Kim Sutton Golodetz - LHA Investor Relations Evan Jones - Chairman and CEO Timothy Dec - CFO.

Julian - H. C. Wainwright & Co..

Welcome to the OpGen Fourth Quarter 2017 Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, March 15, 2018.

I'd 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. 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.

I encourage you to review OpGen'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, our ability to successfully, timely and cost effectively develop, seek and obtain regulatory clearance for and commercialize our products and services offerings; the rate of adoption of our products and services by hospitals and other healthcare providers; the success of our commercialization efforts; the effect 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 as of the date of the live call, today, March 15, 2018. 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.

I would now like to turn the call over to Evan Jones, OpGen's Chairman and CEO.

Evan?.

Thank you, Kim, and thank you everyone for joining us today. This afternoon we will review our 2017 fourth quarter and full year financial results and provide an update on our business plans and progress towards achieving key operational objectives for 2018. We made significant progress at OpGen during 2017.

We are building momentum during the first quarter of 2018. We have completed initial development of our Acuitas AMR Gene Panel and Acuitas Lighthouse Software for management of patients with complicated urinary tract infections.

The performance of the product and our lighthouse informatics are meeting our expectations and we continue to receive positive feedback from clinical collaborators, potential customers, and strategic partners. Earlier this quarter we introduced the Acuitas AMR Gene Panel u5.47 test for research use only, or RUO.

The product is available commercially for infection control purposes and for pharmaceutical surveillance studies. Clinical verification studies have been ongoing since the late fall and the results consistently show an ability to predict resistance to frontline antibiotics with high levels of accuracy in under three hours.

We are encouraged by these developments. As a tangible result of our development work, earlier this week we announced that Beth Israel Deaconess Medical Center in Boston is one of our clinical verification study sites. Beth Israel is a prestigious healthcare provider and we are delighted to have them as a collaborator.

This is an important first step in verifying the AMR Gene Panel performance and utility in a clinical research laboratory setting and laying the groundwork for peer-reviewed publications in the future. We anticipate announcing more of the names from our clinical verification team in the coming months.

Data from these studies will be used to finalize performance metrics and nuance product features as we work towards starting clinical trials with FDA QSR-compliant investigational-use-only product in support of a 510(k) filing with the U.S. Food and Drug Administration by the end of the year.

Also, as an important foundational component to our test offering, we entered into a global supply agreement to use the Thermo Fisher real-time PCR technology to run Acuitas AMR Gene Panel. This follows our agreement last summer to use the Thermo Fisher QuantStudio 5 system for PCR amplification and detection.

We are also working with QIAGEN, who is supplying the EZ1 Advanced XL DNA purification system for our test workflow.

During the quarter, we were awarded a one-year $860,000 contract from the Centers for Disease Control and Prevention to develop smartphone-based clinical decision support solutions for antimicrobial stewardship and infection control in low and middle-income countries.

From a financial perspective, during the quarter and recent weeks we continued to make solid progress in our efforts to grow revenues, to strengthen our balance sheet, and to contain operating expenses to extend our cash runway.

Total revenue for the fourth quarter was $1 million, consistent with prior year revenue and reversing a trend of declining quarterly revenue since the discontinuation of the Company's legacy Genome Mapping research products in 2016.

Looking forward, revenue growth is anticipated to come from our new Acuitas products, third-party development contracts, and ongoing revenue from our FISH-based rapid pathogen ID products. In February we completed a public offering with net proceeds of $10.7 million to the Company.

Combined with the proceeds from our public offering last July, we now have the capital in hand to operate through 2018 and beyond. The January offering was necessary as part of our successful effort to regain compliance with NASDAQ continued listing requirements for both minimum stockholders' equity and stock price.

The development of a technology and test that can provide under-three-hour rapid antibiotic decision-making information for healthcare providers has been an objective set forth by medical experts, policymakers, and global price initiatives for years.

The early data from our analytical and clinical verification work suggest that we have accomplished this objective with a potentially transformative new technology and product. All of us at the Company are very proud of the work to date.

We recognize the hard work to come during 2018 to bring these products through the FDA approval process and complete a successful commercial launch. I will now turn the call over to Tim Dec, our Chief Financial Officer, who will discuss our financial results.

Tim?.

Thank you, Evan. This afternoon I will touch on our fourth quarter financial results and summarize our 12-month performance. Total revenue for the fourth quarter of 2017 was $1 million, unchanged from the fourth quarter of 2016 and up from $745,000 in the third quarter of 2017.

An increase in collaboration revenue related to the CDC contract contributed to the sequential quarterly growth. Total operating expenses for the fourth quarter of 2017 were $3.9 million, down from the $5.7 million for the fourth quarter of 2016, a reduction of 32%.

This decrease was due to the following items; research and development expenses of $1.5 million in the fourth quarter of 2017 compared with $2.3 million in the fourth quarter of 2016; general and administrative expenses of $1.4 million in the fourth quarter of 2017 compared with $1.6 million in the fourth quarter of 2016; and sales and marketing expenses of $400,000 in the fourth quarter of 2017 compared with $1.2 million in the fourth quarter of 2016, reflecting reduced cost associated with our sales and marketing team that were made in June of 2017.

Cash burn during the fourth quarter of 2017 was $2.6 million, consistent with the $2.6 million in the third quarter of 2017 and significantly down from the $4.3 million cash burn in the fourth quarter of 2016. We have and will continue to monitor our cash burn as we work through 2018.

We completed a 1-for-25 reverse stock split in January of 2018, reducing our shares outstanding from approximately 56.6 million shares to approximately 2.3 million shares. After the public equity raise in February of 2018, our shares outstanding as of today are 5.3 million shares.

The Company reported a net loss attributable to common stockholders of $2.9 million for the fourth quarter of 2017, or $1.33 per share. This compares favorably with a net loss attributable to common stockholders of $4.8 million or $5.28 per share for the fourth quarter of 2016.

Total revenue for the 12 months ended December 31, 2017 was $3.2 million, compared with $4 million for the 12 months ended December 31, 2016. As Evan mentioned, this decrease was primarily due to the discontinuance of our legacy Whole Genome Mapping business.

Annualized revenue from our FISH product line is currently in the $2.5 million to $3 million range. Operating expenses for 2017 were $18.5 million, compared with $23 million for 2016 or a reduction of 20% for the year. As you'll recall, we made a strategic realignment of our operations in June of 2017 and continue to see the benefits of that decision.

The year-over-year decrease in OpEx was primarily due to the following items. Research and development expenses were $6.9 million, down from $8.6 million. General and administrative expenses of $6.7 million were essentially flat compared with $6.6 million in 2016. We will continue to monitor our G&A throughout 2018.

Sales and marketing expenses of $2.7 million declined from $5.5 million. As I mentioned, the decrease was due to lower cost associated with our sales and marketing team and the completion of Intermountain Healthcare retrospective study in 2016. The net loss attributable to common stockholders for 2017 was $15.4 million, or $9.78 per share.

This compares with a net loss attributable to common stockholders for 2016 of $19.5 million, or $27.59 per share. Turning to our balance sheet, the Company had cash and cash equivalents of $1.8 million as of December 31, 2017.

In February of 2018, we completed a public offering, raising gross proceeds of $12 million and net proceeds to the Company of $10.7 million. Each unit sold included one share of common stock and one warrant to purchase one-half share of common stock. These warrants have a five-year term from the date of issuance.

Proceeds from the warrants, if exercised, could be approximately $6 million to the Company. We also still have $2.7 million capacity under our ATM, with Cowen and Company serving as our sales agent.

As Evan mentioned, in early June of this year, or rather last year, we commenced the strategic realignment of our operation to improve efficiencies and reduce our cost structure.

We previously said we were targeting a 25% to 30% reduction in operating expenses in the second half of 2017, and I am glad to report that we have reduced operating expenses by $3 million or 30%.

These actions have had a positive impact on our cash burn, reducing our adjusted EBITDA loss from roughly $4.4 million per quarter in 2016 to roughly $2.6 million per quarter in the second half of 2017.

We have achieved these reductions while maintaining our quarterly revenue from our QuickFISH product line as well as continue our investment in our u5.47 R&D initiative. We will continue to look at ways to incrementally manage our cash burn throughout 2018. We expect our cash balance to be in excess of $10 million at March 31, 2018.

With a quarterly cash burn of $2.5 million to $2.7 million and anticipated additional cash receipts, we expect to extend our cash runway into the first half of 2019. We have made a great deal of progress in 2017 and we are committed – and we are optimistic for continued momentum this year. With that, I will turn the call back to Evan..

Thank you, Tim. We believe that OpGen is well-positioned to become a global leader in using genomic analysis and informatics to help combat drug resistant infections. In the time that remains, I will expand on several of the key accomplishments from the fourth quarter and recent weeks and highlight anticipated corporate milestones.

I mentioned that we announced earlier this week that Beth Israel Deaconess Medical Center in Boston is one of our clinical verification sites for our cUTI test. Data from our analytical and clinical verification studies have already been accepted for presentations at the ECCMID conference in April and ASM Microbe conference in June.

We are working to establish an initial customer base for our RUO product offering in infection control applications and for pharmaceutical surveillance studies. Our goal is to have 10 to 20 institutions using the test or performing clinical research by year-end.

This initiative will help build an install base for our AMR Gene Panel test prior to the commercial launch of the FDA-cleared product. We are making progress in moving the AMR Gene Panel and the Acuitas Lighthouse Software through the FDA regulatory pathway.

Earlier in the first quarter, we completed two pre-submissions to the FDA, one covering the AMR Gene Panel and the other covering our Acuitas Lighthouse Software.

We will meet with the FDA during the second quarter to finalize the details of our clinical trials, confirm the appropriate regulatory pathway to support clearance, and provide input on product labeling.

Assuming there is no material change in the scope of our planned clinical trials, we anticipate beginning the 510(k) clinical trial by the end of May with target completion to enable two FDA submissions in the fourth quarter. Separately, we anticipate preparing an application for CE Mark for commercial sales in Europe.

Our new tests are designed to run on Thermo Fisher's QuantStudio 5 mid-throughput real-time PCR system. We are already installing the QS5 in laboratory sites that are early evaluators and potential customers. The labs will interpret results using OpGen's cloud-based Acuitas Lighthouse Software to manage genomic analysis data.

We were honored to be awarded a contract from the CDC to develop smartphone-based clinical decision support solutions for antimicrobial stewardship and infection control in low and middle-income countries. As a reminder, this award funds the development and evaluation of cloud-based mobile software.

The core software technology was developed by our teaming partner, ILÚM, created by Merck's Healthcare Services and Solutions division. The Universidad El Bosque in Colombia is leading the deployment effort in Colombia. The product feasibility demonstration is expected to begin in the field during the second quarter.

We are exploring commercial opportunities for growth in South America, drawing upon our experience with our CDC work there. We will keep you appraised of these potential next steps as the development work progresses.

We believe that this award is validation and recognition of our standing in the community of those who are working to improve antimicrobial stewardship worldwide. To summarize, OpGen expects to advance a number of business objectives through the remainder of 2018.

We will derive revenues from the sale of the RUO Acuitas AMR Gene Panel u5.47 to large hospitals and pharmaceutical CROs. We will add QuantStudio 5 system and QIAGEN EZ1 Advanced XL revenue-generating system placements.

We will complete third-party RUO clinical verification studies and FDA clinical trials to support clearance for in vitro diagnostic use of the AMR Gene Panel u5.47 test and the Acuitas Lighthouse Software.

We will file a 510(k) application with the FDA in the fourth quarter of 2018 for the Acuitas AMR Gene Panel and Acuitas Lighthouse Software to support full commercial launch for clinical use.

And we will complete the CDC-funded smartphone demonstration project in Colombia and maintain cost reductions and overall cash burn rate to help provide extended operating cash runway.

Additional priorities this year include entering into a development and commercialization partnership with larger in vitro diagnostic companies and healthcare providers, and expanding our base of third-party development funding.

Our cUTI test is expected to be the first in a series of OpGen tests that will help address the global antibiotic resistance crisis by identifying antibiotic resistant pathogens in less than three hours.

Along with the Acuitas Lighthouse Software for interpretation of our genomic test results, this family of products will help inform proper patient treatments. All of us at OpGen are committed to building a world-class company that will play an important role in the fight against drug-resistant infections.

We have made significant investments over the last several years in pursuit of this vision and these investments are starting to bear fruit. We appreciate your support and we look forward to realizing our potential as a company in 2018 and beyond. Thank you for your time this afternoon, and operator, we are now ready for questions..

[Operator Instructions] Our first question comes from the line of Yi Chen from H. C. Wainwright..

This is Julian on for Yi.

Do you expect any revenue from the research-only 5.47 Panel in 2018? If so, do you have any guidance on that at this time?.

Yes, we do expect revenue. It's early to frame it perfectly but I can tell you that we anticipate our first sales to occur here in March and the revenue to build through the coming quarters..

Great, thanks.

And regarding the verification study, when do you plan to start it, how many patients do you expect to enroll, and when would you expect data from that study?.

So, you may be referring to the FDA clinical trial, or the verification study that's already underway, or both?.

The latter please, both please..

Okay. Let me just say that there is some potential overlap between these two studies. The clinical verification study is already ongoing. Our target there is to have somewhere between 600 and 800 clinical samples.

The FDA clinical trial has a similar number of clinical urine samples, but the total number of samples for that trial is closer to 5,000 samples when you take into account all of the different types of – everything ranging from rare genetic variants to reproducibility studies..

I see.

And any other studies required to file a 510(k) application?.

As I mentioned in our remarks, there are two separate 510(k)s, one for the device, which is a DNA test with AMR Gene Panel. That study really looks at the ability to quantitate the pathogens, reproducibility, accuracy, and ability to identify specific DNA sequences.

The Lighthouse Software 510(k) is for a software device and that in addition to having the typical testing that's done to confirm the utility of the software, that application has all of the prediction algorithms and tests the prediction engine against both the blinded test panel but also the samples that are collected in the clinical trial for the device..

I see. Thank you for taking my questions..

[Operator Instructions] At this time, I'm showing there are no further questions. Please proceed with closing remarks..

Thank you again for joining this afternoon, and I want to thank you for your time and your support of the Company. We look forward to updating you on our Q1 conference call in May. Thank you..

Thanks again..

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