA requests for in vitro diagnostics intend to address the COVID-19 pandemic. While the staffing focus on COVID-19 related EUAs within the FDA continues. We're pleased to report that at the end of January, the FDA had informed OpGen that they have formally resumed the review of our submission. OpGen had anticipated that this reallocation of FDA staff towards the review of its submission should have allowed for near term clearance decision for the Acuitas AMR Gene Panel. Although the FDA has recently reiterated to OpGen that is still not able to commit to any Medusa timelines. Recently in the last couple of days, the FDA provided further written updates to OpGen on their timelines and stated that they now and “expect to provide substantive feedback, review feedback within 120 days of the 29th January 2021 restart off the formal review, i.e. by the end of May of 2021”. And yes, we can confirm that most of the staff feedback has already been received to-date, an OpGen has already responded to such FDA feedback with our revised documents. Comments to the few remaining open items are expected in the coming days in May. The FDA also stated that they and again I “expect to complete the review within 210 days” off the review restart i.e. that will be on/or before 27th of August of 2021. However, the FDA cautions that the - and again “review completion timelines can be affected by submission complexity, as well as other incoming workloads and public health priorities”. So again to reiterate, this would suggest that all substantive feedback should be in by the end of May. And the FDA is completion of review and subsequent clearance decision should come on around late August. We're confident that OpGen has addressed all of the agency's comments, and suggested edits to key documents, such as the intended use statement, the instructions for use or package insert, electronic user guide and operating manual for Thermo Fisher QuantStudio 5 already. FDA feedback and comments to the 510(k) summary are still pending. Nonetheless, we anticipate a clearance decision at the FDA's earliest opportunity in line with the aforementioned timeline, which according to the FDA could now extend into Q3 of 2021. While the FDA is working towards their final clearance decision, we've continued full steam ahead with commercial launch readiness activities. We've already manufactured several batches of Acuitas AMR Gene Panel for isolates products, in preparation for commercial release. In other words, our commercial team is poised for launch. We've also made further excellent progress during the first quarter and year-to-date, in the final development phases of our Unyvero A30 RQ platform. We reiterate our expectation that by mid-2021, we should have a series of 10 instrument systems readily available for final verification and validation testing. We've already established several essays on the A30 cartridges, including one for SARS-CoV-2, flu A and flu B and RSV and one assay for several AMR markers. As previously mentioned, we can confirm that OpGen continues its dialogue with several potential partners for such a platform. We have received specifications for several potential products that could be developed on to such type of system, and we believe that a partnering opportunity for OpGen around A30 platform assets may present itself in the next several quarters. In closing, we're very pleased with our results for the first quarter of 2021. And head into the second quarter with a much stronger balance sheet and cash position and a robust pipeline of activities, and a corporate strategy that supports growth across the entire portfolio. We believe OpGen is in a strong position to pursue value creating opportunities to meet our growth and profitability targets. We're well on the way with exciting announcements, such as the extended partnership with New York State, validating peer reviewed publications, and a prospective pipeline that includes the pending FDA clearance decision for the guidance that the FDA provided, which we outlined during this call, and a swift subsequent commercial launch of the Acuitas AMR Gene Panel for isolates in the U.S. As always, thank you for your unwavering support and for participating in this morning's call. I would now like to turn the call back to the operator for questions.

[Operator:]

Our first question comes from the line of Yi Chen with H.C. Wainwright. Please proceed with questions.

[Yi Chen:]

Thank you for taking my questions. My first question is, you mentioned that there are still some remaining items that need to be addressed as requested by you? Is that correct?

[Oliver Schacht:]

That is correct. I think the one that I specifically called out was the 510(k) summary. Now, as the name suggests, the 510(k) summary is the overall summary of all of the other documents including the intended use, the instructions for use, the user guide, et cetera. So what we've already done, given that we have already received and incorporated all of the other feedbacks, we have proactively already put into this stuff by 510(k) summary, all of the items that we logically would anticipate the FDA to request since they have asked for those edits, wording changes, et cetera, to be made another document. So once we do get their feedback on that, we should be able to turn that around very swiftly and get it back into the FDA's hand.

[Yi Chen:]

And assuming you obtained marketing clearance at the end of August, what would be the potential market uptake during the remainder of this year after launch?

[Oliver Schacht:]

Well so we're obviously not providing any specific statistic in revenue guidance at this point. But the way to think about this launch, right frankly any other similar platform launches in the rapid molecular diagnostic space. If you're targeting large academic centers and public health institutions, of which there are several 100 across the U.S. we'll likely see a wide range of annual testing volumes and this could start as low as a couple of 100 tests a year and up to well over 1,000 tests per year per installation. So given our initial list price for this first-in-class and first to market, raw genetic AMR Gene Panel of $175 a test, and typical volume based discounting and commercial model that will likely rely on wage rental, you can anticipate that per installation annuities once these sites go live into clinical and commercial routine to be somewhere in the $50 to $150,000 per installation.

[Yi Chen:]

Got it. And with respect to the collaboration with New York State Department of Health, so after September 2021, what could likely happen in terms of another extension?

[Oliver Schacht:]

Well, when we look back originally, we had entered into the New York State the Public Health project back in 2019. It was designed to develop the platform for rapid and effective infection prevention and outbreak tracing and tracking and monitoring. The year two, which started on April 1 last year, was designed to deliver the testing volume and the data for the New York State Department of Health to assess the impact on how to best think about the potential statewide rollout across more hospitals and more labs in New York State. As we saw, that sort of during 2020 and due to COVID-19 testing was suspended for a couple of quarters and only restarted in fall, that's why we did the six month extension. We've seen great uptake, an uptick in testing volumes across all of the sites since then. When you sort of think about a year three and beyond, there's multiple potential components. So one thing, obviously we would want to see the spikes moving from using the research use only or Acuitas AMR over to the IVD once the FDA cleared. The next thing, we would anticipate adding more sites across the state of New York, it really gets it ultimately statewide. Right now, we have four centers, Wadsworth, as the New York State lab, and a large central lab at Wadsworth, one way at NYU with these 30 plus affiliated hospitals sending samples in protecting. One thing we've already seen here in recent weeks and months is, having added additional sites that are sending samples either to Wadsworth or to some of these New York City based labs. But again, so additional installations for additional testing site, expanding the hospitals that are in the network, sending in specimens, and then ultimately, once this has been proven to work as a model in the state of New York, really also looking at phase of potentially rolling this out to other states across the country.

[Yi Chen:]

So does that suggest that by the end of this year, there could be a potentially a formal commercial contract OpGen in New York state?

[Oliver Schacht:]

I mean there already is, the contract we have with New York State is a commercial contract that specifies the dollar amount that they're guaranteeing as a retainer. But could there be another extension? Yes, absolutely. I mean, our objective and we've done that with the year two, which was seamless, right after the end of year one, we had that second year contract start April 1 without missing a beat. We did the same thing for the six month extension. The year two formerly ended March 31 and as of April 1 this year, we now have that extension in place, so our objective would clearly be to continue that relationship seamlessly beginning with the fourth quarter of this year.

[Yi Chen:]

And finally, do you have any visibility at this time regarding when did Chinese NMPA approved the Unyvero cartridge pneumonia?

[Oliver Schacht:]

As we said in the call, we do not have any visibility - we're fortunate enough that for the first time in the year, the United States FDA has finally come back with a timeline which is robust and very specific and clear. The Chinese NMPA has so far not come back with any timeline. But again, they hadn't done this for the instrument either when there were questions that we had received and responded to back in the fourth quarter and late fall of 2020. They then went radio silent and then Q1 sent across the approval. So far, we have responded to all of their requests for additional data in Medusa on the cartridge. We've provided frankly all of the data that exists from clinical studies and trials within the OpGen group from U.S. FDA Unyvero pneumonia tests or from the European versions, as well as a number of external third party studies. So we believe we've provided everything there is, but we do not have visibility on their timeline. Very similar - so there is very similar to the United States, they have timelines in general that are similar to Medusa timelines. But like here, they've essentially suspended those timelines.

[Operator:]

Our next question comes from the line of Maxim Jacobs with Edison Group. Please proceed with your questions.

[Maxim Jacobs:]

I just have one question which you may or may not be able to answer. I was just wondering, so you mentioned that one of the reasons for the increase in authorized shares is central M&A activity. So I don't know if you could just give us a broad sense of like if there were M&A activity, what would a potential acquisition look like?

[Oliver Schacht:]

Good question, Maxim. So obviously, at this point, there is nothing concrete or specific. So we're not at this point working on any transaction or any specific acquisition more as we publicly guide it to any particular point. If you look at the history of OpGen though, OpGen today is the results not only of the M&A transaction between OpGen and Curetis and Ares Genetics, but OpGen historically itself have been the product of a merger between OpGen and Ares Genetics. So we have a history of looking at complimentary products that could be added into the portfolio that could be a good commercial fit. So, we clearly strategically intend to remain focused on our core theme of fighting antimicrobial resistance. So anything that's within infectious disease with a clear focus on AMR, and that is a synergistic fit through the product portfolio and pipeline, looking at potentially areas to strengthen the bioinformatics from - and Ares Genetics space, service and product offerings, those might certainly be areas looking further future growth. And some of the acquisitions historically you look back at the acquisition of what has now become Ares Genetics from Siemens was a cash based deal. So it wasn't actually a share based deal similar for the 830 platform when we originally acquired it, was a cast deal for the asset acquisition. So it's really more about creating the flexibility remain to potentially raise additional capital and/or strategic potential portfolio round outspent expansions.

[Operator:]

Our next question comes from the line of Ben Haynor with Alliance Global. Please proceed with your question.

[Ben Haynor:]

Thanks for taking the question. First off for me on the Ares universal pathogen assay, I think this is the first time you guys have disclosed, or at least that I've seen that it covers over 6000 genetic markers for AMR that seems like I guess potentially several orders of magnitude above most currently available tests, can you kind of give us a little bit more color on that assay and kind of some of the finer points of that?

[Oliver Schacht:]

Good spot there. Indeed, it is the first time that we have disclosed that. That's the name UPA stands for Universal Pathogenome Assay. So the goal here is really using next-gen sequencing and the full power of next-gen sequencing to bring a very broad panel that allows you to identify these genetic markers. Now, the way to think about this from a commercial rollout, this will initially be research use only provided as a service in Europe that certainly be in service into the Ares lab out of Vienna, Austria, here in the United States, of course people can always send isolates across the pond, but we're likely also going to be looking at channels of bringing that assay here. And then you can imagine over time from that universe of 6000 markers, it could be for specific questions, critical questions, you could imagine having targeted subsets, I would say it is prudent to assume that you're not likely never going to take - I shouldn't say never, but not anywhere in the near future would you take a panel as broad as this through an FDA process, simply because it'd be a daunting task from a clinical validation standpoint, there's a reason why essentially all next-gen sequencing providers and platforms have opted for a clear lab route rather than going the IVD kits and FDA clearance route. But you know, it also sets the benchmark for the type of depth and breadth of what we're able to get out of Ares database, and launch commercially as a service offering. And to remind you, I mean, this is in fact the panel that we have first pilot customers from the Austrian, equivalent to the Austrian FDA, and by now a handful of commercial customer sites across Europe. So it's definitely gaining quite some interest and that will be in the coming earnings calls, we'll be mapping out a very clear roadmap for the way to think about Ares Genetics launching and deploying its various subservices, starting with isolates sequencing service, going to the Universal Pathogenome more broadly, as well as some of the bioinformatics software specific offerings. So this is the first step in a series of launches that we anticipate making here commercially over the coming months.

[Ben Haynor:]

Okay, that's very helpful color. I guess, on the - FDA has written responses to the Unyvero UTI meeting requests application, were there any surprises in and then just I know it's commercialized outside of the U.S., but is there anything with that that kind of hinges on the Acuitas decision I know that's for isolates and not Unyvero based, but just anything to be thinking about on that front?

[Oliver Schacht:]

No, so for the Unyvero UTI, we had submitted what's called a request for a pre-sub meeting. These are entirely voluntary, it's always an opportunity, when you have a pre-sub meeting to get in front of the FDA, usually it's a one hour meeting and we even proposed to end this virtually in saying here is a handful of questions that might have incrementally helped shaping the clinical trial. Now given their priorities, and given that their backlogs, was absolutely no surprise that they said, and all they said is, look at this point, we're not hosting any pre-sub meetings, just not on our priority list. I was no substance to feedback whatsoever. I'm not even sure they read the document and our questions. They basically said you can resubmit but then it's going to take several months for us to review the request. And it's likely going to be, many months before we even begin starting thinking about scheduling. So we said well on balance, OpGen had previously had a number of these pre-sub meetings around the Acuitas urine trial. So we've actually got the benefit of quite some color and feedback from the FDA already and that frankly will be sufficient. Again, given that until last summer, that was an ongoing prospective multicenter urine trial. Yes, on a different platform, but ultimately from a pathogen and AMR marker coverage, extremely similar. So no surprises there also, just to expand on the FDA feedback. We did receive in writing on all of these documents for the Acuitas AMR, not a single surprise, not a single new question. These are what I would characterize as let's call them cleanup edits. Footnote, words missing, table formatting, where the FDA had come back and said look, we'd like you to combine three different genetic AMR markers that are all from the same family into one in your results reports. And after we've done that, they also said, yes, now you should kind of combine those three lines in that table into one that gives you a sense of - I mean, they're trying to clean up the documents format, the bullet points format the tables. You get the sense that they're getting ready to get this off their workload there. So again, we're confident that there's not been any substantive surprise or again no new question, no new issue raised, it's a question of time for the agency to work through the process and work through the motions.

[Ben Haynor:]

Okay, that's helpful. And then on the New York State, obviously, there are plenty busy and thanks for the color earlier on extension potentially, look like - but you also mentioned that, moving this into additional state kind of Department of Health type situations, my recollection is a while back that you guys might have had some conversations with folks, not formally. It doesn't sound like it, in other State Department of Health and such, is there anything that is kind of ongoing in discussions with other entities within other states right now or is everyone still kind of too busy with COVID to focus too much on it?

[Oliver Schacht:]

I would say general folks are probably still, coming to grips with - what's hopefully the tail-end of the COVID situation. Now, we've certainly identified across the United States a significant number of states and local health authorities and institutions that might very well be interesting partners and to have these types of conversations. But at this point, our focus for the Acuitas AMR Gene Panel, number one is the FDA clearance. Number two is then converting the New York State sites, they're using it to the FDA third kit, and number three is to get the New York State extension. And based on the learnings, all of the lessons learned, we're actually working very closely with all the stakeholders across all of the sites of New York State to also think of ways we can publish the data that's been generated throughout that two-year collaboration project. It's going to be a blueprint and a role model showing the benefits and the power that this type of solution can have. And then having that data in hand and having the clear, here's what we found, here is how it benefited, here is why we're continuing rolling this out more broadly in New York State, that's a much stronger pitch than going to any of these other states at this point. And the first question also, how is New York State doing with a broader rollout and you know where are you on the FDA clearance? So it's going to be a question of timing so at this point to be premature to speculate on any specific conversations there.

[Ben Haynor:]

Okay, that makes sense regarding kind of the sequencing of, other institution. And then finally, this is kind of open ended, but just curious on the reactions you've gotten from some of the state results and webinars that you've hosted, the co-infection study with HPN panel, you had the pneumonia webinar, to say anything of note that investors might be interested in, with regard to the reaction you've gotten from some of these things?

[Oliver Schacht:]

Yes, for the pneumonia webinar, we hosted - we had well over 1,000 pre-registered participants. I was really global, I would say it was probably roughly 50/50 between the U.S. and yes around the world. Lot of positive feed, but data I mean, you look at a negative predictive value of 99.8%. I mean, I seen the molecular diagnostics for almost 25 years, you don't often get to see this type of data, it mathematically doesn't get much stronger than that. So a lot of positive feedback, obviously, number of - as you always get, you always attract a competitive crowd for listening into these things, as you're publishing data, but also a lot of potential customers and leads and stakeholders within those sites. So it certainly helps strengthen and broaden the funnel of commercial sales opportunities. So once you have a number of ongoing conversations, as these types of studies since they were independently done, independently analyzed and presented, it's clearly validation of the performance and clinical value potential of the platform. So, very positive indeed from a feedback perspective.

[Operator:]

Thank you. That's all the time we have today for questions. I would now like to turn the call back over to Mr. Schacht for any closing comments.

[Oliver Schacht:]

Well really thanks, everyone for joining us today. Please visit the Investor Section of our website and our SEC filings for updates on the company. Thank you very much and look forward to keeping everybody apprised of the exciting news coming up. Thanks.

[Operator:]

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.