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spk16: Good day and welcome to the BioNano Genomics third quarter 2021 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Amy Conrad from Investor Relations. Please go ahead.
spk15: Thank you, Michelle. And good afternoon, everyone.
spk14: Welcome to the BioNano Genomics third quarter 2021 financial results conference call. Leading the call today is Dr. Eric Holmland, CEO of BioNano. He is joined by Chris Stewart, CFO of BioNano, and Rich Shippey, CBO of BioNano. After market closed today, BioNano issued a press release announcing its financial results for the third quarter of 2021. A copy of the release can be found on the investor relations page of the company's website. I would like to remind everyone that certain statements made during this conference call may be forward-looking, including statements about BioNano's strategic and commercialization plans, sales pipeline, anticipated benefits or improvements to the Sapphire system, anticipated milestones for 2021, and the advantages of the SAFIRE system over current technologies, the anticipated benefits of the acquisition of biodiscovery, 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 set 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, 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.
spk12: With that, I will turn the call over to Eric.
spk07: Thank you, Amy, and good afternoon, everyone. We're happy to be here with you today to recap what turned out to be a very busy and productive third quarter.
spk08: We believe the momentum that is being driven here is tremendous as we head into this last quarter of 2021. To start off today's call, I want to have Rich Schippe review with you our recent acquisition of Biodiscovery. This was an important strategic transaction that allows us to accelerate the integration of optical genome mapping, or OGM, and next-generation sequencing data with our optical genome mapping workflow. The addition of biodiscovery is expected to advance our capabilities as a genomics data solutions provider by adding what is really a best-in-class analysis interpretation and visualization platform for reporting genomics data. As a result of the acquisition, we believe we become the first and only company to provide truly comprehensive genome analysis solutions that utilize optical genome mapping with our SAFIRE system and the industry-leading platform agnostic software from BioDiscovery, which transforms BioNano from being the structural variation company into a broad genomics data solutions provider and really opens up new opportunities for us. And so now I'll turn the call over to Rich, our chief business officer, to review the biodiscovery transaction. Rich?
spk02: Thanks, Eric, and good afternoon, everyone. With the acquisition of biodiscovery, we are now able to accelerate our efforts to make OGM ubiquitous by simplifying the assessment of clinically relevant variants in cytogenomics applications, reducing interpretation time per sample, and expanding our reach into the discovery and translational research markets where the combination of next generation sequencing in OGM can reveal more answers in genetic disease and cancer. And the key to making these big ideas successful stem from software, in particular the right software acting as a critical interface to solve complex cytogenics workflow problems. We plan to utilize biodiscovery software to integrate OGM with NGS and microdata for broader applications, which we believe will accelerate the adoption of our Sapphire product. We expect the true beneficiaries to be the researchers and clinicians who should see improvements in their ability to get the answers they need in a seamless and reliable manner. In terms of the integration of the biodiversity business into BioNano, we are making great progress and officially closed the transaction. We expect the launch of a commercially available version of NX clinical software that users can visualize, interpret, annotate, and report all classes of structural variants, including absence of heterozygosity. The initial integration with our Sapphire platform is planned to launch in 2022, The full integration will be designed to support the evaluation of additional data types and potentially incorporate gene expression and methylation data, which we're really excited about. Now I'll turn the call back over to Eric to review the Q3 numbers. Eric?
spk08: Thanks, Rich. In the third quarter of 2021, we've continued to perform very well. And in fact, we recorded the best overall quarter ever. in the history of the company. And so we're obviously very excited about that. And we think it's due to not only the amazing capabilities that we have with optical genome mapping and the amazing product, but the incredible effort that all of our teams have put into pushing us forward. So total revenue for the quarter was $4.7 million, which is up 112% versus the same period in 2020. We had great performance in many areas of execution, including seeing customers develop laboratory-developed tests based on optical genome mapping and obtaining accreditation for SAFIRE-based laboratory-developed tests, as well as expanding our menu to include protocols for isolation of ultra-high molecular weight DNA from prenatal samples, such as amniocytes and CVS. And this allows us to apply optical genome mapping in our users to various applications in prenatal analysis. Now, we've continued to build out the commercial team, and I want to welcome these folks to BioNano. And we're very excited to have them on board because what we're doing is preparing to scale commercially. And I want to welcome on board Amanda Letman, who is the Vice President of Global Biotechnology customer experience, Amanda Hernandez, who is the Vice President of Global Sales Training and Development, Justin Layton, who is VP and General Manager of the Lineagen business, Bob Hertzenberg, who is our North American Sales Director, and then announced just today, Stephanie Hoyle, who is our Vice President of Global Corporate Marketing, and Alex Helm, who is our Vice President of Strategic product marketing. And now these people come to us from amazing companies across multiple industries. And I think them choosing to join BioNano and the path that we are on reflects not only the progress that we've made, but the incredible opportunity that we have out in front of us. And we believe they will drive additional growth for our business as we expand across many geographic locations. And certainly, last but not least, we want to welcome Sohail Shams, who is the new Chief Informatics Officer and previously was the Chief Executive Officer of Biodiscovery. And so we're really rounding out key people across the commercial and development areas of the organization, and that's going to be key to growth going forward. I want to talk a little bit about The SAFIRE installed base and utilization, we had a record quarter for SAFIRE system installations and shipments. SAFIRE installations in the quarter brought the total installed base to 141. SAFIRE is installed as of September 30th, 2021. We shipped 24 SAFIRE systems during the quarter. You can compare that to 11 systems that were shipped in the same period in 2020 and 13 systems that were shipped just last quarter. And we believe we're on track to reach our goal or even exceed the goal of 150 SAFIRE systems installed worldwide by the end of 2021. We sold 3,969 nano-channel array flow cells during the third quarter. This is the highest number of flow cells that we've sold in any quarter ever. Now, please keep in mind that the flow cell is the unit consumable for one human genome, and so more flow cells that are being sold into the field leads to more utilization and more data to support the value proposition of optical genome mapping and increase awareness of its utility. So the 3,969 flow cells represents 122% growth over the same period third quarter of 2020. finally in our services lab we analyzed 309 samples during the quarter ending september 30th 2021 and we can compare that to the same period a year ago which was 84 samples and so these numbers of samples that are coming in for analysis are often tied to projects that are happening in the field either in connection with potentially a new Sapphire adoption, but certainly new customers coming to learn about optical genome mapping for the first time. So when we see growth in samples that are being analyzed, we know that that's going to turn into more awareness of optical genome mapping and its capability. And so that's an exciting leading indicator. Regarding innovation, we've continued to improve optical genome mapping with Sapphire, making it easier and faster and more cost effective to operate. And so we hit a key goal for the quarter, which was to develop assays that could be used in prenatal applications that require isolation of ultra high molecular weight DNA from amnio sites and CVS samples. These assays support both fresh cultures and cryopreserved cells. This expands the markets that we can serve for optical genome mapping. We updated our software, and we have incredible new capabilities that have been released recently that are going to expand capabilities of data analysis and data interpretation. And, of course, we've added the biodiscovery and NX clinical and Nexus copy number capabilities to our offerings. And our project to build a next-generation SAFIRE is also on track, and we anticipate completing the first prototype system for that platform by the end of this year. Regarding the proliferation of data that validate optical genome mapping and outline its incredible scope of utility, we announced the publication of the largest clinical research study to date, which was published in the Journal of Molecular Diagnostics for a rare muscle disease, FSHD. In that study, 351 patients were analyzed, and we were very pleased to see the outcomes that the authors found. They demonstrated that optical genome mapping provided data more quickly, accurately, and more reproducibly than the current gold standard method of southern blot. And so these findings really support the rationale for adopting optical genome mapping as an alternative to traditional methods. and also underscore the economic value of the more efficient workflow, and we believe that that's going to support labs in the future that adopt it and seek reimbursement from third-party payers. And we would also note that the applications of FSHD analysis have high interest from biotech and pharma, where drugs for rare diseases are being developed, and those protocols often develop require analysis for FSHD. So this is an important publication, an important advancement. We announced that New Probe Global, which is a molecular diagnostics leader, adopted SAFIRE to be integrated into their quantitative amplicon sequencing and blocker displacement amplification technologies for R&D efforts and an effort to improve reproductive health and liquid biopsy. So this is an important adoption for us, and we expect that to drive new applications and utilization. We had the largest presence to date at the annual Cancer Genomics Consortium meeting, which was held in August of this year. It featured 10 presentations by SAFIRE customers and BioNano, highlighting the benefits of optical genome mapping for clinical research applications in a variety of areas. importantly, including solid tumor analysis, hematologic malignancies, products of conception, pre- and postnatal constitutional genetics, and others. The attendance at the event was significant, with over 400 participants globally. And in another meeting, our customers presented 11 posters and talks at the European Society of Human Genetics, or ESHG, meeting, which was held in late August. Now, turning to publications, there have been 132 optical genome mapping publications year to date, which includes 30 in Q3. In addition to the samples that our lab has processed in the quarter, those projects put data in the hands of customers that we believe will lead to publications going forward. And I would also emphasize that our lineage in business had a good quarter for samples received across our suite of assays for pediatric neurodevelopmental disorders. And so revenues for those diagnostic services are included with all service and other revenue in our financial statements. So now I'd like to provide an update on the pivotal studies that are being led by Dr. Alka Chabe, our chief medical officer. Those studies are being conducted to demonstrate the utility of optical genome mapping as an alternative to traditional cytogenetic methods on a path to have them adopted as part of standard of care. So these studies span four major growth markets for us, pre- and postnatal genetic analysis, hematologic malignancies, including leukemias and lymphomas, and solid tumor analysis. Recruitment in these studies is going well. We have important key opinion leaders as principal investigators and study sites across each endpoint. For the postnatal study, which has been the one that was the first to receive IRB approval and underway the longest, we've reached a total of 500 out of 1,000 subjects enrolled. And we have completed analysis of over 100 samples. And in fact, at the recent meeting of the Society of Human Genetics, ASHG, the authors of that study presented a poster describing the performance across those initial 100 samples. And it was very impressive, including 100% concordance. and also identifying incrementally valuable information that can be leveraged to resolve otherwise unsolved cases. For prenatal, the IRB has been obtained and site recruitment and training are in progress, and data generation will begin this quarter. For the hematologic malignancies programs, we are finalizing contracts with sites and expect IRB approval to begin by the end of the fourth quarter and the studies to begin in the first quarter of 2022 and the fourth quarter of 2022, respectively. Over the next several years, we believe data to be generated as part of these studies will serve as a basis to support changes in guidelines set by medical societies that will ultimately recommend uses of optical genome mapping as part of the standard of care. So with that update, I would like to turn the call over to Chris Stewart, who is the Chief Financial Officer, for an overview of our financials. Chris?
spk03: Thanks, Eric. As Eric mentioned earlier, our revenue for the third quarter of 2021 was $4.7 million, up 21% from $3.9 million in the second quarter and up 112% from $2.2 million in the same period of 2020. The sequential increase was driven by increased demand for Sapphire optical genome mapping solutions, including increased instrument sales and greater demand for our reagent rental program and consumables. Our consumable revenue hit an all-time high of $1.8 million this quarter. The year-over-year increase was driven by both higher product sales and by the addition of revenue from the lineage and acquisition. Gross margins for the third quarter of 2021 was 24.8%. compared with 37.3% in the prior quarter and 33.4% in the third quarter of 2020. This decrease was primarily due to an increase in some lab-related costs at Lineagen and an increase in OGM warranty-related expense. The majority of these incremental expenses are expected to be non-recurring. Our average selling prices for the Sapphire system and consumables has remained fairly consistent over the course of this year, and our product gross margins were the highest they've been in five quarters. Third quarter operating expense was $21.8 million compared to $17.9 million in the second quarter and $11 million in the third quarter of 2020. The sequential increase was primarily due to a $1.8 million increase in headcount and related expenses and a $1.5 million increase in R&D related to supply chain development costs intended to lower future production costs and support higher volumes. We added a total of 37 new hires in the quarter across all parts of the company as we position ourselves to capitalize on the momentum we see in the market. Third quarter operating expense included $2.8 million of non-cash stock-based compensation expense. At September 30th, The company had cash, cash equivalents, and short-term investments of $326.1 million, compared with cash and cash equivalents of $38.4 million in December of 2020. During the third quarter, we raised $13.3 million in cash, net of offering costs from our ATM facility designed to partially fund the biodiscovery acquisition. Like many companies, we have faced some challenges with our supply chain. However, our operations team has responded early and proactively, and we do not expect any meaningful impact to revenue this year as a result of these supply chain challenges. Since quarter end, we successfully completed the acquisition of BioDiscovery. We're really excited about this deal and integrating the company, its employees, and technology into BioNano. We're also really pleased with the terms of the deal. As previously disclosed, the transaction consideration was up to $100 million, consisting of approximately $50 million in cash and $40 million in shares of BioNano Equity upfront, and a $10 million earn-out cash contingent on achieving certain commercial milestones for the software development. Overall, I'm pleased with the progress of the last several months. and I'm really excited about the momentum we are carrying into the end of the year. With that, I will turn the call back to Eric to discuss our milestones before we take your questions. Eric?
spk07: Great.
spk08: Thank you, Chris. We are pleased to have hit a key goal for us in the third quarter, and I've mentioned this already, but I just want to reiterate that we released really important protocols for isolating ultra-high molecular weight DNA from samples that would be typically used for prenatal analysis and that allows us to expand the menu of capabilities of the SAFIRE system and in turn penetrate new markets that were otherwise not open to us before. We believe this achievement brings us one step closer to our broader mission of transforming the way the world sees the genome. And so with that, Michelle, we are ready to take questions.
spk16: Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
spk17: Hi, this is actually Destiny on for Jeff. How's everyone doing?
spk07: Hey, Destiny. Hi, Destiny. We're great. How are you?
spk17: I'm doing well. Thank you. I just wanted to circle back to Chris's commentary around the supply chain. Could you tell us a little bit more about that and what some of the efforts you're doing now in order to kind of prepare yourself going forward?
spk03: Yeah, what I would say is there are chips in our instruments that have been facing shortages like every other company. What our supply chain did is they went out and found alternative sources for those chips and built an inventory to protect us from the possibility of delays in future shipment. So again, it I bring it up because everybody's asking about supply chain shortages. What I want to say is, yeah, we're just like everyone else. We're seeing them, but we've worked around them to ensure that they don't impact our ability to deliver Sapphire Systems.
spk17: I see. Okay. Thank you for that clarity. And then turning to a different shortage, I see you've onboarded a ton of really excellent people into your commercial and marketing team. As you build out these teams, are you also recognizing some headwinds in regards to the labor shortages?
spk08: Well, yes. I mean, so we're, you know, the company is getting bigger. We've added incredible executive talent, which we summarized and we put news out about that because we're, we think it's so important to tell everybody about it. The hiring market overall is incredibly competitive. And so when we grow the team, you know, we're out there competing with, all sorts of other companies, and what we find is that people really recognize the differentiated story that we have here and the opportunity that's in front of us, and they're energized to join. And that's what's made it possible to get folks over from companies like Illumina and Dexcom and others, Perkin Elmer and so forth. That's exciting for us, and it's definitely a challenge, but I think the validation that comes with those folks joining means that we have a competitive advantage in the hiring market.
spk17: Got it. Okay, that's helpful. And if I could maybe just squeeze one more in here. Could you talk to us a bit about any OUS efforts or strategies that you're considering at the moment?
spk08: Well, we are active on a global basis and our slides speak to the fact that we see demand really ramping and increasing across the board. Certainly in North America we have great progress and Europe has really been leading the penetration of optical genome mapping. for applications in cytogenetic analysis, especially in consolidation of existing workflows. And so we're active there. But China had a very solid third quarter, and we had other notable adoptions, such as one in Australia. And so what we see is a pretty broad-based interest in the capability. The pace is gated only by whatever kind of local funding is available or various environments around things like reimbursement and so forth. But the demand is universally strong around the globe. And there are other parts of the globe that we're now eyeing with great interest. And one of them that I would mention is India. And so I would expect You should expect to hear us talking more about India in subsequent calls.
spk18: Okay, got it. Thank you. I'll jump back in queue.
spk16: Thank you. Once again, ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Kevin DeGeter with Oppenheimer. Please proceed with your question.
spk04: Hey, guys. A few from us. Really nice growth on consumer goals for you. speak to the distribution of growth. You know, are you seeing, you know, most of the consumable growth from the research and translational side of the business or the more clinical side of the business? And I guess what I'm ultimately interested in is better understanding, you know, the behavior of some of your top customers and kind of what type of consumable pull through kind of per install at, you know, a good customer or a highly mature customer looks like these days, and kind of is that, you know, is that evolving over time?
spk07: You know, thanks, Kevin.
spk08: I appreciate the acknowledgement, and we're also excited to see the progress there, and, you know, Let me take a shot at addressing your question. And if there's some gaps, Chris might be able to fill them in and you just let us know. But when you talk about the distribution across applications areas, discovery and translational versus the clinical research side, I would say that the needle, if you look at the global distribution, you know, is definitely pointed more towards the clinical research side. And I would say it's probably, you know, 65% clinical research, 35% discovery and translational. And then, you know, within that clinical research segment, the applications are mostly around genetic diseases.
spk10: And
spk08: you know, the portion that is focused on hematologic malignancies and solid tumors is increasing. We don't see a strong distinction there because they end up being, meaning the 65-35, because they end up being, you know, pretty similar sites and labs. And, you know, whether you're running a steady supply of samples coming in for analysis based on, you know, an order from a physician or whether they're running samples for a clinical trial or a large research study, they all tend to be comparable in volumes. And so when we go back and we ask ourselves, okay, what's the average, you know, the average pull through you can calculate, right? You have the install base, it was 141. You have the consumables revenues that's in the queue, right? And so given that you know that, that's why you've asked me to tell you what's the sort of like significant pull-through representative group. And what I would say, the way I would answer the question is that, you know, a significant fraction, you know, 65%, 70% of adoption is through the reagent rental vehicle for us. And just to remind you that that standard contract is $132,000 dollars of overall consumables revenues, chips, reagents, and everything on an annualized basis. So, you know, if we think that, you know, 65 or so percent of the systems that are going out in the last couple of quarters are representative of that pull through, I think that that's how I would kind of start to vector toward, you know, that higher-end pull-through number, and there are sites that exceed that. You have sites that go beyond that, and their ordering exceeds that, but so far, we're kind of adhering to that contracted volume, which is probably why we picked it in the first place.
spk09: It's a good number, and it fits the labs that are adopting the technology.
spk04: That's super helpful, and I appreciate the update on the Next Generation Optical Genome Mapping Platform and the goal of having a prototype by the end of the year. What is a reasonable expectation for us in terms of when we may learn more about some of the performance profile? Is it something as early as potentially ADVT next year, or should we – it's just sort of how do you frame expectations as to when you'll be ready to – communicate more broadly some of the performance improvements that hopefully you've been able to have?
spk08: Well, yeah, so, no, good question, and fair question. And so, you know, we're excited about the progress, and, you know, here in the company on site, which you have visited, but, you know, we didn't let you peek in those rooms when you came through. You know, we see the various components operating, and so we're excited about the progress that we're making there. And we will hit that goal of putting the prototypes together this quarter, and we feel confident about that. With regard to detailed metrics, I think we're going to have to get a few more quarters behind us before we really start to zero in on them. However, we have communicated that there will be you know, a series of step-ups in, you know, pull-throughs. So, you know, if we look at a kind of control sample, you know, that we collect data on just at 30x depth, which is not always the depth of coverage that a site may use for one application or another, but it's a good baseline for us to make comparisons with. The SAFIRE system will process 96 samples in seven days, And we assume that the SAFIRE system is running 24-7 during that period and so forth. But 30x depth of coverage will give you 96 samples. And a next generation system will, you know, and that, so that equates to about 5,000 samples per year. The next generation system per instrument will go up to about 14,000 samples per year. So that's a little bit shy of a threefold increase in throughput overall. And you may remember that we're going to roll that system out in two steps. So the first step would be the single instrument module, 14,000 samples per year. And then there will be a capability of clustering up to four of those instruments together in a robotic system that will operate continuously. And so four times 14,000 is going to get those numbers up even more. And so we're kind of sticking to that as our projected performance and throughput of the system compared to Sapphire. We see no reason to to back off of that or, you know, upsize that at all. But as you well know, we'll get a little bit better information after we have the fully assembled prototypes and get closer to beta systems, which is going to happen next year.
spk04: And then just lastly for us, with regard to placements, I guess, you know, the guidance is still more than 150, you know, at year end. You know, you were at 441. at the end of September, plus some that apparently have shipped that aren't installed. I mean, I guess really sort of two questions. How do we think about, you know, that kind of more than 150 as a guidance number? And then, you know, maybe on a little bit more granularity, what are you seeing in terms of the current quarter? You know, any disruptions that your customers, you know, related to COVID or other factors, or do you see sort of you know, perhaps a more normalized environment to operate with regard to, you know, converting shipments into installations.
spk08: Yeah, so, I mean, what I want to say, just to sort of keep it, you know, safe here, so to speak, is that, you know, we're very confident in the 150, and I mean, you know, I think that should be... Yeah, I think that should be apparent. But, you know, we're very confident in the 150. We probably have enough systems, you know, shipped into the field that if we install the ones that are waiting, we would actually get above that. But, you know, the limitations on that, and then we're going to ship additional ones this quarter. So, you know, there's... sort of backlog in the field to exceed that. But, you know, the constraints that we face are kind of twofold, right? It's people, you know, to go out and install them and get that done. And we're adding those people, you know, over time here. But then, you know, we run into, you know, various factors in, you know, always in the fourth quarter, holidays, different site closures, I'm not going to say that COVID is currently a serious impediment. It's always something that we've got to pay attention to, but I think we've reached a normalized state there. I guess the new normal that people have been thinking that we would get to. We're probably pretty close to that range right now. It's very different from what the world was like this time in 2019, for example, but But I don't think we feel like COVID is anything more than a potential disruptor. And if things stay the way they are now, we're normalized. So we're confident about the 150. There's probably some upside there. But let's just stick with the 150 for now. Thanks for taking our questions. You're welcome.
spk15: Thanks, Kevin.
spk16: We have reached the end of our question and answer session. I'd like to turn the call back over to Mr. Holmland for any closing remarks.
spk12: Great. Thank you.
spk08: So I just want to thank everybody for joining and following along. And we certainly look forward to our fourth quarter call. And that will give us a chance to update you on the progress we continue to make in these key strategic pillars. which are to grow the install base and expand the utility of optical genome mapping while we drive the validation of its utility and value in all of the variety of markets where optical genome mapping is seeing uptake. And with that, I will close the call and say thank you very much.
spk16: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day. Music playing Thank you. Thank you. Thank you. you Good day and welcome to the BioNano Genomics Third Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Amy Conrad from Investor Relations. Please go ahead.
spk15: Thank you, Michelle. And good afternoon, everyone.
spk14: Welcome to the BioNano Genomics Third Quarter 2021 Financial Results Conference Call. Leading the call today is Dr. Eric Holmland, CEO of BioNano. He is joined by Chris Stewart, CFO of Bionano, and Rich Shippey, CBO of Bionano. After market closed today, Bionano issued a press release announcing its financial results for the third quarter of 2021. A copy of the release can be found on the investor relations page of the company's website. I would like to remind everyone that certain statements made during this conference call may be forward-looking, including statements about Bionano's strategic and commercialization plans, sales pipeline, anticipated benefits or improvements to the Sapphire system, anticipated milestones for 2021, and the advantages of the SAFIRE system over current technologies, the anticipated benefits of the acquisition of biodiscovery, 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 set 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, 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.
spk12: With that, I will turn the call over to Eric.
spk07: Thank you, Amy, and good afternoon, everyone. We're happy to be here with you today to recap what turned out to be a very busy and productive third quarter.
spk08: We believe the momentum that is being driven here is tremendous as we head into this last quarter of 2021. To start off today's call, I want to have Rich Schippe review with you our recent acquisition of Biodiscovery. This was an important strategic transaction that allows us to accelerate the integration of optical genome mapping, or OGM, and next generation sequencing data with our optical genome mapping workflow. The addition of biodiscovery is expected to advance our capabilities as a genomics data solutions provider by adding what is really a best-in-class analysis, interpretation, and visualization platform for reporting genomics data. As a result of the acquisition, we believe we become the first and only company to provide truly comprehensive genome analysis solutions that utilize optical genome mapping with our SAFIRE system and the industry-leading platform agnostic software from BioDiscovery, which transforms BioNano from being the structural variation company into a broad genomics data solutions provider and really opens up new opportunities for us. And so now I'll turn the call over to Rich, our chief business officer, to review the biodiscovery transaction. Rich?
spk02: Thanks, Eric, and good afternoon, everyone. With the acquisition of biodiscovery, we are now able to accelerate our efforts to make OGM ubiquitous by simplifying the assessment of clinically relevant variants in cytogenomics applications, reducing interpretation time per sample, and expanding our reach into the discovery and translational research markets where the combination of next-generation sequencing in OGM can reveal more answers in genetic disease and cancer. And the key to making these big ideas successful stems from software, in particular the right software acting as a critical interface to solve complex cytogenics workflow problems. We plan to utilize biodiscovery software to integrate OGM with NGS and microdata for broader applications, which we believe will accelerate the adoption of our Sapphire product. We expect the true beneficiaries to be the researchers and clinicians who should see improvements in their ability to get the answers they need in a seamless and reliable manner. In terms of the integration of the bio discovery business into BioNano, we are making great progress and officially closed the transaction. We expect the launch of a commercially available version of NX clinical software that users can visualize, interpret, annotate, and report all classes of structural variants, including absence of heterozygosity. The initial integration with our Sapphire platform is planned to launch in 2022, The full integration will be designed to support the evaluation of additional data types and potentially incorporate gene expression and methylation data, which we're really excited about. Now I'll turn the call back over to Eric to review the Q3 numbers. Eric?
spk08: Thanks, Rich. In the third quarter of 2021, we've continued to perform very well. And in fact, we recorded the best overall quarter ever. in the history of the company. And so we're obviously very excited about that. And we think it's due to not only the amazing capabilities that we have with optical genome mapping and the amazing product, but the incredible effort that all of our teams have put into pushing us forward. So total revenue for the quarter was $4.7 million, which is up 112% versus the same period in 2020. We had great performance in many areas of execution, including seeing customers develop laboratory-developed tests based on optical genome mapping and obtaining accreditation for SAFIRE-based laboratory-developed tests, as well as expanding our menu to include protocols for isolation of ultra-high molecular weight DNA from prenatal samples, such as amniocytes and CVS. And this allows us to apply optical genome mapping in our users to various applications in prenatal analysis. Now, we've continued to build out the commercial team, and I want to welcome these folks to BioNano. And we're very excited to have them on board because what we're doing is preparing to scale commercially. And I want to welcome on board Amanda Letman, who is the Vice President of Global Biomass. customer experience, Amanda Hernandez, who is the Vice President of Global Sales Training and Development, Justin Layton, who is VP and General Manager of the Lineagen Business, Bob Hertzenberg, who is our North American Sales Director, and then announced just today, Stephanie Hoyle, who is our Vice President of Global Corporate Marketing, and Alex Helm, who is our Vice President of Strategic product marketing. And now these people come to us from amazing companies across multiple industries. And I think them choosing to join BioNano and the path that we are on reflects not only the progress that we've made, but the incredible opportunity that we have out in front of us. And we believe they will drive additional growth for our business as we expand across many geographic locations. And certainly, last but not least, we want to welcome Sohail Shams, who is the new Chief Informatics Officer and previously was the Chief Executive Officer of Biodiscovery. And so we're really rounding out key people across the commercial and development areas of the organization, and that's going to be key to growth going forward. I want to talk a little bit about The SAFIRE install base and utilization, we had a record quarter for SAFIRE system installations and shipments. SAFIRE installations in the quarter brought the total install base to 141 SAFIRES installed as of September 30th, 2021. We shipped 24 SAFIRE systems during the quarter. You can compare that to 11 systems that were shipped in the same period in 2020 and 13 systems that were shipped just last quarter. And we believe we're on track to reach our goal or even exceed the goal of 150 SAFIRE systems installed worldwide by the end of 2021. We sold 3,969 nano-channel array flow cells during the third quarter. This is the highest number of flow cells that we've sold in any quarter ever. Now, please keep in mind that the flow cell is the unit consumable for one human genome, and so more flow cells that are being sold into the field leads to more utilization and more data to support the value proposition of optical genome mapping and increase awareness of its utility. So the 3,969 flow cells represents 122% growth over the same period third quarter of 2020. Finally in our services lab we analyzed 309 samples during the quarter ending September 30th 2021 and we can compare that to the same period a year ago which was 84 samples and so these numbers of samples that are coming in for analysis are often tied to projects that are happening in the field either in connection with potentially a new Sapphire adoption, but certainly new customers coming to learn about optical genome mapping for the first time. So when we see growth in samples that are being analyzed, we know that that's going to turn into more awareness of optical genome mapping and its capability. And so that's an exciting leading indicator. Regarding innovation, we've continued to improve optical genome mapping with Sapphire, making it easier and faster and more cost effective to operate. And so we hit a key goal for the quarter, which was to develop assays that could be used in prenatal applications that require isolation of ultra high molecular weight DNA from amnio sites and CVS samples. These assays support both fresh cultures and cryopreserved cells. This expands the markets that we can serve for optical genome mapping. We updated our software, and we have incredible new capabilities that have been released recently that are going to expand capabilities of data analysis and data interpretation. And, of course, we've added the biodiscovery and NX clinical and Nexus copy number capabilities to our offerings. And our project to build a next-generation SAFIRE is also on track, and we anticipate completing the first prototype system for that platform by the end of this year. Regarding the proliferation of data that validate optical genome mapping and outline its incredible scope of utility, we announced the publication of the largest clinical research study to date, which was published in the Journal of Molecular Diagnostics for a rare muscle disease, FSHD. In that study, 351 patients were analyzed, and we were very pleased to see the outcomes that the authors found. They demonstrated that optical genome mapping provided data more quickly, accurately, and more reproducibly than the current gold standard method of Southern blot. And so these findings really support the rationale for opting, adopting optical genome mapping as an alternative to traditional methods. and also underscore the economic value of the more efficient workflow, and we believe that that's going to support labs in the future that adopt it and seek reimbursement from third-party payers. And we would also note that the applications of FSHD analysis have high interest from biotech and pharma, where drugs for rare diseases are being developed, and those protocols often develop require analysis for FSHD. So this is an important publication, an important advancement. We announced that New Probe Global, which is a molecular diagnostics leader, adopted SAFIRE to be integrated into their quantitative amplicon sequencing and blocker displacement amplification technologies for R&D efforts and an effort to improve reproductive health and liquid biopsy. So this is an important adoption for us, and we expect that to drive new applications and utilization. We had the largest presence to date at the annual Cancer Genomics Consortium meeting, which was held in August of this year. It featured 10 presentations by SAFIRE customers and BioNano, highlighting the benefits of optical genome mapping for clinical research applications in a variety of areas. importantly, including solid tumor analysis, hematologic malignancies, products of conception, pre- and postnatal constitutional genetics, and others. The attendance at the event was significant, with over 400 participants globally. And in another meeting, our customers presented 11 posters and talks at the European Society of Human Genetics, or ESHG, meeting, which was held in late August. Now, turning to publications, there have been 132 optical genome mapping publications year to date, which includes 30 in Q3. In addition to the samples that our lab has processed in the quarter, those projects put data in the hands of customers that we believe will lead to publications going forward. And I would also emphasize that our lineage in business had a good quarter for samples received across our suite of assays for pediatric neurodevelopmental disorders. And so revenues for those diagnostic services are included with all service and other revenue in our financial statements. So now I'd like to provide an update on the pivotal studies that are being led by Dr. Alka Chabe, our chief medical officer. Those studies are being conducted to demonstrate the utility of optical genome mapping as an alternative to traditional cytogenetic methods on a path to have them adopted as part of standard of care. So these studies span four major growth markets for us, pre- and postnatal genetic analysis, hematologic malignancies, including leukemias and lymphomas, and solid tumor analysis. Recruitment in these studies is going well. We have important key opinion leaders as principal investigators and study sites across each endpoint. For the postnatal study, which has been the one that was the first to receive IRB approval and underway the longest, we've reached a total of 500 out of 1,000 subjects enrolled. And we have completed analysis of over 100 samples. And in fact, at the recent meeting of the Society of Human Genetics, ASHG, the authors of that study presented a poster describing the performance across those initial 100 samples. And it was very impressive, including 100% concordance. and also identifying incrementally valuable information that can be leveraged to resolve otherwise unsolved cases. For prenatal, the IRB has been obtained and site recruitment and training are in progress, and data generation will begin this quarter. For the hematologic malignancies programs, we are finalizing contracts with sites and expect IRB approval to begin by the end of the fourth quarter and the studies to begin in the first quarter of 2022 and the fourth quarter of 2022, respectively. Over the next several years, we believe data to be generated as part of these studies will serve as a basis to support changes in guidelines set by medical societies that will ultimately recommend uses of optical genome mapping as part of the standard of care. So with that update, I would like to turn the call over to Chris Stewart, who is the Chief Financial Officer, for an overview of our financials. Chris?
spk03: Thanks, Eric. As Eric mentioned earlier, our revenue for the third quarter of 2021 was $4.7 million, up 21% from $3.9 million in the second quarter and up 112% from $2.2 million in the same period of 2020. The sequential increase was driven by increased demand for Sapphire optical genome mapping solutions, including increased instrument sales and greater demand for our reagent rental program and consumables. Our consumable revenue hit an all-time high of $1.8 million this quarter. The year-over-year increase was driven by both higher product sales and by the addition of revenue from the lineage and acquisition. Gross margins for the third quarter of 2021 was 24.8%. compared with 37.3% in the prior quarter and 33.4% in the third quarter of 2020. This decrease was primarily due to an increase in some lab-related costs at Lineagen and an increase in OGM warranty-related expense. The majority of these incremental expenses are expected to be non-recurring. Our average selling prices for the Sapphire system and consumables has remained fairly consistent over the course of this year, and our product gross margins were the highest they've been in five quarters. Third quarter operating expense was $21.8 million compared to $17.9 million in the second quarter and $11 million in the third quarter of 2020. The sequential increase was primarily due to a $1.8 million increase in headcount and related expenses and a $1.5 million increase in R&D related to supply chain development costs intended to lower future production costs and support higher volumes. We added a total of 37 new hires in the quarter across all parts of the company as we position ourselves to capitalize on the momentum we see in the market. Third quarter operating expense included $2.8 million of non-cash stock-based compensation expense. At September 30th, The company had cash, cash equivalents, and short-term investments of $326.1 million, compared with cash and cash equivalents of $38.4 million in December of 2020. During the third quarter, we raised $13.3 million in cash, net of offering costs from our ATM facility, designed to partially fund the biodiscovery acquisition. Like many companies, we have faced some challenges with our supply chain. However, our operations team has responded early and proactively, and we do not expect any meaningful impact to revenue this year as a result of these supply chain challenges. Since quarter end, we successfully completed the acquisition of BioDiscovery. We're really excited about this deal and integrating the company, its employees, and technology into BioNano. We're also really pleased with the terms of the deal. As previously disclosed, the transaction consideration was up to $100 million, consisting of approximately $50 million in cash and $40 million in shares of BioNano Equity upfront, and a $10 million earn-out cash contingent on achieving certain commercial milestones for the software development. Overall, I'm pleased with the progress of the last several months. and I'm really excited about the momentum we are carrying into the end of the year. With that, I will turn the call back to Eric to discuss our milestones before we take your questions. Eric?
spk07: Great.
spk08: Thank you, Chris. We are pleased to have hit a key goal for us in the third quarter, and I've mentioned this already, but I just want to reiterate that we released really important protocols for isolating ultra-high molecular weight DNA from samples that would be typically used for prenatal analysis and that allows us to expand the menu of capabilities of the SAFIRE system and in turn penetrate new markets that were otherwise not open to us before. We believe this achievement brings us one step closer to our broader mission of transforming the way the world sees the genome. And so with that, Michelle, we are ready to take questions.
spk16: Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
spk17: Hi, this is actually Destiny on for Jeff. How's everyone doing?
spk07: Hey, Destiny. Hi, Destiny. We're great. How are you?
spk17: I'm doing well. Thank you. I just wanted to circle back to Chris's commentary around the supply chain. Could you tell us a little bit more about that and what some of the efforts you're doing now in order to kind of prepare yourself going forward?
spk03: Yeah, what I would say is there are chips in our instruments that have been facing shortages like every other company. What our supply chain did is they went out and found alternative sources for those chips and built an inventory to protect us from the possibility of delays in future shipment. So again, it I bring it up because everybody's asking about supply chain shortages. What I want to say is, yeah, we're just like everyone else. We're seeing them, but we've worked around them to ensure that they don't impact our ability to deliver Sapphire systems.
spk17: I see. Okay. Thank you for that clarity. And then turning to a different shortage, I see you've onboarded a ton of really excellent people into your commercial and marketing team. As you build out these teams, are you also recognizing some headwinds in regards to the labor shortages?
spk08: Well, yes. I mean, so we're, you know, the company is getting bigger. We've added incredible executive talent, which we summarize and we put news out about that because we're, we think it's so important to tell everybody about it. The hiring market overall is incredibly competitive. And so when we grow the team, you know, we're out there competing with, all sorts of other companies, and what we find is that people really recognize the differentiated story that we have here and the opportunity that's in front of us, and they're energized to join. And that's what's made it possible to get folks over from companies like Illumina and Dexcom and others, Perkin Elmer and so forth. That's exciting for us, and it's definitely a challenge, but I think the validation that comes with those folks joining means that we have a competitive advantage in the hiring market.
spk17: Got it. Okay, that's helpful. And if I could maybe just squeeze one more in here. Could you talk to us a bit about any OUS efforts or strategies that you're considering at the moment?
spk08: Well, we are active on a global basis and our slides speak to the fact that we see demand really ramping and increasing across the board. Certainly in North America we have great progress and Europe has really been leading the penetration of optical genome mapping. for applications in cytogenetic analysis, especially in consolidation of existing workflows. And so we're active there. But China had a very solid third quarter, and we had other notable adoptions, such as one in Australia. And so what we see is a pretty broad-based interest in the capability. The pace is gated only by whatever kind of local funding is available or various environments around things like reimbursement and so forth. But the demand is universally strong around the globe. And there are other parts of the globe that we're now eyeing with great interest. And one of them that I would mention is India. And so I would expect You should expect to hear us talking more about India in subsequent calls.
spk18: Okay, got it. Thank you. I'll jump back in queue.
spk16: Thank you. Once again, ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Kevin DeGeter with Oppenheimer. Please proceed with your question.
spk04: Hey, guys. A few from us. Really nice growth on consumer goals for you. speak to the distribution of growth. You know, are you seeing, you know, most of the consumable growth from the research and translational side of the business or the more clinical side of the business? And I guess what I'm ultimately interested in is better understanding, you know, the behavior of some of your top customers and kind of what type of consumable pull through kind of per install at, you know, a good customer or a highly mature customer looks like these days, and kind of is that, you know, is that evolving over time?
spk07: You know, thanks, Kevin.
spk08: I appreciate the acknowledgement, and we're all so excited to see the progress there, and, you know, Let me take a shot at addressing your question, and if there's some gaps, Chris might be able to fill them in and you just let us know. But when you talk about the distribution across applications areas, discovery and translational versus the clinical research side, I would say that the needle, if you look at the global distribution, you know, is definitely pointed more towards the clinical research side. And I would say it's probably, you know, 65% clinical research, 35% discovery and translational. And then, you know, within that clinical research segment, the applications are mostly around genetic diseases.
spk10: And
spk08: you know, the portion that is focused on hematologic malignancies and solid tumors is increasing. We don't see a strong distinction there because they end up being, meaning the 6535, because they end up being, you know, pretty similar sites and labs. And, you know, whether you're running a steady supply of samples coming in for analysis based on, you know, an order from a physician or whether they're running samples for a clinical trial or a large research study, they all tend to be comparable in volumes. And so when we go back and we ask ourselves, okay, what's the average, you know, the average pull through you can calculate, right? You have the install base, it was 141. You have the consumables revenues that's in the queue. And so given that you know that, that's why you've asked me to tell you what's the sort of like significant pull-through representative group. And what I would say, the way I would answer the question is that, you know, a significant fraction, you know, 65%, 70% of adoption is through the reagent rental vehicle for us. And just to remind you that that standard contract is $132,000 dollars of of overall consumables revenues chips reagents and everything on an annualized basis so you know if we think that that you know 65 or so percent of the systems that are going out in the last couple of quarters are representative of that pull through I think that that that's how I would kind of start to vector toward you know that that higher-end pull-through number, and there are sites that exceed that, right? You have sites that go beyond that, and their ordering exceeds that, but, you know, so far, we're kind of adhering to that contracted volume, which is probably why we picked it in the first place.
spk09: It's a good number, and it fits the labs that are adopting the technology.
spk04: No, that's super helpful, and I appreciate the update on the Next Generation Optical Genome Mapping Platform and the goal of having a prototype by the end of the year. What is a reasonable expectation for us in terms of, you know, when we may learn more about some of the performance profile? Is it something as early as potentially ADVT next year, or should we, you know, just sort of how do you frame expectations as to, you know, when you'll be ready to, communicate more broadly some of the performance improvements that hopefully you've been able to have?
spk08: Well, yeah, so, no, good question, and fair question. And so, you know, we're excited about the progress, and, you know, here in the company on site, which you have visited, but, you know, we didn't let you peek in those rooms when you came through. You know, we see the various components operating, and so we're excited about the progress that we're making there. and we will hit that goal of putting the prototypes together this quarter, and we feel confident about that. With regard to detailed metrics, I think we're going to have to get a few more quarters behind us before we really start to zero in on them. However, we have communicated that there will be you know, a series of step-ups in, you know, pull through. So, you know, if we look at a kind of control sample, you know, that we collect data on just at 30x depth, which is not always the depth of coverage that a site may use for one application or another, but it's a good baseline for us to make comparisons with. The SAFIRE system will process 96 samples in seven days. And we assume that the SAFIRE system is running 24-7 during that period and so forth. But 30X depth of coverage will give you 96 samples. And a next generation system will, you know, and that, so that equates to about 5,000 samples per year. The next generation system per instrument will go up to about 14,000 samples per year. So that's a little bit shy of a threefold increase in throughput overall. And you may remember that we're going to roll that system out in two steps. So the first step would be the single instrument module, 14,000 samples per year. And then there will be a capability of clustering up to four of those instruments together in a robotic system that will operate continuously. And so, you know, four times 14,000, you know, is going to get those numbers up even more. And so, you know, we're kind of sticking to that as our projected performance and throughput of the system compared to Sapphire. We see no reason to to back off of that or, you know, upsize that at all. But as you well know, we'll get a little bit better information after we have the fully assembled prototypes and get closer to beta systems, which is going to happen next year.
spk04: And then just lastly for us, with regard to placements, I guess, you know, the guidance is still more than 150, you know, at year end. You know, you were at 441. at the end of September, plus some that apparently have shipped that aren't installed. I mean, I guess really sort of two questions. How do we think about, you know, that kind of more than 150 as a guidance number? And then, you know, maybe on a little bit more granularity, what are you seeing in terms of the current quarter? You know, any disruptions at your customers, you know, related to COVID or other factors? Or do you see sort of perhaps a more normalized environment to operate with regard to converting shipments into installations?
spk08: What I want to say, just to keep it safe here, so to speak, is that we're very confident in the 150. I mean, you know, I think that should be... Yeah, I think that should be apparent. But, you know, we're very confident in the 150. We probably have enough systems, you know, shipped into the field that if we install the ones that are waiting, we would actually get above that. But, you know, the limitations on that, and then we're going to ship additional ones this quarter. So, you know, there's... sort of backlog in the field to exceed that. But, you know, the constraints that we face are kind of twofold, right? It's people, you know, to go out and install them and get that done. And we're adding those people, you know, over time here. But then, you know, we run into, you know, various factors in always in the fourth quarter, holidays, different site closures, I'm not going to say that COVID is currently a serious impediment. It's always something that we've got to pay attention to, but I think we've reached a normalized state there. I guess the new normal that people have been thinking that we would get to. We're probably pretty close to that range right now. It's very different from what the world was like this time in 2019, for example, but But I don't think we feel like COVID is anything more than a potential disruptor. And if things stay the way they are now, we're normalized. So we're confident about the 150. There's probably some upside there. But, you know, let's just stick with the 150 for now. Thanks for taking our questions. You're welcome.
spk15: Thanks, Kevin.
spk16: We have reached the end of our question and answer session. I'd like to turn the call back over to Mr. Holmland for any closing remarks.
spk12: Great. Thank you.
spk08: So I just want to thank everybody for joining and following along. And we certainly look forward to our fourth quarter call. And that will give us a chance to update you on the progress we continue to make in these key strategic pillars. which are to grow the install base and expand the utility of optical genome mapping while we drive the validation of its utility and value in all of the variety of markets where optical genome mapping is seeing uptake. And with that, I will close the call and say thank you very much.
spk16: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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