Welcome to the OpGen First Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a Q&A session. As a reminder, this conference is being recorded today, May 14, 2019. 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 most recent Forms 10-K and 10-Q, which identifies 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 project with New York State; successfully, timely and cost effectively seek and obtain regulatory clearance for and commercialize its products and service offerings; the rate of adoption of its products and services by hospitals and other healthcare 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, May 14, 2019. 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..

Thank you, operator, and thank you, everyone for joining us today. On today’s call, we will review our first quarter 2019 financial results, provide a business update and discuss the company’s progress towards achieving key objectives for the year.

Our discussion will include updates on OpGen’s novel product pipeline, our completed and planned FDA submissions, and our work on the New York State Infectious Disease Digital Health Initiative. OpGen had a productive start to the year. Total revenue increased 21% to $1 million. And we made significant progress developing our core business.

Entering 2019, we outlined the goal to complete three separate FDA submissions for our lead rapid molecular diagnostic test, the Acuitas AMR Gene Panel, and for our cloud-based informatics platform, the Acuitas Lighthouse Software.

We are pleased to have filed yesterday the 510(k) submission, seeking FDA clearance for the Acuitas AMR Gene Panel product for the detection of antimicrobial resistance genes in bacterial isolates. The submission is robust.

More than 5,000 samples have been tested, including testing of approximately 1,500 samples at third-party sites and whole genome sequencing of more than 1,000 bacterial isolates, results to date support both our clinical and analytical validation performance objectives. Our goal is to receive FDA clearance for the test during 2019.

This first FDA submission is a pivotal milestone for the company. We will now begin preparations for the full commercial launch following FDA clearance. While our first Acuitas submission took longer than we originally anticipated, we are proud of the work that has been completed and we now have a strong foundation to build from.

The underlying work supporting the FDA submission includes a compliance infrastructure for the Thermo Fisher QuantStudio 5 and the QIAGEN EZ1. IUO test manufacturing and reporting software, and whole genome DNA sequencing capabilities, along with validated analysis pipelines.

We are diligently working towards the next two follow-on submissions for the Acuitas AMR Gene Panel (Urine) and for the Acuitas Lighthouse Software.

This indication and accompanying software will provide for pathogen identification, and antibiotic resistance detection and prediction direct from patients at risk for complicated urinary tract infections. The clinical trials to support these submissions are expected to begin before the end of the second quarter.

We have 8 clinical trial sites under contract and we expect to complete the majority of the third-party clinical trial work during the third quarter. Assuming we successfully hold to this schedule, our plan will be to submit at least one of the De Novo 510(k) applications in the fourth quarter.

The direct urine application is our highest priority to be followed by the Acuitas Lighthouse Software. In addition to our progress with FDA submissions, we’re continually working to strengthen our presence in the marketplace and to establish the foundation of peer-reviewed scientific data to support commercialization of our products.

Last month, training set data supporting prediction of antibiotic resistance using the Acuitas AMR Gene Panel and Acuitas Lighthouse Software was published in Antimicrobial Agents and Chemotherapy, a peer-reviewed scientific journal from the American Society for Microbiology.

The manuscript titled Predicting Antibiotic Resistance in Gram-Negative Bacilli from Resistance Genes was authored by a team of OpGen researchers, led by Dr. Terry Walker, Senior Vice President of Research and Development.

The manuscript highlights results from a rapid high-throughput PCR test that evaluated more than 7,500 highly antibiotic resistant clinical isolates selected from Merck’s Study for Monitoring Antimicrobial Resistance Trends or SMART surveillance network to predict phenotype resistance to several antibiotic classes.

The study assessed approximately $2 million data points from patients globally and in the United States. We believe this study is the most comprehensive of its kind completed to date. The result supports the use of rapid DNA testing to help guide antibiotic decision making.

Based on the study results, 41 proprietary prediction algorithms have been coded into the Acuitas Lighthouse Software for use in OpGen’s planned diagnostic product offerings. Now, for a brief update on the New York State initiative.

In the fall of 2018, we announced our collaboration with the New York State Department of Health and Merck’s ILÚM Health Solutions subsidiary to develop an infectious disease, digital health and precision medicine platform that healthcare institutions throughout the State to the Department of Health.

The ultimate goal of this collaboration is to improve patient outcomes by establishing statewide surveillance for multidrug-resistant pathogens and helping to control and manage antimicrobial resistance in acute care patients.

The project is progressing very well and we’re excited to have hit the first planned milestone, the installment of our Acuitas testing systems and Acuitas Lighthouse Software in 3 New York State metro area health systems.

This initiative is part of a greater commitment by Governor Cuomo of New York State to provide $1.3 billion to upgrade the Wadsworth Center public health laboratory in New York’s capital region and to build a life science cluster in the state.

While OpGen expects to receive up to $1.6 million from the initiative this year, we believe there is an opportunity to contribute to this project at a much greater scale. Participation in the New York State initiative represents just one meaningful commercial opportunity for our Research Use Only product.

I will now turn the call over to Tim Dec, our Chief Financial Officer, who will discuss our financial results.

Tim?.

first, the $400,000 for cost associated with our clinical verification and clinical trials for the Acuitas AMR Gene Panel for bacterial isolates; and a $500,000 non-cash impairment related to our Woburn, Massachusetts facility’s right-of-use asset.

The company reported a net loss attributable to common stockholders for the first quarter of 2019, up $3.9 million or $0.41 per share, compared to a net loss to common stockholders of $3 million or $0.75 per share for the first quarter of 2018. Turning to the balance sheet. We had cash and cash equivalents of $6 million as of March 31, 2019.

As Evan mentioned, we are very pleased with the FDA 510(k) submission for testing in bacterial isolates.

We historically have not provided guidance, but we anticipate that upon receipt of FDA clearance, we will see modest revenue growth in the top-line from our Acuitas AMR Gene Panel products in the latter part of 2019, as we commercialize our Acuitas diagnostic test.

In terms of the New York State initiative, we have achieved the first project milestone and recognized $500,000 of revenue related to the $1.6 million contract in Q1 2019. As Evan just mentioned, we believe that there is a significant opportunity for OpGen to get involved in a larger capacity with this initiative as it scales up.

As we move forward from our first FDA submission to our next submission, you should expect to see our R&D spend for Q2 to be down as compared to the prior two quarters, and then ramp back up in Q3 as we complete our urine clinical trials. We expect to spend roughly $1.2 million in clinical trials for our urine submission.

In terms of our commercialization plant, we are looking to add strategically to our sales team and scale our manufacturing assembly teams prudently, as we work to finalize our go-to-market strategies, which we will have in place prior to our first FDA approval.

Finally, we continue to evaluate our business and consider ways to strengthen our balance sheet by evaluating various options, including strategic partnering, development and collaboration agreements and other financial approaches that we hope extend our fast runway.

We are committed to the critical objectives we laid out at beginning in the year, and we’ll continue to do everything in our power to maximize shareholder value. With that, I’ll turn the call back to Evan..

Thank you, Tim. Now I’ll briefly review our commercial strategy and plans and the market opportunity we see with our key product launches.

Throughout the rest of the year, we anticipate working through the FDA clearance process for the Acuitas AMR Gene Panel bacterial isolates indication and preparing FDA submissions for the Acuitas AMR Gene Panel urine indication and the Acuitas Lighthouse Software.

Heading into 2020, we will be prepared for a commercial launch of our full suite of novel products. With these products, we will be addressing one of the largest public health challenges, a challenge that leads to a significant number of patient infections, hospitalizations and deaths, and in excess of $20 billion in healthcare cost per year.

There is a strong and clear need for rapid pathogen and antibiotic-resistance testing for helping manage acute multidrug-resistant infections. The Acuitas AMR Gene Panel and the Acuitas Lighthouse Software, once FDA cleared are ideally positioned to address complicated urinary tract infections as well as other urgent clinical needs.

In the United States alone, there are more than 10 million patients with urinary tract infections and at least 1.3 million of which are potential candidates for testing with the Acuitas AMR Gene Panel. A key element of our near-term strategy is continued to expand our installed base at top healthcare institutions.

We currently have 15 system installations in the United States and we expect this number to further expand in the second quarter. As we progress through the FDA clearance process, we will work with these institutions to expand product utilization into diagnostics.

Establishing the scientific foundation documenting product performance and improved clinical outcomes using our product is another important priority.

Our publication strategy includes presentations at the upcoming ASM Microbe meeting in June, publication of results from the successful clinical verification study for the AMR Gene Panel urine test last year and the publication of the recent FDA clinical trial data in top peer-reviewed journals.

As we get closer to receiving FDA clearance for the AMR Gene Panel, we will begin to expand our commercial organization and presence to support the initial product launch. We currently have five professionals in sales and marketing. We envision expanding our U.S.

commercial organization, both from a direct sales perspective and in terms of commercial leadership and marketing support. We have been working for some time to establish channel partner relationships to further expand our market reach. FDA clearance is a key milestone supporting these expanded activities.

Finally, we have also established a robust network of hospitals and strategic industry partners as well as a strong collaboration with New York State. These key relationships both validate our technology and provide a foundation to support the launch and uptake of our products.

We are confident that we are well positioned to execute on a successful commercial rollout as we aim to bring these products to more hospitals around the world. During 2019, we will look forward to advancing our business objectives, as we continue our evolution into a molecular informatics commercial organization.

We expect to recognize program milestones for the demonstration project phase of the New York State Infectious Disease Digital Health Initiative, as we complete software development and validations to support perspective deployment studies in the second half of 2019, prepare and file 510(k) submissions for the FDA for the Acuitas AMR Gene Panel (Urine) and the Acuitas Lighthouse Software to support full commercial launch continue to install Acuitas AMR Gene Panel systems and support of Research Use Only sales and full commercial launch following first FDA clearance, and expand commercial activities to successfully launch the Acuitas product family following FDA clearance.

And finally, to commercialize our rapid testing products and software in South America. All of us at the company are very excited about the momentum, we have generated in the first part of the year, and we look forward to building upon this progress for the remainder of the year and beyond.

We appreciate your support and thank you for your time this afternoon. We are now ready for questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Yi Chen with H.C. Wainwright. Your line is now open..

Good afternoon. This is Edward Marks on for Yi. Thanks for taking the questions. Just trying to get a little more clarity on some of these 510(k) submissions, just hoping you can clarify when you expect the FDA to approve the 510(k) submission for the Gene Panel for bacterial isolates.

And it sounds like you’re planning to submit the 510(k) for the urine sample and the Lighthouse Software fairly imminently. So just hoping you can provide a little more granularity on those submissions..

Sure. And thanks for calling in Edward. In terms of the approval timing, it’s probably not appropriate for us to give a suggested approval date. What we said in our remarks was we would expect it before yearend. And if things go well, it will be earlier.

It’s unrealistic to think that it would be less than 90 to – 120 days, because that’s the statutory review time. The submission timing for the urine, just to clarify, we spent the last months with the entire organization focused on getting the isolates submission done. So it turned out to be a huge effort. We’re happy that that’s behind us.

And we’re very pleased with the quality. And now, everyone’s attention is focused on completing the urine clinical trials beginning in the second quarter, through the third quarter and then ideally making the submission before year end..

Okay, excellent. Thank you. And then, just also wondering, whether you’re able to commercialize the bacterial isolates after receiving approval, before you get approval for the 510(k), just wondering about the order there..

Yeah, great question. And let me remind you that we’ve already begun commercialization of the Gene Panel for research use only. That’s primarily for infection control purposes. And the New York State project represents a tangible example of the success we can have with that product. So we’ve already begun and we’re seeing some modest revenues there.

The real success though will come as we now have filed with the FDA and laboratories can begin their validations in anticipation of a full FDA clearance later in the year..

Got it. And then a final financial question, I appreciate you providing a little more information on the R&D ramp for the rest of the year. Just wondering if you could provide a broader level in terms of the trend for operating expenses through 2019..

So this is Tim. Other than the R&D line that I wanted to focus on, just help guide people, at the spending, because it did jump up in Q4 of last year and this year. You should expect to see our G&A numbers being pretty rhythmic or consistent throughout the balance of the year.

Keep in mind, the first quarter has roughly $200,000 worth of audit costs associated with that, so you will expect to see the out quarters being less.

And as we have talked on the call about building up our commercial sales and marketing, you shouldn’t see a dramatic increase early on, but as we get to approval, we’ll probably start to see that ramp in the back-half..

Okay. It makes sense. Well, that’s all for me. Congratulations on the progress and thank you for taking the questions..

Thank you..

Thank you..

Thank you. And our next question comes from Nathan Weinstein with Aegis Capital. Your line is now..

Hi, Evan and Tim, and thanks for taking my question. So just wanted to start with – now that you had the submission into FDA and I know you didn’t want to give too much granularity around timeline.

But in terms of ongoing resources would – typically, in something like this, especially something that’s sort of an interesting breakthrough technology, would you expect that there could be ongoing dialog with the FDA around the first submission?.

Thanks for your question, Nathan. We do expect some pretty serious interaction with the FDA. They have cleared other multiplex tests before. And certainly on the cancer side there is a lot of deep cancer tests that have been cleared, like FoundationOne, for instance.

But in the molecular testing for infectious diseases, this probably represents the deepest multiplex test that has been put in front of FDA. And although there is a predicate device that we’ve used, which is the device called the Cepheid Carba-R, it tests for 5 resistance genes and our test has for 47 resistance genes.

So to complete that study we had to compare the whole genome sequencing virtually for every sample in the trial and that’s part of the complexity that dragged out the submission.

So the point I was trying to get to is that, we do expect ongoing dialog with the agency with relation to these new FDA sequencing methods, because it’s the first time that they’ve used whole genome sequencing as a reference to our knowledge. And there is a very significant set of data is up to maybe a quarter million data points in this trial.

And the agency could ask us to do things like re-cut our data, all things that hopefully would not require additional experimental work. But we do anticipate both a timely review, but one that is rigorous and delving into the data..

Thanks, Evan. And if I could also ask, stepping back and looking at the environment, we see quite a bit of news flow around superbugs.

And a number of doctors with some regular – regularly communicate have been explaining to me that they’ve seen a lot of tests in different areas, perhaps not with the OpGen menu, but there seems to be a shift going on towards moving – towards faster – hopefully faster results on some of these tests and so can you sort of discuss from your point of view about the superbugs and about where you see OpGen moving in with this renaissance of testing that we see going on?.

Sure. Thanks. First of all, you’re right that there is a real surge in these drug-resistant infections. In our corporate presentation, we talk about the over 30% increase in ESBL resistance in urinary tract patients.

That’s very significant, when you think about it there now up to 20% of the patients are resistant to traditional frontline cephalosporin antibiotics and 35% resistant to fluoroquinolone. So how do you treat those patients, and that’s where our product is really uniquely positioned and the feedback continues to be very strong.

Another example that I’m sure you’ve heard about this pathogen candidate, [Orus] [ph]. That is one of the pathogens that’s being tracked in the New York State Digital Health Initiative. So there are a lot of challenges out there.

The good news is the teams that are affiliated with OpGen, we believe, have the solutions to help combat these problems and make a difference..

Thanks. And just one for me. Just as you guys bring on – potentially bring on salespeople and build out that organization toward the back half of the year.

We think about how those guys ramp typically I’m not a diagnostics company, I mean, how long this will take a new sales head to ramp up to a productive level, where it’d be a contributor to your organization?.

Right. Great question. And there’s definitely a lag time there. A lot of times you’ll hear it’s up to six months. The one area that we think, we have a leg-up in terms of our initial rollout, we’ll be focusing on the existing installed base.

So as we go into 2020 even in the back half of this year generating sales at sites that already have our installations is a great way to grow the business..

So one just to add to Evan’s point. We do want to be capitalize on this opportunity, though, prudent in our capital spend as we build out our sales team. You wouldn’t expect to see more than one or two people potentially added per quarter.

So you would think by the end of the year, the number could be to five or six, but you’re not going to see a significant spend, though, we will be opportunistic to make sure we capitalize on the right opportunities..

Okay. Thanks. And then, I guess, just as an addendum question from sort of thinking about the spend.

I mean, you’re in eight clinical sites now and should we expect that number to remain static in the near-term?.

Eight are the sites that are on a contract, there’s one other that’s going to come in, but the figure that Tim gave includes all of the hard out of pocket costs, and it also has our initial estimate for the whole genome sequencing to support again the data analysis..

Okay. Thanks so much, guys..

Thank you..

Thanks, Nathan..

Thank you. And our next question comes from Maxim Jacobs with Edison Group. Your line is now open..

Hi, Tim. Hi, Evan. Thanks for taking my questions.

So first I just wanted to ask about the – so if the urine submission will be by the end of the year, when – what do you think the timing would be for the Lighthouse submission?.

It’s hard to give a precise answer, because we’re evaluating some strategies that would allow us to get that done more quickly, in which case it could go in simultaneous with the urine submission. There’s scenarios where it might go in before.

But if we don’t make those course changes then it would go in, in the months immediately following the urine submission..

Okay, great. And then you mentioned that the isolate submission is relatively complex for the FDA.

Are there similar kind of issues – maybe issues isn’t the right word, but similar kind of risks with the other submissions as well in terms of complexity?.

That’s a really interesting question. First of all, I mentioned this in the remarks a little bit, but we did all of the foundational work that needs to be done in terms of risk assessment and the underlying instrumentation and manufacturing infrastructure with the first submission.

For the urine submission, there are new questions that have been brought up by the FDA that will need to be addressed. And we think, we have a plan to work through them. And it’s certainly from a clinical trial perspective, I would say, both straight forward, and full of complexity and nuance.

So the team here is ready, but they definitely are aware and the agencies are aware, frankly, of some of the complexity, and they’ve described this is a totally groundbreaking FDA submission..

Okay, great. And then just my last question is, Tim mentioned a possible strategic partnership at some point in the future. I was just wondering, if you give any guidance on what that might look like..

There are different levels to that. Some of the organizations that we’ve had conversations with and are in an ongoing conversations are channel partnerships. So basically capitalizing on the existing market presence of a large multinational and that’s the strategy that we definitely want to leverage in our growth plans.

The other types of partnerships relate to putting our content on third-party diagnostic platforms and the informatics. There are different financial considerations in those various agreements..

Okay, great. That’s all for me. Thanks for taking my questions..

Thanks, Maxim..

Thank you. And our next question comes from Ben Haynor with Alliance Global Partners. Your line is now open..

Good afternoon, gentlemen. Thanks for taking the questions and congrats on the submission for the isolates. First for me just you mentioned that now the 15-or-so systems that you have out there, the hospitals can start to begin the validation process.

I know typically that can take, call it, three to six months for these hospital labs to validate the test.

Is there a reason that your test would be any different on that front?.

Ben, hi, thanks for the question. I think, definitely a consideration in this type of deep multiplex products that generally the labs aren’t going to do the kind of validation that’s necessary to bring that product online, if you read the clear regs of what’s needed to validate one of these tests.

In New York State, we are lucky, because the Wadsworth Labs are just completing their validation that will enable us to work with the other sites in the state. We just thought about the mainstream hospital lab, they’re not going to start from scratch and find elements to do that.

That changes when you have the FDA clearance and it’s one of the reasons that we expect to see things to move forward is, with the FDA clearance, the clear validation requirements are significantly reduced. You still have the onboarding of getting the data into their system and putting up a new test.

The actual lab validation side is much more streamlined..

Okay. That’s helpful. Thank you for that. Go ahead, sorry..

I was just going to say the many validations that can be done in New York State after the Wadsworth validation are on the order of weeks. Whereas if we haven’t done that, New York State approvals typically take up to one year to get..

Right. Okay, great. And then on the New York State project, when do you anticipate the – and I’m sorry if I miss this, I got distracted for a minute earlier in the call. But the go-live phase, when do you expect that to start? Any color that you can provide there would be helpful..

Sure. Our internal target is the end of the second quarter. However, I think it’s more realistic to think that that will – the true go-live with the systems turning on and doing their testing, probably is in the mid-summer, even into partially – potentially into August..

Okay. And then just kind of following up on one of the other questions and make sure I’m understanding it correctly, it sounds like some of the isolates, and the works that you did to – do the submission to the FDA there, some of that submission helps you in speeding up the urine submissions.

But there are other questions that the FDA has that will maybe offset better or slow it down to a similar level if I understand that right?.

It’s well said and it’s an important thing to recall. The work we’ve done to prove the performance of the product ranges from the testing of all 50 resistance genes and showing the accuracy to reproducibility studies across sites to internal cross reactivity studies. All of that will carry forward to other indications.

What the agency now wants to see is, for example, are those results consistent in new sample matrix, in this case urine. But the other, just to give you a sense of the other areas, this test measures the level of bacteria, the cutoff is 10 to the 4 bacteria.

So we have to prove to the agency that we can reliably detect 10 to the 4 bacteria from a clinical sample..

Okay. So that makes sense. And then, I guess, lastly for me, I know you guys were on the ECCMID exhibitors’ list.

Just curious on any color from that conference a month or so ago, any presentations that were noteworthy or discussions that were noteworthy that you can share?.

I guess, the thing I heard is there is a lot of people working on phenotypic ASP systems that are requiring typically a culture isolate. But, when you look at people who are developing new rapid molecular approaches, such as the one that OpGen is pioneering, not a lot of new work is there.

So that’s part of why we had so much interest in people coming to us..

Okay. Great, well….

So good meeting – I was just saying it was a great meeting from our perspective..

Excellent. Well, thank you for taking the questions, gentlemen, have a good evening..

Thanks, Ben..

Thank you. And our next question comes from Tony Polak with Aegis. Your line is now open..

My questions are already answered. Thanks..

Thank you. [Operator Instructions] Our next question comes from John Power with Redwood Fund. Your line is now open..

Hey, Evan and Tim, thanks for taking the call. And congrats on your progress, it’s actually very impressive. I guess, my question revolves around the capital needed to fund the company going forward. It seems unfortunately like the more progress, almost like an inverse relationship between your market valuation and the progress you made.

How do you see the company getting out of the vicious cycle of reverse splits and offerings at lower valuations? Are there any game-changing catalysts that will help with that or how do you look at that and how do you think about those issues?.

So, good question, certainly a challenge that we’ve been working through for the better part of a couple of years. But when we’ve gotten to the point where we are – where we’re – it’s a turning point for us, which is FDA submission. As I mentioned in the prepared remarks, we are looking at a variety of strategic options.

Evan just touched on a couple of those. We’re also looking at a potential tactical financing. It could serve as a bridge until a larger financing would be needed after the FDA clearance. So we’re looking to get out of this rat-race and capitalize the company in the proper way. But we want to get to the right valuation before we do that.

So we need to look at the non-dilutive financing opportunities we have right now in order to achieve that..

And, John, I’d add that, we consistently hear that company needs to execute and when we do hopefully, some of the value will start to be recognized. This FDA submission, certainly from our vantage point is a good milestone marker. We also think that the revenue growth we had in the first quarter was up 21%. It’s still modest in terms of scale.

But it’s directionally positioning the company to have a good year and grow. And as we perform, hopefully, that starts to get recognized in the share value. We were asked earlier today, we’re in a conversation about what would probably be a fair value for the company.

And if you benchmark us versus multiples in the industry, clearly, there is a discontinuity between our value and where it should be..

Yeah, I think I would agree with that. No, I appreciate that color. That’s very helpful and good luck. You guys are continuing to execute as far as I can see. So thank you..

Thank you..

Thank you, John..

Thank you. This concludes today’s question-and-answer session. I would now like to turn the call back over to Evan Jones for any closing remarks..

Thank you all for joining this afternoon. And we look forward to updating you as we continue our progress in the coming months. Have a good afternoon. Thank you..

Thank you..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program and you may all disconnect. Everyone, have a wonderful day..