OpGen — Cash concerns dampen active Q2

Regarding its debt obligations, OpGen has two remaining tranches of €3m and €5m (plus accumulated interest) under European Investment Bank (EIB) debt, due for repayment in June 2023 and June 2024 respectively. The company has signed a standstill agreement with the EIB, following payment of €1m (part of the €3m tranche) in June 2023, and secured a stay on further repayment until November 2023, providing further negotiation time for the restructuring of outstanding payments.

The company closed the second quarter with a cash balance of $3.2m, supported by a $3.5m fund-raise (gross proceeds) though an equity issue in May 2023 (full details of the $3.5m fund-raise are in our prior note). With the current cash balance, the company will not be able to fund its operations beyond September 2023 as per the latest management guidance. Hence, there is a need to raise funds imminently in order to ensure continuity of the business, but raising capital may prove challenging in the current macroeconomic environment.

As we await further updates from management regarding the funding status, we have put our estimates and valuation on hold. We intend to revisit our estimates as we get further updates on funding. All potential opportunities mentioned in the note are subject to OpGen receiving new funding.

Q223 was an active quarter for OpGen, with several business developments on the commercialization and collaboration fronts. With commercialization in focus, the company made progress in materializing several growth opportunities during the quarter, including a non-exclusive distribution agreement with Fisher Healthcare, an extended FIND collaboration, new Unyvero and ARES contracts and a business development campaign in China (targeting over 40 Chinese in vitro diagnostic (IVD) companies and an identified partnering opportunity to either license or monetize the A30 platform). We note that the lack of adequate funding has overshadowed OpGen’s growth initiatives at the moment. However, if the company is able to secure funds in time, these operational advancements could lead to an improved second half of FY23, with the company generating recurring revenues from the increased base of contracted commercial agreements, along with incremental revenue opportunities from potential new commercial contracts for Unyvero, ARES and Acuitas in the US and research collaborations.

During the second quarter, OpGen focused on completing the operational set up to initiate the distribution process under its agreement with Fisher Healthcare (more details on the agreement are in our prior note). The company primarily worked on completing vendor set-up on Fisher Healthcare systems, trained its sales teams across the US and developed digital marketing campaigns. As initial progress, both the companies have identified a number (in the hundreds) of high-priority leads (based on Fisher’s CRM system and customer data) and the distribution team has already started approaching them for commercial opportunities in many territories.

During the quarter, the company has signed some new contracts in the US including a global diagnostics corporate client for Unyvero pneumonia and blood culture reference testing, a multi-year contract with a western US-based hospital for Unyvero LRT BAL and a Unyvero UTI lab account and a children’s hospital for Acuitas AMR Gene panel. Additionally, the company received a contract for two Unyvero systems from its existing Acuitas customer, indicating cross-selling opportunities. To leverage this opportunity further, the Ares team is also in discussions with some Acuitas customers to pursue any potential interest in adding ARESiss and AREScloud-based services to the contracts. Given that Fisher has several target accounts and large hospital access as part of its network, it entails a potential growth opportunity, which might accelerate the company’s commercialization progress.

In an important development, OpGen took the next step in its R&D collaboration with FIND during the quarter. Following the successful completion of its extended feasibility study in July 2023, OpGen recently announced that Curetis (its German subsidiary) signed an extended R&D collaboration agreement with FIND. As per the revised R&D agreement, the collaboration advances from feasibility assessment to the initial phases of full IVD product development, where the objective is to develop an antimicrobial resistance (AMR) IVD assay on an Unyvero A30 cartridge, along with analytical testing and software development. In terms of preparedness, OpGen received delivery of 10 Unyvero A30 C-Series instruments, assembled by its development partner, DMTPe, in June 2023. This series of Unyvero A30 systems has lower manufacturing costs, suitable for the next phase of the FIND collaboration. The company expects to commence development work towards a first set of deliverables and milestones in Q423.

While the development phase could last for 10 months, it will trigger total payments to OpGen of $0.6m, split in the form of an upfront payment ($200k realized upon signing of agreement) and two milestone payments (expected to be delivered in two upcoming instalments upon delivery of agreed data and development packages). At present, OpGen has received a total of $0.9m under the FIND collaboration and the recent agreement increases the total collaboration value to $1.5m.

We maintain that the collaboration remains a key long-term growth opportunity for the expansion of the Unyvero franchise, with upside opportunity lying (in the long term) in the potential approval, launch and commercialization of its Unyvero A30 RQ system and the required significant investment from FIND. We believe further contract amendments or development phases may occur prior to the completion of an AMR product ready for clinical trials and regulatory submissions in relevant low-to-middle income countries.

In another development, OpGen completed two interim milestones as part of its research project (PREPLEX) in collaboration with InfectoGnostics (a research campus for diagnosis of infectious diseases and pathogens) at Jena University, Germany. The initial joint R&D project, announced in September 2020, aims to develop an AI-based assay for phenotypic carbapenemase resistance in Gram-negative bacteria. If it materializes, this opportunity may complement the company’s development plans given its current focus on building AI models to predict antibiotic susceptibility.

Post reporting encouraging final data from the clinical studies, OpGen filed a de novo application for the Unyvero UTI test panel in April 2023 with the US FDA, seeking marketing authorization. After the FDA's substantive review of the submission, the regulatory agency sought additional information at the end of June, with a response window of 180 days. OpGen expects that it will be able to complete the required additional data analysis and in house wet lab testing within the allocated timeframe and intends to submit a response in Q423. If approved, we anticipate OpGen would launch the UTI panel in the United States in 2024, adding another revenue stream for the business.

Regarding China National Medical Products Administration (NMPA) approval for the Unyvero A50 platform, OpGen is working with BCB (its Chinese distribution partner) to initiate clinical studies for final submission, with clearance expected to take 24–30 months.

In a commercial success, Ares Genetics recently signed an annual genomic surveillance contract with a large US healthcare network to sequence and analyze pathogen isolates on a twice weekly basis. Additionally, some new ARESiss contracts for isolate sequencing and new AREScloud subscriptions for web-based sequence analysis were also gained during the quarter.

Indicating the potential of commercial contracts for Ares services, management indicated that it anticipates annual testing volumes in the range of 1,000–2,000 samples per year under a commercial contract with a health care network, with further upside potential in medium term. One of its new agreements contained a purchase order worth six-figures of revenue in the first year, signifying major revenue potential. Though the company has made initial strides in generating revenue out of its ARES services, we intend to review the revenue potential as we get more updates from management.