Q1 2022 OpGen Inc Earnings Call

[music].

Okay.

Welcome to the opens in first quarter 2022 earnings call and business update.

Today opens in management will provide an update on the company's current business and outlook for the future.

Following opening open James' remarks prepared remarks, they will be a Q&A session.

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 will tend to pull although to a lesser factor open James I, Our representatives to provide the opening statement. Please proceed.

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 Objet, including its subsidiaries carried us.

An artist's genetics I encourage you to review <unk> 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 F. D C which were identified.

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 strategy, our ability to successfully timely and cost effectively develop seek and obtain regulatory clearance for and commercialize our product and service offer.

Right.

Our ability to continue to successfully achieve.

The expected synergies from the company's completed business combination with curated 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 are.

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 health care providers in general.

Well 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 effects 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.

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 options, President and CEO and Albert Wever, It's CFO now I will turn the call over to Oliver Schacht for introductory remarks.

Thank you Melissa and thank you everyone for joining us this afternoon.

To be sitting here in Rockville at options Global headquarters with our CFO , Albert and reporting on our progress.

So it was a solid quarter for all 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 options ongoing and upcoming milestones and business development will also make short 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 unit burrow 830, <unk> instruments successfully completed their lifetime testing and met or exceeded all of their verification and validation or bnb testing requirements in February .

This is a major milestone as it enables us to finalize the new platform instrument.

Our first set of series ready instruments built later this year.

Additionally, we're progressing forward on our first 830 cartridge application a panel for invasive joint infections or.

Thompson OBL fluids and plan to bring the 830 platform in Agi test into its first clinical trial in the United States later in the fourth quarter of 2022.

As we continue to develop <unk> for clinical trials and subsequent FDA submission and clearance and commercialization will be well positioned to continue partnering and licensing conversations when.

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.

<unk> panel was featured in the journal of clinical Microbiology in February .

This peer reviewed journal publication, clearly demonstrates that the FDA cleared acuity AMR gene panel as an accurate method to detect and differentiate a broad range of 28 AML markers that can be associated with up to nine antimicrobial classes in just two and a half hours.

The authors note that quote associating the Amur markers with not susceptible phenotypic results is a key differentiator of the FDA cleared a curious EMR gene panel compared to other molecular panels that simply detect the presence or absence of a gene.

Right.

The advantages of curious AMR gene panel over other currently available molecular tests are.

First ALR detection and linkage to a specific organism.

Second a turnaround time of two and a half hours as I, just mentioned and third offering what we think is the most comprehensive panel, including non beta lactam margins and.

For what might be considered salvage therapy antibiotics, such as colistin as well as the ability to determined mechanisms of resistance to guide antibiotic selection. For example, when a third generation cephalosporins is mediated by <unk>, which cannot be assessed with phenotypic AST methods.

Overall, we believe that the detection of EMR can help with infection prevention and support hospital antibiotic stewardship and infection control.

I'll now turn the call over to Albert Weber options, Chief Financial Officer, who 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 our first quarter 2022 highlights our <unk>.

<unk> position in underlying growth drivers for the business and conclude with some thoughts on guidance.

We are excited about the future of option 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 there's 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 'twenty to 'twenty, two revenue with approximately 470000.

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.

The impact of New York State Department of Health project.

Which was completed in September 'twenty, 'twenty, one and somewhat lower unit better revenues and international distribution business.

Due to fluctuation fluctuating and lower order volumes due to COVID-19 restrictions still being tied in Q1 2022 and many countries.

While overall revenue for the first quarter of 2020 to decrease 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 154000 in sales.

Compared to $87000.

That we had this time last year.

The strong growth over the prior year is evidence of our early success.

However, we will discuss our efforts to continue increasing sales within the U S and internationally in more detail later.

Laboratory service revenue saw a decline over the first quarter of 2021.

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.

We anticipate colgate volumes to dissipate and to be offset by our other core product volumes with a 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 <unk> 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.

Operating expenses for the three months ending March 31, 2020 to decline 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 head count in R&D and operations at our Rockville, Maryland side with focus shifting increasingly towards commercial efforts and our future Mgs 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 $900000. 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 at skilled and talented human capital to our team as we continue to grow and expand our business.

We would like to highlight.

<unk> 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.

<unk> 15 cents per share, which was significantly lower than $14 9 million or <unk> 50 per share in Q1, 2021.

This is primarily due to the onetime noncash accounting charge for the world in Houston and exercise transaction in Q1 2021.

Our cash position at the end of the first quarter of 2022 was 30.

$6 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 million 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 $700000.

Major area of focus for us in the first quarter of 2022 was strategic R&D programs, such as our ongoing Union Federal UTI clinical trial here in the U S.

<unk> hundred 30 platform development as well as R&D related to our risk genetics products and services.

This puts us in a strong position to continue expanding our production and commercialization, which we expect will continue to do so throughout 2022.

Products, where we expect to see a significant amount of growth.

Arrow as well as acuity AMR gene panel portfolio.

A major driver of this growth as 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 six to 12 months range as we have repeatedly guided well during past earnings calls we.

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 unit variable 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 with lighter than in Q1, 2021, and fluctuated, primarily due to continued COVID-19 lockdowns and related shutdowns.

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

During Q1 2022, we reached an agreement with a pan European distribution partner <unk> 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 minimums.

We also expect both the contract with minimum Rooney to receive compensation in the coming months, while previous order shortfall compared to agreed minimums.

Our eris genetics related services and software solution business.

Another area that we've seen increased traction thus far in 2022, and we expect this to continue throughout the year.

This includes additional <unk> monetization and new collaboration deals.

Growing the database is going to be helpful for client retention in addition to increase opportunities to upsell.

Furthermore, there are ongoing discussions regarding potential unit available 830 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 <unk> side and the Union favorable <unk> platform. We are confident that these deals could provide further growth in topline revenues.

In April we announced that our subsidiary <unk> and the European investment Bank.

We plan to restructure the repayment of the first tranche of debt, which makes it in April .

Opex growing available debt restructuring alternatives subject to finalizing definitive legal agreements with the EIB.

We repaid 5 million euros in April 2022, and will amortize the remainder of the debt trench of approximately 835 million euro over the 12 month period, beginning in May 2022.

Additionally, we've agreed to increase the person, but it's a basin interest or equity related kick up from 3% to 75% of the then prevailing option market kept beginning in June 2024 with EIB.

The terms of the second and third tranches of $3 million and 5 million Euro plus accumulated deferred interest remain unchanged as of now.

Overall this allows us to address our debt repayment 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 2023.

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

Hey, Bob.

Thank you Albert I want to continue to highlight that 2022 will be here focused on commercialization.

We're pleased to announce that we received positive interim data results from the <unk> unit barrel urinary tract infection UTI panel trial based on the first 150 or 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 is 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.

Trial protocol was successfully implemented as planned across the participating trial sites.

This has allowed us to continue enrollment towards the study goal of 500 prospective samples and as of today there are more than 640 patients enrolled.

Our aim is to complete the trial have 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-19 related backlog of filings and based on our previous experience with the FDA and FDA clearances of three diagnostic products on to different platforms and the absence of this meeting which is voluntary we still plan to start an iga trial in the late <unk>.

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 hours developed a digital anti infectious platform combining 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 our <unk> next generation sequencing or <unk> will be used to focus further on antibiotic stewardship by enabling genomic surveillance for resistance pathogens.

This collaboration is a key step towards fighting an EMR, 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 journalists to genome web on the fifth of Mei covering the story, including additional color and background provided by the Sandoz team directly.

<unk> 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 a non exclusive access to a small subset of its proprietary <unk> data asset to an unnamed global corporation and leader in microbiology and infectious.

This disease diagnostics.

This agreement allows the partner to purchase at the same price agreed upon in November 2021, additional data sets 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 services globally.

The new services include RFID at Arris, ISS or isolate sequencing service express.

RFID is a sequencing service for the accurate and thorough detection of pathogens.

<unk>, our environmental microbes directly from native patient's specimen or environmental samples.

Rsi SaaS builds on Iris 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.

We're reports include outbreak information as well as actionable information on antimicrobial resistance.

This sequencing services are performed at Ares Genetics 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 at our option headquarters in Rockville, Maryland.

Dr. <unk>, our senior Vice President of corporate development and operations for <unk> 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 develop the <unk> AMR gene panel for these NGL based services for Ares genetics in the U S.

This launch of our own direct to customer services in the U S. As envisaged by Q3 of 2022.

By now as of today August has built a funnel of more than 60 commercial account opportunities, which have been quantified and are in various stages of the sales process.

Several commercial deals have already been closed for a range of Rs 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 unit Arrow, a 50 platform and products.

In 2021 and year to date in 2022, we have successfully closed a series of multiyear commercial customer deals for the end of Aero 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 in account that is around $100000 in recurring consumables revenue to option in 2022.

We have also seen selected customer accounts significantly increase their monthly ordering volumes in the first quarter of 2022 and.

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 $200000 each.

In fact, this past week and other major lap in the northeast initiated the validation, which we 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-19 and specifically the omicron way from November of 'twenty, one throughout most of the first quarter of 'twenty. Two has clearly slowed progress at several customer sites. We have recently seen a significant acceleration that momentum shift.

More U S customers are engaging in discussions about our unit <unk> that it's the lower respiratory tract application cartridge for use with Bronchoalveolar lavage samples in pneumonia patients and UTI as well as acute as AMR gene panel products.

March and April of 2022 have been the single most active months in driving funnel expansion and opportunity progression over 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 Tradeshows and conferences, such as <unk> in Europe , and Cvs, Matt I'd and ASM microbe here in the United States all of it in the second quarter.

These are great opportunities not only for generating additional new customer leads but also for clothing business deals, which are key with key decision makers on site.

We initiated the commercial launch and rollout of the acuity <unk> panel in October 21, following the five 10-K clearance by the FDA.

In the first quarter of 'twenty, two and year to date, we've been actively engaged in several commercial deal negotiations for the acuity AMR gene panel with large academic centers and other large well equipped hospital labs across the country.

We have a healthy and growing funnel of 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 remains 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.

And a couple of tens of thousands of dollars all the way to high volume opportunities.

For as many as thousands of <unk> gene panel tests for a full year once implementation is being 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 100 to $150000 ranges per account once implemented into full routine.

As you May know, China continues to be in pretty hard lockdown due to COVID-19 with cities, such as Shanghai, and Beijing, being all but completely locked down.

We continue to have ongoing conversations with the staff at Beijing clear by or BCB, and <unk> as well as regulatory advisors. Every week there are simply no updates possible regarding a clinical trial start date the.

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 and any hospital over there can actually be set up and get going.

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

On the distribution side of the international unilateral a 50 business. We've seen the successful launch event in Colombia organized by our partner on Rdx. The launch campaign started in the first quarter of 2022 and is ongoing with a focus on key opinion leader events.

The campaign includes onsite face to face meetings with key accounts and target customers across Columbia scheduled for Q2 of 2022, and additional unit Arrow system placements and hence revenue generating sales for us.

We recently signed an amendment to our five year strategic distribution agreement with memory, 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 mentoring a commercial deal for dozens of unit Aero systems, which we have offered in with Celgene Iranian 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 $400000 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 memory.

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 $400000.

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.

<unk>.

About to get signed here in Q2 of 2022 and beyond.

This year, we continue our focus on commercialization via direct channels domestically and by our distribution partners internationally.

As we head into the second quarter, we will 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 on our commercialization efforts as they continue throughout 2022.

Thank you for your continued support and for participating in this afternoons call I would now like to turn the call back to the operator for questions operator.

Thank you we will now begin the question and answer session. If you have a question. Please press star one now to be placed in the question queue.

We will pause to see if there are Christian.

The first question comes from <unk> from H C. Wainwright. Please proceed great.

Thank you for taking my questions could you give us additional color on <unk>.

Of the 6% growth in direct sales in the U S and how should that number going forward.

Well going forward.

Sure. Thanks.

So the 76% again in Q1, 'twenty two versus Q1 'twenty one all.

All based on the molecular products. So this excludes an has backed out the fish products.

As we have guided we anticipate sort of a year over year or 22 versus 21 U S direct sales.

Both 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.

We are coming from from the three core areas it's unit barrel.

They cleared.

<unk> panels.

<unk>.

Are you Oh sales at the end of Aero UTI on its FDA cleared <unk> AMR gene panel, which again percentage wise, that's probably going to be the highest number given that literally coming off the launch in the fourth quarter of last year.

And I'll say this much.

I'd, obviously, you would have loved to say here's the first three signed contracts, but I can't say that we are getting very close to having the first contracts.

Ready to get in so it's certainly on our end signed off on the first agreements some.

Im 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 and with respect to commercial commercial activity for our Q&A.

Would you be able to.

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.

And again total total U S. If you look at the totality of our sales funnel.

And again there is obviously an overlap between acute as <unk> unit <unk> LRT unit URL UTI. Some of the academic centers are large large community hospitals et cetera.

Are the very same accounts.

But we have well over 5000, so 60, plus active are 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 Hayner from Alliance Global Partners. Please proceed with your question.

Good afternoon, gentlemen, thanks for taking the questions.

First off for me can you talk a little bit more about the <unk> agreement.

I apologize.

Miss some of those terms and then.

The purchase on the residual fair value how that works on the systems that are out there how many systems et cetera.

Yes.

Sure. Thanks, Matt.

Like all of our distribution agreements. So the main Irene agreement, which is initially a five year contract.

This was started April one 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 one this year.

<unk>.

The fourth year basically ended March.

At March 31, 23, and then the fifth year ends March 31 24.

To basically increase what we have put in the agreement as minimum annual purchase commitments from Menno rainy.

<unk> is our subsidiary.

So again year over year, starting the year on April one this year, it's a 50% five zero.

Increased over the last 12 months, which ended March 31 this year.

And 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 in 80% eight zero percent increase over the last 12 months and this is a mix of obviously across all five.

All five applications.

We have CE mark the pneumonia, the implant and tissue the blood culture, the urinary tract infection, and the intra abdominal infection as well as some as well as instruments now.

Now if you look at the instruments. If you go back when we did the.

And.

Historically <unk> had direct sales in several key European markets, Germany, France, the Benelux U K, Switzerland, Austria.

When we signed <unk> agreement in 2019, we had agreed to maintain a pool that was roughly 75 unit Aero systems that have been installed throughout these countries in Europe .

And <unk> would simply manage that pool.

Manage the accounts and obviously purchase product, but we own that if you look at our balance sheet, we owned those systems.

And.

<unk> have been continuing to amortize or depreciate those.

For the regulatory accounting policies. So what we've said now and what we've agreed with men or Amy for them to step up and take full ownership of this entire pool of systems. So it's multiple dozens of systems across.

Everything in Europe .

Germany, France, Benelux, Switzerland, Italy, Spain, Portugal UK.

They had already previously bought out.

Prior distributors, we had in Greece in Austria, So those systems they already owned anyway.

But theyre going to be buying those at a residual a fair market value which means.

That's why we said roughly expected $400000 worth but the more important pieces. 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 et cetera, and if you own something.

My read is there they are definitely excited about the growth opportunities, we have a joint presence activate Irene boots.

For unit borrow at exit in Lisbon.

At the end of April .

They are actually in several European markets co positioning unit <unk> products alongside three of their antibiotic drugs and then wanted to.

Major antibiotics commercial.

Layers in Europe , where.

Where they're kind of linking up 88, almost a companion diagnostic usage for example, E. Interop Domino infection panel with those specific drugs. So 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, it's just going to make.

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.

It makes sense.

Seem to hook, you guys together, a little bit more than that should be a good thing.

Sure.

Got it.

And then on the Ares genetics.

The offerings that are the services that are going to launch here in the U S.

Any commentary on that.

I apologize if I missed this dumping 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 who are already in front of.

Yes, absolutely.

Given that Ares genetics all of the services all of the offerings are non FDA cleared non IBD. Its research use only we have a much greater flexibility in pre pre pre sales pre marketing pre targeting outreach.

So.

Whether it was <unk>, 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 in the main in the main area there.

So we're going to be launching services that we currently offer out of our Vienna lap so the isolate sequencing service.

Got to get over time complemented by the IRS the pathogen I'd also from native specimen.

Next step would be the upa, the universal Palpal genome assay again urinary tract infection trial.

I know you're going to have data generated for that so.

And then of course, the <unk> cloud 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 our 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 I hope to see at ASM.

Absolutely it would be great.

Okay.

Thank you.

Question comes from Soo Romanoff from Edison Group. Please proceed with your question.

Hi, This is <unk> from Edison group. Thank you for taking my call I just have a couple of questions here the first one.

U S revenues appear stronger push off that 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 pump Denmark.

It's a bit of both I mean, obviously as you are selling to end customers here in the United States.

The end customer pricing is the full full price than we 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.

<unk> assumed the end customer prices if they are 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 dollar market.

Yes, having control over.

And 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. So it kind of shortens the sales cycle for us.

The direct model here in the U S has those longer cycles, but ultimately better margins and greater and greater share of share of voice share of mind and share of wallet.

Great great.

My second question was.

Eric Clapton interesting here is that a service that will be offering as a bundled option for existing products and services.

And with that.

Is that your margins and overall customer retention.

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

Do not they do not require the services the west lab services from a lap neither <unk> nor here in Rockville. So their interest is then primarily the cloud based axis, which is a software as a service model really subscription base from a margin perspective is.

It's great because there is no wet lab component no consumable component there is virtually no incremental cost of goods or cost of service the underlying fixed costs as the Amazon web services hosting for the cloud solution overall.

But again no incremental cost the margins on the on the <unk> cloud SaaS.

SaaS model are certainly the best.

But youre, absolutely right being able to offer to customers.

Really the full suite say look you can if you all you need is the SaaS cloud you can get that as an annual subscription and its basically a package they can determine a number of.

Isolates or datasets that they would like to upload and interrogate.

Almost like a good old fashioned mobile mobile cell phone plan, where you could buy certain volumes and then.

You can 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 we can bundle and have comprehensive offerings, which is clearly on the revenue side, the wet lab per sample or per dataset significantly greater if you do NGL services.

Then just the pure data analytics, but then you have the cost of goods or cost of service.

Running wet lab operations, so percent margins tend to be significantly lower in our services, let's say if a service model. It's in the 50% range gross margin wise, you are probably going to look at our cloud service in the 90% to 95% or higher but the absolute revenue numbers topline clearly benefit greatly from from the service.

Offerings, which is why being able to offer it.

Combined or individually really allows customers maximum flexibility and if we look at our funnel today, we probably have roughly 50 50, we'd probably see half of the funnel opportunities and I talked about 60, plus active funnel accounts in the commercial funnel.

Roughly half, let's call it half on the cloud services and the other half, including wet lab MTS services, both isolate it.

Et cetera.

Great. Thanks for the context.

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

Well thanks, everyone for joining today. Please visit the investors section of our website or our SEC filings for updates on the company. Thank you very much and look forward to continuing the dialogue.

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.

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