Bionano Genomics, Inc.

Greetings and welcome to BioNano Genomics First Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Monique Cossey. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to the BioNano Genomics First Quarter Financial Results Conference Call. Leading the call today will be Dr. Eric Holmland, CEO of BioNano. After market close today, BioNano issued a press release announcing its financial results for the first quarter 2020. A copy of the release can be found on the investor relations page of the company's website. Before we begin, I would like to remind everyone that certain statements made during this conference call may be forward-looking, including statements about our strategic and commercialization plans, 2020 sales pipeline, anticipated benefits or improvements to the Sapphire system, the advantages of the Sapphire system over current technologies, our expectations regarding timing and content of study results, and anticipated benefits of these studies in driving adoption of software systems. 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 our press release and our other 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. An audio recording and webcast replay for today's conference call will also be available online in the Investors section of the company's website. For the benefit of those who may be listening to the replay or archived webcast, This call is being held and recorded on June 18, 2020. With that, I will turn the call over to Eric Holmland. Eric, please go ahead.

Very good. Thank you, Monique, and good afternoon, everyone. I'm very pleased to have you join us today for this review of our first quarter financial results, which will include an update on progress in a number of areas, especially What we're up to in educating our markets on the utility of bionano data and the progress we're seeing in different groups who are validating our SAFIRE system as one that can replace multiple traditional genome analysis methods that are currently used in a clinical setting with a single higher resolution assay that we believe is better for labs, better for clinicians. Thank you for joining us. used the opportunity that the FCC provided to extend the timing of our first quarter report out. And as you know, we did put some numbers out, and I will reiterate those here today. But as I go through the information, I'm going to try to reestablish a baseline for everybody so that they know what we're focused on. I will go through some of the numbers and be basically providing a summary of a number of factors that include some year-to-date progress in different areas. I want to begin by reminding folks of something that we introduced at the beginning of the year and we talked about in our fourth quarter earnings call, and that is that this year we really transformed the way we go to market with Sapphire. Thank you for joining us. and many more. And so customers can now submit samples to a commercial services lab in our headquarters in San Diego or to one of our certified service providers We have a couple in the United States. We have some in Europe, and we have others in China, including Novogene, which is up and running as a service provider. And these are fee-for-service arrangements. And so instead of a customer having to acquire an entire system to work with BioNano data, they can send a few samples in and get the data back quickly. And we believe that this approach is the fastest way for these labs to experience our unique and powerful data type to see how game-changing it can be and drive really powerful breakthroughs in their research and understand how it will simplify their workflows for clinical analysis. And so customers who are currently using this system will understand this value, and we believe that that will lead them to eventually bring the Sapphire system in-house. So it's a way to accelerate that Sapphire adoption. For anybody who has decided that they want to bring the Sapphire system in-house, we now have a few different options for them. And so they can acquire the system for as little as $150,000. And we've been able to do a lot of value engineering in the way in which we manufacture that product. Thank you for joining us. minimum commitment they would make would be to analyze 100 genomes in a six-month period. They would pay $550 per genome in that arrangement, which means that for $66,000 they can have a SAFIRE system in the lab over six months, and then that program is renewable indefinitely. And customers who own the SAFIRE can get consumables for as little as $450 per This really changes the game in the way in which prospective customers and folks are looking at bringing Bionano data into their work. Because in the past, they would be facing something like a $250,000 commitment to bring Sapphire on board, and now it's as low as $650 for a single sample to run a to run the service, and $66,000 to rent the system for six months and $150,000 to purchase it. So these programs have dramatically reduced the barrier to adoption, and this is something that we believe has been an impediment to faster adoption. And once labs are experiencing the data through a service, running samples on a SAFIRE that they've purchased or rented, the data that they collect can be published more quickly. Those publications, in turn, expand the awareness of BioNano and the value, and we think, in turn, will contribute to higher demand and greater adoption of the system and revenue growth, which is something that eventually is are going to be a key factor for this company. Right now, what we are focused on is really driving that adoption, getting folks to be subscribers of BioNano data. What we can tell you is that the response to our reagent rental program has been tremendous in all geographies. Multiple sites have gotten in line to begin to rent that system and bring it into their labs. The services option has also been met with great interest. Projects have already been in discussion. And in some cases where labs have experienced a shutdown as a result of COVID, they can't access their existing Sapphire, but they've been able to send samples to us. And so when we look at the number of customer samples we've already processed year to date in 2020, it actually exceeds the number that we did for all of 2019 samples. and so we're very pleased with the way in which this new go-to-market approach has been met. Tremendous enthusiasm and of course all this is taking place with the backdrop of COVID and the complications there and so that situation has certainly hampered our ability to progress as significantly as we want on all fronts, but I can tell you that the response to these programs has been very positive. And so among the sites that have committed to SAFIRE adoption are some notable ones. Folks know that we've been working with MD Anderson Cancer Center for a while, and we have a program there in which a validation study is underway to look at myelodysplastic syndrome and MD Anderson Cancer Center has recently committed to purchasing a second system. This one will go in their genomics core facility and that's going to provide access to SAFIRE for their entire research community in what should be regarded as the world's leading center for clinical cancer research. And that system is going to ship to MD Anderson next week. Augusta University in Georgia adopted a system. They made a commitment to analyze 240 genomes and so we placed a system there. Their plan is to develop a laboratory developed test that they will run for comprehensive cancer genome analysis and they have now become one of the world's leading sites running a consortium to look at Genomics of COVID-19 Disease Progression and Severity. And this is something I'll go into a little bit more detail later on. So that's a significant adoption. And other reagent rental programs that have been undertaken include the one that we announced for the National Health System in the UK at King's College in London. And that goes alongside another NHS site in Lothian, Scotland. The University of Basel in Switzerland has committed to a reagent rental program, as has the Catholic University in Leuven in Belgium. And all of these sites have started to validate their Sapphire system as replacements for the traditional methods in cytogenetics. And there are many others that are in the process of being finalized, and we will expect to keep you abreast of those adoptions as they come through. Another notable site is the diagnostic company GeneDx, which adopted a second system to speed up their development of clinical assays on SAFIRE as laboratory-developed tests. They're planning to launch their first such assay this year. and Quest agreed to an evaluation program just before they became the country's top COVID testing site. They have not begun that program yet, but they are beginning to see the resources that have been taken away from that and focused on COVID testing to start to free up. We don't have a timeline for when that program will begin, but they have informed us that they remain committed, and so we hope that it starts soon. and those are just some of the notable sites that we are working with in the context of this new go-to-market program, which appears to be very successful. Now, regarding the detailed breakdown of commercial results through the first quarter, we shipped five instruments to customers versus six in the first quarter of 2019. Now, that brings the net total number of Staffire instruments that we shipped Since its launch through March 31st to 116. 83 of those 116 have been installed and undergone a qualification at users' sites. And when we look at the fact that we shipped one fewer sapphires in the first quarter this year versus the first quarter last year, That certainly reflects the impact of the global shutdown due to coronavirus because we have had sites that have committed but had to put their shipments on hold. And so, all in all, we felt like it was a good quarter with regard to expanding the number of sites that are taking on the Sapphire system. Now, year-to-date in our services programs, we've received 42 projects. and run 416 samples. And that, as I mentioned, is a significant improvement over 2019 when we ran 38 projects and 212 samples over the course of the entire year. And this increase in projects and samples reflects our active marketing of the services offering. And it also reflects the fact that some customers are seeking a services offering during the COVID shutdown because they're unable to operate their labs. And so I think it's been very timely that we've opened up our commercial offering to include this fee for services option. Now, something that is significant and I want to underscore is the consumables that were sold on a per sample basis. And so in the first quarter of 2019, The number of consumables which we measure on a per sample basis were up 46% compared to the number of consumables sold on a per sample basis in 2019. So again, this is really important because we are focused on getting sites that have staff buyers to use them. And so this increase in consumables sales is consistent with that. Thank you for joining us. Get out into the market. And so we're very pleased to see that kind of increase. And we have an expectation of similar year-over-year growth when we look at the second quarter of 2020 compared to the second quarter of 2019. Now, revenues were $1.1 million, which was comprised of $534,000, or 47% in instruments sales. Thank you for joining us. certainly some of the macro factors contributed to that. But in addition, what we've seen is a shift in our approach to the market. So some of these leases cause those revenues to be extended out. The total cost of revenues decreased by $300,000 or 25% to $900,000 for the three months ending March 31st, and that's compared to $1.1 million for the same period in 2019. As I mentioned, this reduction in revenue is certainly connected and primarily connected to the impact of COVID, but it reflects these fewer systems that have been shipped out. Certainly, it also reflects the fact that in the first quarter of 2019, we actually sold six systems. In 2020, five systems were shipped, but only three of them were sold, and two of them were tied to consumables commitments. Now, the trade-off in this type of transition in product mix, sold versus leased systems, is that revenues up front are lower, and revenues combined with chips consumption will extend over time. We believe that this latter approach, where chip consumption is encouraged and incurs over time, is better because that's going to drive more data into the market, increasing awareness and increasing understanding and demand for bionanodata and SAFIRE systems. I want to make one final announcement regarding commercial execution, and that is that Effective Friday, June 19th, our Chief Commercial Officer, Warren Robinson, will be leaving Bionano to pursue other opportunities. Warren has led our commercial teams well, and we wish him the best in the future. Beginning on Monday, our regional leaders in Europe, Stan Marine, and in North America, Sam Crawford will report directly to me. Our Head of Marketing and Scientific Affairs, Dr. Sven Baklund, will report to me, and Dr. Goran Plavalchich will also report to me. Our China leader, Gloria Li, will report to Goran, who has already been leading international distribution for the company for three years. The flattening of our organization is expected to help us streamline our efforts to drive the strategies that we're implementing that we believe will result in better understanding of higher revenue growth in return. So I now want to turn to an update on our work in COVID-19 research. This global pandemic, including the shutdown of research labs and reallocation of staff from research and cytogenetics to COVID testing has been a challenge for us. And that challenge has continued certainly past the first quarter and Even grown stronger in the second quarter, we are seeing an easing now. But the upside for us is the rapid response globally and the research for a solution to the virus, which can benefit from the type of information that only BioNano's Sapphire system can provide. We are actively partnering with clinicians and researchers who are using Sapphire in their COVID-19 research as they search for answers to critical questions like why do patients with similar risk profiles exhibit very different responses to COVID-19 infection. If those answers lie in structural variation of the genome, we believe SAFIRE is going to be ideal for identifying them. And that possibility exists that there's a structural variation signature that can be used to guide patient management in the future. And so in supported these efforts were a part of three major initiatives across the globe that are really only just getting started. And the first one I want to mention is a consortium. It's called the COVID-19 Host Genome Structural Variation Consortium. It's led by Dr. Ravi Kohle at Augusta University, and they're looking for structural variants in or near genes that play a role in the response to infections. and can explain a large amount of the variation that we see in disease severity and progression. The initiative was launched at Augusta and the goal is to evaluate at least a thousand patients. It's at the very beginning. About 40 samples have been analyzed with SAFIRE so far and the initial data, I'm happy to say, show promising leads where a large amount of structural variation has been detected by SAFIRE in known COVID Response Associated Genes. And these data are at the very early stage, but they provide the impetus for multiple sites around the country to sign up and be a part of this study so we can really run down these leads. In China, as we have announced, we're part of a study group that has a clinical site in Wuhan, as well as access to samples now in Shanghai. That study has been tightly controlled or at least access to samples in that study has been tightly controlled by local governments. And our study partners are working out the logistics of getting those samples into their labs. Our work with the Shanghai Public Health Clinical Center is going to make those samples available sooner than the ones that are waiting for us in Wuhan. But I want to stress that processing is going to begin soon. and these studies are critically important in China and we believe that they will be a source of significant use of the SAFIRE system and demonstration of its power and that those programs will drive future adoption. In Germany, we're also part of a large effort led by the University of Hanover. There they are analyzing the genomes of COVID patients in a similar fashion and for that study, Amazon, Microsoft, and Google have all donated computational resources to accelerate data analysis. Patient enrollment in Hanover is progressing, and data and sample processing has begun there as well. And the initial goal of that study is also to analyze about 1,000 patients. And importantly, they're going to be using multiple tools, not just Sapphire. And so we expect to be able to see the comparative value of each technology in analyzing and the genomes of COVID-19 patients. Now, lastly, I would like to provide an update on the variety of activities that are ongoing to validate SAFIRE as a replacement for the traditional cytogenetic and genetic disease testing technologies like karyotyping, FISH, microarrays and southern blot. These technologies are used in approximately Thank you for joining us. We expect that these 2,500 labs would see a cost benefit and better data alternative to their existing technologies and that that would motivate them to adopt SAFIRE. So that's why we've been so focused on these validation studies and talking about them. And so the first one I want to mention is the one that has been conducted by a group in the Netherlands at the Radboud University Medical Center. published their results on a study of 48 leukemia patients analyzed with SAFIRE compared to standard cytogenetic methods. They showed 100% concordance in all sample with the existing methods, and so that underscores the idea that they can replace those traditional methods with SAFIRE. And this paper, which was published earlier this year, is the first one to ever show that there's a technology that's capable of replacing and consolidating those different assays. Another group, Hospital Cochin in Paris, is leading a study in constitutional genetics. Radboud is part of that, as are other sites in France, and their initial study has been completed. They'll be presenting a webinar this Friday, June 26, and their A paper on this initial study and those results, which showed, again, 100% concordance with traditional methods, will be submitted for publication by June 30th. Columbia University has been leading a consortium of cytogeneticists, and they have now processed over 90 AML samples as part of a hematologic malignancy study. and that builds their knowledge base and comfort with our system and in their webinar, which was recently hosted by the Cancer Genomics Consortium, they also reported 100% concordance with the gold standard method in cytogenetics. Publication of that study is expected soon. We're hoping it will be published in July, but as we all know, publication timelines can be uncertain. Dr. Rashmi Kanagal Shamanov from MD Anderson has given an update also during the Cancer Genomics Consortium webinar showing 100% concordance between SAFIRE and standard method in 13 patients as part of a myelodysplastic syndrome or MDS study that she has conducted. Her program is much more ambitious and expects to go well beyond those initial samples, but it's been interrupted by COVID. Nevertheless, her initial data set is so exciting that she plans to publish her work in bio archives. We expect that to be submitted in the next few weeks as well. University of Iowa has completed their development of a laboratory test for FSHD, a leading cause of muscular dystrophy, and they've announced the commercial launch of that test. They joined Perkin Elmer as now the second site in North America in offering a commercial diagnostic test based on SAFIRE and two leading European sites, MVZ in Germany, which is a leading hematologic malignancy testing site, and Radboud University Medical Center have also announced that they will put SAFIRE into clinical use later this year based on their successful validation studies. It's important to note that MBZ also announced that they were getting Sapphire accredited for clinical use under the German regulatory system, which will allow it to be used more broadly in the country and be reimbursed. In the U.S., other work with reimbursement programs are underway so that will be able to use CPT codes or PLA codes in order for them to be reimbursed for testing that they conduct on that system. And so one of the reasons that we're so focused on these validation studies is that cytogenetics labs rely on these published validation studies as a key argument in justifying to their administrations their interest in adopting the system. These studies are starting to get completed and published. More and more publications will come out this year, and that's going to be a key driver of future adoption and of reimbursement for testing in the different sites that are running the system. Regarding other financial metrics, operating expenses for the three months ended March 31st increased by $3.1 million to $10 million compared to 6.9 Last year, the increase was related to higher G&A expense due to additional headcount in our selling and marketing teams, but we also had a bad debt expense of nearly a million dollars, which we reported, and that was in connection to receivables that had aged beyond a certain amount of time, and we eventually deemed them to be uncollectible, and that's That's connected in large part to COVID-driven factors that has impacted those particular customers. Our cash balance as of March 31st was $8.1 million. We completed a public offering in April, which grossed $18 million through debt retirement of $2.1 million in March and $2.9 million in April, a total of Thank you, Mark. We believe that those efforts, in addition to the funding that we received earlier in the year, give us a solid cash runway. I want to thank all of our shareholders for their participation in our proxy process. I would draw their attention to all the materials that are on file, including the one that was on file yesterday that gives our board up to 12 months now to evaluate the need to implement a reverse stock split and only implement that in the event that our stock does not regain compliance during that period. And so I really appreciate their participation, and they should focus on those filed documents and the proxy filings that are in place. In closing, I want to say that we are definitely seeing easing of restrictions in our markets. Lab techs and scientists and clinicians are returning to work. We are optimistic that the easing will translate to an improvement in our business. The timing of a return to normal business depends upon a return to normal business for our customers and so we work hand in hand with them and in monitoring that transition. And I'm extremely proud of our team, which has universally risen to this challenge of operating remotely, conducting conferences and trade shows through various virtual formats, and really focusing on driving the message of bio-nano value. And so I appreciate everybody listening to this significant update. We covered a lot of material. But there's a lot of great stuff to talk about, and we're certainly very excited about where we're at today, and we know we have a lot of work ahead of us to continue to turn things on in 2020. With that, I will open up the call for Q&A. Operator?