Cammy Duong - MacDougall Biomedical Communications Evan Jones - Chairman and CEO Tim Dec - CFO.

Mitchell Kapoor - Rodman & Renshaw.

Good afternoon, and welcome to the OpGen, Inc. Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we’ll open up call for question-and-answer session. As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Cammy Duong. Please proceed..

Thank you, operator. Thank you all for participating in today’s call. Before we begin, I’d 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 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 statements.

Factors that may affect the Company’s results include, but are not limited to, the rate of adoption of the products and services by hospitals and other healthcare providers, the success of its commercial 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 of the date of the live call, today, March 23, 2017. 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’d like to turn the call over to Evan Jones, OpGen’s Chairman and CEO.

Evan?.

Thank you, Cammy. And thank you for joining us today. This afternoon, we will review our 2016 financial results and provide an update on our plans for 2017.

2016 was a pivotal year for OpGen, as we continued to lay the foundation for Acuitas genomic based testing and informatics technology to help guide antibiotic decision-making in acute care settings.

We have received positive feedback from key opinion leaders, healthcare providers and participants in the antibiotic development space regarding the potential for our new disruptive solutions.

In February, we reported preliminary data at the AGBT meeting, demonstrating the ability of our Acuitas Lighthouse mAST technology to rapidly and accurately predict bacterial antibiotic susceptibility using resistance gene profile. In the last year, we’ve transitioned this technology from the research phase into development.

To support these efforts, we announced a strategic research collaboration with Merck in November that provides OpGen with access to an archive of over 200,000 bacterial pathogens gathered over the last 15 years through the Study for Monitoring Antimicrobial Resistance Trends, SMART.

SMART is one of the world’s largest surveillance studies of antimicrobial resistance. This collaboration is intended to help expedite the development of our rapid diagnostic tests with the goal of helping enabled prompt and informed antibiotic prescribing to improve patient outcomes.

Last year, we announced results from two studies that assessed the prevalence of MDROs and the outcomes and financial burdens of these pathogens in different healthcare settings in United States. The first was the District of Columbia Hospital Association where we worked with healthcare facilities throughout Washington D.C.

to assess the prevalence of multidrug-resistant gram-negative carbapenem-resistant bacteria in 16 facilities. The results revealed the prevalence of CRE and other carbapenem-resistant organisms was in the 5% to 6% range. This relatively high rate of colonization could help provide a call to action to address this growing issue.

Publication of the complete results is anticipated in the coming months. Our second major study was in partnership with one of the largest and most highly regarded integrated healthcare systems in the country, Intermountain Healthcare.

This eight-year retrospective study evaluated the rates of MDRO infections and their impact on healthcare outcomes and costs. Initial results were presented in 2016. The results support the need for improved rapid diagnostics and surveillance for MDROs.

We’re using the results of this study to help guide our research efforts and to support our commercial initiatives. After laying a strong technical and medical outcomes foundation in 2016, we’re now moving to begin deployment of our new testing in informatics decision-making technology.

We’re pushing hard to bring these new products and services to market later this year with clinical evaluations and a research use launch of our Acuitas Rapid Test. I’ll go into details about these efforts and our overall strategic plans in a few minutes.

First, I’ll turn the call over to Tim Dec, our Chief Financial Officer, who will provide a brief summary of our fourth quarter and full year results.

Tim?.

Thank you, Evan. This afternoon, I will highlight our fourth quarter and full year financial results. Total revenue for the fourth quarter of 2016 was $1 million, an increase of 32% from $800,000 in the third quarter of 2016, and a decrease of 24% from $1.3 million in the fourth quarter of 2015.

Gross margin on product sales in the fourth quarter was 53%. Total operating expenses excluding cost of product and service expenses for the fourth quarter of 2016 were $5.2 million compared with $5.6 million for the fourth quarter of 2015.

Research and development expenses were $2.3 million in the fourth quarter of 2016 as compared to $2.1 million in the fourth quarter of 2015. This increase was driven by third-party software and instrument development costs associated with our automated pathogen ID project.

We anticipate that these third-party development costs will begin to decease starting in the second quarter of 2017 and beyond. General and administrative expenses were $1.6 million for the fourth quarter of 2016 as compared to $2.1 million in the fourth quarter 2015. This decrease was primarily due to payroll related expenses and professional fees.

Sales and marketing expenses were $1.2 million in the fourth quarter of 2016 as compared to $1.3 million in the fourth quarter of 2015. This decrease was primarily due to payroll related expenses.

Net loss available to common stockholders for the fourth quarter of 2016 was $4.8 million or $0.21 per share compared with the net loss available to common stockholders for the fourth quarter of 2015 of $4.7 million or $0.38 per share. Turning to our full year results.

Total revenue for the full year ended December 31, 2016 was $4 million compared to $3.2 million for the same period of 2015, a 27% increase. This increase was primarily due to sales of our rapid pathogen ID molecular diagnostic testing products. Gross margin on the product sales for the full year ended December 31, 2016 was also 53%.

Total operating expenses again excluding costs for product and service expenses for the full year ended December 31, 2016 was $20.7 million compared with $16.7 million for the twelve months ended December 31, 2015.

Research and development expenses were $8.6 million for the 12 months ended December 31, 2016 as compared to $6 million for the 12 months ended December 31, 2015. This increase was primarily due to costs related to the automated pathogen ID project.

General and administrative expenses were $6.6 million for 12 months ended December 31, 2016 as compared to $5.8 million for the 12 months ended December 31, 2015. This increase was primarily due to payroll, public company and facility costs.

Sales and marketing expenses were $5.5 million for the 12 months ended December 31, 2016 compared with $4.3 million for the 12 months ended December 31, 2015. This increase was due to cost associated with our expanded sales and marketing team, the Intermountain Healthcare retrospective study and industry tradeshow expenses.

There were no transaction expenses in 2016 as compared to $500,000 in 2015 for expenses associated with the AdvanDx, acquisition.

Net loss attributable to common stockholders was $19.5 million for the 12 months ended December 31, 2016 or $1.10 per share compared with a net loss available to common stockholders of $17.6 million for the 12 months ended December 31, 2015 or $2.20 per share.

The company had cash and cash equivalents of $4.1 million as of December 31, 2016 compared with $7.8 million as of December 31, 2015. In September, the SEC declared effective our shelf registration to raise upto $50 million through offering of our common stock over time.

We launched the first offering under the shelf registration and $11.5 million at the market, or ATM offering of our common stock with Cowen and Company serving as our sales agent. Through December 31, 2016, we raised $4.7 million under this facility.

We anticipate that the remaining ATM capacity as well as additional strategic funding transactions we are currently pursuing, will provide working capital in 2017 as we work to complete several strategic corporate milestones.

Additionally, we are working to reduce our overall net loss in 2017, by delaying significant investment in our automated pathogen ID development project as we focus on the development of our Acuitas Rapid Test.

We also anticipate a reduction in our sales and marketing expenses due to completion of the Intermountain Healthcare retrospective study in 2016. This study will continue to provide value to OpGen with minimal ongoing additional expense. As discussed on previous calls, we are mindful of our expenses and our cash burn.

We remain committed to developing and advancing our portfolio of products and will continue to invest in our technologies to get them to market as efficiently as possible. I will now turn the call back to Evan for a review of our portfolio progress and strategic plans for 2017..

Thank you, Tim. Going into 2017, we remain focused on contributing to the global effort to address the expanding antibiotic resistance crisis. We’re on track with the development of our Acuitas brand of genomic based rapid diagnostics in parallel with building our Lighthouse Knowledgebase that will help guide appropriate antibiotic decision-making.

We are working to introduce Acuitas Rapid Test and Lighthouse technology suite for research use only in the fourth quarter of this year. This will be a significant technical and commercial milestone for the Company.

We will outline subsequent steps for commercialization including CE mark registration and the anticipated path for FDA clinical trials and clearance as the year progresses. I would like to briefly update you on our commercial activities and our overall strategic plan and objectives for the year.

The potential market for our products and services is over $2 billion annually. The largest segment is rapid testing for blood, urine, respiratory, skin and soft tissue infections. Helping manage the MDRO problem in hospitals through improved surveillance and antibiotic stewardship is the second important opportunity.

Supporting the pharmaceutical industry through improve clinical trial management and subsequent commercialization of new antibiotics is another significant opportunity.

Our growing family of Acuitas genomic tests and Lighthouse informatics support commercial use across these three use cases, and our tests and informatics will be deployed across a common customer base of healthcare providers. Through 2015 and 2016, we have built and acquired important capabilities to support our business.

These include FDA-cleared and CE-marked level research, development, manufacturing and commercial capabilities for our on-market, FISH based rapid DNA tests and our new Acuitas Rapid Tests.

We also established CLIA laboratory operations to support hospital MDRO surveillance testing and the establishment in ongoing curation of our Lighthouse knowledgebase. In rapid diagnostics, the management of complicated urinary tract infections is our first target indication.

This area is supported by rising clinical need and the outcomes work we recently completed with Intermountain Healthcare. Our initial Acuitas Rapid Test will be validated for infection control as we pursue urinary tract applications. The target market is large and is for facilities with over 500 beds.

In most cases, these facilities will be candidates for standout MDRO surveillance tests and Acuitas Rapid Tests with both offerings tied together through our proprietary Lighthouse offerings. We’ve been working for several years to develop the hospital surveillance market.

Comprehensive outcomes and cost modeling work we’ve done are helping shape our discussions with healthcare providers. We have been in the contracting phase with the major health system for several months now, and we’re encouraged that routine testing at a key reference account should begin this spring.

We’re also continuing efforts to deploy our MDRO surveillance solutions across entire metro areas in addition to large healthcare networks. Our work in Washington D.C. represents a strategic opportunity where we have a critical mass of work already completed. We have also been working successfully in the second major metro area in the Midwest.

Feedback from the pharma services sector has been encouraging. The key gating factors to success in this area appears to be availability of our new Acuitas Rapid Test and synchronizing our commercial offerings with ongoing and new clinical trials.

In the back half of 2017 and building into 2018, we see this as an attractive near-term growth opportunity. In 2016, we grew revenues by 27%, primarily as the result of the acquisition of the AdvanDx rapid testing business.

We anticipate 2017 being a transition year with a steady revenue base for our FDA cleared rapid pathogen ID test and building revenue for our MDRO testing and informatics, as we bring new customers and products on line during the year.

In addition to these commercial objectives, there are series of strategic and technical milestones we’re working to accomplish this spring and through the year that will help accelerate and provide a foundation for growth in the coming years.

These include announcement of an in vitro diagnostic supply and cooperation agreement to support global commercialization of the Acuitas Rapid Test, announcement of a strategic cooperation and deployment alliance with a major information technology company to support global deployment of our Acuitas Lighthouse portals and knowledgebase, genomic antibiotic resistance testing of approximately 10,000 MDRO pathogens obtained through our collaboration with Merck to support the Acuitas Rapid Test development, and development and performance verification of the Acuitas Lighthouse antibiotics susceptibility prediction algorithms, presentation of key technical data and clinical outcomes results at key scientific meetings including ACMT in April and ASM Microbe in June, and third party development funding to support Acuitas Rapid Test and Lighthouse database development, and finally, strengthening our balance sheet through completion of a series of financings with strategic investors interested in gaining market access or supporting the development of OpGen’s business.

OpGen is well-positioned to become the global leader in using genomic analysis technology and informatics to help combat and manage drug resistant infections globally. This is a significant and important global need and opportunity.

And as we continue to build our business, we’re working to make an impact on health outcomes and provide attractive returns to our stockholders. Thank you for your support and for your time this afternoon. We’re now ready for questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Mitchell Kapoor with Rodman & Renshaw. Your line is open. .

My first question is when we complete the testing of the 10,000 multidrug-resistant organisms and when do you plan on commercializing the rapid test kits?.

Thanks for the question, Mitch. The testing is ongoing, and during the second quarter, we anticipate completing the testing. And in terms of commercializing in Q3, we expect to have the new Acuitas Rapid Test in customer sites and then in the fourth quarter to begin commercial sales of the product..

Okay, thank you for that.

And could you provide any additional insight into potential revenue growth projections for 2017?.

So, this is Tim. We typically haven’t provided any revenue guidance. I think, it should be noticed, in the first half of the year, as we transition away from our legacy business, you may see a slight down tick. But as Evan mentioned, you should probably expect the revenue to trend upward in the latter half of the year..

Thank you. [Operator Instructions] I am showing no question at this time. I would like to turn the conference back over to Evan Jones, Chairman and Chief Executive Officer, for closing remarks..

Thank you for joining to all of you today. And we look forward to providing additional updates this spring as we report our first quarter results. Have a nice day. Thank you..

Thank you..

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. And you may now disconnect. Everyone, have a great day..