Welcome to the OpGen First Quarter 2022 Earnings Call and Business Update. Today, OpGen Management will provide an update on the Company's current business and outlook for the future. Following OpGen's prepared remarks, there would be a live Q&A session.

As a reminder, this conference call is being recorded today, May 12, 2022, and all participants are in a listen-only mode. At this time, we would like to turn the conference over to Alyssa Factor, OpGen's IR representative to provide the opening statement..

Good afternoon, everyone, and thank you Operator for the introduction. Before we begin, I would like to note that any comments made by management during this conference call may contain forward-looking statements regarding the operations and future results of OpGen, including its subsidiaries, Curetis, and Ares Genetics.

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 form 10-Q for the first quarter of 2022 that will be filed with the SEC, which will 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 success of our commercialization efforts and partnering strategies; our ability to successfully, timely, and cost-effectively develop, seek, and obtain regulatory clearance for and commercialize our product and service offerings; our ability to continue to successfully achieve the expected synergies from the Company’s completed business combination with Curetis and to implement our commercial strategy; the impact of the continuing global COVID-19 pandemic on our business and operations and on capital markets and general economic conditions; our use of proceeds from recent financial filings as well as our ability to access additional financing in the future; our ability to satisfy our debt obligations under our loan with the European Investment Bank; the rate of adoption of our products and services by hospitals and other healthcare providers in general, as well as during the current COVID-19 pandemic, and geopolitical situation, in particular; the effect of the military action in Russia and Ukraine on our distributors, collaborators, and service providers; the effect on our business of existing and new regulatory requirements; and other economic and competitive factors.

The content for this conference call contains time sensitive information that is accurate only as of the date of this live call May 12, 2022. 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.

Joining the call today are Oliver Schacht, OpGen's President and CEO, and Albert Weber, its CFO. Now, I’ll turn the call over to Oliver Schacht for introductory remarks..

Thank you, Alyssa. Thank you, everyone for joining us this afternoon. Glad to be sitting here in Rockville at OpGen's global headquarters with our CFO, Albert and reporting on our progress. Through the solid quarter for our products and overall business, we've continued to progress in our commercialization, and expand and create new partnerships.

We look forward to sharing our milestones and achievements throughout this call to highlight our continued growth. Today, I'll begin with recent updates on our product and R&D pipeline. Albert will then review Q1 2022 financial highlights. Last, I'll preview OpGen's ongoing and upcoming milestones and business development.

We'll also make sure to leave some time for a Q&A session. With that being said, we had a strong start to 2022 and I will begin by discussing our first quarter milestones in detail.

As discussed on our last earnings call the Unyvero A30 RQ instruments successfully completed their lifetime testing and met or exceeded all their verification and validation or V&V testing requirements in February.

This is a major milestone as it enables us to finalize the new platform instrument and get a first set of series ready instruments built later this year.

Additionally, we're progressing forward on our first A30 cartridge application, a panel for invasive joint infections or IJI from synovial fluids, and plan to bring the A30 platform and IJI test into its first clinical trial in the United States later in the fourth quarter of 2022.

As we continue to develop the A30 for clinical trials, and subsequent FDA submission and clearance, and commercialization, we will be well positioned to continue partnering and licensing conversations.

We're in constant communication and are currently continuing with our strategic, technical, and commercial discussions with multiple parties within the United States, Europe, and Asia. OpGen’s Acuitas AMR Gene Panel was featured in the Journal of Clinical Microbiology in February.

This peer reviewed journal publication clearly demonstrates that the FDA cleared Acuitas AMR Gene Panel as an accurate method to detect and differentiate a broad range of 28 AMR markers that can be associated with up to nine any microbial classes in just two and a half hours.

The author's note, and I quote, "Associating the AMR markers with not susceptible phenotypic results, is a key differentiator of the FDA cleared Acuitas AMR Gene Panel, compared to other molecular panels that simply detect the presence or absence of a gene." The advantages of Acuitas AMR Gene Panel over other currently available molecular tests are; first, AMR detection and linkage to a specific organism.

Second, a turnaround time of two and a half hours, as I just mentioned.

Third, offering what we think is the most comprehensive AMR Panel, including non-beta lactam AMR Genes, and that for what might be considered salvage therapy antibiotics, such as coalition, as well as the ability to determine mechanisms of resistance to guide antibiotic selection, for example, when a third-generation cephalosporin is mediated by ESBL or MC, which cannot be assessed with phenotypic AST methods.

Overall, we believe that the detection of AMR can help with infection prevention, and support hospital antibiotic stewardship and infection control. I'll now turn the call over to Albert Weber, OpGen's Chief Financial Officer. He will review financial results for the first quarter of 2022 and recent financial developments.

Albert?.

Thank you, Oliver, and welcome everyone—to everyone on the call. I will briefly discuss the first quarter 2022 highlights, our balance sheet position, and underlying growth drivers for the business and conclude with some thoughts on guidance. We are excited about the future of OpGen as we continue to grow our business and expand our revenue.

While our goal is to constantly increase our revenue, there may be some instances that this is not obtained due to various factors. Overall revenue for Q1 2022 has decreased compared to this time last year. For the first quarter of 2022, revenue was approximately $470,000, a 43% reduction from the first quarter of 2021.

The decrease over the prior year is primarily attributable to the discontinuation of the legacy FISH product line in early 2021, the impact of New York State Department of Health Project, which was completed in September 2021, and somewhat lower Unyvero revenues in international distribution business, mainly due to fluctuating and lower order volumes due to COVID restrictions still being tied in Q1 2022 in many countries.

While overall revenue for the first quarter of 2022 decreased due to the aforementioned factors, compared to the first quarter of 2021, U.S. direct product sales actually increased by 76%. U.S.

direct sales is something we have truly focused on thus far in 2022, and we're not surprised by the $154,000 in sales, compared to $87,000 that we had this time last year. The strong growth over the prior year is evidence of our early success. However, we'll discuss our efforts to continue increasing sales within the U.S.

and internationally in more detail later. Laboratory service revenues saw a decline over the first quarter of 2021 due primarily to a decrease in demand for COVID testing services in line with global and specifically European and German trends in COVID testing overall during Q1 2022.

We see this as a positive in that we anticipate COVID volumes to dissipate and to be offset by our other core product volumes with the continued recovery and reopening of countries around the world.

Collaboration revenue declined in the first quarter of 2022 compared to the first quarter of 2021 due to the New York State Department of Health project that was completed in September 2021.

We are currently engaged in several concrete discussions for various types of commercial or strategic collaborations, which if we close, we would expect to start contributing to positive collaboration revenue moving forward.

Our operating expenses for the three months ending March 31, 2022, declined by 11% to $6.3 million, compared to $7.1 million in the first quarter of 2021. Our first quarter 2022 R&D expenses were $2.3 million, compared to $2.8 million in Q1 of 2021, an 18% reduction primarily due to a decrease in payroll related costs.

We have seen a continued shift to smaller teams and lower headcount in R&D and operations at our Rockville, Maryland side, with focus shifting increasingly towards commercial efforts and our future NGS lab services. First quarter 2022 G&A expenses were $2.6 million, similar to our Q1 2021 G&A expenses of $2.7 million.

First quarter 2022 sales and marketing expenses were $1.1 million, compared to $900,000 during the first quarter of 2021. This deliberate increase is due to the continued expansion of the sales and business development team. It is important that we add skilled and talented human capital to our team as we continue to grow and expand our business.

We would like to highlight the significant decrease in our net loss in the first quarter of 2022 compared to 2021. Our net loss available to common shareholders in Q1 2022 was $6.8 million, or $0.15 per share, which is significantly lower than $14.9 million or $0.50 per share in Q1 2021.

This is primarily due to the onetime non-cash accounting charge for the warrant inducement and exercise transaction in Q1 2021. Our cash position at the end of the first quarter of 2022 was $30.7 million, a decrease compared to our cash position at the end of 2021 of $36.1 million.

As mentioned on our 2021 year-end call, our operating expenses remain in line with our expectations and tracked very well against our guidance for yearly net cash consumption.

We anticipate continuing that track record this year at an expected net cash consumption of around $5 to $6 million per quarter from our operations, following the recently announced planned restructuring of our European Investment Bank that we expect to see a monthly additional cash outflow of approximately $700,000.

A major area of focus for us in the first quarter of 2022 was strategic R&D programs, such as our ongoing Unyvero UTI clinical trial here in the U.S., the 830-platform development, as well as R&D related to Ares genetics, products and services.

This puts us in a strong position to continue expanding our production and commercialization which we expect we will continue to do so throughout 2022. Products where we expect to see a significant amount of growth is Unyvero, as well as Acuitas AMR Gene panel.

A major driver of this growth is our direct sales in the U.S., where year-over-year in 2022, we continue to expect to see in the 50% plus range annual growth, while direct sales to hospitals typically have sales cycles in the 6 to 12-months range as we have repeatedly guided about during past earnings calls.

We do believe that such direct customer access will provide for better margins, higher growth, and more share of mind and ultimately wallet share with customers, compared to the international distribution business.

For international distribution business, which is focused on the Unyvero product line outside of the U.S., has continued to expand throughout the quarter and we expect this to only increase. However, revenue in Q1 2022 was lighter than in Q1 2021 and fluctuated primarily due to continued COVID lockdowns and related shutdowns.

Oliver will discuss this in further detail shortly regarding our recent achievement and milestones.

During Q1 2022, we reached an agreement with our Pan European distribution partner Menarini to significantly increase minimums for the coming two contract years, starting in April 2022 by 50% in the coming 12 months, and overall, by the end of the fifth year by more than 80%, compared to last contract year’s minimums.

We also expect for the contract with Menarini, to receive compensation in the coming months for previous order shortfalls, compared to agreed minimums. Our Ares Genetics related services and software solution business is another area that we've seen increased traction thus far in 2022, and expect this to continue throughout the year.

This includes additional ARESdb monetization and new collaboration deals. Growing the database is going to be helpful for client retention, in addition to increase opportunities to up sell. Furthermore, there are ongoing discussions regarding potential Unyvero A30 related platform partnerships.

We continue to expect revenue growth from our products and service business for 2022 to be in a range of somewhere around 25% to 50% year-over-year.

As we continue building strategic collaborations and progressing licensing and partnering deals on both the Ares side and Unyvero A30 platform, we are confident that these deals could provide further growth and top-line revenues.

In April, we announced that our subsidiary to Curetis and to the European Investment Bank, EIB, plan to restructure the repayment of the first tranche of debt, which made in April.

After exploring available debt restructuring alternatives, subject to finalizing definitive legal agreements with the EIB, we repaid € 5 million in April 2022, and will amortize the remainder of the debt tranche of approximately €8.35 million over the 12-month period beginning in May 2022.

Additionally, we've agreed to increase the participation interest or equity related kicker from 0.3% to 0.75% of the then prevailing option market cap beginning in June 2024 with EIB. The terms of the second and third tranches of €3 million and €5 million plus accumulated deferred interest remain unchanged as of now.

Overall, this allows us to address our debt repayments in a strategic manner and provides us with greater flexibility in managing our cash. Based on current cash on hand and expected cash burn, we expect to have cash into the first quarter of 2023.

With that, I'll turn the call back over to Oliver to discuss the Company's achievements and upcoming milestones.

Oliver?.

Thank you, Albert. I want to continue to highlight that 2022 will be a year focused on commercialization. We're pleased to announce that we received positive interim data results from the Unyvero Urinary Tract Infection or UTI panel trial, based on the first 150 are so patient samples.

The UTI panel tests for a broad range of pathogens, as well as antimicrobial resistance markers directly from native urine specimens, and it's taking place at three testing sites in the U.S. The objective of the interim analysis was to confirm that there were no significant variations between results at the testing sites.

The clinical trial protocol was successfully implemented as planned across the participating trial sites. This has allowed us to continue enrollment towards the study goal of 1,500 prospective samples, and as of today, there are more than 640 patients enrolled.

Our aim is to complete the trial, half the first data readout, and subsequent FDA submission in the second half of 2022.

Given that the FDA did not accept our request for a pre-sub meeting due to continued COVID related backlog of filings and based on our previous experience with the FDA, and FDA clearances of three diagnostic products on two different platforms, in the absence of this meeting, which is voluntary, we still plan to start an IGI trial in the late fourth quarter of 2022.

In April, our subsidiary Ares Genetics expanded its strategic collaboration with Sandoz until 2025. This extension shows that both companies recognize the utmost importance of surveillance data to inform better prescribing and use of antibiotics.

In the initial stage of the collaboration, Ares developed a digital anti-infectious platform to binding established microbiology lab practices with advanced bioinformatics and AI methods to identify effective antimicrobial compounds to address critical pathogens. Sandoz can use this to drive portfolio and commercial decisions.

In this stage of their collaboration, Ares next-generation sequencing or NGS will be used to focus further on antibiotic stewardship by enabling genomic surveillance for resistance pathogens.

This collaboration is a key step towards fighting AMR, which is estimated to account for nearly 1.3 million deaths worldwide each year by using cutting edge data and artificial intelligence approaches.

There has been a recent article by a journalist to genome web on the fifth of May, covering the story including additional color and background provided by the Sandoz team directly.

Ares Genetics commercial traction continues to expand with collaborations with Sandoz, along with the November 2021 transaction described on our year-end call where Ares Genetics granted permanent, unrestricted, and nonexclusive access to a small subset of its proprietary ARESdb data assets to an unnamed global corporation and leader in microbiology and infectious disease diagnostics.

This agreement allows the partner to purchase at the same price agreed upon in November 2021, additional datasets as they become available in 2022, for example, from our currently ongoing UTI clinical trial.

Ares Genetics reached another milestone in April, which was commercially launching a series of new genome sequencing and analysis of services globally. The new services include ARESid and ARESiss or isolate sequencing service express.

ARESid is a sequencing service for the accurate and thorough detection of pathogens, commensals, or environmental microbes directly from native patient specimen or environmental samples. ARESiss built on Ares clinically validated platform from whole genome sequencing bacterial isolates but reduces turnaround times by more than 80%.

This means that it can provide results in five business days. The reports include outbreak information, as well as actionable information on any microbial resistance. These sequencing services are performed at Ares Genetic service lab in Vienna, Austria.

Later this year, these services are scheduled to be launched within the United States, as Ares Genetics is launching our own service lab here in our OpGen headquarters in Rockville, Maryland. Dr. Theo DeVos, our Senior Vice President of Corporate Development and Operations for Ares in the United States will be leading this rollout.

We're planning a launch at one of the upcoming conferences this summer since we already have an experienced team of experts in the lab infrastructure in place. We will draw on the knowledge of a team that successfully developed the Acuitas AMR gene panel for these NGS based services for Ares Genetics in the U.S.

This launch of our own direct to customer services in the U.S. is envisaged by Q3 of 2022. By now, as of today, Ares has built a funnel of more than 60 commercial account opportunities, which have been qualified and are in various stages of the sales process.

Several commercial deals have already been closed for a range of Ares related offerings and services in the last few months, and we anticipate a significant acceleration of such growth in the coming quarters. Furthermore, we expect to continue the commercial rollout of our Unyvero A50 platform and products.

To 2021 and year-to-date in 2022, we have successfully closed a series of multiyear commercial customer deals for the Unyvero products, including our UTI tests, which we offer as a Research Use Only product in the U.S ahead of the future FDA submission and clearance.

A handful of these accounts have by now developed a reliable and consistent cadence of monthly purchase orders that indicate annual test volumes of 600 to 700 plus cartridges, which we also saw nicely in the first quarter of 2022, making them each an account that is around $100,000 in recurring consumables revenue to OpGen in 2022.

We have also seen selected customer accounts significantly increase their monthly ordering volumes in the first quarter of 2022 and year-to-date. To the extent that if these were to consistently occur on a recurring monthly basis, some of these individual accounts would have annual revenue potential exceeding $200,000 each.

In fact, this past week another major lab in the Northeast initiated the validation, which we'd expect to get completed over the coming several months. This presents another significant volume commercial opportunity once the lab goes live post their validation.

In Q1 of 2022 and year to date, we have already signed additional commercial agreements, as well as additional evaluation and validation agreements for other labs and hospital accounts.

While COVID and specifically the Omicron wave from November of '21 throughout most of the first quarter of '22 has clearly slowed progress at several customer sites, we have recently seen a significant acceleration and momentum shift. More U.S.

customers are engaging in discussions about our Unyvero LRT/BAL, that is the lower respiratory tract application cartridge for use with bronchoalveolar lavage (or BAL) all of our samples in pneumonia patients and UTI as well as Acuitas AMR Gene Panel products.

March and April of 2022 have been the single most active months in driving funnel expansion and opportunity progression in the last 18 to 24 months. Our active set of funnel opportunities in the U.S. alone exceeds 60 individual target customer accounts at this time.

Plus, we are seeing the return of major live and in-person trade shows and conferences such as ECCMID in Europe, and CVS, MAD ID, and ASM Microbe here in the United States, all in the second quarter.

These are great opportunities not only for generating additional new customer leads, but also for closing business deals, which are key—with key decision makers on site. Initiated the commercial launch and rollout of the Acuitas AMR Gene Panel in October '21 following the 510K clearance by the FDA.

In the first quarter of '22, and year to date, we've been actively engaged in several commercial deal negotiations for the Acuitas AMR Gene Panel with large academic centers and other large well-equipped hospital labs across the country.

We have a healthy and growing funnel that have several dozen active opportunities that we're working on coming out of the first quarter into Q2.

As we have recently provided commercial agreements to several potential accounts in the Northeast and Midwest, and have identified additional opportunities across the U.S., these proposals, which remain subject to final negotiations range in size from smaller scale, initial test volumes of maybe 100 to 200 tests this year, at some sites relating to expected revenue in the couple of tens of thousands of dollars, all the way to high volume opportunities for as many as 1,000 Acuitas AMR Gene Panel tests for a full year once implementation has been completed.

As of today, we continue to be actively engaged in numerous conversations and contract negotiations. Such accounts could then turn into annual revenue generating opportunities in the hundreds to $150,000 ranges per account, once implemented into full routine.

As you may know, China continues to be in pretty hard lock-down due to COVID, with cities such as Shanghai and Beijing, being all but completely in lock-down.

While we continue to have ongoing conversations with the staff at Beijing Clear Bio or BCB and their CRO, as well as regulatory advisors every week, there are simply no updates possible regarding a clinical trial start date. The preparations have been completed. For example, protocols agreed IRB approvals achieved at all three trial sites, et cetera.

But we need to see China to get out of these lockdowns such that any clinical trial in any hospital over there can actually be set up and get going.

Chinese regulators at the NMPA have requested that supplementary clinical study on about 600 patient samples overall to be generated in China for submission and potential approval for the pneumonia cartridge and following commercial launch.

On the distribution side of the International Unyvero A50 business, we've seen the successful launch event in Colombia, organized by our partner on Anar-Dx (phon). The launch campaign started in the first quarter of 2022 and is ongoing with a focus on key opinion leader events.

The campaign includes on site face-to-face meetings with key accounts and target customers across Colombia, scheduled for Q2 of 2022 and additional Unyvero system placements and hence revenue generating sales for us.

We recently signed an amendment to our five-year strategic distribution agreement with Menarini, which has significantly increased the minimum purchase commitments for the coming 12 months by over 50%, compared to the last 12 months, and over a two-year period by a total of more than 80% higher minimum revenues, compared to the last 12 months.

We're also actively discussing with Menarini a commercial deal for dozens of Unyvero systems, which we have offered and would sell to Menarini at residual fair value. These systems are already installed in hospitals all around Europe, many of them for more than five years.

This deal, once fully negotiated and signed, is expected to generate around $400,000 in incremental revenue in 2022, with revenue recognition depending on exact timing of such an agreement, which could be as early as this second quarter. These agreements, growing the business, highlight our ongoing and growing business relationship with Menarini.

Furthermore, we have also received more than a half dozen binding commercial orders from distribution partners internationally in Q2 2022 for Fiscal 2022, already amounting to over $400,000.

In closing, we're excited about our results for the first quarter of 2022 and year to date as we see plenty of growth drivers that have begun materializing here in Q1 2022, as far as 76% growth in direct sales of our molecular diagnostics products in the U.S.

compared to prior year, and with deals that have been signed or are about to get signed here in Q2 of 2022 and beyond. This year, we continue our focus on commercialization via direct channels domestically and via our distribution partners internationally.

As we head into the second quarter, we'll continue with our ongoing conversations regarding strategic partnerships, service offerings, and direct product sales. This puts us in a great position to continue to grow our revenue and expand our footprint.

As always, we will continue to provide updates on our strategic partnership discussions and progress in our commercialization efforts as they continue throughout 2022. Thank you for your continued support and for participating in this afternoon's call. I would now like to turn the call back to the Operator for questions.

Operator?.

Thank you. We'll now begin the question-and-answer session. The first question comes from Yi Chen from H.C. Wainwright. Please proceed Yi..

Thank you for taking the questions.

Could you give us additional color of the 76% growth in direct sales in the U.S.? How should that number going forward—evolve going forward?.

Sure, thanks, Yi. Well, so the 76%, again, Q1, 2022 versus Q1, 2021, all based on the molecular products. This excludes and has backed out the FISH products. As we have guided, we anticipate sort of a year-over-year 2022 versus 2021 U.S. direct sales growth of 50% or higher.

Again, as the underlying number was relatively small to begin with, the initial percentages are probably on the somewhat higher end. But again, for the full year, anticipating a 50% plus growth. They’re coming from the three core areas.

It's Unyvero, FDA cleared pneumonia panels on LRT/BAL, it's RUO sales of the Unyvero UTI, and it's FDA cleared Acuitas AMR Gene Panel, which, again, percentage wise, that's probably going to be the highest number, given that it's literally coming off the launch in the fourth quarter of last year. I'll say this much.

I mean, I'd obviously would have loved to say, here's the first three signed contracts but I can say that we are getting very close to having the first contracts ready to get inked. I've certainly on our end signed off on the first agreements.

I'm not in control of hospitals' legal departments' timelines, but I would anticipate the movement here and traction in the very, very near future..

Got it.

With respect to commercial activity for Acuitas, AMR Gene Panel, would you be able to comment on how many hospitals are currently evaluating the panel?.

What I've said is that we have well over a dozen active conversations. We have a handful of commercial agreements out there, which means they have already concluded their evaluation of the panel and product.

Again, total U.S., if you look at the totality of our sales funnel, and again, there is obviously an overlap between Acuitas AMR Unyvero LRT, Unyvero UTI, some of the academic centers, our large community hospitals, etc., are the very same accounts. But we have well over 60 plus active funnel opportunities in the U.S.

for direct accounts that we're working with..

Okay, thank you..

Thank you. The next question comes from Ben Haynor from Alliance Global Partners. Please proceed with your question, Ben..

Good afternoon, gentlemen. Thanks for taking the questions.

First off for me, can you talk a little bit more about the Menarini agreement, and I apologize that I kind of missed some of those terms, and then how—the purchase on the residual fair value, how that works on those systems that are out there, how many systems etc.?.

Yes, sure. Thanks, Ben. Like all of our distribution agreements, the Menarini agreement, which is initially a five-year contract, this was started April 1, 2019. So, March 31, 2022 was the end of the third contractual year. We have now amended and agreed for the next two years.

So, starting April 1 this year, you know, the fourth year and basically ends, March 31, 2023, and then the fifth year ends March 31, 2024. So basically, increase what we have put in the agreement as minimum annual purchase commitments from Menarini to Curetis, our subsidiary.

Again, year-over-year, starting the year, April 1, this year, it's a 50%, five-zero, increase over the last 12 months, which ended March 31 this year. Then if you look at the full two-year period and the minimum commitment for the fifth year, by the end of that fifth year, it'll be an 80%, eight-zero percent increase over the last 12 months.

This is a mix of obviously, across all five applications that we have the earmarked, the pneumonia, the implant tissue, the blood culture, the urinary tract infection, and the intra-abdominal infection, as well as well as instruments.

Now, if you look at the instruments, if you go back when we did the—and historically, Curetis had direct sales in several key European markets, Germany, France, the Benelux, U.K., Switzerland, Austria.

When we signed the Menarini agreements in 2019, we had agreed to maintain a pool that was roughly 75 Unyvero systems that had been installed throughout these countries in Europe, and Menarini would simply manage that pool and manage the accounts and obviously, purchase product.

But we owned—and if you look at our balance sheet, we owned those systems and obviously, have been continuing to amortize or depreciate those for the regular accounting policies. What we've said now, and what we've agreed with Menarini is for them to step up and take full ownership of this entire pool of systems.

It's multiple dozens of systems across everything in Europe, from Germany, France, Benelux, Switzerland, Italy, Spain, Portugal, U.K. They had already previously bought out prior distributors we had in Greece and Austria, so those systems they already owned anyway.

But they're going to be buying those at a residual fair market value, which means that's what we said roughly expected $400,000 worth. But the more important piece is, they now have ownership and control over that pool, which means they can flexibly move it. They'll have the day-to-day visibility on utilization, etc.

If you own something, my read is they're definitely excited about the growth opportunities. We had a joint presence at the Menarini booth for Unyvero at ECCMID in Lisbon here at the end of April.

They're actually in several European markets, co-positioning Unyvero products alongside three of their antibiotic drugs, and they are one of the major antibiotics commercial players in Europe, where they're kind of linking up almost a companion diagnostic usage, for example, the intra-abdominal infection panel with those specific drugs.

Again, I think it's a sign of their long-term strategic interest in the business, their commitment to driving growth, and them having full ownership is just going to make it more visible on a day-to-day basis that if you have that sort of installed base, they obviously want to drive utilization..

Yes, makes sense. They seem to hook you guys together a little bit more and that should be a good thing. Got it. Then on the Ares Genetics offerings that—the services are going to be launched here in the U.S., any commentary on it—and I apologize if I missed this, I was jumping between a few calls here.

The account base and the folks that you're talking to commercially now in the U.S., is this an offering that would directly hit some of the folks you are already in front of?.

Yes, absolutely. I mean, given that Ares Genetics, all of the services, all of the offerings are non-FDA cleared, non-IVD, its Research Use Only, we have of course, a much greater flexibility in pre-sales, pre-marketing pre-targeting outreach. So, whether it was ECCMID, which has about 25% to 30% U.S.

participation, or these conferences that we're at right now, CVS, ASM Microbe will be the big one in early June. Again, we will actually have an Ares Genetics, open forum Town Hall, scientific presentation in the main area there. We're going to be launching services that we currently offer out of our Vienna lab.

The isolate sequencing service, it's going to get over time complemented by the ARESid, the pathogen ID, also from native specimen. Next step would be the upa, the universal pathogenome assay. Again, urinary tract infection trial is already going to have data generated for that.

Then, of course, the AREScloud offering, which that doesn't require the lab per se, but it's just going to have a much easier path to U.S. customers who clearly expect you to be able to handle and process samples in a lab here in the U.S. rather than shipping stuff across the ocean to Vienna, Austria..

Sure, makes sense. Okay, well, that's all I had gentlemen, and hope to see you at ASM..

Absolutely, it will be great..

Thank you. The next question comes from Soo Romanoff from Edison Group. Please proceed with your question, Sue..

Hi, this is Soo Romanov from Edison Group. Thank you for taking my call. I just have a couple of questions here. The first one being the U.S. revenues appeared to have been stronger, and were a partial offset to international.

Would you attribute that to the different distribution approaches? Specifically, was there more flexibility in having a direct U.S.

sales force, or was it more of a remnant of the pandemic?.

It's a bit of both. I mean, obviously, as you're selling to end customers here in the United States, the end customer pricing is the full price.

We've previously guided to sort of a range between $120 and $180, with an average selling price, probably right around $150 mark, versus a distribution model where in Europe and rest of world, let's assume the end customer prices, if they're in the similar ballpark, that means the distributor will typically require a 30% to 40% distributor margin, which means our transfer prices to the distributor are closer to the $100 mark.

So, yes, having control over end customer pricing and direct access, make sure that you recognize the full revenue.

The advantage of a distribution model from a revenue recognition standpoint is that we, as option, immediately recognize the revenue once we sell systems or cartridges, consumable kits to our distribution partner, and do not rely on them actually selling it on to the end customer. It shortens the sales cycle for us. The direct model here in the U.S.

has those longer cycles, but ultimately better margins, and greater share of share of voice, share of mind, and share of wallet..

Great, great. My second question was AREScloud seems interesting here.

Is that a service that we'll be offering as a bundled option for existing products and services? Would that benefit your margins and overall customer retention?.

Well, we're really making this as flexible and as modular as the customer wants. There are customers that run their own local next-gen sequencing, and if you go to places like Johns Hopkins, right around the corner or Mayo Clinic, they clearly have capabilities to run next-gen sequencing.

They do not require the services—the wet lab services from a lab, neither in Vienna nor here in Rockville. Their interest is then primarily the cloud-based access, which is a software as a service model, really subscription base.

From a margin perspective, it's great because there is no wet lab component, no consumable component, there's virtually no incremental cost of goods or cost of service. The underlying fixed costs is the Amazon Web Services hosting for the cloud solution overall. But again, no incremental costs.

The margins on the AREScloud, SaaS model are certainly the best. But you're absolutely right, being able to offer to customers, really the full suite, say look, if all you need is the SaaS cloud, you can get that, it's an annual subscription, and it's basically a package.

They can determine a number of isolates or datasets that they would like to upload and interrogate. It's almost like a good old fashioned, mobile cell phone plan, where you could buy certain volumes and then you can add volume if you need it. You can even transfer it over to the next year as you extend your subscription.

But if there is interest in saying look, you can have everything from, we can sequence isolates, we can sequence native specimen, and you can do the data analytics through the cloud.

We can bundle in half comprehensive offerings, which is clearly on the revenues side, the wet lab per sample or per data set is significantly greater if you do NGS services than just the pure data analytics. But then you have the cost of goods or cost of service of running wet lab operations.

So, percent margins tend to be significantly lower in a service, like say the service model it's in the 50% range, gross margin wise, you're probably going to look at a cloud service in the 90%, 95% or higher.

But the absolute revenue numbers top-line clearly benefit greatly from the service offerings, which is why being able to offer it, combined or individually, really allows customers maximum flexibility.

As we look at our funnel today, we probably have roughly 50-50, we probably see half of the funnel opportunities, and I talked about 60 plus active funnel accounts in the Ares commercial funnel, roughly half—let’s call it half on the cloud services and the other half, including wet lab NGS services, both isolate sequencing iss, id, upa, et cetera. .

Great, thanks for the context, sir..

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

Well, thanks, everyone for joining today. Please visit the Investor Section of our website or our SEC filings for updates on the Company. Thank you very much. I look forward to continuing the dialogue. Thank you..

Thank you very much. Ladies and gentlemen, this does conclude today's call. Thank you very much for joining us. You may now disconnect your lines..