Kim Golodetz - LHA Evan Jones - Chairman, CEO Tim Dec - CFO.

Analysts:.

Hello and welcome to the OpGen Inc. Third Quarter 2018 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded Tuesday, November 13th, 2018. I would now like to turn the call over to our host, Miss Kim Golodetz. Ma’am, you may begin your conference..

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 companies 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, its ability to successfully complete the demonstration process with New York State, successfully, timely and cost-effectively seek and obtain regulatory clearance for and commercialize its products and services offerings; the rate of adoption of its products and services by hospitals and other health care providers; the success of its commercialization 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, November 13th, 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 2018 third quarter financial results, provide an update on our business plans and discuss progress towards achieving key objectives for the remaining months of 2018. I will also provide color on what we expect in the early months of 2019.

The third quarter of 2018 was a period of solid progress towards achieving our objectives of building a world precision medicine business to help combat the rising challenge of antimicrobial resistance and the health guide precision antibiotic therapy.

We announced our participation in a ground breaking initiative between the New York State Department of Health, ILUM Health Solutions, a wholly owned subsidiary of Merck and Company and OpGen to develop a state-of-the-art research program and platform to detect, treat and prevent the spread of infectious disease.

We progressed our clinical trials for clearance of the AMR Gene Panel and the Acuitas lighthouse software. We completed the sample accrual and preliminary data analysis for the Acuitas products clinical verification study. And we continue to lay the foundation for the expanded commercial launch of our Acuitas products in 2019.

The outlook for the new Acuitas family of products continues to be encouraging. Participation in New York State infectious disease digital health initiative represents just one meaningful commercial opportunity for our Research Use Only product.

Governor Cuomo of New York State has committed $1.3 billion to upgrades at the Wadsworth Center public health laboratory and to building a life science cluster in the state. As part of this initiative, $22 million has been committed to the infectious disease, digital health initiative.

In the first year of demonstration project, Acuitas AMR Gene Panel test and Acuitas lighthouse software will be installed in two of the state's largest health systems to rapidly identify carbapenem-resistant bacteria and to help improve patient outcomes.

Following a successful demonstration project, it is anticipated that our technology will be rolled out across the state’s 230 hospitals. All hospitals will be candidates for Acuitas lighthouse software and the larger ones will be candidates to receive AMR Gene Panel systems.

We are proud to be part of this groundbreaking initiative throughout the state of New York and to collaborate with Wadsworth and ILUM to help develop the blueprint for how governments and health care facilities can detect, track and manage anti-microbial infections. We are progressing our FDA clinical trials with testing underway at external sites.

There will be three submissions to the FDA that build upon each other. A Class II 510(k) for the AMR Gene Panel isolates and 2 de novo submissions; one for a Class II 510(k) for the AMR Gene Panel urine and the other a Class II 510(k) for the Acuitas lighthouse software.

The isolate 510(k) will be for in-vitro diagnostics and infection control based on identification of bacterial nucleic acids, and gene sequences associated with anti-microbial resistance in pure bacterial colonies and detection of forty‐seven gene sequences associated with antimicrobial resistance.

We anticipate the labeling for sample types will be for bacterial isolates from any primary clinical sample, such as blood, urine, lung and wounds. This submission builds on the market opportunity we are developing in New York State.

Testing is underway at four external sites, and we are pushing hard to complete the testing and whole genome sequencing of several thousand isolate samples that is required to support the FDA 510(k) clearance. Our timeline is to complete the isolates FDA submission in early 2019.

The urine and lighthouse software FDA submissions will follow the isolate submissions. We anticipate that the three clearances will support the commercialization of the Acuitas technology in the U.S. as we progress through 2019. I will turn the call over to Tim Dec now, our Chief Financial Officer, who will discuss our financial results.

Tim?.

Thank you Evan. This afternoon, I’ll touch on some of the highlights of our third quarter financial results and summarize our year-to-date performance. Revenue for the third quarter of 2018 was $600,000 compared with $700,000 to the third quarter of 2017.

The decrease was primarily due to declining revenue from our legacy QuickFISH rapid pathogen ID test. We believe that the decrease in FISH revenue in the quarter was caused by weak customer demand rather than loss of any accounts. During the fourth quarter, we have seen some rebound in demand from these accounts.

Operating expenses for the third quarter of 2018 were $3.8 million compared with $3.9 million for the third quarter of 2017. The decrease was due to the following items; research and development expenses were $1.3 million down from $1.5 million.

General and administrative expenses were $1.7 million up from $1.6 million and sales and marketing expenses of $360,000 up from $330,000. The company reported a net loss attributable to common stockholders of $3.3 million for the third quarter of 2018 or $0.53 per share.

Net loss attributable to common stockholders was $3.3 million for the third quarter of 2017 or $1.74 per share. Both quarters reflected continued benefits of our cost reduction program that we put in place in June of 2017.

Total revenue for the nine months ended September 30th 2018 $2.2 million, consistent with the $2.2 million for the nine months ended September 30th 2017.

Total operating expenses for the nine months ended September 30th 2018, were $11.7 million, a decrease of approximately 20% or $2.9 million from the $14.6 million for the nine months ended September 30 2017. A decrease was primarily due to the following; research and development expenses were $3.8 million down from $5.4 million.

General and administrative expenses were $5.4 million up slightly from $5.3 million and sales and marketing expenses of approximately $1.1 million down from $2.3 million.

The net loss for the nine months ended September 30th 2018 decreased 23% to $9.6 million or a $1.80 per share down from a net loss for the nine months ended September 30 2017, of $12.5 million or $9.17 per share. Turning to our balance sheet, we had cash and cash equivalents of $4.7 million as of September 30th 2018.

Subsequent to the close of the third quarter, we raised $2.8 million in net proceeds from an underwritten offering of our common stock. This small strategic capital raise was important for a number of reasons.

It matches our various FDA submission timelines, provides us with work operational capital into the second quarter of 2019, and it satisfies certain NASDAQ reporting requirements. Cash burn for the third quarter of 2018 was $2.7 million. This quarterly cash burn was in line with our previous four quarters of cash burn.

Maintaining that level of cash burn while achieving key milestones has been a focus of ours throughout 2018. Given our clinical trial work and FDA submissions, we expect our quarterly cash burn to continue to be in the $2.6 million to $3 million range.

Looking forward to 2019 and beyond, we expect our Acuitas products to begin contributing to our top line revenue. We anticipate $1.5 million in revenue from the New York State Digital Health Infectious Disease Initiative.

Based on the project milestone schedule, we anticipate recognizing the first $1 million during the first and second quarters in conjunction with Acuitas system go-live decisions and the delivery of customized Acuitas lighthouse software.

Year-to-date we have delivered 10 Acuitas systems to customers for clinical evaluation and commercial use and research only initiatives. Overtime, with full implementation post FDA clearance, we anticipate our average reagent revenue to be in the $200,000 range per account.

The commercial plan is to target the top 200 hospital accounts in the first year post FDA clearance. With that, I’ll turn the call back to Evan..

Thank you Tim. OpGen is well-positioned to become a global leader in using genomic analysis and informatics to help combat drug resistant infections. Last week, we announced the completion of accrual and testing of 670 urine specimens for the clinical verification study for the Acuitas AMR Gene Panel u5.47 RUO and the Acuitas lighthouse software.

The study was conducted in a real world setting at Beth Israel Deaconess Medical Center, Geisinger, and Intermountain Healthcare. The study was initiated to evaluate potential diagnostic and antibiotic decision making improvements that could be possible using rapid molecular testing and bioinformatics.

We are very pleased with the preliminary results of this study. We confirm performance of our technology to identify urinary tract infections in under three hours compared to the current two days using bacterial culture methods. And using our lighthouse software we successfully made antibiotic resistance calls with high sensitivity and specificity.

The investigators are preparing the manuscript summarizing the results with the publication goal of the first half of 2019.

Teams from OpGen, Merck ILUM and the Centers for Disease Control and Prevention or the CDC recently visited Colombia to evaluate the performance of the customize ILUM Acumen Software that was jointly develop with OpGen and CDC funding. Three hospital sites are using this software currently and they are pleased with the results.

The visit received significantly televised media coverage in the country and we are providing links to the news feed which are in Spanish on our twitter feed. Under the terms of our subcontractor agreement with ILUM, we have rights to negotiate distribution rates for the new software platform in low and middle income countries.

Our initial goal is to complete the agreement and subsequently to launch the product software in Colombia and more broadly in South America. The software includes the ability to deliver rapid results from our FISH testing product, so envision jointly commercializing both of the technologies in the region.

As noted earlier in 2018 we have established an operating company in Colombia. The local team played a critical role in the successful CDC project and we are waiting for final clearance from regulatory authorities before the end of the year to begin diagnostic test cells.

In October we announced the collaboration with QIAGEN to advance rapid diagnostics for antimicrobial resistance.

Strengthening OpGen’s entry in United States market the companies have entered into an agreement to commercialized a new solution for the infection of multi-drug resistance bacterial pathogens based on QIAGEN’s EZ1 Advanced XL automated nucleic acid purification instrumentation or the EZ1 and Kits for the United States.

The EZ1 will be utilized in test workflow for the Acuitas AMR Gene Panel u5.47 products. Under the terms of the agreement OpGen will purchase EZ1 instruments and reagent kits from QIAGEN and sell or place them with customers in United States for use with the Acuitas AMR Gene Panel.

The EZ1 is a class one medical device listed with the FDA that provides full automation with sample preparation throughput of up to 14 samples for one hour run. QIAGEN is the global leader for nucleic acid sample preparation for the full line of instruments and reagent including the EZ1, the QIAcube, and the QIAsymphony fully integrated automation.

There were thousands of EZ1 instruments currently used in laboratories worldwide. We are pleased to collaborate with QIAGEN to further strengthen our AMR Gene Panel offering.

The EZ1 provides best-in-class nucleic acid purification technology and QIAGEN’s extensive global capabilities and diagnostic expertise should provide multiple opportunities for collaboration in the future. We achieve key milestones during the period supporting our commercial outlook for 2019 and beyond.

These milestones include our growing base of AMR Gene Panel systems at prominent U.S. healthcare organizations, positive results from our clinical verification study, the QIAGEN relationship mentioned moments ago.

Success with the ALUM, CDC project in Colombia and the New York State infectious disease digital health initiative, looking forward we expect to advance the following business objectives during the remainder of 2018 and early 2019. This OpGen further transitions the commercial phase of our molecular informatics business. First.

to file a 510(k) submission with the FDA in early 2019 for the Acuitas AMR Gene Panel IVD support full commercial launch for clinical use for testing of bacterial isolates.

To complete clinical evaluations and file 510(k) submissions with the FDA for the Acuitas AMR Gene Panel, u5.47 IVD and the Acuitas Lighthouse Software for rapid testing of urine specimen and prediction of antibiotic resistance to frontline antibiotic.

To achieve the program milestones from New York State digital health initiative including installation of Acuitas systems at New York City metro area health systems in the Wadsworth laboratories and completion of development of customized Acuitas lighthouse software to support the ILUM real time monitoring data from Regional Health Information Organizations or RIOs and incorporation of whole genome sequencing data.

To complete the registration process in Colombia with regulatory authorities to allow OpGen to commence commercial operations in the country and expand sales of rapid test products and software products in South America.

To complete this CDC contract final report for development of smartphone-based clinical decision support solutions for any microbial stewardship and infection control in low and middle income countries and associated contracting activities to allow commercialization of the software developed during the project.

And finally, to continue install Acuitas AMR Gene Panel systems in support of Research Use Only sales and full launch following the first FDA clearance. We anticipate reporting on accomplishment of these key milestones through December in the first half of 2019.

All of us in OpGen are proud of the work we've accomplished during 2018 and we see tremendous opportunity in the coming months and end of the future. We appreciate your support and thank you for your time this afternoon. We are now ready for questions.

Operator?.

Yes, sir. [Operator Instructions] And your first question comes from Yi Chen with H.C. Wainwright..

Hi. Thank you for taking the question. This is Kartik [ph] on for Yi.

Question is, are the data from the Acuitas clinical verification study, the only dataset needed for the three 510(k) applications?.

Good afternoon and thank you for the question. It’s Evan here. Those data were generated on our research use kits and software.

They are indicative of the performance that we’ll anticipate on the prospective studies and then for the 510(k)s there are a series of studies that are required for testing a bacterial isolates and the prospective collection of approximately 1500 urine specimens..

Perfect. Thank you so much..

And you’re next question comes from David miller [ph] from RCM..

Good afternoon, Evan..

Hi, Dave..

Hey, it’s great to talk to you again. And a new venture that very much looking forward to having the same successful conclusion that we had in the last one. I just understanding that there is many new retail investors in OpGen that are new to the company and new to your reputation and success in the past.

Could you perhaps possibly extrapolate a little bit about your relationship with QIAGEN and what they bring to the table and what the outcome of your last experience with them and the shareholders in the past?.

Sure. And thanks for the question Dave. Not to go too far into it. But you’ll recall previously I have built the company Digene. QIAGEN acquired Digene in 2017 -- I'm sorry 2007 time flies. And so we have a good relationship with the company.

The announcement that we made regarding the EZ1 was hopefully the first in a series of building relationships with them. And they are terrific team of people have a -- as I mentioned on the EZ1, thousands of systems worldwide and as we gain FDA clearance for our product the opportunities for collaboration certainly will expand..

Thank you, Evan. I appreciate it. And god bless. Good work again. And I’m sure this is going to be another success under your belt. You did a great job the first time. Thank you..

Thank you..

[Operator Instructions] And there are currently no questions at this time. So I will turn the call back over to Mr. Jones..

Thank you. I want to thank all of you for joining our call this afternoon. I’d like to mention that we plan to travel to San Francisco in January during the time of the JPMorgan Healthcare conference and we’ll be available for meetings with the investment community on January 7 through the 9th.

Please contact our Investor Relations firm, LHA if you’d like to meet with us there. We look forward to updating you on our Q4 conference call in March. Have a nice evening. Thank you very much..

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