Bionano Genomics, Inc. Q3 FY2024 Earnings Call

Good day, and welcome to the Bionano Third Quarter 2024 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to David Holmes from Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to the Bionano third quarter 2024 financial results conference call. Leading the call today is Dr. Erik Holmlin, CEO and Principal Financial Officer of Bionano. And he is joined by Mark Adamchak, Bionano's Vice President of Accounting and Principal Accounting Officer. After market today, Bionano issued a press release announcing its financial results for the third quarter 2024. A copy of the release can be found on the Investor Relations page of the company's website. Bionano expects to file its Form 10-Q no later than 5:30 p.m. Eastern time tomorrow, November 14th. Certain statements made during this conference call may be forward-looking statements, including statements about Bionano's revenue outlook, profitability, cash runway, cost savings initiatives, and commercialization and product plans. Such statements are based on 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 risks and factors, 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, November 13, 2024, and the company assumes no obligation to update statements as circumstances change. In addition, to supplement Bionano's financial results reported in accordance with U.S. generally accepted accounting principles, or GAAP, the company reports certain non-GAAP financial measures. A description of these non-GAAP financial measures, as well as a reconciliation to the nearest GAAP financial measures, 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. These non-GAAP financial measures are 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, have no standardized meaning prescribed by GAAP, and are not prepared under any comprehensive set of accounting rules or principles. An audio recording and webcast replay for today's conference call will be available online on the company's Investor Relations page. With that, I would like to turn the call over to Erik. Please go ahead.

Thank you, David, and good afternoon, everyone. I'm pleased to provide you all with an update on the third quarter of 2024, as well as a report on our ongoing efforts to position Bionano to be more cash efficient while still driving the advancement of optical genome mapping for routine use in cytogenetics and our software business. In May 2023, we began systematically lowering operating expenses and cash burn by reducing headcount, discontinuing non-core products and services, scaling back certain development initiatives, and shifting our strategic focus towards driving utilization of consumables among our customers who use or plan to use optical genome mapping routinely, a group we estimate to be about 150 customers. Since then, our headcount has decreased from around 426 employees in May 2023 to 125 as of September 30, 2024, with expectations to drop below 100 employees entering 2025. In September 2024, we implemented a shift in our go-to-market strategy away from heavy spending on growth of the OGM installed base in any geography to focusing on conserving cash and concentrating on customers who routinely use their Saphyr and Stratys systems in cytogenomics. We estimate that over the last six to seven quarters, we have reduced non-GAAP operating expenses by around $100 million annually and significantly decreased the cash needed to reach profitability. The transition in our operating and market strategies has not been without challenges. The results in this quarter reflect the transitions our operations are undergoing, leading to several one-time charges that affect the P&L and the balance sheet. Overall, these charges are non-cash and transitory, and we do not expect to see them at this magnitude again. Although this transition has challenges, we are learning to operate within a streamlined team and are pleased to see signs of stability across the business, including a return to growth in consumable sales, particularly with OGM consumables being used routinely as a substitute for karyotyping and FISH, notably in the analysis of hematological malignancies, constitutional genetic diseases, and bioprocessing applications like cell and gene therapy. Now, changing the slide to look at key results for the third quarter, revenue was $6.1 million, which includes $6.6 million in sales of core products and software, in line with our pre-announcement, offset by a $500,000 write-down of aged receivables tied to our discontinued clinical services product. Q3 2024 reflects a 35% year-over-year decrease compared to the same period in 2023, with a 29% reduction in revenues solely from discontinued clinical services. The remaining 6% decline derives from the shift away from instrument sales in the China market and delays in system sales in other regions relative to our expectations. The OGM installed base grew to 368 systems during the quarter, representing a net increase of 67 systems in the past year, a 22% growth from the installed base of 301 systems at the end of Q3 2023. However, the rate of increase in the installed base is slowing, a direct result of our strategic shift and cost-saving measures. We sold 7,835 flow cells in Q3 2024, a 27% increase from the 6,176 flow cells sold in the same period last year. We view this as a key metric as we aim to drive increased utilization among existing customers using optical genome mapping routinely. Flow cell sales in Q2 2024 were flat compared to Q2 2023, so this return to growth is a vital indicator that our focus on increasing utilization in the current installed base is effective. Moving to the next slide, key highlights in other areas of the business show that publications continue to grow. With 83 publications in Q3, the total publications increased by 12% compared to the same period in 2023, and the clinical research subjects covered in publications year-to-date grew by 82% from the same period in 2023. We believe this publication growth reflects the ongoing expansion and utilization of optical genome mapping and serves as a potential leading indicator for future increases in adoption and utilization as global acceptance rises, supported by evidence in the scientific literature. Our clinical studies program focuses on advancing trials in hematological malignancies and supports ongoing publication and presentation of data. The programs are led by key sites involved in creating the trials, allowing them to proceed with reduced cost burdens on Bionano. Related to the Heme trial, preliminary results presented by Dr. Michael Phillips from Harvard Medical School showed that optical genome mapping detected pathogenic findings in 42% of cases that were otherwise negative under current standard care testing, with a turnaround time of just four days at a lower cost compared to karyotyping alone and significantly lower than the standard combination of karyotyping and FISH. Initiatives supporting the reimbursement of optical genome mapping by insurance companies and other third-party payers are advancing. As previously reported, a category 1 CPT code for cytogenomic genome-wide analysis for hematological malignancies was established by the American Medical Association in June, and preliminary prices for this code were published on September 25, 2024, with final pricing expected by the end of November or early December. Starting January 2025, labs will be able to bill for their use of optical genome mapping using this new code. We have continued shipping commercial production units of the Stratys system and are seeing good demand in our key markets of Europe, the US, Canada, and Israel. Customers are working through the differences between Saphyr and Stratys, and we are learning how to effectively support the Stratys system as it enters the market. While our commercial shift emphasizes less on growing the installed base, we focus on expanding utilization among routine users with higher sample volumes, with customers acknowledging that Stratys meets their increased throughput needs. Regarding key financial metrics, Q3 2024 GAAP operating expense was $35.5 million, and non-GAAP operating expense was $16.1 million, down 69% and 49%, respectively, from Q3 2023. Operating cash burn in this quarter was around $14 million, a 46% reduction compared to approximately $26 million in the prior year and 33% compared to around $21 million in Q2 2024. These results are significant, showcasing the success of our ongoing efforts to lower expenses and cash burn. We expect operating expenses to further decrease into 2025 due to actions taken in September 2024. Our cash and cash equivalents and available-for-sale securities as of September 30, 2024, totaled $23.4 million, with $11.4 million subject to certain restrictions. The GAAP gross margin for Q3 was negative 139% compared to 30% in Q3 2023, and non-GAAP gross margin was 26% compared to 32% last year. The negative GAAP gross margin was largely attributed to $9.8 million in one-time charges impacting cost of goods sold, stemming from our shift in focus away from driving systems into the field and the resulting inventory valuation changes. Charges also stemmed from rented systems in the field that have not maintained required reagent purchase levels. Both GAAP and non-GAAP margins were affected by the $500,000 write-off related to aged receivables from clinical services. On the next slide, we summarize financing activity from Q3 and afterwards, including two registered direct offerings and capital raised through our ATM. In July, we completed a registered direct offering that generated gross proceeds of $10 million, along with concurrent milestone-linked Series A and Series B warrants, potentially adding $20 million upon cash exercise at $0.57 per share, pending stockholder approval during a special meeting on November 27, 2024. In October, another registered direct offering raised $3 million, with Series C and Series D warrants that could generate an additional $6 million upon exercise at $0.30 per share, also subject to shareholder approval. Looking ahead to Q4 and the remainder of the year, our focus is clear. We aim to drive the adoption of VIA software for optical genome mapping analysis across routine use sites, as we believe that increased adoption and utilization will result in higher consumable purchases. We will leverage our existing customer base to enhance utilization and add new assays, expanding the applications of optical genome mapping. We maintain our emphasis on initiatives for optical genome mapping reimbursement, including the established CPT code and coverage determinations from Medicare administrative contractors. We are also working to improve our gross margin by reducing cost of goods sold, and our efforts to increase sample throughput will contribute to this improvement. For Q4 guidance, we expect revenues to be in the range of $6 million to $7 million and the OGM installed base to reach between 370 to 380 systems, positioning our full-year revenues between $28 million to $30 million based on Q4 guidance. We recognize that growth in OGM adoption and expansion may be slower due to expense reductions, but we believe preserving cash and achieving profitability are more critical than growth at any cost. In closing, our results this quarter reflect improving momentum for optical genome mapping utilization with growth in flow cells sold, despite overall revenues coming in slightly lighter than expected. Our disciplined approach to reducing operating expenses and cash burn has been challenging but crucial in preserving the value of optical genome mapping for labs globally and benefiting their clients. I'm proud of our team's determination and resilience as we prepare for future opportunities and challenges. Now, operator, please open the line for questions.

And the first question will be coming from Sung Ji Nam of Scotiabank. Your line is open.

Hi, thanks for taking the questions. Eric, I'm sorry if I missed it, but did you guys update on the status of the Ionic sample prep system? Is that still slated for launch later this year? I'm just kind of curious about what the early feedback is.

We haven't provided a specific update, but we have seen some impressive data. At the ASHG conference earlier this month, some beta users shared their insights about the progress. We do not anticipate the complete commercial rollout this year and expect it to take place next year, but the program is moving forward and interest in the system is strong.

It's great to see the target accounts, and there's significant room for growth there. Could you discuss the growth potential for the 150 customers you are targeting? I'm also curious about whether these customers are higher volume users historically. At what capacity are they currently operating, and do you expect more growth to come from additional instrument placements or from continued increases in utilization? It would be helpful to have more details on this.

Sure. The estimate of 150 includes two groups: those who are already using the system regularly and what we call mature users, which means they are fully trained and operate the system consistently. There is also a group that is working towards that status, focusing on validating an initial assay and preparing for full production use. This group accounts for the majority of our consumables sales, likely around 80% of our consumables revenue. While we don’t specify revenue per system, it's clear that 80% of our total reported revenue comes from these approximately 150 systems. The user base is still divided between those who are fully operational and those who are progressing, but we see significant growth potential. Most labs among the 150 handle a single indication, with only a few validating multiple ones, which is rare—less than 25. As they add more indications, their need for consumables will increase, leading to higher purchases and revenues. Typically, they start with their highest volume indication, so as they expand their offerings, we anticipate revenue growth. Labs are likely to run two to four indications on average, and we have anecdotal evidence supporting this trend. This growth will primarily involve hematological malignancies and constitutional genetic diseases.

Got it, that's super helpful. And then just lastly for me, just on your COGS, are there still big levers that you can pull there from the manufacturing efficiency side of things, or is it largely kind of overhead absorption from here on out, just from the volume growth? Thank you.

Yeah, sure. No, it's both. So, there are cost reductions that we can realize by transitioning in the foundries that we work with to produce some of the critical components of the chip consumable. And so those will be lower-cost providers. There is a volume component to that, but those will be lower-cost providers overall. So that'll just reduce the materials cost. A lot of the reduction in headcount is combined with a consolidation of facilities and so forth. So there are going to be some reduction in overhead costs that are not necessarily variable or volume based. And then of course, there will be the variable component so that overhead that remains will be spread over more and more units. And so I think we have quite a lot of factors in play in connection with the reduction of the cost of goods sold. And so we see a lot of room for margin to improve. And these are initiatives we've been working on for a while in terms of foundries and stuff like that. So, we expect them to take hold in the near future.

Great. Appreciate it.

Thank you, Sung Ji.

Thank you, and one moment for the next question. Our next question will be coming from the line of Jeff Cohen of Ladenburg Thalmann. Your line is open.

Hi, thank you for taking our questions. This is Destiny filling in for Jeff. I want to start with a couple of questions related to the P&L. I'm interested in your expectations for the growth rate of consumables by 2025. Do you think it might exceed your usual expectations considering the upcoming impact of the CPT code? How do you view the growth of consumables moving forward?

I want to discuss what can be reasonably expected regarding growth without providing specific guidance. There are a few factors that could accelerate this growth. Firstly, the CPT code and related reimbursement initiatives will allow customers currently using different methodologies to switch without any negative economic consequences for their labs. This is important in both the U.S., where the CPT code and coverage decisions will come into play, and internationally, where other initiatives are also significant. Reimbursement will facilitate labs' shift from the standard of care to using optical genome mapping more frequently. Secondly, as I mentioned in response to a previous question, many customers interested in routine use of the system have not yet fully transitioned to that stage. This transitional process, where they install the system, receive training, and explore its features, is normal and leads to a decision on its use. Many systems currently sit at this stage, and as these customers become routine users, their consumption of consumables will increase. The transition from onboarding to routine use will drive consumables growth. Additionally, as more users begin utilizing the VIA software for optical genome mapping, their workflows will become more efficient, allowing them to run more samples. This software adoption and menu expansion will significantly contribute to the growth of consumables revenue. Our plan is for these consumables to continue to grow and increase in growth moving forward.

Okay, got it. Thank you for that detail. I appreciate it. And I guess last one for me. I'll take the rest offline. I know you mentioned some delays, delays that impacted your top line this quarter. Is that something that was just a timing issue and it will be reflected in Q4? And is it baked into that guidance or is that one of the things that maybe pushed off a little bit longer?

Well, so, certainly the dynamic is factored into everything that we're guiding for the fourth quarter. It's something that is just related to the sales cycle for capital equipment and in particular capital purchases. So you've been marching along with us for a while and I'm sure you remember that we have kind of two go-to-market models for new adoption. One is to sell labs the system and the other is for them to rent it. And the delays that I spoke about are delays in system purchases. And so what we found was that some key customers had underestimated themselves the time that was going to be required for them to successfully get these purchases approved. And so that's what caused the delay. All of those processes remain ongoing and we see them being completed in the near future and we're hopeful that some of them would happen in this fourth quarter, but we're being conservative about the fact that they may take longer.

Okay, got it. So definitely sounds like a timing thing. I lied and I have one more question if I may. I'm wondering if you have any plans to initiate additional studies but more in a partnership fashion with another company and a larger player? What are your thoughts on that?

I believe that Alka Chaubey, the Chief Medical Officer, and her team have done an excellent job with our clinical studies program. They have recruited outstanding investigators to participate in the studies. We have now worked systematically with some of these principal investigators to take over the trials and keep progressing them. As we reported in previous quarters, we met our enrollment goals, and enrollment has been completed. A significant amount of data collection has also been finished, and we are currently in the analysis phase. The sites remain active, and those trials will continue. I want to emphasize that they will not pause due to our cost reductions. Although by passing leadership to individuals for whom this is not their sole responsibility, things may move a bit more slowly, we expect the trials to proceed and generate publications and valuable data that will support ongoing efforts like reimbursement advocacy, and eventually, getting optical genome mapping into medical society guidelines. The trials and publications will persist. Regarding the core of your question about partnerships, we are collaborating with these institutions, which serve as a channel for engagement. We do have discussions about potential partnerships with various companies and groups, though we don’t have a committed program at this moment. We maintain a number of commercial relationships that drive our revenues, which could lead to trials in the future, and we will remain opportunistic, but we don't have any definitive plans right now.

Okay, thank you for taking our questions.

Thank you, Destiny.

Our next question is coming from Mark Massaro of BTIG. Your line is open.

Hey, guys. Thanks for taking the questions. Eric, you placed five systems in Q3, and the midpoint of your guidance for Q4 is seven. I understand that you have shifted your focus to your existing installed base, but the five to seven range is significantly lower than the 20 you reported in previous years. I'm curious about those numbers. Do you consider them reasonable? I'm not asking for guidance for 2025, but do you think aiming for around five per quarter is a reasonable expectation for 2025?

Yes.

Okay.

You needed long answers, but that's a short answer.

That's okay. That's helpful. And then as a follow-up to that, is there any way to give us a sense for how the launch of Stratys is going? I'm not sure if you're able to disclose how many you placed of the five in Q3 or how many you've placed year-to-date, but you also talked about how some of the folks that may be looking to convert over are trying to understand how it fits or how it works. So maybe can you talk about things like ease of use or just, I also of course recognize it's higher throughput. Are some labs just kind of evaluating if they need that level of throughput to justify the purchase or are there other factors that are going into how we can think about the rollout of the Stratys?

The rollout is progressing well, and the demand is significant. Labs are recognizing the need for higher throughput and are also interested in the workflow advantages that Stratys provides, such as the ability to process a stat sample without waiting for a batch to finish. These features make Stratys attractive compared to Saphyr. Overall, the interest in Stratys is driven by the perception of optical genome mapping becoming standard, particularly in applications like the analysis of FSHD, a constitutional genetic disorder where optical genome mapping is already a global standard. There is a growing awareness that this technology will become standard, prompting labs to adopt Stratys for its higher throughput. Regarding the quantities, we haven't provided specific breakdowns yet, but early numbers are significant, surpassing the initial uptake of Saphyr. As for the adoption of Stratys, there are two groups: those completely new to Stratys and those already familiar with Saphyr. Labs with Saphyr need to conduct side-by-side comparisons to evaluate Stratys and integrate it into their operations, which they are currently doing. This includes assessing the similarities and differences between the two systems. Additionally, we have had 11 early access systems across 10 sites that transitioned hardware components as we moved to full commercial release, indicating a learning process with the new instrument. Stratys uses a completely new consumable, which we expect will enhance overall utilization and workflow. There is a learning curve associated with how customers will use the consumable, but early indications show that demand is high, and labs are attracted to Stratys for its throughput capabilities and workflow benefits.

Okay, that's helpful. And then I wanted to ask about the guidance, the reduction of the guidance here again. Maybe can you walk me through some of the components? I understand that if you place fewer systems, there will be fewer, less capital equipment revenue realized in the quarter, if that makes sense. I just wanted to ask about the other line items and the other product categories. In Q3, you had really solid 27% growth in flow cells. I'm just curious how we should think about the rest of the business. And as we think about 2025, are you confident that you can generate growth in flow cells and consumables?

So, yeah, let's sort of walk through the stuff. Starting with the consumables, I mean, I think we've had a good track record of consumables growth, the sort of flatness that we saw in the second quarter was anomalous. The return to growth, 27%, is solid. What we're optimistic about and what we do feel confident about is that consumables utilization and therefore revenues will continue to grow. I think we've got to be cautious about quantifying that growth too precisely. A driver of growth of flow cells sold in past quarters has been some of the new purchases. So when somebody buys a new system or rents a new system, they get consumables with it up front. And so as we lower the number of new systems that are going out, that contribution will be lower. And so we've got to be careful about it. And so will the growth and utilization amongst the existing install base make up for that? That would be the question. But we remain confident that OGM consumables revenues will continue to grow and that's really a principal revenue growth driver into 2025. When we talk about what's moving around with guidance, it's really adjusting to the change in go-to-market, but also digesting this discontinuation of these clinical services products. So we had about a $500,000 write-down associated with aged receivables. They're tied to those discontinued services products and they remain about, I would say, $500,000 or so in receivables on the books. And so we'll have to see how those are treated in some of the future quarters. And so there's the possibility of additional write-downs. I want to give you some awareness of that. We've tried to factor that into guidance. So, there's some ambiguity there. We just have to work through it as we start to work through the fourth quarter results. But sort of digesting that discontinuation has been having its impact on the top line, perhaps in some unexpected ways. And then, yes, the shift away from capital equipment sales, that has an impact on revenues. Having said that, these new instruments, unless we're selling them to labs that are highly strategic and going to use at a really high rate, or labs that have reached the capacity of their Saphyr system and therefore wanted Stratys, but are otherwise experts in OGM, like, those are the customers that we want to focus on now importantly. But if we're selling them to any lab that just wants to buy OGM, that turns out to be very expensive for us and a little bit counterproductive. So, the top line may suffer as a result of that, but cash out the door goes down. We're hopeful that consumables' revenues goes up and that will drive higher margins. So it will be better business for Bionano going forward.

Okay, that's all very helpful. Thank you.

Thank you. And that does conclude today's Q&A session. I would like to turn the call back over to Erik Holmlin for closing remarks. Please go ahead.

Great. Thank you, Lisa, and thank you to everybody who joined the call today. And we look forward to updating you on our future progress. Thank you very much.

Thank you all for joining today's conference call. This is the conclusion of the call. You may now disconnect.