Welcome to the OpGen Third Quarter 2019 Earnings Calls and Business Update. At this time, all participants are in a listen-only mode. Following the management prepared remarks there will be a Q&A session. As a reminder, this conference is being recorded today, November 6, 2019.

Before we begin, I would like to caution you that comments made during this conference call by management may contain forward-looking statements regarding the operations of and future results of OpGen and Curetis N.V.

I encourage you to review OpGen's filings with the Securities and Exchange Commission, including, without limitation, the company's most recent form 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 completion of the business combination with Curetis N.V., pursuit of FDA clearance for the Acuitas AMR Gene Panel for use with bacterial isolates; the use of proceeds from the October 2019 public offering; activities related to the company’s products and services, 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, November 6, 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 the law.

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

Thank you, operator and thank you everyone for joining us this afternoon. On today's call, we will review our third quarter of 2019 financial results, provide an update on business operations and discuss recent corporate actions and our progress towards meeting key objectives by the end of the year, and our planned business combination with Curetis.

We had a solid first nine months of the year. Total revenue for the nine month period ending September 30 increased 22% to $2.7 million compared to $2.2 million in 2018. Third quarter revenue was $648,000 compared with $552,000 in the prior year period, a 17% increase.

In September, we announced the plan combination of options business with the Curetis Group.

As a reminder, we entered into an implementation agreement Curetis N.V., a Dutch publicly listed company on Euronext, under the ticker CURE, under which we agreed to purchase all of the outstanding shares and acquire all of the related business assets of Curetis GmbH, a subsidiary of Curetis N.V.

to create a combined business with an option for approximately 2.7 million shares as a consideration.

Curetis has been a pioneer in the development of sample to answer molecular diagnostics for infectious disease, the company's goal is to become a leading provider of innovative solutions for Molecular microbiology diagnostics, designed to address the global challenge of detecting severe infectious diseases, and identifying antibiotic resistance and hospitalized patients.

The Curetis UNYVERO test for lower respiratory infections or LRT was the first LRT test to be cleared by the FDA in the United States.

The LRT test is marketed directly in the U.S .by Curetis and the portfolio of currently five CE marked in vitro diagnostic IVD products are marketed through Curetis distribution partners in Europe, the Middle East and some Asian markets.

Curetis is wholly owned subsidiary Ares Genetics GmbH together with strong partners in the Life Science, Diagnostics and Pharmaceutical industry is developing and commercializing next generation molecular microbiology solutions for life science research, public health, drug development, and infectious disease diagnostics.

Ares Genetic Solutions are based on areas DV, likely one of the most comprehensive databases on the genetics of antibiotic resistance, and the Ares technology platform with advanced bioinformatics and artificial intelligence tools and algorithms.

We anticipate the combined company will have a broad commercial stage diagnostic portfolio of CE IVD marked and U.S. FDA cleared products and platforms as well as a proprietary NGS based, an AI powered technology and knowledge base for the rapid molecular prediction of AMR.

The two initial flow side for the company will be first, rapid diagnostics for lower respiratory infection and urinary tract infection and second, bioinformatics and NGS services for AMR prediction by Ares Genetics, as well as bioinformatics services based on the Acuitas Lighthouse, AMR knowledgebase by OpGen.

Key elements of the company's combined strategy include continuing to gain regulatory clearances and approvals and establishing a market position for proprietary molecular diagnostic testing platforms, capitalizing on unique technology platforms, leveraging global commercial capabilities and partnerships, pursuing development collaborations, capitalizing on financial leverage, and operational and research synergies to improve return on capital and achieving future profitability.

I would now like to highlight OpGen’s business activities in the third quarter of 2019. During the third quarter, OpGen continued to execute on one of our highest priorities, to bring our novel Acuitas, AMR Gene Panel and Acuitas Lighthouse Software to market.

In May, we filed a 510(k) submission, seeking FDA clearance the Acuitas AMR Gene Panel product for the detection of for the detection of antimicrobial resistance genes in bacterial isolates.

We received our first formal request for additional information from the agency in July, and we've been working towards a response to the agency through an interactive review process.

Today, we have provided the agency with responses to approximately two-thirds of the requests and are working to address the remaining items in a formal submission to the FDA by the early January 2020 response deadline.

Through this interactive review process, we seek to align our responses with FDA expectations to facilitate the timely and successful completion of the clearance process. In early November, we will begin sample testing for the AMR Gene Panel Urine de novo FDA submission.

The start date is later than originally planned as a result of the incorporation of feedback from the FDA received through the Q sub process. There are nine sites under contract for the trial that will involve collection of approximately 1,500 clinical remnant samples and testing of additional contrived specimens.

In advance of FDA clearance, we are beginning to transition to Acuitas products being the growth driver for the company. In the first nine months of the year, RUO Acuitas AMR Gene Panel and Acuitas Lighthouse related revenue represented 43% total revenue or $1.2 million, up from less than 5% of revenue in the comparable 2018 period.

This encouraging trend was the primary driver behind the 22% growth we have seen year-to-date.

I would now like to turn the call over to OpGen CFO, Tim Dec, Tim?.

Thank you, Evan. On today's call, I will touch on the highlights of the third quarter and the nine months ended September 30, 2019. Revenue for the third quarter of 2019 was $648,000 compared to $552,000 in the third quarter of 2018.

Operating expenses for the third quarter of 2019 were $4.1 million compared with $3.8 million in the third quarter of 2018. The increase in operating expenses was primarily attributable to $538,000 of transaction costs associated with the proposed business combination with Acuitas. R&D expenses were $1.1 million, down from $1.3 million in 2018.

G&A expenses were $1.6 million, down to $1.7 million in 2018, and sales and marketing expenses were flat quarter-over-quarter at $400,000. The net loss for the third quarter of 2019 was $3.5 million, or $3.95 per share, compared to the net loss of $3.3 million, or $10.67 per share in the third quarter of 2018.

Total revenue for the first nine months ended September 30, 2019 was $2.7 million, compared with $2.2 million for nine months ended September 30, 2018. As Evan mentioned, an increase of 22.4%, total operating expenses for the nine months ended September 30, 2019 were 12.4 million compared to $11.7 million for the nine months ended September 30 2018.

The increase in operating expenses was attributable to two items, $538,000 transaction costs associated with Acuitas business combination and a $521,000 impairment charge in Q1 of this year associated with the abandonment of our Woburn facility. R&D expenses were $4.1 million, up from $3.8 million in 2018.

G&A expenses were $4.9 million, down from $5.4 million in 2018. And sales and marketing expenses were flat year-over-year at $1.1 million. Net loss for the first nine months of September 30, 2019 was $9.9 million or $13.32 per share, compared to $9.6 million or $36.9 per share, for the period ended September 30, 2018.

We closed the quarter with roughly $1 million of cash. This amount was augmented on October 28 of this year, when we closed the public offering of 4.7 million units at $2 per unit. The offering raised gross proceeds of $9.4 million. In terms of NASDAQ, we recently heard from them that we have regained compliance with the shareholder equity requirement.

Early in the quarter, we had regained compliance with the NASDAQ minimum bid price rule and are currently in compliance with all continuing listing requirements. At this point, everyone is aware of the exciting business combination of OpGen and Curetis.

As a reminder, we will be issuing roughly 2.7 million shares at the time of closing and we expect to meet other customary closing requirements. We have been actively working on integrating the two teams since the deal was announced in early September.

The Curetis team has been to Gaithersburg a number of times and I with other members of the OpGen team will be traveling to Germany next week to continue the integration efforts. This will be our primary focus until the combination has been approved and completed, which we expect to occur by late January or early February or 2020.

In terms of the combination, there are a few items I would like to touch on. In the transaction announcement, we estimated combined pro forma 2019 revenue would be in the $5 million to $6 million range. We expect revenue to grow to $10 million to $15 million in 2020, a potential two to three times increase in our top line revenue.

Our integration efforts are focused on operational efficiencies and financial discipline. Key saving opportunities to note. Curetis has a state-of-the-art robotic manufacturing facility with historical capital investments approaching $10 million.

This facility has the potential to save millions of dollars of future CapEx when scaling up manufacturing and help expedient the ability to bring our AMR Gene Panel to market. Curetis has a strong U.S. sales and marketing team, something that we were looking to build will no longer be necessary.

Curetis also has a dedicated European commercial partner support team, utilizing these teams will save us millions of dollars in operating expenses going forward. U.S. sales force is currently selling into the same accounts that are rapid pathogen ID and our cutest EMR products are or will be once clear sold to.

Curetis with Ares Genetics has advanced bioinformatics capabilities that can be leveraged to integrate both companies AMR databases and data analytics and reporting platforms and venture into next-generation sequencing based infectious diagnostics in the future.

We will certainly look across all other areas of the combined company to look for ways to reduce both our net loss and cash burn. As we work through our integration efforts over the next two to three months, our primary focus will be on identifying and then capturing the financial synergies associated with this combination in 2020 and beyond.

Our preliminary annual cost saving estimates are in the 15% to 20% range, potentially even higher. Overall, we are committed to the critical objectives we laid out at the beginning of the year and we will continue to do everything in our power to improve shareholder value. With that, I’ll turn the call back to Evan..

Thank you, Tim. As noted earlier on the call, we are making good progress developing our Acuitas AMR Gene Panel and Acuitas Lighthouse business in advance of FDA clearance. We are honored to be participating in the New York State infectious disease digital health initiative demonstration project.

Conditional clap approval was received by the Wadsworth Center over the summer, and as additional conditional clap approvals are received, we are beginning the hospital testing phase of the project.

We successfully completed the third project milestone, and we anticipate completing the fourth and fifth milestones in the fourth quarter and Q1 of 2020, respectively. I would like to share some of the strategic thinking behind the plan business combination with the Curetis Group.

The combination with Curetis will bring multiple strategic benefits to the combined business.

These include creating a market leader position to capitalize on global opportunities in infectious disease and anti-microbial resistance detection, proprietary molecular diagnostic tests and platforms, premiere AI powered bioinformatics solutions for multi drug resistance diagnostics, global commercial channel capabilities and partners and financial leverage, operational synergies and a positive growth driven business outlook.

In addition to the recent progress at OpGen, I like to highlight several key operational and business development milestones that have recently been accomplished by Curetis.

First, in September, Curetis NV announced that its wholly-owned subsidiary, Ares Genetics has entered into a multi-phase collaboration with an undisclosed, leading global in vitro diagnostics corporation to jointly develop diagnostic solutions for infectious disease testing, based on next generation sequencing technology.

The company signed an R&D and option agreement for the first phase of the collaboration.

Under the current agreement, the collaboration partner will fully fund the Ares Genetics research and development activities for the genotypic and phenotypic characterization of additional bacterial strains to augment AresDB, and the development of optimized algorithms for predicting antibiotic resistance.

Furthermore, in return for an undisclosed upfront option fee, the collaboration partner obtains a rite of first negotiation for an exclusive human clinical diagnostic use license to AresDB and the Ares technology platform.

Following this important announcement, in October, Ares Genetics announced the launch of an early access program for its novel, artificial intelligence powered, next generation sequencing based molecular antibiotic susceptibility test.

Ares Genetics has received commercial orders for more than 1,000 of the new Ares UPA tests, an order volume exceeding €500,000.

Together with advanced bioinformatics and artificial intelligence services, leveraging AresDB for the diagnostics and pharma industry, as well as access to certain rights Ares Genetics has contracted for and received orders amounting to more than €2 million in 2019 to date.

The core Unyvero 850 LRT Testing business is also progressing nicely with a solid funnel of sales opportunities and a focus on early adopter accounts. As of the end of Q3 2019, 15 Unyvero 850 analyzers are installed in the United States. Numerous commercial evaluations are ongoing, and the first evaluations have been successfully completed.

Anticipated 2020 corporate milestones for Curetis include FDA clearance for expanded Unyvero LRT indications, Unyvero partnering transactions China and MPA approval and launch of the Unyvero HPN test in China, and progressing Ares Genetics’ collaboration with the Global IVD Corporation and potential licensing of the technology for human clinical diagnostics use to such partner.

In addition to these important anticipated developments, OpGen anticipate completing the planned business combination with Curetis in the first quarter of 2020, obtaining FDA clearance to market the Acuitas AMR Gene Panel for use with bacterial isolates, completing clinical studies and filing de novo submissions with the FDA for the Acuitas AMR Gene Panel urine, and Acuitas Lighthouse Software for rapid testing of urine specimens and prediction of antibiotic resistance to frontline antibiotics, and completing the data collection phase for the New York State Infectious Disease Digital Health Initiative demonstration project.

We are pleased with our progress so far this year and we are very excited about the company's future, as we transition and combine our business with Curetis. We appreciate your support and your time this afternoon. And I would now like to turn the call back to the operator for questions..

Thank you, Evan. We now have time for a few questions. [Operator Instructions] Your first question comes from the line of Yi Chen from H.C. Wainwright. Yi Chen, your line is now open..

Hi. Thank you for taking my questions. So once the Acuitas AMR Gene Panel test for bacterial isolates obtains the 510(k) clearance, how soon can the commercialization start? And whether that would depend on the completion of the combination with Curetis? Thank you..

Thanks for your question, Yi. We appreciate it. The timing of the clearance is a little hard to pinpoint, but we're clearly getting close to the finish line.

And just on the commercialization side, I think, the key milestone is the announcement of the clearance and that will take us following that date, likely another month or two to work through the labeling with the FDA and the incorporation of changes that will be required to our software.

And that should dovetail well with the merger with Curetis and this being a new product to launch into their sales force..

I see.

Could you also provide some color on the potential timeframe for the completion of the clinical studies for the urine panel? Is it in the middle of 2020, or towards second half of 2020?.

So, back to the urine trial, one of the things that occurred over the recent month is we begun analytical testing. We've also worked to do the verification work to begin the study. And that has more complexity to it than you might imagine. There's a third party site, that's doing all the microbiology for us.

And as we begin the approvals here shortly that, testing envision to take we believe just into the early winter. And then there will be additional DNA sequencing analysis to be required. So, if all goes well, we'll be done with those phases, during the first quarter..

Okay, great. So can you remind us, when the New York State DOH, contract is will be over, during 2020.

And what the next step could possibly be after you complete a data collection?.

Sure. So our original contract was for one year, to develop infrastructure, to support a rollout and testing. And the infrastructure is to deploy both in conjunction with the New York State Department of Health and Merck ILÚM subsidiary. That work has largely been completed and including adaptations to our lighthouse software.

The last six months of the contract, involve a perspective data collection Phase. And based on that data collection phase, the authorities in New York State will work to determine potential funding in future years..

Okay, got it. Thank you..

Thank you..

Your next question comes from the line of Max Jacobs from Edison Investment Research. Max, your line is now open..

Hi, Tim and hi, Evan. Thanks for taking my call. This is actually Victoria over here on behalf of Max Jacobs.

Tim, you mentioned, cost savings as a result of the merger? How much of a financial runway what the combined company has?.

So, factoring in the race that, we just completed and the fact that we're currently looking into ways to augment that amount. We'd expect to see that reach potentially into Q2 of next year..

Okay, great. And then you also mentioned that there are some remaining conditions for closing the transaction with Acuitas.

So, if you go over what the main conditions are and what you would say if the probability of the transaction closes successfully?.

Sure, Victoria. This is Evan answering. The first critical milestone was completing the financing that was just completed, I guess last week. So that was a very, very significant milestone. The next major milestone will be gaining the shareholder approvals.

And that will follow the distribution of appropriate meeting materials by both companies to their shareholders. And that will then lead you to a timing of, I would just say January/February and currently we are optimistic that the transaction will close successfully..

Okay and when is the shareholder approval assorted for?.

So just to give you a little more color on the process, OpGen will be filing what's called an S4. And that S4 will have a review by the SEC. As soon as the SEC declares effectiveness for the S4 then we can provide meeting materials for our stockholders and that will tee up the vote to approve the merger..

As Evan touched on, we're well into the S4 preparation and hopefully conclusion here in the next few business days or week..

Okay, great. Evan, Tim, thank you so much for your time. I appreciate it..

Thank you..

[Operator Instructions] Your next question comes from the line of Ben Haynor from Alliance Global Partners. Ben your line is now open..

Good afternoon, gentlemen. Thanks for taking the questions. First off for me just looking at your results through Q3 and Acuitas is out through June as well as the announcement that they've already booked €2 million of contractual order volume.

I mean, it would appear that you're already almost have to 5 the -- at least the bottom end of the range, that you've guided to for the combined firms this year for both firms this year, I guess I should say. How should we read this? I mean, should we read this as implying that Q4 revenue will be relatively minimal.

Should we read it as or reflection of different revenue recognition policies? Should we read it as or reflection of different revenue recognition policies? Should we read it as conservatism? How should we think about this?.

You know, I think in looking at our Q4 revenue, it's fair to say that you should look at a fairly conservative plate. We do have another milestone with New York State that we anticipate meeting in the fourth quarter, as well as the legacy fish business that we have. So, you should see an uptick in terms of the revenue based on Q3 results.

You can see on the face of the P&L that our collaboration revenue is only 75,000. We reach the other milestone for New York, it should increase by at least another 175000, so yeah, again, a modest work..

Okay, so you say you're thinking that if you reach the milestone Q4 looks something more or like 250,000 for that portion of the company?.

The New York State piece yet..

Perfect, okay, great. And then, just thinking about the FDA questions on the isolates submission. Presumably, it's a, I guess you said that that's impacted how you're conducting the year and trap.

Can you talk a little bit more about that and any major changes to what you had expected that have taken place as a result of the questions you've gotten from the FDA?.

Sure, well, let me first give a little color on the isolate submission. Through the interactive review process, we receive questions from the agency. There's over 100 of these questions. And then many of them are quite technical, relating to DNA sequencing, results and methods or looking at study results.

They've been no questions in terms of requiring us to do new clinical studies, and then we respond to the agency, the agency in some cases, are a number of them acknowledges that your response is adequate. So that supports and ultimate clearance decision and a fast one when they've basically gone through all their 100 questions.

There somewhere, we're following up with additional information. And then the last questions to be answered are a block of data questions that we're just finishing off to get back to the agency, but these are very large studies.

You can think of them having thousands of samples, and literally many data points on each one ranging from whole genome sequencing to our multiplex DNA test to microbiology results, and so it's just a lot of exacting work to get that done properly. So, we're -- as I mentioned, we are approaching the finish line there and encouraged by that.

The impact on the urine trial has in many ways been just refining the methods that need to be done and -- meaning in the trial, for instance, the use of a third-party site and the verification there and a number of analytical studies.

And that's something that we've learned over the last period of time and we think we're now in a position to execute that trial successfully and get that submission going..

Okay, that's very helpful color.

And then on the R&D spending, do you expect that to ramp-up from Q3 now that you've started the urine panel trial, I would imagine, and then how -- what's a good way about to think of that tracking for the next quarter or two?.

Yeah, so as I mentioned, we started early this month, so you should see a modest increasing Q4 of this year maybe in the $100,000 range then you'll see it increase more significantly in Q1 of next year. And then more piece in Q2, probably in close to $1 million range in aggregate over those three quarters..

Okay. Excellent. And then I guess lastly for me just kind of a housekeeping question.

Presumably with the recent offering a lot of those prepaid ones were already exercised, is that correct? And, if so, you can answer -- can you answer how many?.

Yes, they have been exercised..

Okay, great. Thanks a lot, particularly questions, gentlemen..

Thanks Ben..

Thanks Ben..

That's all the time we have today. I will now turn the call back to Mr. Jones for closing remarks..

Thank you everyone for joining today and we look forward to updating you as we continue to progress the business. And for more information, please visit the Investor section of our website or our SEC filings and feel free to give Tim or myself a call. Thank you very much..

Thank you..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect..