OpGen Inc (OPGN) 2015 Q2 法說會逐字稿

Welcome to the OpGen second-quarter 2015 financial results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded Thursday, August 13, 2015. I would now like to turn the conference over to Kim Golodetz. Ma'am, please go ahead.

Thank you. This is Kim Golodetz with LHA. Thank you all for participating in today's call.

Joining me from OpGen Inc. are Evan Jones, Chief Executive Officer; Tim Dec, Chief Financial Officer and Dr. Kevin Krenitsky, President.

Earlier this afternoon OpGen announced financial results for the second quarter of 2015. If you have not received this news release or if you would like to be added to the Company's distribution list, please call LHA in New York at 212-838-3777 and speak with Carolyn Curran.

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 S-1 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 coming's results include but are not limited to the rate of adoption of its products and services by hospitals, the success of its commercialization efforts, the successful completion of its new product development efforts, the effect on its 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 the date of the live call, today, August 13, 2015. The Company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said I would like to turn the call over to Evan Jones. Evan?

Thanks, Kim, and good afternoon everyone. Thank you for joining our second-quarter financial results conference call. During the quarter and in July we made significant progress towards our goal of transforming infectious disease management through innovation in molecular diagnostics, information technology and microbiology to aid in reducing the burden of drug-resistant infections and improving patient outcomes.

This afternoon I will provide an update on key strategic objectives at the Company. Tim Dec will review our financial results for the quarter and six months ended June 30. And Dr. Krenitsky will review recent commercial progress.

I will now turn the call over to Tim to begin the financial review.

Thank you, Evan. This afternoon I will touch on the highlights of our second-quarter financial results, summarize our year-to-date performance and briefly discuss subsequent events.

Let's start with the quarter. Total revenue for the second quarter of 2015 was $400,000 as compared to $1.1 million for the second quarter of 2014.

The decrease was attributable to contract R&D funding with Hitachi High-Technologies which reflects the late stage of this project. Total revenues declined reflects the Company's previously announced strategic shift from its legacy products to its Acuitas MDRO products and the Acuitas lighthouse management system.

Total operating expenses for the second quarter of 2015 were $3.4 million as compared to $2.5 million in the second quarter of 2014. The increase was due to the following items.

Research and development expense of $1.1 million in the second quarter of 2015 was down from $1.2 million in the second quarter of 2014. This was due to a reduction in outsourced software development.

General and administrative expenses of $1.4 million in the second quarter of 2015 compared with $500,000 in 2014. The increase was due to higher salary, consulting and public company expenses.

Sales and marketing expenses of $900,000 in the second quarter of 2015 compared with $500,000 in 2014. The increase is due primarily to a clinical outcome cost-benefit study.

The Company reported an operating loss of $3.1 million for the second quarter of 2015 compared with an operating loss of $1.4 million for the second quarter of 2014. We reported other expense of $2.3 million for the second quarter of 2014 compared with other expense of $7,000 for the second quarter of 2014.

The increase in other expenses in the quarter was due to two items. First, a one-time non-cash interest expense of $1.6 million related to the conversion of our convertible notes in May in conjunction with our initial public offering and secondly, a non-cash charge for a change in fair value of derivative financial instruments of $700,000. The net loss attributable to common stockholders for the second quarter of 2015 was $5.4 million, or $0.84 per share versus a net loss attributable to common stockholders for the second quarter of 2014 of $1.6 million, or $4.49 per share.

Shifting to the year-to-date results, total revenue for the six months ended June 30, 2015 was $800,000 as compared to $2.2 million for the same period of 2014. This decline was primarily driven by a reduction in collaboration revenue of $1 million as we wind down our contract with Hitachi and a $200 million reduction in our legacy mapping business.

Total operating expenses for the first six months of 2015 were $6.4 million as compared to $4.8 million in the same period 2014. The increase was primarily due to higher salaries, consulting, stock-based compensation and public company costs.

Operating loss was at $5.6 million for the six months ended June 30, 2015 as compared to an operating loss of $2.6 million in the same period last year. The net loss attributable to common stockholders was $8.2 million for the six months ended June 30 or $2.35 per share compared with a net loss attributable to common stockholders of $2.9 million or $8.11 per share.

Turning to the balance sheet, the Company had cash and cash equivalents of $10.2 million, accounts receivable of $200,000 and inventory of $300,000 as of June 30, 2015. Concurrent with our initial public offering our 2014 and 2015 convertible debt and our Series A redeemable preferred stock was converted into common stock resulting in a simplified capital structure going forward. As of June 30, 2015 we are essentially debt free.

Subsequent to the close of the second quarter we purchased AdvanDx for equity consideration valued at approximately $2.6 million. We are required to file certain financial information relating to AdvanDx with the SEC by the end of September and we are in the process of completing this submission. Due to this pending financial disclosure, we will not be providing detailed financial information on AdvanDx until after this filing is made.

Also subsequent to the close of the second quarter, OpGen completed a $6 million financing in which the Company entered into a purchase agreement with Merck Global Health Innovation Fund pursuant to which Merck GHI purchased approximately 1.1 million shares of the Company's common stock at a price of $4.40. The Company also issued to Merck GHI a senior secured promissory note in the principal amount of $1 million with a two-year maturity date from the date of issuance.

In conclusion, we anticipate a continuing change in the mix of our revenue as we gain momentum for our MDRO testing business and integration of AdvanDx. We will carefully monitor our operating expenses as we combine the two companies and seek synergies and opportunities to leverage their expertise.

With that I will turn the call over to Kevin who will provide an update on our commercial operations.

Thanks, Tim, and good afternoon everyone. The recent acquisition of AdvanDx helped to accelerate our commercial aspirations from both a product portfolio and a human capital perspective. The addition of this rapid diagnostic capability not only opens new customer channels for us, both domestically and internationally, but it also affords us the ability to tailor some of our deep molecular resistant assays to the backend of AdvanDx QuickFISH results to provide rapid pathogen detection as well as comprehensive analysis of resistant genotypes.

Our current commercial team has increased to 10 individuals, each having significant expertise in the sales and/or marketing of complex infectious disease assays. This includes the hire last month of Valerie Darling as Vice President of Commercial Operations. Valerie has deep experience in growing and managing sales, marketing and payer teams in both start-up as well as Fortune 500 companies.

Valerie was part of the very early commercial team at Genzyme as well as one of the first commercial employees of J&J's then newly formed hospital division. She has left a legacy of strong growth and successful commercial cultures everywhere she has worked. As to our current headcount plans we expect to finish the year with 12 individuals on the commercial team.

As we alluded to on our first-quarter call we are currently finishing several pilot studies and are in the process of converting several sites into routine OpGen clients. In addition and perhaps most exciting is the fact that we're about to start a major testing initiative in multiple hospitals spanning an entire major metropolitan area in the US.

This initiative was planned with OpGen and multiple constituencies in this geography including the Department of Health responsible for this area. This is a multicenter project that will test individuals at multiple hospital sites for the presence of MDROs and allow for broad epidemiological and patient care conclusions to be assessed and drawn as all testing and patient information will be housed and results delivered in OpGen's state-of-the-art Lighthouse bioinformatics platform.

The Acuitas Lighthouse system has capabilities to dramatically improve patient care as well as MDRO management with its advanced tracking and alert capabilities. This is a paid study in which OpGen will be receiving revenues for our unique testing workflow which includes our rapid MDRO gene test followed by our deep molecular assessment with Acuitas Resistome in all MDRO positive samples.

In addition, we will be performing whole genome sequencing on a research use basis on all MDRO positive samples as well. This detailed information will add to the already rich knowledgebase contained in our Lighthouse platform.

Lastly, while we expect the future routine use of Acuitas testing solutions to be commonplace across systems in the linked geographies as described in this study we are also well into several studies as Tim alluded to in his discussion of operating expense. These studies are at prestigious institutions and involve measuring the impact of Acuitas testing on patient outcomes as well as health system cost savings when routinely using the information provided by our testing solution. In the end we're very confident that using our testing along with the powerful analytic capability and the Lighthouse system will clearly show improvement in patient outcomes as well as strong health economic benefits at systems employing OpGen's testings and analytic capabilities.

With that a will turn the call back to Evan.

Thank you, Kevin. The MDRO screening initiative for an entire metro area is an example of the progress we are making with our Acuitas testing business.

This initiative is in one of the top metro areas in the United States. We anticipate making a public announcement of the location and our partners as the program proceeds to the testing phase in the coming months.

In addition to this commercial milestone and our progress with additional hospital clients, we completed three strategic transactions during July. We entered into a five-year agreement with Fluidigm to develop multidrug resistance testing kits and equipment based on their microfluidic instruments and components, we completed a $6 million financing with Merck GHI and we completed the acquisition of AdvanDx.

The Fluidigm agreement expands and extends the current supply agreement between Fluidigm and OpGen for CLIA lab-based tests and provides a framework for OpGen to develop diagnostic tests based on Fluidigm components and instruments. We will work together to support OpGen quality system, regulatory and compliance needs. The expanded collaboration includes development of test kits and custom analytical instruments.

AdvanDx is a market leader in molecular testing of blood cultures. The Company's QuickFISH products are FDA approved and provide 20-minute identification and differentiation of gram-negative species and other blood pathogens. The AdvanDx team has been working for several years on a next-generation version of its products and since the acquisition we have confirmed our plans to proceed with these programs.

The lead product under development is a rapid Multiplex organism ID test for 18 individual bacteria and fungi from positive blood cultures. An automated digital slide reader is under development to aid in processing the slide-based tests and to provide automation of the FISH imaging steps.

These are rapid automated tests that we believe will compete well in the US and global markets. We anticipate a meaningful commercial contribution from the new Multiplex products during 2017.

AdvanDx had unaudited gross revenue of approximately $1.8 million to, $2 million for the first six months of 2015 with gross margin in excess of 70%. We anticipate growth for these products in the coming years as we pair our existing high resolution molecular testing with the rapid QuickFISH products and also begin to introduce the new Multiplex products.

The Merck GHI investment brings additional capital and expertise to OpGen. AdvanDx has worked with Merck since their initial investment in 2014 and we look forward to expanding on these initial activities during 2015 and beyond.

The remainder of 2015 should continue to be an active and productive period for our Company. We anticipate the formal announcement of the major metro area MDRO screening program and conversion of additional hospital accounts and health systems. We also anticipate the release of the Lighthouse web portal and increased communications activities to the public and investors.

This continues to be an exciting time for OpGen and we thank you for your continued interest and support of the Company. Operator, please begin the question-and-answer session.

(Operator Instructions) Peter Sarner, National Securities.

Hi guys, hi Evan, how you doing? I just wanted to cover with you the announcement first of all that came out today where Roche was acquiring GeneWEAVE and the technologies that they have.

Can you just talk a little bit about I understand there's a big, well, there's consolidation around in the industry and there are bigger players who are trying to work diagnostic testing with the antibiotics. But can you just discuss one, how your technology differs from something like GeneWEAVE or some of the other ones out there and why with the efficiency of it and accuracy of it why it's more of a leading one that major hospitals and companies would look at you guys first as opposed to somebody else?

And then just as a follow up on that, if you can just talk a little bit about where things are going. I understand globally that there's a big push towards testing for this because of the amount of people that get diagnosed and die every year with this. But just kind of where this is going in the large picture and with all the bigger companies starting to get more involved with diagnostic testing now as well.

Sure, and thanks for the question, Peter. Let me just say that when I finish if we want more detail we can get Kevin to add in on it. I guess the first thing to say is we've been following GeneWEAVE for several years and our assessment is that the technology is still early.

There are no commercial products. But I think it's important to recognize the commitment that Roche is making to molecular diagnostics and also to congratulate the GeneWEAVE team and their investors for this success. It's clearly a great thing for our space and it shows you the value of companies like theirs or ours to large strategic investors.

The way to think about the GeneWEAVE product is it's a rapid test that looks at for the microbe was it susceptible or resistant to an individual drug? And that's by nature a fairly narrow test. It tells you for some antibiotics which ones would work.

That's potentially interesting. They also have tests that are not unlike the AdvanDx test to say we want to do a rapid ID of an organism.

The difference between that approach and OpGen is a couple fold. First, OpGen has already got FDA approved organism ID tests that are 20-minute tests through AdvanDx. So in some ways the side of rapid organism ID has already been built out and we just talked about the new Multiplex product.

Then the second side is on the resistance. What we do with our test is emerging into what I think of as a deep antibiotic susceptibility test. It's a genotype-driven susceptibility test.

So instead of looking for one or two antibiotics and saying this individual drug could work we give all the information for the classes of drugs. If you were thinking about cancer testing and foundation medicine you'd have the deep genomic analysis and compare that with a cancer hotspot test.

So there's going to be room for everything. It's incredibly exciting in hot field. And sitting here and reflecting on where we are for instance with our equity price it's clear we're tremendously undervalued.

I didn't get into your big picture question. I don't know, Kevin, if you want to talk about the big picture.

I think it's clear that there's a crisis out there. I think we've known that for some time. I think it's a growing crisis.

This is something that hasn't been lost on the White House. And it is certainly not lost on the large strategic players as you saw with the deal today. In terms of where this is going I think you'll see more activity in the space.

They'll potentially be a move towards more consolidation in the space. Ultimately we need to move towards more systems that have more rapid detection and provide broad and deep molecular profiles of the resistant genes in these organisms so we can get ahead of the problem as opposed to being behind the problem where unfortunately we are as an industry today.

Right, okay. And just one other thing. Is there anybody out there that is doing successful diagnostic testing in this area that's more large-scale in the hospitals already that's effective?

I think Evan was very accurate in stating that there are a number of players out there that have what one would consider to be relatively narrow-based solutions to the problem, looking at individual pathogens, looking at the detection of a few resistance genes, looking at the possibility of an individual antibiotic working or not working in a specific pathogen.

And really that's the landscape you see today. And as Evan stated it differs a little bit from the approach that we're taking which is a very broad molecular approach, looking at the molecular, the genotype at the ASP derived from that genotype in a very rapid and broad manner.

And Peter, Evan here again, I don't think I can understate the importance of this large metro area project we're doing in terms of demonstrating the value of our approach. You've got literally every hospital in a major metro area, the public health group saying this is the way we need to go to collect this type of information across our help system and build it into the Lighthouse database.

You could see a time in the future where we've got that kind up position in multiple cities across the United States and how powerful that would be in terms of informing choices about what antibiotic you should use on a sick patient.

Right, okay, thank you very much, guys.

(Operator Instructions) There are no further questions at this time. Please proceed with your presentation or any closing remarks.

I'd like to thank all of you for participating on today's conference call. And we look forward to our next conference call which will be in November, we don't have one before then. Thank you very much.

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