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Q2 2023 OpGen Inc Earnings Call


Albert Weber; CFO & Corporate Secretary; OpGen, Inc.

Oliver Schacht; CEO, President & Director; OpGen, Inc.



Welcome to OpGen's Second Quarter 2023 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. Such risks and uncertainties include, but are not limited to, OpGen's ability to continue to finance its business and operations; the results of alternatives to mitigate the company's cash position, including restructuring or refinancing its debt; seeking additional capital; reducing business activities; strategic transactions; and other measures, including obtaining relief under applicable bankruptcy laws.
OpGen does not undertake any obligation to publicly update any forward-looking statements to reflect events or changed circumstances after this call. For a further 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 most recent Form 10-K and Form 10-Q for the second quarter and the first half of 2023 that will be filed with the SEC.
Joining the call today are Oliver Schacht, OpGen's President and Chief Executive Officer; and Albert Weber, the company's Financial Officer. Now I will turn the call over to Oliver for introductory remarks.

Oliver Schacht

Thank you all for taking the time to join today's call. Albert and I look forward to sharing several business and financial updates highlighting the commercialization efforts that have been underway. We'll not be taking questions during today's call. During the second quarter, we continued to see traction across all our platforms, and we've seen several, successful, recent commercial contract signings. OpGen continues to emphasize commercialization opportunities to leverage our current platform and further nurture existing partnerships.
For Curetis, we announced the completion of 2 interim milestones of our collaboration project with InfectoGnostics under the PREPLEX grant. We also completed the first phase, including an expanded scope of our collaboration project with FIND in Q2. The completion of these milestones during the feasibility phase resulted in revenue of approximately $900,000, of which $609,000 was recognized during the first half of 2023.
The latest milestone deliverables support users and treatment decision-making adding options to allow for mobile and cloud-based data access and harnessing the power of next-generation sequencing strain analysis. Based on the successful feasibility phase, we extended the collaboration with FIND by entering into a second phase of the project and expect to begin full IVD assay development, software development as well as analytical testing during this next phase.
We also had a major U.S. milestone on the clinical and regulatory front. Following the successful completion of data readout from our successful Unyvero UTI clinical trial, OpGen submitted a de novo classification request with the FDA seeking marketing authorization. Following the FDA's substantive review of our submission, we received a formal communication from the FDA requesting certain additional information at the end of June. The FDA has provided OpGen with 180 days to fully respond to all of their requests, and we anticipate being in a position to complete all of the additional data analysis as well as certain in-house wet lab testing well before them, with the goal of responding to the FDA in full during the fourth quarter of 2023.
We're looking forward to working closely with the FDA during the remainder of their interactive review towards an eventual clearance of the Unyvero UTI product for marketing in the United States. During the second quarter, OpGen also entered into a strategic, nonexclusive agreement with Fisher Healthcare, a division of Thermo Fisher Scientific for distribution in the United States of the Unyvero A50 platform and in vitro diagnostic tests for bacterial pneumonia as well as its research use only test for urinary tract infection.
During the quarter, we have successfully completed the vendor setup of OpGen on the Fisher Healthcare systems, have held an introductory all-hands training session for their entire U.S. sales team and defined a digital marketing campaign with key positioning and messaging. Together with Fisher and the information from their CRM system and customer data, we have already identified several hundred high-priority leads across the U.S. and individual, in-depth product sales training of all sales teams is already underway with about half of the territory sales teams already fully trained and the remaining teams expected to complete training during the third quarter.
There are already several specific commercial customer opportunities that the Fisher team and our team are collaborating on. In the month of June, OpGen received 10 Unyvero A30 C Series instruments. These C Series instruments incorporate all learnings from extensive testing of the 10 A30 B Series instrument, which have been upgraded to the latest C Series standard also. The C Series instruments have been optimized to improve manufacturability, serviceability and should extend the lifetime of key moving parts inside these instruments. This will also lower the manufacturing cost of A30 instruments.
With the assistance of a U.S. Chinese strategic advisory firm, we continue to have an active strategic corporate business development campaign to over 40 Chinese corporate IVD companies, potentially interested in the Unyvero A30 platform. As mentioned previously, we believe there is an attractive opportunity to partner with the Chinese organization familiar with the markets to possibly license or otherwise monetize the A30 platform. Recent Unyvero A50 platform collaboration with BCB has included in-person meetings in both Germany at the Curetis development and manufacturing site and in China during the month of May.
Next steps in the ongoing A50 collaboration in pneumonia with our Chinese distribution partner, BCB, would be clinical studies to work towards a final submission for review by the Chinese National Medical Product Administration or NMPA. We expect the overall process to obtain NMPA clearance to take somewhere around 24 to 30 months per guidance from Chinese regulatory advisers to our partner. On the Ares isolate sequencing services front, we've also seen progress in Q2. Following the successful completion of a feasibility phase, working with a major health care network in the Southeastern United States, the Ares team is now receiving regular, routine clinical isolate shipments twice a week.
Under a commercial contract with that health care network, we would expect annual testing volumes to initially be in the range of 1,000 to 2,000 samples per year with further medium-term growth potential. A recently signed agreement and purchase order confirms significant 6-figure dollar revenue for the first full year from that U.S. customer alone. On the IP front, OpGen subsidiary, Ares Genetics successfully defended a key patent that was being contested in Europe. This genetic resistance prediction screening database accurately detects the bacterial infection guiding patient treatment. Genetic resistance prediction against antimicrobial drugs and microorganism using structural changes in the genome was granted in Europe on January 6, 2021, and in China on January 10, 2023.
In September 2021, Swedish opponent filed an opposition against the patent grant through the European patent office. In a hearing on Thursday, June 22, 2023, the opposition division of the European Patent Office ruled in favor of maintaining Ares patent which broadly covers the prediction of AMR in pathogens based on any genetic determinants involving 2 or more nucleotides.
With that, I will now turn the call over to Albert Weber, OpGen's Chief Financial Officer. He will review financial results for the second quarter of 2023 and recent financial developments. Albert?

Albert Weber

Thank you, Oliver, and welcome to everyone on the call. I will discuss the second quarter and first half year highlights and financial results. OpGen's second quarter revenue for 2023 was approximately $736,000 compared to revenue of $967,000 in the second quarter of 2022. First half of 2023 revenue of approximately $1.65 million grew by approximately 15% compared to revenue of approximately $1.44 million in the first half of 2022.
This increase in 2023 was primarily due to the revenue generated from the FIND collaboration project but also included Unyvero product sales, revenue we received under our Acuitas AMR Gene Panel commercial contracts as well as Ares related service revenues. .
For the second half of 2023, we plan to work on generating revenue from existing commercial agreements, including several recently signed commercial customer contracts in the U.S. for Unyvero and Acuitas as well as from new collaborations and customers in the U.S. in particular.
Our total operating expenses decreased in the second quarter of 2023 to $5.9 million compared to $6.2 million for the comparable quarter in 2022.
For the first half of 2023, we saw a decrease of approximately 6% in operating expenses from $12.6 million in the first 6 months of '22 to $11.9 million in the comparable period this year. Our second quarter 2023 Research and development, or R&D expense was $1.4 million compared to $2.3 million for the corresponding period of the previous year, i.e., a 39% reduction. This decrease was mainly due to a reduction in payroll-related costs as well as the conclusion of the prospective multicenter clinical trial for Unyvero UTI in the third quarter of 2022.
First half R&D expense in 2023 was $3.2 million compared to $4.6 million during the first half of 2022. Our second quarter 2023 general and administrative or G&A expense was $2.4 million compared to $2.1 million for the corresponding period of the previous year. G&A expense remained consistent year-over-year with the first half of 2022 and the first half of 2023 at $4.8 million. Our sales and marketing expenses stayed consistent at approximately $1.2 million for both the second quarter of '23 and the second quarter of 2022. Similarly, sales and marketing expenses stayed consistent at approximately $2.2 million for both the first half of 2023 and the first half of 2022.
Taking a look at our cash position. We ended 2022 with approximately $7.4 million cash. And as of June 30, 2023, we had a cash position of approximately $3.2 million. In early May of this year, we announced the closing of a $3.5 million public offering. We intend to use the proceeds from this offering for the following: support continued commercialization of our FDA-cleared Acuitas AMR Gene Panel tests in the U.S., commercialize our products with a focus on the Unyvero platform and diagnostic tests, support further development and commercialization of the Ares Genetics database and related service offerings, support (inaudible) sales and marketing efforts to the customers and (inaudible) for all of our products and services, invest in manufacturing and operations and infrastructure to support the sale of our products, continue to invest in R&D for the Unyvero platforms and products and repay certain outstanding indebtedness of the company and its subsidiaries.
Having met our debt repayment obligations from the first tranche of our EIB debt in full by April this year, there are 2 additional tranches in principle of EUR 3 million and EUR 5 million, respectively, plus accumulated and deferred interest to be repaid. While the second tranche initially became due in June, we signed a standstill agreement with the EIB debt following the partial payment by us of EUR 1 million in June 2023, provides for a stay on further repayment of such tranche until November 30, 2023 or such earlier time that both parties in their best interest agree on a restructuring of the outstanding and upcoming repayments.
Notwithstanding the temporary stay on repayment of our debt, as previously reported and in light of our business performance and current cash position, we do not expect that our current cash will be sufficient to fund operations beyond September 2023. Since the end of the second quarter, we have pursued options to improve our cash position or mitigate a liquidity shortfall. Nevertheless, there is substantial doubt about OpGen's ability to continue as a going concern. We continue to consider all alternatives, Including restructuring or refinancing our debt, seeking additional debt or equity capital, reducing or delaying our business activities, selling assets, other strategic transactions and other measures, including obtaining relief under U.S. as well as applicable foreign bankruptcy laws. There is no guarantee that we will be able to identify and execute on any of these alternatives or that any of them will be successful.
If we are unable to successfully identify and execute on any of these alternatives, the company will have insufficient cash to continue operating beyond September 2023. During and since the end of the second quarter, we have had several highlights relating to our revenue generation. The continued receipt of revenue from such commercial opportunities is premised on our being able to mitigate our cash situation in order to continue as a going concern.
After, we had recognized approximately $300,000 in revenue from the FIND collaboration in 2022, we recognized more than $600,000 in revenue from this project in the first half of 2023. The teams at FIND and Curetis have agreed on the scope of extending the contract. The next phase will be looking at full in vitro diagnostic assay development and software development as well as analytical testing of an antimicrobial resistance or AMR test for blood culture samples in low and middle income countries or LMICs. This next phase is expected to take about 10 months and has an assigned budget of up to approximately $600,000 for the aforementioned activities.
The first payment of about $200,000 became due upon signing of the contract extension and the remaining amount would be coming in the form of 2 equally sized milestone tranches upon delivery of certain data and development packages in the coming 3 quarters. Subsequent development phases, such as clinical trials, regulatory submissions and seeking market approval is needed for the specific LMICs and preparing for future commercial launch in these countries would be subject to possible further expansions of the collaboration contract between FIND and us.
Third parties have also agreed that they would in good faith negotiate a license to the A30 platform for certain LMICs and the terms and conditions of such license in the future is not -- will become necessary. Furthermore, we continue to see revenue growth opportunities for our Unyvero products and Ares Genetics services globally and especially here in the U.S., including, in particular, with respect to our distribution partnership for our Unyvero products with Fisher Healthcare that we entered into during the second quarter.
We expect to see traction and momentum building for our Unyvero sales in the U.S. under this distribution partnership. We have also recently signed several new contracts with customers for further Unyvero system placements here in the U.S., including a strategic account with a global diagnostics corporate customer for Unyvero pneumonia and blood culture reference testing, a multiyear contract with a hospital from a larger network of hospitals across the Western U.S. for Unyvero LRT BAL, another Unyvero UTI Lab account as well as adding a prestigious children's hospital as Acuitas customer.
During the second quarter, we also signed contracts for 2 new Unyvero system placements with one of our Acuitas customers, demonstrating the synergistic potential of our product lines. Our Ares team is also in active dialogue with some of our Acuitas accounts about opportunities of adding ARESiss and AREScloud-based offerings for these accounts. Thus, we are starting to see from upselling and cross-selling opportunities across our entire portfolio of IVD and RUO offerings in AMR.
Taken together, in recent weeks, we have signed commercial contracts totaling potential annualized revenue volume of up to $1.5 million, adding to our top line revenue growth potential. Beyond a total of up to $1.5 million in FIND contracted funding to date, additional non-dilutive financing opportunities remain a strategic priority for OpGen.
As shown year-to-date, we look to complement these opportunities with equity funding that will expand our collaboration potential and could allow us to partner with organizations like FIND, BARDA, the European Union and other funding bodies. It is key to understand that none of these nondilutive funding opportunities provide for full 100% funding of the respective projects. Typically, funding quotas range from somewhere in the 40% to maybe 70% or 80% ranges. It is therefore vital to ensure that OpGen is able to provide its own co-funding for these projects. Otherwise, nondilutive funding would not likely materialize. This concludes the financial update.
I will now turn the call back to Oliver.

Oliver Schacht

Thanks, Albert. I would now like to highlight our upcoming activity. As we mentioned earlier, we continue to make strong headway on the commercial front, which could not be supported without dedication from our team. As part of that, we will have a changing of the guard at Ares where Theo deVos has been promoted to Ares CEO; and Johannes Weinberger to Ares Chief Scientific Officer as of August 2023. We're excited to have their direction in this exciting stage of the business. We thank our former Managing Directors, Arne Materna and Stephan Beisken for their commitment in building Ares to what it is today. Both of them will stay on as independent, part-time consultants supporting the Ares team in the next phase of its development. For the coming quarters, we expect to see a growing number of commercial accounts being signed in the U.S. We anticipate growing our revenue base across the Unyvero, Acuitas and Ares product lines in the U.S., intend to continue working with our international distribution partners in Europe as well as our current and potential future partners in China for Unyvero A50 and A30, respectively. .
Thank you all for your continued support and for participating in this afternoon's call. Please visit the Investors section of our website for our SEC filings for updates on the company. Thank you very much.


The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.