Q1 2021 HTG Molecular Diagnostics Inc Earnings Call

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Good afternoon, ladies and gentlemen, and thank you for standing by and welcome to H T. G. Molecular diagnostics incorporated first quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Should you require operator assistance during the conference. Please press star zero to single and operator. Please note. This conference is being recorded.

I'll now turn the conference over to your host Monique coffee with lifestyle advisors. Thank you you may begin.

Thank you operator earlier today.

Its financial results for the first quarter ended March 31st.

And 21.

Before we begin the call.

And you've got the company's remarks include forward looking statements within the meaning of the federal Securities laws.

Forward looking statements are subject to numerous risks and uncertainties.

All of which are beyond H T can control, including uncertainties regarding the ongoing COVID-19 whirlpool Garlock and <unk>.

Impact on H T T and its customers.

They cause actual circumstances or 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 so current time and the company's SEC filings.

H TG cautions listeners not to place undue reliance on any forward looking statements.

H T. G is provided for full explanation as of the day that this call May 13, 2021, and the company undertakes no obligation to update any forward looking statement.

With that I would like to turn the call over to John Loop, Natzke, Chief Executive Officer John.

Thank you Monique as always it's a pleasure to present the results we delivered during the past quarter due to the hard work of our employees.

While its disappointing our results continue to be affected by the COVID-19 pandemic, we believe the macro drivers for HTS <unk> eventual success remains strong.

Cancer, and personalized medicine and are not going away from.

And while the last several quarters have seen headwinds we strongly believe that these markets will return.

Cancer is a very complex disease, and we believe understanding the biology of disease and its treatment is a key to our improving care for patients and managing treatment costs for our health care systems.

We believe the ability of <unk> and <unk> technology to help unlock the secret the transcript down with our advanced technology is more relevant than ever and I believe the best days for this company are still ahead of us.

There is no doubt that Q1 was challenging for H T G and.

The fourth quarter of 2020, we saw an increase and a number of our customers returning to work and.

Partially or full time.

Create a cautious optimism that we are starting to move past. The COVID-19 related revenue headwinds that we had faced through the second and third quarters of 2020.

However, and the first quarter, we saw another wave of country and company shutdowns and especially in Europe, and again created turbulence for our commercial teams.

Orders from Werent lost but in many cases they were delayed to later in the year.

We've been in close contact with our customers and approximately 30% are reporting that they are more or less at the normal.

But over 70% are still and partial or complete shutdown.

In part and as a result of the COVID-19 impacts on our customers. Our total revenue for the quarter was one 4 million down from $2 2 million for the same period and 2020.

Product and product related services revenue was $1 4 million compared to $2 million for the same period and 2020 and there was no collaboration development services revenue for the quarter compared with 200000 and for the same period and 2020.

So we came out from the previous quarter with the robust forecast. We saw many of the expected orders slipped out as customers are either too aggressive and your expectations for returning to their workplaces or as in many situations and Europe. Another wave of shutdowns closed laboratories that had just begun to return to normal operating levels.

As as it has throughout the COVID-19 pandemic. This limited the ability of our customers to either run planned tests or to send samples to our very lab and Tucson for processing.

Early indications suggest that some of these planned studies will resume and the second quarter of 2021, but given the unpredictable COVID-19 landscape and resulting impact on laboratory as being open and we cannot predict our customers business.

While the challenges that we face cannot be overstated I'm proud of the accomplishments that our team has made and areas that are more under our direct control and our.

Our development program for our Transcriptome panel, we continued to achieve all of our development milestones and scheduled for the first quarter of 2021, including completing our sixth and final round of probe quality control locker.

Locking our probe design for the plans from ship Transcriptome panel and ordering the final protocol reflect and this design.

Finalizing a reagent formulation for the panel defining our quality control metric strategy and completing the sample input robustness study for the panel.

Our next steps are to achieve design line initiate verification and testing and get the panel into the hands of our scientific collaborators as part of our early adopter program.

As of the date of this call. We are in active discussions with over 25 current and prospective customers to identify cohorts and to develop study designs as part of our early adopter program collaborations.

These collaborations will provide access the transcriptome product, both academic and pharma customers prior to commercial launch to generate critical data and customer feedback for the promotion of this product at launch.

And prepare for this exciting launch and commercialization as well as to continue our customer and market diversification strategies, we completed a comprehensive overhaul of the company's website and the first quarter of 2021, adding new applications and content intended to make <unk> more discoverable from search engines and to increase customer engagement.

We also launched targeted online online campaigns to help drive traffic H D. G and created two new micro sites why that HDD molecular dot com and <unk> Dot transcriptome panel dot com to help drive new traffic to our primary website.

Our customer and market diversification efforts continue to be another bright spot. We saw 13, new customers and 24, new pharma programs added for the quarter.

The new farm farmer programs bring us up to a net of 68 active programs at the end of the quarter up from 50 at year end.

New customers and new programs start small and won't offset the impact of some of our largest customers from prior years laying studies or being partially or fully closed.

But in time, we expect day and the company will grow.

We expect that this diversified customer base will be far more decentralized and and many new markets. In addition to oncology, creating a more balanced revenue engine and isn't silver line, and big pharma and oncology and our future.

Finally on the publications from we added 20, new publications for the quarter, bringing our cumulative total to 286, a further demonstration of our market penetration and customer satisfaction with our products.

I'll now turn the call over to Sean for a deeper dive on our financials and John.

Total revenue for Q1 was $1 4 million compared with $2 2 million for Q1 and 2020.

Our direct revenue defined as product and product related services revenue and our financial statements was one 4 million and Q1 2021, compared with $2 million and 2020.

We believe COVID-19 continue to impact all aspects of our business in Q1 2021, and the continued expenses the impact on our U S pharma customers.

And our European customers being and especially impacted resurgence.

Resurgence of COVID-19 related closures during the period.

We believe our pharma business will continue to recover slowly throughout 2021 clinical trial activity resumes and pharma begins to normalize their operations.

And considering your clinical trials.

There was no collaborative development services revenue in Q1, 2021, compared to $1 2 million and Q1 2020, we.

We currently do not anticipate additional revenue from our existing cloud services programs, but continue to pursue new customer collaborations.

Our cost of product and product related services revenue decreased to approximately $8 million and Q1, and 2021 compared to 1 million and Q1 2020, primarily due to overall lower revenue.

Research and development expense decreased by approximately $6 million and Q1 2021, compared with Q1 and 2020 price.

Primarily related to the decrease and collaborative development services related costs and <unk>.

<unk> reductions and resolving from transitioning our California based research and development efforts Tucson.

Costs related for our collaborative development services programs and recorded in research and development expense.

Our continued new product related research and development expenses unrelated to our collaborative development programs for approximately $1 4 million for Q1 2021 compared to $4 7 million for Q1 2020.

Again, reflecting the consolidation of our development efforts and to our Tucson facility.

Our development team successfully met for milestone goals and Q1 2021, and we believe we're on track to meet our milestones for the remainder of the year.

Including the XI and lock for a transcript and payable in Q2.

Our operating loss for Q1, 2021 was $4 6 million compared and five 4 million for Q1, and 2020, reflecting continued successful management of operating expenses.

Net loss per share was <unk> 80 for the quarter ended March 31, 2021, and $1 27 for the same period and 2020.

This reduction reflects additional shares of common stock sold in 2020 and 2021 through our at the market facility and our one for 15 reverse stock split of our common stock as of March 31, 2021, we had approximately $6 3 million shares of common stock outstanding.

We ended the quarter was $30 8 million and cash cash equivalents and short term available for sale securities.

I'll now turn the call back to John for his closing comments.

Thank you Sean.

As I said earlier and a call I believe the best days for HD G are still in front of us.

The world of RNA is significant and Thats.

As previously mentioned, we believe the translational research market alone is approximately $1 billion and growing at 15% for the impacts of the COVID-19 pandemic and.

And many cancers Theres no actionable DNA mutation to guide therapy.

And believe RNA gene expression presents a very real our current alternative to help guide therapy decisions for drugs and for those patients.

And the coming quarters hcg plans on launching and commercializing what we believe to be a game changing product for these customers and laboratories wanting to do transcriptome level gene expression profiling at a very high level.

Either lack the samples required or don't want to invest and the infrastructure required to do high quality RNA seek processing for gene expression.

As noted in our recently released White paper, we believe that our planned transcriptome panel demonstrated superiority over traditional RNA seek on many fronts, including working with smaller sample sizes, where hdds and seek uses between four and eight times less sample and RNA seek and developing robust datasets.

<unk> <unk> technology was more robust delivering high quality data, where RNA seek failure rates range between 25% and 37% and <unk>.

Lastly, faster turnaround times hdds and seek turnaround time is about half that of edge RNA seek and doesn't require sophisticated bioinformatics support.

All the while our prototype panel demonstrated repeat ability and importance to RNA seek data and agreement with spiked and controls.

We've been very rigorous for the development of this product and as we move toward launch and we're excited about increasing our early adopter program and continuing to build market awareness about <unk> and our new transcriptome panel.

We believe this panel and combination with our current products will help get us back on a strong growth trajectory and translational profiling with pharma collaborations and clinical diagnostics.

With this in mind, our planned focus for the remainder of the year is one to continue to build our translational profiling business with a strong emphasis on customer and market diversification and the planned transcriptome panel as a viable alternative to RNA seek especially when working with ffbe or small amounts of sample.

Two to continue to build our pharma pipeline of active programs and position the transcriptome product as a universal RNA gene expression profiling platform for collaborations and companion diagnostic development and three the position of our products for LDC development by CLIA laboratories, and centralized diagnostic companies now moving into the <unk>.

Sales of RNA.

With that I'd like to open up the call for questions operator.

Thank you.

At this time, we will be conducting a question and answer session and he would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue. If at any time you wish to remove your question from the queue. Please press star two for participants using speaker equipment may be necessary to pick up your handset.

And before pressing the star keys.

One moment, while we poll for questions.

Our first question is from Puneet <unk> with SBB Leerink.

Hey, Great guys. This is westley on for Puneet today, Thanks for taking my questions and great to see the progress on the on the other transcriptome assay.

So I guess just starting there from a from a data standpoint is there anything else, we can be expecting prior to the assay lodging and.

I guess I'll just kind of.

My question is on the sale and one.

So the data that we could be expecting before the launch and and I guess.

Great to see the.

Pension of the early access customer base as well just what are your expectations on where that shakes out prior to the assay actually launching commercially and how much read through do you think you have from those early access customers into post commercialization customers.

Thanks for joining us for us and good questions.

Do expect we can have one more white paper at launch that will include all of our <unk> data associated with the.

The final configuration of the product so white paper, one was essentially and equivalency.

White paper and RNA seek white paper, two was a superiority and white paper three is going to be even with a bigger dataset that kind of backs up the white paper and number two and its final configuration. So that that is.

And is probably the next thing there and we're also excited about adding essentially about 10, new people into our early adopter program. Since my last reporting well, we expect <unk> to continue to add people between now and full commercial launch.

What we're expecting to get out and that is a headstart on peer reviewed publications and obviously, what we want to have as many day, one customers, who we would see every one of these early adopter customers as a potential day, one customer when we do fully launched the products. So that we actually launch with commercial momentum as well as.

Kind of mid.

Good sets of data and the works for publications.

Great and then I guess, just as a quick follow up.

For Sean.

How should we be thinking about the sales spend or the just building out the unparalleled commercial infrastructure for the launch.

Any updated assumptions on the Opex side of things there.

So I think we're probably at a low point on Opex for the year and Q1, and you should see a steady increase and that will reflect the beefing up of the commercial infrastructure.

We've got a number of sales positions opened right now, but that together with our marketing effort.

And we'll we'll increase the.

<unk> spend.

Great and then I guess just last one on the quarter itself can you maybe just walk us through some of the dynamics that you thought would take place throughout the quarter, maybe from comparing March to January and maybe how things have gone.

And in April and the first half of May here.

Any I guess read throughs to loves returning after shutting that down.

Or I guess early discussions going with pharma companies that are looking to bring trials back on line.

And of that nature. Thank you.

And another.

Good point, so I'll kind of handle and segments I'll start with the easiest one which was Europe and Europe. We Unfortunately saw I think and some countries the seventh and and other countries the eighth.

Wave of country shutdowns. So we went from <unk>.

Pretty solid forecast and January to basically country shutdowns again and that dampened Europe quite a bit.

And the U S. What we saw.

I'll start and the academic market.

But many of those customers are back but they are back like a day, maybe two days a week and quite frankly, and what we believe happened was people just believe they could get more projects out and they actually did and so samples that we were expecting to get in and they simply werent in their facilities long enough.

Either ship them to us or vice versa. If they were going to run samples. They were in their labs long enough to actually get all the work done so we saw.

I would consider to be customers being overly optimistic and how much they were going to do and we saw just a lot of business just slipped from one month to the next and into the next quarter.

And then lastly, and pharma.

As we've stated before we had a lot of our business and some of the largest farmers that are still on that are on the coasts and that business has been significantly impacted.

Jana.

Produced a statistic that said, 60% of all oncology trials.

For canceled or delayed last year.

And we were concentrated in oncology and some of the biggest pharma and so we've been impacted because of those trials have basically been paused or stopped.

Or canceled so we've been pushing hard into other markets like autoimmune and immune response and also pushing hard and.

Medium biopharma and smaller biotechs so.

But unfortunately, those net mix shift.

Time to start small so even though we added 18, new programs and pharma in the quarter and we added 13, new customers overall and the quarter.

Bringing on new customers takes time to get them up to the level of some of the really large customers that are still and fairly significant shutdowns. So I'd say near term, it's still painful because we're dealing with this concentration of fuel business and biopharma, but longer term.

I do think we're going to be the better for it because we are developing a more diversified customer base and we're getting into markets other than oncology and I do think oncology has been hit, especially hard and the COVID-19 pandemic.

Great. Thanks, Scott.

Okay.

Once again, if you do have a question. Please press star one.

Okay.

Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to management for closing remarks.

I'd like to really thank everyone for joining us today. These are unusual times and I'd, especially like to thank our shareholders our employees and our board members for their continued support and we look forward to updating you again on our next earnings call. Thank you.

Yes.

This concludes today's conference you.

You may disconnect. Your line is at this time and thank you for your participation.

Okay.

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