Bionano Genomics, Inc. Q1 FY2023 Earnings Call

Good day and welcome to the Bionano Genomics First Quarter 2023 Earnings Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. At this time, I would like to turn the conference over to David Holmes from Investor Relations. Please go ahead.

Thank you, operator. Good afternoon everyone. Welcome to the Bionano Genomics first quarter 2023 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 market close today, Bionano issued a press release announcing its financial results for the first quarter of 2023. 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 annual and quarterly revenue outlook, strategic and commercialization plans, anticipated benefits or improvements to Bionano’s products, the Saphyr System, NXClinical Software, and Saphyr Compute, and the timing of the release of products, anticipated milestones for 2023, the advantages of the Saphyr System over current technologies, Bionano's anticipated benefits from its announced reduction in force, and other cost savings initiatives, achievements of publicly announced 2023 Elevate anticipated milestones, advances in obtaining reimbursement of OGM, and Bionano's expectations regarding results and publications and anticipated benefits of these studies and publications 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, May 9th, and the company assumes no obligation to update statements as circumstances change. In addition, to supplement Bionano’s financial results reported in accordance with US Generally Accepted Accounting Principles, or GAAP, the company is reporting non-GAAP operating expense and non-GAAP gross margin. These non-GAAP financial measures are not meant to be considered in isolation or as a substitute to comparable GAAP measures and should be read in conjunction with the company’s consolidated financial statements prepared in accordance with GAAP, have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. A description of both non-GAAP operating expense and non-GAAP gross margin and reconciliations of non-GAAP operating expense to GAAP operating expense and non-GAAP gross margin to GAAP gross margin 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 on the Investors section of the company’s webpage. With that, I will now turn the call over to Erik.

Thank you, David, and good afternoon, everyone. We are pleased to provide a full report today on our Q1 results and the business. We would also like to take this opportunity to describe what we are doing in light of the current market environment. Starting with the business. Revenue for the quarter was $7.4 million, which represents a 30% year-over-year increase from the same period of 2022, and the largest increase for any Q1 ever. It also represents the 10th consecutive quarter with year-over-year revenue growth on a quarterly basis. The Saphyr installed base grew by 19 systems to 259. During Q1, that represents 47% growth over the installed base of 176 at the end of the first quarter of 2022. And this addition of 19 systems in the first quarter of 2023 shows a significant increase over the 12 systems that we installed in the first quarter last year. We sold 5,226 flow cells in Q1 2023, which represents a 62% year-over-year increase over the 3,225 flow cells that were sold in the first quarter of 2022. Quarterly sales of flow cells have now grown consistently on a year-over-year basis for 15 consecutive quarters. Key business highlights in the first quarter included Symposium, which is our quintessential event for the OGM community, that took place from January 23 to 26, and we're so proud to have welcomed attendees from over 100 countries, altogether driving a 32% increase in average daily attendance compared to Symposium 2022. This year, there were a record combined 100 scientific presentations and posters. Our OEM partner Beijing Genome Precision Technology, or BGPT, obtained reagent Class 1 registration from China's National Medical Products Administration, or NMPA, for Bionano's DNA extraction kits and labeling products for in vitro diagnostic use. This registration allows BGPT to market these products to independent clinical labs in China. BGPT is now working on registering Saphyr. Once registered, it can be sold into Tier 3 hospitals in China. There were 16 new publications this quarter describing the application of OGM in human genome clinical research, including the first peer-reviewed publication from our trial in postnatal genetic disease, designed to support optical genome mapping and becoming part of the standard of care in genetic testing. The cumulative total of human-focused clinical research publications describing optical genome mapping grew from 23 at the end of 2020 to 53 at the end of 2021 and to 108 at the end of 2022, so the 16 in this first quarter represents a substantial advancement here in 2023. Something else that's remarkable is the count of the published unique clinical genomes that have been analyzed and documented in the literature; that number grew from just 214 in 2020 to 1,478 in 2021 to now 3,092 at the end of 2022. So substantial expansion in data in the field regarding optical genome mapping. We see this growth in publications as a key outcome of our increasing investments in market development, especially during 2021 and 2022, which we believe enables our sales and marketing and scientific and clinical affairs teams to support customers in getting their data analyzed, papers written and published, and our clinical trials and sponsored research programs that interact with academia and a variety of consortia to generate these data. Publications are impactful proof sources that our commercial teams use to engage and drive sales opportunities with prospects forward, as they need validation of optical genome mapping utility and its robustness, and these publications provide that. We believe the growing number of publications represents an important leading indicator of potential future growth and acceptance and, by extension, sales of our OGM-based solutions. We recognize, though, that balancing these key strategic investments with effective cost control is essential to achieving long-term growth and profitability. We remain committed to our Elevate strategy, which prioritizes expanding our leadership in transforming cytogenetics with our end-to-end solutions for optical genome mapping and clinical research, together with driving the medical community and third-party payers to accept and support OGM while at the same time, investing in R&D and building key strategic partnerships while we simultaneously strengthen our financial position. To help strike that balance, we conducted a strategic review of our operations. Today, we are announcing the implementation of an initiative designed to reduce cash expenditures by approximately $20 million over the next four quarters to five quarters. This cost reduction initiative includes, among other things, a reduction in force that we affected yesterday, May 8, 2023. It includes plans to decrease anticipated future new hires for the remainder of 2023. It includes a reduction to our safety stock of inventory. We're able to do that now because of a reduced risk that we're seeing with our supply chain. It includes the implementation of several operational efficiencies and other cost controls that we believe will reduce previously planned spending. We expect to continue to prioritize and invest in our high-priority programs, which support the ongoing adoption of optical genome mapping as well as important new product launches. We remain on track to meet our previously publicly announced 2023 Elevate anticipated milestones despite these changes in our operating structure. These milestones include the advancement of our clinical studies, expansion of the OGM installed base and several planned product and regulatory developments. Before discussing these key milestones for the remainder of the year, I'd like to turn the call over to Chris Stewart, our CFO, for an overview of the first quarter financials. Chris?

Thanks, Erik. We got off to a strong start in 2023 with year-over-year revenue growth, and we continued the steady expansion of our installed base of Saphyr Systems. While we don't believe our current share price reflects the progress we are making, we do acknowledge the challenging state of the capital markets and are taking the prudent steps that Erik described to extend our runway. Our primary focus remains on executing against our strategic plan, which we believe will drive the most long-term shareholder value. As Erik mentioned, revenue in the first quarter was $7.4 million. This is in line with our previously announced revenue range of $7.3 million to $7.5 million and reflects a year-over-year increase of 30% from Q1 of 2022. GAAP gross margin for the first quarter came in at 28% and non-GAAP gross margin was 30%, both nearly double the 15% gross margin from the first quarter of 2022. The increase was primarily due to improvements in our nanochannel array production yield. Non-GAAP gross margin excludes $146,000 in stock-based compensation. First quarter 2023 GAAP operating expense was $39.9 million compared to $30.8 million in the first quarter of 2022. Non-GAAP operating expense was $33.6 million compared with $24.2 million for the first quarter of 2022. The increase was mainly driven by increases in headcount, R&D expenses related to our upcoming product launches, and marketing expenses. First quarter 2023 non-GAAP operating expense excludes $3.7 million in stock-based compensation, $1.8 million in amortization of intangibles, and an $800,000 increase in the estimated fair value of contingent consideration, primarily related to the acquisition of Purigen. Our cash, cash equivalents, and available-for-sale securities as of March 31st, 2023, totalled $95.8 million. We have been and will continue to be proactive in identifying the best path to raise the capital we need. In Q1, we raised $14.8 million on our ATM facility, selling 9.5 million shares at an average price of $1.60. We are actively working on strategies to raise additional capital this year, including evaluating non-dilutive options alongside issuing equity. We are maintaining our full year 2023 revenue guidance in the range of $35 million to $38 million. Our Q2 revenue is expected to be in the range of $7.8 million to $8.3 million. Now, I'll turn it back to Erik to wrap up.

Thanks, Chris. Looking ahead, we have three major product launches planned this quarter. We believe they are keys to continuing and potentially accelerating revenue growth and adoption. The first is our high-throughput mapping system, which, as you will recall, has been in the field being used by customers since the end of 2022. This system increases throughput over that of the current Saphyr Systems by approximately fourfold initially, and eventually, we think it will enable a 13-fold increase in throughput. Initial supply will gate the number of sites that we'll be able to adopt in 2023. We expect to reach the full capacity of production in the first half of 2024. The second product launch is a high-throughput sapphire compute to go alongside the high-throughput sapphire. It's a server we developed in collaboration with NVIDIA. It significantly improves data processing speed and reduces the time and cost associated with secondary analysis of OGM data. We also anticipate the full commercial release of a version of our VA software, currently named NxClinical. The software will integrate optical genome mapping data and will initially focus on applications in hematologic malignancies or blood cancers. A version for whole genome constitutional analysis will be available by the end of 2023. Continuing beyond the second quarter, for the remainder of the year, we will focus on clearing the path to reimbursement of OGM through clinical research and seeking FDA clearance to market OGM for clinical use. We're advancing our clinical studies in support of changing medical practice. I want to point out that our solid tumor trial remains in planning stages and will not be a significant use of capital in 2023, although we do plan to submit for IRB approval this year. Our pre- and postnatal studies are in the later stages, which means our principal focus in 2023 will be on advancing hematology, which we believe is our biggest near-term market opportunity. Following the withdrawal of our Category 1 CPT code application, which we did to avoid the possible assignment of a Category 3 code since they're not typically reimbursed by payers, we plan to focus on coverage through submitting an application for a local coverage decision or determination to Medicare for reimbursement coverage of our OGM-based laboratory developed test at Bionano Laboratories. This LDT will be for hematologic malignancies. Coverage determination sets the policies established by payers to determine the level or amount of reimbursement that applies to a given code or procedure. We see that coding is actually not the most significant pricing bottleneck for us. Individual labs are now succeeding in getting codes and getting them paid, making it important to focus on broader coverage determinations. In support of FDA clearance of the new mapping system, we anticipate holding preliminary pre-submission discussions with the FDA by the end of the year. Before closing, I would like to take this opportunity to remind you of our proxy recently published and our recently published letter to stockholders, which inform you of our upcoming annual meeting on June 14. We encourage all stockholders to become familiar with these proposals and to vote. Overall, bringing a focus on cost controls, together with commercial execution, data generation, evidence development, and publications through our Elevate strategy, we believe we can succeed in delivering innovative genome analysis solutions to our customers while creating sustainable long-term value for stockholders. And with that, Carmen, we're ready to take questions.

Thank you. Our first question comes from Jeff Cohen with Ladenburg. Please proceed.

Hi. This is actually Destiny on for Jeff. Thank you for taking our question. I think how are you? Good. Glad to hear it. I guess let me start with your symposia event. I know this event is a big one for you. So I would love to know some of the takeaways as well as some of the feedback from the event. If maybe you could give us a quick taste of what that was?

Yes. So this is an event that was created by our Chief Medical Officer, Alka Chaubey, and I think if you look externally at what people say when they observed this event, they're really blown away by the level of enthusiasm, participation, and the richness of the data that were presented there. It's an event that goes over four days at the beginning of the year, and it really represents a culmination of all the incredible progress that has taken place throughout the optical genome mapping community. This year was the biggest ever and certainly did not disappoint. I think the number of posters was incredible and blew us away, and the number of talks that were given were substantial: 100 present posters and presentations combined. From a participation and a volume standpoint, it was incredible. But the content itself is what really makes the difference. We dedicated an entire day to cell bioprocessing QC, which is a new area for us. Our optical genome mapping is acting as a replacement for traditional cytogenetic methods, not just in clinical research and applications and classifying samples in studies but actually in looking at therapeutic development and evaluating the target effects of gene editing and therapeutic cocktails, as well as the stability of the genomes through the therapeutic cell manufacturing process. This was a huge leap forward for us. We had several talks dedicated to this topic. We’ll be attending a conference later this summer in Boston that's entirely dedicated to stem cell therapies. This is an area where we expect to see significant uptake of optical genome mapping, and the symposium was able to showcase it. There were two full days dedicated to oncology because we had so many talks in hematologic malignancies and solid tumors that we had them spanning two days. The amount of results that were presented in these talks was incredible and aligns with the 3,000 or so clinical genomes that were published in 2022. The totality of the data presented shows that we are having a significant impact, and the Bionano brand is now being recognized throughout the communities that we're focusing on: the constitutional genetics community, hematologic malignancies, which is part of the broader oncology community, and now a new focus in the pharmaceutical industry, specifically looking at cell bioprocessing QC for gene editing, stem cell, and other advanced therapeutics.

Wow, that's fascinating. Well, maybe if I could ask one more. I know you were talking about the higher throughput system, and you said that there would be a gate. Are you actually able to give us a number? And then how are you determining which sites are going to be able to get access, early access, even somewhat early access to this system?

Yes, I think that's the right way to think about it. It's premature to really put any numbers out there. The process of determining these sites is based on the need for high throughput. In a program like this, early introduction is key, and part of the process is to get critical feedback from the market. We're targeting sites that have familiarity with optical genome mapping and substantial sample volumes that would require them to have this higher throughput system so they can really put it through its paces. What I can tell you already is that the demand is very significant for the instrument. We've really hit the nail on the head with the design and development that we've conducted, and we couldn't be more excited to roll it out this quarter.

Awesome. Thank you so much, and congrats on a nice quarter. I'll jump back in queue.

Thanks, Destiny.

Thank you. One moment. Our next question comes from the line of Francois Brisebois with Oppenheimer. Please proceed.

Hi. This is Dan on for Frank. Thanks for taking our questions. Just first one for me. Could you share your view regarding CPT codes? What needs to happen to have confidence in getting CPT 1? Since you mentioned you are focusing on broadening coverage more, is this worth going down the line for attaining a CPT 1 code right now? Just curious what your thoughts are.

Well, I do think, Dan, that it's important for there to be a Category 1 CPT code that is available for optical genome mapping. The way we constructed our application was around one for genetic disease and one for oncology. I suspect that, that's how it will ultimately be when it happens. There are a variety of criteria that the AMA and other groups evaluate for these applications. We believe that optical genome mapping is meeting all these criteria, but they are not definitively objective. If we had to speculate on where we thought that optical genome mapping might have room to go, it's in the volumes of utilization. When we make an application for a CPT code, we're the manufacturer and don't know all of those volumes; our ability to specify that as part of the application is limited. We believe that as more and more labs apply for PLA codes, it will bring the amount of activity, volume, and utilization of optical genome mapping into the public attention and make those applications much easier to process. On a regular basis, labs are using existing codes specific to the gene or a set of genes being analyzed or applying for their own proprietary laboratory analysis codes. It's important to get data in front of payers. We're going for Medicare first so that when they see these code applications, they'll be familiar with the methodology, which is the focus of the CPT code process, and the value and utilization driving coverage. So, I think CPT codes will be important; they will get out there eventually down the road. They're certainly going to be important once FDA-cleared mapping systems are available and labs adopting them are using FDA-cleared versions. Our focus is on unlocking coverage right now because we see plenty of coding happening.

That's helpful. And in terms of the publications regarding the hematological malignancy publication that came out, what are the next steps? Do you need additional studies in terms of starting conversations with guideline bodies to make OGM first-year? I’m wondering what the next steps are?

No, that's a great question. The strategy to evolve optical genome mapping from a basic research tool into something that's used routinely and regularly in translational research is what we're seeing now. To make it part of the standard of care involves getting a lot of data out what I call critical massive data. A key component of that strategy is working with folks in the field who are associated with the teams that make recommendations to medical societies. Some of the publications coming out are from European sites, but we have others, including an amazing publication last summer from MD Anderson Cancer Center. These authors have affiliations with guideline-setting agencies such as the World Health Organization and the National Comprehensive Cancer Network here in the United States. By collaborating with key opinion leaders already affiliated, we can accelerate the process.

Okay. That makes sense. And finally, a quick one from me: the decrease in anticipated new hires for the remainder of 2023. Any specific department those hires were going to be in or just across the board?

I think it’s really an effort to be prudent about hiring and ensuring that wherever we're expanding the team, it's based on a critical need basis. So there isn't a specific department or team that's singled out. It's a process of meeting our goals from an expense reduction standpoint while staying on track to hit the milestones we've reiterated here today.

Great. Thanks for taking my question.

You’re welcome.

Thank you. Our next question comes from the line of Michael Okunewitch with Maxim Group. Please go ahead.

Hey, guys. Thank you for taking my question, and congrats on the quarter. I'd like to start out and just talk a bit about all the process improvements that you guys have made to the end-to-end OGM workflow. I think most recently at AACR with the streamlining analysis step. Can you talk about what you currently view as the main bottlenecks for OGM end users and what efforts to further optimize and streamline the workflow you're currently working on?

Thank you, Michael. I want to acknowledge Carmen, who did a great job of pronouncing your name; that was impressive. AACR, with a focus on cancer research, is really an area where we're starting to build momentum. If you look at cancer research, there are two really challenging elements to it. Outside of the mapping process itself, data analysis is complicated because much of this utilization is guideline-driven. When someone analyzes a data set, it's not just a matter of looking at what is present in the sample but comparing those calls to a specific list of variants called out in different guidelines. This can be a very tedious and manual process taking hours and hours. Our new software, which our team is beginning to use, automates that process. It's user-driven, allowing researchers to construct panels driven by guidelines and sift through varied calls in an automated fashion that saves time and costs. Data analysis is a huge bottleneck, and we're addressing it with our new software first in hematologic malignancies this quarter and then in constitutional genetic diseases later this year. The other bottleneck is the DNA isolation, which we're addressing with isotacopheresis, a technology invented and commercialized by Purigen, a company we acquired last November. We're currently selling a Purigen product for isolating nucleic acids from formalin-fixed paraffin-embedded tissues and developing a cartridge and protocol, including reagents for optical genome mapping, starting with blood and bone marrow samples. We’re really streamlining the front end, which is a unique process for optical genome mapping, and while throughput depends on the lab, the Saphyr addresses the throughput for many laboratories processing between 40% and 60% of the total volume. The new high-throughput mapper will address the need for ultra-high throughput labs. We're elevating the end-to-end process significantly, making it more automated, streamlined, robust, and fast, which the market demands.

Thank you for that really comprehensive answer. I'd like to just get one more, and then I'll hop back in the queue. In terms of the cost reduction measures, could you provide more granularity on where those are coming from? Is that $20 million a recurring expense on an annualized basis, or is that just over the four to five quarters? Just help me better understand that.

Sure. We're targeting cash savings in operating expense, cost of goods sold, and through an inventory reduction. We expect OpEx in the second half of the year to be down from Q1, and it's across those three different areas. The inventory reduction isn't recurring. The other reductions will be recurring until our financial position changes and we can increase our investments again as appropriate.

Thank you very much. And once again, congratulations on progress in the quarter.

Thanks, Michael.

Thanks.

Thank you. I see no further questions in this session. I will hand it back to Erik Holmlin for final comments.

Well, great. Thank you, Carmen, and I want to thank everybody for following along and participating today. We look forward to updating you with all of the progress we're making here in the second quarter in due course. Thank you very much.