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spk04: Thank you for standing by. This is the conference operator. Welcome to the HDG Molecular Diagnostics, Inc. First Quarter 2022 Earnings Call. As a reminder, all participants are in 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 Ms. Monique Casey with LifeSite Advisors. Please go ahead.
spk03: Thank you, operator. 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 build and momentum in 2022, our expectations regarding profiling revenue in future periods, our expectation that customers may use our HTP and hold transcriptome miRNA panel for their studies as a result of the harmonized sample preparation protocol, the importance of the company's HTD transcriptome panel, statements related to the company's HTD therapeutics and drug discovery business, the impacts of recent hires, our planned white paper for specific drug discovery application, HTG becoming a disruptive hybrid life science drug discovery company, expected improvement in the coming quarters or future growth, business momentum and market opportunities and 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 as well as labor and supply chain issues and their 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, including under the risk factors heading of the company's quarterly report on Form 10-Q for the quarter ended March 31, 2022, filed today with the SEC. 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, May 12, 2022, and the company undertakes no obligation to update any forward-looking statements. With that, I would like to turn the call over to John Lubniewski, Chief Executive Officer. John?
spk01: Thank you, Monique. As always, it's a privilege to present the results we've delivered during the past quarter to the hard work of our employees. With that said, it was a challenging quarter for our profiling business. Customer access is still not yet at pre-COVID levels, and we continue to experience delays in our sales cycle due to customer, labor, and supply chain issues. We saw continued market choppiness as we and our customers continue to pull out of the COVID pandemic. While most of our customers have been able to reopen their facilities over the past year, many continue to limit or restrict completely sales and support access to their sites. Further, labor and supply shortages throughout the industry have extended the time it takes to actually get samples to be collected and submitted for sample processing or for profiling in their customer laboratories. Q1 has historically been a lower revenue quarter for the company, and we've typically seen momentum build throughout the remainder of the year, and we expect 2022 to follow the same trend. Taking a closer look at our results, our revenue for this quarter was 1.2 million, compared with 1.4 million for the same period in 2021, primarily reflecting those ongoing delays in our sales cycle. Despite this lower revenue, we continue to see positive market adoption, for our exciting new HTP panel as it represented over 40% of our revenue for the quarter. We continue to rebuild and train our sales and marketing teams in the first quarter of 2022 and are optimistic about the talent we've been able to bring on board. We also hired an experienced commercial leader to focus on OEM opportunities for our HTP panel. We believe both of these moves, in addition to the growing HTP momentum, will drive additional profiling revenue in future periods. As mentioned earlier, we expect revenue to build throughout the remainder of 2022, resulting in full-year 2022 revenue reflecting robust growth over 2021. Of course, this assumes we don't experience any negative or sustained downturn in our sales cycle as a result of the pandemic or broader global economic issues. During the first quarter of 2022, we added four new customers and five new pharma programs. We also added eight new publications referencing HTG technology, bringing this total to over 360 publications. Our team also produced a fourth white paper focusing on our HTP product, this time highlighting the panel's performance in FFPE and extracted RNA when compared to RNA-seq. On the product development front, we continue to fire on all cylinders, reaching our Q1 strategic milestone of introducing a harmonized sample prep protocol that enables customers to use both the new HTP and the whole transcriptome microRNA panel together from a single lysase. We expect this will encourage customers to use both panels in their studies. In our drug discovery business, we made two significant advances. First, we were successful in recruiting Dr. Christina Carruthers from Moderna to lead our target strategy and early development initiatives. She's a significant addition to the team, and I'm confident that she's going to have a great impact on the program very quickly. We also achieved a major milestone in our technology development with the publication of our first proof of approach white paper. This was a major technical feasibility milestone. The white paper confirmed that we can use our advanced profiling technology to differentiate structurally similar small molecules based on transcriptomic profiles. We were able to also differentiate dose-related changes based on transcriptomic profiles. The specifics are as follows. We started with two human cell lines that we then treated with 12 mTOR inhibitors, four being rapamycin and three closely related analogs that we call rapalogs, as well as eight allosteric inhibitors of mTOR. And, as I alluded to a minute ago, we treated with two different dose levels. We then did full transcriptomic profiling of the cell lysates from those 24 samples, and here's what we found. First, our technical replicates were so good with Pearson correlations of 0.6 or better that we can use singlets when we profile. Next, with principal component analysis, we were able to see differential biology via expression analysis, not only in the rapalogs versus the other mTOR inhibitors, but also in the structurally similar rapalogs themselves. Following that, we were also able to see differential biology via expression analysis of the two different doses. And last, we were able to demonstrate directional alignment with the Broad Institute's CMAP link database, which is based on 978 landmark genes. So what does this mean? Well, it means that in a known system, mTOR, we were able to prove the utility of our advanced transcriptomic profiling technology and tie it back to a real and well-annotated database. So what's next? That will be the material for our white paper number two, where we're now going to take our technology and move to a specific drug discovery application. Specifically, we will use our proprietary chemical library and do our first initial screen on our first therapeutic target. This will start the iterative process that we expect will help us to design de-risk molecules, which we believe, through early informed selection, will stand a greater chance for development success. With the data we generated this quarter, we're even more confident that we can make a real difference in enabling a better way to do drug discovery. I'd now like to turn the call over to Sean for a deeper dive on our financials.
spk02: Thanks, John. Revenue for the first quarter of 2022 was $1.2 million, compared with $1.4 million in 2021. Our 2022 and 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 $855,000 in 2022, Our 2021 cost of revenue included $145,000 of employee retention credits which did not recur in 2022. Research and development expense was $1.9 million in the first quarter of 2022 compared to $1.4 million in 2021. For the first quarter of 2022, ongoing research and development costs related to our core profiling technology amounted to $1.2 million, with the remaining $.7 million attributable to our therapeutics business unit. Q1 2021 research and development expense was entirely devoted to our core profiling technology. Approximately $133,000 of employee retention credits offset 2021 research and development expenses. As John mentioned, our HDP product continues to be our best-selling profiling panel in 2022. continuing to see growing adoption and demand since its launch in August 2021. Sales of our transcriptome panel as kits and through sample processing services performed in our VARIO laboratory totaled $0.5 million in the first quarter of 2022. Our operating loss for Q1 2022 was $6.3 million, compared with $4.6 million for 2021. Our 2021 operating loss reflected the benefit of $0.5 million of employee retention credits, which did not recur in 2022. Net loss per share was $0.81 for the first quarter ended March 31, 2022, and $0.80 for the same period in 2021. This reflects additional shares of common stock sold in the first quarter of 2022 through a private placement of our securities. As of March 31st, 2022, we had approximately 8.6 million shares of common stock outstanding. On March 21st, 2022, we closed the 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, which are also included in the calculation of earnings per share as of March 31st, 2022. We ended the quarter with $21.6 million in cash, cash equivalents, and short-term available for sales securities. I will now turn the call back to John for his closing comments.
spk01: Thank you, Sean. In Q1, we made significant progress in our efforts to evolve HTG into a disruptive hybrid life science drug discovery company. Going forward, we expect to see improvement in the coming quarters as customer access increases and the industry continues to reset from COVID-caused disruptions. In drug discovery, we're moving at great speed. And with White Paper One, we've proven that our technology can be used to observe structural differences in small molecules, a cornerstone capability. The next step will be to use this proven technology on our own proprietary library and our own target, to start the process to develop a de-risk drug candidate. I remain very optimistic that we will have a licensable asset in the fourth quarter of this year and then with follow-on candidates thereafter. For 2022, our strategic priorities are going to be, first, to continue to grow our profiling business and pharma programs to both fund continuing operations, create companion diagnostic opportunities, and to ease cash burn. And second, in a cost-efficient manner, continue to develop our proprietary profiling and chemistry technology, and develop a pipeline of licensable drug candidates with the first licensable candidate targeted for Q4 of this year. As in prior years, we've published a calendar of strategic milestones, and I look forward to updating you as we advance our vision of a new HTG. With that, I'd like to open up the call for questions. Operator?
spk04: 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're 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 Dipesh Patel with HC Wainwright. Please go ahead.
spk00: Hey, John, Sean, thank you very much for the update. So I have two questions regarding revenue growth and potential milestones for this year. So the first one, as you know, COVID has been a challenge for many companies, right? How do you anticipate driving further revenue growth? And if you could speak to any evidence to support that. And then number two, From a milestone standpoint, I know you mentioned the white paper, but number two, what could be some other additional examples of perhaps data readouts or collaborations that we might expect later this year? Thank you.
spk01: Great. This is John. So thanks for those questions. So first of all, yeah, COVID. Probably the biggest thing we're seeing there is just still delays in the sales cycle. People will tell us one date, and then samples will come in at that date plus 30. That's kind of what we're seeing. So what are we doing about that? Well, the first thing is we've kind of completely retooled and retrained our sales organization. We had some unexpected turnover through the year, especially toward the end of the year. I think that somewhat impacted us in Q1. But one of the key initiatives that the Total Transcriptome, or HTTP product, opens the door for HTG on is to sell into markets in addition to oncology. You know, oncology has always been our sweet spot, but if you're on some of the mail lists this week, you're actually probably going to get some HTG, you know, email around how to use our whole transcriptome product in infectious disease, specifically COVID. So it's important that we push into other disease areas. We're measuring kind of what percentage of our business is coming from that because today the lion's share is still oncology. So that's one area where we're very bullish that we're going to be able to grow the business. The second was, you may have caught, we harmonized the protocols for the microRNA and the HTP product. This essentially allows us to kind of double up customers that are interested in HTP because they're probably also interested in a whole transcript on microRNA point of view. So that allows us to kind of double sales there. And then lastly, we've got now a very concerted effort on what we call OEM and LDTs. We've actually brought in a senior executive to focus on that. And that's where we want to use our HTP as a platform technology for people to either use in their laboratories for their own proprietary content or in their CLIA laboratories to build out laboratory-developed tests to provide better diagnosis and better treatment options for patients. So we've got a lot going on to grow revenue. Regarding the milestones, good question there. So we believe that at the end of the second quarter milestone, which is going to be essentially a data pack of transcriptomic information based on a proprietary target using our own library, we will have enough to begin to start having conversations with some potential pharma partners in regards to different partnering options than perhaps what we've done before. And then in Q3, we expect to have an early preclinical data pack, which we will then make public. We'll still keep our target hidden. And then in Q4, we'll finally have actually our late preclinical characterization of that molecule where we will actually disclose target and we will have you know, a couple of our lead molecules that we'll start to present data on. So those are some of the key milestones. Obviously, you know, as we engage customers both on the profiling business and on the drug discovery business, I would expect you'll start to see some press releases from HTG around partners and collaborators on both ends of that business.
spk00: Great. Thank you.
spk04: Once again, if you have a question, please press star then 1. At this time, I see no further questions in the queue and would like to turn the call back over to John Lubniewski for closing remarks.
spk01: Yeah, I'd like to thank everyone again for joining us today. I again want to thank the employees here at HTG for their tremendous hard work and self-sacrifice as we continue to grow this company. And in addition, I'd like to thank our board and our shareholders for their continued support. And I look forward to updating you again on our next earnings call. Thank you and have a great day.
spk04: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a blessed day.
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