HTG Molecular Diagnostics, Inc.

At this time, all participants are in listening mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Monique Cossie.

Thank you, operator. Earlier today, HTG released its financial results for the year ended December 31, 2020. Before we begin the call, let me remind you that the company's remarks include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond HTG's control, including uncertainties regarding the ongoing COVID-19 pandemic and its impact on HTG and its customers that may cause actual circumstances, events, or results to differ materially from those projected on today's call. Factors that could cause events or results to differ materially include those risks and uncertainties described from time to time in the company's SEC filings. HTG cautions listeners not to place undue reliance on any forward-looking statement. HTG is providing this information as of the date of this call, March 25th, 2021, and the company undertakes no obligation to update any forward booking statement. With that, I would like to turn the call over to John Lubniewski, Chief Executive Officer.

John? Thank you, Monique, and welcome, everybody. We're pleased to be here today to review our year-end and our earnings. It's hard to believe that we're just past the one-year mark, of a significant portion of the world being shut down are significantly impacted by the COVID pandemic. When we sat down 12 months ago to review our year-end earnings review, no one could have imagined this. We had just completed a strong growth year in 2019, and we're looking forward to continued momentum. The impact of this pandemic on our business and on our lives from that point forward was considerable. We saw many of our customers significantly reduce or completely shut down their operations in response to the COVID-19 pandemic. We saw borders close and governments issue stay-at-home orders throughout the world. Many customers froze or significantly adjusted their research budgets as they prepared for the uncertainty and reprioritized their development priorities toward COVID testing and other COVID-related studies. We felt the most significant impact of these changes on our business in the second and third quarters of 2020. In the fourth quarter, we began to see some signs of business recovery and expect that that will continue in 2021. While I can only hope that none of us will ever have to experience a year like 2020 again, I'm proud of the commitment that our team has shown throughout the year. The efforts made to reach our development goals and pivot in the face of commercial challenges has allowed us to be nimble and execute in the face of these extraordinary circumstances. Before I get into the details of our 2020 operating results, I want to take a minute to review our core beliefs and fundamental business strategies, which have guided us this past year, helping us emerge with a strong vision and a belief in what HTG can and will be. We believe molecular profiling is a cornerstone of precision medicine, and that precision medicine is a macro trend that is revolutionizing how patients access safe and effective drug therapy. We believe that by using the RNA transcriptome to understand the underlying mechanisms of disease will be critical to helping enable precision medicine. And we believe we have a highly differentiated platform technology for RNA gene expression. that can be leveraged in RUO profiling, pharma biomarker development, and clinical diagnostics. Yes, COVID-19 interrupted our growth trajectory for 2020, but our commitment and our belief in our technology and these large and growing markets has not changed. We continue to see the fundamental macro trend of personalized medicine driving an increased use of biomarkers, especially RNA-based biomarkers. 90% of trials fail clinical development, Add to that a 96% reported false discovery rate in preclinical screening. We believe these failures result from a lack of truly understanding the mechanism of action and poor validation in preclinical models of both the target and the drug. We believe our technology is an ideal tool to address this problem. Our technology can be used by researchers in academic medical centers and pharma to better understand disease and drug mechanisms of action. and is designed to be used to build diagnostics to select the right therapy for the right patient. We believe we have a cornerstone technology to help enable precision medicine. Okay, now to the numbers. Total revenue for 2020 was 8.5 million. Breaking that down, direct revenue, defined as product and product-related services revenue in our financial statements, was 7.9 million, down 46% versus prior year. COVID-19 impacted our revenue growth as 2020 unfolded. The revenue decrease included a large decrease in low margins of contracted laboratory services in 2019 that did not recur in 2020. Additionally, direct revenue results reflected customer facility shutdowns and subsequent delays or outright cancellations of planned studies, shipments of products to customer locations, or preparation of customer samples to be delivered to HTG for planned studies. Collaboration revenue was $700,000, a decrease of 86% from prior year. This reflects the completion of remaining procedures under existing arrangements and ongoing sales efforts to identify and contract new programs in this area. Now let me take a closer look at our direct revenue. where we've been working to diversify our customer base and we've been seeing some successes despite the challenges of the pandemic. Our strategies to diversify our customer base and to extend into markets other than oncology continue to have success late in the year. Sales to U.S. academic centers remain close to 2019 levels and sales to customers in Europe grew in 2020 despite the extensive customer and country shutdowns. We see this as evidence of continuing growth in our market adoption and of the opportunity for more expansion of HTG's market footprint once we clear this pandemic. On the publications front, we now have more than 265 publications that reference our HTG Edge Seek technology, doubling where we were just two years ago. We believe the growth in publications reinforces our belief that people are discovering HTG and appreciating what we can do to help them with their research. In biopharma, we experienced a large decline in the number of active programs in 2020. As a reminder, to include a program in our active programs metric, first, it needs to be a pharma-sponsored clinical trial. Next, it needs to be traceable in clinicaltrials.gov. And third, it needs to have generated revenue for HTG in the last 12 months. As I've discussed throughout 2020, the largest impact on our decreased revenue when compared to 2019 was in our pharma programs. A recent study from JAMA Network reported an approximate 60% decrease in the number of oncology clinical trials in 2020. With the largest portion of our business historically focused on oncology, we strongly believe the decline in oncology trials had a significant impact on our business in 2020. With many clinical trials delayed or canceled and many pharma customers closing facilities completely or opening only for critical COVID-19 related programs, we saw many programs time out during the year. We finished the year with 50 active programs, down from 88 at the end of 2019. Of the 88 programs we had at the end of 2019, 63 programs timed out due to inactivity or cancellation. However, despite the challenges faced in 2020, 25 of our programs that existed in 2019 were extended, and 25 new programs were initiated in 2020. Of these programs, we were also able to see that they represented programs from nine new biopharma customers, reflecting further diversification of our biopharma customer base. While we are slowly seeing our biopharma customers return to work and re-engaging in discussions for future programs, this has been the slowest area of our business to return and will continue to be an area of focus for our commercial teams in 2021. Turning to our strategic milestones and product development, we are delighted to have released our second technical white paper late last month, characterizing our planned transcriptome product that is in late stage development. RNA-seq is largely considered to be the gold standard for transcriptome analysis, but it requires complex sample preparation, substantial quantities of extracted RNA, and longer processing times to generate a quality sequencing library. RNA-seq technology typically does not perform well on partially degraded samples having relatively low-quality RNA. This becomes an issue as archival FFP tissue sections are often the sole means of addressing specific clinical and biological questions and tend to be low-quality RNA degradation. The data presented in our latest white paper was generated using a prototype of our HCG panel across multiple cancer indications, including melanoma, breast, colorectal, lung, and prostate cancer. this panel was able to profile the expression of approximately 20,000 RNA targets using significantly less tissue than RNA-seq and in less time. The highlights of the paper show that we were able to generate high-quality data from just one to two slides of FFPE. As a matter of fact, in 23 of the 24 samples run, we only required one cut of tissue compared to four to eight slides for RNA-seq. We had a 100% sample success rate with HTG's EdgeSeq versus a 75% success rate with RNA-Seq when testing FFPE samples greater than 5 years old. For FFPE samples greater than 10 years old, HTG retained its 100% success rate and the RNA-Seq success rate dropped to 63%, further reflecting the robustness of the HTG assay and its ability to generate high-quality data even from degraded samples. Our panel also demonstrated differences in biology between four different cancer types, breast, prostate, colorectal, and melanoma. Repeatability studies of our panel demonstrated Pearson correlation coefficients between 0.9 and 0.98, even on samples greater than 10 years old, demonstrating, again, the robustness of the HTG technology. Our panel demonstrated Pearson correlation coefficients across multiple tissue types of 0.82 to RNA-seq, demonstrating strong alignment, especially considering the type methods are different and we also use different sample types, FFPE for HTG and extracted RNA for RNA-seq. Our panel demonstrated Pearson correlation coefficients of between 0.9 and 0.99 across five different tissue types relative to ERCC spiked-in controls, demonstrating a high degree of accuracy. And finally, our prototype assay used in the second white paper also included improvements such as an optimized probe design, removal of probes for non-coding genes, and a new lysis step to lower background and improve robustness. We're excited by the data that was presented in the second white paper and believe it shows that our planned transcriptome panel can be used as a competitive alternative to RNA-seq for identifying differentially expressed genes. Overall, the data presented in this white paper demonstrated that the HTG panel can provide excellent robustness across a variety of tissue types, will be comparable to RNA-seq for gene expression analysis of FFPE tissue, and may be superior to RNA-seq in the analysis of archived FFPE samples or where FFPE samples exist in limited quantities. We've also expanded our early adopter program since it was first announced in 2020, in December of 2020, and it now includes 15 participating organizations. Not only are these organizations helping us with critical cohorts that we need to finish development, but we expect that this group will be the first customers for the product upon commercial launch. The next milestone for the program, design input lock, has already been completed here in Q1 and will be followed up by design locks currently scheduled for Q2. We also anticipate further improvements of the panel's design, workflow, and robustness during this optimization phase of development. With these milestones in mind, we believe we remain on track for formal design verification and commercialization beginning in the third quarter of this year. We continue to work at a very high level of productivity in our product development group and look forward to continuing to report out on our technical milestones as the year progresses. With that, it's now my pleasure to turn the call over to our CFO, John McMeans, for a review of our financials. John?