OpGen, Inc. (NASDAQ:OPGN) Q4 2022 Earnings Call Transcript

OpGen, Inc. (NASDAQ:OPGN) Q4 2022 Earnings Call Transcript March 29, 2023

Operator: Welcome to the OpGen Fourth Quarter and Full Year 2022 Earnings Call and Business Update. Before we turn the call over to OpGen’s management, please note that any forward-looking statements made during this call are based on management’s current expectations and observations and are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. OpGen does not undertake any obligations to update publicly any forward-looking statements to reflect events or changed circumstances after this call. For a discussion of factors that could cause results to differ, please see the company’s filings with the securities — for a discussion of factors that could cause results to differ, please see the company’s filings with the Securities and Exchange Commission, including without limitation, the company’s annual report on Form 10-K for the year ended December 31, 2022, and its reports on Form 10-Q and Form 8-K.

Joining the call today are Oliver Schacht, OpGen’s President and CEO; and Albert Weber, its CFO. Now I will turn the call over to Mr. Schacht for introductory remarks.

Oliver Schacht: Thank you all for taking the time to join today’s call. We’re pleased to have this opportunity to provide a business and financial update to our shareholders. We will then be happy to take questions. I would like to start the call by recapping our fourth quarter milestones and overall achievements in 2022. We started off the fourth quarter 2022 by announcing the successful completion of clinical trial enrollment for the Unyvero UTI urinary tract infection or UTI Panel. We had four study sites in the U.S., and they successfully collected and tested over 1,800 urine samples. Throughout the fourth quarter and in the first quarter of 2023, our team as well as external partners, providing additional reference testing data have continued working to review and analyze the unblinded data.

Preliminary analysis of all prospectively enrolled samples showed that the primary study endpoint was successfully met by demonstrating an overall weighted average sensitivity of 96.4% and overall weighted average specificity of 97.4% when compared against each trial sites standard-of-care microbiology results. These findings are also in line with the interim analysis performed during the first part of the trial. The detailed clinical and analytical performance results from this trial are currently being used to prepare a submission package for the FDA de novo request, which we will discuss in more detail later on. Additionally, in the fourth quarter, we signed a commercial collaboration agreement with BioVersys for the deployment and use of the Unyvero platform in BioVersys upcoming Phase 2 clinical trial of their novel drug candidate BV100.

In the planned Phase 2 clinical trial, hospital sites will be using the Unyvero HPN for hospitalized pneumonia patients as a rapid diagnostic test to help optimize enrollment. The BioVersys team as well as their CRO partner have been fully trained and the first Unyvero systems have been shipped recently and are ready for installation at trial sites. Overall, in 2022, there were several business advancements, which we would like to highlight as follows: The two new Acuitas AMR Gene Panel commercial contracts, the commercial launch of isolate sequencing services in the U.S. by our ARES team, the successful completion of verification and validation testing as well as lifetime testing for our Unyvero A30 instruments and the FIND collaboration project for the A30.

The commercial launch of a series of new genome sequencing and analysis services globally and the expansion of the strategic collaboration that Ares Genetics has with Sandoz until January 31, 2025. I will now turn the call over to Albert Weber, OpGen’s Chief Financial Officer. He will review financial results for the fourth quarter and full year 2022 and recent financial developments. Albert?

Albert Weber: Thank you, Oliver, and welcome to everyone on the call. I will briefly discuss the fourth quarter and full year 2022 highlights, review the full year 2022 financial results and conclude with some thoughts on our guidance for 2023. OpGen’s fourth quarter revenue for 2022 was approximately $722,000 compared to $1.4 million in the fourth quarter of 2021. And for the 12 months ended December 31, 2022, total revenue was approximately $2.6 million compared to $4.3 million in 2021, which was in line with our most recent guidance. However, compared to the third quarter 2022 revenue of $449,000, we achieved a 61% increase in the final quarter of 2022. This increase was primarily due to the revenue generated from the FIND collaboration project, Unyvero product sales and revenue we received under our Acuitas AMR Gene Panel commercial contracts.

While we experienced the overall revenue decline from 2021 to 2022 due to the termination of the FISH product line and the one-off nonexclusive sale of a portion of the ARES database, both in 2021, we are working towards increasing product sales across all platforms, i.e., Unyvero, Acuitas and ARES in 2023. For 2023, we will continue to work on generating revenue from existing commercial agreements as well as from new collaborations and customers. Looking at our operating expenses in the fourth quarter of 2022, they amounted to $10.7 million compared to $7.2 million for the same quarter in 2021. The increase in 2022 was mainly attributable to an impairment of the company’s indefinite-lived in process R&D and tangible assets totaling $5.4 million.

For the full year of 2022, operating expenses amounted to $37.2 million compared to $27.6 million in 2021. This increase was again primarily attributable to the aforementioned impairment of the in-process R&D intangible asset as well as an impairment of goodwill in the third quarter of 2022. Disregarding the noncash impairment charges in both years, our operating expenses decreased in 2022 by $2.6 million or 9.4%. Our fourth quarter 2022 Research and Development, or R&D expense, was $1.6 million compared to $2.9 million for the corresponding period of the previous year. i.e., a 35% reduction. Our full year 2022 R&D expense was $8.2 million compared to $10.9 million in 2021, an almost 25% reduction. Our fourth quarter 2022 general and administrative or G&A expense was $2.1 million compared to $2.5 million for the corresponding period of the previous year or a 16% reduction.

Our G&A expenses in the full year of 2022 were $8.9 million compared to $9.9 million in the previous year, i.e., a 10% reduction. Our sales and marketing expenses stayed consistent at approximately $1 million in both fourth quarters of 2022 and 2021. Our full year 2022 sales and marketing expenses, which included items such as market research, advertising, travel expenses, expedition and conferences and other marketing-related services was $4.3 million compared to $3.7 million in the previous year. The approximate 16% increase is due to the continued build-out of the sales and business development teams compared to the prior year as well as increases in on-site expenses due to lifted COVID restrictions. Finishing off with our cash position, we ended 2022 with approximately $7.4 million, a decrease compared to our cash position at the end of 2021 of $36.1 million.

The company continues to closely monitor its cash consumption rate and to evaluate potential future financing opportunities. At the beginning of the fourth quarter of 2022, we closed a registered direct offering for gross proceeds in excess of $3.3 million. In January 2023, we closed a $7.5 million registered direct offering as well. The use of the net proceeds for both raises have and will be used for the following purposes: Support continued commercialization of the FDA-cleared Acuitas AMR Gene Panel test for isolates in the U.S., commercialization of our products with a focus on the Unyvero platform and its diagnostic test applications and particularly in the U.S., support further development and commercialization of the Ares Genetics 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 our products, ongoing R&D for the Unyvero platform and related tests such as UTI as well as for the A30 platform and the repayment of certain outstanding indebtedness of the company.

As mentioned on previous earnings calls, our subsidiary Curetis and the European Investment Bank or EIB, agreed to amortize the first debt tranche that had originally been due in April 2022 over a 12-month period until April 2023. We repaid €5 million in April 2022 and then began monthly installment payments for the remainder of the debt tranche, which will total approximately €8.4 million over the 12-month period through April 2023. As of today, we have only about €700,000 in debt repayment obligations left from that first tranche. There are two additional tranches of €3 million, €5 million in principal plus accumulated and deferred interest that become due in June 2023 and June 2024, respectively. Let me now turn to our guidance for 2023.

In 2022, our operating expenses remained in line with our initial expectations and tracked well against our guidance for yearly net cash consumption. We have reduced our R&D expenses significantly and also reduced our G&A expenses and started growing our sales and marketing expenses in line with the planned shift to more commercial operations, in particular, in the U.S. market. We anticipate continuing that track record in 2023 at an expected net cash consumption from our operations of around $4.5 million to $5 million per quarter. In connection with the first tranche of our EIB debt, we expect an additional cash outflow of approximately $700,000 in April 2023, at which point, the first tranche will be fully repaid, including interest. We are in an active dialogue with the EIB about the potential to restructure the second tranche of €3 million principal plus accumulated and deferred interest, which becomes due at the end of June 2023.

We see significant revenue growth opportunities here in the U.S., especially with both the Unyvero product sales and with our Ares Genetics services. Ares has a strong business development and collaboration opportunity funnel which we are optimistic about potential collaboration opportunities and partnering deals that each could begin contributing to revenue growth from 2023 onwards. As a result of our progress in 2022 and year-to-date in 2023, we expect future growth in the commercial rollout of Unyvero products and the Acuitas AMR Gene Panel. We are focused on expanding and progressing our commercial pipeline for the AMR Gene panel as well as Unyvero LRT and UTI and are currently in several ongoing discussions with hospitals. In the post-COVID fourth quarter of 2022 and into the first quarter of 2023, we are seeing that hospitals have a significant backlog of investment needs and are taking longer than pre-COVID to complete contracts.

We have contracts for Unyvero and Acuitas that we believe are in final review with purchasing departments at several hospitals. Overall, there are several new commercial contracts with new customer accounts across Unyvero and Acuitas products as well as our sequencing services, which has seen first customer orders coming in and being processed during the first quarter of 2023 already. Taken together, our commercial funnel has proposals to customers with a significant dollar value annually that are currently in final review and negotiation stages, clearly indicating significant revenue growth potential for OpGen. Based on our final UTI clinical trial data readout, we are currently putting the finishing touches on our regulatory submission for Unyvero UTI to the FDA, which we expect in the coming weeks.

The study data set also includes the next-generation sequencing or NGS data that the Ares team in the U.S. generated by processing more than 1,000 isolates from our UTI trial, making us a comprehensive data package, further complementing the Unyvero UTI results, microbiology data from each trial site as well as standardized central microbiology data on all samples from an independent reference lab. With a slower-than-anticipated signing of new contracts, ramp-up in utilization of consumables under already signed contracts and collaboration agreement deal flow we expect revenue from our products, services and collaborations globally for 2023 to be in the range of approximately $4 million to $5 million. We believe we have a strong pipeline of opportunities with significant revenue growth expected in 2023 and across Unyvero, Acuitas and Ares-related offers.

Having recognized approximately $300,000 from the FIND collaborations in 2022, we expect to recognize the remaining more than $400,000 in revenue from this project in 2023. We also had an opportunity to possibly expand the initial FIND project by adding an expanded scope of work packages and have already begun the discussion of a separate follow-on collaboration project contract for the next phase, including for product development, clinical trials and regulatory submissions towards commercial availability of the Unyvero A30 product testing for AMR from blood culture samples in low and middle-income countries. Also, we have seen start of revenue generation from the new BioVersys collaboration in late 2022 and expect the bulk of revenue to be generated in 2023 and 2024 as their clinical trial progresses.

And finally, we completed our 1-for-20 reverse stock split in January 2023 and received subsequent notification from NASDAQ confirming that we have regained compliance with their minimum bid price rule. This concludes the financial update. I will now turn the call back to Oliver.

Oliver Schacht: Thanks, Albert. Before we turn to the Q&A, I would like to highlight our progress so far in 2023. On the commercial front, our subsidiary, Ares Genetics, announced their successful move to a new Vienna location and received a key patent brand in China. Also, Ares received its first commercial customer orders here in the U.S. and has begun processing them with revenue generation starting in the first quarter of 2023. With recent significant 28% growth in the number of data sets in our RSDB database, in the first quarter of this year alone, we believe we’re well positioned to continue executing on our plans to expand and improve our menu of accurate artificial intelligence models to predict antibiotic susceptibility from genomic data.

As mentioned earlier, based on the Unyvero UTI panel, U.S. clinical trials final readout, we’re now in the process of finalizing the FDA submission package, aiming for a timely submission of our de novo request early in the second quarter. We’ve been working alongside FIND in the development of the Unyvero A30 platform for their needs. At the beginning of 2023, we announced that we achieved several key milestones under this collaboration in December of 2022, which triggered a €200,000 milestone payment, which was received in the first quarter of 2023. We’re working towards completion of the remaining milestones here in the coming days and expect to receive confirmation of those milestones in the coming weeks, triggering another up to €300,000 milestone payment under the initial phase collaboration contract.

Following successful feasibility data, there is great potential for future collaboration opportunities, and we’re already in discussions with the FIND team for a follow-on deal that would cover product development steps, including clinical trials and regulatory filings as well as manufacturing scale-up in preparation to launch the Unyvero A30 in certain low and middle income countries. Also on the Unyvero A30 platform front, our focus is on non-dilutive partnership opportunities. Similar to our collaboration with FIND as well as certain U.S. government entities that offer funding opportunities, and we’re actively responding to certain broad agency announcements. We have also teamed up with a strategic advisory firm to support Unyvero A30 corporate business development campaign in China, where we believe there is an attractive opportunity to partner with and possibly license or otherwise monetize the A30 platform.

We’re still in regular weekly contact with our Chinese Beijing Clear Bio partners and are ready to move forward with the clinical studies and working towards a final NMPA submission review and eventual clearance. Given the abrupt change by the Chinese government in the first quarter of 2023, on its previous Zero COVID policy, we believe there may now be a realistic opportunity to see our local partner, BCB, initiate the outstanding clinical study in China for the Unyvero pneumonia product. Following NMPA approval, there is still a commercial distribution agreement in place with our Chinese distributor with potential purchase commitments over an 8-year period of up to $180 million. In closing, our near-term catalysts and milestones, along with our continued commercialization of our existing approved products puts OpGen in a good position to increase revenues.

We look forward to updating everyone on our developments. So 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.

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Q&A Session

Operator: Thank you. Our first question is from Nidhi Singh with Edison Group. Please proceed with your question.

Nidhi Singh: Hi, thank you for taking my question. My first question is related to Ares Genetics. It seems we are getting traction on Ares Genetics now. So what kind of contribution can we expect in FY ’23? And second is related to FIND collaboration. So I believe we are conducting the feasibility stage of Unyvero A30 under FIND collaboration by Q2 ’23, so what — could you provide an update on the progress to date? Thank you.

Oliver Schacht: Sure. Thanks, Nidhi. Good questions. So let’s start with the traction that we’re seeing for the U.S.-based next-gen sequencing lab for Ares Genetics. So we first completed a major in-house project with next-gen sequencing of over 1,200 isolates from our UTI clinical trial. This was a perfect dry run and test for our processes, throughput and measures and the team to get into the rhythm of processing large numbers of isolates week after week. And after we successfully completed that, we have since received the first customer orders for our isolate sequencing service offering. The samples have already been received here in Rockville and processed and sequencing data delivered. The first large health network with multiple affiliated hospitals in the Southeastern United States has signed a pilot agreement under which we expect to process about 200 isolates over a roughly 90-day period.

However, their objective is very clear. Subject to satisfactory completion of this pilot, assuming good performance, of course, in terms of rapid turnaround times, good data quality, et cetera, they’ll be looking at several thousand isolates per year to be run through the RS ISS process, making them a potential strategic key account with annual revenue volumes that could be several hundred thousand dollars in range. We’ll communicate further details once these materialize in the coming months, but we’re definitely off to a great start. Now on FIND, you’re absolutely right. We remain on track to conclude the feasibility stage collaboration here in the coming weeks. The remaining milestone payment, as we said, is roughly €300,000 once all of the milestones are delivered.

I know the team was traveling here in the last day or two to collect some of the last data with some of our external development partners. So assuming that based on that series of deliverables, including, for example, having prototypes for dedicated and tailored A30 touchscreen cockpit, additional data generated on the A30 cartridge from the blood culture assay, including many, many antimicrobial resistance markers as well as a certain data package based on next-gen sequencing, certain strains that we expect to get delivered by FIND from African countries. But as we said, we’re already discussing the potential extension and expansion of that initial contract. That could be a six-figure extension, which we’ll announce as soon as it’s been signed and there would be potentially some additional work packages.

And again, we’ll put more color around that as soon as it’s done. But already, the FIND team and the Curetis team are in discussions about the potential second stage contract that would be a broader agreement covering final research and development work, the broader clinical trials required for regulatory submission and eventually approvals and launch preparations in a list of low and middle income countries. Now obviously, any such follow-on deal will be dependent on the successful delivery of the first set of milestones as well as the completion of contract negotiations. But we’re definitely very excited here about the very near-term completion of those milestones, and we’ll provide that update as soon as it’s confirmed by FIND. And then these negotiations in parallel to potentially extend to Phase 1 would continue throughout Q2, and we’ll provide an update as soon as it becomes available.

Nidhi Singh: Okay. Thanks.

Oliver Schacht: To be very clear, in the guidance that we have provided, and I know Albert spoke about $4 million to $5 million revenue guidance for 2023, while that does include the current contract, it does not include any potential follow-on contracts.