Bionano Genomics, Inc. (NASDAQ:BNGO) Q3 2023 Earnings Call Transcript

Bionano Genomics, Inc. (NASDAQ:BNGO) Q3 2023 Earnings Call Transcript November 8, 2023

Bionano Genomics, Inc. misses on earnings expectations. Reported EPS is $-1 EPS, expectations were $-0.75.

Operator: Good day, and welcome to the Bionano’s Third Quarter 2023 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.

David Holmes: Thank you, operator, and good afternoon, everyone. Welcome to the Bionano’s third quarter of 2023 financial results conference call. Leading the call today is Dr. Erik Holmlin, CEO of Bionano. He is joined by Gülsen Kama, CFO of Bionano. After market closed today, Bionano issued a press release announcing its financial results for the third 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 maybe forward-looking, including statements about Bionano’s annual and quarterly revenue outlook, profitability, cash runway, commercialization and product plans, its strategic pillars and associated publicly announced milestones, the anticipated benefits and the timings of those benefits from the announced reduction in force and other cost savings initiatives, advances in obtaining reimbursement and FDA clearance for OGM, and Bionano’s expectations regarding study results and publications and anticipated benefits of these studies and publications in driving adoption of OGM.

Such forward-looking 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 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, November 8, 2023, 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 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 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. 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 online on the company’s Investor Relations page.

And with that, I would like to turn the call over to Erik.

Erik Holmlin: Thank you, David, and good afternoon, everyone. We accomplished a lot in Q3, and we look forward to discussing the progress in detail. Importantly, we took significant steps to reduce operating expenses and to extend our cash runway, which together helps shorten the potential path to profitability. The focus on managing expenses and driving toward profitability is in part facilitated by the change in financial leadership of the company with the appointment of Gülsen Kama to the role of CFO, which was effective September 11, 2023. Gülsen is going to open the call today by walking you through our financial results for the quarter and explaining how some of the initial steps in our streamlined operational plan will reduce costs. Gülsen?

Gülsen Kama: Thanks, Erik. I’m pleased to be on board at Bionano and to join the effort to help expand the adoption and utilization of OGM around the world. To achieve that goal, we have to be financially disciplined as we seize the opportunities ahead of us. With that, let me share our results for the third quarter of 2023 with you. Revenue was $9.3 million, representing a 29% year-over-year increase to the same period of 2022, which exceeded our original guidance of $8.8 million to $9.2 million provided on our second quarter earnings call and is in line with our earnings pre-release. The Saphyr installed base grew to 301 systems during Q3, which represents an increase of 20 systems in the quarter and 39% growth over the installed base of 217 at the end of Q3 2022.

We sold 6,176 flowcells in Q3 2023, which represents a 55% year-over-year increase over the 3,975 flowcells sold in the same period last year. GAAP gross margin for the third quarter was 30% compared to 25% during Q3 2022. And non-GAAP gross margin was 32% compared to 25% in the same quarter last year. Third quarter 2023 non-GAAP gross margin excludes $0.2 million in stock-based compensation. Third quarter 2023 GAAP operating expense was $116 million compared to $34 million in the same period in 2022. Non-GAAP operating expense in Q3 2023, which excludes $84.1 million in GAAP charges, as described in our press release, mainly comprised of a one-time impairment charge of $77.3 million related to revaluation of goodwill, was $31.8 million, compared to $26.3 million in Q3 2022.

The increase was driven by higher headcount, R&D and marketing expenses related to product launches. Non-GAAP operating expense in the third quarter went down $2.8 million compared to $34.6 million in Q2 2023, mainly as a result of headcount reductions implemented in May of this year. We raised net proceeds of $12.7 million on our ATM facility, selling on a split-adjusted basis 2.11 million shares at an average price of $6.16 per share. Our cash, cash equivalents, and available for sale securities as of September 30, 2023, was $63.6 million. Now, I want to discuss the steps we have taken since the end of the quarter to streamline operations and to extend our cash runway. On October 9th, we implemented additional cost reductions in continuation of the reductions initiated in May of 2023.

These cost savings initiatives included reduction in force and steps to reduce facility costs and discretionary spending unrelated to headcount. When taken together with the cost savings realized from the reduction in force the company announced in May, we expect to see an annual cost savings of approximately $33 million starting in 2024. We also announced the completion of an $80 million registered offering and concurrent private placement. Our objective with this financing was to obtain enough capital to provide a meaningful extension in the cash runway while also managing the dilutive impact. We believe we found a good balance in achieving both objectives through this financing. Back to you, Erik.

Erik Holmlin: Thanks, Gülsen, and welcome aboard. Great results, and congratulations on your first earnings call. We’re pleased to have your energy and skills as we navigate an important phase for Bionano. I would now like to talk to everyone on the call about our plan going forward. I’ve just returned from the annual meeting of the American Society of Human Genetics in Washington, D.C., where thousands of clinical researchers, lab directors and physicians meet to discuss the latest advances in human genetics. Based on the overwhelming number of talks, posters, publications, and mentions of optical genome mapping, I and my whole team believe that OGM is now widely recognized as a powerful alternative to traditional cytogenetics with the potential to have a tremendous impact on health outcomes and health economics.

Our strategy moving forward is straightforward. We need to accelerate revenue growth and operate efficiently to reach profitability. When we first established the ELEVATE! strategy, it was based on six pillars. We now see it’s more important than ever to be focused on those strategies that will result in achieving our goals in as expeditious as — a manner as possible. Therefore, moving forward, ELEVATE! will be based on four pillars. Number one, expand global adoption and utilization of OGM in hematologic malignancies, cell and gene therapy in rare diseases with a robust end-to-end workflow as an alternative to traditional cytogenetic techniques for efficient detection, analysis, and reporting of structural variants. Number two, clear the path for value-based reimbursement of OGM and inclusion of OGM analysis into medical society guidelines by addressing the need for large data sets showing clinical and health economic value of OGM.

Number three, obtain regulatory clearances in the United States and the European Union to make adoption of OGM easier for labs that require such clearances. And number four, drive operational efficiency to shorten the path to profitability. We’re making great progress along these strategic pillars. In addition to strong revenue this quarter, we saw growth in the adoption and utilization of optical genome mapping with increases in the install base of Saphyr systems and growth in flowcells sold. Installations of our newly released VIA software as a critical component of the end-to-end workflow first for heme began at the end of July. Many laboratories are now in various stages of integrating VIA for visualization, interpretation, and reporting of OGM data.

The response to the early access program for the Stratys system has really exceeded our expectation. Stratys systems are now in the field and installation and testing have begun. Full commercial availability of Stratys is expected early in 2024 based on our ability to ramp production. Automating sample preparation is an important component to the front-end of the OGM workflow as VIA is to streamlining the back-end. Our development work to adapt isotachophoresis, or ITP, for the isolation of ultra-high molecular weight DNA for OGM on the Ionic system is progressing well and we’re on track to have a pre-commercial version of that capability in the field by the end of this year. Hamilton, which offers the long-string STAR V system for isolating DNA for OGM, presented data at the ASHG conference showing their systems performed well.

They also discussed their plans to automate the DNA labeling step for OGM. Automating as much of this workflow as possible is really important to driving a maximum utilization of the higher throughput that Stratys brings to market. We also saw amazing progress around reimbursement of OGM-based tests as two labs, Praxis Genomics and Augusta University, received an approval from CMS of $1,863.22 for their proprietary analysis, or PLA, codes for hematologic malignancy testing after going through the gap-fill process with CMS. Regarding the critical mass of data in the field that’s required to influence third-party payers and impact medical societies as they’re evaluating the inclusion of OGM into their guidelines, I’d like to highlight the terrific growth we saw this quarter in the number of publications.

Overall publications featuring OGM were up 61% from Q3 2022 to Q3 2023, including a total of 47 human-focused publications, which demonstrates the utility of OGM in clinical research. The number of publications on rare diseases grew a remarkable 172% from 2022 to 2023, with increasingly large average numbers of samples per study. Now we have also formally engaged with the FDA around a future FDA cleared assay to be run on the Stratys system and we’ve received positive initial feedback, and that process will continue into 2024. Looking ahead at strategic milestones we previously outlined for the second half of 2023, we remain on track to meet our goal of installing 325 optical genome mapping systems by the end of 2023. Our prenatal and postnatal and heme malignancy studies remain on track to meet the associated milestones planned for the end of this year.

And finally, I want to reiterate our full-year 2023 revenue guidance, which we originally provided at the outset of the year of $35 million to $38 million in top-line revenue. We look forward to updating you on our Q4 call regarding the progress toward the remaining 2023 milestones. Operator, please go ahead and open the line for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] For our first question, it comes from the line of Jason McCarthy from Maxim Group. Your line is open. Please ask your question.

Michael Okunewitch: Hey, guys. Thank you for taking the question. This is Michael Okunewitch on the line for Jason. So, I guess to kick off, I’d like to see if you could just give a little bit more of — more clarity on what the pathway is to gaining FDA approval for the assay on the Stratys system. What sort of data do you need to produce for that?

Erik Holmlin: Yeah, hey. Thanks, Michael. So, the process involves a series of engagements with FDA followed by a clinical study. The clinical study is relatively small and can be conducted within a reasonably short period. We’ll likely do that trial later in 2024. And we would be seeking to establish substantial equivalence to existing standard of care methodologies. And part of the discourse that’s ongoing with the FDA right now is the specific clearance path that we choose. We’re fairly convinced — although it remains to be something that the FDA and we agree upon, but we’re fairly convinced that pre-market approval won’t be required. But there are other paths around 510(k) clearance that we would need to decide to follow and then get support with the FDA.

So, we’re engaged in those discussions now. And there are certain aspects of product development ongoing to support that trial around the proper documentation in connection with the development of the product, the software, and the assay as one integrated system. But we’ll be in a position we currently hope to conduct that clinical trial sometime later in 2024.

Michael Okunewitch: All right. Thank you. And then, I would like to just follow up and see if you can provide a bit more color on the financing, and in particular in the context of trying to understand your cash balance and how that looks going forward. Can you explain a bit more about how the redemption feature works that was utilized on November 1st? And then, do the redemptions include the full amount of interest on the amount redeemed or is that prorated to the amount of time elapsed until maturity?

Erik Holmlin: So, with regard to the convertible debt deal overall, I think as you know, there’s a portion of it which is unrestricted and a portion of it which is restricted. The restricted portion is released upon paying down the initial unrestricted portion and then meeting other financing conditions. And so, the process of retiring that initial restricted portion includes the retirement through the redemption and the redemption feature does include the financing charges and interest on top of that.

Michael Okunewitch: All right. Thank you for that. And then just one last one. I’ll hop back in the queue. Regarding the gap fill rate that you got, that Praxis and Augusta got, how does that compare to the actual cost of the materials for running that test?

Erik Holmlin: So, these are rates and codes that have been obtained by those labs. And so, we actually don’t know, right? They submitted the application and drove the gap fill. But the standard process is to fully burden their costs and include what would be considered a fair margin. So, I suspect that they have a good margin at that rate.

Michael Okunewitch: All right. Thank you very much for answering my question, and congrats on the progress this quarter.

Erik Holmlin: Yeah, thanks, Michael.

Operator: Thank you. And for our next question, it comes from the line of Sung Ji Nam from Scotiabank. Please go ahead.

Sung Ji Nam: Hi, thanks for taking the questions. Maybe, let’s see here, kicking off with Stratys, we’d love to hear any feedback you’re getting from the early access users, including kind of what type of — if you’re seeing utilizations on the system, kind of, tracking in line with your expectations there. And then, do you expect significant build-up of backlog heading into next year for the full commercial launch?