Bionano Genomics (BNGO) Q1 2023 Earnings Call Transcript

Bionano Genomics (BNGO 3.57%)
Q1 2023 Earnings Call
May 09, 2023, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

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.

[Operator instructions] At this time, I would like to turn the conference over to David Holmes from investor relations. Please go ahead.

David Holmes -- Investor Relations

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; 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, including the Saphyr system, NxClinical software, and Saphyr compute and the timing of such 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 and 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, Tuesday, May 9, 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 to comparable GAAP measures and should be revised 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 and 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 call will be available on the Investor Relations section of the company's web page.

With that, I will turn the call over to Erik.

Erik Holmlin -- Chief Executive Officer

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. That 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.

It took place January 23rd to the 26th, and we're so proud to be -- to have welcomed attendees from over 100 countries who altogether drove a 32% increase in average daily attendance compared to Symposium 2022. And this year, there was a record combined 100 scientific presentations and posters. Our OEM partner, Beijing GenomePrecision 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 that will -- 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, and once registered, it can be sold into Tier 3 hospitals in China. There were 16 new publications this quarter describing the application of OGM and human genome clinical research, including the first peer review publication for our -- from our trial in postnatal genetic disease, which is 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 year -- at the end of 2020 to 53 at the end of 2021 to 108 at the end of 2022. So, the 16 in this first quarter represents a substantial advancement here now in 2023.

Something else that's remarkable is the count of the number of published unique clinical genomes that have been analyzed, written up, and put into 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 enable 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. 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. And today, we are announcing the implementation of an initiative designed to reduce cash expenditures by approximately $20 million over the next four to five quarters.

This cost reduction initiative includes, among other things, a reduction in force that we effected yesterday, May 8, 2023. It includes plans to also 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 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. And we remain on track to meet our previously publicly announced 2023 ELEVATE! anticipated milestones despite these changes in our operating structure. These milestones include advancement of our clinical studies, expansion of the OGM installed base, and several planned product and regulatory developments.

Before discussing with you 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?

Chris Stewart -- Chief Financial Officer

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 -- our preannounced 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 to head count, 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 $800,000 -- 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 31, 2023, was $95.8 million. We have been and will continue to be proactive in identifying the best path to raising the capital we need. In Q1, we raised $14.8 million on our AGM facility, selling 9.5 million shares at an average price of $1.60.

And we are actively working on strategies to raise additional capital this year, including evaluating nondilutive options along issuing -- 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.

Erik Holmlin -- Chief Executive Officer

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 system by approximately fourfold initially and eventually, we think, will enable a thirteenfold 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 Saphyr Compute to go alongside the high-throughput Saphyr.

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, which is currently named NxClinical. The software will integrate optical genome mapping data and will be initially focused on applications in hematologic malignancies or blood cancers.

A version for whole genome constitutional analysis will be available by the end of the year 2023. Continuing beyond the second quarter for the remainder of the year, we will focus on clearing the path for 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 heme, which we believe is our biggest near-term market opportunity. Now, following the withdrawal of our Category 1 CPT code application, which we did to avoid the possible assignment of a Category 3 codes 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 set the policies established by payers to determine the level or amount of reimbursement they apply to a given code or procedure.

And what we see is that coding is actually not the most pricing bottleneck for us. Individual labs are now succeeding in getting codes and getting them paid. And so, it becomes important to focus on broader coverage determinations. And finally, 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. And we are encouraging 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.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Jeff Cohen with Ladenburg. Please proceed.

Unknown speaker

Hi. This is actually Destiny on for Jeff. Thank you for taking our questions. I guess let me start with your symposium 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.

Erik Holmlin -- Chief Executive Officer

Yes. So, this is an event that was created by our chief medical officer, Alka Chaubey, and I think if you look externally what people say when they observe this event that we're putting together, they're really blown away by the level of enthusiasm, participation and then the richness of the data that are presented there. And it's an event that goes over four days in 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. And this year was the biggest ever and certainly did not disappoint.

I think that the number of posters was incredible and blew us away, and the number of talks that were given were with substantial 100 present posters and presentations combined. So, from a participation and a volume standpoint, it was incredible. But the content itself is what really makes the difference. And so, we had an entire day dedicated to cell bioprocessing QC.

And so, this is a new area for us, where optical genome mapping again is acting as a replacement for traditional cytogenetic methods not so much in clinical research and applications in classifying samples in studies, but actually in looking at therapeutic development and evaluating the target effects of gene editing, therapeutic cocktails, as well as the stability of the genomes through the therapeutic cell manufacturing process. And so, this was a huge leap forward for us. We had several talks dedicated to this topic. We'll be attending a conference later on this summer in Boston that's totally dedicated to stem cell therapies.

And so, this is an area where we expect to see significant uptake of optical genome mapping, and symposium was able to showcase it. There were two days -- two full days dedicated to oncology. And that was because we had so many talks in hematologic malignancies and solid tumors together that we had them spanning two days. And the amount of results that are being presented in these talks are incredible.

And so, it's aligned with the 3,000 or so clinical genomes that were published in 2022. And the last thing I would say is that when we look at the totality of the data that's presented, we really see that we're reaching a critical massive impact and that the Bionano brand is now being recognized throughout the communities that we're focusing on. And these are really the constitutional genetics community, hematologic malignancies, which is part of the broader oncology or cancer community in this new one, which is so important pharmaceutical industry, specifically looking at cell bioprocessing QC for gene editing, stem cell, and other very advanced therapeutics.

Unknown speaker

Thank you so much. That's fascinating. Maybe if I could just 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, yeah, somewhat early access to the system?

Erik Holmlin -- Chief Executive Officer

Yeah. I think that's the right way to think about it. And it's premature to really put any numbers out there and the process of determining these sites is based on the need for high throughput. And of course, in a program like this early introduction, you called it early access, I did it, but of course, that's the kind of idea part of the process is to really get critical feedback from the market.

So, 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 that they can really put it through its paces. But what I can tell you already is that the demand is very significant for the instrument. And I think 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 be rolling it out this quarter.

Unknown speaker

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

Erik Holmlin -- Chief Executive Officer

Thanks, Destiny.

Operator

Thank you. A moment for our next question. Will come from the line of Francois Brisbawith Oppenheimer. Please proceed.

Unknown speaker

This is Dan on for Frank. Thanks for taking our questions. Just first one for me. Could you share in your view with regards to CPT codes in your view, what needs to happen to have the confidence in getting CPT1 since you mentioned you are focusing on broadening coverage more? Is this worth going down the line for attaining CPT1 code right now? Just curious what your thoughts are.

Erik Holmlin -- Chief Executive Officer

Well, I do think -- and it's important for there to be a Category 1 CPT code that is available for optical genome mapping. And the way that we constructed our application was around one for genetic disease and one for oncology. And I suspect that that's how it will be ultimately when it happens. What -- there are a variety of criteria that the AMA and other groups that come together to evaluate these applications, a variety of criteria that they put together.

And we believe that optical genome mapping is meeting all of those criteria, but they're not definitively objective. And if we had to speculate where we thought that optical genome mapping might have some more room to go, it's in the volumes of utilization. Now, when we make an application for a CPT code, we're the manufacturer. And so, we don't know all of those volumes.

And so, our ability to specify that as part of the application is limited. And so, what we believe going forward is that as more and more labs due as they've already done, which is to apply for PLA codes, it will really bring the amount of activity and volume and utilization of optical genome mapping in these settings out into the public and make those applications much easier to go through. I would say that a Category 1 CPT code is not a prerequisite for getting reimbursement. Labs are now getting reimbursement, I would say, on a regular basis, and it's through a variety of processes, either using existing codes, which are specific to the gene or set of genes that are being analyzed or applying for their own, what are called PLA or proprietary laboratory analysis codes.

And what becomes important is to get data in front of payers, and we're going for Medicare first so that when they see these code applications, they'll be familiar with not only the methodology, which is what the focus of the CPT code process is on, but of the value and utilization, and that's driving coverage. And so, I think CPT codes will be important. They're going to get out there eventually down the road. They're certainly going to be important when FDA-cleared mapping systems are available and labs that are adopting them are using FDA-cleared versions of the system.

Our focus is on unlocking coverage right now because we see plenty of coding happening.

Unknown speaker

That's helpful. And in terms of the publications regarding the hematological malignancy publication that came out with the three of them, what are the next steps? Like do you need additional studies in terms of starting conversations with guideline bodies to make OGM first year? Wondering what the next steps are.

Erik Holmlin -- Chief Executive Officer

No, it's a great question. I think that the strategy to evolve optical genome mapping from a basic research tool into something that's used routinely and regularly in translational research, I think that that's what we're seeing now into something that eventually gets recommended it becomes part of the standard of care involves getting a lot of data out, what I call critical massive data, and a key component of that strategy is to work with folks in the field who are associated with the teams that make recommendations to these medical societies. So, if you look at some of these publications that are coming out, the three that we talked about earlier this quarter are from European sites, but we have others. There was a really amazing publication last summer that came out of MD Anderson Cancer Center.

All of these authors have an affiliation or several of these authors have affiliations with guideline-setting agencies such as the World Health Organization, NCCN here, National Comprehensive Cancer Network in the United States. And those agencies set those guidelines. And so, by working with key opinion leaders who are already affiliated there, it's a way of accelerating the process.

Unknown speaker

OK. That makes sense. And finally, a quick one for me. The decrease in anticipated new hires for the remainder of 2023, any specific department those hires were going to be in, or if there's across the board?

Erik Holmlin -- Chief Executive Officer

I think, you know, it's really an effort to, I think, be just prudent about the hiring and making sure that wherever we're expanding the team, it's on a critical need basis. So, there isn't a specific department or team which has singled out, and it's really a process of hitting our goals from an expense reduction standpoint but staying on track to hit the milestones that we've reiterated here today.

Unknown speaker

Great. Thanks for taking my questions.

Erik Holmlin -- Chief Executive Officer

You're welcome.

Operator

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

Michael Okunewitch -- Maxim Group -- Analyst

Hey, guys, thank you for taking my questions, and congrats on the quarter. So, I guess 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. And I think most recently, as we saw at AACR with VA streamlining analysis step. Can you talk about what you currently view as the main bottleneck for OGM end users and what efforts to further optimize and stream on the workflow you're currently working on?

Erik Holmlin -- Chief Executive Officer

So, thank you, Michael. And I want to acknowledge Carmen who did a great job at pronouncing your name. That was impressive. So, I appreciate you calling in and following along.

AACR with a focus on cancer research is really an area where we're starting to build momentum. And I think if you look at cancer research, in particular, there's two really challenging elements to it. Outside of the mapping process itself, it's certainly doing the data analysis. And one of the reasons that the data analysis is complicated in cancer research is that a lot of this utilization is guideline-driven.

And so, when somebody goes to analyze a data set, it's not really a process of simply looking at what is present in the sample, what variants are called, but it's really comparing those calls to a specific list of variants that are called out in these different guidelines. And that can be a very tedious and manual process. It can take hours and hours to do. And I know this because we do it in our own laboratories as part of our clinical studies and as part of a LDT that we've developed in Bionano laboratories.

And so, our new software, which our team is beginning to use and work with automates that process. And so, it's still something that's user-driven. We're talking about a research product here, but the user decides how they want to construct these panels that are driven by guidelines and then they're able to sift through the variant calls in an automated fashion and save so much time. It's not only a matter of time savings in cancer research, but it's cost savings because the people who are doing this analysis tend to be the most expensive people in the process flow going from sample to answer.

So, data analysis is a huge bottleneck. And something that's unique about optical genome mapping is even our existing software is extremely streamlined compared to data analysis for next-generation sequencing. We hear all the time that labs that adopt NGS have to have whole bioinformatics teams to analyze the data. And with optical genome mapping, it's the same team that process is karyotyping, florescent in-situ hybridization fish or micro rates, it's really comparable to the routine that exists today, and we're just making it really fast.

So, data analysis is a bottleneck, and we're addressing it via first in hematologic malignancies this quarter and then in constitutional genetic diseases later this year. The other bottleneck is around the DNA isolation and that's something that we're addressing with Isotachopheresis, which is technology that was invented and then commercialized by Purigen, a company we acquired last November. And we currently sell a Purigen product for isolation of nucleic acids from formalin-fixed perf and embedded tissues and we're developing a cartridge and protocol, including reagents that will work for optical genome mapping starting with blood and bone marrow samples. So, it will be able to work with kind of our existing applications in genetic disease and cancer.

And so, we're really streamlining the front end, which is a unique process for optical genome mapping, the back end, which is just really challenging because it's guideline-driven. And then I would say that throughput, it depends on your lab, right? So Saphyr addresses the throughput for a great number of laboratories, and we estimate that those laboratories are processing somewhere between 40% and 60% of the total volume on a global basis, but they make up a substantial number of the labs, whereas a much smaller portion of labs process, about 40% of that volume, they need ultra-high throughput. And so, this new high-throughput mapper is going to address that need. And so, I think we're really elevating overall the end-to-end process in significant ways, making it substantially more automated, streamlined, robust, and fast.

And that's what the market is demanding.

Michael Okunewitch -- Maxim Group -- Analyst

All right. Yeah. Thank you for that. I'd like to just get one more, and then I'll hop back in the queue.

So, in terms of the cost reduction measures, could you just provide a bit more granularity on where those are coming from? And is that $20 million, are those recurring expenses on an annualized basis? Or is that just over the four to five quarters? Just help me better understand that.

Chris Stewart -- Chief Financial Officer

Sure. So, we're targeting cash savings in both operating expense, cost of goods sold, and through an inventory reduction. We do expect opex in the second half of the year to be down from Q1. And again, it's across those three different areas and the inventory reduction isn't recurring.

The other reductions will be recurring until such time as our financial position changes, and we can increase our investments again as appropriate.

Michael Okunewitch -- Maxim Group -- Analyst

All right. Thank you very much. And once again, congrats on the quarter.

Erik Holmlin -- Chief Executive Officer

Thanks, Michael.

Operator

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

Erik Holmlin -- Chief Executive Officer

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

Duration: 0 minutes

Call participants:

David Holmes -- Investor Relations

Erik Holmlin -- Chief Executive Officer

Chris Stewart -- Chief Financial Officer

Unknown speaker

Michael Okunewitch -- Maxim Group -- Analyst

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