Bionano Genomics, Inc.

Greetings and welcome to the BioNano Genomics, Inc., second quarter 2020 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ashley Robinson of Lifestyle Advisors. Thank you. Please go ahead.

Thank you, Donna, and good afternoon, everyone. Welcome to the Bionano Genomics Second Quarter Financial Results Conference Call. Leading the call today will be Dr. Eric Holmland, CEO of Bionano. After market closed today, Bionano issued a press release announcing its financial results for the second quarter of 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 SAFIRE system, and the advantages of the SAFIRE system over current technologies, our expectations regarding timing and content of study results and anticipated benefits of these studies in driving adoption of the software system. Such forward-looking statements are based upon current expectations, and there can be no assurances that these 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 at 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 Investor section of the company's website. For the benefit of those who may be listening to the replay or archived webcast, this call is held and recorded on August 13, 2020. With that, I will turn the call over to Eric Holman.

Eric? Thank you, Ashley, and good afternoon, everyone. I want to thank you for joining us today for this review of our second quarter results. After my prepared remarks, we'll open the call for a Q&A session. And I just want to say at the outset that we are really amazed and thrilled at the progress we see around the globe in connection with the adoption of SAFIRE and its use for really groundbreaking work across genomics. What we're seeing, our paper is published recently that are showing how BioNano can be a part of creating solutions such as potential treatments and vaccines for COVID-19. possibly even tests used to manage the disease of patients with COVID-19. And all of this progress is happening amongst incredible advances that we're making in driving Sapphire to become the potential new standard in cytogenetic analysis for oncology and genetic diseases. In the business, we're seeing an enthusiastic response to the New go-to-market strategy that we implemented earlier this year. Our goal has been to make it easier than ever for clinicians and researchers to access Bionano data in a way that's going to enhance their understanding and utility of our Sapphire technology. We see that we are gaining traction with significant increases in services projects, consumable sales, and re-agent rental programs and system sales that Thank you very much. that illustrate the acceptance of sapphire by clinical researchers who are developing assays for cytogenetics, including in areas such as genetic diseases and hematology, oncology. In fact, two very powerful papers were published in Nature Journals this quarter, and they highlight how sapphire is important in cutting-edge research. One paper documented the largest study of a genetic disorder using our technology to date. In this study, researchers used SAFIRE genome imaging technology to establish one of the largest and most structurally accurate data sets of genome analysis for a cohort of affected children and their parents in a study of DeGeorge syndrome, which is the most common disease amongst the class of genetic diseases called Micro Deletion Syndrome. And I can't emphasize enough how incredibly complex this region of the human genome is. And to be able to reach the level of resolution that the researchers did in their work is really groundbreaking. And that ability to resolve such complex regions of the human genome has implications across all areas of genome research. and the clinical applications of genomics, including understanding the genome variants that drive diseases. And these results can all potentially play central roles in the development of new medicines and diagnostic tests. The other paper that was noteworthy in Nature this quarter was one that was particularly topical. and it highlights how BioNano data combined with other analysis methods can help find vaccines, treatments and diagnostic tests for COVID-19. This work is related to how researchers use BioNano's genome imaging technology to build what we call a reference quality genome. And in this case, the application of that work was on bat species, actually six different bat species and of course the bat is remarkably timely and the work has been ongoing but its implication is remarkably significant now because it can help explain the ability that bats have to tolerate viral infections and it may play a role in understanding how there can be a transmission of viral disease from bat species to humans and even potentially lead to other areas of development of new vaccines and treatments. A significant shift in our go-to-market strategy has been toward a reagent rental program. The uptake of this model continues to increase in all geographies and new sites which were previously inaccessible with our instrument sale only model are now adopting SAFIRE through this reagent rental program, and they are making large consumable commitments. We have announced some of these key adoptions already with the National Health System in the UK, Medical College of Wisconsin, University of Iowa, South Korea, Yonsei University Hospital, among several others. These are all adopting and installing our SAFIRE system for the digital cytogenetic applications. Now turning to our Thank you. Thank you. Thank you. as a significant accomplishment under the circumstances. While many regions of the U.S. remain nearly shut down or operating at a significantly lower pace than normal, we have seen a significant recovery of our business in Europe. And during this third quarter, we believe that the worst of the impact of the pandemic may be behind us. Now, the number of Sapphire systems that were shipped to customers continues to be significant. Six Sapphires were shipped this quarter, one of which was a straight instrument sale, and five were reagent rental commitments. In the second quarter of last year, eight systems were sold. So, considering the pressure of the pandemic, especially in the second quarter, where the effects were felt most dramatically, the expansion of the number of Sapphires adopted is extremely positive. Since the commercial launch of Sapphire in February of 2017 through the end of the second quarter of 2020, there were a total of 87 Sapphire systems that had been installed, and there are 19 that were awaiting installation as of the end of the second quarter. Now, as we discussed on our first quarter call, We have added a commercial services component to our product offering. We have done so as a way to serve customers who are either unable to operate Sapphires already in their lab or unable to adopt a Sapphire for any reason. In a favorable response from the market, we have seen tremendous uptake of our services program. We spoke about this quite a bit a few weeks ago when we were on discussing the first quarter results, but so far, on a year-to-date basis, We have run nearly 500 samples, 493 samples year-to-date. And what's important about that is when we compare it to the same period last year, we had run just 212 samples. And so the response or increase in service projects and samples that we're processing really reflects an increasing awareness and acceptance of our data type and its benefits. And we believe that Offering the community this services option will increase that data in the field even more and serve as a basis of continuous education of the market as to the power of Sapphire and BioNano data. Consumables sold on a per sample basis were up 189% in the second quarter of 2020 compared to the second quarter of 2019. In this quarter, chip sales resulted in the sale of 1,421 flow cells, and that's a per-sample equivalent, and that's compared to just 490 flow cells sold in the same period last year. Now, our focus on driving Sapphire adoption through sales of consumables in the form of reagent rental programs and our focus on driving utilization in the growing installed base is clearly working. The consumables business is expected to be more profitable over time, and it is anticipated to be the primary driver of our business. We believe that this large increase in data generated on our systems will yield wider and wider visibility of our capabilities and drive acceptance of our data type and its value. So these are exciting results, and we're very pleased with them, and we believe that it reflects significant momentum, even in a relatively tough quarter around the world. And now, as for the breakdown of these revenues, the $1.2 million were comprised of $229,000 in instrument sales, $711,000 in consumable sales, and 242,000 in services and other. And the cost of revenues for the quarter was 603,000, which reflects a 49% gross margin for the second quarter of 2020. And that can be compared to a cost of sales of 1.6 million or a 28% gross margin for the same period a year ago. Now, this increase in gross margin is notable. and it really reflects the shift toward the increase in consumables as part of our overall product mix. And that is really by design. More consumables brings in more gross margin for the company and it brings more bio-nano data into the field. Our work in supporting COVID research has also deepened this quarter as the search for a solution to the virus continues on a global basis. BioNano's Sapphire system is capable of providing solutions that researchers are facing when a virus elicits different responses to patients who otherwise have similar risk profiles. And we believe that analyzing the structural variation of the genome can help lead researchers and investigators to solve these challenges. And we believe the Sapphire system, which is being utilized as the part of several major initiatives around the globe will lead the way in structural variation analysis. Now, something I want to mention in particular, and it's something that we've announced to the field and we're very proud of and extremely excited to be a part of, and that is the COVID-19 Host Genome Structural Variation Consortium, which was started by Dr. Ravi Kohli at Augusta University. The stated mission of this consortium is to look for the structural variations in or near genes that play a role in infection, as well as the genes connected to the immune response, among many other factors of the host response. And the hope is to explain the variation we see in disease severity and progression. And this project is getting underway. There have been about 30 samples run to date, but the goal is to map 1,000 Genomes on SAFIRE Systems Insights Around the World. So far, preliminary results have yielded some promising insights, but we all recognize there's still very much to be learned, and progress continues. The consortium has been growing and includes more than 50 participating institutions, and they have joined forces with the consortium in Germany at the University of Hanover. and so there's a truly global team coming together here in investigating structural variations role in the host response to COVID-19. In addition to that important consortium, we have a significant research project underway in China. We've talked about that recently as well. And while that was the first project that we had actually Setup and Established, Access and Ability to Process Samples was something that was tightly controlled in China, and we have continued to work through the logistics, but that study at Grandomics, which is a bio-nano service provider in Wuhan, has expanded. It now includes another center in Shanghai, and we are now processing the initial samples there and that research program continues to go at a much quicker pace than originally after it was first formed. Now, the urgency to find a solution has led to this incredible rise in testing and response globally. We feel honored to be a part of these programs, but I would also note that they are making contributions to the health of the business. And so while many researchers have seen their projects have to be put on hold as focuses on COVID-19 testing have taken over, COVID-19 research, especially in regard to the host response, is now something that is picking up. And so hopefully it can fill a gap that has formed there. I want to turn the page and now begin to look at the various activities that are ongoing designed to validate SAFIRE as a replacement for traditional cytogenetic and genetic disease testing. Remember, SAFIRE offers the opportunity to consolidate three and even four traditional methods into a single assay running on our platform. Those assays are karyotyping, Fluorescence In-Situ Hybridization, Chromosomal Microarrays, and Southern Blot Analysis. And we have seen multiple presentations at scientific conferences over the course of this whole year, and it has continued even in the challenging second quarter. Those conferences include the European Society of Human Genetics, the Cancer Genomics Consortium, and others. Those presentations that have been made, including the webinars and so forth that have been out there, have been demonstrating that SAFIRE is 100% concordant when it's compared to its ability to find the clinically relevant structural variations that standard cytogenetic methods find. And this concordance is so important because it gives confidence to cytogenetics laboratories who are seeking to streamline their workflows and replace those traditional methods with a much more digital approach that SAFIRE offers and streamlined and faster. This concordance gives them confidence to do that. A European consortium led by Laila El-Khattabi from the Cochin Hospital in Paris, France, and Alexander Hoysian, who we've spoken about in the past, who is at the Radboud University Medical Center in the Netherlands, published data from the first very extensive validation of SAFIRE for constitutional genetic disorders. And they, too, along with studies that have been done and published in hematology oncology, this study was the first publication showing the 100% concordance with standard cytogenetics in constitutional genetic diseases. And so when you think of SAFIRE adoption throughout the cytogenetic community, we're now seeing the validation in hematology oncology, which is a significant market and that is being extended to constitutional genetic disorders and so this progress is really remarkably significant and these papers even describe the resolution of clinical cases of long-standing otherwise undiagnosed diseases and this is really important because we all know that the standard of care of testing is fairly antiquated, relatively cumbersome to practice. And so, SAFIRE streamlines that. But it not only streamlines it, SAFIRE is better because it allows for the resolution of diseases that would not typically be picked up and diagnosed using those traditional methods. And this is happening in leukemia, where we're finding novel fusion proteins, these novel fusion events that could lead to fusion protein expression. which could be druggable targets. And we're seeing this in other areas of genetic diseases as well. And so the impact of these results on our business moving forward really should not be overlooked. Our own internal data has long convinced us that SAPPHIRE can not just replace, but it can improve upon the three major cytogenetic testing methods. But these published and publicly presented results now show that we have an independent clinical validation of SAFIRE and it's beginning to build this critical mass of evidence in cytogenetic communities in Europe and in North America where we are expecting a publication imminently following the great presentation from the Columbia team recently on their study. And so we are really witnessing what we believe to be a pretty sudden change in the perception of Sapphire as a tool for cytogenetic analysis. What we're seeing is adoption by Sapphire and what we consider to be a very, very short period of time relative to our typical sales cycle, and that's just a reflection of the increase in validation and increase in exception. The decisions are now being made based on more and more on the published results, and they don't require us to run demo studies as much internally. And so this is really a reflection of that increasing acceptance of the technology and what we're hopeful for is that translates into an ever improvement in the decrease and shortening of our sales cycle. And so I want to mention a few other Key Financial Metrics. For example, in the second quarter, operating expenses had increased by about $550,000 to $8 million compared to $7.5 million last year. Folks should remember that we have had a fairly significant increase in sales and marketing as we have really increased our focus on driving the adoption of Sapphire as well as the support teams that are required to assist them. This is a relatively modest increase in expenses because it's been offset by salary reductions that we implemented temporarily starting in April of 2020 as well as a decrease in discretionary spending and other costs. As of June 30th, our cash was $17.2 million and as As noted in our save the date press release, since the end of the second quarter through August 12th, we have received about $14 million in cash pursuant to warrant exercises. And so we believe that our current cash and cash equivalents are sufficient to fund the company's operations well into the first quarter of 2021. Now, if you're following our filings today, you will see that we have filed a universal shelf registration statement on Form S3 and that it includes an at-the-market sales perspective. And these filings should not be interpreted as a reflection of any imminent financing. Rather, we believe that it's prudent and good corporate practice to have our house in order and to be in a position to raise financing when the need arises. And so, in closing, I would say that we are extremely encouraged by the results that we are seeing. Q2 has been a difficult quarter around the globe in our business, in another business, and despite those challenges, our teams have been incredibly focused on driving the company forward. Our customers have been very responsive to our focus on getting the message out about BioNano and have supported us in a number of online venues to create awareness and understanding of our data type. These events have been attended by record numbers of participants. And these are all in connection to our efforts to establish SAFIRE as a potential new standard in cytogenetic testing. and we believe that this will lead to SAFIRE replacing traditional genome analysis methods and ushering in really a new era of broad, accessible, reliable structural variation analysis that can create new drug targets leading to new medicines, new diagnostic biomarker signatures leading to new pathways for patient management, as well as a complete understanding throughout nature, including such important projects like the Bat Genome Assembly Project as well as the first telomere to telomere assembly of the X chromosome. And so with that, I would like to open up the call for Q&A. Operator?