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Last close As at 09/06/2023
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USD4m
Research: Healthcare
OpGen’s valuation case rests on its ability to develop and commercialize its suite of differentiated diagnostic products, focused on combating anti-microbial resistance (AMR). Q322 was marked by several developments on this front (see our last note), albeit offset with market caution in the current macroeconomic environment. This resulted in revised FY22 guidance (revenue of $2.5–3.0m versus c $4.6m previously) with the Q322 results. The delayed sales cycle conversions, along with the regulatory logjam in China, has prompted us to review our projections. Our revised estimates reflect near-term conservatism while largely maintaining our long-term outlook. Our overall valuation resets to $67.5m ($1.2/share) from $84.6m or $1.46/share (pending upcoming share consolidation). We also note that at current burn rates, OpGen is likely to need to raise funds in the near term to continue supporting its development plans.
OpGen |
Near-term adjustments with outlook unchanged |
Estimates revision update |
Pharma and biotech |
15 December 2022 |
Share price performance
Business description
Next events
Analysts
OpGen is a research client of Edison Investment Research Limited |
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OpGen’s valuation case rests on its ability to develop and commercialize its suite of differentiated diagnostic products, focused on combating anti-microbial resistance (AMR). Q322 was marked by several developments on this front (see our last note), albeit offset with market caution in the current macroeconomic environment. This resulted in revised FY22 guidance (revenue of $2.5–3.0m versus c $4.6m previously) with the Q322 results. The delayed sales cycle conversions, along with the regulatory logjam in China, has prompted us to review our projections. Our revised estimates reflect near-term conservatism while largely maintaining our long-term outlook. Our overall valuation resets to $67.5m ($1.2/share) from $84.6m or $1.46/share (pending upcoming share consolidation). We also note that at current burn rates, OpGen is likely to need to raise funds in the near term to continue supporting its development plans.
Year end |
Revenue ($m) |
EBITDA* |
PBT* |
EPS* |
P/revenue |
P/E |
Net debt/ |
12/20 |
4.2 |
(19.6) |
(24.7) |
(1.57) |
1.7 |
N/A |
6.7 |
12/21 |
4.3 |
(20.4) |
(35.7) |
(1.17) |
1.6 |
N/A |
(14.4) |
12/22e |
3.2 |
(19.9) |
(25.4) |
(0.51) |
2.2 |
N/A |
2.8 |
12/23e |
5.3 |
(16.7) |
(21.8) |
(0.38) |
1.3 |
N/A |
24.0 |
Note: *EBITDA, PBT and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.
Revisiting underlying assumptions
While FY22 has been marked by several business advancements for OpGen – it has signed two Acuitas AMR Gene Panel commercial contracts, successfully completed the urinary tract infection (UTI) test panel trial, launched ARES sequencing services in the United States and formed collaborations with FIND and BioVersys – the increasing complexity of its offering has extended the sales cycles. Following the FY22 guidance revision, ongoing macroeconomic tightness and clarity on the China regulatory path (Unyvero launch now anticipated in FY25 versus FY23 previously), we anticipate a relatively slower sales ramp for FY23–24, with momentum picking up from FY25 onwards. We have also incorporated the contribution from the FIND collaboration ($350k recognized in FY22 and the rest to be recognized in FY23) and BioVersys clinical trials ($100–200k over 18 months, starting in 2023) under collaboration revenue.
Stock consolidation in the pipeline
In December, OpGen announced its plans for a share consolidation (between 5:1 and 20:1), which we see as an effort to maintain the $1.0 share price threshold required for a Nasdaq listing. While the details are unavailable, we anticipate the consolidation will take place by February 2023, which marks the end of the 180-day extension granted to the company by Nasdaq.
Valuation: $67.5m or $1.2 per share
Updates to our assumptions and a lower net cash position result in a decrease in our valuation to $67.5m ($1.2/share) from $84.6m ($1.46/share) previously. Based on our projected cash burn rates and pro forma net cash of $0.8m at end Q322, we calculate a cash runway into Q123 and estimate the need to raise a total of $65m (previously $55m) before achieving profitability in FY27 (previously FY26).
Q322: Macroeconomic pressure following a strong H1
Following strong growth momentum in H122, Q322 top-line growth was adversely affected by a slowdown in international sales of Unyvero systems/cartridges and longer than expected sales cycles for Acuitas and ARES.
OpGen’s Q322 revenues were $449k, a 63.8% y-o-y decline from $1,239k in the prior year. Products sales, accounting for 80% of total revenue, were down by 44.2% y-o-y. Collaboration revenue declined by 85.4% y-o-y to $59k due to a lack of significant collaboration agreements during the quarter, while softer laboratory services (a decline of 83.9% y-o-y to $31k) were due to lower requirements for COVID-19 testing. The Q322 reported operating loss of $13.5m was significantly higher than $5.1m in the prior year, but was largely attributed to a $7.0m goodwill impairment charge recognized in Q322 as operating cash burn was $4.8m versus $5.1m in Q321. The write-off was related to the acquisitions of AdvanDx (July 2015) and Curetis (April 2020), reflecting OpGen’s assessment of the current market valuation of the assets based on progress to date and the outlook. Excluding the one-off impairment charge, operating expenses declined by 7.1% y-o-y in Q322. Research and development (R&D) and general and administrative (G&A) expenses were lower (by 14.7% and 3.2% y-o-y, respectively) due to reduced payroll costs. Sales and marketing (S&M) expenses increased by 2.8% y-o-y, pertaining to expansion of the sales team. Excluding the goodwill impairment charge, the normalized operating loss stood at $6.5m in Q322 versus $5.1m in Q321. Normalized loss before tax came in at $7.1m, up from $6.3m in Q321.
Management had previously guided for 25–50% revenue growth in the products and services segment in FY22 (including over 50% growth from the United States). However, longer than expected sales cycles for ARES and a slow ramp-up in Unyvero (international business) and Acuitas sales resulted in a FY22 revenue guidance downgrade to $2.5m–3.5m ($4.5m previously) when Q322 results were reported. The revised full-year guidance suggests Q422 revenues will be $0.6–1.1m, which we see as achievable, contingent on the anticipated contribution from the two Acuitas AMR installed systems and improved traction from Unyvero and ARES.
In accordance with the European Investment Bank debt restructuring in May 2022, OpGen is required to pay monthly instalments of $700k until April 2023, followed by the second and third tranches due for the amount of €3.0m ($3.2m) and €5.0m ($5.3m) plus accumulated deferred interest in June 2023 and June 2024, respectively. To support the debt repayment, development pipeline and commercialization efforts, the company raised $3.38m (gross) in October 2022 through an existing healthcare-focused institutional investor in exchange for a combined 9.66m in common stock and pre-funded warrants at $0.35/unit plus an additional 33.8k shares of Series C preferred stock. The investor was also issued warrants to purchase up to an aggregate of 9.66m in common stock, at an exercise price of $0.377/share. Following the fund-raise, OpGen had $13.3m in pro forma cash at Q322 and $12.5m in debt at end-Q322.
Estimate revisions
Based on the performance in the first nine months of FY22 (9M22) and directional guidance from management on near-term revenue potential, we have made certain changes to our forecasts, in particular for FY23–24. In addition to adjusting our FY22 revenue estimate in accordance with revised management guidance of $2.5–3.5m, we now incorporate a more protracted ramp-up in Unyvero sales in FY23–24, with stronger momentum from FY25 supported by a sales contribution from the UTI panel (we assume 80% probability of approval in 2024) in the United States and international market growth. For China, while we maintain our total sales potential expectations (€180m over eight years), approval and launch timelines have been pushed out from 2023 to 2025 following the recent communication by management on the requirement for resubmitting the regulatory filing under the new Chinese electronic filing system, potentially delaying the roll-out by 24–30 months. We continue to assume an 80% probability of approval but will revisit this assumption as the regulatory process progresses. For Acuitas, given the longer than anticipated sales cycles (c six months), we now incorporate slower growth in incremental account wins, although the long-term potential is unchanged. We have also included a contribution from the FIND collaboration ($350k in FY22 and the remaining $350k in FY23) and BioVersys clinical trials ($100–200k over 18 months, starting in 2023) under collaboration revenue. Our revised revenue estimates stand at $3.2m ($4.6m previously) and $5.3m ($7.7m previously) for FY22 and FY23, respectively.
We have also made certain adjustments to our expense estimates based on the 9M22 run rate. We have adjusted R&D estimates to $8.7m ($9.3m previously) for FY22 and $8.2m ($8.4m previously) for FY23, while SG&A estimates decreased to $13.7m (FY22) and $12.9m (FY23) from $14.0m and $13.5m, respectively. Reflecting the changes, we calculate an operating loss of $22.5m in FY22 and $18.9m in FY23 (vs $21.1m and $18.5m previously, respectively) (Exhibit 1).
Exhibit 1: Key change to forecasts
FY21 |
FY22e |
FY23e |
|||||
$’000s |
Actual |
Old |
New |
Change (%) |
Old |
New |
Change (%) |
Total revenues |
4,306 |
4,623 |
3,172 |
-31.4% |
7,713 |
5,283 |
-31.5% |
-- Product sales |
2,657 |
3,384 |
2,409 |
-28.8% |
6,599 |
4,549 |
-31.1% |
-- Lab services |
813 |
569 |
163 |
-71.4% |
512 |
146 |
-71.4% |
-- Collaboration revenue |
836 |
669 |
601 |
-10.2% |
602 |
588 |
-2.3% |
Gross profit |
1,458 |
2,159 |
(25) |
-101.2% |
3,364 |
2,208 |
-34.4% |
Gross margin |
33.8% |
46.7% |
-0.8% |
43.6% |
41.8% |
||
Adjusted EBITDA |
(20,388) |
(18,546) |
(19,886) |
7.2% |
(16,308) |
(16,678) |
2.3% |
Adjusted EBIT |
(23,102) |
(21,148) |
(22,488) |
6.3% |
(18,524) |
(18,894) |
2.0% |
Adjusted EPS (c) |
(117) |
(49.7) |
(51.1) |
2.8% |
(44.4) |
(37.6) |
-15.3% |
Source: Company reports, Edison Investment Research
Valuation
Following the aforementioned changes to our estimates, we reduce our valuation to $67.5m or $1.2 per share from $84.6m or $1.46 per share previously. While the decline in enterprise value was driven by lower net present values (NPVs) for Unyvero (including China) and the Acuitas AMR Gene Panel, the equity value has also been affected by a lower net cash position ($0.8m versus $2.7m previously). In addition, the per-share valuation was affected by the higher number of shares outstanding following the exercise of pre-funded warrants from the October 2022 equity raising (58m versus 53.7m previously). On a product/segment level, we reduce our risk-adjusted NPV for Unyvero (excluding China) to $98.1m from $105.4m previously, assuming a slower ramp-up to peak sales for the Unyvero A50 system and assays in both the United States and international markets. Similar adjustments have been made for the Acuitas AMR Gene Panel given the longer sales cycles (revised rNPV of $14.2m versus $18m previously). For Unyvero China, the rNPV goes down to $20.5m (versus $26.2m previously) as we push our commercialization timelines to 2025. However, the underlying longer-term outlook remains unchanged, as indicated by only minor changes to our peak sales estimates across the segments (expected in 2035). While we have limited information available for the Aresdb dataset, we continue to use the carrying value of the asset in our valuation. We will update this figure as more information becomes available.
We expect the pro forma gross cash balance of c $13.3m (including $3m in net proceeds from the private placement in October) to fund operations into Q123 based on an anticipated operating cash burn of c $5m per quarter and $700k/month in EIB loan repayment. We therefore anticipate the need to raise $20m in funds imminently, followed by another $45m over FY23–26, before reaching the scale to fund operations from internally generated cash flow (FY27).
Exhibit 2: OpGen’s valuation
Product |
Main indication |
Status |
Probability of successful commercialization |
Launch year |
Peak sales ($m) |
Patent protection |
rNPV |
Unyvero excluding China |
Lower respiratory |
Market |
100% |
2020 |
134.0 |
2040 |
98.1 |
|
UTI (US) |
Clinical |
80% |
2024 |
|||
|
IJI (US) |
Preclinical |
50% |
2025 |
|
|
|
Unyvero - China |
HPN |
Registration |
80% |
2025 |
41.2 |
2040 |
20.5 |
Acuitas AMR Panel |
AMR |
Market |
100% |
2022 |
20.2 |
2040 |
14.2 |
Aresdb (book value) |
Bioinformatics |
Market |
|
|
|
|
4.8 |
Unyvero A30 book value and others |
IJI |
Preclinical |
|
|
|
|
9.0 |
Unallocated R&D costs |
(24.7) |
||||||
G&A costs |
(55.3) |
||||||
Pro-forma net cash (at 3 October 2022) |
|
|
|
|
|
|
0.8 |
Total firm value |
67.5 |
||||||
Total shares outstanding (m) |
58.0 |
||||||
Value per share ($) |
|
|
|
|
|
|
1.2 |
Source: Edison Investment Research
Exhibit 3: Financial summary
$'000s |
2019 |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 December |
GAAP |
GAAP |
GAAP |
GAAP |
GAAP |
||
PROFIT & LOSS |
|
|
|||||
Revenue |
|
|
3,499 |
4,214 |
4,306 |
3,172 |
5,283 |
Cost of Sales |
(1,632) |
(3,848) |
(2,848) |
(3,197) |
(3,075) |
||
Gross Profit |
1,867 |
366 |
1,458 |
(25) |
2,208 |
||
Sales, General and Administrative Expenses |
(8,496) |
(12,367) |
(13,649) |
(13,735) |
(12,904) |
||
Research and Development Expense |
(5,121) |
(9,965) |
(10,911) |
(8,729) |
(8,199) |
||
EBITDA |
|
|
(10,829) |
(19,631) |
(20,388) |
(19,886) |
(16,678) |
Operating Profit (before amort. and excepts.) |
|
(11,750) |
(21,966) |
(23,102) |
(22,488) |
(18,894) |
|
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
(522) |
(752) |
(171) |
(6,976) |
0 |
||
Operating Profit |
(12,272) |
(22,718) |
(23,273) |
(29,464) |
(18,894) |
||
Net Interest |
(178) |
(3,294) |
(4,754) |
(2,942) |
(2,900) |
||
Other |
2 |
(66) |
(6,735) |
474 |
0 |
||
Profit Before Tax (norm) |
|
|
(11,928) |
(24,742) |
(35,742) |
(25,375) |
(21,794) |
Profit Before Tax (reported) |
|
|
(12,447) |
(26,078) |
(34,762) |
(31,932) |
(21,794) |
Tax |
0 |
(132) |
(44) |
0 |
0 |
||
Deferred tax |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(11,928) |
(24,875) |
(35,786) |
(25,375) |
(21,794) |
||
Profit After Tax (reported) |
(12,447) |
(26,211) |
(34,806) |
(31,932) |
(21,794) |
||
Average Number of Shares Outstanding (m) |
1.6 |
15.8 |
36.7 |
49.7 |
58.0 |
||
EPS - normalised (c) |
|
|
(737.70) |
(157.43) |
(117.12) |
(51.08) |
(37.58) |
EPS - Reported ($) |
|
|
(7.70) |
(1.66) |
(1.14) |
(0.64) |
(0.38) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
3,755 |
32,863 |
31,924 |
20,491 |
18,688 |
Intangible Assets |
1,418 |
24,606 |
21,983 |
13,503 |
12,548 |
||
Tangible Assets |
2,133 |
5,791 |
5,917 |
4,738 |
3,890 |
||
Other |
203 |
2,466 |
4,024 |
2,250 |
2,250 |
||
Current Assets |
|
|
6,667 |
16,888 |
39,743 |
12,873 |
8,122 |
Stocks |
473 |
1,486 |
1,239 |
1,279 |
1,227 |
||
Debtors |
568 |
653 |
1,172 |
608 |
1,013 |
||
Cash |
2,708 |
13,360 |
36,080 |
9,735 |
4,632 |
||
Other |
2,918 |
1,388 |
1,250 |
1,250 |
1,250 |
||
Current Liabilities |
|
|
4,939 |
7,372 |
19,917 |
14,795 |
13,689 |
Creditors |
4,565 |
6,673 |
5,398 |
5,396 |
5,170 |
||
Short term borrowings |
374 |
699 |
14,519 |
9,399 |
8,519 |
||
Long Term Liabilities |
|
|
1,190 |
21,188 |
10,533 |
6,087 |
22,722 |
Long term borrowings |
329 |
19,379 |
7,176 |
3,096 |
20,116 |
||
Other long term liabilities |
860 |
1,809 |
3,356 |
2,990 |
2,606 |
||
Net Assets |
|
|
4,293 |
21,191 |
41,217 |
12,482 |
(9,601) |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(11,506) |
(23,397) |
(21,479) |
(17,978) |
(16,783) |
Net Interest |
0 |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(32) |
(130) |
(1,984) |
(397) |
(413) |
||
Acquisitions/disposals |
0 |
1,267 |
0 |
0 |
0 |
||
Equity Financing |
13,062 |
33,793 |
48,159 |
4,370 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
(266) |
0 |
0 |
||
Net Cash Flow |
1,524 |
11,533 |
24,430 |
(14,005) |
(17,196) |
||
Opening net debt/(cash) |
|
|
(3,514) |
(2,005) |
6,717 |
(14,385) |
2,760 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
(19) |
(2) |
(5) |
(13) |
(4) |
||
Other |
(3013) |
(20,254) |
(3,322) |
(3,127) |
(4,043) |
||
Closing net debt/(cash) |
|
|
(2,005) |
6,717 |
(14,385) |
2,760 |
24,004 |
Source: Company reports, Edison Investment Research
|
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Research: Investment Companies
The Merchants Trust (MRCH) is managed by Simon Gergel, chief investment officer of UK equities at Allianz Global Investors (AllianzGI). He highlights that the remaining £16m of the trust’s £42m credit facility has recently been drawn down, taking gearing from c 13% to c 15%. This indicates that the manager, and MRCH’s board, see good value in the UK market, particularly in the type of stocks that fit Gergel’s disciplined investment criteria. The manager continues to seek undervalued companies with solid fundamentals, aiming to generate a high and growing level of income and long-term capital growth. MRCH has a commendable performance track record, outperforming the broad UK market over the short, medium and longer term. It also ranks highly versus its peers in the 22-strong AIC UK Equity Income sector. The trust’s annual dividend has grown for the last 40 consecutive years.
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