Q2 2021 HTG Molecular Diagnostics Inc Earnings Call
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Greetings and welcome to H T G molecular diagnostics second quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation, if anyone should require operator.
Our assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn this conference over to your host Ms. Monique Coffee Lifesize advisors. Thank you Ma'am you may begin your presentation.
Thank you operator earlier today H T T released its financial results for the second quarter ended June 32021 before.
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 H T cheese control, including uncertainties regarding the ongoing COVID-19 pandemic and its impacts on H T. G and its customers that may cause actual circumstances events or results to differ materially from those.
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 Companys SEC filings.
H T G cautions listeners not to place undue reliance on any forward looking statements.
It's T. J is providing this information as of the date of this call August 12.2021.
And the company undertakes no obligation to update any forward looking statements.
With that I would like to turn the call over to John Loopnet Ski Chief Executive Officer John.
Thank you Monique thrilled.
A real privilege to be here today to review the results of the second quarter.
It was a very eventful quarter for the company and Theres quite a bit to talk about so let me get right to it.
Total revenue for the second quarter of 2021, it was $2.1 million versus $2 million for the same period last year.
However, there was no collaboration revenue generated in Q2.2021, so our direct revenue, which is our revenue from our product and product related services increased 20% versus 2000, Twenty's second quarter direct revenue of $1.7 million.
This was some of the recovery we were expecting as we saw our customers returning to pre COVID-19 operating levels in the quarter with direct revenue growth of 45% from the first quarter to the second quarter in 2021.
This was an all round solid performance by all of our commercial teams North America academic Europe and pharma.
To add some color we added 17, new customers in the quarter.
We also expanded our active installed base by four instruments.
On the pharma front, we finished the quarter was 63 active pharma programs.
Breakdown of that for the first six months was we added 30, new programs extended eight and timed out of 17 due to lack of activity.
This year, we expect to see more programs time out than in years past is it due.
Due to the significant impact Covid had on clinical trials in 2020 in the first half of 2021.
However, we're continually adding new programs to replace the programs that are timing out and expect to see those new programs drive the further growth in our portfolio for this business.
We also expect a revenue recovery to continue into the third quarter.
Finally on the publications front, we added 32, new publications in the quarter, bringing our cumulative total to 318 again, demonstrating strong market and scientific adoption of our technology.
This was also an exciting period as last week, we launched our nearly 20000 gene H T. G transcriptome panel or H T. P for sale in the U S and Europe.
Until now with the exception of our best selling whole transcriptome micro RNA product, we've really smaller panels that represented subset. So the transcriptome and inevitably we were missing somebody's favorite gene on that panel.
This new product should open up new market opportunities for H T G.
We're delighted with the capabilities of this product and are proud of the fact that we met or exceeded every performance specification that we established.
Even more we're thrilled with the performance of our development team managed to complete the development of this product ahead of our established timeline without a single missed milestone throughout the entire development process.
We believe H T. P is a unique product in the market.
It's designed to enable a full transcriptome gene expression profiling, using our novel and patented H D. G edge seek technology.
This powerful technology is intended to enable scientists researchers and clinicians the profile of the entire transcriptome from a very small sample without having to do RNA extraction or reverse transcription.
The white papers that we've released over the past year have demonstrated our technical superiority over traditional RNA seek in several key areas, including our ability to work with between a quarter and an eighth of the sample needed the load RNA seek our ability to work with archived integrated samples that would have insufficient RNA for RNA seek.
96% plus samples pass rate versus only 65 to 75 per cent for RNA seek in a three day turnaround time, including bioinformatics processing versus a week or more for RNA seek.
We expect that there'll be an initial validation phase by customers as they bring the assay online followed by our ramping up of sales for this breakthrough new products.
With all this in mind this has been an exciting and rewarding quarter for our core profiling business.
Solid market performance, demonstrating the beginning of a recovery in our primary customer markets and outstanding product development execution, providing our commercial teams. The next major product for H D. J.
This quarter, we also announced the formation of our H D G therapeutic drug discovery unit.
This opportunity came to us because of the development of our HDD transcriptome problem panel caused us to ask whether we could use this powerful platform technology to develop drug candidates a better way.
Especially in a new and exciting field of drugs targeting RNA modifications or the proteins that deposit remove and recognize already modifications.
We believe we're in a great position to build a pipeline of high quality and well qualified drug candidates for either out licensing or clinical development.
As previously noted we've had three late stage collaborations with large pharma, who attempted to use our technology defined subsets of patients who might respond to their therapies, we thought why wait so long given.
Given the leading causes of late stage failure in drug development, our efficacy and safety why not look for that in the screening and hit the lead process.
Why not use this technology earlier in the drug discovery process.
We believe gene expression and pathway activation can be measured and use to inform small molecule design.
By doing this we believe we can improve physio physiochemical properties that create better starting points for drug discovery.
Since we began our studies and consult with key opinion leaders in the field, we came to realize the importance of also including whole transcriptome micro RNA.
This will help us better understand the regulation of gene expression by micro Rnas and its impact on gene expression profiling and we already have a whole transcriptome micro RNA product that can do just that.
The next platform technology, we needed we knew we needed to have was a tool to measure RNA modifications like methylation.
With that in mind, our research team has spent the last several quarters developing a technology that we call it at the edge seat for.
For which we achieved technical feasibility in June.
At the edge seek expands off our core edge seek technology that enables us to measure RNA modifications.
This results in three internal platform technology pillars, micro RNA whole transcriptome price profiling messenger RNA whole transcriptome profiling and Etsy transcriptome profiling.
While we are working internally. We also were working externally to identify a small team of industry veterans to lead this program and to build out a world class key opinion leader network to help guide this program to success.
The fourth and final technology pillar that we determined we needed for a successful and differentiated therapeutic solution was a differentiated chemistry platform to enable library construction.
So an advanced medicinal chemistry platform and capability is being built and many advancements are already in place.
<unk> now has an advanced platform for structure based ligand based and farm at the four based drug design.
And we're also using advanced three D docking technology the survey binding sites.
We're working in a variety of disease areas and have already designed and ordered our first library on which we expect to run our first screen using this combination of tools in the near term.
If things go as planned we might have our first drug candidates leveraging our <unk> platform technology pillars of advanced profiling and compounds designed and as soon as 12 to 24 months.
Over the coming months, we'll begin to announce the members of our scientific advisory Board and start to provide some additional color on our pipeline.
Building out a separate drug discovery business unit that Leverages. The core <unk> technology was a natural evolution for the business and our technology.
One thing I've been asked is whether or not this puts us into competition with our pharma customers. My answer to that is an emphatic. No. This is an additive drug candidate discovery engine, it's simply opens up yet another channel an opportunity for collaboration and partner partnering with our customers.
We want to help enable precision medicine to improve patient care.
We're excited about what we can do using our advanced technology platforms to find better drug candidates.
We're also excited about using our technology to help our pharma partners improve response rates and clinical trials and last to use our technology to develop advanced diagnostics to help get the right drug for the right patient.
With that I'd now like to turn the call over to Sean for a deeper dive on our financial results.
Thank you John.
Total revenue for Q2 was $2.1 million compared with $3 million from the prior year.
Our Q2 revenue was comprised completely of direct revenue defined as product and product related services revenue in our financial statements.
Gross prior totally total year revenue included <unk> $2 million of collaborative development services.
We currently do not anticipate any additional revenue from our existing club.
Mrs programs.
Turning to pursue new customer collaborations for.
Our cost of product and product related services revenue was $1 million in Q2, 2021 and the prior year.
Research and development expense decreased by approximately half a million in Q2.2021 compared with prior year, primarily due to decreased collaborative development services related costs.
Staff reductions, resulting from transitioning our California based research and development efforts to Tucson in the second half of 2020.
Costs related to our cloud they're bolt on services programs are recorded in research and development expense.
Our continued new product related research and development expenses unrelated to our collaborative development programs were approximately $1.3 million for Q2.2021.
Compared to $1.5 million for the prior year again, reflecting the consolidation of our development efforts into our Tucson facility in 2020.
Our development team again successfully met our milestone goals in Q2.2021, putting design lock for ACG transcriptome panel, leading to the announcement of the official commercial launch of the transcriptome panel on August five.
Our operating loss for Q2, 2021 was $4.1 million compared with $5 million for the prior year, reflecting the recognition of $6 million and employee retention credits made available through the company as a result of the ongoing impacts of COVID-19, and our continuing management of overall expenses.
Net loss per share was <unk> 39 for the quarter ended June 32021, and $1.30 for the same period in 2020. This reduction reflects additional common shares of 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.
As of June 32021, we had approximately seven 4 million shares of common stock outstanding.
We ended the quarter with $29.8 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.
I have said and I'll say again I firmly believe the best days for <unk> are still in front of us.
We have build a performance culture and youre starting to see the results of that culture.
At the end of the first quarter I said I expected to see the business start to recover in the second quarter.
And then the second quarter, we saw our core profiling business recover showing strong growth over the first quarter.
We saw new customer additions and a rebuilding of our pharma business.
I said, we're going to launch our <unk> in the third quarter and we delivered again.
I'm expecting that we'll see continued momentum in our core profiling business as both our markets continue to return and we can we begin to fully capitalize on the opportunities afforded to us by our landmark whole transcriptome HCP product.
We also expanded the scope of our company, creating new revenue and valuation opportunities.
In July we came out of stealth and announced the existence of a new drug discovery business unit that is based on our platform technologies built within our core profiling business and then expanded into Etsy, transcriptome profiling and advanced chemical library design capabilities.
We've been on the edges of this market for years and have deep insights on where and how to best use our technology to be disruptive and drug discovery.
As we've done for our core business, we will begin to publish a milestone roadmap and then look forward to reporting out on the delivery of each of those milestones.
I believe the next 12 months can be a breakout period for hcg.
Core market for RNA profiling is over $1 billion and growing at 15%.
We have a great team and we have a great new product to take advantage of this opportunity.
And the new market opportunities afforded by the RNA targeted therapeutics is a natural evolution for the company.
I believe we can use our proven platform technologies to be disruptive and provide another revenue and value driver for the company.
With that I'd like to open up the call for questions operator.
At this time, we'll be conducting a question and answer session.
I would like to ask a question please.
Star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two chip move your question from the queue, but participants using speaker equipment and may be necessary for you to pick up your handset before pressing the star keys, one moment, while we poll for question.
Our first question comes from the line of Kristen <unk> with Cantor Fitzgerald you May proceed with your question.
Hi, This is Rick Miller on for Kristen, Thanks for taking our questions and congratulations on the launch of the HDD Transcriptome panel given our.
Position as the gold standard in the space could you talk a little bit about strategies you are considering for growing the customer base from the early adopters now that you've completed the full launch of the HD G Transcriptome panel product.
Yeah. Rick This is John Thanks for joining us and appreciate the kind words, yes, clearly are in RNA seek as the as the industry standard. So we're really looking at the market in two ways.
For those people that already have invested in big RNA seek workflows, we're going to seek a kind of a co exist.
Strategy because of the advantages of our ability to work with low sample quantities.
We're gonna enable the customer to do a whole transcriptome gene expression experiment, where they otherwise couldn't because they simply either have degraded sample or they don't have enough sample to run on RNA seek so it's kind of a.
Co exist. However, we think the bigger opportunity for us is actually in those customers that have not invested in RNA seek because it is such a difficult and challenging technology to bring bring into a laboratory. Our technology is mostly automated and can be run with technician level level labor.
And so we think we actually enable.
The common man, if you will or the regular research scientist to actually be able to do full transcriptome analysis.
Faster better and cheaper than RNA seek so so those are our strategies if you will on commercialization.
Hope I answered your question.
Sure and if I may one more.
I believe you previously described in White paper, one as being critical and demonstrating comparability to RNA seek whereas white paper to really highlighted the key direct advantages so with that I wanted to ask how much of white paper three was written based on the feedback you've had.
From the trial and hearing what your customers were looking for and what were the key findings here with white paper three.
Good question. So as you recall white paper to really demonstrated superiority of our technology over RNA seek really in a couple of key areas. The first was the sample success rate, where we actually had 100% sample success rate, whereas RNA seek was between 65 and $70.
75%. The second area was in sample usage, where we worked with between one quarter and one eighth of the sample load of RNA C. And then the third was turnaround time, which actually in the market is turning out to be one of the major reasons why customers are interested in us because in a perfect world you can get RNA seek data in seven days.
But more more more times than not.
It can be four weeks or six weeks versus three days for us.
So white paper number three simply expanded the dataset that we had used for.
And white paper two so there was it was a larger N and we pushed it across all of the disease States.
That we did we validated the panel on so it was basically a bigger and more expansive.
Dataset in White paper number two and we reproduce the same differentiating aspects of our technology.
Okay understood. Thank you very much.
Great well, thank you Rick.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, one moment, while we poll for questions.
Our next question comes from the line of Alex Nowak with Craig Hallum Capital Group. You May proceed with your question.
Alright, great. Good afternoon, everyone kind of following up to the last question there John.
Did you give the total number of customers signed up for the http. Either from our early access program or from a commercial standpoint, and maybe just give a little bit more color on those that have signed up to trial a panel are these.
Early stage academics are the trends for translational use at this point more drug discovery or even on the commercial OEM side, just any color there would be great.
Sure.
He listed all of the signed contracts.
For our EAP on our on our website and if you go and you will see it mostly their academics. So were the products being mostly used in what I would call translational medicine.
In lieu of using RNA seek and as you look at the accounts that places like.
Duke University MD Anderson.
Mayo clinic.
So there are folks that already have RNA seek capabilities, but they see the value.
Bringing in our technology, especially again, because we can deliver results so much more quickly.
The total number of people that had been in the program. Prior to launch was I want to say it was around 35%.
It took a while to actually get signed contracts, which is what we've listed on the website. It is.
Significant to note that actually in Q2.
Sold about $200000 of product prelaunch.
To those early adopters, so again I'm expecting that now that the product is available either in our lab or in kit.
Many people are going to bring it in and validate it.
And then we will expect to see quarter on quarter growth ramping up.
That's great can you expand on how big the sales team is now and I assume it's going to be the core product sales force thats going to be transitioning over to the whole transco whole transcriptome panel, but also what about on the pharma relationship side, because I know theres some opportunity there to build that pipeline.
Yes, it's great question. So we kind of suffered over the last 12 months, but with.
Hiring folks and we just really finished loading up our teams we've got.
About three or four people in the pharma team.
About four or five people in the U S academic our European organization has about seven or eight including service and support staff. So we finally think I think we finally have a.
Yeah.
The quantity of people to give us coverage as we continue to get more success will be adding to that team.
We just finished.
Fantastic.
Sales meeting here in Tucson, we finally felt safe enough to bring everyone in before this delta variant thing.
Third up and it was great to see these people I think I don't think we've ever had a better team that's been more energized that better understands our value proposition and can go out and evangelize that then the organization we have right now.
No Greg I appreciate that and just final question just on the drug discovery platform I mean, I do think it's interesting the history of hcg was doing.
Doing a high throughput screening, so youre kind of going back to your roots here a little bit but.
Maybe expand on how you ultimately plan to commercialize some of these drug targets that you'll find is this something that you'll do internally and that's a little bit for the reason of bringing that advisory team onboard or is this going to be identify the targets getting validated it up and then ultimately spend those off either into a separate entity or spend those off the pharma.
Please.
Great question, so kind of the boundaries of the business will be we will pick things up.
At the stage of what I would call novel validated targets, we are not moving into the world of target discovery.
<unk>, that's well proven not to be.
A good ROI for our private enterprise, but will pick up those targets and then what we will we will do is we will use our this new medicinal chemistry platform that we built the design small molecule library and run screens than in addition to looking for hits on that on the comp.
On the.
The compounds are generate hits, we will then do the full transcript filmic profiling to look at gene expression to look at.
Methylation to look at.
Mike or RNA expression.
Expression to better understand the biology of what is actually happening from a mechanism standpoint of that drug to target interaction and then take that and do continue to do that in the hip lead process.
To really develop a compound or compounds.
That are patentable first of all and then our also show potency and minimal off target effects and again, we can do that by looking at transcriptome data our exit so the other end of the business most likely would be to get something to a pre IND the state.
For licensing to our many of our current customers.
We reserve the right obviously to take something all the way into the clinic, but for the sake of our current planning assumptions, we're going to keep the definition of the business unit is just a pure drug discovery business unit not a drug development business unit.
That's great Thanks, John and Sean for the update.
Okay. Thank you Alex.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn the call back over to Mr. John <unk> for closing remarks.
Thank you.
I would like to thank everyone for joining us today, it's been a great quarter I think we got another great quarter coming at us.
I again want to thank the employees here at <unk> for the tremendous work and the self sacrifice they continue to make and that loyalty that they continued to show for this company.
Additionally, I also want to thank our board they've been fantastic, especially as we've put together our strategies around expanding our technology and scope of business and I, especially want to thank our shareholders for their continued support.
We really look forward to updating you again next quarter on our progress and in our next earnings call. Thank you very much for joining us today.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and for the rest of your day.
Yeah.
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