HTG Molecular Diagnostics, Inc.
Q1 2017 Earnings Call Transcript

Published: 16 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the HTG First Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference maybe recorded. I would now like to turn the conference over to your host, Mr. Jamar Ismail, Westwicke Partners. Sir, you may begin.

[Jamar Ismail:]

Thank you. Earlier today, HTG released financial results for the quarter ended March 31, 2017. Before we begin the call, let me remind you that the Company’s remarks include forward-looking statements within the meaning of federal securities laws, including statements regarding potential growth in pharma collaborations, and clinical diagnostic opportunities, possible additional collaborations from existing pharma customers, expected benefit of HTG’s collaboration with QIAGEN, expected commercialization activities in Europe and planned chemistry development. These forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond HTG’s control that may cause HTG’s 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 HTG’s SEC filings. HTG cautions listeners not to place undue reliance on any forward-looking statements. HTG is providing this information as of the date of this call and HTG undertakes no obligation to update any forward-looking statements. With that, I would like to turn the call over to TJ Johnson, President and Chief Executive Officer. TJ?

[TJ Johnson:]

Thank you, Jamar. Good afternoon, everybody, and thank you for joining us on our first quarter conference call. On today’s call, I will provide a summary of our Q1 results and progress toward our long-term goals. I will then turn the call over to our CFO, Shaun McMeans to cover our Q1 financial results. After that, I will make some closing comments and then open the call to your questions. I want to start by thinking the entire HTG team for their commitment, dedication and outstanding efforts throughout the serve our cash resources while we continue to drive our business forward. As indicated in our earnings release to our ATM facility lost in April, we have now raised $10 million. We are also optimistic about our business prospects particularly as they relate to our pharma companion diagnostic pipeline. We expect to sign one or more companion diagnostic agreements in the near future and believe our pharma pipeline will provide us with additional opportunities for potential companion diagnostic collaborations in 2017. We believe our partnership with QIAGEN for precision diagnostics and pharma is now in full stride and we’re very encouraged by customer reception to our joint capabilities, which provide to defined solution from biomarker development to full companion diagnostic commercialization. We’re very pleased with the early results and the QIAGEN HTG teams are collaborating very effectively to early successes. As we have discussed Europe is very important element of our growth plans and the European team has delivered several key collaboration agreements, which we believe lay the foundation for continued growth in 2017 and beyond. Our research agreements with Centre Léon Bérard or CLB in Institute Valencia Oncología or IVO are tremendous examples of our expanding relationships with key European customers setting the stage for potential future diagnostic assays, which provide reoccurring reagent revenue streams. Our IVO agreement is focused on the large breast cancer market and the sooner, we all agreement is they strategic immuno-oncology collaboration involving both solid and liquid biopsies. These two agreements are continuing examples of how we intend to develop research collaborations with new diagnostic tests of the primary goal. We expect significant growth over 2016 in the European market in both products and services in our competence of building considering our HTG EdgeSeq DLBCL video launch, where we have multiple sites working to validate the assay, our initial new product launch progress on our HTG EdgeSeq out plus USA continuing Firalis collaboration for the Rabiopred auto immune assay and the new collaborations I just mentioned. Now an update on our new products, our HTG EdgeSeq out plus EU commercialization in Europe is moving forward as planned. European team has initiated work steams with early adopter customers in each of our targeted geographies including new study demonstrating our performance in comparison to the current assays on market including FISH. We are also advancing our efforts to gain market access or reimbursement with local specialists of the system. When you have HTG EdgeSeq out plus assay we have submitted the first three modules of our PMA submission and are actively working with the FDA to respond to their questions and feedback, which we believe has been helped by a modular approach. The timing of the submission of our module four is currently uncertain. It will be subject to our alignment with FDA on the statistical analysis plan for the method comparison study, timing of the clinical trial and competing internal funding priorities. We remain confident in our path here in the U.S. that we’ve discussed before our meeting opportunity and focus for the HTG EdgeSeq out plus is in Europe. Also the HTG EdgeSeq mutation assay utilized in our new direct-target sequencing chemistry is fully operational in our VERI/O lab. Our recent announcement, on the expected availability of the new HTG EdgeSeq PATH Assay is another step in our overall next generation pathology strategy. This product was developed to enable the molecular analysis of a comprehensive panel of current immunohistochemistry markers approximately 470 genes from one section of FFPE issue. Considering that tissue biopsies are getting smaller and less invasive, we believe the ability to molecularly analyze these markers in a highly multiplex panel from small sample should be an aid and in some situations a replacement for typical a sustaining on a marker by marker basis. We are actively engaging early adopter customers in various applications for this assay and planned to have the product release per shipment by the end of June. I will now turn the call over to Shaun.

[Shaun McMeans:]

Thanks, TJ. Our total revenue was $1.4 million for the first quarter compared to $0.9 million in Q1 2016, an increase of 58%. Our product revenues including instruments and consumables were $0.5 million in Q1 compared to $0.6 million in Q1 2016. Consumables revenue was $0.5 million in both the first quarter of 2017 and 2016. Service revenue increased 213% to $830,000 in Q1 from $265,000 in the first quarter of 2016. Our Q1 gross margin was 6% compared to 3% in Q1 2016. Our operating expenses decreased to $5.5 million for Q1 from $6.7 million in Q1 2016. SG&A costs were $4.2 million in Q1, down slightly from $4.7 million in Q1 2016, reflecting the consolidation of our salesforce and reduced investment in our academic research efforts. Our research and development expenses were $1.3 million in Q1 compared to $2 million in Q1 2016, primarily a result of placing Project Janus on hold in the second half of 2016. Our operating loss for Q1 was $5.4 million compared to $6.7 million in Q1 2016. Net loss per share was $0.73 for Q1 and $1.02 for Q1 2016. We ended Q1 with $5.4 million in cash and investments as of May 12, we’ve raised $10 million from our ATM facility. At this point, I would like to turn the call back to TJ, for closing comments.

[TJ Johnson:]

Thank you, Shaun. In closing, we are extremely pleased with the progress and results from our pharma pipeline in both existing and perspective customer response to the HTG QIAGEN partnership. Our pipeline continues to grow in number and in nature of improving to later stage higher value programs. We are gearing up for new companion diagnostic programs in our research and development area and in our VERI/O lab and expect growing service the milestone based revenues. We believe our European strategy and efforts are coming to fruition and as stated we expect there to be a key growth catalyst for us for the rest of this year and beyond. The HTG EdgeSeq DLBCL and out plus assays are our first commercially available clinical assays and significant work is ongoing with early adopter sites paving the path are expected instrument in reoccurring reagent revenue streams later this year and ramping in 2018. Notwithstanding the group cash management measures we have taken over the past several months. We believe our business is progressing well and we’re executing soundly against our longer-term plans. I’ll now open up to questions.

[Operator:]

Thank you. [Operator Instructions] We have a question from Mark Massaro of Canaccord. Your line is open.

[Mark Massaro:]

Hey TJ, thanks for taking the question. The first question is can you provide an update on where you stand with your installed base of instruments and whether or not you had any net placements in the quarter?

[TJ Johnson:]

Sure. I believe Mark we were at 42 net positive one on installed base and we now have already evaluation fleet down from 21 to 4. And then we have three in KOL sites.

[Mark Massaro:]

Okay, okay. And I was wondering if you could also provide a little more color as far as the fourth module and I apologize I dialed in a little bit late to the call, I understand you sort of lack visibility on the timing of the fourth module, can you provide any more color as to what some of the moving parts are in to what extent are those parts in your control versus outside of your control.

[TJ Johnson:]

Sure, no problem Mark. First of all, we’re very engaged with FDA on responding to their questions and feedback on the first three modules and that is keeping our team very busy. The timing of the fourth module submission has been held predominately for two reasons, one, continuing dialogue with FDA on our statistical analysis plan for the method comparison study. That’s very much in our control as we have those discussions with FDA on the method comparison study. The second is funding. We’ve held off on the method comparison study for the last two quarters as we were working on are financing, now that we’re seeing positive flows through our ATM vehicle, we’re now back looking at a hard, start to the method comparison study and moving forward. So I’m not quite ready to put a specific date on it just yet, but I think we’re still very hopeful that we would be able to finish the study and submit the PMA model for this year.

[Mark Massaro:]

Okay. So now your expectation would kind of move towards submission by the end of 2017 given the timing of the method comparison study.

[TJ Johnson:]

Yes. Yes, I think as we entered the year late last year, we would have been targeting mid-year early Q3 for the submission, I think as definitely moved to the end of the year. We’re hopeful Mark and that we’ve completed the first three modules and would have worked through all the various feedback and questions from FDA that the turnaround time on module four would be fairly quick, which will enable us the lion’s share of 2018 for commercialization focus, but obviously that is an area that we don’t control and will have to monitor once we get there.

[Mark Massaro:]

Okay, great. And then as we think about some of your large partnerships like QIAGEN and Merck KGaA. Can you point us to some of the more significant like milestone type events investors should be thinking about as we think about the balance of the – through the end of the year in 2017 as large events to be monitoring.

[TJ Johnson:]

Absolutely. First we’re proceeding on schedule with the 2017 milestones with our Merck KGaA program. As it relates to our QIAGEN precision diagnostic partnership, we really established a goal that we completed one companion diagnostic agreement on our own in 2016 and we would expect to at least double that if not more in 2017 with this partnership. I think we are on the glide path to do that. I think investors should be looking for imminent news out of this partnership on near in companion diagnostic programs and that we believe should be at least one if not more in the near-term and we believe the final building nicely potentially be more and certainly to have momentum going into 2018.

[Mark Massaro:]

Great. Look forward to that update.

[TJ Johnson:]

Yes. We just like to give you more, but I can’t just yet.

[Operator:]

Thank you. Our next question comes from Yi Chen of H.C. Wainwright. Your line is open.

[Yi Chen:]

Hi, thank you for taking my question. Could you give us some color on what – how big of an impact on revenue in the second which expect from the launch of PATH Assay. And also for the remainder of 2017, what kind of revenue gross can we reasonably expect from the agreements with Daiichi Sankyo, Centre Léon Bérard and all the others.

[TJ Johnson:]

Sure, Yi. First of all we’re not really predicting a lot of revenue impact of 2017 from the PATH Assay launch of predominately in Europe. We are working in a fairly large list of early adopter customers where we’re doing extensive work in the generating data to help drive customer adoption, but in internally we’re looking at the path as some upside to 2017 predominantly in 2018 revenue story for that assay. We do expect the Daiichi Sankyo to have a material effect for us in revenue recognition in the second half of the year. The other two agreements are likely going to be fairly small revenue stories for us in 2017 as we work through the initial research phases of those agreements. And then as we move from the research elements of those agreements into the clinical deployment assuming their successful we would expect to see that jump for us into more of a typical razor blade or reoccurring revenue stream in 2018. We do expect to see some material continued growth in our service in milestone based revenues in the back half of this year associated with the pipeline of near-term companion diagnostic agreements that are associated with our partnership.

[Yi Chen:]

Okay, thank you.

[TJ Johnson:]

You’re welcome.

[Operator:]

Thank you. I’m showing no further questions at this time. I’d like to turn the call back over to TJ Johnson for any closing remarks.

[TJ Johnson:]

I’d like to just thank everyone for participating in the call this afternoon and your support for the company and have a good evening.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you for your participation. Have a wonderful day. You may all disconnect.