Q3 2021 HTG Molecular Diagnostics Inc Earnings Call
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Greetings and welcome to the H T G. Molecular diagnostics, Inc. Third quarter 2021 earnings conference call.
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It is now my pleasure to introduce your host Ms. Monique coffee of lifestyle advisors. Thank you. Please go ahead.
Thank you operator earlier today H T T released its financial results for the third quarter ended September 30th 2021.
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 T 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 projected on today's call.
Factors that could cause events or results to differ materially include risks and uncertainties described from time to time in the company's SEC filings.
H C V cautions listeners not to place undue reliance on any forward looking statements.
C. G is providing this information as of the date of this call November 10th 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 Luke Naskhi, Chief Executive Officer John.
Thank you Bonnie it's great to be here again today to review the results for the company's third quarter.
Progressed, much as we expected, including the announcement of our new drug discovery unit, which plans to use <unk> technology in new and exciting ways.
First let me get to the numbers associated with our profiling business.
We've been saying for the last couple of quarters, we're seeing our translational profiling business beginning to return to growth and our third quarter's performance reflects that same pattern.
Product and product related services revenue increased by 48% to $2 5 million for the three months ended September 32021, compared with $1 7 million for the three months ended September 32020.
Product and product related services revenue increased by 11% to $6 million for the nine months ended September 32021, compared to $5 4 million for the nine months ended September 32020.
Revenue increased 22% from the second quarter of 2021 for the third quarter of 2021.
This was the recovery that we've been speaking about as we saw our customers returning to pre COVID-19 operating levels in the quarter.
This is highly encouraging as we expect this trend to continue as global supply chain and labor issues associated with Covid are alleviated.
Our suppliers are currently experiencing shortages lab plastic where that impacts our ability to run our lab and this also impacts our customers' ability to ship samples inappropriate sample containers.
Customer labor shortages have also impacted the pace at which programs are moving as sample cohort preparation and shipment is frequently being delayed.
Nonetheless, we believe our revenue for the third quarter reflects a solid all around performance by all of our commercial teams North America academic Europe and pharma.
To add some color we added five new customers in the quarter and expanded our active installed base by four instruments.
On the pharma front, we finished the quarter with 57 active pharma programs.
The breakdown of that for the nine months period was we added 33, new programs extended eight existing programs timed out on 26 programs due to lack of activity.
We expect to see this trend to continue.
As more programs time out and this year than in years past due to the significant impact we believe COVID-19 had on clinical trials in 2020, and the first half of 2021.
However, we're continually adding new programs to replace and overtake the programs that are timing out and expect to see these new programs drive further growth in our portfolio for this business.
We also expect our revenue recovery to continue into the fourth quarter.
Finally on the publications front, we added 22, new publications in the quarter, bringing our cumulative total to 340 again, demonstrating strong scientific and market adoption of our technology.
This quarter. We also went into full commercialization mode for our new H D. G transcriptome panel or H D. P.
With a little over a quarter since commercialization the product already represents 7% of the company's total revenue for the nine months ending September 32021.
This will continue to be a high area of commercial focus.
We always strive to do better, but we're very pleased with the progress we've seen this quarter.
Three months ago, We said, we saw our translational profiling business starting to get back to growth and that's exactly what we saw in Q3.
We expect to see this trend to continue as our customers and suppliers continue to recover from the global impacts of COVID-19.
This is a big market and we're confident we have a terrific value proposition. So commercial execution will continue to be our focus.
This quarter, we also unveiled a little bit more about our HDD therapeutics business unit.
Our motivation for the company to become engaged in drug discovery was really based on three things first the H T. P. The whole transcriptome product really opened up new opportunities for the company beyond just profiling.
Second we believe Arnie is a great biomarker tool and we have a great platform technology that we believe can add significant value in drug discovery and last the emergence of RNA targeted therapeutics.
Putting all these factors together, we believe we are in the right place at the right time to leverage the our capabilities in this exciting new market.
Let me add some even more color.
To date the company has had for companion diagnostic collaborations in each our pharma partner did an all commerce trial trying to reach the largest possible market. If they succeeded to reach to clinical endpoint. However in each case. They did not reached a clinical endpoint and came to <unk> in an effort to build a molecular classifier that would identify responder.
<unk>.
But this additional effort was also unsuccessful.
Because our technology didn't work because the drug lacked efficacy.
This experience reflects closely what is seen in the overall drug development market, where 90% of drugs fail in the clinic due to efficacy or toxicity issues.
With our new RNA Transcriptome technology now in hand, we see this market wide challenge is a clear opportunity for H D. G.
Why not use our proven and well validated RNA technology, the pulp key learnings for drug development, specifically mechanism of action structure activity relationships and toxicity screening forward into drug discovery, when youre still time to make modifications to the chemical structure of the proposed drug candidate.
Why wait to get a drug into an expensive late stage trial only to find out it doesn't work.
The seize this opportunity we needed to harden, our RNA technology and it we needed to add a differentiated medicinal chemistry platform.
So we went out and acquired what we believe is a state of the art in silica library design in but I think the analogy.
We had what we already viewed as a best in class mrna profiling tool in our H D. P and we paired with our best in class whole transcriptome micro RNA panel, but we also needed to expand our technology profile RNA modifications like M. <unk> and we've now done that and creating our ft transcript helmick technology called <unk>.
<unk> at the edge.
<unk> was a significant achievement, but we plan to keep those as an internal capability and not fully commercialized.
We can now analyze hits coming out of our hits the lead process using our transcript helmick tools.
And then use this to inform our medicinal chemistry dialing in molecules for efficacy and lower toxicity, we internally call. This approach can be transcript all mix.
While some would argue that RNA seek and do much of what we're proposing we believe we're advantaged on several fronts with our own technology.
As our HTC White papers demonstrated you have substantially higher assay success rates than RNA seek.
We also work with a fraction of the sample required in our workflow is significantly more simple, enabling actionable data in days not weeks or months I believe.
Our ability to quickly turn sample data in just a couple of days at a very affordable cost to inform chemistry optimization is a highly relevant differentiating technology for H D. G.
So in theory can people use RNA seek conform chemistry, yes, but the challenges of sample size timelines and sample quality will very often make this option and practical and we believe show clearly why our H D. G. As chief Technology holds a strong advantage.
Just not meet it. Thanks. This is a great opportunity for the company.
It's also a lot of the people we've recruited I'm delighted that Dr. Steve Barrett came to us from Janssen Pharmaceuticals to run this unit.
As U S head for non clinical safety assessment of Janssen, Steve a lot of large teams supporting programs in all phases of discovery and development from target assessment in lead optimization to candidate selection and early and late stage development and registration.
Prior to that Steve served as vice President for preclinical research and early development as skin axis and also held senior roles at Allergan Forest, Schering Plough and Merck.
Also joining the company or industry veterans, Todd Hoffman as vice President of strategy.
Cob as vice President of Chemistry, and Desmond Ray as our vice President of business development.
We've also augmented this core team with several kols and experienced consultants. We're excited about the potential to use our proprietary RNA profiling technology to be highly disruptive and drug discovery.
By matching our <unk> technology with a complementary team of industry experts, we believe we'll be able to develop a pipeline of licensed drug candidates beginning in late 2022 in early 2023.
With that I'd like to now turn the call over to Sean for a deeper dive on our financial results.
Thanks, John total revenue for Q3 was $2 5 million compared with $1 8 million for Q3 2020.
Our Q3 revenue was again comprised entirely of direct revenue defined as product and product related services revenue in our financial statements.
For cost of product and product related services revenue was $1 million in Q3, 2021 and <unk>.
$9 million for Q3 2020.
Q3, 2021 also produce improving gross margins versus Q3 2020.
Reflecting our higher product and product related services revenue.
The cost of our Tucson based service lab in operations are largely fixed.
And as a result higher volumes produce increased gross margins.
Portion of our margin improvement over 2020.
Was also attributable to the receipt of employee retention credits.
Q3, 2021 research and development expense increased by approximately $2 million compared with Q3 2020.
Research and development expenses included $1 $1 million of profiling development costs and <unk>.
$4 million of costs related to our therapeutic Sean.
Based on our development team's successful completion of our development milestone goals through Q3, 2021, we were able to announce the official commercial launch for transcriptome panel on August 5th.
Sales of our transcriptome panel totaled $200000 in Q3 2021.
Our operating loss for Q3, 2021 was $4 2 million compared with $5 2 million for Q3 2020.
Reflecting the recognition of an additional <unk> 6 million in employee retention credits and focused management of overall operating expenses.
Net loss per share was <unk> 60 for the quarter ended September 32021.
The $1 12 for the same period in 2020.
This reduction reflects additional shares of common stock sold in 2020 and 2021 through our aftermarket facility at our equity line of credit and our November 2021 for 15 reverse stock split of our common stock as.
As of September 32021, we had approximately seven 5 million shares of common stock outstanding.
We ended the quarter with $25 4 million in cash cash equivalents and short term available for sale securities.
I will now turn the call back to John for closing comments.
Thank you Sean.
I've said and will say again I firmly believe the best days for HD G are still in front of us hopefully as I reviewed our encouraging results and provided more color on our strategy, we're going to share my enthusiasm.
At the end of the each of the last two quarters I said I expected to see the business continue to recover and in the second and third quarters of 2021, we saw our profiling business continued to experience this trend showing strong growth over the first quarter and over comparable quarters in 2020.
We also saw continued new customer additions and the rebuilding of our pharma business.
I said, we're going to launch our landmark HTC product in the third quarter and we delivered again.
I'm expecting that we're going to see continued momentum in our profiling business as our markets continue to return and we begin to fully capitalize on the opportunities opened up by the <unk> product.
We also expanded the utility of our edge seek technology, creating potential future revenue and valuation opportunities with the formation of the HDD Therapeutics business unit.
Hcg is a terrific RNA profiling technology and continues to seek out new and better applications for this technology.
I think we may have found a great one and drug discovery.
We plan to execute on this business plan in a very capital efficient manner, and really understand where we should best position. The company in the drug discovery value chain to maximize return and closely manage expense.
I look forward to being able to report out on our technical and business achievements of this business unit in future calls.
We've been through a rough stretch with Goldman, but we've managed to emerge on the other side better than ever.
Our translational profiling business is coming back online and I believe it has a highly differentiated product that should enable us to sustain this growth.
We've also frame the market opportunity in drug discovery with real and substantial needs, where we believe our technology can be highly disruptive and increased drug development productivity, yielding a significant revenue and valuation opportunity for the company.
I don't think we've ever been in a better place.
That's why I believe the best days for this company are still ahead of us.
With that I'd like to open up the call for questions operator.
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Our first question from Christopher <unk> of Cantor Fitzgerald. Please go ahead.
Good afternoon. This is Rick on for Kristen. Thank you for taking our questions.
Could you please discuss a little bit about the degree to which the early adopters you've worked with have continued to work with the HDD transcriptome panel and the potential collaborative role that you've talked about having with the early adopters. How do you believe this could influence contain potential continued development of the transcriptome.
Product.
Rick This is John nice to meet you here Yeah. The early adopter program is important for us because we we didn't want to wait until the product was launched which was August before we started the process of getting people to design experiments and begin to.
The groundwork for publications, but I think will actually probably be our best best sales and promotional activity. So yes, so of the.
The EAP is we signed actually 32 of them.
Prior to launch and of those we've gotten orders from about half of them.
Right right off the bat.
So that was very very.
Important for us.
The other thing was we were on pace for what I think is going to be a substantial revenue contribution even this year probably stands to be 10% to 15% of our year end revenue and as I'm looking into even Q1 forecast.
We're seeing that this product will very quickly become.
A substantial driver for revenue for the company.
Thanks. Another question do you have any metrics youre looking at to get an idea of whether lab to switch to the H D. G. Transcriptome panel are sticking with the product and potentially even choosing it over RNA seek over time.
We've got metrics that we're looking at in regards to where are we.
So existing versus where are we kind of are on our own but there are a little premature given the fact, we've only been on market for really less than a quarter officially on that.
But we will report out on.
The highlights if you all on transcriptome panel commercialization.
What we're trying to do also is position this product in a complementary way with our legacy panels as well. So we want to make sure that we continue to grow our traditional panels and use this as incremental and not risk potential cannibalization.
Cannibalization of revenue.
Understood. Thank you one more question in.
In the past you've talked about how the whole transcriptome approach kind of came out of the desire to have every potential customers' favorite Jean represented on the panel with that said has there been any feedback from customers in the early stages of commercialization on any potential limitations or just transcripts that they would like to see or hesitant.
Been pretty fairly sufficient from the customer's perspective.
It's kind of an all in panels off lets say if its a coding RNA gene. It's we have that probe set in the mix. So we kind of eliminated that barrier and we're having our initial success in oncology, which is our core.
We have a lot of sales and marketing plans to execute on our strategies of customer and market diversification.
The market for for RNA gene expression is a lot bigger than just oncology matter of fact.
To make the argument that in other disease areas, the market's probably larger and by finally, having a comprehensive solution not just kind of an oncology subset I think it positions the company for substantial growth not only in oncology, but in other areas like immune response CNS transplant.
<unk> cardiology et cetera.
Alright, Thank you very much.
Thanks, Rick.
Thank you. Our next question is coming from Alex Nowak of Craig Hallum. Please go ahead.
Great. Good afternoon, everyone. This is Conor Stevenson on for Alex So.
I just have some questions around the H T P product.
How much how much revenue per <unk> customer can we expect and how many customers in total so far have you signed up for H D. P.
Yep.
First of all good to meet you Conor.
Again with under a quarter of data under our belt. It's you know this is preliminary and premature at best but we had somewhere in the neighborhood of 15 customers So far and those orders came.
In between 50 and $100 per order.
And that is accelerating so we're you know we're looking at an increasing forecast in Q4 and as I mentioned before into Q1.
Sure. Okay. No. That's helpful. And then I guess kind of going off that I'm thinking about 2022, how are you thinking about.
Sales and cash burn I mean, I know you're going to have this.
Ranked in the core business, but then you know with the addition of H D. P. Gaining traction you know just kind of how are you thinking about expenses going into 'twenty two.
Yep.
We've not provided guidance for quite some time.
We're encouraged that we're seeing our growth rates return back to that.
2030%, 40%.
We're looking to see that hold together again for Q4 and based on how we finish.
In.
2021, we're probably going to be not again, not providing guidance, but expecting that we will be back into that.
No.
Relatively high growth rate 2030, 40% offset that core products and services business into 2022.
Sure. Okay. That's all for me, it's nice to meet you. Thanks.
Thanks Connor.
Thank you. Our next question is coming from Ken of H C. Wainwright. Please go ahead.
Okay.
Hey, guys. This cheap on behalf of <unk>.
You answered most of my questions.
So just a quick one on upcoming milestones or catalysts and what we should expect across your business units. Thank you.
Now good question so.
As you guys have covered issue now we like the published strategic milestones and we like to be able to check them off because we like to have the reputation of doing what we say and say and what we do so we have just a couple of final milestones here.
Closeout 2021, and that will be the completion of additional.
Additional sequencer validation and sample type validation for the http.
So we will put up peer out on that and then the next.
<unk> substantial milestone is we'll begin to announce our scientific advisory board.
Between now and the end of the year that we put together the support our therapeutics business unit.
Upon closing the closure of that year as we roll into next year. We will then do exactly what we did this year, we will provide our our strategic milestone calendar that we believe are significant value inflection events for the company will announce that and then we'll begin reporting out on our <unk>.
<unk> full achievement of us.
Great. Thank you so much and congratulations once again.
Okay. Thank you.
Thank you at this time I'd like to turn the floor back over to management for any additional or closing comments.
Great well first I'd, just like to thank everyone for making time and joining us today I again want to thank the employees here at <unk> for really a tremendous quarter.
And we're working in digging out of this COVID-19 situation and I really appreciate their self sacrifice and their loyalty. They continued to show to the company.
Additionally, I also want to thank our board who has been extremely helpful to me and so the rest of management with counsel through through 2020 in the early part of 2021, and especially our shareholders for their continued support and also on guidance and counsel.
We look forward to updating you again on our next earnings call. Thank you for joining us.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time or log off the webcast and enjoy the rest of your day.
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