This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good afternoon, ladies and gentlemen, and welcome to the HTG Molecular Diagnostics, Inc. Second Quarter 2022 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star and zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Andrew Erickson of LifeSci Advisors. Please go ahead.
spk04: Before we begin the call today, 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 whole transcriptome miRNA panel for their studies as a result of the harmonized sample preparation protocol, the importance of the company's HTG transcriptome panel, statements related to the company's HTG therapeutics and drug discovery business, the impacts of recent hires, our planned white paper for specific drug discovery application, our expectation that HTG may become a disruptive hybrid lifestyle drug discovery company. Expected improvement in the coming quarters are 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, as well as labor and supply chain issues. and their impact on HGG 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 or on form 10Q for the quarter ended June 30th, 2022 filed today with the SEC. HTG cautions listeners not to place undue reliance on any forward-looking statements. HTG is providing this information at the date of this call, August 11th, 2022, and the company undertakes no obligation to update any forward-looking statement. With that, I'd like to turn the call over to John Lubineski, Chief Executive Officer.
spk03: John? Good afternoon, everyone. As always, it's great to be here to provide an update on the progress of the company. This quarter had some major successes, and we've also had some ongoing challenges. But we've continued to face these challenges head on, and we've made adjustments to our operating plan that we believe allows us the best opportunity to achieve our vision at HTG. So let me start with a reminder of our vision and our strategy. We have what we believe is a disruptive technology that partners RNA profiling and medicinal chemistry, and that we're using to address two of the most significant challenges in drug development. That is drug candidate attrition, and getting the right drug to the right patient. We're using our technology in molecular profiling to study disease and in drug discovery to de-risk the drug development process. These are significant opportunities. The combined biotech and pharma market is almost $800 billion today and is expected to grow to almost $1 trillion in the next four years. The precision diagnostic market is approximately $25 billion today and expected to grow to $50 billion in that same timeframe. We believe our technology can continue to disrupt and add substantial value in these large and growing markets. We continue to fire on all cylinders as it pertains to our strategic development objectives and have achieved all of our first half development milestones. Our assay development team delivered our RNA modification assay, which we're using internally as part of our drug discovery platform of tools. Our drug discovery team delivered a second white paper that builds off the first white paper we issued in Q1. The second white paper is the next big step in our drug discovery process proof of concept, where we designed a library to screen for our first target, what we call HTG T1, for our first two indications. and then conducted follow-on RNA analysis from the cell lysates. As expected, this data confirmed our ability to biologically distinguish closely related compounds for the same target, as well as to see indication-specific effects. This data is now being used by our therapeutics team to inform chemistry optimization with the aim to improve biological response and reduce potential undesirable properties of our lead compounds. We're also pleased to showcase this data in our second white paper, as well as to hear about the advantages of using RNA profiling in candidate development from one of our KOLs, Dr. Robert Spitali, at our recent Drug Discovery Investor Day. The next milestone for HTG will be an early preclinical characterization for our lead compound and our first indication. This process will then be repeated with additional indications and for follow-on targets. In short, right now we believe we're on spec and on plan with our drug discovery initiative. In our profiling business, we continue to face challenges as we try to get this business back to pre-pandemic growth. Oncology trials are still not back to where they were in 2019, and this is impacting our profiling business. However, we are seeing this market return, albeit slower than we would want. Our revenue for this quarter was $1.5 million, compared with 2.1 million for the same period of 2021, primarily reflecting this continued sluggishness in the oncology market. While this is off from prior year, it is an increase in the prior quarter and is consistent with the market recovery that we're now seeing. Going forward, we're seeing increasing momentum in customer and potential customer interest in our technology, and especially our new HTP panel, which has positively changed how potential customers view HTG. We expect to see these trends continuing for the remainder of 2022. During the second quarter of 2022, we added 11 new customers and finished the quarter with 50 active pharma programs. We also added 12 publications referencing HTG technology, including our first peer-reviewed article on HDP and Frontiers of Medicine. This brings the total number of publications referencing HTG to over 370. We also had two exciting customer presentations showcasing the use of our technology in pharma applications. In the first presentation, Dr. Shaitan Deshpande from Pfizer gave a keynote talk at a companion diagnostic conference showcasing their use of HTG technology in clinical trials. This was followed by a webinar by Dr. Peter Ansell from AbbVie, who discussed their broad use of HTG technology in translational medicine and clinical development. With this caliber of customer testimonials, we remain confident in our value proposition and the opportunity in profiling, even with the delayed revenue recovery. Despite our continuing optimism for the impact of our technology can and will have, both in profiling and drug discovery, we have acknowledged these continuing market headwinds and have worked to ensure that our operating plan properly addresses the financial impacts that they have had. As a result, in the second quarter, we made significant adjustments to spending to contain cash burn, rightsizing our organization for expected revenue while maintaining our capabilities to continue to grow and address new market applications to fully leverage the capabilities of our technology. We believe these spending adjustments will allow HDG to achieve our stated business objectives while still being responsible to our balance sheet. With that, I'd like to now turn the call over to Sean for a deeper dive on our financials.
spk01: Thanks, John. Revenue for the second quarter of 2022 was $1.5 million compared with $2.1 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 $1 million for the second quarters of 2022 and 2021. Our 2021 cost of revenue included approximately $160,000 in employee retention credits, which did not recur in 2022. Research and development expense was $1.8 million in the second quarter of 2022, compared with $1.3 million in the second quarter of 2021. For the second quarter of 2022, ongoing research and development costs related to our core profiling technology amounted to $1.2 million, with the remaining attributable to our therapeutic business unit. Q2 2021 research and development expense included $0.2 million attributable to the early stages of our therapeutics business unit. Approximately $144,000 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 Vera O Laboratory totaled $0.6 million in the second quarter of 2022, over 40% of our overall revenue. Our operating loss for the second quarter of 2022 was $5.7 million, compared with $4.1 million for Q2 2021. Our second quarter 2021 operating loss reflected the benefit of $.6 million of employee retention credits, which did not recur in 2022. Net loss per share was 54 cents for the second quarter of 2022 and 39 cents for Q2 2021. This reduction reflects additional shares of common stock and pre-funded warrants sold in the first quarter of 2022 through a private placement of our securities. As of June 30, 2022, we got approximately 11 million shares of common stock outstanding. In July 2022, we amended our senior credit facility, removing the financial covenant requiring a minimum liquidity level. As a result, we prepaid $2.5 million of our outstanding principal due on the loan without penalty. The unamortized loan balance will continue to be paid in equal monthly payments through the original maturity date of December 1, 2023. Our balance sheet as of June 30, 2022 reflects the amendment. We ended the quarter with $14.1 million in cash, cash equivalents, and short-term available for sale securities. I will now turn the call back to John for his closing comments. Thank you, Sean.
spk03: In the second quarter, we continued to make significant progress in our efforts to evolve HTG into a disruptive hybrid life science drug discovery company. We believe our drug discovery initiative is going extremely well and that we have a transformative technology engine that can help solve the age-old problem of drug candidate attrition during clinical development. In profiling, we continue to make adjustments to regain our growth and closely manage our cash burn. We've opened several potential OEM conversations, and we've got early project work with many new pharma customers. HTP has quickly become our biggest selling product, and we believe as oncology trials get back on track, we have the right products to address these trials, as well as to expand into new disease areas. Through the first half of 2022, HTG achieved all of its strategic milestones, seen Q2 growth over Q1, made adjustments to our spending, and strengthened our balance sheet. We have exciting events on the immediate horizon. And I believe the next 12 months will be transformational for HTG. With that, I'd like to open up the call for questions. Operator?
spk05: Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, you can press the 1 followed by the 3. And as a reminder, you can press the 1-4 to register any questions. And our first question is from the line of Kristin Kluska with Cantor Fitzgerald. Please go ahead.
spk02: Good afternoon. This is Rick on for Kristin. Thank you for taking our questions. First off, you mentioned that the first peer-reviewed article featuring HTP was published by an early adopter program team. Could you talk a little bit about the publication process for early adopters? How much visibility do you have into the process when teams that are in the program are going to publish? And do you have any idea how this could develop in the near term with publications?
spk03: Yeah, this is John. Thanks for that question. We do have visibility. We believe we've got probably between three and five additional papers that will follow. We're actually really pleased to get one out within a year. Usually sometimes these things take, you know, quite a bit of time. This publication, although the subject matter actually escapes me right now, came out of Europe. And we're, again, expecting this to move on. And as Sean was indicating and we talked about, you know, this product really has become our lead product. I think between this and our microRNA product, the vast majority of our revenue and profiling going forward is going to be based on that. We're going to have some of our legacy customers who have already started work with some of the older panels use those to complete it, but we're seeing more and more people just wanting to move to the whole transcriptome product.
spk02: Okay, maybe just one more from us. We've noticed and you've mentioned that your team has spent more time highlighting how partners are using the technology. And we, of course, remember that you previously talked about the potential for HTTP across different disease areas rather than just cancer. So internally, are you seeing that partners are utilizing the HTTP for a broader array of disease areas and settings like you previously envisioned?
spk03: Absolutely. Although, you know, the Q2 results, if you will, still reflected, you know, customer access issues for us. You know, we're now in the last few weeks actually being able to get in front of a lot more customers. My head of commercial has actually been on the road the last couple of weeks, which is a change statement really for the last couple of years. And to your question specifically, you know, we're looking at, you know, disease areas like DERM, for example, and working with different type of sample types. And that opens up cohorts that are significantly bigger than just oncology. So we're excited about the new dialogues we've got going, the new potential customers that we could bring on in Q3 and Q4, and the opportunities that, you know, the whole transcriptome profiling technology has opened up for HTG.
spk02: That's great. Thank you very much.
spk05: Thank you. And we have no further questions on the line at this time. I will now turn it back to management for closing remarks.
spk03: Well, I'd like to thank everyone again for joining us today. This was an important quarter for us strategically. Again, we achieved all of our strategic milestones. It was super exciting to hear two of our customers talk about their enthusiastic use of our technology. So I'd like to thank the employees here at HTG for their continued work and self-sacrifice as they continue to demonstrate all of the can-do and above-the-line behaviors we need to grow this company. And I'd also like to thank our board as well as 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 afternoon.
spk05: That does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a great day.
Disclaimer