Bionano Genomics, Inc. (BNGO) on Q2 2024 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Bionano Q2 Financial Results Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today David Holmes, Investor Relations. Please go ahead.
David Holmes: Thank you, operator and good afternoon everyone. Welcome to the Bionano second quarter 2024 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 second quarter of 2024. A copy of the release can be found on the Investor Relations' page of the company's website. Certain statements made during this conference call may be forward-looking statements including statements about Bionano's revenue outlook, profitability, cash runway, cost savings initiatives, and commercialization and product plans. Such statements are based on current expectations and there can be no assurances that the results contemplated in these statements will be realized. Actual results may differ materially from such statements due to a number of 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, August 7th, 2024 and the company assumes no obligation to update statements as circumstances change. In addition to supplement Bionano's financial results reported in accordance with U.S. generally accepted accounting principles or GAAP, the company reported certain non-GAAP financial measures. A description of these non-GAAP financial measures as well as a reconciliation to the nearest GAAP financial measures are included at the end of the company's earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website. These non-GAAP financial measures are not meant to be considered in isolation or as a substitute to comparable GAAP measures, should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP, have no standardized meaning prescribed by GAAP, and are not prepared under any comprehensive set of accounting rules or principles. An audio recording and webcast replay for today's conference call will also be available online on the company's Investor Relations' page. With that I would like to turn the call over to Erik.
Erik Holmlin: Thank you, David and good afternoon everyone. Q2 2024 was significant for the progress made towards the worldwide acceptance of OGM and it's also the quarter where the majority of staffing reductions conducted to our cost-savings initiatives took effect, which means we're learning how to operate within a streamlined team. I also think it's important to acknowledge that in the midst of our solid execution, we are facing a challenging and turbulent economic backdrop. This challenge includes the broader equity capital markets and limitations to the financing options available to us. But I want to underscore that while management is frustrated by these challenges, our focus remains on moving OGM forward. And with that, I want to start off the call today by discussing the recent decision of the editorial panel of the American Medical Association or AMA to accept the application for a Category 1 CPT code for the use of optical genome mapping in cytogenomic genome-wide analysis to detect structural and copy number variations related to hematological malignancies. We believe the CPT code will enable the adoption and utilization of OGM to increase significantly. It's a key component that labs can leverage to obtain reimbursement from insurance companies and Medicare, when they use optical genome mapping for clinical testing. And that includes, of course, the reimbursement of OGM-Dx HemeOne, our laboratory developed test offered by Bionano Laboratories. And importantly, given that the criteria used by the AMA for Category 1 CPT code approval is rigorous and includes input from stakeholders across the healthcare community, we view the decision to establish a code for OGMs indirectly reflecting OGMs increasing maturity and utility. It's a really significant milestone for us and for users of OGM and we're very proud of the outcome and we're seeing a positive benefit already. Now, I'd like to give an overview of the quarter. Revenue for the quarter was $7.8 million and that includes $700,000 of revenues associated with clinical services, which we have previously discontinued. The second quarter 2024 revenue represents a 10% year-over-year decrease compared to the same period of 2023. But keep in mind that includes a 53% reduction in revenues tied to these discontinued clinical services. The OGM installed base grew to 363 systems during Q2, representing a net increase of 16 systems and 29% growth over the installed base at the end of the second quarter of 2023. We sold 6,165 flowcells in the second quarter of 2024, which represents a year-over-year decrease of 13% compared to the 7,062 flowcells sold in the same period last year. In fact this quarter is the first in 20 consecutive quarters, where flowcells sold declined on a year-over-year basis. Looking into that result a little bit more. We see that in Europe, flowcells sold grew in the quarter. But in the Americas and in the Asia Pacific region, the number of flowcells sold declined. The decline relative to the second quarter of 2023 was most significant on a percentage basis in China. And that's been driven by our OEM partners and key customers falling behind on their committed or expected purchases in the quarter. We estimate that this shortfall was approximately 1,200 flow cells. This underperformance in China is a function of both the slowdown in funding for companies in the region, which has been well publicized and well-known, it's also a function of the fact that our OEM partners are awaiting approval from the National Medical Products Administration or NMPA of China to evaluate Saphyr systems there, so that they can be sold directly into hospitals under a clinical intended use designation. We see the potential for this delay in China business to persist and that's something that we factored into guidance for Q3 and for the full year. Now regarding the decline in the Americas region, we see two factors coming into play. One is for existing Saphyr sites that have adopted Stratys, where we've seen a slowdown in their expected purchases, which we attribute to the process of transitioning from one system to the other. This effect is something we think we can mitigate going forward with additional Stratys sites by helping them plan the transition in advance. The second is the impact of the reduction of force connected to our cost savings initiative, which has reduced the number of field sales and support team that would normally shepherd these processes forward. Overall, for the first half of 2024, the total number of flow cells sold were up 17% and we are expecting a strong third quarter as we adjust to these new staffing levels. Some key highlights in other areas of the business include a Software Marketing Agreement into which we entered with Revvity, under which Revvity will market and commercialize our VIA software as part of its Newborn Sequencing Research workflow. Publications grew. With 72 publications in Q2, the total number of publications from the first half of 2024 grew by 37% compared to the same period in 2023. The total number of clinical research subjects covered in publications in the first half of 2024 has grown by 136% from the same period in 2023. And in July, a peer-reviewed publication on the first phase of our prenatal multisite study was published, which showed for 200 samples or 123 unique cases that OGMs overall accuracy was 99.6%. Its sensitivity was 99.5%, specificity was 100%, as was PPV at 100% and the Negative Predictive Value or NPV was 95.5%. Additionally, OGM was 100% reproducible between sites, operators and instruments. We have continued to ship commercial production units of the Stratys system and the ongoing feedback around Stratys continues to be positive. And we also released a series of major advancements to our entire suite of comprehensive analysis software tools for cancer including Version 7.1 of our VIA software. These advancements enhance the detection and interpretation of angiosomes, which are important in cancer and improve the analysis visualization, interpretation and reporting of data types including optical genome mapping, next-generation sequencing or NGS as well as microarrays. Before looking ahead to the remainder of 2024 and our expectations, I would like to turn the call over to Gulsen who will walk you through the financial results. Gulsen?
Gülsen Kama: Thanks Erik. As Erik mentioned revenue for the quarter was $7.8 million. GAAP gross margin for the second quarter was 33% compared to 27% during Q2 2023 and non-GAAP gross margin was 35% compared to 29% in the same quarter last year. Second quarter 2024 GAAP operating expense was $19.6 million and non-GAAP operating expense was $18.8 million. These reports decreases of 53% and 46% respective from the second quarter of 2023. Our cash, cash equivalents and available-for-sale securities as of June 30, 2024 were $30.3 million of which $11.4 million was subject to certain restrictions. Regarding financing activity in the second quarter and subsequently, we have completed two registered direct offerings and restructured our debt. In April 2024, we completed a $10 million registered direct offering which resulted in $9.3 million of net proceeds to the company, after deducting the placement agent fees and other offering expenses. In May, we completed a private placement of senior secured convertible debentures due May 2026 which resulted in gross proceeds of $18 million. Concurrently, we retired the outstanding balance of the convertible debt which we entered into in October of 2023. As of June 30, 2024, the aggregate principal amount of senior secured convertible debentures outstanding was $20 million. The structure of the new debt provided us with significant financial flexibility by retiring near-term debt maturities and deferring principal redemption payments. In July we completed another registered direct offering with upfront gross proceeds to the company of $10 million and a concurrent private placement of clinical milestone link Series A and Series B warrants. The warrants have potential additional gross proceeds of up to $20 million, if exercised for cash and are exercisable only upon stockholder approval. We will be filing a proxy statement for a special meeting of stockholders that we expect to be held in early October. Back to you Erik.
Erik Holmlin: Thanks, Gulsen. Looking ahead to Q3 and to the remainder of the year, our focus is on balancing the need on the one hand to reduce expenses and operate with fewer employees with on the other the need to realize the full potential value in converting traditional cytogenetics to OGM. Regarding expenses we began reducing them in May of 2023 and that continued in October of 2023 and then in March of 2024. Our plan was to reduce annualized non-GAAP expenses relative to the annualized non-GAAP operating expense in March of 2023 by a total of $65 million to $75 million. The savings are expected to be fully realized in the first quarter of 2025, and we're progressing well towards this goal as is evident in the 46% or $15.8 million reduction in non-GAAP operating expenses in the second quarter of 2024, compared to the same period a year ago. In addition to those initiatives, management will remain vigilant towards further streamlining our operations and extending the savings. And we recognize as we do this, it has the potential to impact future results. And so that's something that we will pay close attention to. We are still in the process of adapting to our streamlined operational model and it may be partially to blame for not being able to overcome some of the challenges we face in China and other areas of the business this quarter. Our management team continues to focus on shoring up any gaps in commercial execution and other areas of the business that might be coming from organizational change. Our efforts to continue driving growth include planned advancements to the workflow and ongoing efforts in market development to support reimbursement. We have additional important advancements that are slated for this year. In the fourth quarter, we plan to release improvements to the data analysis processing time on the Stratys compute system, which is a high-performance computational workstation developed in collaboration with NVIDIA to support higher sample throughput for our customers. We are addressing the DNA isolation challenges that come with optical genome mapping using isotachophoresis technology on the Ionic system. We have completed pre-commercial evaluation of OGM on the Ionic system with a newly developed isotachophoresis cartridge, which is specific for isolation of ultrahigh molecular weight DNA at two different sites and third is currently underway. Feedback on this new workflow has been positive and it includes a validation of Ionic's ability to reduce OGM sample to answer workflow to as few as two days. We're planning a full commercial release of the product later in the year likely in the fourth quarter and we believe the enhancements to the Stratys compute and Ionic will enable more samples to be processed by labs using the same number of technicians. Our clinical studies program is really focused on advancing the Heme trial and supporting continuing publication of more pre and postnatal study data from the constitutional trials like the publication that appeared this July. In fact relating to the Heme trial and a preliminary readout Dr. Phillip Michaels from Harvard Medical School presented interim results this week at the Cancer Genomics Consortium meeting in St. Louis. The data showed that optical genome mapping detected pathogenic findings in 42% of cases that were otherwise negative when they were evaluated by standard of care testing such as Karyotyping and Fluorescence In Situ Hybridization or FISH. The turnaround time of optical genome mapping from sample to report was four days and the cost was lower than Karyotyping alone and so clearly lower than the combination of Karyotyping and FISH. So this is incredible progress that we're seeing and we will continue to invest in the Heme trial going forward. And with regard to guidance for the remainder of the year we remain on track to meet our goal of installing 381 -- of having an installed base of 381 to 401 OGM systems by the end of 2024. And this reflects some upgrades of Saphyr to Stratys in the process. We expect the third quarter revenues to be in the range of $7.9 million to $8.9 million. And given the slowdown that we're experiencing in China, we expect our full year revenues to end up at the lower end of the range given previously. And therefore, we're adjusting our full year 2024 revenue guidance to be $36 million to $40 million from -- down from $37 million to $41 million. And we understand that we may see some slower growth in the adoption and expansion of optical genome mapping as a result of further expense reductions. But we believe that cash preservation and profitability are more and more in targets than growth at any cost. In closing, I'm pleased with the progress we have made in the first half of 2024 and we remain committed to disciplined cash management and running an efficient organization and we continue to believe that we will transform the field of cytogenetics with optical genome mapping. And so operator with that, please go ahead and open the line for questions.
Operator: Thank you. [Operator Instructions] And our first question will come from Jeff Cohen from Ladenburg Thalmann & Co. Your line is open.
Destiny Hance: Hi. This is actually Destiny on for Jeff. I just had a couple of quick questions. In regards to your lower guidance is that mostly based on this lesser staffing? Or is it -- I guess what I want to know is what portion of that is really attributable to lower head count? And what part of that is attributable to the transition to the Stratys system?
Erik Holmlin: Yes. I mean, I think we shifted the range down by $1 million. Thank you Destiny for the question. And if you kind of look at the underperformance of China it probably accounts for that shift. And so we're anticipating the possibility that China continues to underperform over the remainder of the year. So, I think the China underperformance not catching up is probably the first and most definitive driver. I'm not really shifting guidance in connection with some of these -- full year guidance in connection with some of these other effects because I feel like those are more transient and can be ironed out over the remainder of the year.
Destiny Hance: Okay. All right. That makes sense. And then I just was wondering what are some of the broader implications of the results from the multisite study in multiple myeloma? And how would you say you're planning to leverage these findings to advance other product offerings and expand within the market in general?
Erik Holmlin: Yes. Okay. ,So I want to be clear on a couple of things. So, there's a really outstanding publication that came out in the quarter covering multiple myeloma. And that's not something that I spoke about here in the scripts, per se, I spoke about our multisite study which is addressing hematologic malignancies across the board. But let me talk about multiple myeloma because it's in a really important indication. And that publication that came out is key. And so multiple myeloma is a significant form of hematologic malignancy. And one of its characteristics is that there are effective treatments for canonical multiple myeloma, but the cell type tends to be refractory to cell growth in the lab. Cell growth is required to perform standard-of-care testing, karyotyping, for example. And so multiple myeloma is an indication where an alternative that does not rely on cell growth and cell culture would be very powerful. And so when you look at this study in multiple myeloma where the results are really significant, I think it means that there is the potential and certainly we believe in this potential that labs can not only adopt optical genome mapping for other leukemias like AML, ALL, CML, CLL, but also for multiple myeloma. And so it really expands the opportunity for adoption or for existing sites to grow their utilization. That's really significant in the multiple myeloma results because it's a new indication within hematological malignancies. When we look at the trial results that were presented on a preliminary basis at this conference, those trial results are significant because they start to get at the fundamental health economic and outcome benefits of optical genome mapping being used in a clinical setting. And so those benefits are being quantified in this study and are going to play key roles in insurance coverage decisions that will be made in the next nine, 12 18 months. And so, we've seen that most of our trial study results have gotten at things like, does OGM work as well as the standard of care and now these trial results are getting to say, well, it works as well as, but how much better and not only how much better, but how many study subjects or patients are impacted by those results. So, both are very significant.
Destiny Hance: Got it. Okay. Thank you for all that detail. I appreciate it. And then maybe, I'll just finish up with the ionic system. I believe you noted, you're still on track for full commercial launch in Q4. Is there anything there -- any other detail there you can provide for us? And what is the backlog looking like in terms of, interested parties, et cetera. Thank you for taking the question.
Erik Holmlin: Yes, you're welcome. So I mean I think that -- if you recall, isotachophoresis, the Ionic system where brought into the company through the acquisition of Purigen Biosystems. And it really gives us a proprietary technology for isolation of ultrahigh molecular weight DNA, with performance that exceeds any other options that are available today. And so we've been in the process of adapting that workflow to optical genome mapping, and the field testing that's going on with pre-commercial units has been very positive. And the key contribution or sort of like value proposition that customers enjoy is that, they can get this ultrahigh molecular weight DNA isolation done much more quickly, much less hands on time, in a workflow that is really standardized and standardization of the workflow is critical for labs that are using any technique, at high volumes right, because it's the same every single time, so you get reduction in errors. And so these are the benefits that, I think everybody who is operating optical genome mapping at scale, which tends to be the customers who are adopting Stratys and many who have Saphyr, but now are increasing their volume, they all are showing a keen interest in bringing it on board. But having said that, until we have the product, we're conservative about really building a sales pipeline. We want to make sure that we can meet customer expectations not only in terms of product performance, but in terms of timing.
Destiny Hance: I got it. Okay. Thank you so much Erik.
Operator: Thank you. [Operator Instructions] One moment for our next question please. And our next question will come from Eduardo Martinez-Montes [ph] from H.C. Wainwright. Your line is open
Q – Unidentified Analyst: Hi, there. Thanks so much for taking the question. I had a question regarding the recent reimbursement with the CPT code that you guys announced, and when you should expect to see changes in revenue and that would be forecasted in your guidance?
Erik Holmlin: Yes. Thanks Eduardo, and thanks for the question. It's interesting when we talk with folks on the buy side, they want to ask questions, like what is the -- what's the question that your sales reps get most frequently? And the question that they get most frequently in the United States is, is there a CPT code for this. And so with the acceptance of the application for a code we now have an affirmative answer to that question, which is great and it really helps in the sales process. And it's anecdotal, but we've definitely seen the acceptance of the code and its publication, already turned some accounts and start to accelerate their purchase process. Now, I want to be sort of careful about putting a lot of sort of near-term emphasis on a CPT code driving revenues. Our revenue plan currently assumes that we'll have a code but there are other steps that are required. And those other steps include first pricing of the code. So the code will become effective and appear on the clinical lab fee schedule in the beginning of 2025. And the question is at what price? And so CMS is in the process of doing that and they've conducted a series of meetings in connection with our application and this is just their normal schedule. And so we'll see that pricing sometime soon. And I think what the code ends up getting priced at can have an impact. There are a number of PLA codes Proprietary Laboratory Analyses codes, that are out there. And so I think that that's hopefully a good marker for where we would see the pricing of the CPT code. So it needs to get price and then show up on this clinical lab fee schedule early next year. And then there needs to be coverage determinations made by payers. And so Medicare is working on it, and that's something that we applied for at the end of 2023. So we expect those coverage determinations to be coming out probably early 2025. Other Medicare administrative contractors will be also evaluating OGM and making coverage determination. So I think it's really a smooth gradient of going from the CPT code, to pricing, to coverage. And as that process unfolds more and more customers will gain confidence and bring optical genome mapping in and a lot of them are bringing it in now and they're just getting ready to convert their existing pipelines and workflows over to OGM once this reimbursement is finalized. And so certainly adoption is affected by it in the near-term and then utilization in the longer term as coverage unfolds in 2025.
Q – Unidentified Analyst: That's great. That's really insightful. And congrats again on getting the code. I had another question regarding the recent deal with Revvity and kind of if you guys envision more deals like this and kind of the role that VIA and software-as-a-service might play in your forecasting as well?
Erik Holmlin: Well, so thank you. And I mean, I think that the Revvity deal and I want to be clear about how it works. Revvity has a pretty comprehensive offering for Newborn Sequencing Research and there are a variety of analyses that they conduct. And our software the VIA software provides critical insights into the presence of certain variant types from NGS data, from next-generation sequencing data. And so that's highly complementary to what we're doing with optical genome mapping. And it's not technically limited to just new screening. So we see that as being attractive for what Revvity is doing. That's not a market that we would go after but it's significant and can drive significant utilization of our software and revenue accordingly. But you can imagine that there are other examples of NGS analysis, where the VIA software can provide a lot of value. And so I would say that the answer to your question is that yes, we see the potential for other deals and end user sales of the software for applications outside of OGM are meaningful revenue contributors to the top line today and margin I mean the software is a very high-margin product. So as a life sciences solutions provider, the software that we provide is a revenue driver, a value driver and a source of significant growth potential going forward.
Q – Unidentified Analyst: Got it. Thanks so much.
Operator: Thank you. And that does conclude our question-and-answer session for today's conference. I'd now like to turn the conference back over to Erik Holmlin for any closing remarks.
Erik Holmlin: Thank you, Crystal and thank you to everyone who has joined the call today and we look forward to updating you on our next report. Good afternoon.
Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
