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First 510(k) filed with the FDA

OpGen 20 May 2019 Update
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OpGen

First 510(k) filed with the FDA

Financial update

Healthcare equipment
& services

20 May 2019

Price

US$0.44

Market cap

US$8m

Net cash ($m) at 31 March 2019

5.2

Shares in issue

17.6m

Free float

94.5%

Code

OPGN

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(21.1)

(69.1)

(75.4)

Rel (local)

(19.9)

(70.0)

(76.6)

52-week high/low

US$2.80

US$0.41

Business description

OpGen is a diagnostic company focused on revolutionizing the identification and treatment of bacterial infections. The Acuitas AMR Gene Panel molecular test, in combination with the Acuitas Lighthouse bioinformatics product, detects multiple pathogens and predicts antibiotic resistance in less than three hours, a major improvement on the two to three days that current methods require.

Next events

Acuitas Gene Panel (isolates) 510(k) clearance

Q419

Acuitas Gene Panel (urine) 510(k) filing

Q419

Acuitas Lighthouse 510(k) filing

Q419/Q120

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

OpGen is a research client of Edison Investment Research Limited

OpGen has announced that it has filed for 510(k) clearance of its Acuitas AMR Gene Panel test in bacterial isolates with the FDA, with clearance expected by the end of the year. The company continues to expect to file a follow-on De Novo 510(k) submission in Q419 for approval of the Acuitas AMR Gene Panel test in urine samples, with another De Novo 510(k) submission for the Acuitas Lighthouse software soon thereafter or at approximately the same time.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/17

3.2

(15.6)

(9.81)

0.0

N/A

N/A

12/18

2.9

(13.4)

(1.68)

0.0

N/A

N/A

12/19e

4.0

(13.6)

(0.87)

0.0

N/A

N/A

12/20e

5.0

(15.5)

(0.87)

0.0

N/A

N/A

Note: *PBT and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.

Accelerating the identification of antibiotic resistance

The Acuitas AMR Gene Panel molecular test, in combination with the Acuitas Lighthouse bioinformatics product, allows for the detection of five pathogens as well as 47 resistance genes and mutations, while also predicting the resistance for 14 antibiotics in less than three hours, a major improvement over the two to three days current methods require. It will first focus on complicated urinary tract infections (cUTI), of which there are around one million cases per year.

Milestone achieved with New York State

OpGen is collaborating with the New York State Department of Health and Merck’s ILUM Health Solutions to develop a tool to track infectious disease and antimicrobial resistance across New York State. In Q119, the company was able to hit a $500,000 milestone as it installed Acuitas systems in three New York City metro area health systems. Further milestones will be achieved as software development and validations are completed. The company expects to receive up to $1.6m total over the first 12 months during the demonstration portion, with full implementation expected over the next five years.

Revenue growth in the first quarter

OpGen reported revenue of $1.0m for the quarter, up 20.6% compared to last year, though half the revenue came from a milestone payment related to the New York State Infectious Disease Digital Health Initiative. Product sales, which are mainly for the legacy FISH-based tests, were down 17.9%.

Valuation: $43.9m or $2.49 per share

We have adjusted our valuation from $47.3m or $2.68 per basic share to $43.9m or $2.49 per share, which has been driven exclusively by a lower level of net cash. Key valuation inflection points over the next 12–18 months will be FDA 510(k) clearances for the key products as well as the subsequent commercial launch. We continue to expect the company to require $41m in financing before profitability in 2023.

Bacterial isolates clearance application submitted

OpGen has announced that it has filed for 510(k) clearance of its Acuitas AMR Gene Panel test in bacterial isolates (samples that have already been cultured from the original specimen that may have been blood, urine, etc) with the FDA. As a reminder, the Acuitas AMR Gene Panel is a qualitative and semi-quantitative nucleic acid-based in vitro diagnostic test that is currently optimized for the cUTI market, which will be the initial focus commercially, as the five pathogens it detects (namely E. coli, E. faecalis, K. pneumoniae, P. mirabilis and P. aeruginosa) represent approximately 88% of all cUTIs. In the US, there are approximately one million cases of cUTI per year, with 70–80% attributable to indwelling catheters found in hospitals.1

  Flores-Mireles et al., Urinary tract infections: epidemiology, mechanisms of infection and treatment options. Nature Reviews Microbiology. 2015 May; 13(5): 269–284.

The bacterial isolates submission is a standard 510(k) and typically the FDA takes around six months to review such an application with a clearance rate that has historically been around 85%, according to FDA statistics. We believe there is a high probability of clearance, especially as previously released data in 417 samples indicated that the test correctly identified the pathogen species in 99.5% of cases. The company did indicate, however, that this will be a more complex submission than the FDA typically sees as it had to use whole genome sequencing on virtually every sample, leading to a very high number of data points. So while the company expects a timely review, it believes it is likely that there will be some back and forth with the agency, possibly with some requests to recut the data.

OpGen expects to file a follow-on De Novo 510(k) submission in Q419 for clearance of the Acuitas AMR Gene Panel test in urine samples. The difference between a standard 510(k) submission and a De Novo 510(k) submission is that the De Novo pathway is for devices that do not have a valid predicate. De Novo applications are associated with somewhat lower clearance rates and longer review periods. Clearance of this application would allow for testing directly from urine so that the results would not require a sample to be cultured (which can add 15+ hours to the process) and OpGen can then truly differentiate itself from current methods (as well as the newer molecular entrants, which also typically depend on the samples already being cultured) by providing an answer in three hours. A direct from urine sample is especially important as the company will initially focus on urinary tract infections. That application will be based on 1,500 fresh urine samples and around 300 contrived urine samples from eight sites. The clinical studies to support the application are expected to begin before the end of the second quarter and mostly be completed during Q3.

In the months following the urine De Novo 510(k) submission, the company expects to file a De Novo 510(k) submission for the Acuitas Lighthouse software, though there is a chance it may either leapfrog ahead of the urine submission or be filed relatively simultaneously. Importantly, while the Acuitas AMR Gene Panel is a sound product on its own, what truly sets the OpGen solution apart from others is the Acuitas Lighthouse software. The Lighthouse Prediction Engine indicates whether there is evidence of resistance due to the presence of certain genes and if there is any known intrinsic resistance to certain drugs (up to 14 antibiotics across nine antibiotic classes, including Aminoglycosides, Carbapenems, Cephalosporins, Fluoroquinolones, Polymyxins, Penicillins, Sulfonamides, Trimethoprim and Vancomycin). Typically, this prediction of antibiotic resistance is the part of the pathogen testing process that takes the longest and it is where the speed of the Lighthouse software is most value added.

It is important to note that a key foundation of the Lighthouse system is the Lighthouse Knowledgebase, populated by data from the Merck Study for Monitoring Antimicrobial Resistance Trends (SMART) archive, which has collected more than 250,000 bacterial pathogens over the last 15+ years as well as thousands of additional pathogens from other sources. The Knowledgebase is constantly growing, as every time the test is used, data from that specific case of infection are added to it. As the Knowledgebase grows, we would expect the Lighthouse Prediction Engine to make better predictions over time.

New York Department of Health Initiative milestone achieved

OpGen is collaborating with the New York State Department of Health and Merck’s ILUM Health Solutions (the collaboration is called the New York State Infectious Disease Digital Health Initiative) to develop a tool to detect, track and manage infectious disease and antimicrobial resistance across the state. Importantly, this collaboration is not dependent on any FDA approval as it is considered to be a research use. In Q119, the company was able to hit a $500,000 milestone as it installed Acuitas systems in three New York City metro area health systems that include a total of 35 hospitals and 12,000 beds. Further milestones will be achieved as software development and validations are completed.

As a reminder, the first portion is a 12-month development project in which OpGen will work with the Department of Health’s Wadsworth Center and ILUM to develop an infectious disease tracking platform that connects hospitals to the Department of Health to facilitate state-wide surveillance. The company expects to receive up to $1.6m total over the first 12 months during the demonstration portion, which has already started, with full implementation in New York State’s more than 170 hospitals expected over the next five years. Depending on the outcome of this collaboration, additional states may come up with their own similar surveillance initiatives, which could accelerate the commercial adoption of OpGen’s systems.

Valuation

We have adjusted our valuation from $47.3m or $2.68 per basic share to $43.9m or $2.49 per share, which has been driven exclusively by a lower level of net cash. Key valuation inflection points over the next 12–18 months will be FDA 510(k) clearances for the key products as well as the subsequent commercial launch.

Exhibit 1: OpGen valuation table

Product

Main indication

Status

Probability of successful commercialization

Launch year

Peak sales ($m)

Patent protection

Economics

rNPV
($m)

OpGen Diagnostic Platform

cUTI, lower respiratory

Market (RUO)/ registration

40%

2019

174

2039

100.0%

38.8

Total

 

 

 

 

 

 

 

38.8

Net cash (Q119)

5.2

Total firm value

43.9

Total basic shares (m)

17.6

Value per basic share ($)

2.49

Options (Q418, m)

3.5

Total number of shares (m)

21.2

Diluted value per share ($)

2.08

Source: Edison Investment Research


Financials

OpGen reported revenue of $1.0m for the quarter, up 20.6% compared to last year, though half the revenue came from a milestone payment related to the New York State Infectious Disease Digital Health Initiative. Product sales, which are mainly for the legacy FISH-based tests, were down 17.9%. R&D expenses grew 44.4% from $1.2m to $1.8m due to clinical development associated with the Acuitas AMR Gene Panel. The company expects R&D expenses to fall in Q2 but then increase again in Q3 as the urine test clinical trial gets into full swing. It expects the trial to cost a total of $1.2m. SG&A expenses were $2.1m for the quarter, essentially flat with the same quarter last year. OpGen’s 2018 post-tax loss was $3.9m, up from a loss of $3.0m in Q118, primarily due to increased R&D expenses. While we have left revenue and SG&A expense estimates largely the same, we have increased our R&D estimate by $0.5m for 2019. This was largely offset by a lower cost of goods estimate due to a lower than expected run rate and higher gross profit margin.

OpGen reported $6.0m in cash and cash equivalents at the end of Q119, which we believe is enough to fund the company into Q419. We continue to model an additional $5m worth of financing for 2019, and $41m in total through to profitability in 2023. Per Edison policy, we assume future financings are to be funded with debt.

Exhibit 2: Financial summary

$000s

2017

2018

2019e

2020e

Year end 31 December

GAAP

GAAP

GAAP

GAAP

PROFIT & LOSS

Revenue

 

 

3,211

2,946

4,010

5,032

Cost of Sales

(2,133)

(1,848)

(1,486)

(1,902)

Gross Profit

1,078

1,098

2,524

3,130

Sales, General and Administrative Expenses

(9,460)

(8,601)

(9,487)

(12,280)

Research and Development Expense

(6,883)

(5,677)

(6,377)

(6,141)

EBITDA

 

 

(15,266)

(13,180)

(13,341)

(15,290)

Operating Profit (before amort. and except.)

 

 

(15,266)

(13,180)

(13,341)

(15,290)

Intangible Amortization

0

0

0

0

Other

0

0

0

0

Exceptionals

0

0

(521)

0

Operating Profit

(15,266)

(13,180)

(13,862)

(15,290)

Net Interest

(321)

(186)

(244)

(229)

Other

167

(2)

(10)

0

Profit Before Tax (norm)

 

 

(15,587)

(13,366)

(13,585)

(15,519)

Profit Before Tax (FRS 3)

 

 

(15,419)

(13,368)

(14,116)

(15,519)

Tax

0

0

0

0

Deferred tax

(0)

(0)

(0)

(0)

Profit After Tax (norm)

(15,587)

(13,366)

(13,585)

(15,519)

Profit After Tax (FRS 3)

(15,419)

(13,368)

(14,116)

(15,519)

Average Number of Shares Outstanding (m)

1.6

8.0

15.6

17.9

EPS - normalized ($)

 

 

(9.81)

(1.68)

(0.87)

(0.87)

EPS - Reported ($)

 

 

(9.80)

(1.68)

(0.90)

(0.87)

Dividend per share ($)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

3,118

3,167

4,578

4,514

Intangible Assets

1,954

1,686

1,485

1,307

Tangible Assets

836

1,222

2,862

2,977

Other

329

259

230

230

Current Assets

 

 

3,190

5,490

2,754

6,967

Stocks

533

544

499

544

Debtors

810

374

813

423

Cash

1,847

4,572

1,442

6,000

Other

0

0

0

0

Current Liabilities

 

 

(2,882)

(2,438)

(3,310)

(3,136)

Creditors

(1,871)

(2,039)

(2,962)

(2,962)

Short term borrowings

(1,011)

(399)

(348)

(174)

Long Term Liabilities

 

 

(429)

(1,260)

(7,095)

(24,772)

Long term borrowings

0

(660)

(5,320)

(22,820)

Other long term liabilities

(429)

(600)

(1,775)

(1,952)

Net Assets

 

 

2,997

4,960

(3,073)

(16,427)

CASH FLOW

Operating Cash Flow

 

 

(14,304)

(11,074)

(11,237)

(13,671)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

(277)

(137)

(127)

(132)

Acquisitions/disposals

0

0

0

0

Financing

12,640

14,128

4,783

0

Dividends

0

0

0

0

Other

(205)

(293)

(508)

0

Net Cash Flow

(2,146)

2,624

(7,090)

(13,803)

Opening net debt/(cash)

 

 

(3,094)

(836)

(3,514)

4,226

HP finance leases initiated

0

0

0

0

Exchange rate movements

38

(13)

(4)

0

Other

(150)

66

(646)

1035

Closing net debt/(cash)

 

 

(836)

(3,514)

4,226

16,994

Source: Edison Investment Research, company reports

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This report has been commissioned by OpGen and prepared and issued by Edison, in consideration of a fee payable by OpGen. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

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Frankfurt +49 (0)69 78 8076 960

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by OpGen and prepared and issued by Edison, in consideration of a fee payable by OpGen. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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