Q2 2022 HTG Molecular Diagnostics Inc Earnings Call
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Good afternoon ladies and gentlemen and welcome to the HTG Molecular Diagnostics Inc. 2nd Quarter 2022 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star and zero. As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Andrew Erickson of LifeSci Advisors. Please go ahead.
Before we begin the call today, 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 HTP and whole transcript and MIRNA panel for their studies as a result of the Harmonized Sample Preparation Protocol.
The importance of the company's HTG transcriptome panel, statements related to the company's HTG therapeutics and drug discovery business, the impacts of recent hires, our planned white paper for specific drug discovery application, our expectation that HTG may become a disruptive hybrid lifestyle drug discovery company.
Expected improvement 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 HTG's control, including uncertainties regarding the ongoing COVID-19 pandemic, as well as labor and supply chain issues.
and their impact on HTD 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 those risks and uncertainties described from time to time in the company's SEC filings, including under the risk factors heading for the company's quarterly report on Form 10Q, which will be recorded on June 30, 2022.
HTG cautions listeners not to place undue reliance on any forward-looking statements. HTG is providing this information at the date of this call, August 11, 2022. The company undertakes no obligation to update any forward-looking statements. With that, I would like to turn the call over to John Lubineski, Chief Executive Officer. John . Good evening, everybody, good evening, this is the group, and I'm flushed off the stage. We always go home and have Longhorn again.
Good afternoon everyone. As always, it's great to be here to provide an update on the progress of the company.
This quarter had some major successes and we've also had some ongoing challenges.
But we've continued to face these challenges head on, and we've made adjustments to our operating plan that we believe allows us the best opportunity to achieve our vision at HTG.
So let me start with a reminder of our vision and our strategy.
We have what we believe is disruptive technology that partners RNA profiling and medicinal chemistry.
and that we're using to address two of the most significant challenges in drug development, that is drug candidate attrition and getting the right drug to the right patient.
We're using our technology and molecular profiling to study disease and in drug discovery to de-risk the drug development process.
These are significant opportunities.
The combined biotech and pharma market is almost $800 billion today and is expected to grow to almost $1 trillion in the next four years.
The precision diagnostic market is approximately $25 billion today and expected to grow to $50 billion in that same time frame.
We believe our technology can continue to disrupt and add substantial value in these large and growing markets.
We continue to fire on all cylinders as it pertains to our strategic development objectives and have achieved all of our first half development milestones.
Our assay development team delivered our RNA modification assay, which we're using internally as part of our drug discovery platform of tools.
Our drug discovery team delivered a second white paper that builds off the first white paper we issued in Q1.
The second white paper is the next big step in our drug discovery process, proof of concept, where we designed a library to screen for our first target, what we call HTG-T1.
for our first two medications.
and then conducted follow-on RNA analysis from the cell lysates.
As expected, this data confirmed our ability to biologically distinguish closely related compounds for the same target, as well as to see indication-specific effects.
This data is now being used by our therapeutics team to inform chemistry optimization.
with the aim to improve biological response and reduce potential undesirable properties of our lead compounds.
We're also pleased to showcase this data in our second white paper, as well as to hear about the advantages of using RNA profiling in candidate development from one of our KOLs, Dr. Roberts-Bitali, at our recent Drug Discovery Investor Day.
The next milestone for HTG will be an early preclinical characterization for our lead compound and our first indication.
This process will then be repeated with additional indications and for follow-on targets.
In short, right now we believe we're on spec and on plan with our drug discovery initiative.
In our profiling business, we continue to face challenges as we try to get this business back to pre-pandemic growth.
Oncology trials are still not back to where they were in 2019 and this is impacting our profiling business.
However, we are seeing this market return, albeit slower than we would want.
Our revenue for this quarter was $1.5 million compared with $2.1 million for the same period of 2021, primarily reflecting this continued sluggishness in the oncology market.
While this is off from prior year, it is an increase in the prior quarter and is consistent with the marked heart recovery that we're now seeing.
Going forward, we're seeing increasing momentum in customer attention, customer interest in our technology, and especially our new HTTP panel.
which is positively changing the tensile's reach to the G.
We've expanded these trends continue through 2022.
During the second quarter of 2022, we added 11 new customers and finished the quarter with 50 active pharma programs.
We also added 12 publications referencing HTG technology, including our first peer-reviewed article on HTTP and frontiers of medicine.
This brings the total number of publications referencing HTG to over 370.
We also had two exciting customer presentations showcasing the use of our technology in pharma applications.
In the first presentation, Dr. Shaden Deshpande from Pfizer gave a keynote talk at a companion diagnostic conference showcasing the use of ADHD-
This was followed by a webinar by Dr. Peter Gere and Dr.
With this caliber of customer testimonials, we remain confident in our value proposition and the opportunity in profiling even with a delayed revenue recovery.
Despite our continuing optimism for the impact of our technology can and will have both in profiling and drug discovery, we have acknowledged these continuing market headwinds and have worked to ensure that our operating plan properly addresses the financial impacts that they have had.
As a result, in the second quarter we made significant adjustments to spending to contain cash burn, rightsizing our organization for expected revenue while maintaining our capabilities to continue to grow and address new market applications to fully leverage the capabilities of our technology.
We believe these spending adjustments will allow HTG to achieve our stated business objectives while still being responsible to our balance sheet.
With that, I'd like to now turn the call over to Sean for a deeper dive on our financials.
Thanks, John . Revenue for the second quarter of 2022 was $1.5 million compared with $2.1 million in 2021. Our 2022 and 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 1 million dollars for the second quarters of 2022 and 2021.
Our 2021 cost of revenue included approximately $160,000 in employee retention credits, which did not recur in 2022.
Research and development expense was $1.8 million in the second quarter of 2022 compared with $1.3 million in the second quarter of 2021.
For the second quarter of 2022, ongoing research and development costs related to our core profiling technology amounted to $1.2 million, with the remaining attributable to our Therapeutic System Speaking Unit take as South FloridaTHERAPIC Odd with living with affects career career
Q2 2021 research and development expense included $0.2 million attributable to the early stages of our therapeutics business unit.
Approximately $144,000 of employee retention credits offset 2021 research and development expenses.
As John mentioned, our HDP product continues to be our best-selling profiling panel in 2022, continuing to see growing adoption and demand since launch in August 2021.
Sales of our transcriptome panel is kits and through sample processing services performed in our Vera O laboratory.
totaled $0.6 million in the second quarter of 2022, over 40% of our overall revenue. Our operating loss for the second quarter of 2022 was $5.7 million, compared with $4.1 million for Q2 2021. Our second quarter 2021 operating loss reflected the benefit of $0.6 million of employee retention credits, which did not recur in 2022.
Net loss per share was 54 cents for the second quarter of 2022 and 39 cents for Q2 2021.
This reduction reflects additional shares of common stock and pre-funded warrants sold in the first quarter of 2022 through a private placement of our securities Kerry
As of June 30, 2022, we got approximately 11 million shares of common stock outstanding.
In July 2022, we amended our senior credit facility removing the financial covenant requiring a minimum liquidity level. As a result, we prepaid $2.5 million of our outstanding principal due on the loan without penalty. The unamortized loan balance will continue to be paid in equal monthly payments through the original maturity date of December 1, 2023.
Our balance sheet as of June 30, 2022 reflects the amendment.
We ended the quarter with $14.1 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.
In the second quarter, we continue to make significant progress in our efforts to evolve HTG into a disruptive hybrid life science drug discovery company.
We believe our drug discovery initiative is going extremely well and that we have a transformative technology engine.
that can help solve the age-old problem of drug candidate attrition during clinical development.
In profiling, we continue to make adjustments to regain our growth and closely manage our cash burn.
We've opened several potential OEM conversations, and we've got early project work with many new pharma customers.
HTP has quickly become our biggest selling product, and we believe as oncology trials get back on track, we have the right products to address these trials, as well as to expand in the new disease areas.
Through the first half of 2022, HTG achieved all its strategic milestones.
seeing Q2 growth over Q1, made adjustments to our spending, and strengthened our balance sheet.
We have exciting events on the immediate horizon. And I believe the next 12 months will be transformational for HDG.
With that, I'd like to open up the call for questions. Operator.
Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a 3 tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, you can press the 1 followed by the 3.
And as a reminder, you can press the one for to register any questions. And our 1st question is from the line of Kristen. Please go ahead.
Good afternoon. This is Rick on for Kristen. Thank you for taking our questions. First off, you mentioned that the first peer reviewed article featuring HTP was published by an early adopter program team. Could you talk a little bit about the publication process for early adopters? How much visibility do you have into the process when teams that are in the program are going to publish? And do you have any idea how this could develop in the near term with publications?
Yeah, this is John , thanks for that question. We do have visibility, we believe we've got probably between three and five additional papers that will follow. We're actually really pleased to get one out within a year. Usually sometimes these things take quite a bit of time. This publication, although the subject matter actually escapes me right now, came out of Europe and we're again expecting this to move on. As Sean was indicating and we talked about.
You know, this product really has become our lead product. I think between this and our microRNA product, the vast majority of our revenue and profiling going forward is going to be based on that. We're going to have some of our legacy customers who have already started work with some of the older panels use those to complete it, but we're seeing more and more people just wanting to move to the whole transcriptome product.
Okay, maybe just one more from us. We've noticed and you've mentioned that your team spent more time highlighting how partners are using the technology and we, of course, remember that you previously talked about the potential for HTP across different disease areas rather than just cancer. So internally, are you seeing that partners are utilizing the HTP for a broader array of disease areas and settings like you previously envisioned? Yes.
Absolutely. Although, you know, the Q2 results, if you will, still reflected customer access issues for us, we're now in the last few weeks actually being able to get in front of a lot more customers. My head of commercial has actually been on the road the last couple of weeks, which is a change statement really for the last couple of years. And to your question specifically, you know, we're looking at disease areas like derm, for example, and working with different types of sample types.
And that opens up cohorts that are significantly bigger than just oncology. So we're excited about the new dialogues we've got going, the new potential customers that we could bring on in Q3 and Q4, and the opportunities that the whole transcriptome profiling technology has opened up for HTG.
That's great. Thank you very much.
Thank you.
And we have no further questions on the line at this time. I will now turn it back to management for closing remarks.
Well, I'd like to thank everyone again for joining us today. This was an important quarter for us strategically. Again, we achieved all of our strategic milestones. It was a super exciting... I'll say here, two of our customers talk about their enthusiastic use of our technology. So I'd like to thank the employees here at HTG for their continued work and self-sacrifice as they continue to demonstrate all of the can-do and above the line behaviors we need to grow this company.
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