HTG Molecular Diagnostics, Inc.

Greetings and welcome to the HTG Molecular Diagnostics, Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Monique Cossey of Lifestyle Advisors. Thank you. Please go ahead.

Thank you, operator. Earlier today, HTG released its financial results for the third quarter ended September 30th, 2021. 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 impacts 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 includes risks and uncertainties described from time to time in the company's SEC filings. HCG cautions listeners not to place undue reliance on any forward-looking statements. HCG is providing this information as of the date of this call, November 10, 2021, and the company undertakes no obligation to update any forward-looking statements. With that, I would like to turn the call over to John Lubnowski, Chief Executive Officer. John?

Thank you, Monique. It's great to be here again today to review the results of the company's third quarter. It progressed much as we expected, including the announcement of our new Drug Discovery Unit, which plans to use HTG's technology in new and exciting ways. But first, let me get to the numbers associated with our profiling business. As we've been saying for the last couple of quarters, we're seeing our translational profiling business beginning to return to growth, and our third quarter's performance reflects that same pattern. Product and product-related services revenue increased by 48% to $2.5 million for the three months ended September 30, 2021, compared with $1.7 million for the three months ended September 30, 2020. Product and product-related services revenue increased by 11%, to 6 million for the nine months ended September 30, 2021, compared to 5.4 million for the nine months ended September 30, 2020. Revenue increased 22% from the second quarter of 2021 to the third quarter of 2021. This was the recovery that we've been speaking about as we saw our customers returning to pre-COVID operating levels in a quarter. This is highly encouraging as we expect this trend to continue as global supply chain and labor issues associated with COVID are alleviated. Our suppliers are currently experiencing shortages of lab plasticware that impacts our ability to run our lab, and this also impacts our customers' ability to ship us samples in appropriate sample containers. Customer labor shortages have also impacted the pace at which programs are moving as sample cohort preparation and shipment is frequently being delayed. But nonetheless, we believe our revenue for the third quarter reflects a solid all-around performance by all of our commercial teams, North America Academic, Europe, and Pharma. To add some color, we added five new customers in the quarter and expanded our active install base by four instruments. On the Pharma front, we finished the quarter with 57 active Pharma programs. The breakdown of that for the nine-month period was we added 33 new programs, extended eight existing programs, but timed out on 26 programs due to lack of activity. We expect to see this trend to continue as more programs time out in this year than in years past due to the significant impact we believe COVID had on clinical trials in 2020 and the first half of 2021. However, we're continually adding new programs to replace and overtake the programs that are timing out and expect to see these new programs drive further growth in our portfolio for this business. We also expect our revenue recovery to continue into the fourth quarter. Finally, on the publications front, we added 22 new publications in the quarter, bringing our cumulative total to 340. Again, demonstrating strong scientific and market adoption of our technology. This quarter, we also went into full commercialization mode for our new HTG Transcriptome Panel, or HTP. With a little over a quarter since commercialization, the product already represents 7% of the company's total revenue for the nine months ending September 30, 2021. This will continue to be a high area of commercial focus. We always strive to do better, but we're very pleased with the progress we've seen this quarter. Three months ago, we said we saw our translational profiling business starting to get back to growth, and that's exactly what we saw in Q3. We expect to see this trend to continue, as our customers and suppliers continue to recover from the global impacts of COVID-19. This is a big market, and we're confident we have a terrific value proposition, so commercial execution will continue to be our focus. This quarter, we also unveiled a little bit more about our HTG Therapeutics business unit. Our motivation for the company to become engaged in drug discovery was really based on three things. First, the HTP, the whole transcriptome product, really opened up new opportunities for the company beyond just profiling. Second, we believe RNA is a great biomarker tool, and we have a great platform technology that we believe can add significant value in drug discovery. And last, the emergence of RNA-targeted therapeutics. Putting all these factors together, we believe we're in the right place at the right time to leverage our capabilities in this exciting new market. Let me add some even more color. To date, the company has had four companion diagnostic collaborations In each, our pharma partner did an all-commerce trial trying to reach the largest possible market if they succeeded to reach their clinical endpoint. However, in each case, they did not reach their clinical endpoint and came to HTG in an effort to build a molecular classifier that would identify responders. But this additional effort was also unsuccessful, not because our technology didn't work, but because the drug lacked efficacy. This experience reflects closely what is seen in the overall drug development market. where 90% of drugs fail in the clinic due to efficacy or toxicity issues. With our new RNA transcriptome technology now in hand, we see this market-wide challenge as a clear opportunity for HTG. Why not use our proven and well-validated RNA technology to pull key learnings for drug development, specifically mechanism of action, structure activity relationships, and toxicity screening forward into drug discovery? when there's still time to make modifications to the chemical structure of the proposed drug candidate? Why wait to get a drug into an expensive late-stage trial only to find out it doesn't work? To seize this opportunity, we needed to harden our RNA technology, and we needed to add a differentiated medicinal chemistry platform. So we went out and acquired what we believe is a state-of-the-art in silico library design and docking technology. We had what we already viewed as a best-in-class mRNA profiling tool in our HTP, and we paired with our best-in-class whole transcriptome microRNA panel, but we also needed to expand our technology to profile RNA modifications, like M6A. And we've now done that in creating our epitranscriptomic technology called HTG EpiEdgeSeq. HTG EpiEdgeSeq was a significant achievement, but we plan to keep this as an internal capability and not fully commercialized. We can now analyze hits coming out of our hit-to-lead process using our transcriptomic tools and then use this to inform our medicinal chemistry, dialing in molecules for efficacy and lower toxicity. We internally call this approach chemitranscriptomics. While some would argue that RNA-seq can do much of what we're proposing, we believe we're advantaged on several fronts with our own technology. First, as our HTP white papers demonstrated, We have substantially higher assay success rates than RNA-Seq. We also work with a fraction of the sample required. And our workflow is significantly more simple, enabling actionable data in days, not weeks or months. I believe our ability to quickly turn sample data in just a couple of days at a very affordable cost to inform chemistry optimization is a highly relevant differentiating technology for HTG. So in theory, can people use RNA-Seq to inform chemistry? Yes. but the challenges of sample size, timelines, and sample quality will very often make this option impractical, and we believe show clearly why our HTG EdgeSeq technology holds a strong advantage. It's just not me that thinks this is a great opportunity for the company. It's also a lot of the people we've recruited. I'm delighted that Dr. Steve Barrett came to us from Janssen Pharmaceuticals to run this unit. As US head for non-clinical safety assessment at Janssen, Steve led a large team supporting programs in all phases of discovery and development, from target assessment and lead optimization, through candidate selection, and early and late stage development and registration. Prior to that, Steve served as Vice President for Preclinical Research and Early Development at Skinexis, and also held senior roles at Allergan, Forest, Shearing Plow, and Merck. Also joining the company are industry veterans, Todd Huffman as Vice President of Strategy, Carl Cobb as Vice President of Chemistry, and Desmond Ray as our Vice President of Business Development. We've also augmented this core team with several KOLs and experienced consultants. We're excited about the potential to use our proprietary RNA profiling technology to be highly disruptive in drug discovery. By matching our HTG technology with a complimentary team of industry experts, we believe we'll be able to develop a pipeline of licensable drug candidates beginning in late 2022 and early 2023. With that, I'd like to now turn the call over to Sean for a deeper dive on our financial results.