Bionano Genomics, Inc. (BNGO) on Q4 2022 Results - Earnings Call Transcript
Operator: Good day and welcome to the Bionano Fourth Quarter and Full Year 2022 Earnings Conference Call. Please be advised that this conference is being recorded. At this time, I would like to turn the conference over to Amy Conrad from Investor Relations. Please go ahead.
Amy Conrad: Thank you, Michelle and good afternoon everyone. Welcome to the Bionano Genomics fourth quarter and full year 2022 financial results conference call. Leading the call today is Dr. Erik Holmlin, CEO of Bionano. He is joined by Chris Stewart, CFO of Bionano. After market close today, Bionano issued a press release announcing its financial results for the fourth quarter and full year 2022. A copy of the release can be found on the Investor Relations page of the companyâs website. I would like to remind everyone that certain statements made during this conference call are forward-looking, including statements about Bionanoâs strategic and commercialization plan, sales pipeline, future fundraising activities and prospects, anticipated benefits or improvements to the Saphyr System and Ionic Purification System, goals and anticipated milestones for 2023, an achievement of our Elevate growth strategy, our anticipated compound annual growth rate, the size and our ability to access our estimated target market, the advantage of the Saphyr System and Ionic Purification System of our current technologies, the anticipated benefits of recent acquisitions, expectations regarding timing and content of study results and anticipated benefits of these studies in driving adoption of the Saphyr System and Ionic Purification System. 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 Bionanoâs press release and Bionanoâs reports filed with the SEC. These forward-looking statements are based on information available to Bionano today and the company assumes no obligation to update statements as circumstances change. In addition, to supplement Bionanoâs financial results reported in accordance with U generally accepted accounting principles or GAAP, the company is reporting non-GAAP operating expense. This non-GAAP financial measure is not meant to be considered in isolation or as a substitute for comparable GAAP measures should be read in conjunction with the companyâs consolidated financial statements prepared in accordance with GAAP has no standardized meaning prescribed by GAAP and is not prepared under any comprehensive set of accounting rules or principles. A description of non-GAAP operating expense and reconciliation of non-GAAP operating expense to GAAP operating expense are included at the end of the companyâs earnings release issued earlier today, which has been posted on the Investor Relations page of the companyâs website. An audio recording and webcast replay for todayâs conference call will also be available online in the Investors section of the companyâs website. With that, I will now turn the call over to Erik.
Erik Holmlin: Thank you, Amy and good afternoon everyone. Thank you for joining us today. I want to start off by saying that 2022 was simply a spectacular year for Bionano. We really couldnât be happier with the results. And in fact, we are just blown away with what we see as progress around the world in adopting optical genome mapping. We started 2022 in a pretty difficult macro environment. There was continued uncertainty around COVID which was limiting our access to laboratories and impacting our ability to install the Saphyr System. We faced challenges with chip suppliers and production yields were lower than anticipated. And I am happy to report that over the course of the year we were able to get production yields backup and restore them to levels that they were previously and then we hit our installed base milestone for Saphyr systems for the year. And never once did we face any backlog or any inability to ship product to customers based on supply chain issues and thatâs a credit to so many incredible employees across our company who battled through difficult conditions to produce a great result. And I am thankful to them. We kicked off our strategy for growth, which we named Elevate at the start of 2022 and we delivered against all of our Elevate milestones for the year. We met or exceeded our guidance for revenues on both a full year basis and in each quarter over the course of the year. I would like to take a little bit of time to share with you some highlights from our 2022 achievements, including those in the fourth quarter. To begin, we grew the installed base of Saphyr systems in the world to 240, which represents a 46% increase over the 164 systems that were installed at the end of 2021. In the fourth quarter of 2022, we sold 4,781 flow cells, which represents 49% growth over the same period in 2021 and brought the total for 2022 to 15,375 flow cells sold. That represents a 23% growth over the 12,518 flow cells sold in 2021 and thatâs just tremendous progress. You have to remember that the flow cell is the unit consumable that really connects most closely to the number of human genomes that are being analyzed by optical genome mapping. And so this growth is truly impressive. We continue to process a substantial number of samples for optical genome mapping through Bionano laboratories. And this is a vehicle that we leverage to introduce people who are interested in OGM to how powerful that data is on their samples. Revenues for the fourth quarter of 2022 were $8.2 million, which is up 30% versus the fourth quarter of 2021. Revenue for the full year was â 2022 was $27.8 million, which represents year-over-year revenue growth of 55%. And we are incredibly impressed by the performance on the top line in the fourth quarter. And we believe it really shows what we are capable of doing in this business both from an absolute standpoint, but on an ongoing growth basis. And so itâs an outstanding outcome for our team selling optical genome mapping and our other products, clinical services and software. In fact, we exceeded the goals and expectations for all of our planned milestones over the course of the year and advanced the company strategy as well as our products. I would like to share some of those key highlights from the full year. We made significant progress towards streamlining the optical genome mapping workflow with our acquisition of Purigen Biosystems, which closed in November of 2022. That acquisition brings their Ionic system, which uses isotachophoresis technology into our optical genome mapping workflow. And we believe that it really completes the assembly of the extremely streamlined end-to-end workflow for optical genome mapping once we launched the Ionic system and its consumables for OGM. We developed and released enhanced kits for DNA isolation and labeling in our OGM workflow, the SP-G2 labeling kit and the Bionanao prep direct label and stained G2 DNA isolation and labeling kits. These enable sample to results in as little as 3 days for cancer samples and they are proving to dramatically increase the reliability of the workflow in customersâ hands and itâs always been a key pillar of our strategy to delight customers with robust products in these new kits do exactly that. We also released an automated version of our DNA isolation chemistry, which has been done in partnership with Hamilton and is linked to their Long String VANTAGE DNA isolation robot. We launched a number of optical genome mapping laboratory developed tests or LDTs through Bionano Laboratories. One is for hematologic malignancies and another is for the genetic disorder FSHD1. We believe these allow healthcare providers to explore the clinical utility of optical genome mapping based assays through these LDTs. And we believe that this utilization will support efforts to gain coding and coverage for reimbursement by third-party payers. We also met all of our milestones in our clinical studies for prenatal and postnatal and hematologic trials, including study enrollment targets, completion of our postnatal study, which has now been published as a preprint as well as the interim publication of the prenatal study, which was published in December of 2022. We also initiated our solid tumor trial. These trials are critical to providing the critical mass of data that will be used to drive medical societies to support the inclusion of optical genome mapping in their recommended first-line tests. Several sites across the United States and Europe validated laboratory developed tests. And in the United States, they submitted applications for reimbursement codes, including Z codes and proprietary laboratory analysis or PLA codes, which enable them to get paid for optical genome mapping tests. And they have been very pleased with the level of reimbursement thatâs been assigned to these codes, ranging in the area of about $1,300 for constitutional genetic disorder testing, which is comparable to reimbursement rates available in the market today. NXClinical Software Version 7.0, which is the version of that software enabled for OGM data analysis is being used in the field, and we are planning a full commercial release for applications in hematologic malignancies in the first half of 2023, a pre-commercial version of our next-generation high-throughput Saphyr System has been running in the field with excellent results, and we plan to launch that new instrument into the field this year. Initial launch will be in the first half of 2023, and weâll see adoption and installation towards the second half of the year. We expect this instrument to enable optical genome mapping analysis at substantially higher throughput compared to the Saphyr System and that it will support labs that are running much higher volumes. Finally, there were a number of amazing publications that were published in 2022, and we believe they tell the story of optical genome mapping and how the future of the company will unfold. 5 groundbreaking publications that I want to outline for you today are as follows. You may remember that we talked about an incredibly powerful publication from a number of scientists at the University of Texas, MD Anderson Cancer Center, where they described the use of optical genome mapping and evaluation of myelodysplastic syndrome or MDS prognostication. And what was incredible about this paper is it showed that up to 21% of study subjects had a different prognostic risk score when optical genome mapping was used to evaluate them compared to the standard of care. Thatâs 1 in 5 people. So the impact of OGM cannot be denied. This publication really underscores that. Researchers from Necker Hospital in France found that optical genome map being detected more clinically relevant variants in 33% of MDS patients and 54% of acute myeloid leukemia samples, which is a critical demonstration of the utility of optical genome mapping to go above and beyond the standard of care. Researchers from 8 different institutes analyzed OGMâs utility for cytogenetic abnormalities in again, AML samples. And here, they found that 12% of the cases had different risk levels and were eligible for clinical trials as a result of these new findings. This inclusion in clinical trials is incredibly meaningful because it connects these patients to potentially life-saving therapeutics that they otherwise would not have had access to without the findings of OGM. So you can imagine the impact of these findings. Researchers from Augusta University published the first validation study to evaluate the performance of optical genome mapping versus traditional methods for hematologic neoplasms, which showed an incredibly high technical performance and concordance rate with, importantly, 100% first pass rate, meaning that the reliability of optical genome mapping in these workflows is highly reliable and does not require repetition of the test, which drives up costs for payers and delays results to patients. Finally, researchers from a foundation at Kyoto University demonstrated the utility of optical genome mapping as part of a workflow to evaluate hypoimmunogenic induced pluripotent stem cells, IPSCs and that this workflow could be used in regenerative medicine showing OGMâs ability to detect off-target effects or areas where genome modification has gone array and reveals that these modified stem cells may or may not be useful in a particular patient setting. And this is an area of significant interest in the adoption of optical genome mapping for various applications in cell therapy. At the close of this call, I want to go through our milestones planned as part of Elevate for 2023. But before doing that I want to turn the call over to Chris Stewart, our CFO, who will review the financials for the year. Chris?
Chris Stewart: Thanks, Erik. The fourth quarter of 2022 was another outstanding quarter, which capped off a great year where we achieved impressive year-over-year revenue growth and diversified our revenue across product lines and geography. With the acquisition of Purigen we now control the end-to-end OGM workflow and expect to expand our target markets. Now to get to the numbers. Revenue in the fourth quarter of 2022 was approximately $8.2 million, a 30% increase over the fourth quarter of 2021 and within the preliminary range of $8.1 million to $8.4 million that we provided on January 5 of this year. Revenue for the full year was $27.8 million, representing a 55% increase over the full year 2021. This year-over-year increase was driven by strong performance in all 3 of our core businesses, OGM, Bionano Labs and software and across all three major geographies. Gross margin for the fourth quarter of 2022 was 22% compared to 4% in the fourth quarter of 2021. For the full year, gross margin was 21% compared to 22% in 2021. The slight decrease from 2021 was mainly due to the yield challenges that we experienced beginning in late 2021. As Erik mentioned, yields on product being produced today is now back to the levels we saw pre-COVID. So we expect that that issue is now behind us. Regarding operating expense, we report both GAAP and non-GAAP numbers. We believe that providing our operating expense, excluding certain ongoing non-cash expenses and other one-time expenses provides a more useful measure of our performance. Fourth quarter 2022 GAAP operating expense was $39.3 million compared to $29 million in the prior year. Full year 2022 GAAP operating expense was $137.6 million compared to $81 million in 2021. The increase for the quarter and the year was primarily due to increased headcount and headcount-related expenses and an increase in marketing and R&D expense. Full year 2022 non-GAAP operating expense was $107.7 million and excludes 22.4 million in stock-based compensation, $5.8 million in amortization of intangibles, and $1.8 million in acquisition-related transaction costs. Fourth quarter non-GAAP operating expense was $30.6 million compared to $21.8 million in the fourth quarter of 2021. Fourth quarter non-GAAP operating expense excludes $5.5 million in stock-based comp, $1.5 million in amortization of intangibles, and $1.7 million in expenses related to our acquisition of Purigen. We ended the fourth quarter with $113.2 million in cash, cash equivalents and available-for-sale securities compared to $180 million at the end of Q3. During the quarter, we incurred costs of approximately $34 million related to the Purigen acquisition and we increase our safety stock of inventory by about $4.7 million to ensure supply to our customers. We have been and will continue to be proactive and opportunistic in terms of raising additional capital in order to position the company to capitalize on the promise of OGM. Since the start of the year â of this year, we have been active on our ATM facility, raising $14.8 million so far in Q1 of 2023. This morning, we filed an amendment to our current S-3 placing a cap on the total amount of capital that can be raised under existing shelf to $400 million, of which $200 million can be raised under the ATM. This is a reduction to the $350 million under our previous ATM agreement. Tomorrow, we will file a new S-3 with the same capital limits that will replace our current S-3 once declared effective by the SEC. Looking forward, as we begin 2023, we expect Q1 2023 revenues to be in the range of $7 million to $7.5 million in line with the typical seasonal softness that we see in Q1. We expect full year 2023 revenue to be in the range of $35 million to 38 million, which at the midpoint will be 31% growth over 2022 revenue. I am really pleased about the progress we are making across all aspects of the business and very excited about where we are headed. With that, I am going to turn the call back to Erik to discuss our anticipated business plans before we take your questions. Erik?
Erik Holmlin: Thanks, Chris. Congratulations on the incredible results. Iâd like to close out today by diving into the 2023 milestones that will be tied to our growth strategy. Before doing that, I want to remind everyone that we held our first ever Strategy Day at NASDAQ in New York where this whole team went through an in-depth review of our strategy growth drivers, financial objectives, key initiatives related to clinical trials and new product advancements as well as in-depth discussions with 6 current users of the Saphyr System, who are regarded as world leaders in their fields, who gave incredible testimonials about the utility of that platform and its positioning. And so I encourage everyone to check out the recording of the event, which can be accessed on the investor side of our webpage. As we reviewed in-depth during Strategy Day, we are focused on driving what we believe is a cytogenetics revolution. Elevate is our growth strategy. Elevate is based on six strategic pillars. The first one is to expand commercial traction and validation of optical genome mapping and really all of our solutions to delight customers with robust products, clear the path for OGM reimbursement in our target markets, continue to advance the product to enable further penetration of our existing markets as well as expand the market for penetration into new ones, make software a strategic driver of Bionano solutions. And with the acquisition of Purigen Biosystems, we will extend that to include making sample prep solutions for DNA isolation, another strategic driver. And then finally, the sixth pillar and one thatâs really important on a go-forward basis is that we need to execute these pillars with operations and strategies that will scale with this growing business. And so we have a number of key milestones that are planned in 2023. They cover areas of product developments, our ongoing clinical studies, milestones and reimbursement, milestones around expanding the base â installed base of optical genome mapping systems and important regulatory developments with the FDA. I want to run through a few of these and you will be able to review them through the recording of this call, which will be archived on our website, but we intend to expand the OGM system installed base to 325 systems by the end of 2023. We intend to add to our menu of LDTs at Bionano Labs with one for whole genome evaluation of structural variations in constitutional genetic disease. We are going to be inspected by the College of American Pathologists at Bionano Laboratories in connection with our application for accreditation by CAP. In the first half of 2023, we will be launching the high throughput Saphyr System, which we believe will increase throughput substantially and will be connected to the new Saphyr computer which has been developed in collaboration with Nvidia. We are going to have important pre-submission discussions with the FDA that are leading up to a pre-submission in connection with the high throughput Saphyr System later on. We plan to submit an important dossier to Medicare for something called a local coverage decision in 2023. And we will advance our clinical studies. There are a number of milestones in connection to these studies, including ongoing enrollment of our prenatal study as well as ongoing enrollment of the heme study, around which we expect to achieve about 50% enrollment. We are continuing to pursue our Category 1 CPT codes for heme and constitutional use of optical genome mapping. And we expect to have pre-commercial versions at a minimum of our OGM kits for isotachophoresis that will run on the Ionic Purification System in the field by the end of the year. And lastly, we will be launching and having a full commercial release of VIA which is the newly named software for data analysis based on what we acquired from BioDiscovery. And VIA includes the ability for optical genome mapping analysis and it will target heme applications in the first half of 2023 and then a whole genome analysis version available in the second half of the year. And so these are incredibly important milestones that we expect to achieve this year and the whole driver behind them is to provide catalysts that will enable ongoing revenue growth and the development of a very robust P&L. And so as we continue to execute on these core elements of the strategy, we expect to grow revenue for the next few years at a healthy compound annual growth rate ranging from 30% to 50% through 2025. We believe that we are building a business that will eventually scale into this enormous market opportunity that we are pursuing and deliver exceptional financial results. And so in closing, I want to say that we are really excited about what we can achieve this year and we look forward to updating you soon about the first quarter and throughout the year going forward. With that, Michelle, we are ready to take questions.
Operator: Thank you. And our first question comes from the line of Jeffrey Cohen with Ladenburg. Your line is open. Please go ahead.
Jeffrey Cohen: Hi, Erik and Chris. How are you?
Erik Holmlin: Good.
Chris Stewart: Hi, Jeff. Doing great.
Jeffrey Cohen: So I guess first, just a quick one for Chris. As far as the inventory and inventory build from Q4, you did call out a couple of things. Was that â is there some relationship there to your new high-throughput instrument or was the buildup with flow cells or existing Saphyr instruments?
Chris Stewart: It was existing Saphyrs and flow cells. And basically, when â in the height of the supply chain challenges, we wanted to ensure that we wouldnât be constrained on demand. So we started building safety stock. And I guess the key point is we are just about done with that in Q4, a little bit in Q1 and then we will start bringing that safety stock down as we bring up the new instrument and consumables later in the year and into next year.
Jeffrey Cohen: Okay, got it. Thatâs helpful. So, itâs not necessarily going to increase along with your revenues, but it may have peaked for the shorter term?
Chris Stewart: Correct.
Jeffrey Cohen: Okay, got it. And Erik, you do call out the two LDTs thus far, would you expect others to be introduced during 2023 as well?
Erik Holmlin: Yes. We are going to continue building that menu. So in 2023, for sure, we are going to release an LDT for constitutional genetic disorders thatâs looking at the whole genome and revealing structural variations that maybe connected to a variety of indications such as intellectual disability, developmental delay and so forth.
Jeffrey Cohen: Got it. And then as far as the new instrument introduction in the first half this year, do you expect that will replace Saphyrs at high throughput facilities and centers or would it be adjunct at high throughput centers?
Erik Holmlin: I believe itâs going to be incremental adjunct because the Saphyr System operates well and performs just as well as its high throughput version will, but it can be used in a setting like that for the development of new assays and other techniques that a laboratory or a customer may want to work on or evaluate. And so I really do expect that to be that the new system would be adjunctive to what they already have.
Jeffrey Cohen: Got it. And then lastly one more if I may. As far as the margins and looking forward into â23, would you expect that they grow from â22 levels? And if so, where are the levers, is it on the product side or the service and other side?
Chris Stewart: So, we do expect it to trend up from here. We are not providing anymore guidance on exactly how much. But the reason is that we have now worked through the inventory of chips that were produced during the time when we were struggling with our yields. And so we built up a lot of inventory during that time again to make sure that we can service our customers. As Erik mentioned, thankfully, we didnât miss any deliveries to any of our customers, but we did that by virtue of having this inventory. So we have now worked through that and we are back to production at kind of the yield levels that we were at prior to early 2020. So thatâs whatâs really going to drive it up.
Jeffrey Cohen: Okay. And one more quick one for Erik, as far as the payer environment, both the payers and Medicare, whatâs your sense around their receptiveness more recently to the overwhelming body of data that you are delivering to them and how they are thinking about the economics in the space now?
Erik Holmlin: I think the progress that we are seeing is very positive. And we have a function in the company, market access, led by a real veteran in the industry. And she is in the process of putting these data in front of these payers. And so while you and I follow Bionanoâs communications and press releases and publications, incredibly closely, the payers are still catching up. And so Donna is going to make it an issue for them and put it in front of them. But we have a lot of discussions ongoing already and payers get it. There is just a process that we have to go through to satisfy them. And Donna is developing a multi-pronged strategy and we will be able to say more about that in the future as we start delivering against some of these key milestones. But I think the fundamental answer is that they like what they see and we have to make sure that all of them see it and then continue to see more and more and more and more.
Jeffrey Cohen: Got it. Okay, super. Thanks for taking our questions.
Erik Holmlin: Thanks, Jeff.
Operator: Thank you. Our next question comes from the line of Sung Ji Nam with Scotiabank. Your line is open. Please go ahead.
Sung Ji Nam: Hi, thanks for taking the questions. So I was wondering about the completion of the postnatal study and the publication there kind of what are the next steps? Is this something where you kind of wait for all the other studies to be completed in terms of beginning of your conversations with the guideline bodies or whatnot or just kind of curious what the next steps might be?
Erik Holmlin: I think that the principal next step is to finalize the preprint, which has been published and then submit it for a peer-reviewed publication. I think that thatâs the key next step for that body of data. But there are some 1,047 datasets associated with this study and they all contain within multiple publications that will be able to dive deeply into and highlight some of the key endpoints that weâve been seeking to measure, the preprint goes into a couple of subpopulations, one with autism spectrum disorder, another which was a prospective cohort that was collected, and it already shows almost an increase of 20% in pathogenic findings compared to the standard of care for both of those populations. But it also reveals that there were a substantial number of presumably reportable findings that have a high likelihood of being pathogenic. And so we need to sort that out by looking deeply into the nature of those events. And so I think the way to think about it is that this preprint has been published and we will get that out. Itâs going to cover 1,047 datasets, which is an incredibly impactful number that nobody can run from. We show 100% concordance with the standard of care and substantial increase in performance overall. So itâs very powerful, but there are many, many more publications that will dig out of that dataset and proliferate. And so you should expect there to be just more and more information coming out, highlighting the incredible importance of optical genome mapping and those publications will support our efforts to convince guideline agencies, medical societies, to embrace optical genome mapping right things like consensus statements that ultimately result in the medical societies recommending optical genome mapping as first line testing.
Sung Ji Nam: Got it. Thatâs super helpful. And then just curious about the HRD detection publication that came out, obviously, very interesting there. Is that something that you could â you might be able to incorporate into your solid tumor studies or is that just kind of something that you think the customers will continue to potentially develop on their own?
Erik Holmlin: We â so Bionano is a player in HRD at two levels. Number one, we have what we believe is the most robustly performing approach to calling HRD and scoring HRD from existing data types like sequencing, next-generation sequencing and other data types, microarrays. And thatâs commercially available now and labs are adopting it and utilizing it. In addition, optical genome mapping has now been shown to be as good as sequencing, if not substantially better. There was a paper and maybe this is the one that youâre referring to that was published from the Curie Institute in Paris. And it showed that optical genome mapping way outperformed whole genome sequencing for identifying patients in the study who were, in fact, qualified for PARP inhibitors. But if they only use sequencing to pick up those patients, they wouldnât have picked up as many. And so optical genome mapping appears to be more powerful. And so thatâs a long way of saying, yes, we expect optical genome mapping to feature prominently in HRD scoring and that, that will be something that we will measure as part of these studies. Now Iâve got to be fair and point out that the vast majority of solid tumor specimens that are collected and analyzed throughout oncology today are in formalin-fixed paraffin-embedded tissue. And thatâs not something that we have an assay for optical genome mapping on yet. We expect to be able to work on that eventually using isotachophoresis. But what I can tell you is that the results that Curie is getting are so incredibly impactful that their institution is now advocating the collection of and preservation of frozen fresh tissue in breast cancer because it seems that optical genome mapping is so powerful that it warrants a change in practice of sample collection and sample utilization. And so, maybe thatâs something that can influence â be an influence on practices here in the United States.
Sung Ji Nam: Great. And then lastly from me, on your 2023 guidance, for the 325 OGM system guidance, I was wondering if thatâs including the new high throughput systems. And also, are you seeing maybe some of your potential customers or existing customers kind of waiting or holding off in terms of adopting OGM systems in the â currently or in the first half of the year in anticipation of the launch in the second half of the year.
Erik Holmlin: We donât see that. And the availability of this new high throughput system will be relatively limited in the second half of this year, and thatâs somewhat by design to protect against any hesitation in the market. We also will have different commercial terms, and we will continue to make it very attractive to bring Saphyr in and adopt and get up and running with it. Whereas the commitment for the high throughput system will be a little bit higher. So weâre working on ways in which we can really engineer the demand and make sure that there isnât a pause. Having said that, Iâm sure that there will be some sites that will be go ahead and wait on the sidelines. We know that there are sites that are waiting on the sidelines today, but weâre not thinking that itâs going to pause substantially existing opportunities in the sales pipeline. But we have to see there is that risk. And with regard to the first question, the 325 is inclusive of both Saphyr systems and the new high-throughput system.
Sung Ji Nam: Great. Thank you so much.
Erik Holmlin: Thanks, Sung Ji.
Operator: Thank you. Our next question comes from the line of Jason McCarthy with Maxim Group. Your line is open. Please go ahead.
Michael Okunewitch: Hi, guys. Thank you for taking my question. This is Michael Okunewitch on the line for Jason. And I want to congratulate you on the fantastic progress not just over this most recent quarter, but really over 2022 overall.
Erik Holmlin: Thanks, Michael. Thatâs great. Love it. I appreciate it.
Michael Okunewitch: So I actually wanted to ask a follow-up question on the publication that you just released recently from the postnatal study. There were two real key takeaways. Obviously, you had the high technical performance, and thatâs key, but there was also a 30% to 40% increase in diagnostic yields in some of those data sets. So could you talk a little bit about how the â how both payers and guidelines sign importance to demonstrating full concordance within a simplified and streamlined workflow versus the increases in diagnostic yield.
Erik Holmlin: Well, I think that itâs obviously the name of the game. Thatâs what weâre aiming for. We believe that we would be seeing these kinds of outcomes and we went for it or I should say that Alka Chaubey, our Chief Medical Officer, believed it so strongly that she left PerkinElmer to come here and make these things happen. And sheâs been right on target. And when it comes to talking about pontificating, if you will, on how medical societies and payers and so forth will respond. Of course, itâs speculation, we donât know. But we have history to look at. Karyotyping was once the recommended first-line method of analysis in constitutional genetic testing. And itâs overall diagnostic yield was pretty poor, low single digits. And microarrays offered the same kind of concordance that weâre seeing with optical genome mapping relative to the standard of care, but an incremental improvement. And if you look at the performance of microarrays, itâs anywhere between 10% and 20% or so diagnostic yield on average across all labs that are performing it. And so when we are â when microarray studies were conducted and this increase in diagnostic yield was reported, we saw the medical societies and payers come on board enthusiastically and make recommendations for microarrays to be considered as the first-line test, and thatâs how those guidelines are written on a global basis. And so when we bring the level of performance against the standard of care, so now weâre 100% concordant, not karyotyping, but to the newly increased standard set by microarrays and karyotyping combined. And by the way, in many cases, in constitutional genetic disorders, it was additional modalities were used as well. Fish Southern blot â and so we compare it against the whole kitchen sink thatâs available today, 100% concordance. And then when you look at this incremental performance, itâs really outstanding. So we feel like the medical community would see this as an incredible advancement in the performance alone. But then when you add as you did, the fact that itâs coming from a single assay, which shrinks the time to results, which is incredibly impactful for these families who are waiting to hear the answers we think itâs kind of very clear the path forward in this case. The work remains, though, to continue the studies, to continue the analysis, to drive the publications and to get this in front of these societies. We have a little bit of a head start because many of the PIs on this study are involved in these societies. And so theyâre certainly aware, but itâs incredible results. And I think itâs just the beginning.
Michael Okunewitch: Alright. Yes. Thank you so much for that. I also want to touch on NXClinical 7.0 now that, thatâs out in the field. Have you gotten any feedback from the early adopters on that new software solution?
Erik Holmlin: We have. Theyâre enthusiastic about it. And â they love our current systems, which is great because I think our team has worked for years in developing analytical platforms for OGM data, and itâs a brand-new data type and everybody was excited to develop methods for sequencing out in the world academically. But we were on our own with OGM and Mark Oldakowski, the leader of product development, Chief Operating Officer assembled the team. And they build an incredibly powerful platform thatâs being utilized. But there are elements of that platform that these KOLs and customers had been asking for around reporting. They want to look at a report that tells them whether a variant was detected or not detected. They want that report to be driven by the medical guidelines. This is a critical step in their workflow. They want to be able to immediately interpret the structural variation findings that they see either through Access or what we call VIA, thatâs NXClinical 7.0. We shortened that name to VIA, which stands for very intelligent application. So, they are able to visualize it either way, Access or VIA, but the interpretation is something that we have now built into, and itâs clinical for structural variations. And we are delivering these reports. These are incredibly powerful. Why are these reports important, because of course, they are customized and validated in customers hands. Remember, this product is research use only. So, customers have to select the panels that they want to have reported out. But once they select that, they are able to put these incredibly actionable reports in the hands of clinicians. And oncologists can interpret them immediately. So, itâs incredibly powerful. And what they tell us is that they love this workflow, and that it really simplifies their life incredibly, because today, even with optical genome mapping and Access, itâs an incredible power. They are having to deal with multiple different software platforms. And so this kind of advancement is something that they have been waiting for. And I want to underscore, and itâs the reason that making software a strategic driver of business for us is one of our pillars, is that VIA is not only a solution for optical genome mapping, but it integrates these other data types. And when you look at the sequencing landscape out there, and you see all of these companies that are introducing next generation sequencing solutions. We have talked to them, and we are enthusiastic about working with them. We all see them bringing value to the end user. But what the end user sees is that they need a solution that integrates this information all together for a one-stop reporting and our VIA provides that. So, we are only at the beginning of the power of this software. We believe software is going to be a strategic driver of our solutions and customer adoption going forward. So, we are excited to roll out the full commercial release of the hematologic malignancy application in the first half of this year, and really keep that ball rolling on an ongoing basis.
Michael Okunewitch: Alright. Thank you very much for taking my questions. I will hop back in the queue.
Erik Holmlin: Thanks Michael.
Operator: Thank you. And one moment for our next question. And our next question comes from the line of Francois Brisebois with Oppenheimer. Your line is open. Please go ahead.
Unidentified Analyst: Hi, this is Dan on for Franc. Congrats on the quarter and thanks for taking our questions. Firstly, I just want to start with if you could add some color on the how the integration of the Purigen Ionic system has been going. Have the development team and commercialization team all been completely onboarded? And in terms of the market, are you starting to see renewed interest from those customers who are on the sidelines? And also related to that, how are you thinking about the additional markets you could expand into?
Erik Holmlin: Yes. Thanks Dan. Appreciate the comments and great questions. So, with regard to the acquisition, integration is to a certain degree ongoing, but this one was very straightforward. We had an outstanding product, which we have integrated into our commercial teams in Europe and in the United States. And then our channel partners or distribution partners around the world are being onboarded to sell the ionic system. And we think that as a standalone business, it has a lot of great potential. Itâs going to take some time to really figure out how much of the market we can penetrate with it, but we know itâs outstanding technology and that the current users love the system. We think we can multiply it. But that team has been fully under â integrated under the sales leadership that we have in place and marketing leadership that we have in place. From a development perspective, that team is led by Klint Rose, who is one of the cofounders Purigen Biosystems. And really one of the gurus of isotachophoresis. And what I can tell you is that Klint and his team are super fired up to be part of Bionano. And if you want to learn something about isotachophoresis and its applications, I encourage everybody to look at the archived recording of our workshop at the advances in genome biology technology, or AGBT meeting which was held February 6th. And Klint gives a brilliant talk. And we are really pleased to have him onboard here. And his team, as a standalone sample prep company was focused on developing solutions for the entire spectrum of samples that might need to be used in genome analysis. And thatâs great, thatâs exciting, but it includes a lot of things that are tough to work on. We have really taken down and said, listen, letâs focus on human genome analysis stuff thatâs highly relevant for clinical translational work. You have done an incredible job in formalin-fixed, paraffin-embedded tissue, FFPE. So far keep doing that, but now letâs start to work on the optical genome mapping workflow. Initially, they are focused on blood, bone marrow, frozen tissue, and that really complements whatâs currently available in the market in manual workflows. We want to automate that as quickly as possible using isotachophoresis, which will be a complement to what Hamilton has out in the field. But then we are going to expand the menu, as you say. Start to go into new markets looking at prenatal sample prep, all sorts of sample types that are very minute, such as punch biopsies. And sample types that are very common in genetic disease, including buccal, or cheek swabs, where the cells of interest are present in a very dilute concentration. And so isotachophoresis looks to be the perfect solution to making those samples compatible with optical genome mapping. And gives us the opportunity to penetrate these new markets within our kind of addressable TAM overall. And with regard to customers sitting on the sidelines, I think really, obviously, these new markets would represent an opportunity to bring new customers in. But the reality of it is that the degree to which anybody is waiting to adopt optical genome mapping, they are more waiting on us addressing their throughput needs in hematologic malignancies, which we already have supported sample prep solutions for and we will be integrating on to ITP going forward and reimbursement. So, ITP is key to advance the workflow, and then bring in these new sample types to expand the workflow. But a lot of the customers that already have optical genome mapping will add isotachophoresis and their volume. Their utilization volumes will grow as opposed to customers coming in from the sidelines.
Unidentified Analyst: Thanks for that. And just finally a quick one for me. You highlighted some COVID related challenges at the start of the year. Are you now seeing production yield sort of normalized to pre-pandemic levels, or is it more of a gradual return?
Erik Holmlin: It was a gradual return that unfolded over the course of the year. And the actual production yield which had basically tanked in the fourth quarter of 2021, we have reached those levels. However, the impact of that reduced yield, translated into the need to build more inventory, because we just needed to recover more chips from â as a result of the lower yield. And so the production of those chips came at a higher cost. And so we are burning through that inventory. So the yield, the production yield itself has been restored. We got to work hard to keep it there. There is no guarantee that it stays there. But we believe it stabilized for now. But we need to work through the chips that were built at a higher cost overall. So, itâs going to take some time now for the margin to recover.
Unidentified Analyst: Great. Thanks for taking my questions. Congrats again on the quarter.
Erik Holmlin: You are welcome Dan.
Operator: Thank you. One moment. And our last question comes from the line of Mark Massaro with BTIG. Your line is open. Please go ahead.
Mark Massaro: Hi guys. Thanks for taking the questions. Congrats on a strong year and a nice Analyst Day and ATBT last month. I wanted to start off with the guidance, I saw your Q1 revenue guide of $7 million to $7.5 million, thatâs down 10% to 15% sequentially. Just wanted to make sure that itâs largely just a function of seasonality. A lot of people may have exhausted budgets at the end of Q4. Do you think that Q1 will mark the low point of the year and that we can have likely an acceleration from the Q1 level?
Chris Stewart: Thatâs certainly typically what we see combination of things, just getting a slow start with new budgets in the beginning of the year. And like you said, people kind of rushing to spend the remaining capital budgets at the end of the prior year. So, we always see this kind of â this level of drop from Q4 to Q1. And then at least for the last 3 years, we have seen growth of that Q1 number steadily throughout the year. And thatâs certainly what we expect to see again this year.
Mark Massaro: Okay. Excellent. I noticed in your 10-K, I think you broke out the software revenue from the service and other line. And I think you noted that software revenue is expected to even out. Should we expect flattish software? And then when I think about the buckets, I think you grew instruments 46% in 2022, you grew consumables 16% in 2022, is it likely that instruments will continue to outpace consumables in 2023? And maybe can you give us a sense for what type of contribution you might get from services? And again, I assume software is flattish, but any additional color there would be helpful.
Chris Stewart: Yes. So, software flattish is probably, under calling it a little bit. We will see modest growth. The core economic engine of the company is OGM. And so thatâs where we will see the bulk of the growth come from. But the software and services business, both will â all projected to be up from last year. Well, with the growth in the installed base, we should expect to continue to see growth in the consumables. And ultimately, the consumable will start to exceed the instrument revenue, thatâs certainly the goal and the expectation. So, we will see that consumable revenue grow as a percentage of total revenue.
Erik Holmlin: I think one thing to keep in mind, Mark, I was going to say, something to keep in mind is that the instrument revenues can be very lumpy. The deals tend to be pretty big in size. And we had pretty significant instrument purchases, coming from certain geographical regions. And so we are going to see that for a little while, where just a particular type of adoption, is going to kind of skew the numbers a little bit. But Chris is right, which is that we are seeing that consumables growth on a year-over-year basis. From a unit perspective, the growth of units is significant. And so everything that we are saying is pointing towards substantial growth on the consumables line. And I want to thank you for asking the question about the $7 million to $7.5 million guidance. That is, as Chris said, but I want to underscore it for you and for everybody that thatâs typical seasonality. I think we were $5 million and change in the first quarter of 2022, so typical seasonality.
Mark Massaro: Alright. Perfect. And then I also wanted to ask about the next gen Saphyr. I think at the Analyst Day, you mentioned a 13x increase in throughput capacity. If I have it, right, the Saphyr list price is $150,000. Given the fact that this is higher throughput, can we assume maybe a higher list price? And I donât know if you can provide any specificity to that. And then as it relates to the cost per sample, I know that NGS has been dropping, think you guys are at around $450 per sample. Can you give us a sense for where you think that might trend on a dollar basis, exiting 2023, or 2024?
Erik Holmlin: So, with regard to consumables pricing, I mean in over the course of the year, I think that ASP and what we have seen historically, for the last handful of quarters, four quarters, maybe six quarters is that, we donât have a lot of pressure on price, the $450 is actually less price, if you own a system. If you rent a system, itâs a little bit higher. But we donât see a lot of pressure there. We know that as we expand geographically, if we want to get the business, we are probably going to have to lower price. And so a lot of our efforts around, especially on the next-gen side, development of consumables is to drive costs of production down, so that we have more flexibility around price. I see maybe some erosion of the $450, overall this year in 2023, but not a substantial amount. And itâs healthy to imagine that going down over the subsequent years, because of the price elasticity that exists out there. And we have said that we would expect that itâs kind of one of our goals to be able to, if we had to, to produce our consumables in such a way that if we ever had to get down to sub $200, we could do it and have good margins. But thatâs going to happen over time. And thatâs going to be driven by really, really substantial increases in volume. Now, turning to your question about the high throughput Saphyr system, we havenât set pricing for it yet. We certainly think that the value is there. I want to emphasize one thing, and that is that yes, itâs a 13-fold increase in throughput overall compared to Saphyr, but that goes step wise. So, on a per instrument basis, thatâs right around four-fold increase in throughput. But we have a scheme developed where we will leverage something called a work cell, which is very common in the industry. And enables us to link together multiple systems. And so thatâs where we get that second phase of throughput increase that gets us to the 13x or so, maybe even higher. And so in that, that work cell will be available in 2024. Now, something that is an important lever that we are looking at with regard to the commercialization of this high throughput system is whether or not itâs going to be available in the reagent rental program. And I think that it will probably be a more demanding rental program than we have put out there for the Saphyr. And so I think what might happen on average is that you are going to see more purchases for the high throughput system than you see for the Saphyr system. And so that would have the effect of driving up revenues. The cost of building that high throughput system will enable us to have acceptable margins at the $150,000 level.
Mark Massaro: Yes. Makes sense. Thanks for all that. My last question is, can you expand a little bit on conversations you are having to obtain an LCD for OGM reimbursement? Is that with Palmetto MolDX or Noridian? And can you give us a sense for timing, and perhaps what data you may need to submit?
Erik Holmlin: So, those discussions have been ongoing with Palmetto. For some time, actually, we talked with them in certainly in early 2021, about laying the groundwork, and something that they have been looking for is to see adoption of optical genome mapping and validation of laboratory developed tests by users in the field, because they donât want to work on something that only the manufacturer cares about, so I respect that. And what we have seen now is a tremendous increase in the number of laboratory developed tests. And importantly, in their jurisdiction in Palmettoâs jurisdiction. And so they are starting to see submissions for reimbursement in their regions. And so our strategy is to be a facilitator in the market and work with Palmetto, the degree to which we are allowed as a manufacturer or researchers only platform in connection with users. But also with whatâs going on at Bionano Laboratories, our own CLIA lab. And we want to work with them, and other max to establish local coverage decisions. And we are pursuing them all in parallel, I think you can say in principle. There are some merits to going after Palmetto initially. But I think our view is that we need to be in conversations with all of them. And Palmetto and MolDX have pretty clear requirements for information that needs to be submitted around things like clinical utility, clinical validity, analytical validity, things like limit of detection and other forms of performance, that establish that optical genome mapping workflow is robust, itâs reliable, and it can be operated, on a lab-to-lab basis. And so we have communicated with them. We have that list and we are working against it in developing a dossier that we will be submitting to them sometime this year.
Mark Massaro: Perfect. Thatâs it for me. Thanks guys.
Operator: Thank you. And I would like to turn the conference back over to Dr. Erik Holmlin for any further remarks.
Erik Holmlin: Thank you, Michelle and thank you to everyone for joining. Thanks to everyone who asked such incredibly insightful and penetrating questions. We look forward to updating you on our progress on the first quarter 2023 call in short order. Thank you very much.
Operator: This concludes todayâs conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
