Q4 2021 HTG Molecular Diagnostics Inc Earnings Call
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Thank you for standing by this is the conference operator.
Welcome to the H T G Molecular diagnostics, Inc. Fourth quarter 2021 earnings conference call.
As a reminder, all participants are in a listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask a question to.
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I would now like to turn the conference over to Andrew Erickson from lifestyle advisors.
Please go ahead.
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 recovery.
H T G transcriptome panel statements related to the company's H, TG therapeutics and drug discovery business.
Good business momentum and market opportunities.
We expect to keep a better use of our technology.
These forward looking statements are subject to numerous risks and uncertainties many of which are beyond <unk> control, including uncertainty regarding the ongoing COVID-19 pandemic and its impact impacts on H T. G and its customers that may cause actual circumstances 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, the company's SEC filings, including the risk factors heading out of the company's most recently filed annual.
Or on the Form 10-K .
H T G cautions listeners not to place undue reliance on any forward looking statements.
C. G is providing this information as the date of this call March 29th 22, and the company undertakes no obligation to update any forward looking statements with that I would like to turn the call over to John <unk>, Chief Executive Officer John .
Thank you Andrew and welcome everybody we're.
We're pleased to be here with you today to review our financial results as well as our performance against strategic milestones in 2021.
What are your 'twenty, one was both a recovery year for our profiling business and an exciting expansion here for the future growth of the company.
Through completion of our key development milestones in 2020 . One we introduced what we believe is the most important product in H D. G. 's history with the release of our H T G transcriptome panel or H T P.
The release of the H T. P set the stage for US to also move forward with the creation of our drug discovery business unit, using our exciting capabilities and a new and exciting market segment.
Throughout 2021, we saw more of our customers resuming operations.
They began to bring employees back to their facilities and resume some of their studies that they had planned prior to the pandemic.
However, even by the end of the year customers that we're open we're still not operating at 100% pre COVID-19 capabilities.
Many customers had workplace restrictions in place or were impacted by nationwide supply chain and labor shortages.
And due to ongoing restrictions global shutdowns and careful monitoring of travel risks our commercial team was restricted for much of the year and its ability to actually visit customer facilities.
As a result of these ongoing challenges we've experienced delays in our sales cycle and continue to react to unexpected speed bumps throughout 2021.
While customer interest in our products, especially our recently released H D. P product continues to be strong. We expect some of these challenges that we faced in 2021 to continue into 2022, resulting in a continuing slow recovery of our profiling business as 2022 progresses.
Okay now to the numbers.
Total revenue for 2021 was $8 9 million approximately 4% ahead of 2020.
Breaking that down our direct revenue defined as product and product related services revenue in our financial statements was $8 9 million up 13% from 2020, reflecting the continued recovery in our profiling business that I discussed previously.
Total revenue in 2020 included approximately 650000 of collaborative development services revenues of which we didn't have any active programs in 2021.
Our H D P transcriptome product generated $1 $4 million in revenue and less than five months of sales.
And it is our number one selling assay.
Overall, we added 29, new customers and increased our active edge seek instrument installed base by 10 instruments in 2021.
On the publication front, we now have more than 350 publications that reference our H T. G. I C technology, a 32% increase over prior year. This.
This is a clear indication that word is getting out about the advantages of H D. G said she technology.
In Biopharma, we experienced a nice rebound in the number of active programs in 2021.
As a reminder, there are strict requirements for a program to be included in our active programs metric.
First the program needs to be associated with our pharma sponsored clinical trial.
Second it needs to be traceable to a program on clinical trials Dot Gov and finally, it needs to have generated revenue for H D. G. Within the last 12 months.
We finished 2021 with 62 active programs up from 50 at the end of 2020.
More impressive of that 60 to 48, where new programs and 14 were extensions of previous programs.
So over 70% of the active programs in 2020, rather halted or discontinued by our customers during the pandemic.
We believe the increase in new programs again reflects the spreading excitement about our technology and the drive and energy of our commercial sales team.
We also expect to see the recent growth trends.
Suggests to us that we've gone through the worst of the COVID-19 headwinds in pharma signaling. There's further growth ahead of this customer segment in 2022.
Turning to our strategic milestones and product development, we were thrilled with the progress that our teams made through 2021.
Our development team completed the final elements of our whole transcriptome product development in the fourth quarter. This included validating additional sequences and expanding our assay protocols to include more biologic sample types.
So how this will help support our commercial sales teams as we continue our focus to diversify our customer base and to expand the use of our technology beyond oncology and then the other growth areas such as immune response diabetes and infectious disease.
Publications, such as the recent COVID-19, based publication and frontier and Immunology noted the use of our technology to systematically characterize COVID-19, lymph nodes to better understand the complex immuno pathological changes of severe disease, both from a morphological and transcript helmick level and reflects the potential.
All of what our technology can do in regards to these other disease areas for scientific discovery.
And our drug discovery business. We've also made substantial progress in a very short amount of time to.
To help guide our strategy and provide valuable collaboration support we added our first two scientific Advisory Board members, Dr. Jerry Radish from the Fred Hutchinson Cancer Center and Dr. Robert Vitale from the University of California at Irvine.
We also added therapeutic depth to our board of directors with the additional with the addition of Biopharma veteran Chris Christie, formerly of Kos Pharmaceuticals.
While this infrastructure was being built our therapeutic development team was busy moving our vision forward, but it's exciting new proprietary technology.
During this period, we've chosen our first drug target.
We've also used our machine learning chemistry capability, the searching universe of $33 5 billion potential biologic structures and have designed a library to just a few hundred compounds.
From there we will have those compounds synthesize and run them in our first cell based model.
Life's eights will be analyzed using our full transcriptome edge seek technology to show we can differentiate between pharma to force based on full transcript Almac analysis.
This is the first critical step for RNA profiling of drug development candidates from human derived cell based test systems, providing unique insights into the association between structure activity relationships and G&A pathway expression.
This understanding will help us make well informed adjustments to the molecular structure of the drug candidates.
With a more complete understanding of how those structural adjustments actually affect gene expression. Our initial approach to early de risking of a drug candidate.
We believe the Derisking of drug candidate molecules early in drug development will result in improved chances for preclinical and clinical development success. These drug candidates.
With that it's my pleasure to turn our call over to our CFO Shaun Mcmeans for a review of our financials Sean.
Thanks, John total revenue for 2021 was $8 9 million compared with $8 5 million in 2020.
Our 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 $4 1 million in 2021 and $4 million in 2020.
Research and development expense remained consistent with prior year at approximately $6 1 million for both 2021 and 2020.
However, this included a change in the blended cost year over year. In addition to ongoing costs related to the development of our proprietary profiling technology, which was comprised primarily of H D. P product 2021 research and development expense included approximately $1 $4 million of costs related to our new therapeutics.
Sure.
Our development team successfully completed all of its development milestones in 2021, resulting in the commercial launch of our HDD Transcriptome panel in August .
Subsequent feature expansions were completed in the fourth quarter, including additional sequencing capabilities inside sample type expansion.
Sales of our transcriptome panel kits and through sample processing services performed in our Vera I O Laboratory.
Mm $1.4 million in 2021.
Our operating loss for 2021 was $17 8 million compared to $19 6 million for 2020 Pri.
Primarily reflecting the receipt of $1 $2 million of additional employee retention credits in 2021, and we received the 2020 and a focused management of overall operating expenses.
Net loss per share was $2 47 for the year ended December 31, 2021, and $4 51 for the same period in 2020.
This reduction reflects additional shares of common stock sold in 2021 through our at the market facility and equity line of credit.
As of December 31, 2021, we had approximately seven 6 million shares of common stock outstanding on March 21, 2022, we closed a private placement of our securities for gross proceeds of approximately $7 $5 million. The transaction increased our common shares outstanding by approximately 834000 shares and included.
Approximately $2 4 million pre funded warrants for common stock.
We ended the quarter with $21 $9 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.
Thousand 20 in 2021 were interesting exciting and challenging years for H D. G.
COVID-19 forced us to modify our strategies to account for changes in the market and to seek new opportunities for our technology.
As a result of these efforts we have a great new product in our H D. G. Transcriptome panel that opens up new doors of opportunity and profiling and therapeutics.
H D P and it enables us to continue to provide important information in oncology, but also to move forward with becoming a more complete precision medicine company in all disease areas, where RNA analysis is relevant.
We've also leveraged our collaboration experience and seized upon new thinking in drug discovery to use transcript Dominic profiling in the drug drug discovery process. We believe the application of our profiling technology to human derived cell based test systems integrated with medicinal chemistry allows for early derisking of drug candidate.
Yours opening up another door of opportunity for H D. G to deliver exciting licensed new drug candidates and potentially to bring new companion diagnostic collaborations forward.
This new business units holds the potential to bring in cash upfront and longer term milestone and royalty payments as our development efforts continue.
This evolved strategy positions the company to be a tech driven biotechnology company with two engines of revenue and valuation growth profiling and drug discovery.
As with last year, we created a calendar of strategic milestones in Q1, we expect to align our micro RNA assay to the same sample prep workflow as our H D P.
This will enable our sales team to bundle these two whole transcriptome products together.
We also plan to bring out our first proof of approach White paper, which will capture the foundational aspects of our novel approach to drug discovery.
In Q2, we expect to finalize development on our M. Six a R&D assay and providing additional white paper on our proof of approach for drug discovery.
Through Q3, and Q4, we plan to continue advancing our drug discovery efforts through optimization of our novel drug candidate molecules with a goal of pursuing licensing opportunities for our most advanced preclinical assets at the end of the year.
We're moving fast and expect to continue our development momentum in this new and exciting business area through 2022.
Our key priorities for the year are going to be one to maintain growth in our profiling business to help fund continuing operations and to create new pharmacy Dx opportunities.
Two to achieve our strategic milestones and technology and product development and three to achieve our strategic milestones in our drug discovery business unit.
With the challenges of the past few years, we've hardened and extended our technology and strategy to create an even more exciting new opportunity for H T. G I.
I strongly believe the best days are still in front of us with that it's my pleasure to open up the call for questions operator.
Thank you we will now begin the question answer session.
Julian the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
If you were using a speakerphone please pick up your handset before pressing any keys.
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We'll pause for a moment as callers join the queue.
The first question comes from Christian Cuzco cancer with Cantor Fitzgerald. Please go ahead.
Hello. This is Rick on for Christian. Thank you for taking our question you've previously talked about the potential for further publications and presentations at medical conferences from H D G, including the potential for publications from users in the early adopter program. So could you. Please talk about what we could expect in terms of publications and.
Conference presentations upcoming from H D G.
Okay.
Hi, Rick This is Jonathan Mirsky. Thanks. Thanks for the question Yeah. Our early adopter program went very well so we're actually in the process right now of submitting abstracts I believe we had one at ACR and we're expecting additional.
<unk>.
In addition to.
Moving forward with peer reviewed articles as Youre aware. This is a several month process, but obviously, where we're driving it and we're very encouraged.
Alright, I appreciate that thank you.
The next question comes from <unk>, Chen with H C Wainwright.
Please go ahead.
Hey, this is Jake on for E.
We just have three quick questions. The first one on the companion diagnostic collaborations any any talks or anything planned for.
For this year.
In the near future.
And the second one on <unk> I know you spoke about this during your introductory remarks, but any progress so far with any comments on the progress so far with the H D D a thick.
Specifically on how your hip and knee processes.
Shaping up and finally your thoughts on the impact of Covid, It's a mood point, you're going to do thank you so much.
Sure So regarding companion collaborations Unfortunately, when we had 70% or so of our active programs basically cancel in 2021 that kind of pushed a reset button on a lot of those those programs and we had to kind of start from scratch. The good news is we really refilled.
That funnel is as can be seen with the 60.
62 active programs, we were working with one.
Biotech that could evolve into a companion program this year.
But if there's one thing I've learned over the last few years is trying to predict wind farm is going to move is just about impossible, but like.
Like I said the good news is we refilled that pipeline I expect that that pipeline is going to continue to grow through this year and eventually that will lead to additional collaborative <unk>.
<unk> opportunities regarding the drug discovery, and where are we with that hit the lead process I actually just this morning read our draft Whitepaper. So we're right on track with where we where we expect to be with our our ability to develop a license the bowl family of assets by the end of the year.
So we should have that first white paper out literally probably in a day or two.
And this is a really important white paper because it actually demonstrates how we used our proprietary profiling technology to distinguish between very slight changes in mill in in chemical structure.
Which is.
Is very insightful in regards to the drug design. So extremely excited by that because to me, it's kind of a proof that we.
We can do this which is really really exciting and then lastly, your COVID-19 question I think we're going to continue to see.
Not everyone's into work all the time kind of probably very similar to our own workplaces. So we're expecting just to see continued delays and continued supply chain interruptions.
And as things turn back on we don't anticipate things are going to go backwards, but it's just going to be a slow.
Ramp up of activity is as basically everyone comes back to work full time.
Yeah.
Excellent. Thank you so much.
Yeah.
The next question comes from Alex Nowak with Craig Hallum Capital Group.
Please go ahead great.
Great. Good afternoon, everyone, you're not giving guidance here, but investors have gone through a lot of things here over the last couple of years. So just how you're thinking about growth in the core business in 2022.
The Street's got you model that doubling sales essentially for next year for 2022 here do you think that's plausible or you know where do you think the broke ultimately shake out and then just thinking about H T paid that initial success, how should we think about that ramping throughout the year.
Good questions there Alex So you know I think doubling is aggressive.
We believe that once people are back to work, we should return to that 40%, 50% growth rate that we were seeing pre COVID-19 .
Obviously timing of when we're going to be hitting on all cylinders is up for grabs.
But I think probably doubling is a little aggressive, but unless we land a large OEM opportunity and we've really just started the commercialization of H D. P into the OEM segment regarding the.
The HCP ramp.
As mentioned, we had a very good fourth quarter, we had 13 customers buy the product.
Just a little shy of $1 million and of that 13, six were brand new customers to H T. G and they represented about a third of that million dollar number. So we're very optimistic about HCP, we kind of guy here, Matt guided but we stated we'd like to see at least 50% of our revenue is.
As we exit Q4.
And that product. It is and then as previously mentioned now that we harmonize the upfront protocol with micro RNA.
Gonna be pushing both of those products because we offer the opportunity off a single sample to do a whole transcriptome micro RNA and then a full transcriptome message RNA, which is a very unique and advantaged capability for our chemistry.
Got it and then other than your own internal white papers, and what does that external papers for HD pages are these are you sending out these instruments to you know the Big Labs, New York Genome Center broad et cetera, and then when should we expect some sort of papers around them from.
The external users.
Yes, I think you'll see the first couple of things coming in abstracts at <unk>.
So that.
Is where we'll.
We will see the leads from their from the EAP program.
So we're <unk>.
Driving that obviously, there's a whole process that that goes through but.
That's we're basically on track with that.
Okay got it and then on the drug discovery piece, what sort of news events should we expect H T. J to announce their you know their major milestones are these sort of newsworthy events that we should see by the end of the year there.
Yeah, well actually one will be out this week, which will be the white paper number one that.
But I was kind of previously talking about and this one is really it's pretty technical and be more than willing to field a call afterwards to kind of walk you through it.
But basically what we're demonstrating with white paper number one is the ability to use the transcript Dominic profiling to measure very slight changes in expression associated with very minor.
Chemical structure modifications in a in a library and then also then mapping that back to the sea map database that is held by the broad.
And at which is kind of an in silicone version and we actually are showing how by looking at the entire transcriptome all 20000 genes as opposed to just the surrogate we're actually.
We're able to demonstrate superior sensitivity to those chemical structure changes, which obviously has a lot of.
Value as we look at trying to dial up our molecule for potency <unk> dialed down four four toxicity.
Alright, and then considering the current cash balance can you expand on your needs for future Captain here, but also it does seem like you have a good number of catalysts or approvals coming up here in H two P M.
The therapeutics business later in the year, So maybe just speak to the the reasons for the recent private placement as well.
Yeah, I'll kind of start and then I'll ask Sean to fill that in.
We're being as we always are but maybe even more so than ever extremely cost conscious.
Regarding managing our cash to cash position as you kind of rightly call out. We think we have some very very significant milestones that are going to happen.
In that September October time, Horizon, and we wanted to make sure we had enough cash to.
Comfortably get to those those.
Read outs.
<unk>.
We read a lot of the same.
Analysts reports that everyone else does and the number of biotechs that are going to be in the market in Q2, and Q3 is high and so we thought it was prudent to.
Do something to shore up our balance sheet, while we could.
Without facing 3000 other companies that are also out there trying to raise money.
Sean Yes.
Yes, Alex I mean, as you're aware, we have we ever constrained with our current senior note with Silicon Valley Bank.
We wanted to make sure that we were prepared to.
Read that over the next.
90 to 180 days and.
Again, we're trying to remain responsible to the balance sheet make sure we have plenty of cash runway.
As John indicated we know how to pull levers too.
Reduce burn we are amortizing our current note and.
That probably will continue in the near term, but we were trying to prepare for.
Enough runway to get us to these inflection points.
Can you just remind us the covenant there on that.
On that note and where you are in default does that cover there potentially.
No we're not.
We weren't even close it's a 12 $12 5 million cash minimum.
<unk> cash equivalents minimum balance. So we were just again preparing to to meet that at some point later in the year. So we can get through these inflection points.
Okay. Thank you.
You bet.
This concludes the question answer session.
I would like to turn the conference back over to John <unk> for any closing remarks.
Well first of all I'd like to thank everyone for joining us today, it's highly appreciated.
Again want to thank the employees here at H D. G for their tremendous work and self sacrifice as they continue to demonstrate just a real can do attitude to help us grow this company and I'd also like to thank our board and also our shareholders for their continued support and we look forward to updating you again on our next earnings call. Thank you.
This concludes today's conference call you may disconnect your lines.
Thank you for participating and have a pleasant day.
Yeah.
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Okay.
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Okay.