Bionano Genomics, Inc.

Good day and welcome to the BioNano Genomics Fourth Quarter and Year-End 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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. At this time, I would like to turn the conference over to Amy Conrad, Investor Relations for BioNano. Amy, please proceed. Thank you, Hillary, and good afternoon, everyone. Welcome to the Bionano Genomics fourth quarter and year-end 2020 financial results conference call. With me today are Dr. Eric Holman, CEO of Bionano, and Chris Stewart, CFO of Bionano. After market closed today, Bionano issued a press release announcing its financial results for the fourth quarter and year-end of December 31st, 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 BioNano's business strategy and commercialization plans, 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 SAFIRE 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 our press release and 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 website. With that, I'll turn the call over to Eric. Eric?

Thank you, Amy, and good afternoon, everyone. I want to thank you all for joining us on our year-end 2020 call. And to open up today, I'd like to review our progress and updates, and then Chris will review the financials. I'll close it out, and then we'll open up the call for Q&A. But let me begin by saying thank that 2020 was really a tremendous year for BioNano. And going into the year, our focus was on making it easier than ever for customers to get access to SAFIRE data. The objective was to really raise awareness about the unique and extensive insight that SAFIRE and optical genome mapping provide into structural variations in the genome. And despite the start that 2020 brought us and the challenges that came along with it, we were able to successfully increase the install base of Sapphire Systems to 97, which was an increase of 24 systems from the prior year. We shipped a record number of flow cells and removed a major roadblock for customers by expanding our services labs which made SAFIRE data available to customers for as little as a few hundred dollars. This concerted effort to seed the market resulted in a number of high-profile customer engagements, numerous studies published in 2020, and fueled the presentations at our Next Generation Cytogenomics Symposium in January. Globally, we saw a substantial increase in the interest in optical genome mapping for the power of genome analysis that it provides. We announced reagent rental agreements to focus on cytogenomic validation studies with three of the largest children's hospitals in Europe and Spain, Italy, and France. We had agreements with cytogenetics labs in hospitals in Germany, Switzerland, Slovenia, Australia, and Canada. We also saw traction throughout Europe and in Australia and Canada, in part, we believe due to the fact that their healthcare systems are single-payer systems and the path to reimbursement for novel technologies in healthcare is typically faster than in other geographies. In the U.S., we've noted that a path to reimbursement from third-party payers is going to be a necessary step to gaining widespread adoption of optical genome mapping with the SAFIRE system. And that's something that we recognize can be a long and challenging process, but we're very focused on addressing it. Now, to complement the expansion of our commercial efforts, the utility of optical genome mapping with SAFIRE was validated through benchmarking, scientific publication of data, and, of course, clinical adoption. Throughout the year, numerous rigorous and extensive comparisons of SAFIRE were conducted against traditional cytogenetic methods, long-read sequencing, and the results of these comparisons were published in several key publications presented in different presentations industry meetings that were taking place and through a variety of announcements. All of these studies showed that SAFIRE is a superior alternative to traditional cytogenetics methods. Specifically, as you can see on this slide, we had growing excitement as more and more researchers got access to the breadth of data on structural variation and genome structural analysis in general that SAFIRE can provide. And through these studies, they demonstrated SAFIRE's ability to go beyond the standard understanding of genome structure in a variety of clinically relevant areas. On the clinical side, specifically, we are seeing SAFIRE bring value to cytogenomic analysis by reducing the total reagent cost, turnaround time, labor cost, and by simplifying the analysis of genomes in cancer patients and patients who are suspected of having genetic disease, all compared to today's workflows in cytogenetics. And we believe that SAFIRE offers a truly better, faster, and more cost-effective tool that overall will accelerate to actionable results and improve patient outcomes. We believe that this path to widespread adoption of optical genome mapping with SAFIRE in the U.S. requires three main prerequisites. First, publishing multiple large studies that show concordance with the existing standard of care. There's a requirement for labs that adopt the SAFIRE system across the U.S. to develop assays for clinical applications and validate those assays as laboratory developed tests. And lastly, a clear path for clinics and labs that are operating optical genome mapping assays they need to be able to bill insurance providers and be reimbursed for their tests before they'll comfortably convert over from the standard of care. Now, one of the most important areas of validation in 2020 was with the University of Iowa hospitals and clinics, who switched their method of molecular testing for patients presumed to have FSHD, which is a rare muscular disease with no approved therapy to optical genome mapping with the SAFIRE system. In addition, we had a very meaningful publication come out using SAFIRE data from UC San Francisco in collaboration with Oakland Children's Hospital. Here, researchers and clinicians were able to diagnose additional 18% of children who were otherwise undiagnosed standard of care testing using the SAFIRE system. Now this kind of work and all of the studies that have gone on over the course of 2020 are truly groundbreaking in the scientific advances that they bring in showing how diseases can be diagnosed with new tools but they really enforce why everybody at BioNano Genomics shows up for work every day. We are truly determined to revolutionize the way diseases are diagnosed, and in particular for children, where a diagnosis of a disease can have a profound effect on their lives, on their families' lives, and on the lives of the caregivers and the healthcare system overall. Our goal is to shorten the diagnostic journey and accelerate the path that these patients are on to managing their disease and, in many cases, the most effective treatment. Now, in 2020, we've also made significant advances in our technology and released the biggest upgrade to our safe software capabilities. which together have continued to improve the capability of SAFIRE. We introduced our newest DNA isolation kits, which allow for faster and much simpler isolation of ultra-long genomic DNA from smaller and smaller amounts of samples, including solid tumors, which has removed one of the most significant hurdles in the study of structural variation in solid tumors. We also saw our users conduct comprehensive structural variation analysis throughout oncology, where they're able now to detect rare variants that may be the drivers of different diseases, including genetic and inherited diseases, as well as being able to the off-target effects that may be occurring during CRISPR-based gene editing, all the while using the SAFIRE system and telling us that it's easier to use than other genome analysis systems in their labs. And so this feedback and the progress that we're making makes us believe that our system is ready to serve the needs in what is an increasingly large market for structural variation analysis, both on the clinical side and on the research side. Expansion in the number of laboratory developed tests or LDTs in the market is another driver of wider and wider adoption. We announced last quarter The German accreditation of SAFIRE for the detection of various types of structural variations that cause constitutional genetic disorders. And this is a prime example of how SAFIRE can be an alternative to existing tools getting to faster diagnoses, but also reducing costs. Similar accreditation processes are underway for genetic diseases. and leukemias in other parts of Europe as well. Here in the United States, labs such as Praxis have launched a menu of laboratory-developed tests and obtained reimbursement codes for them. Augusta University is also developing a novel laboratory-developed test for cancer based on their results in heme malignancies and solid tumors. which had been presented at the Cancer Genomics Consortium meeting. And so for us, 2020 was really a spectacular year. And now that we've had a chance to cover many of the advancements, I want to turn the focus to 2021 and talk a little bit about what we see ahead. 2021 is truly shaping up to be another transformational year for the company. Thanks to your support, our shareholders, we've taken major steps to secure the financial future of the company by raising a substantial amount of capital, which sets the stage for execution of our plan without the overhang of capital limitations. 2021 is going to be critical to the long-term growth. We are squarely focused on driving growth the global development of SAFIRE-based assays for use in clinical testing of patients with genetic diseases and hematologic malignancies, and on the adoption of SAFIRE for use in larger clinical studies that will allow us to obtain a critical mass of data on SAFIRE application across a number of key areas, including prenatal and postnatal genetics, hematologic malignancies including leukemias and lymphomas, and then solid tumors. These data are expected to expand the number of publications including peer-reviewed ones and support an increase in the number of laboratory-developed tests on the market with the goal of reimbursement of Sapphire-based laboratory-developed tests by third-party payers in the U.S. and around the world. Now, a big part of our ability to drive adoption of Sapphire stems from the successful acquisition we made of Lineagen in 2020, which added important products and skills, including the content, domain expertise required to build a reimbursed diagnostic menu on SAFIRE. By combining these products and the services business, we believe that we can accelerate the broader adoption of SAFIRE as a technology for clinical assay development throughout cytogenetics. Overall, 2020 was a great year. and a challenging against the challenging backdrop. And we are continuing to gain traction in many important ways. And we are seeing evidence that this strategy is working with 2020 showing us that Sapphire is ready to serve a significant need in a substantially large and growing market. We see that our customers are ready to adopt the new technology. And I believe our goal of establishing BioNano as the next great genomics company is greater than ever. And with that, I would like to turn the call over to Chris for an overview of financials. Chris?

Thanks, Eric. Let me start with a review of our financial results for the fourth quarter and year ended December 31st, 2020. Revenue in Q4 was approximately $4 million, consistent with the preliminary results that we issued back on January 7th. This represents an increase of 43% compared to 2.8 million in the same period of 2019. The increase was primarily driven by a $1.1 million increase in service revenue, largely from our lineage and subsidiary acquired in August of 2020. Revenue for the year came in at $8.5 million, down $1.6 million, or 16% from 2019, largely due to restrictions on our customers' lab operations related to COVID-19. While activity is picking up, we do believe that COVID-19 restrictions will continue to affect revenue across our business. Our gross margin came in at 30%, down 9% from the same period last year due mainly to lower instrument selling prices and some year-end accounting entries related to inventory value cleanup. As Eric mentioned at the beginning of the call, We ended the year with an installed base of 97 Sapphire systems, an increase of 24 from the year end 2019. Our reagent rental and our services programs are doing well. reflecting an increasing interest in Sapphire and the incredibly novel and meaningful data that the system can produce. We are actively trying to make it easier for potential customers to obtain and use Sapphire data, which we believe will lead to instrument and consumables revenue down the road. Operating expense for the fourth quarter of 2020 was $12.3 million, an increase of approximately $3.4 million compared to $8.9 million in the same period of 2019. The increase is primarily due to an increase in salary expense. During 2020, headcount increased by 49, including 33 that joined us as a result of the Lineagen acquisition. Operating expenses for the year ended December 31 was $41.3 million, an increase of approximately $11.4 million from the $29.9 million in the same period of 2019. The increase was comprised of about 4.5 million of salary expense, 3.4 million of legal and other outside services related to the lineage and acquisition and other corporate activities, 2.6 million of lineage and expenses, and just under a million of various other net changes. Finally, our cash balance as of December 31st was 38.4 million. So clearly 2021 is off to a great start. Since the beginning of the year, we raised about $335 million through two underwritten public offerings, sales on our ATM facility, and the exercise of outstanding warrants for our common stock driven by the increase in our share price. Our strong balance sheet allows us to shift our focus to achieving our long-term vision of disrupting genomics and thereby contributing to advances in healthcare through the global adoption of Sapphire. Our main objectives for 2021 revolve around clearing additional barriers to widespread adoption through the execution of our clinical studies, continuing to build on the number of published studies showcasing the power of SAFIRE and SAFIRE data, supporting the development of LDTs, and building on the market momentum that we started to see through the course of 2020. With that, I'll turn the call back over to Eric to discuss some of our upcoming milestones. Then we'll open the call up for Q&A. Eric?