OpGen Inc (OPGN) 2016 Q2 法說會逐字稿

Welcome to the OpGen, Inc. second quarter financial results 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, August 9, 2016.

I would now like to turn the conference over to Kim Golodetz. Please go ahead, ma'am.

Thank you, operator. 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 2016. 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 Kern].

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 Form 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 statement.

Factors that may affect the company'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 requirement; 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, August 9th, 2016. 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?

Thank you, Kim. The second quarter of 2016 was another period of solid progress for OpGen -- the increased revenue over the prior year; we successfully completed the Intermountain Healthcare Retrospective MDRO Outcome Study; we closed the $10.4 million private placement. This afternoon we will provide an update on recent development and our plans for the future. Tim Dec will discuss our financial results, Dr. Krenitsky will review commercial and operations progress for our marketed products, and I will conclude by reviewing strategic development plans at the company.

Tim?

Thank you, Evan. This afternoon, I will touch on the highlights of our second quarter financial results and summarize our second quarter 2016 performance. Total revenue for the second quarter of 2016 was $1.2 million, compared with $400,000 for the second quarter of 2015; a 215% increase. This increase was due to sales of our rapid pathogen ID molecular diagnostic products. Gross margin on product sales was 67% for the second quarter of 2016.

Total operating expenses for the second quarter of 2016 were $6.2 million compared with $3.4 million for the second quarter of 2015. The increase in the expenses was due to the following items -- research and development expense of $2.4 million in the second quarter of 2016 compared with $1 million in the second quarter of 2015. The increase was due to salary costs, lab supplies, and R&D expenses attributable to the QuickFISH automation project. General and administrative expenses of $1.8 million in the second quarter of 2016 compared with $1.4 million dollars in the second quarter of 2015. The increase was due to increased salary cost, facility cost, and public company cost. Sales and marketing expense of $1.6 million in the second quarter of 2016, compared to $900,000 in the second quarter of 2015. The increase was due to cost associated with our expanded sales and marketing team, the Intermountain Healthcare retrospective study that Evan mentioned, and tradeshow expenses.

The company reported a net loss of $5.1 million for the second quarter of 2016 compared with the net loss of $5.4 million for the second quarter of 2015. The net loss attributable to common stock holders for the second quarter of 2016 was $5.4 million or 37 cents per share, compared with a net attributable to common stockholders for the second quarter in 2015, a $5.4 million or 84 cents per share.

Total revenue for the six months ended June 30, 2016 was $2.3 million compared with $800,000 for the six months ended June 30, 2015, a 167% increase. This increase was due to sales of our rapid pathogen ID molecular diagnostic products of $1.4 million over the prior year and laboratory services which included $100,000 over the prior year.

Our year-to-date gross margin on product sales was 65%. Total operating expenses for the six months ended June 30, 2016 were $11.8 million as compared to $6.4 million in the same period of 2015. The increase was due to the following items -- research and development cost of $4.3 million as compared to $2.1 million. This increase was primarily due to salary cost, lab supplies, and R&D expenses attributable to the QuickFISH automation project. General and administrative costs of $3.3 million as compared to $2.1 million due to increased salary cost, facility cost, and again, public company cost. Sales and marketing cost of $3 million as compared to $1.9 million. The increase was due to cost associated with our expanded sales and marketing team, the completion of the Intermountain retrospective study, and trade show expenses.

Net loss was $6.9 million for the six months ended June 30, 2016, as compared to a net loss of $8 million in the same period last year. The net loss attributable to common stockholders was $10 million for the six months ended June 30, or $0.73 per share, compared with the net loss attributable to common stockholders of $8.2 million or $2.35 per share.

Turning to the balance sheet. The company had cash and cash equivalents of $8 million as of June 30, 2016, which reflects the completion of the private placement during the second quarter which raised gross proceeds of $10.4 million.

We have made a great deal of progress this year, and we are optimistic for continued improvement in the second half of the year and beyond. As mentioned during our previous calls, we are very mindful of expenses and our cash burn. However, we will judiciously invest in our future growth through targeted research and development, and sales and marketing investments critical to our success.

With that, I will turn the call over to Kevin who will provide an update on our commercial and operational activity. Kevin?

Thanks, Tim, and good afternoon, everyone. We've continued to make steady progress with our product development and commercial activities on several fronts. We are continuing the adoption of our rapid QuickFISH products in hospital systems. In addition, we achieved key internal milestones in the development of the new digital imager, which automates QuickFISH analysis and eliminates the need for the use of a microscope to perform testing, thus reducing technician hands-on time. The early performance of the product is impressive, and we are excited about its future role in expanding out client base both domestically as well as globally.

On a positive operational note, our lab had a successful inspection by the New York State Department of Health two weeks ago, and we are now awaiting official notice of approval. We expect that before year end. As many of you are aware, New York State sets a high bar of excellence for laboratory and test certification. Gaining New York State approval allows OpGen to sell our Acuitas products and services throughout the United States given our other current licenses.

Our current commercial infrastructure stands at 13 people with eight headcount directed to direct product sales. We're evaluating the ROI of adding additional sales representatives in the second half of the year. This is mainly based on our gaining greater insight into the target hospitals for rapid QuickFISH testing and the planned introduction of automated QuickFISH capabilities in 2017. Signaling a positive turn in the business, we recently started adding new small to mid-size regional hospitals as clients for QuickFISH. We are actively segmenting the U.S. hospital market to ensure our still relatively small sales team is focused on the right accounts.

Regarding our database development efforts, we have continued to make excellent progress in the building of our globally applicable Lighthouse data warehouse. The Acuitas Lighthouse web portal, which is the client-facing interface for the Lighthouse data warehouse, is now available commercially and serves as a powerful analytic tool that allows OpGen clients to access and track our testing and surveillance results in one user-friendly interface. It's an effective tool to fight the growing MDRO problem and also serves as a definitive lab portal for patient-specific testing results allowing better clinical decision-making.

Regarding the large health outcomes initiative that I had mentioned previously, we just announced to completion of the Intermountain Healthcare MDRO Retrospective Outcome Study. OpGen supported this groundbreaking study that is the first of its kind to look at the impact that multi-drug resistant organisms of many types had on a large, integrated healthcare network over an eight-year period in 2008 to 2015.

The study was comprehensive. And in addition to scoping the antibiotic resistance burden within the system, ultimately, it looked at current turnaround times for infectious disease diagnostics and their relation to antibiotic use. In addition, the study anticipated the impact faster and more effective diagnostics would have on health as well as economic outcomes. The sheer amount of data - the sheer amount of useful data generated from the study was significant. And while much of it will be disseminated over the coming months in the form of presentations, posters, and publication, certain data elements will remain proprietary as they will allow us to further hone our product development roadmap.

We anticipate that these data will enable our sales strategies to the C-suites of major health systems in the U.S. Prior to the Intermountain Healthcare Study, we had very limited health economic and outcomes data to support the use of system-wide MDRO surveillance. We now have hard data from one of the largest and most well respected health systems in the country.

The next phase of the Intermountain Healthcare collaboration will focus on the use of OpGen's technologies to help guide clinical decisions with the goal of improving patient outcomes and reducing costs associated with drug-resistant pathogens in C. difficile infections. In each case, we have the opportunity to document improvement relative to the baseline data we have established.

We now have a much more informed idea of the patient sub-types bringing these superbugs into the hospital inpatient ecosystem, and we can tailor our testing programs based on this proprietary data. It's also clear that knowing this information upfront can lead to improved patient outcomes and very significant health system savings. We will be arming our commercial team with select white papers and data points that we believe will be powerful collateral in selling our Acuitas products and services into healthcare systems to help them protect inpatients from these deadly infections.

OpGen already has several marketed products and services to help halt the progression of a growing MDRO global epidemic and to aid physicians in guiding patient therapy. In addition, we are building tomorrow's solutions to fight the problem even more aggressively. With a combination of world-class bioinformatics tools, an unprecedented database, and truly disruptive rapid diagnostics, we are poised to combat the problem globally.

I will now turn the call back over to Evan. Evan?

Thank you, Kevin. Every day, thousands of acute care patients in hospitals worldwide face unknown, serious infections. It can take days, sometimes longer, to get the right diagnosis. As a result, physicians prescribe cocktails of antibiotics in the hopes that one of them will work. In many cases, this aggressive over-treatment works; but in others, the patient gets worse, leading to extended hospital stays, secondary C. difficile infections, multi-drug resistant microbes, and often death. This overuse of antibiotics in healthcare has helped create one of the great issues of our time, the rise of multi-drug resistant superbugs.

At OpGen, we are working to help solve this problem. It's an enormous opportunity, and we have many of the needed solutions at hand or in our research laboratories. Current methods for diagnosis of acute infections are largely analog. Laboratories and physicians wait for pathogens to grow in the presence of antibiotics, a process that can take days even though results are needed in hours.

Our digital solutions based on genomics and informatics can help reduce the time to results to hours. The OpGen FDA-cleared QuickFISH tests provide rapid pathogen identification in just 30 minutes. We are working to incorporate rapid antibiotic resistance analysis and clinical decision support so that patients with serious infections will be treated with the antibiotic most likely to work, not just a hit-or-miss cocktail of antibiotics to gram-positive and gram-negative infections.

Lighthouse informatics and genomic analysis are at the core of our revolutionary approach. We have developed enabling computational bioinformatic methods, and we are building a data warehouse with thousands of microbes that will be DNA sequenced and tested for antibiotic resistance. Our proprietary computational methods include Lighthouse profiling, a high-resolution geno-typing method that allows real-time pathogen analysis, incorporates metadata, is geolocation aware, and is CLIA validated. Proprietary genotype predictive algorithm that enables susceptibility interpretation and proprietary algorithms have been developed for target gene selection.

The Lighthouse data warehouse is the foundational data platform for the business. It's cloud-based, CLIA and HIPAA regulatory compliant. We are deploying our Acuitas gene tests for infection prevention in hospitals and ultimately for rapid one hour decision-making.

Our complete MDRO surveillance solution is already on market and was successfully tested in the District of Columbia with the HARP-DC study earlier this year, and we believe the results from the Intermountain Healthcare Study will help further catalyze adoption of our infection prevention technology.

The automation of our rapid QuickFISH testing is progressing on schedule. We anticipate conducting our clinical trials in the first quarter of 2017 and submitting to FDA in the second quarter. Following the FDA approval, we anticipate adding new QuickFISH indications for pathogen detection and sample types beyond [whole] blood.

In parallel, we are evaluating opportunities to couple rapid Acuitas resistance testing for antibiotic resistance analysis. Ultimately, we believe our Acuitas test content has the potential to be deployed on multiple test platforms ranging from various PCR multiplex platforms to rapid DNA sequencers.

We now have a significant focus on this program with the objective of achieving key validation milestones before the end of 2016. The program includes assay development, further development of the Lighthouse data warehouse, and proprietary analytics. This technology will be integrated into a series of Acuitas' offerings with a goal to begin commercialization starting in 2017.

Our longer term goal is to develop and provide fully automated one-hour rapid tests that include both pathogen analysis and antibiotic resistance testing to help physicians manage antibiotic decision-making. Partnering with pharmaceutical companies, diagnostic companies, governments, and NGOs is an important part of our strategy. We were pleased to have Merck GHI invest in our pipe offering this spring. Merck is a major participant in the global antibiotic and therapeutics market, and they are now a significant stockholder in the company.

We see opportunities to partner with major diagnostics companies access technology and help expand our distribution capabilities. Governments globally are focused on fighting antibiotic resistance, and we are continuing to explore opportunities to expand our work with support from the U.S. government and others.

During the remainder of 2016, we are working to accomplish a number of strategic initiatives. These include further expanding our pharma and health system relationships; completing the database development for our Acuitas Molecular AST test and demonstrating the clinical performance; accessing additional enabling products, services, and technologies and strengthening our distribution capabilities; gaining New York State approval for our CLIA lab; and entering the New York state hospital market for our MDRO test and further strengthening our balance sheet.

As highlighted by Kevin and Tim, we are making great progress developing our molecular information business. We are harnessing the power of informatics and genomics to provide complete solutions for patient-, hospital-, and network-wide infection prevention and treatment.

Looking forward, we anticipate continued progress and revenue growth for the company during the year as we build momentum for our rapid diagnostics bioinformatic, CLIA lab service offerings.

Thank you for your support and for taking the time to join us today.

Operator, we're ready for questions.

(Operator Instructions) One moment please for the first question. Your first question comes from the line of Yi Chen with Rodman & Renshaw.

Hi, thank you for taking my questions. My first question is when do you expect to be the next inflection point for the revenue gross, both for product sales and also the CLIA lab revenues?

Hey, Yi, thank you. This is Kevin. I appreciate it. I actually think that the inflection point is the data that we just gathered from completing the Intermountain Health Study. The prospects were very good. Prior to this point, though, we did not really have any good clinical utility in health economics data. We believe strongly that with data, we can expand our call points into the C-suite, and that's where we believe the ultimate decision-makers are on this issue.

Is data in the public, this data? (Multiple speakers) -- no?

No. This data is not -- it's proprietary to option IMH, and it --

Do you expect to publish it sometime in the future?

As we've mentioned in my remarks, there's going to be a series of posters, publications, presentations. You'll likely see that from the head of infectious disease at Intermountain Health in the fall. So we are planning a relatively full and comprehensive rollout of much of that data.

Okay.

But as I noted, we will keep some of it proprietary to further our own efforts, not only in product development but commercialization as well. And I think it's just to complete your question with regards to inflection points. Clearly, on the QuickFISH side, our FDA approval and entering the market with our digital -- our automated digital imager is clearly the next inflection point for that particular product line.

Okay. And that digital imager is scheduled to be commercialized in 2017, correct?

Yes.

Okay. When do you expect to generate sales from the surveillance system? And what do you think would be the necessary requirements possibly from the government side for that to happen?

Right. So we have already -- I mean just to be clear, we have already generated revenue in sales. I think you know about the HARP-DC announcement. We do continue to have hospitals that send us in samples to-date. Clearly, it's not at the volume that we would like or at the scope that we would like, but, again, we are now armed with the data to back up the value of that particular product line, and we will be going out aggressively to sell that.

Okay, thank you.

You're welcome.

(Operator Instructions) There are no further questions at this time. Mr. Jones, please proceed with your presentation.

Thank you, operator. Thank you, everyone. I'd like to thank you for joining our call today, and we look forward to having you on our next conference call. Have a great afternoon.

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