OpGen, Inc.
Q3 2017 Earnings Call Transcript

Published: 11 Nov 2017

[Operator:]

Welcome to the OpGen Third Quarter 2017 Conference Call. At this time all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded, November 7, 2017. I would like to turn the conference over to Kim Golodetz. Please go ahead, ma’am.

[Kim Sutton Golodetz:]

Thank you, operator. This is Kim Golodetz with LHA. Thank you all for participating in today’s call. Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of OpGen Inc. I encourage you to review the company’s filings with the Securities and Exchange Commission, including, without limitation, the company’s Forms 10-K and 10-Q, which 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, timely and cost effectively develop, seek and obtain regulatory clearance for and commercialize our products and services offerings, the rate of adoption of our products and services by hospital and other healthcare providers, the success of our commercialization efforts, the effect on our business of existing and new regulatory requirements and other economic and competitive factors. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live call, today, November 7, 2017. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. I would now like to turn the call over to Evan Jones, OpGen’s Chairman and CEO. Evan?

[Evan Jones:]

Thank you, Kim, and thank you for joining us today. This afternoon, we will review our third quarter 2017 financial results and provide an update on our business plans and progress towards achieving key operational objectives. During the third quarter and in recent weeks, we continue to achieve important corporate milestones and the development of our Acuitas Gene Tests and Informatics for multidrug-resistant organisms. We achieved development of our first Acuitas AMR Gene Panel, the u5.47 test, and the Acuitas Lighthouse Knowledgebase, and we are planning to begin clinical validation studies during the fourth quarter of 2017. Consistent with our corporate initiative to obtain third-party funding for priority development programs, we were awarded a one-year $860,000 contract from the Centers for Disease Control and Prevention, the CDC, to develop smartphone-based clinical decision support solutions for antimicrobial stewardship, or AMS, and infection control in low and middle income countries. During the quarter, we made solid progress in our efforts to strengthen our balance sheet and to reduce operating expenses to extend our cash runway. In July, we completed a public offering for $10 million of gross proceeds with $8.8 million of net proceeds to the company. In early June, we took steps to reduce OpGen’s cost structure with a goal of achieving reduced operating expenses in the 25% to 30% range in the second-half of 2017. The results of this initiative were apparent in our third quarter financial results. We achieved a 29% reduction in operating expenses compared with the third quarter of 2016, a reduction of $1.6 million during the quarter. The results of our cost saving initiative and the progress we are making with our core business position, position OpGen to have a successful completion to fiscal 2017. I will now turn the call over to Tim Dec, our Chief Financial Officer, who will provide a brief summary of our third quarter and year-to-date results. Tim?

[Timothy Dec:]

Thank you, Evan. This afternoon, I’ll touch on our third quarter financial results and summarize our nine-month performance. Total revenue for the third quarter of 2017 was $745,000, as compared to $760,000 for the third quarter of 2016 and $703,000 for the second quarter of 2017. We are encouraged by the performance of our FISH rapid testing product line. After experiencing decline in our quarterly sales in late 2015 and early 2016, we have seen this line stabilized over the last five quarters. Total operating expenses for the third quarter of 2017 were $3.9 million, compared with $5.6 million for the third quarter of 2016, as Evan mentioned, a 29% reduction. The decrease was primarily due to the following items

[Evan Jones:]

Thank you, Tim. We believe that OpGen is well-positioned to become a global leader in using genomic analysis technology and informatics to help combat and manage drug-resistant infections worldwide. In the time that remains, I will touch on several of the key accomplishments from the third quarter and recent weeks and highlight anticipated corporate milestones. As I mentioned earlier, we are honored to be awarded a one-year $860,000 contract from the CDC to develop smartphone-based clinical decision support solutions for antimicrobial stewardship and infection control in low- and middle-income countries. We believe that this award is a validation and recognition of our standing in the community of those who are working to improve antimicrobial stewardship worldwide. This award funds the development and evaluation of cloud-based mobile software. OpGen will work with partners, TEQQA, and the Universidad El Bosque of Bogota, Colombia, led by Dr. Maria Virginia Villegas. And the TEQQA platform is a state-of-the-art mobile AMS solution that is commercially available and in use in major medical centers in the U.S. We will work to integrate data and Connection to WHONET, which is a critical enabling component to this initiative. WHONET is an information system developed to support the World Health Organization’s goal of global surveillance of bacterial resistance to microbial agents. WHONET analyzes the data of over 4,000 laboratories worldwide and is used in more than 120 countries. Following a successful completion of the CDC contract, there is potential that the program to be expanded from the pilot phase to a broader deployment of the underlying technology. We will keep you appraised of these potential next steps as the development work progresses. We are looking forward to closing out the year with our first Acuitas Rapid Test in the clinical validation phase and we are looking to release this groundbreaking test in the first quarter of 2018 for research use. We will be preparing to submit a 510(k) application with the Food and Drug Administration for marketing the test in the U.S. Separately, we anticipate preparing an application for CE Mark for commercial in Europe. We are currently finalizing the details for these two efforts, with the objective of completing our first regulatory submissions in the second-half of 2018. The design of our new rapid test for complicated urinary tract infections and the associated Acuitas Lighthouse Knowledgebase for predicting antibiotic susceptibility using resistance gene test results has been completed. The test and the clinical validation work will be run on Thermo Fisher’s new QuantStudio 5 mid-throughput real-time PCR system. After appropriate regulatory clearances, OpGen will provide that QS 5 to clinical labs along with the Acuitas Rapid Tests. Labs will interpret results using customized analysis software in OpGen’s cloud-based Acuitas Lighthouse Knowledgebase that match genomic analysis data with antibiotic susceptibility information and help provide physicians with new information that can help them make informed treatment decisions. This antimicrobial resistance test is to be the first in a series of OpGen tests that will help address the global antibiotic resistance crisis by identifying antibiotic resistant pathogens in less than three hours. Along with the Acuitas Lighthouse Knowledgebase, the dynamic cloud-based information store that is continuously updated for new resistance genes, results will help inform proper patient treatments. As noted in our press release earlier this afternoon, OpGen expects to advance the following business objectives through the remainder of 2017

[Operator:]

[Operator Instructions] And our first question comes from Yi Chen at H.C. Wainwright.

[Unidentified Analyst:]

Hi there. This is Mitchell [ph] on for Yi. Thank you for taking our questions. For the research use only test being released in the first quarter of 2018, who were your customers, and what is the expected revenue that that panel is suppose to generate in 2018?

[Evan Jones:]

Mitchell, thanks for joining and thanks for the question. Our customers will be a range of sites, including institutions that are doing genotyping for clinical trials and evaluation of infection control metrics and also selected clinical sites. But I would caution that there are very strict regulations as to how people can use that test while it’s in the research use space. And so we will have to be very careful to monitor compliance, and that’s why gaining the FDA approval is such a critical target for us.

[Unidentified Analyst:]

Okay. And is there any kind of guidance you can provide on the revenue for that panel in 2018?

[Evan Jones:]

Not at this point, no.

[Unidentified Analyst:]

Okay. And when we generate revenue for the AMR Gene Panel?

[Evan Jones:]

To be clear, they are envisioned to be the same product. The branding on that product, we call it, the AMR Gene Panel u5.47. And the U indicates urine sample, 5 indicates five pathogens, where we will provide semiquantitation, and the 47 is for 47 resistance genes. So we will begin making that product available for research use. There is genuine appetite for that product that we’ve seen to date, and then we will follow likely to gain approval with the same content.

[Unidentified Analyst:]

Okay, great. Thank you for that. And so my last one here is, what are the expected operating expenses that we can expect for the next couple of quarters?

[Timothy Dec:]

Yes, this is Tim. In terms of the operating expenses, if you take a look at what’s happened in this particular quarter, you can see how significantly they’ve been down from the historical levels, at least, through 2016 and into 2017. So I would expect to see those levels are to a degree even maybe 10% less across the board.

[Unidentified Analyst:]

Okay, great. I really appreciate it, guys. Thank you so much.

[Evan Jones:]

Thank you.

[Timothy Dec:]

Thank you.

[Operator:]

And our next question comes from Bob Wasserman from Dawson James.

[Bob Wasserman:]

Hi, Evan. Hi, Jim. Congratulations on the accomplishments and thanks for taking my questions. It’s a little bit related to what you’ve just answered. But with the AMR Gene Panel coming, at least, partially alignment in the first quarter, how do you see the – your – and you’ve been able – done a good job reducing expenses. Do you see those expenses bouncing back next year, early in the year, or really more later in the year if you get FDA approval?

[Evan Jones:]

Bob, thanks for the question. Let me start on this and then if Tim can provide more color, he will chime in afterwards.

[Bob Wasserman:]

Okay.

[Evan Jones:]

In our cost reductions that we did in June, a lot of the target there was to cut back on our sales and marketing expense pending FDA clearance for our product. And so we will time the investments to build back up our sales and marketing organization to be aligned with the FDA clearance.

[Bob Wasserman:]

Okay.

[Evan Jones:]

However, there are also some interesting opportunities we’re looking at that could develop in 2018, and if they do, they’ll result in some modest increases to sales and marketing.

[Timothy Dec:]

Yes, I don’t think I have much to add to that other than what Evan has touched on. We are really kind of stay close to invest with our cost structure. And as we see the revenue line move and we will pull the trigger on spending.

[Bob Wasserman:]

Okay. Would those opportunities relate to some type of partnership, either U.S. or overseas?

[Evan Jones:]

They relate to pharmaceutical testing projects for our new drugs and also the project we are doing with the CDC for the new software. We anticipate that that product will be commercially available in the back-half of 2018. And so that’s a new potential revenue stream and there would be an introduction associated with that.

[Bob Wasserman:]

Okay. Well, thanks. Thank you, again, for taking my questions.

[Evan Jones:]

Thank you.

[Timothy Dec:]

Okay, Bob.

[Operator:]

[Operator Instructions] And at this time, there are further questions in queue.

[Evan Jones:]

Then with that, I will thank all of you for joining this afternoon. For those of you heading to San Francisco for the JPMorgan Healthcare Conference, we will be holding one-on-one meetings across the street from the conference hotel and the dates are January 8 and 10, and please contact LHA if you would like to schedule a meeting. Thank you very much.

[Timothy Dec:]

Thank you.

[Operator:]

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.