Q1 2022 HTG Molecular Diagnostics Inc Earnings Call

Thank you for standing by this is the conference operator welcome to the H P gene Molecular Diagnostics, Inc. First quarter 2022 earnings call. As a reminder, all participants are in listen only mode and the conference.

Since it's being recorded after the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad.

Should you need assistance during the conference call.

He may signal, an operator by pressing star and zero.

I would now like to turn the conference over to MS. Monique Casey.

With life Science advisors.

Please go ahead.

Yeah.

Thank you operator 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 build and momentum in 2022.

Our expectations regarding profiling revenue in future periods, our expectation that customers may use our H P P and whole transcriptome and my RNA panel for their studies as a result of the harmonized sample preparation protocol the importance of the companies H P D transcript.

Panel statements related to the company's H T T therapeutics and drug discovery business. The impacts of recent hires are planned white paper for specific drug discovery application H T G, becoming a disruptive hybrid life science drug discovery company expected improved.

And then in the coming quarters, our 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 H P teach control, including uncertainties regarding the ongoing COVID-19, pandemic as well as labor and supply chain issues and their impact on H T G and its customers that may cause actual.

Answers 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 on Form 10-Q for the quarter ended March 31st 2002.

<unk> filed today with the S E C.

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

H T. T is providing this information as of the date of this call May 12, 2022, and the company undertakes no obligation to update any forward looking statements.

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

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

With that said it was a challenging quarter for our profiling business.

Customer access is still not yet at pre COVID-19 levels, and we continue to experience delays in our sales cycle due to customer labor and supply chain issues.

We saw continued market choppiness as we and our customers continue to pull out of the Covid pandemic.

While most of our customers have been able to reopen their facilities over the past year, many continue to limit or restrict completely sales and support access to their sites.

Further labor and supply shortages throughout the industry have extended the time it takes to actually get the samples to be collected and submitted for sample processing or the profiling and their customer laboratories.

Q1 has historically been a lower revenue quarter for the company and we've typically seen momentum build throughout the remainder of the year and we expect 2022 to follow the same trend.

Taking a closer look at our results our revenue for this quarter was $1 2 million compared with $1 4 million for the same period in 2021, primarily reflecting those ongoing delays in our sales cycle.

Despite the slower revenue, we continue to see positive market adoption for our exciting new HCP panel as it represented over 40% of our revenue for the quarter.

We continue to rebuild and train our sales and marketing teams for the first quarter of 2022 and are optimistic about the talent, we've been able to bring on board.

We also hired an experienced commercial leader to focus on OEM opportunities for HCP panel.

We believe both of these moves in addition to the growing HCP momentum will drive additional profiling revenue in future periods.

As mentioned earlier, we expect revenue to build throughout the remainder of 2022, resulting in full year 2022 revenue, reflecting robust growth over 2021.

Of course, this assumes we don't experience a negative or a sustained downturn in our sales cycles as a result of the pandemic or broader global economic issues.

During the first quarter of 2022, we added four new customers and five new pharma programs. We also added eight new publications referencing hcg technology, bringing the total to over 360 publications.

Our team also produced a fourth white paper focusing on our <unk> product. This time, highlighting the panels performance in ffbe and extracted RNA when compared to RNA seek.

On the product development front, we continue to fire on all cylinders, reaching our Q1 strategic milestone of introducing a harmonized sample prep protocol that enables customers to use both the new HCP and the whole transcriptome micro RNA panel together from a single life sites. We expect this will encourage customers to use both panels under <unk>.

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Our drug discovery business, we made two significant advances first we were successful in recruiting doctors Kristina caruthers from Madonna to lead our target strategy in early development initiatives.

He is a significant addition to the team and I'm confident that she is going to have a great impact on the program very quickly.

We also achieved a major milestone in our technology development with the publication of our first proof from approach White paper. This was a major technical feasibility milestone.

The white paper confirmed that we can use our advanced profiling technology to differentiate structurally some of our small molecule based on transcript Dominic profiles.

We were able to also differentiate dose related changes based on transfer of Dominic profiles. The specifics are as follows we started with two human cell lines that we then treated with 12, <unk> inhibitors or being rapid myosin and three closely related analogs that we call rapid lives as well as eight allosteric inhibitors of amcor.

And as I alluded to a minute ago, we treated with two different dose levels.

We then did full transcript Dominic profiling of the Salt life saves from those 2004 samples and here's what we found.

First our technical replicates for so good with Pearson correlation to 0.6 or better that we can use single its when we profile.

Next with principal component analysis, we were able to see differential biology via expression analysis not only in the rap of large versus the other <unk> inhibitors, but also in a structurally similar rapid logs themselves.

Following that we were also able to see differential biology be expression analysis.

Of the two different doses.

And last we were able to demonstrate directional alignment with the broad Institute C map linked database, which is based on 978 landmark genes. So what does this mean well it means that in a known system <unk>, we were able to prove the utility of our advanced transcriptome of profiling technology and tie it back to a real and well annotated.

Database. So what's next that will be that material for our white paper number two where we're now going to take our technology and move to a specific drug discovery application, specifically, we will use our proprietary chemical library and do our first initial screen on our first therapeutic target. This will start the iterative process that.

We expect will help us to design Derisked molecules, which we believe through early informed selection will stand a greater chance for development success with.

With the data we generated this quarter, we're even more confident that we can make a real difference in enabling a better way to do drug discovery.

I'd now like to turn the call over to Sean for a deeper dive on our financials.

Thanks, John revenue for the first quarter of 2022 was $1 2 million compared with $1 4 million in 2021.

Our 2022 and 2021 revenue was comprised entirely of direct revenue defined as product and product related services revenue from our financial statements.

Our cost of product and product related services revenue was 855000 in 2020 to 785000 in 2021.

Our 2021 cost of revenue included $145000 of employee retention credits, which did not recur in 2022.

Research and development expense was $1 9 million in the first quarter of 2022 compared to $1 4 million in 2021.

For the first quarter of 2022 ongoing research and development costs related to our core profiling technology amounted to $1 2 million with the remaining $7 million attributable to our therapeutics business here.

Q1, 2021 research and development expense was entirely devoted to our core profiling technology.

Approximately $133000 of employee retention credits offset 2021 research and development expenses.

As John mentioned, our HCP 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 transcript on panelists kits into sample processing services performed at our very own laboratory totaled $5 million in the first quarter of 2022.

Our operating loss for Q1, 2022 was $6 3 million.

Compared with $4 6 million for 2021.

Our 2021 operating loss reflected the benefit of <unk> 5 million.

Our employee retention credits, which did not recur in 2022.

Net loss per share was it again for the first quarter ended March 31.

2022, and <unk> 80 for the same period in 2021.

This reflects additional shares of common stock sold in the first quarter of 2022 through a private placement of our securities.

As of March 31, 2022, we had approximately $8 6 million shares of common stock outstanding.

March 21 2022.

We closed the private placement of our securities for gross proceeds of approximately $7 $5 million with.

The transaction increased our common shares outstanding by approximately 834000 shares and included approximately $2 $4 million pre funded warrants for common stock, which were also included in the calculation of earnings per share as of March 31 2022.

We ended the quarter with $21 $6 million in 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 and Q1, we made significant progress in our efforts to evolve H T. G into a disruptive hybrid life science drug discovery company.

Going forward, we expect to see improvement in the coming quarters as customer access increases and the industry continues to reset from COVID-19 caused disruptions and.

In drug discovery, we're moving at great speed and with White paper, one we've proven that our technology can be used to observe structural differences in small molecules are cornerstone capability the.

The next step will be to use this proven technology on our own proprietary library and are on target to start the process to develop a derisk drug candidate.

I remain very optimistic that we will have a licensed small asset in the fourth quarter of this year and then with follow on candidates thereafter.

For 2022, our strategic priorities are going to be first to continue to grow our profiling business and pharma programs to both fund continuing operations create companion diagnostic opportunities and to ease cash burn.

Second in a cost efficient manner to continue to develop our proprietary profiling and chemistry technology and develop a pipeline of licensed drug candidates with the first license will candidate targeted for Q4 of this year.

As in prior years, we published a calendar of strategic milestones and I look forward to updating you as we advance our vision of a new <unk>.

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

Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad you were here at Cowen acknowledging your request.

If you are using a speakerphone please pick up your handset before pressing any keys.

To withdraw your question. Please press Star then two.

We will pause for a moment as callers join the queue.

The first question comes from the Pasha <unk> with H C. Wainwright. Please go ahead.

Hey, John Sean. Thank you very much for the update so I have two questions regarding revenue growth and potential milestones for this year.

First one as you know Covid has been a challenge for many companies right.

How do you anticipate driving further revenue growth and if you could speak 20 evidence to support that and then number two from a milestone standpoint, I know you mentioned the white paper that's number two.

What could be some other additional examples.

Caps data readouts or collaborations that we might expect later this year. Thank you.

Great. This is Jon so thanks for those questions. So first of all yes COVID-19, yes.

Probably the biggest thing we're seeing there is just still delays in the sales cycle people will tell us one day and then <unk>.

Samples of command that date plus 30.

What we're seeing so what are we doing about that well. The first thing is we've kind of completely retooled and retrained our sales organization.

We had some unexpected turnover through the year, especially towards the end of the year I think that's somewhat impacted us in Q1.

But one of the key initiatives that the total transcriptome or <unk> product.

<unk> opens the door for H CGI is to sell into markets. In addition to oncology oncology has always been our sweet spot, but if you're on some of the mail list. This week youre actually probably going to get some hcg E mail around how to use our whole transcriptome product in infectious disease, specifically COVID-19. So it's important that we.

We push into other disease areas, we're measuring kind of how what percentage of our business.

Is coming from Matt because today, it's still the lion's share is still oncology. So that's one area, where we're very bullish that we're going to be able to grow the business. The second was you may have caught we harmonize the protocols for the micron A&D HCP product that this essentially allows us to kind of double up.

Customers that are interested in HCP because they are probably also interested in our whole transcriptome micro RNA point of view, so that allows us to kind of double sales there.

And then lastly, we've got now a very concerted effort on what we call OEM and <unk>, while we've actually brought in a senior executive to focus on that and that's where we want to use our <unk> as a platform technology for people to either use in their laboratories for their own proprietary.

Content or in our CLIA laboratories to build out laboratory developed test to provide better better diagnosis and better treatment options for patients. So we've got a lot going on to grow revenue regarding the milestones.

Good question there so that we believe that at the end of the second quarter milestone, which is going to be essentially a data pack of transcript almac information based on our proprietary target using our own library, we will have enough to begin to start having conversations.

With some potential pharma partners in regards to part.

Different partnering options than perhaps what we've done before and then in Q3, we expect to have an early preclinical data pack, which we will then make public will still keep our target hidden and then in Q4. We'll finally have actually are our late preclinical characterization of that molecule.

Where we will actually disclose target and we will have a couple of our lead molecules that will start to present data on so those are some of the key milestones obviously as we engage customers both on our profiling business and on the drug discovery business.

I would expect.

Youll start to see some press releases from hcg around partners and collateral collaborators on both ends of that business.

Great. Thank you.

Once again, if you have a question. Please press Star then one.

At this time I see no further questions in the queue and would like to turn the call back over to John Mackey for closing remarks.

Yes, I'd like to thank everyone again for joining us today again want to thank the employees here at <unk> for their tremendous hard work and self sacrifice as we continue to grow this company.

In addition, I'd like to thank our board and 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 day.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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