TINY: OpGen Files for IPO

We’ve written a fair number of articles before about disruptive technology venture capital fund Harris and Harris Group (NASDAQ:TINY). While the fund itself hasn’t treated investors very well over time, some of their holdings such as D-Wave do seem to have lucrative potential. One TINY holding which filed for an IPO this past week is OpGen.

MDROs: The Problem to Solve

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While antibiotics can be an effective treatment for many ailments, multi-drug-resistant organisms, or MDROs are bacteria that have become resistant to certain antibiotics, and these antibiotics can no longer be used to control or kill the bacteria. MDROs are found mainly in hospitals and long-term care facilities. The CDC estimates that in the United States more than two million people are sickened every year with antibiotic-resistant infections, with at least 23,000 dying as a result. Estimates for the total economic cost to the U.S. economy range between $20 and $35 billion annually. In order to treat a patient with an antibiotic-resistant illness, the doctor will first try to find the type of MDRO causing the illness. This can help the doctor choose the best antibiotic since treatment with the wrong antibiotic can slow recovery and make the infection harder to cure. This is where OpGen comes into the picture.

The OpGen Solution

OpGen’s Acuitas™ MDRO Gene Test, which is currently available for sale is, is to their knowledge, the first CLIA lab-based test able to provide information regarding the presence of ten MDRO resistance genes from one patient specimen. This test was introduced in the first half of 2014, along with the Acuitas CR Elite Test in December 2014. In 2014, OpGen achieved minimal revenues from sales of these products but to date, eight acute care hospitals and long-term care facilities have participated in their early look “Partner-Pilot-Program”.

These initial tests will be integrated with their Lighthouse MDRO Management System which will be released in 2015 to provide real-time information on the MDRO colonization status for patients and hospitals and long-term care facilities. The entire system can be visualized as seen below:

OpGen_System

Revenues in 2014 were around $4.1 million compared to $2.4 million in the year prior. Losses for 2014 were $5.5 million, much less than 2013 losses $10.3 million. While OpGen has the first-mover advantage, they’ve already burnt through some serious cash to bring their tests to market. From inception through December 31, 2014, OpGen had an accumulated deficit of $96.8 million with a monthly cash burn rate of $500,000. If the offering is a success, OpGen expects to receive net proceeds of approximately $30,526,655 million which would sustain them for about 5 years at their current burn rate. Should the Company successfully IPO, investors would expect to see strong revenue growth showing that the pilot program is resulting in paying customers. This year’s release of the Lighthouse Management System will only be successful for bioinformatics and infection tracking if it is broadly adopted which will result in the data needed to create value.

The Impact on Harris and Harris Group (TINY)

A look at the last 10-K filed by Harris and Harris Group (NASDAQ:TINY) shows preferred and common stock in OpGen totaling 639,900 shares. According to OpGen’s IPO filing, preferred shares will be converted into common shares following the offering along with convertible notes. TINY holds around $700,000 in convertible bridge notes all issued in 2014. With a proposed offering price of $10 per share, TINY’s shares would be worth around $6.39 million excluding the convertible notes. TINY’s total cost basis on their OpGen investment is $4.6 million which they currently value at $1.4 million. If the IPO successfully prices, we can expect to see some meaningful impact to TINY’s NAV in their next filing. OpGen plans to trade under the symbol OPGN.

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