Bionano Genomics, Inc. Q1 FY2022 Earnings Call

Good day, and welcome to the Bionano Genomics First Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Amy Conrad from Investor Relations. Please go ahead.

Thank you, Jess, and good afternoon, everyone. Welcome to the Bionano Genomics' First Quarter 2022 Financial Results Conference Call. Leading the call today is Dr. Erik Holmlin, CEO of Bionano. He is joined by Chris Stewart, CFO of Bionano. After the market closed today, Bionano issued a press release announcing its financial results for the first quarter of 2022. A copy of the release can be found on the Investor Relations page of the company's website. I would like to remind everyone that certain statements made during this conference call may be forward-looking, including statements about Bionano's revenue outlook, strategic and commercialization plans, anticipated benefits or improvements to Bionano's products, including the Saphyr system and NxClinical software, anticipated milestones for 2022, and the advantages of the Saphyr system over current technologies and Bionano's expectations regarding study results and anticipated benefits of these studies in driving adoption of OGM. Such forward-looking statements are based upon current expectations, and there can be no assurances that the results contemplated in these statements will be realized. Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in Bionano's press release and Bionano's reports filed with the SEC. These forward-looking statements are based on information available to Bionano today, and the company assumes no obligation to update statements as circumstances change. In addition, to supplement Bionano's financial results recorded in accordance with US generally accepted accounting principles, or GAAP, the company is reporting non-GAAP operating expense. This non-GAAP financial measure is not meant to be considered in isolation or as a substitute for comparable GAAP measures, should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP, has no standardized meaning prescribed by GAAP, and is not prepared under any comprehensive set of accounting rules or principles. A description of non-GAAP operating expense and reconciliation of non-GAAP operating expense to GAAP operating expense are included at the end of the company's earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website. An audio recording and webcast replay for today's conference call will also be available online on the company's Investor Relations page. With that, I will turn the call over to Erik. Erik?

Thank you, Amy, and good afternoon, everyone. We are really thrilled with our Q1 results. The momentum that built over 2021 has continued into this first quarter of 2022. I want to begin today's call with a summary of some key business highlights. So revenue was $5.7 million for Q1 2022, which represents an 80% year-over-year increase compared to the same period of 2021. In this first quarter of 2022, the revenue was a record for any first quarter in the company's history. Our Saphyr installed base grew to 176 systems as of March 31, 2022, which represents 64% growth over Q1 2021. In the quarter, we sold 3,225 flow cells, representing a 24% year-over-year increase compared to the same period in 2021. We ran 329 samples in Bionano laboratories in the first quarter of 2022, reflecting a 45% year-over-year increase from the same period in 2021. We counted some 42 publications on optical genome mapping, or OGM, in the quarter, and we announced the publication of the first readout of our ongoing clinical study in postnatal genetic diseases, which reported strong data that we believe will allow completion of the study this year. The Bionano Symposium, which is the quintessential event for the OGM community, kicked off this year with a 63% increase in average daily attendance over 2021, which was the first year that we hosted the Symposium. This year it included 31 presentations, 37 posters, all of which highlighted OGM's utility in a variety of applications across genetic diseases, cancer, and analysis for bioprocessing and gene editing. Other events in the first quarter included the China Symposium, which was hosted entirely in Mandarin and featured many speakers who have experience with optical genome mapping in China. We were at the ACMG, which is the College of Medical Genetics and Genomics. That's where we launched our RUGD initiative, focusing on the 350 million people with rare diseases. We were at the AACR annual meeting and featured optical genome mapping in an additional 19 presentations and posters overall, which continue to expand the message of how optical genome mapping is utilized. Our customers are consistently excited about the capabilities of optical genome mapping, and they are working with us to evangelize this technology around the world. Now I want to take a moment to speak about the performance of our stock price. As you know, our sector of growth stocks in healthcare has experienced a greater impact than the broader market. While we are disappointed with the performance over the past several months, our focus as leaders of the company is on executing our long-term growth plan, achieving the milestones that we outlined during our last call and will revisit today, which have been designed to drive value. We're pleased that we have achieved all of our anticipated milestones in 2021, and we expect to achieve those stated milestones for 2022. Looking ahead to the rest of this year, our financial guidance remains on track, expecting full-year 2022 revenues to be in the range of $24 million to $27 million, which would represent a growth of 33% to 50% over full-year 2021 revenue, and we expect second quarter 2022 revenues to be in the range of $6 million to $6.5 million. Now before handing over to Chris to cover some of the financials in a little more detail, I want to spend time to break down our plan for growth and long-term value, which is based on the five pillars that we set out during our last call. The first pillar is expanding commercial traction and validation of optical genome mapping with Saphyr. We want to drive adoption of optical genome mapping by targeting roughly 2,500 labs, comprising academic medical centers and regional reference labs, that account for about half of the sample volumes processed in cytogenetics. The applications driving adoption are genetic disease research, including rare undiagnosed genetic diseases, or RUGD, and cancer. In RUGD, optical genome mapping is providing valuable information in diagnosing diseases that are challenging to diagnose using current techniques. In cancer, our primary focus initially is on blood cancers: leukemias and lymphomas. If we are able to continue penetrating these segments and growing our installed base, we believe we will validate optical genome as an emerging method that is gaining widespread traction in the field, which can play an important role in influencing the various agencies that evaluate applications for reimbursement of OGM-based tests, or consideration of OGM in various guidelines set by medical societies. We have set an ambitious goal of reaching 240 Saphyr systems installed worldwide by the end of 2022, and we are on track to achieve it. Another important component of validation that comes with increasing the installed base would be if OGM users develop their own assays and validate them as laboratory developed tests, or LDTs, or similar types of assays outside the U.S. A growing installed base and a number of laboratory developed tests would provide agencies that evaluate the relevance of new medical technologies such as OGM, including the American Medical Association, Centers for Medicare and Medicaid Services, World Health Organization, and others, with the evidence that there is an established need in the field that optical genome mapping could impact. So, the first pillar is focused on expanding the installed base with driving validation. The second is to delight our customers with robust products that are suitable for routine use at scale. We believe successful customers at this stage of our commercial ramp are incredibly important. Not only do we expect them to form a part of our base for consumables revenue growth, but we expect them to serve as a network of early adopters that advocate for the utility of OGM and for Bionano as a partner. One area where our commercial headcount has grown substantially is in customer solutions. This team installs Saphyr systems, trains lab and data analysis personnel, and supports them as they run and analyze their samples. We believe this investment is important to keep the installed base growing, productive, and to keep them excited about the increasing capabilities of optical genome mapping. In addition to building a strong support team, we have several planned product updates, including updates to our DNA isolation and labeling chemistries, integration of optical genome mapping into our NxClinical software. These advances should simplify product workflows and enhance ease of use while eliminating challenges to product shelf life or performance in the field. We are focused on customer delight and product robustness. The third pillar in our plan focuses on clearing the path for reimbursement of optical genome mapping-based tests. We are building a critical mass of OGM data through our family of clinical studies. We have discussed these studies on a repeated basis and it's a significant investment that the company is making. These studies are designed to evaluate optical genome mapping utility in various indications: genetic diseases, hematologic malignancies, and cancer solid tumors. As these studies progress, they provide essential comparisons against the standard of care that, if compelling, could result in optical genome mapping being included in medical society recommendations such as those by the College of Medical Genetics, World Health Organization, and National Comprehensive Cancer Network, or NCCN, in cancer. These four studies are underway or getting underway, providing critical support and further advancing our ability to penetrate our target markets and support potential third-party reimbursement by insurance companies and other agencies responsible for paying for healthcare. These studies span our major markets and have been designed to demonstrate optical genome mapping as an alternative to traditional cytogenetic methods, emphasizing key endpoints: concordance with the standard of care, an increase in the success rate for finding pathogenic variants, health-economic impact, and the potential for revising protocols for patient management that we hope will lead to better outcomes. The long-term goal of these studies is to provide critical data that support optical genome mapping as a standard-of-care in the field. As these studies progress, we believe the data will serve as a basis for applications of optical genome mapping going forward and we plan to keep you continuously updated. More publications on these studies will be forthcoming. The fourth pillar of our plan is to advance our products in ways that enable higher market adoption of current products and entry into new markets. In addition to rolling out enhancements that are focused on robustness, we are working on major new products that we anticipate releasing over the course of this year and into 2023. The first of those products is version 7.0 of our NxClinical software, acquired through the acquisition of BioDiscovery. This version of NxClinical is designed to fully integrate structural variation, visualization, interpretation, and reporting capabilities for next-generation sequencing and microarray data. We believe that this combination of data types in a single software environment can transform the way the world sees the genome. Adding these capabilities will enhance the value of optical genome mapping and can be a significant driver of future adoption. The second key aspect of product advancement is the next version of our genome mapping instrument. We completed a prototype of that system last year and we're focused on bringing a pre-commercial version to the field this year before finalizing development in 2023 and releasing the new system commercially. With our current Saphyr system, we believe we have a product that is suitable for most labs worldwide. However, these labs account for only about half of the volume of samples. The balance of volume is concentrated in a smaller number of labs, estimated to be fewer than 500, that run very high volumes globally. Some of those institutions are currently evaluating the Saphyr system and establishing plans for menu development, but we believe a higher throughput system will be essential to capture that volume. Other capabilities of this new system will include sample random access, allowing for staff processing, the ability to scale from one to six systems working in unison, and it will also be part of an integrated workflow supported by sample preparation automation and integration with NxClinical software. Additionally, there are segments outside the U.S. that will benefit if this system eventually goes through the process of FDA clearance. With this new generation of the system, we intend to begin the process of seeking FDA approval after its commercial release in 2023. It's essential to note that with Saphyr, which does not have FDA clearance, we believe we can address the majority of labs and testing volumes in markets we are currently targeting. However, we also believe that having FDA approval for the next instrument can expand our total addressable market and accelerate global adoption. So that will be a key advancement. Finally, as our fifth pillar, we intend to make software a strategic driver of Bionano solutions. We are leveraging NxClinical and Nexus Copy Number, the two software products from BioDiscovery, to target the existing installed base of sequencers and arrays, which we estimate to be at least 10,000 systems installed worldwide. We believe our software products have a strong value proposition for these customers today. Increasing the number of NxClinical and Nexus Copy Number subscribers, meaning increasing the number of Bionano subscribers, will help us build relationships with these customers, so that when they're ready to incorporate optical genome mapping into their labs, they will be familiar with Bionano, our team, and our tools. This quarter, we launched version 6.2 of NxClinical software with integrated genomic scar analysis for homologous recombination deficiency, or HRD. This feature provides comprehensive, consistent, and automated analysis of biomarkers from next-generation sequencing and microarray data, helping clinical researchers stratify therapeutic response across multiple tumor types. This analysis allows cancer researchers to gain important insights from genetic data that they are already generating from arrays and sequencing, and we believe this product will be useful to next-generation sequencing users focused on oncology by providing them with a powerful tool for visualization, interpretation, and reporting of their data. Once NxClinical 7.0 is available, with the integration of optical genome mapping, we believe this capability will drive more adoption of OGM solutions. We have already seen data presented from Augusta University that demonstrates the importance of combining sequencing and OGM analysis, especially in hematologic malignancies. Throughout this process, we are executing our strategy against a backdrop of a challenging environment, with the lasting impact of COVID and global instability. We have faced potential challenges in staffing and supply. Wherever possible, we have anticipated these challenges. While we believe they represent an ever-present risk or concern, we have managed them for several quarters, and we will continue to stay vigilant. I'm extremely proud of what our team has accomplished, and I am confident that if we maintain this vigilance, we can address the challenges that may arise. Now, I'd like to turn the call over to Chris, our CFO, for an overview of our financials. Chris?

Thanks, Erik. The first quarter of 2022 is another great quarter for Bionano. We demonstrated strong performance in the face of our typical Q1 seasonal softness and the macro headwinds that Erik mentioned. We recorded significant year-over-year revenue growth and continued the steady growth in the installed base of Saphyr OGM systems. Our revenue in the first quarter of 2022 was $5.7 million, in line with our previous guidance range of $5.5 million to $5.8 million. This result is an increase of $2.5 million or 80% over the first quarter of 2021. Compared to the fourth quarter of 2021, results were consistent with the typical seasonality we see in our business. Gross margin for the first quarter came in at 15% compared to 33% in the first quarter of 2021 and just 4% in the fourth quarter of 2021. The year-over-year decrease was primarily due to lower yields on our chip consumables produced at one of our contract manufacturers. We are making good progress with our supplier and have started to see improvements in our yields. However, we expect it to take a few more quarters before our yields return to historic levels and gross margins significantly improve. First quarter 2022 GAAP operating expense was $30.8 million compared to $12.2 million in the first quarter of the prior year. Non-GAAP operating expense was $24.3 million compared to $11.8 million in the first quarter of 2021. The first quarter 2022 non-GAAP operating expense excludes $5.1 million in stock-based compensation expense and $1.4 million in amortization of intangibles. The year-over-year increase in OpEx was primarily due to increased headcount-related spending, increased R&D expense, and increased marketing expense. We ended the first quarter with 309 employees, up from 164 employees in Q1 of 2021. Going forward, we expect the growth in headcount and spending to moderate from the pace of growth we saw last year. We continue to be well capitalized with $216.5 million in cash, cash equivalents, and available-for-sale securities as of March 31, 2022. As Erik mentioned, we remain on track for our full-year 2022 revenue guidance to be in the range of $24 million to $27 million. Q2 revenue is expected to be in the range of $6 million to $6.5 million. Before I turn the call back over to Erik, I'd like to take this opportunity to remind you that our annual meeting is coming up on June 9th. You may have received your proxy and voting materials in the mail or online through your brokerage firm. Please vote your shares as soon as possible, as this will help us achieve a quorum for the annual meeting. Now, I'll turn it back over to Erik for closing remarks.

Great. Thank you, Chris. I want to close with a review of our milestones for this year. We're on track to achieve our ELEVATE! 2022 milestones. As we outlined on our last call, we have several milestones planned for this year across the five pillars of ELEVATE!, including reimbursement, clinical studies, expanding awareness, and product development. In the first quarter, we plan to receive IRB approval for our hematologic study and to apply for a Category 1 CPT code for optical genome mapping. I'm pleased to say that both were completed. We're enrolling subjects in the heme study and gathering feedback from the CPT code application process. We look forward to updating you on the milestones we will be achieving in the second quarter and over the remainder of the year. In closing, I want to reiterate that we're genuinely excited about the progress we’ve made so far in 2022, and we look forward to updating you soon about the second quarter and the remaining progress for the year. And with that, Jess, we are ready to take questions.

Our first question comes from Michael Okunewitch at Maxim Group. Your line is open. Please go ahead.

Hey, thank you for taking the question. I'd like to start off, I guess, with a bit of a big picture kind of question. And I ask you for a bit of speculation here. Could you give kind of your idea of what you think of the application and utilization of Saphyr, the type of customer and what the addressable market looks like for Saphyr on the other side of the clinical programs, assuming that gets you reimbursement into the clinical guidelines? Essentially, how would a Saphyr system be validated and reimbursed diagnostic use in those four markets used differently from how it is today?

Thanks, Michael. Good question. I think we kind of understand this roadmap because it's been followed before for other solutions such as microarrays and next-generation sequencing in certain applications. Clearly today, people who are applying optical genome mapping in their clinical research are using it to find more answers. Increasingly, they're integrating the information from analysis with optical genome mapping together with sequencing analysis to provide a comprehensive view of genome variation, answering questions about the phenotypes that exist. In many settings, they are being used for research applications investigating patients or subjects in a clinical research study who may have been negative by traditional methods and standard testing; they are enrolled in a clinical trial to explore why they’re negative by standard of care while exhibiting the symptoms and signs of either a genetic disease or cancer. The answers to those questions yield powerful research findings that can define future tests or interventions, perhaps bringing some existing interventions into light that would have been missed by the standard of care for some reason. That’s a good synopsis of current use in the RUO space. As clinical adoption occurs more frequently, especially following the inclusion of optical genome mapping as a first-line test recommended by medical society guidelines, it transitions to becoming the standard of care. When the sample is submitted to the laboratory, they will closely follow these guidelines and apply optical genome mapping first, followed by other analyses thereafter—that's our goal and the direction we are heading toward to influence the medical society guidelines. However, that's only part of our vision, because, as you know, optical genome mapping does not detect sequence variants well. Next-generation sequencing excels in that area. Our vision for the future is that we see genome sequencing recommended as a first-line analysis for sequence variance and optical genome mapping recommended as a first-line analysis for structural variance. These two would be utilized in combination, which would be transformative. Therefore, when we consider the volume of samples going through cytogenetic analysis, they would be sequenced and mapped every single time since these would be the first-line recommended tests advocated by medical societies. However, much work remains ahead and it is a competitive environment where new technologies and solutions can potentially emerge, but that’s the vision we are pursuing.

Thank you. I appreciate that answer. As just a general follow-up, I’d like to touch on the finances, specifically on your revenues or unit placements. You had about 12 placements this quarter. It's a bit of a decline from the fourth quarter. Does this track with the typical seasonality of the first quarter versus the end of the year that you would normally see in previous quarters?

Yes, absolutely. Like the business as a whole, and Chris mentioned this in his comments, we are accustomed to a seasonality. Q4 was solid for installations. I want to clarify that we’re discussing systems that have been installed, and we are not measuring the definition of placement as variable in the field. These installations reflect actual systems added to our installed base, which is the most objective metric. However, I can tell you that we ended the quarter with several systems on backlog for installation. This backlog was driven by some effects of Omicron and COVID, which reduced staffing and caused delays in installations. We expected a sequential decline, and while overall demand was solid, our operational ability to install them was impacted by COVID, and we are catching up.

All right. Thank you very much. I appreciate you taking my questions.

No problem. Thank you.

With no other questions holding, I'll turn the conference back to Dr. Holmlin for any additional or closing comments.

Thank you very much, Jess. I appreciate everyone joining this call. As I mentioned, we look forward to updating you on our progress during the second quarter in our next call. Thank you very much.

Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.