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spk08: Thank you for standing by. This is the conference operator. Welcome to the HTG Molecular Diagnostics, Inc. fourth quarter 2021 earnings conference call. As a reminder, all participants are in the listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Andrew Erickson from LifeSci Advisors. Please go ahead.
spk04: 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, including statements regarding our expected revenue recovery. the importance of the company's HTG transcriptome panel, statements related to the company's HTG therapeutics and drug discovery business, our future growth, business momentum, and market opportunities, and the expected capabilities of our technology. 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 include those risks and uncertainties described from time to time in the company's SEC filings, including under the risk factors heading of the company's most recently filed annual report on the Form 10-K. HTG cautions listeners not to place undue reliance on any forward-looking statements. HTG is providing this information as of the date of this call, March 29, 2022, and the company undertakes no obligation to update any forward-looking statement. With that, I would like to turn the call over to John Lubineski, Chief Executive Officer.
spk02: John? Thank you, Andrew, and welcome, everybody. We're pleased to be here with you today to review our financial results as well as our performance against strategic milestones in 2021. 2021 was both a recovery year for our profiling business and an exciting expansion year for the future growth of the company. Through completion of our key development milestones in 2021, we introduced what we believe is the most important product in HTG's history with the release of our HTG Transcriptome Panel, or HTP. The release of the HTP set the stage for us to also move forward with the creation of our Drug Discovery Business Unit. using our exciting capabilities in a new and exciting market segment. Throughout 2021, we saw more of our customers resuming operations. They began to bring employees back to their facilities and resume some of their studies that they had planned prior to the pandemic. However, even by the end of the year, customers that were open were still not operating at 100% of pre-COVID capabilities. Many customers had workplace restrictions in place or were impacted by nationwide supply chain and labor shortages. And due to ongoing restrictions, global shutdowns, and careful monitoring of travel risks, our commercial team was restricted for much of the year in its ability to actually visit customer facilities. As a result of these ongoing challenges, we've experienced delays in our sales cycle and continue to react to unexpected speed bumps throughout 2021. While customer interest in our products, especially our recently released HDP product, continues to be strong, we expect some of these challenges that we faced in 2021 to continue into 2022, resulting in a continuing slow recovery of our profiling business as 2022 progresses. Okay, now to the numbers. Total revenue for 2021 was $8.9 million, approximately 4% ahead of 2020. Breaking that down, our direct revenue defined as product and product-related services revenue in our financial statements was $8.9 million, up 13% from 2020, reflecting the continued recovery in our profiling business that I discussed previously. Total revenue in 2020 included approximately $650,000 of collaborative development services revenues, of which we didn't have any active programs in 2021. Our HTTP transcriptome product generated $1.4 million in revenue in less than five months of sales and ended as our number one selling assay. Overall, we added 29 new customers and increased our active EdgeSeq instrument install base by 10 instruments in 2021. On the publication front, we now have more than 350 publications that reference our HTG EdgeSeq technology, a 32% increase over prior year. This is a clear indication that word is getting out about the advantages of HTG ZC technology. In biopharma, we experienced a nice rebound in a number of active programs in 2021. As a reminder, there's three requirements for a program to be included in our active programs metric. First, the program needs to be associated with a pharma-sponsored clinical trial. Second, it needs to be traceable to a program on clinicaltrials.gov. And finally, it needs to have generated revenue for HTG within the last 12 months. We finished 2021 with 62 active programs, up from 50 at the end of 2020. More impressive, of that 62, 48 were new programs and 14 were extensions of previous programs. So over 70% of the active programs in 2020 were either halted or discontinued by our customers during the pandemic. We believe the increase in new programs, again, reflects the spreading excitement about our technology and the drive and energy of our commercial sales team. We also expect to see the recent growth trends suggest to us that we've gone through the worst of the COVID-19 headwinds in pharma, signaling there's further growth ahead of this customer segment in 2022. Turning to our strategic milestones and product development, we were thrilled with the progress that our teams made through 2021. Our development team completed the final elements of our whole transcriptome product development in the fourth quarter. This included validating additional sequencers and expanding our assay protocols to include more biologic sample types. This will help support our commercial sales teams as we continue our focus to diversify our customer base and to expand the use of our technology beyond oncology and into other growth areas such as immune response, diabetes, and infectious disease. publications, such as the recent COVID-19-based publication in Frontiers in Immunology, noted the use of our technology to systematically characterize COVID-19 lymph nodes to better understand the complex immunopathological changes of severe disease, both from a morphological and transcriptomic level and reflect the potential of what our technology can do in regards to these other disease areas for scientific discovery. In our drug discovery business, We have also made substantial progress in a very short amount of time. To help guide our strategy and provide valuable collaboration support, we added our first two scientific advisory board members, Dr. Jerry Radish from the Fred Hutchinson Cancer Center and Dr. Robert Spitali from the University of California at Irvine. We also added therapeutic depth to our board of directors with the addition of biopharma veteran Chris Caristi, formerly of Cost Pharmaceuticals. While this infrastructure was being built, our therapeutic development team was busy moving our vision forward with this exciting new proprietary technology. During this period, we've chosen our first drug target. We've also used our machine learning chemistry capability to search a universe of 33.5 billion potential biologic structures and have designed a library to just a few hundred compounds. From there, we'll have those compounds synthesized and run them in our first cell-based model. Lysates will be analyzed using our full transcriptome EdSeq technology to show we can differentiate between pharmacophores based on full transcriptomic analysis. This is a first critical step for RNA profiling of drug development candidates from human-derived cell-based test systems, providing unique insights into the association between structure-activity relationships and gene and pathway expression. This understanding will help us make well-informed adjustments to the molecular structure of the drug candidates with a more complete understanding of how those structural adjustments actually affect gene expression, our initial approach to early de-risking of a drug candidate. We believe the de-risking of drug candidate molecules early in drug development will result in improved chances for preclinical and clinical development success for these drug candidates. With that, it's my pleasure to turn our call over to our CFO, Sean McMeans, for a review of our financials. Sean?
spk06: Thanks, John. Total revenue for 2021 was $8.9 million compared with $8.5 million in 2020. Our 2021 revenue was comprised entirely of direct revenue, defined as product and product-related services revenue in our financial statements. Our cost of product and product-related services revenue was $4.1 million in 2021 and $4 million in 2020. Research and development expense remained consistent with the prior year at approximately $6.1 million for both 2021 and 2020. However, this included a change in the blend of costs year over year. In addition to ongoing costs related to the development of our proprietary profiling technology, which was comprised primarily of the HDP product, 2021 research and development expense included approximately $1.4 million of costs related to our new therapeutics business unit. Our development team successfully completed all of its development milestones in 2021, resulting in the commercial launch of our HDG transcriptome panel in August. Subsequent feature expansions were completed in the fourth quarter, including additional sequencing capabilities and sample-type expansion. Sales of our transcriptome panel kits and through sample processing services performed in our VERA-IO laboratory totaled $1.4 million in 2021. Our operating loss for 2021 was $17.8 million compared to $19.6 million for 2020, primarily reflecting the receipt of $1.2 million of additional employee retention credits in 2021 that were received in 2020, and a focused management of overall operating expenses. Net loss per share was $2.47 for the year ended December 31st, 2021, and $4.51 for the same period in 2020. This reduction reflects additional shares of common stock sold in 2021 through our at-the-market facility, and equity line of credit. As of December 31st, 2021, we had approximately 7.6 million shares of common stock outstanding. On March 21st, 2022, we closed a private placement of our securities for gross proceeds of approximately $7.5 million. The transaction increased our common shares outstanding by approximately 834,000 shares and included approximately 2.4 million pre-funded warrants for common stock. We ended the quarter with $21.9 million in cash, cash equivalents, and short-term available for sales securities. I will now turn the call back to John for closing comments.
spk02: Thank you, Sean. 2020 and 2021 were interesting, exciting, and challenging years for HDG. COVID-19 forced us to modify our strategies to account for changes in the market and to seek new opportunities for our technology. As a result of these efforts, we have a great new product in our HTG transcriptome panel that opens up new doors of opportunity in profiling and therapeutics. HCP enables us to continue to provide important information in oncology, but also to move forward with becoming a more complete precision medicine company in all disease areas where RNA analysis is relevant. We've also leveraged our collaboration experience and seized upon new thinking in drug discovery to use transcriptomic profiling in the drug discovery process. We believe the application of our profiling technology to human-derived cell-based test systems integrated with medicinal chemistry allows for early de-risking of drug candidate molecules, opening up another door of opportunity for HTG to deliver exciting, licensable new drug candidates and potentially to bring new companion diagnostic collaborations forward. This new business unit holds the potential to bring in cash up front, and longer-term milestone and royalty payments as our development efforts continue. This evolved strategy positions the company to be a tech-driven biotechnology company with two engines of revenue and valuation growth, profiling and drug discovery. As with last year, we've created a calendar of strategic milestones. In Q1, we expect to align our microRNA assay to the same sample prep workflow as our HTP, This will enable our sales team to bundle these two whole transcriptome products together. We also plan to bring out our first proof of approach white paper, which will capture the foundational aspects of our novel approach to drug discovery. In Q2, we expect to finalize development on our M6A R&D assay and provide an additional white paper on our proof of approach for drug discovery. Through Q3 and Q4, we plan to continue advancing our drug discovery efforts through optimization of our novel drug candidate molecules with the goal of pursuing licensing opportunities of our most advanced preclinical assets at the end of the year. We're moving fast and expect to continue our development momentum in this new and exciting business area through 2022. Our key priorities for the year are going to be, one, to maintain growth in our profiling business to help fund continuing operations and to create new Pharma CDX opportunities, two, to achieve our strategic milestones in technology and product development, and three, to achieve our strategic milestones in our drug discovery business unit. With the challenges of the past few years, we've hardened and extended our technology and strategy to create an even more exciting new opportunity for HTG. I strongly believe the best days are still in front of us. With that, it's my pleasure to open up the call for questions. Operator?
spk08: Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Kristin Kluska with Cantor Fitzgerald. Please go ahead.
spk00: Hello. This is Rick on for Kristin. Thank you for taking our question. You've previously talked about the potential for further publications and presentations at medical conferences from HDG, including the potential for publications from users in the early adopter program. So could you please talk about what we could expect in terms of publications and conference presentations upcoming from HDG?
spk02: Hi, Rick. This is John Lubniewski. Thanks for the question. Yeah, our early adopter program went very well. So we're actually in the process right now of submitting abstracts. I believe we had one at AACR, and we're expecting additional abstracts at ASCO. in addition to moving forward with peer-reviewed articles. As you're aware, you know, this is a several-month process, but, you know, obviously we're driving it, and we're very encouraged.
spk01: All right. Appreciate that. Thank you.
spk07: The next question comes from Yi Chen with HC Wainwright. Please go ahead.
spk03: Hey, this is Chet on for Yi. We just have three quick questions. The first one on the companion diagnostic collaborations, any talks or anything planned for this year or in the near future? And the second one on, I know you spoke about this during your introductory remarks, but any progress so far with, any comments on the progress so far with HCG and specifically on how your hit-to-lead process is shaping up. And finally, your thoughts on the impact of COVID through 2022. Thank you so much.
spk02: Sure. So, regarding companion collaborations, unfortunately, when we had, you know, 70% or so of our active programs basically cancel in 2021, it kind of pushed a reset button on a lot of those programs and we had to kind of start from scratch. The good news is we've really refilled that funnel as can be seen with the 62 active programs. We're working with one biotech that could evolve into a companion program this year. But if there's one thing I've learned the last few years is trying to predict when pharma is going to move is just about impossible. But like I said, the good news is we've refilled that pipeline. I expect that that pipeline is going to continue to grow through this year, and eventually that will lead to additional collaborative development opportunities. Regarding the drug discovery and where are we with that hit the lead process, I actually just this morning read our draft white paper, so we're right on track with where we expect to be with our our ability to develop a licensable family of assets by the end of the year. So we should have that first white paper out literally probably in a day or two. And this is a really important white paper because it actually demonstrates how we used our proprietary profiling technology to distinguish between very slight changes in chemical structure, which is very insightful in regards to drug design. So extremely excited by that because to me it's kind of the proof that we can do this, which is really, really exciting. And then lastly, your COVID question. I think we're going to continue to see not everyone's into work all the time, kind of probably very similar to our own workplaces. So we're expecting just to see continued delays and continued, you know, supply chain interruptions as things turn back on. We don't anticipate things are going to go backwards. but it's just gonna be a slow ramp up of activity as basically everyone comes back to work full time.
spk01: Excellent, thank you so much.
spk07: The next question comes from Alex Nowak with Craig Hallam Capital Group.
spk08: Please go ahead.
spk05: Great. Good afternoon, everyone. You're not giving guidance here, but investors have gone through a lot of swings here over the last couple of years. So just how do you think about growth in the core business in 2022? You know, the street's got Jamal doubling sales essentially for next year, for 2022 here. Do you think that's plausible or where do you think the growth could ultimately shake out? And then just thinking about HTP, that initial success, how should we think about that ramping throughout the year?
spk02: Good questions there, Alex. So, you know, I think doubling is aggressive. You know, we believe that, you know, once people are back to work, you know, we should return to that 40, 50 percent growth rate that we were seeing pre-COVID. Obviously, timing of when, you know, we're going to be hitting on all cylinders is up for grabs. But, you know, I think probably doubling is a little aggressive, unless we land a large OEM opportunity And we really just started the commercialization of HDP into the OEM segment. Regarding the HDP ramp, as mentioned, we had a very good fourth quarter. We had 13 customers buy the product, just a little shy of a million dollars. And of that, 13, six were brand new customers to HTG, and they represented about a third of that million dollar number. So we're very optimistic about HTP. We've kind of guided, or not guided, but we've stated we'd like to see at least 50% of our revenue as we exit Q4 be in that product. And then, as previously mentioned, now that we've harmonized the upfront protocol with microRNA, you know, we're going to be pushing both of those products because we offer the opportunity off a single sample to do a full transcriptome microRNA and then a full transcriptome message RNA. which is a very unique and advantaged capability for our chemistry.
spk05: Got it. And then other than your own internal white papers, what about external papers for HDP? Just, you know, are you sending out these instruments to, you know, the big labs, New York Genome Center, Broad, et cetera? And then when should we expect some sort of papers around them from the external users?
spk02: Yeah, I think you'll see the first couple things coming in abstracts at ASCO. Um, so that, uh, is, is where, you know, we'll see the leads from the, from the, uh, EAP, uh, program. Um, so we're, you know, we're driving that obviously, you know, there's a whole process that that goes through, but, um, you know, that that's, we're basically on track with that.
spk05: Okay. Got it. And then on the drug discovery piece, what sort of news events should we expect HTG to announce there? You know, are there major milestones? Are these, sort of newsworthy events that we should see by the end of the year there?
spk02: Yeah, well, actually, one will be out this week, which will be the white paper number one that I was kind of previously talking about. And this one's really, it's pretty technical, and I'd be more than willing to field a call afterwards to kind of walk you through it. But basically, what we're demonstrating with white paper number one is the ability to use the transcriptomic profiling to measure very slight changes in expression associated with very minor of chemical structure modifications in a library. And then also then mapping that back to the CMAP database that is held by the Broad, which is kind of an in silico version. And we actually are showing how by looking at the entire transcript on all 20,000 genes as opposed to just the surrogate, we're actually able to demonstrate superior sensitivity to those chemical structure changes. which obviously has a lot of value as we look at trying to dial up a molecule for potency and or dial down for toxicity.
spk05: All right. And then considering the current cash balance, can you expand on your needs for future capital here? Also, it does seem like you have a good number of catalysts or improvements coming up here in HDP and the therapeutics business later in the year. So maybe just speak to the reasons for the recent private placement as well.
spk02: Yeah, I'll kind of start and then I'll ask Sean to fill that in. You know, we're being, as we always are, but maybe even more so than ever, extremely cost conscious regarding managing our cash position. As you kind of rightly call out, we think we have some very, very significant milestones that are going to happen in that September, October time horizon. And we wanted to make sure we had enough cash to, you know, comfortably get to those, you know, readouts versus, you know, we read a lot of the same, you know, analyst reports that everyone else does. And the number of biotechs that are going to be in the market in Q2 and Q3 is high. And so we thought it was prudent to do something to shore up our balance sheet while we could without facing 3,000 other companies that are also out there trying to raise money. Sean?
spk06: Yeah, Alex, I mean, as you're aware, we have a constraint with our current senior note with Silicon Valley Bank. And we wanted to make sure that we were prepared to meet that over the next 90 to 180 days. And again, we're trying to remain responsible to the balance sheet, make sure we have plenty of cash runway. And as John indicates, we know how to pull levers to reduce burn. We are amortizing our current note, and that probably will continue in the near term. But we were trying to prepare for enough runway to get us to these inflection points.
spk05: Can you just remind us of the covenant there on that note? Were you in default with that covenant or potentially?
spk06: We were not. We weren't even close. It's a $12.5 million cash minimum. balance, cash and equivalents, minimum balance. So we were just, again, preparing to meet that at some point, you know, later in the year so we can get through these inflation points.
spk01: Okay. Thank you. You bet.
spk08: This concludes the question and answer session. I would like to turn the conference back over to John Lemniewski for any closing remarks.
spk02: Well, first of all, I'd like to thank everyone for joining us today. It's highly appreciated. And I again want to thank the employees here at HTG for their tremendous work and self-sacrifice as they continue to demonstrate just a real can-do attitude to help us grow this company. And I'd also like to thank our board and also our shareholders for their continued support. And we look forward to updating you again on our next earnings call. Thank you.
spk08: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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