OpGen — Cash concerns dampen active Q2

OpGen (NASDAQ: OPGN)

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Research: Healthcare

OpGen — Cash concerns dampen active Q2

Despite the active second quarter with developments across all operational fronts, OpGen’s cash concerns have increased the risk of the company as a going concern. With a cash balance of $3.2m at end Q223, OpGen has a cash runway into September 2023, meaning the need for immediate financing will be critical. Key quarterly highlights included the extension of the FIND R&D collaboration, a non-exclusive distribution agreement with Fisher Healthcare and new commercial contracts for both Unyvero and ARES services. While topline growth was a little subdued year-on-year due to one-off income in Q222, the operating loss for the period slightly improved to $5.2m (vs $5.3m in Q222), reflecting tighter cost controls and low clinical activity. If management is able to bridge the funding gap, its efforts in building the commercial groundwork could benefit the second half of the year across Unyvero, Acuitas and ARES. Due to the funding announcement, we have put our estimates and valuation on hold and will reassess as financing updates become available.

Written by

Arron Aatkar

Associate analyst

Laboratory Opgen

Healthcare

OpGen

Cash concerns dampen active Q2

Q223 results

Pharma and biotech

14 August 2023

Price

US$0.4

Market cap

US$3m

Net debt ($m) at 30 June 2023

6.0

Shares in issue

7.6m

Free float

92.5%

Code

OPGN

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(71.9)

(67.2)

(98.0)

Rel (local)

(72.0)

(69.6)

(98.1)

52-week high/low

US$12.45

US$0.26

Business description

OpGen is primarily a lab diagnostic manufacturer focused on identifying and treating bacterial infections. With the acquisition of Curetis in H120, management has the technology necessary to detect pathogens and predict resistance. Through the dual platform offering of the AMR Gene Panel and Unyvero, the company can provide diagnostic results in hours instead of days under legacy technologies.

Next events

Q223 results

October 2023

Analysts

Arron Aatkar, PhD

+44 (0)20 3077 5700

Nidhi Singh

+44 (0)20 3077 5700

OpGen is a research client of Edison Investment Research Limited

Despite the active second quarter with developments across all operational fronts, OpGen’s cash concerns have increased the risk of the company as a going concern. With a cash balance of $3.2m at end Q223, OpGen has a cash runway into September 2023, meaning the need for immediate financing will be critical. Key quarterly highlights included the extension of the FIND R&D collaboration, a non-exclusive distribution agreement with Fisher Healthcare and new commercial contracts for both Unyvero and ARES services. While topline growth was a little subdued year-on-year due to one-off income in Q222, the operating loss for the period slightly improved to $5.2m (vs $5.3m in Q222), reflecting tighter cost controls and low clinical activity. If management is able to bridge the funding gap, its efforts in building the commercial groundwork could benefit the second half of the year across Unyvero, Acuitas and ARES. Due to the funding announcement, we have put our estimates and valuation on hold and will reassess as financing updates become available.

Year end

Revenue ($m)

EBITDA*
($m)

PBT*
($m)

EPS*
($)

P/revenue
(x)

Net debt/(cash)

($m)

12/21

4.3

(20.4)

(35.7)

(19.5)

0.78

(14.4)

12/22

2.6

(20.6)

(25.3)

(10.4)

1.29

4.4

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

Cash runway into September 2023

OpGen closed Q223 with a cash balance of $3.2m, supported by $3.5m (gross proceeds) fund-raise in May 2023 through an equity issue. As per the management guidance, the company’s cash balance will not be able to fund its operations beyond September 2023, hence, OpGen will need to raise funds in September, which we anticipate is challenging in the current macro environment. As a result, we have put our valuation on hold and eagerly await updates on the funding front.

An operationally productive quarter

In Q223, OpGen reported total revenues of $736k, down 23.9% from $967k in Q222, which was mainly associated with the one-time sale of Unyvero systems to Menarini in the prior period. OpGen signed a number of new Unyvero contracts, including its initial commercial traction for Ares services and an extended FIND collaboration. If funding becomes available, this could become an additional revenue stream in the second half of the year. The operating loss slightly improved to $5.2m in Q223 (vs $5.3m in Q222), resulting from reduced R&D expenses (down by 38.9% y-o-y) driven by reduced payroll-related expenses and lower clinical activities.

Valuation

Due to the current uncertainty on funding, we have put our estimates and valuation on hold. We intend to reassess as financing updates become available.

Estimates and valuation on hold

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.

Several catalysts at play amid cash deficit

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.

Fisher agreement has potential, pending financing

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.

FIND collaboration advances to development stage

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.

Clinical progress moving along the regulatory pathway

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.

Ares Genetics gaining initial commercial traction

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.


Exhibit 1: Financial summary

$'000s

2021

2022

Year end 31 December

GAAP

GAAP

PROFIT & LOSS

 

Revenue

 

 

4,306

2,607

Cost of Sales

(2,848)

(3,424)

Gross Profit

1,458

(817)

Sales, General and Administrative Expenses

(13,649)

(13,229)

Research and Development Expense

(10,911)

(8,173)

EBITDA

 

 

(20,388)

(20,576)

Operating profit (before amort. and excepts.)

 

 

(23,102)

(22,219)

Intangible Amortization

0

0

Other

0

0

Exceptionals

(171)

(12,348)

Operating Profit

(23,273)

(34,567)

Net Interest

(4,754)

(3,209)

Other

(6,735)

493

Profit Before Tax (norm)

 

 

(35,742)

(25,315)

Profit Before Tax (reported)

 

 

(34,762)

(37,283)

Tax

(44)

0

Deferred tax

0

0

Profit After Tax (norm)

(35,786)

(25,315)

Profit After Tax (reported)

(34,806)

(37,283)

Average Number of Shares Outstanding (m)

1.8

2.4

EPS - normalized (c)

 

 

(1,946.77)

(1,036.81)

EPS - Reported ($)

 

 

(22.89)

(15.27)

Dividend per share (c)

0.0

0.0

Gross Margin (%)

34

-31

EBITDA Margin (%)

-473

-789

Operating Margin (before GW and except.) (%)

-537

-852

BALANCE SHEET

Fixed Assets

 

 

31,924

15,158

Intangible Assets

21,983

7,441

Tangible Assets

5,917

4,920

Other

4,024

2,796

Current Assets

 

 

39,743

10,655

Stocks

1,239

1,345

Debtors

1,172

514

Cash

36,080

7,440

Other

1,250

1,356

Current Liabilities

 

 

19,874

10,588

Creditors

1,307

421

Short term borrowings

14,519

7,024

Current lease liabilities

460

378

Others

3,588

2,766

Long Term Liabilities

 

 

10,533

7,646

Long term borrowings

7,176

4,851

Non-current lease liabilities

2,981

2,566

Other long term liabilities

375

229

Net Assets

 

 

41,260

7,579

CASH FLOW

Operating Cash Flow

 

 

(21,479)

(20,450)

Net Interest

0

0

Tax

0

0

Capex

(1,984)

(591)

Acquisitions/disposals

0

0

Equity Financing

48,159

4,072

Dividends

0

0

Other

(266)

0

Net Cash Flow

24,430

(16,968)

Opening net debt/(cash)

 

 

6,717

(14,385)

HP finance leases initiated

0

0

Exchange rate movements

(5)

(13)

Other

(3,322)

(1,838)

Closing net debt/(cash)

 

 

(14,385)

4,435

Source: Company reports


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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 research department of Edison 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.

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London │ New York │ Frankfurt

20 Red Lion Street

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London │ New York │ Frankfurt

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London, WC1R 4PS

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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 £60,000 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 research department of Edison 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 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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