HTG Molecular Diagnostics, Inc. (NASDAQ:HTGM) Q2 2022 Earnings Conference Call August 11, 2022 4:30 PM ET
Company Participants
Andrew Eriksen – LifeSci Advisors
John Lubniewski – President, CEO & Director
Shaun McMeans – SVP, CFO, Secretary & Treasurer
Conference Call Participants
Richard Miller – Cantor Fitzgerald
Operator
Good afternoon, ladies and gentlemen, and welcome to the HTG Molecular Diagnostics, Inc. Second Quarter 2022 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Andrew Eriksen, of LifeSci Advisors. Please go ahead.
Andrew Eriksen
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, expectations regarding profiling revenue in future periods, our expectation that customers may use our HTP and Holt transcriptome mRNA 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 highs, our planned white paper for a specific drug discovery application, our expectation that HTG may become a disruptive hybrid [indiscernible] drug discovery company, expected improvement in the coming quarters or 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 HTG 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 of the company’s quarterly report or on Form 10-Q during the quarter ended June 30, 2022, filed today with the SEC. HTG cautions listeners not to place undue reliance on any forward-looking statements. HTG is providing this information as the date of this call, August 11, 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 Lubniewski, Chief Executive Officer. John?
John Lubniewski
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 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 a disruptive technology that partners RNA profiling and medicinal chemistry and that we’re using to address 2 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 in molecular profiling to study disease and in drug discovery to derisk 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 4 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 the library to screen for our first target, what we call HTG T1 for our first 2 indications 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 biologic response and reduced potential undesirable properties of our lead compounds.
We’re also — we’re 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. Robert Spitale 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 market recovery that we’re now seeing. Going forward, we’re seeing increasing momentum in customer [indiscernible] or interested in our technology and especially our new HTG panel, which has positively changed the [indiscernible] HTG we expect these trends to continue during 2022.
During the second quarter’s 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 HTP and frontiers of medicine. This brings the total number of publications referencing HTG to over 370.
We also had 2 exciting customer presentations showcasing the use of our technology in pharma applications. In the first presentation, Dr. Chetan Deshpande, from Pfizer gave a key talk at a companion diagnostic conference showed passing use of HD technology clinical trials, which was followed by a webinar by Dr. Peter [indiscernible] from AbbVie who discussed their broad use of HTG technology in translational medicine and clinical development. With this caliber of customer testimonials, we remain confident in our value proposition and the opportunity in profiling even with the 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 Shaun for a deeper dive on our financials.
Shaun McMeans
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 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 business . 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 HTP product continues to be our best-selling profiling panel in 2022. And continuing to see growing adoption and demand since the launch in August 2021. Sales of our transcriptome panel kits and through sample processing services performed in our VERI/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 $0.54 for the second quarter of 2022 and $0.39 for Q2 2021. This reduction reflects additional shares of common stock and prefunded warrants sold in the first quarter of 2022 through a private placement of our securities. As of June 30, 2022, we had 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.
John Lubniewski
Thank you, Shaun. In the second quarter, we continued 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 conservative 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 into new disease areas.
Through the first half of 2022, HTG achieved all the strategic milestones, seen 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 HTG. With that, I’d like to open up the call for questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions]. And our first question is from the line of Kristen Kluska with Cantor Fitzgerald.
Richard Miller
This is Rick on for Kristen. 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 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?
John Lubniewski
Yes. This is John. Thanks for that question. We do have visibility. We believe we’ve got probably between 3 and 5 additional papers that will follow. We are 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.
And as Shaun was indicating, and we talked about, 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 used those to complete it, but we’re seeing more and more people just wanting to move to the whole transcriptome product.
Richard Miller
Okay. Maybe just one more from us. We’ve noticed, and you’ve mentioned that your teams spent more time highlighting how partners are using the technology. And we, of course, remember 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 in settings like you previously envisioned?
John Lubniewski
Absolutely. Although 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, we’re looking at disease areas like , for example, and working with different type 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.
Operator
And we have no further questions on the line at this time. I will now turn it back to management for closing remarks.
John Lubniewski
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 super exciting. Mostly here, 2 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. And I’d also like to thank our Board as well as 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 afternoon. .
Operator
That does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you, and have a great day.
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