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Edited Transcript of OPGN earnings conference call or presentation 7-May-20 8:30pm GMT

Q1 2020 OpGen Inc Earnings Call

GAITHERSBURG Jun 16, 2020 (Thomson StreetEvents) -- Edited Transcript of OpGen Inc earnings conference call or presentation Thursday, May 7, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Oliver Schacht

OpGen, Inc. - CEO, President & Director

* Timothy C. Dec

OpGen, Inc. - CFO & Corporate Secretary

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Conference Call Participants

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* Benjamin Charles Haynor

Alliance Global Partners, Research Division - Analyst

* Wiktoria O'Hare

Edison Investment Research Limited - Associate Analyst of Healthcare

* Yi Chen

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

* Joseph Green

Edison Group - MD

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Presentation

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Operator [1]

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Mr. Green, you may begin.

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Joseph Green, Edison Group - MD [2]

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Thank you. Welcome to the OpGen First Quarter 2020 Earnings Call and Business Update. (Operator Instructions) As a reminder, this conference is being recorded today, May 7, 2020.

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. 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 2020 that will be filed with the SEC, 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 achieve the expected synergies from the company's completed business combination with Curetis and to implement the combined company strategy; the impact of the current global COVID-19 pandemic on our business and operations; our use of proceeds from the at-the-market offering that we commenced in February 2020 as well as the proceeds from recent warrant exercises; pursuit of FDA clearance for the Acuitas AMR Gene Panel for use with bacterial isolates and for our other products and services; the rate of adoption of our product and services by hospitals and other health care providers in general as well as in the current COVID-19 pandemic situation in particular; the success of our commercialization efforts and partnering strategy; the effects 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 at the date of this live call, May 7, 2020. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call except as required by law.

Joining the call today will be Oliver Schacht, President and CEO; and Tim Dec, CFO of OpGen. I would now like to turn the call over to Oliver Schacht, the recently appointed CEO of OpGen following the completion of the business combination with Curetis. Oliver?

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [3]

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Thank you, Joe, and thank you, everyone, for joining us this afternoon. It's a pleasure for me on my first earnings call as the new CEO of OpGen to share with you the vision and mission that we all share here at the newly combined company, including our teams at Curetis in Germany and Ares Genetics in Vienna, Austria.

All of us here at OpGen share a vision to successfully address the looming crisis of ever-growing antimicrobial resistance or AMR. Our mission is to develop rapid diagnostic tests as well as bioinformatics solutions that help to rapidly identify pathogens and their resistance marker profiles in hospitalized patients with severe life-threatening infectious diseases such as pneumonia, urinary tract infections and other indications. Such rapid testing will help doctors select the best and most appropriate antibiotic therapy, help save lives and improve antibiotic stewardship, thus preserving antibiotics as an effective weapon in the fight against antimicrobial resistance. This is really what is meant by applying precision medicine principles to the infectious disease setting.

To that end, our strategy here at OpGen is to deploy our PCR platforms such as Unyvero and Acuitas as well as our Lighthouse knowledge base and offer services and strategic partnering opportunities for our next-generation sequencing or NGS-based ARESdb database and artificial intelligence-powered prediction algorithms. As a combined business, we have an exciting portfolio of commercial-stage FDA-cleared or soon to be cleared products in our pipeline, a broad portfolio of CE marked in vitro diagnostic tests that we sell via 18 distributors into 43 countries in Europe, the Middle East, Africa, Asia Pacific and China as well as Latin America. On today's call, we will also discuss recent developments regarding the global COVID-19 pandemic, review the combined company pipeline and provide a brief overview of OpGen's first quarter 2020 financial results.

On April 1, 2020, following strong shareholder support on both the OpGen and Curetis sides, we transformed the business through a highly strategic and synergistic transaction. The company announced the completion of the business combination between OpGen and Curetis, highlighting a new leadership team and Board of Directors. The combined company's complementary platforms and highly relevant products are designed to help to rapidly diagnose and fight life-threatening infectious diseases.

This broad portfolio undoubtedly supports an attractive combination of revenue growth opportunities, reaching future profitability and achieving scale. We anticipate tremendous value-creating opportunities for the combined company both in the near term but also medium and long term, and we look forward to reporting combined company financial results for the second quarter of 2020 and thereafter.

Before diving into the business updates, I would like to address the continuation of the global COVID-19 pandemic and how it has impacted our business this quarter. Government regulations and directives continue to disrupt the status quo with shelter-in-place orders, the closing of national borders and the extensions of travel restrictions. The hospital environment continues to be extremely challenging as the majority of elective surgeries have been canceled and clinical studies put on hold.

In this environment, it has become increasingly difficult to speak with health care professionals regarding matters unrelated to managing the COVID-19 pandemic. Accordingly, we have continued to adjust our operations and business practices to capitalize on opportunities to help assist in the fight against the virus and have prioritized the health and safety of all OpGen employees. Fortunately, the fundamentals and drivers of our core business remain strong.

As mentioned on our call in March, the COVID-19 pandemic further highlights the obvious need for infectious disease precision medicine solutions such as rapid DNA and RNA testing. To address this need, we have adjusted and augmented our combined company product development efforts towards mitigating the impact of the COVID-19 crisis. OpGen via its Curetis subsidiary continues to supply rapid PCR test kits developed and CE-IVD marked by its strategic partner BGI throughout Europe. The first shipments of kits by BGI were received in mid-March, and since then Curetis has sold more than 15,000 tests of the BGI CoV-2 product via its distribution network in EMEA.

We're excited to announce that in addition to the distribution of BGI test kits, we have developed our own proprietary PCR-based CoV-2 test, and we're currently finalizing development and are looking at the various regulatory pathways available in Europe and in the United States. We'll continue to provide updates when there is more clarity regarding the approval pathways and potential commercial launch time lines in the near future.

Additionally, we recently announced the start of an investigator-initiated collaboration with the Karolinska Institutet in Sweden to identify bacterial co-infections in patients admitted to the intensive care unit for COVID-19 pneumonia using the Unyvero HPN or hospitalized pneumonia panel. Curetis has provided Karolinska with additional Unyvero analyzers for increased throughput and additional HPN cartridges to enable testing these critical specimens, and the study is already well underway. This is a crucial study as high-risk COVID-19 patients, especially in intensive care units and on ventilation, many of whom have preexisting conditions, are at a much higher risk of acquiring bacterial co-infections. We expect to see initial results in the coming weeks, and we will provide an update as soon as results are available for publication.

In December of 2019, Curetis had received FDA clearance for an expanded label claim for our Unyvero lower respiratory panel to include the use of bronchoalveolar lavage specimen or BAL and testing for pneumocystis in addition to a broad range of bacterial pathogens and antibiotic-resistance markers. This makes the Unyvero LRT BAL test uniquely differentiated as the first and only FDA-cleared test which includes this key pathogen, relevant especially in immunocompromised patients. The new BAL indication substantially increases the total addressable market for the Unyvero system in the United States.

As with the European HPN pneumonia cartridge, we are running a COVID-19 co-infection testing campaign here in the United States with our Unyvero LRT and LRT BAL cartridges. The overall business outlook for this exciting new product has been transformed. Hospitals and health systems addressing the immediate COVID-19 crisis are focusing entirely on this matter. New Unyvero system installations and many new planned evaluations have been pushed out to otherwise free hospital and laboratory resources.

That said, we have recently installed new Unyvero analyzers at a chain of labs in the northeast of the United States for running some of our additional portfolio of Unyvero cartridges for urinary tract infections under research-use-only labeling. We have also recently successfully completed the first U.S. installations of Unyvero linked to hospital and lab information systems in the first quarter.

Conversely, with the number of hospitalized COVID-19 patients in intensive care units globally, many of them on ventilators, and with the rise in bacterial pneumonia, a likely complication and comorbidity, the Unyvero lower respiratory track test could become an important tool for hospitals treating the many acutely ill patients. Recent new installations in Europe have continued, accomplished via virtual online training and installation support sessions held directly with end customers of some of our distribution partners. The ease of use and intuitive workflow of the Unyvero system lend themselves to such virtual setup. Hands-on time is approximately 2 minutes, and remote training is a viable alternative.

I'll now turn the call over to Tim Dec, who will review financial results for the first quarter 2020 and recent financial developments for the business. Tim?

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Timothy C. Dec, OpGen, Inc. - CFO & Corporate Secretary [4]

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Thank you, Oliver. Revenue for the first quarter of 2020 for OpGen stand-alone was $617,000, down from $1 million in the prior year period. The decrease was primarily due to lower collaboration revenue from our New York State contract as revenue from the final milestone was lower than that of the first quarter of 2019 as well as a reduction in our legacy FISH revenue.

Additionally, Curetis and Ares revenue for the first quarter of 2020 was approximately $900,000, generating pro forma combined unaudited revenue for the quarter of over $1.5 million. Since the business combination did not occur until April 1, 2020, it is important to note that the $900,000 of pro forma revenue generated by Curetis and Ares in the first quarter will be excluded from our year-end reported revenue totals for 2020.

Operating expenses for OpGen stand-alone for the first quarter of 2020 were $4.6 million compared with $4.8 million in the first quarter of 2019. Included in the $4.6 million in the first quarter of 2020 were approximately $200,000 of transaction costs associated with the business combination and $750,000 associated with an impairment charge for intangible assets related to our legacy FISH business. Net loss for OpGen stand-alone for the first quarter of 2020 was $3.9 million or $0.53 per share as compared to $3.9 million or $8.25 per share in the first quarter of 2019.

As we navigate during and through the COVID-19 pandemic, we will continue to prioritize the transparency of our business, pipeline and key financial metrics. We will not be providing revenue or any other guidance today. However, I will say that during this unique time, we have been reviewing the operational expense structure and cash burn of the combined company and expect to provide a more detailed and updated outlook in the coming months as the business climate evolves.

I would like to prepare -- conclude my prepared remarks by updating everyone on our cash position. Over the last few months, we have seen tremendous volume in our stock with average daily trading volumes of roughly 2.4 million shares per day. This bump has primarily been due to the completion of our business combination and our efforts to battle the COVID-19 through our collaborations with BGI and others. Because of this strong support, we have raised approximately $15 million since mid-February through early May, both from our ATM facility and exercises of the $2 per share warrants issued in October 2019 public offering. We will continue to utilize the ATM facility or other financing alternatives on a selective basis at the appropriate time over the coming months and quarters.

Total current shares outstanding are approximately 15 million shares. As of March 31, 2020, we reported $11.5 million in cash. Combined with the $900,000 of cash from Curetis, our pro forma cash at March 31, 2020, would have been $12.4 million.

With that, I'll turn the call back to Oliver to discuss additional key milestones.

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [5]

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Thank you, Tim. I would now like to highlight some of OpGen's key development programs and commercial activities.

Last May, we submitted the Acuitas AMR Gene Panel for isolates 510(k) to the FDA. The agency responded in July of 2019 with extensive questions in what is called an additional information request letter. In early January 2020, we submitted formal responses to a majority of the agency's questions, after which we received additional questions from the FDA in mid-January. Through the first quarter, we have responded to all questions posed by the agency, and we'll continue to work to address any final remaining open items with the FDA through the interactive review process.

While we believe the review process is now nearing completion, we have been experiencing modest delays in the remaining review time line, attributable to the COVID-19 pandemic. And consequently, the exact timing to obtain a clearance decision for the Acuitas AMR Gene Panel for isolates as a diagnostic test is currently unknown. However, given the time-bound constraints of the FDA review process, we continue to expect a near-term FDA clearance decision in the coming months.

As mentioned on our previous earnings call in March this year, we had all 9 centers accruing urine samples for enrollment for the Acuitas AMR Gene Panel Urine de novo. We had anticipated the completion of this clinical trial by mid-spring. However, due to the ongoing COVID-19 pandemic, our clinical trial sites notified us that they have suspended clinical trial activities until further notice. We currently estimate that this program freeze could last until early summer as the clinical laboratory sites focus on efforts to support the COVID-19 pandemic. We're making full use of this unexpected pause of the trial by conducting a comprehensive market survey and primary market research to inform our future prioritization of programs across all of the portfolio of pipeline assets and platforms of the combined company in various indication areas, including our bioinformatics solutions.

Additionally, progress has slowed with the New York State Digital Health Initiative. OpGen had successfully completed all planned milestones in collaboration with the New York State Department of Health and ILÚM Health Solutions to develop a state-of-the-art research program to detect, track and manage antimicrobial resistant infections at health care institutions statewide. In response to the COVID-19 emergency in New York State, testing under the program has been put on hold by the Wadsworth Center and participating hospitals.

We've also successfully completed the final milestone for the first year of the contract in the first quarter. And although progress has slowed, there is a clear expectation by all stakeholders that the project would continue into a second year. Negotiations and discussions between the collaboration parties are currently ongoing, and we will provide an update as soon as available.

With regards to the subsidiary Ares Genetics, we recently announced the publication of a feasibility study recognizing the potential of antibiotic susceptibility testing and bacterial pathogen identification using next-generation sequencing or NGS. This study has been pre-published in the Journal of Clinical Microbiology. The article is titled Species Identification and Antibiotic Resistance Prediction by Analysis of Whole Genome Sequenced Data using ARESdb - An Analysis of Isolates from the Unyvero Lower Respiratory Tract Infection Trial and reports on a study evaluating the performance of pathogen identification and antibiotic susceptibility testing based on whole genome DNA sequencing using the Ares genetics artificial intelligence-powered cloud-based bioinformatics platform, aresgenetics.cloud, and its underlying reference database, ARESdb.

Based on this strong validating data, we have seen tremendous interest from our current IVD corporate partner as well as inbound interest from potential new collaboration partners. Overall, we're really excited about the upcoming milestone and inflection points in the Ares IVD R&D collaboration. Just to remind everybody, upon completion of the R&D project phase, which we expect to occur in the third quarter of 2020, there is the potential for our partner to exercise an option for a 90-day exclusive negotiation period for certain partnering, licensing and commercial rights to ARESdb.

While we continue to face sporadic challenges with supply chain disruptions, travel restrictions and stay-at-home policies, we're confident in the opportunities that lie ahead for the newly combined company. Near-term FDA clearance decision, strategic partnering and licensing opportunities and the upcoming launch of the Acuitas AMR Gene Panel for isolates in the United States, along with additional clinical trial and future regulatory milestones, such as an expected Chinese approval of Unyvero and the pneumonia test, make for a very exciting stream of upcoming news flow and value inflection points

Our combined company platform is extremely agile, flexible and has elements in place to rapidly identify, develop and create novel test formats needed to address potential future infectious disease outbreaks. In recent weeks, we've made tremendous progress on the business integration post closing of the transaction between OpGen and Curetis. Our U.S. commercial sales and marketing team has been integrated, and the Curetis team members have joined OpGen, Inc. as employees effective May 1. The team is integrating all customer leads and funnel across all products from Unyvero to FISH to Acuitas and bioinformatics into a joint CRM system. The European FISH business transfer from OpGen A/S in Denmark to Curetis in Germany is on track for Q2, after which the OpGen A/S facility will be closed down.

The R&D and operations teams are running a full portfolio review and strategic prioritization assessment based on the aforementioned market sounding exercise, and we expect to provide updates on portfolio decisions and synergies in the weeks and months ahead.

Our regulatory teams on both sides are making big strides towards integration of the company's quality management systems and regulatory procedures. The finance and admin teams are working tirelessly at bringing IT systems, tools and processes together under one common OpGen group philosophy.

There's a lot of excitement in the organization, and people are seeing plenty of opportunities to grow the business and grow professionally in a much stronger and streamlined combined business. In closing, we're very pleased with our results for the first quarter of 2020 in light of the global pandemic, and we appreciate your ongoing support as we navigate through these turbulent yet equally exciting times.

I would now like to turn the call back to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Wiktoria O'Hare.

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Wiktoria O'Hare, Edison Investment Research Limited - Associate Analyst of Healthcare [2]

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Wiktoria from Edison. Just a couple of quick questions here. The first question being, did you see any significant drop-offs in March compared to other quarters? And if so, how big was it? And also, what is the run rate that we should be thinking of for the company in the next few months?

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [3]

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So this is Oliver. So thanks, first of all, for the question. When you look at the drop-off in revenue, it was, as Tim pointed out, primarily due to the legacy FISH business, which we have seen some softness in the first quarter following the COVID crisis as well as sort of a onetime effect with milestone revenue recognition from the New York State project. So I wouldn't read too much into that, although I would say it is fair to say, the second quarter of 2020, we certainly continue to see impact of the COVID crisis.

We see that in Europe. We see that in the United States, but it goes both ways. There's challenges and then there's opportunities from the COVID test kit business that we're definitely seeing making a larger positive impact in the second quarter so far compared to Q1.

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Wiktoria O'Hare, Edison Investment Research Limited - Associate Analyst of Healthcare [4]

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Okay. So that actually led into my second question. So how is the bacterial co-infection test performing as of right now?

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [5]

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Again, early days because we just announced the start of the clinical study with Karolinska. Just to be clear, the co-infection testing is effectively using our existing both CE-marked as well as FDA-cleared Unyvero HPN in Europe and LRT in the United States product. So it's -- that is the part of the core business. Again, certainly seeing positive impact on the pneumonia side. But equally, with a lot of elective surgeries being postponed, we're seeing softness on other indications such as, for example, the orthopedic panel as a lot of these surgeries simply aren't taking place at this time.

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Operator [6]

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Your next question comes from the line of Ben Haynor from Alliance.

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Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [7]

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Congrats on the progress and closing of the transaction. First off for me, just in terms of the Acuitas FDA submission, I apologize if I didn't understand or I missed this, is the ball in the FDA's court now? Or are there still some questions outstanding that you guys need to respond to?

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [8]

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There's -- good question. Thanks, Ben. There's no current questions open for us. The ball is in the court of the FDA. We do expect them to come back with feedback on some of our earlier responses. We have been in weekly, very active or interactive dialogue with the agency and our lead reviewer. So the good news is they're very interactive, and there is a good open dialogue here.

They have basically advised us that given the extreme focus at the agency in recent weeks on emergency use authorizations, they'll just need that extra bit of time due to capacity constraints. But we are anticipating to get their feedback on some of our responses here in the very near future. And then the next step after that, once we hopefully address any of the last redirects they may have, we would send a formal response that would then trigger the remaining clock on the FDA side. And then that's on a countdown counter until a clearance decision should get taken by the agency.

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Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [9]

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Got it. The color is very helpful. And then just thinking about emergency use. I was just kind of curious on how the development of the Unyvero A30 RQ's coming along and whether there might be a possibility, obviously depending on how long the whole COVID thing goes on, to get that through the agency maybe on a more rapid time table. So just kind of how is the development coming and potential for emergency use authorization on that product?

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [10]

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So the A30 platform, for everybody's purposes, is basically an expansion of the Unyvero platform with a smaller, faster quantitative analyzer and a smaller cartridge. That really -- in terms of development time line, that will take us into next year. So I don't foresee that being an emergency use authorization clearance.

We are in a number of strategic collaboration, licensing and partnering discussions around that platform. And so to the extent that any potential future third-party partner might look at it -- at putting certain menu that might warrant emergency use authorization on it, that could certainly accelerate things. It's also currently part of a number of potential non-dilutive grant funding opportunities that we're exploring. Again, that might accelerate development time lines. But to be perfectly honest, that platform, in order to get its full industrial look and feel and be ready for prime time, is going to be probably in 2021 rather than this year.

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Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [11]

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Okay. And then lastly for me on the Curetis business and, I guess, particularly in the Ares side. Can you talk about the visibility there that you have with the bookings? And how -- any sense of how quickly some of that revenue might be recognized as you work off some of that business that you've already booked?

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [12]

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Yes. Well -- so on the Ares Genetics, it's fairly straightforward right now. I mean we announced the IVD corporate partnership in September of 2019. We did announce at the time that, that is a 10-month R&D program that's fully prefunded by the corporate partner. The partner also prepaid for the option. So what we're seeing in the first quarter of this year and into Q2 and Q3 this year is effectively revenue recognition under that collaboration.

That collaboration is fully on track. We've not missed a beat. So the team in Vienna is executing and delivering every step of the way. So we anticipate that program to not be adversely affected in any way from the COVID crisis despite all the stay at home. That's the good thing about bioinformatics, you can actually do a lot of things from a home office as well.

So again, that is a program that should complete its development phase in the third quarter. And that's the time frame at which we would anticipate having a more strategic discussion with the partner. Again, they can -- once they exercise that option, they have 90-day exclusive negotiation. It's not a first right of refusal. It's not a predetermined set of economic terms. So it's basically talking exclusively with them about certain license scope and access to the Ares database and the bioinformatics tools.

And so right now, I would say we're in a very, very nice spot. The revenue recognition is going to continue throughout Q2 and Q3. And then we're teeing it up for, hopefully, a broader, more engaged, more involved and economically extremely attractive partnering opportunity in the latter part of this year.

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Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [13]

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Excellent. That's very helpful. And hopefully, that extremely attractive opportunity bears fruit.

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [14]

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Thanks, Ben.

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Operator [15]

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(Operator Instructions) Your next question comes from the line of Yi Chen.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [16]

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Could you comment on the differences in the size of the potential market for Acuitas AMR Gene Panel Urine test versus isolates test, if there's any? And also, what's your commercialization strategy going forward for these -- for the Acuitas gene panels, particularly considering that the COVID-19 pandemic could be with us potentially throughout the year?

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [17]

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Sure. Thanks, Yi. Good question. So first of all, the fundamental difference, the panel of the AMR gene panel, whether for isolates or urine, per se is the same assay. Now looking at bacterial isolates, which would be the first clearance, that's mostly in, let's call it, outbreak monitoring and epidemiology settings. The substantially bigger market opportunity is the urine panel because there's well over 1 million cases of severe critical urinary tract infections in the United States, although I would say the bacterial isolates, of course, has the advantage of working from isolates whether they come from urine or other specimen. So it's also very broadly applicable.

In my view, I would say the AMR gene panel is a great proof of the assay. It's the proof that we can get FDA clearance on the platform. It's going to validate the platform. These are running on the Thermo Fisher QuantStudio 5. And it will allow us to basically start building the commercial infrastructure, get the installed base out, sign up customer sites while we continue with the urine trial and then launch the urine.

Now how do we think about that commercially? We have already fully integrated the Curetis U.S.A. sales and marketing team into OpGen. So it's effectively been operating for this past month as a single -- one team with the Curetis and OpGen folks gelled into one team under the leadership of Chris Emery, our Chief Commercial Officer for the Americas; as well as Faranak Atrzadeh, who is our Chief Marketing and Scientific Affairs Officer.

We're looking at the exact same customer accounts for both the Unyvero lower respiratory track as well as the Acuitas AMR and, in the future, Acuitas urine panels. So there's real synergy here. We're going to the same hospitals, same laboratories, same call points. And it's fair to say that we've certainly started the market education and preparation. It's really a cross-selling approach, putting together both companies' current sites, current research-use-only users for the Acuitas funnel opportunities and then figuring out whether an account is ready for -- Unyvero account adding the Acuitas AMR panel or vice versa, if we're thinking about the New York State.

You are, of course, right. Who knows how long the COVID-19 crisis is with us, although I think the acute phase, at least in the coming months, should hopefully subside. Now the second wave is always a possibility. But we would certainly envisage, once the AMR gene panel is available, that all the preparation that's been put in there will be marketed and sold through the combined commercial team. So channel-wise, we're not looking at having to build a new commercial team. That team is now in place, it's fully operational. And they're really excited and waiting for the FDA to give us a greenlight and launch this product in the U.S. market here in the coming weeks and months.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [18]

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Okay. Second question. You mentioned that you have sold approximately 15,000 SARS-CoV-2 tests in Europe since mid-March. Does that number reflect the true customer demand? Or that number is limited by the capacity -- manufacturing capacity?

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [19]

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Well, it's fair to say that certainly in the early days, in March, supply was extremely hard to come by. Supply has substantially improved in -- over the month of April into May. So certainly, what we're seeing in Q2 so far is a significantly increased number compared to March.

And again, it's sort of addressing a certain segment of the market. This is a test that runs on the ABI 7500 platform, which is another Thermo Fisher instrument system. It also potentially runs on other similar PCR systems. And we're working through our distribution network. These things also have their own rhythm. You see a lot of purchasing being handled through, for example, the World Health Organization regional offices in various European markets. So I think there's definitely potential for growth here.

The other thing to remember though is we -- as we mentioned on this call, we're also working on our own coronavirus test kit, which we believe will have certain distinct advantages, both from a turnaround standpoint, from a cost of goods standpoint. We have developed a unique and truly differentiated proprietary buffer that allows going straight from the swab specimen into the PCR, completely eliminating the need for RNA preparation. Now that not only takes out about 30 minutes of time, it also takes out a significant, let's call it, $4 to $5 cost per test on the RNA prep.

A lot of these kits work with, for example, QIAGEN RNA prep kits, which are great but they're short in supply. It's one of the key bottlenecks in this situation right now, is RNA prep kits, not the actual PCR assays. So we're really excited about that. And again, we're looking at having a product that's a complete solution from the swab all the way through to the PCR result at economically much more attractive terms to the distributors and customers but also, quite frankly, to us, with significantly higher margins on our own product compared to anything that we basically buy and trade from a Chinese partner.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [20]

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Got it. Could you let us know the price of the BGI test? And also, when do you expect to complete clinical validation of your test?

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [21]

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Yes. Well -- so the clinical validation of our own test, let's take that one first. It's a question of weeks, not months. So we're working on it here in Q2. Certainly expect us to get that done rather soon. And frankly, the key thing there is how quickly do you get access to a sufficient number of specimen, of course, with a lot of focus on these clinical validation studies. But we're working with a number of local large labs and hospitals in Europe, so that should be very doable here.

In terms of price, we've not commented on the specifics of either our transfer price from BGI nor our transfer price -- now this is standard distribution business. Typically, what you see in diagnostic test kit distribution, you typically look at distributor margins in the, let's call it, 20% to 40% range. If you backtrack from the publicly available information, most of these PCR kits in Europe get reimbursed in the various national health care systems, somewhere in the EUR 30 to EUR 50 range. So if that's what the lab charges, you kind of backtrack and then kind of approximate something that our distributor might be selling to the lab. We're selling to them, everybody needs to make a margin. So hopefully, it gives you a sense of the range that you're going to be looking at.

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Yi Chen, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [22]

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A quick follow-up for -- regarding your own test. So would that test be an independent panel or it will be incorporated into one of your existing panels? Second, will you market that -- your own test in both Europe and U.S.? And third question is, have you ever considered a saliva-based test?

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [23]

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The latter is a good one. So saliva per se is probably not an optimal specimen for a simple reason. It's a pretty heterogeneous type of sample. Now taken -- effectively, that's what we're currently working with, and we've been running our own assay for the last couple of months, a couple of times a week testing our staff, anybody who wants to get tested any day of the week. And it's basically a buccal swab. So it's not one of these super high nasopharyngeal swabs that you've got to poke up your nose forever. This is initially going to be an independent PCR test kit because it's going to be running on existing installed base of regular PCR machines and again -- whether you look at things like an ABI 7500, a Roche LightCycler 480, a Thermo Fisher QuantStudio, et cetera. So that's the type of platforms.

Is there the notion of potentially integrating coronavirus test as an assay into some of our cartridge-based solutions? That's a possibility. That's part of the more medium-term portfolio review, and I would defer that to -- once we've been able to complete whether or not that product has enough differentiation and actually makes sense because, again, PCR testing for COVID itself is probably no longer the true bottleneck right now.

And then are we looking at Europe and the U.S.? Well, given the regulatory pathway, I think it's fair to assume that it's going to be CE-marked first. But are we also looking at the emergency use authorization pathway? Absolutely. Also with a strategic partner that we have in Europe with Menarini, who are working with us in 11 countries, there is always opportunities to think creatively about how we bring additional products to market through existing distribution partnerships and channels.

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Operator [24]

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There are no further questions in the queue. Presenters, you may continue.

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Oliver Schacht, OpGen, Inc. - CEO, President & Director [25]

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So if there's no further questions, then I'd certainly like to thank everybody for joining us today, and we look forward to updating you as we continue to progress the business. For more information, please visit with the Investors section of our website or our SEC filings, and feel free to give Tim or myself a call. Really appreciate your attendance, and thank you very much.