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spk14: Good day and welcome to the Bionano second quarter 2023 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to David Holmes from Investor Relations. Please go ahead.
spk20: Thank you, Michelle, and good afternoon, everyone. Welcome to the Bionano second quarter 2023 financial results conference call. Leading the call today is Dr. Eric Holman, CEO of Bionano. He's joined by Chris Stewart, CFO of Bionano. After market closed today, Bionano issued a press release announcing its financial results for the second quarter of 2023. 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 the conference call may be forward-looking, including statements about Bionano's annual and quarterly revenue outlook, strategic and commercialization plans, anticipated benefits or improvements to Bionano's products, including the SAFIRE system, NX Clinical Software, or VIA, SAFIRE Compute, and the timings for release of such products and impacts of such products, anticipated milestones for 2023, the advantages of the SAFIRE system over current technologies, BioNano's anticipated benefits, and the timing of those benefits from its announced reduction in force and other cost-saving initiatives, the anticipated effects and benefits of BioNano's Recent reverse stock split and associated increase in authorized shares available for issuance. Achievement publicly announced 2023 elevate anticipated milestones. Advances in obtaining reimbursement of OGM and BioNano's expected expectations regarding study results and publications and anticipated benefits to these studies and publications in driving adoption of OGM. 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 BioNano's press release and BioNano's reported files with the SEC. These forward-looking statements are information available to BioNano today, and the company assumes no obligation to update statements as circumstances change. In addition, to supplement BioNano's financial results reported in accordance with U.S. generally accepted accounting principles, or GAAP, the company is reporting non-GAAP operating expense and non-GAAP gross margin. These non-GAAP financial measures are not meant to be considered in isolation. or as a substitute for comparable GAAP measures, should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP, have no standardized meaning prescribed by GAAP, and are not prepared under the comprehensive set of accounting rules or principles. A description of both non-GAAP operating expense and non-GAAP gross margin and reconciliations of non-GAAP operating expense to GAAP operating expense and non-GAAP growth margin to GAAP gross margin are included at the end of the company's press release issued earlier today, which has been posted on the investor relations page of the company's website. An audio recording and webcast replay for today's conference call will be available online on the company's investor relations page. And with that, I will turn the call over to Eric.
spk06: Great. Thank you, David, and good afternoon, everyone. We are very pleased to provide a full report on our Q2 results as well as the business overall. We've had a great second quarter with overall global support for optical genome mapping or OGM on the rise, including important steps forward like recent approvals from the Israel Ministry of Health for the use of optical genome mapping in blood cancer research and OGM reimbursement for heme malignancies in the Ontario province in Canada. We've had several transformational product releases this quarter and more are expected in the second half of the year and we believe that these products will act as accelerants for our growth and start to bring new customers in from the sidelines who have been waiting on these products which will catalyze our entry into new segments of the market, like the high-volume segment. I think as everybody is aware, we also affected a 1 for 10 reverse split of the company's common stock. This step is a part of a process of elevating BioNano's stock price, which we believe will make it more attractive to institutional investors and will enable us to restore compliance with NASDAQ's listing requirements. I want to thank the stockholders for their support of this initiative. This step was an important one that we believe will provide us with flexibility as we look to extend our cash runway through the management of our expenses consistent with the initiative we announced in May of this year and providing us with more choices as we consider future financing options. We will now move forward and let the performance of the business speak for itself. For the business update, revenue for the quarter was $8.7 million, which exceeded our guidance and represented a 30% year-over-year increase compared to the same period of 2022. The Sapphire install base grew by 22 systems to 281 during the second quarter of 2023, which represents 43% growth over the same period last year. Something that stood out in the quarter was the consumables volume. There were 7,062 flow cells sold in the second quarter of 2023, and that represents 108% year-over-year increase compared to the second quarter of 2022. We announced two important products that we have been investing in and developing for some time now. They will play a significant role in accelerating the adoption of OGM on a global basis, and particularly for labs that run medium to high volumes of samples. The first is Stratus. Stratus is a powerful new mapping system designed to provide four times the throughput of SAFIRE when it's first released, and we expect that to increase. that will be in the field as part of an early access program over the course of the second half of 2023 and will ramp to full-scale commercial availability in the first quarter of 2024. The second product is VIA, which stands for Variant Intelligence Applications. VIA replaces NX Clinical by including optical genome mapping data alongside next-generation sequencing data and microarray data and now includes a powerful workflow for heme malignancies. VIA addresses serious bottlenecks in the application of optical genome mapping to various applications in hematologic malignancies with a simple and integrated workflow that drives visualization and interpretation and reporting across multiple data types including optical genome mapping, microarray, and next generation sequencing. We also released new kits for the ionic purification system which feature new chemistry for nucleic acid extraction from FFPE and tumor tissue. Now these kits are designed to provide samples that will be sequenced And we are still working on developing the optical genome mapping compatible kits for ionic. And we expect to have those in the field later this year. This quarter was a tremendous quarter also for publications on OGM applications in human clinical research. There were 32 publications validating the utility of optical genome mapping for applications in clinical cytogenetics research. We also submitted the second constitutional post-natal study manuscript that is developed through our clinical trials for peer review. We expect that to be published soon. Overall, publications featuring optical genome mapping are up 57% year over year. Finally, we announced the 2023 winners of the BioNano Innovator Research Program, which we established to fuel novel research using optical genome mapping. The three winners from Stanford University, Hospitals for Sick Children in Toronto, and Duke University will receive a SAFIRE system and optical genome mapping reagents to continue their projects, which we believe will open new areas of utility for optical genome mapping and be a big part of driving future adoption and growth. Before discussing key milestones for the remainder of the year, I'd like to turn the call over to Chris Stewart, our CFO, for an overview of the second quarter financials. Chris?
spk18: Thanks, Eric. Diving a little deeper into the numbers, revenue in the second quarter of 2023 was $8.7 million. reflecting an increase of $2 million or 30% over the second quarter of 2022, and exceeding our prior guidance of $7.8 to $8.3 million for the quarter, due mainly to increased demand for OGM instruments and consumables. Gap gross margin for the second quarter came in at 27% compared to 22% in Q2 of 2022, and non-gap gross margin was 29%, compared again to 22% in the second quarter of 2022. Second quarter 2023 non-GAAP gross margin excludes $200,000 in stock-based compensation. Second quarter 2023 GAAP operating expense was 41.5 million compared to 33.6 million in the second quarter of 2022. Non-GAAP operating expense was 34.6 million compared to 26.3 million in the second quarter of 2022. The increase was mainly driven by increases to headcount, R&D expense related to our upcoming product launches, and marketing expense. While we have implemented cost savings initiatives, including a reduction in headcount that we expect to save approximately $20 million as we discussed on our Q1 call, we expect to start to see the effect of those initiatives in our operating expenses in the second half of this year and going forward into the first half of 2024. Second quarter 2023 non-GAAP operating expense excludes $3.7 million in stock-based compensation, $1.8 million in amortization of intangibles, and $1.4 million increase in the estimated fair value of contingent consideration primarily related to our acquisition of Purigen. Our cash, cash equivalents and available for sale securities as of June 30th, 2023 was 77.1 million. We have been and will continue to be proactive in identifying the best path to raising the capital we need. In Q2, we raised net proceeds of approximately $17.8 million on our ATM facility, selling 25.5 million shares at an average price of 72 cents per share. which on a split adjusted basis is 2.5 million shares at an average price of $7.15 per share. This capital is useful as it offsets a portion of our cash burn and extends our runway. We are maintaining our full year 2023 revenue guidance in the range of 35 to 38 million, and we expect Q3 revenue to be in the range of 8.8 to $9.2 million. Now I'll turn it back to Eric to wrap up.
spk06: Thank you, Chris. I want to look ahead at strategic milestones that we've outlined for the second half of 2023. We remain on track to meet our goal of installing 325 SAFIRE systems by the end of 2023, and we are pleased to share that BioNano Laboratories recently received its CAP accreditation, which validates the strict quality control standards for our lab and opens the door for collaboration with companies like pharmaceutical companies that require this level of quality system. We also completed enrollment of our prenatal study, which is on track and progressing successfully. We have a few major product advances planned that we believe are keys to continuing and potentially accelerating revenue growth and adoption. The first product, which will initially be available to select customers in the field with full release in 2024, is the ionic system, which will be compatible with isolation of ultra-high molecular weight DNA for OGM, offering an automated protocol using isotacrophoresis, and that will clear a significant bottleneck in the current workflow. The second is the high-throughput SAFIRE compute to go with the Stratus system, which is high-throughput itself. It's been developed in collaboration with NVIDIA. And finally, we will release a version of VIA software that will include an analytical workflow for constitutional genetic disorders. Continuing in 2023, we will focus on advancing our clinical studies in support of changing medical practice and clearing the path for reimbursement of OGM through clinical research and seeking FDA clearance to market optical genome mapping with clinical use claims. Overall, bringing a focus on cost controls together with commercial execution, data generation, Further evidence development and growing publications through our Elevate strategy, we believe we can succeed in delivering innovative genome analysis solutions to our customers while containing sustainable long-term value for stockholders. With that, Michelle, we are ready to take questions.
spk14: Thank you. If you have a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Jason McCarthy with Maxim Group. Your line is open. Please go ahead.
spk19: Hi, guys. Thanks for taking the questions. Eric, I want to get right to it from a financial aspect. Can you talk a little bit about the costs saving measures or kind of business streamlining that you're expecting? And Chris had mentioned that it should be taking effect relatively soon. And combined with the cash balance and any use of the ATM in the current quarter and where that cash runway gets you.
spk01: Yeah.
spk06: Thanks, Jason. Let me talk a little bit about the initiatives overall. And I'll ask Chris Stewart to comment on the cash and cash runway. But I think that the company is certainly aware of some of the shifts in the capital markets environment towards the focus on cash burn, cash runway, and certainly emphasizing the need for companies to be more cash conservative. And as a result, we implemented a series of cost reductions and cost savings programs in May, and we expect those to play out over the future five quarters, including Q3, starting with Q3. And that will save us about $20 million, but we see that as basically a beginning. We have to operate much more carefully and strive to extend the cash runway as much as possible and remain opportunistic about sources of financing, including equity financing, but also non-dilutive financing options as well. And so we're actively evaluating those and pursuing them. I'll let Chris talk about where the $77 million on the balance sheet as of the end of Q2 and any additional financing activity so far in Q3, where that takes us. Chris?
spk18: Sure, yeah. As Eric said, we ended Q2 with $77 million in cash. During Q3, we continued to leverage the ATM, which is a great asset for us. Our trading volume allows us to participate and raise money without any discount through the ATM. In Q3 so far, we've raised almost just shy of $13 million, about $12.7 million. And that gives us runway well into Q2 of 2024. So we're leveraging the ATM. We intend to know we need to raise additional capital, but the ATM is giving us some flexibility in terms of choosing our window and the timing of that raise.
spk19: Got it. And Eric, maybe you could talk a little bit about you know, how the company remains committed and on track with its timelines from a development and commercial strategy that was outlined at your investor day over the winter. I think it was earlier this year.
spk06: Yeah, in February. Sure. You know, I think that so we've been, you know, these product releases which were announced last This quarter, VIA and Stratis are major milestones for the company because we're introducing new capabilities for optical genome mapping in the market that open the capacity of optical genome mapping for high volume analysis. That's really the key. I think that the consumable is the highest margin component of the OGM workflow, and being able to enable labs to run higher volumes of it is financially beneficial, both on the top line and certainly supportive of the cash runway. And so these product launches we announced were very important. Looking ahead, when we look at the capabilities for isolating ultra-high molecular weight using isotacrophoresis, which is the proprietary product, technology we acquired through Purigen and that team is developing so we'll run on the ionic system. That's another key component of opening up the workflow for OGM to higher volumes and greater levels of utilization. And so we expect to have something in the field running in customer sites towards the end of this year and can be commercializing it early next year. And again, the reason that's important is that what we see is that labs are developing assays for optical genome mapping in their labs, and they're building full menus. And so the capacity that they need is increasing, and we're happy to be able to support it with the tools and technology. And so we remain on track for these milestones. And what we see is that the growth that we're experiencing has the potential to to even accelerate as these new capabilities are online. Similarly, the publications, the clinical trials are progressing, and this wave of publications that are starting to come out is what's really going to make these other barriers to adoption, such as reimbursement, really come down.
spk07: Great. Thank you, fellas. Thank you, Jason.
spk12: Thank you.
spk14: And one moment for our next question. Our next question is going to come from the line of Mark Massario with BTIG. Your line is open. Please go ahead.
spk02: Hey, guys. Thank you very much for the questions. Congrats on a strong quarter. I would love to ask about how the Stratus is going. Now, I believe you guys soft launched it. I'm curious if you have initiated the full rollout yet. Can you share any initial feedback? and perhaps how many stratus systems have gone out. And I would also be curious to know if you expect any near-term change in flow cells as a result of it.
spk06: Yeah. Thanks, Mark. And what I would say is that the response to stratus is very positive. And in many respects is validating our expectation that the market was seeking something which was capable of a higher throughput. I think we can say that also the response is exceeding our expectations. It's very enthusiastic. What we are doing in this initial period, which is between roughly now through the end of the year, getting about 10 systems into the market. And the reason that it's around 10 is that there's a bit of a supply constraint. So we'll be ramping manufacturing up during this second half of the year. And what I can tell you is that immediately upon announcement, almost all of the 10 were spoken for. And so we don't see any problem in having those systems come online and we expect to have a waiting list as the year progresses. And so we're super enthusiastic about it. And the other thing I want to point out is that the demand is global. So we're seeing European sites, North American sites in the United States and Canada, as well as China, all reaching for Stratus. With regard to the second part of your question, whether we expect that to have a meaningful impact on flow cells, I think that the patterns that we're seeing so far will continue to repeat. I wouldn't expect that curve to accelerate upwards yet, only because it's a few systems getting into the field and A laboratory brings the system in and takes it through an evaluation and validation process, which is relatively limited in terms of its volume. But we do, in the next few quarters, expect flow cells sold to increase as a result of labs having a higher capacity. And that will play out over the remaining quarters in the future.
spk02: That's great. My second question is, you know, the flow cell number really exceeded our expectations and, you know, obviously triple digit growth year over year, but the 35% sequential is quite surprising. Maybe, do you have visibility as to what these flow cells are being used on, like which projects? And are there any particular disease state areas that you could call out
spk06: Yes, so, you know, first of all, I want to sort of, you know, acknowledge and validate that that was a very strong quarter. And, you know, we've got to be mindful that, you know, there can be peaks and maybe lower peaks, you know, high peaks and lower peaks as this growth curve unfolds. But an outstanding quarter based on optical genome mapping demand, on a global basis and we expect it to generally continue at this rate or similar. With regard to visibility into utilization, we don't have perfect visibility. Somewhere around 25 to 30% of our business is in pharma and we know that those applications are generally cell and gene therapy, where they're using optical genome mapping as an alternative to karyotyping for analysis of target effects, looking for off-target effects in gene editing, and also for assessing genome integrity in cell therapy and manufacturing of batches of cells, therapeutic cells. But we don't know in detail what they're doing. But when we look across the cytogenetics labs that are adopting, I would say that utilization is probably two to one in favor of blood cancers. So leukemias, lymphomas, ALL, CLL, AML, ALL, and the list of critical... hematologic malignancies where the traditional methods that are used include karyotyping, fluorescence in situ hybridization, some arrays to look at large structural rearrangements. And what all of these labs tell us is that they use next-generation sequencing to look at sequence variants, but no sequencing method comes close to optical genome mapping for looking at these large events. And when they put it to work in their labs, they find that somewhere in the neighborhood of 20% or so of research subjects that would be evaluated, for example, by looking at their prognostic risk score, that somewhere around 20% of those research subjects have their prognostic risk reclassified when optical genome mapping is used. And so that's why we see so much utilization in hematologic malignancies.
spk02: Excellent. Last question for me. I know earlier this year you withdrew your Category 1 CPT code application in order to kind of pursue an LCD from Palmetto Moldex. I'd just be curious if you've had a chance since our last call if you've had any interactions with Palmetto, if you have any sense for timing, and my thinking is maybe year-end 24 at the earliest, but I would just be curious if you have any updates there.
spk06: Sure. I think that process is definitely progressing, and it's really a nationwide program working with multiple of the MACs, but just because of the significant role that Moldeax and Palmetto play. They're kind of the tip of the spear. And so we're interacting with them frequently, and we'll have some more formal discussions with them later in the year. And I would say that we're enthusiastic about the prospects for getting these determinations in place, but it's probably a little bit early to peg the timing. But, you know, your expectation is, is in line with what is kind of just the timeline for these types of projects. I also want to say that there is quite a bit of progress happening around labs getting reimbursement codes, and we're aware of other labs that are now talking about going after the Category 1 CPT code. generally believed to be a simpler process for a lab to seek the category one code than a manufacturer because labs really know the volumes utilization and and so you know that process continues and we remain bullish about there being a category one CT code covering optical genome mapping and and We're excited to see all the progress that individual labs are getting, and we know several labs that have PLA codes, and they're being routinely reimbursed for optical genome mapping assays.
spk08: Thank you, and one moment for our next question.
spk14: Our next question is going to come from the line of Sungjin Nam with Scotiabank. Your line is open. Please go ahead.
spk15: Hi. Thanks for taking the questions. Just one quick housekeeping, if you will, question for you guys. Could you remind us again kind of your exposure to the biopharma end market and also in China? You know, obviously those two are kind of have been significant headwinds for your larger peers this quarter. So just kind of curious what you guys are seeing. Thank you.
spk03: Yeah, I think it's a good question.
spk06: And, you know, we have certainly seen certain projects in cell and gene therapy being impacted by programs that are slowing down. And so it's something that we're mindful of. But, you know, we reiterate our guidance for the full year. And our exposure... to these projects I don't want to say it's limited because we have good adoption by pharma now and biotech but what we see is that these are really critical high-value projects that tend to get the investment needed to advance them and optical genome mapping is really being used as better alternative to work that they would be doing anyhow so I think that we have some insulation there with regard to China again you know China has made important contributions to the progress that we've made so far this year and was also important last year and the applications of optical genome mapping that we're seeing in China are related to uses for the same sorts of applications in the United States, namely hematologic malignancies, leukemias and lymphomas, and genetic diseases. Within genetic diseases, the focus in China is very strongly on maternal-fetal medicine and fertility applications. Those markets are very strong. I think where some of the headwinds are coming in China are more related to basic research, and we're more in the applied translational research side of it, and certainly commercial services that are being provided. That's been strong for us and the degree to which China is factored into the guidance that we put out this year, we're reiterating that guidance of 35 to 38 million for the full year.
spk12: Thank you.
spk14: And one moment for our next question. Our next question comes from the line of Francois with Oppenheimer. Your line is open. Please go ahead.
spk13: Hi. This is Dan on for Frank. Congrats on the progress this quarter, and thanks for taking our questions. Firstly, could you talk about the criteria you're using in choosing these early sites where the 10 stratus systems would be deployed? Wondering what the criteria are there. Any color.
spk06: Yeah, sure. The focus is really on selecting sites which will benefit from the higher throughput that the Stratus systems offer. And I think that that's kind of the primary focus. And then we certainly want to see them working in areas like hematologic malignancies and genetic diseases as opposed to basic research applications. And so that's where we're seeing the interest in the demand and, um, that's who the product has been designed for.
spk13: Great. Thanks for that. And a quick one for me, uh, with regard to the strength of the peer reviewed publication so far, uh, across indications, uh, do you feel like you're getting closer to reaching that critical mass of data to start conversations with guideline bodies to make OGM first here?
spk06: Yes, we are. We're going to start to see what I would call consensus statements coming out into the field where groups of thought leaders have come together, evaluated existing published research, discussed it within groups, international groups, international consortium, and they're going to start writing these consensus statements which really make preliminary recommendations and then guidelines agencies will see those and begin their own evaluation and development of their own consensus statements and what I know is that these efforts are underway and have been making great progress. We still have some time before we see those consensus statements out in print, but they're coming. I would say that the work is done. So your point about the peer reviewed publications to date, very, very good progress, which has gotten a lot of data out and is enabling these statements to be put together. And so, you know, I think, I think we're, we're making great progress and I'm very happy with everything that has unfolded and we're starting really to turn the page towards, you know, in addition to data generation and publication, there's a synthesis of these consensus statements, which is the next key step. The other thing is that the consortia that have come together to evaluate these data include members of key guideline setting agencies, right? So, There's already involvement from these key agencies and so the progress is outstanding and it will continue. Having said that, we still have enrollment goals in our hematologic malignancy trial and we want to meet those goals this year and continue that progress and continue publishing those data.
spk13: Thanks for the color there. And a final one from me. Are you still expecting to have the dossier submitted for OGM coverage to Medicare in the second half?
spk06: Yes, that's part of what Mark Massaro was asking about our applications and work around local coverage determinations and And we're progressing and on track for that.
spk13: Great. Thanks for taking my questions, and congrats again.
spk06: Thank you. Thank you.
spk14: Thank you. And as a reminder, if you have a question at this time, please press star 1-1 on your telephone. Our next question comes from the line of Michael Oakenwich with Maxim Group. Your line is open. Please go ahead.
spk04: Hey, Eric, thank you for taking my questions, and congratulations on the progress this quarter. Thanks, Michael. So I guess to start off, I'd just like to follow up on Dan's question and see if you could talk a little bit about the nature of Stratus customers. Are you expecting Stratus to appeal to customers who already use OGM, the Sapphires, or would you anticipate that this appeals to accountants No, GM, but have avoided it because Sapphire doesn't meet their needs in terms of throughput.
spk06: So I do expect there to be, you know, that's kind of a yes and a yes, but I really do want to emphasize the higher volume users who in some cases already do have a Sapphire, but it's for kind of evaluation as they really intend to bring the higher volume systems on site. SAFIRE will continue to be available in the field and I think represent a key entry level OGM platform that sites can use for low to medium volumes and get outstanding, incredible results and really transform their workflows. Stratus just increases the capabilities by several folds. What we see already is that labs that are coming on board and raising their hand are labs that are running literally thousands of samples per year. That's the kind of business that I think we want to really see driving adoption and utilization of OGM. it simply wouldn't be really practical to have that many Sapphire systems installed in a lab. So Stratich is bridging that gap, and it's bringing in folks who have been following all the progress, the advancement around the data that's in the field and the proof, and saying, well, we want to have these value propositions playing out for our lab, community. And the only way to do that is to be able to offer something that's higher volume. And so that's really our principal target. And that's of course who we see bringing the system on board.
spk04: All right. Thank you for that. And I'd like to follow up just on what steps you really need to take in order to bring status to that 13-fold data generation rate that you're targeting.
spk06: Well, to get there, it's a system and it's modular, right? So customers will be able to adopt Stratus, which is about a four-fold increase in throughput over what the Sapphire workflow delivers. And there are other ways to it's sort of a trade-off between what is the bottleneck. Is it DNA isolation? Well, we're going to automate that with ITP on Ionic, right? So, you know, which sort of platform is the bottleneck in the system? But the degree to which somebody adopts Stratus, they're going to get about a four-fold increase in at least their data generation throughput. And our strategy to... really increase their capabilities is to leverage mechanical systems that allow you to link multiple instruments together and have them operate modularly so that the collective number of systems increases throughput. And what's exciting about that is that the development that we need to do is really in working on the robotic system, not on the instrument. So the instrument is developed and I'm sure we'll continue to upgrade components to drive the manufacturing cost down over time. We've done that with Sapphire to enhance throughput by bringing in new components over time. But we don't have a lot of real invention required to achieve these higher levels of throughput. It's really a mechanical process of integrating multiple systems together using mechanical robotic systems. And so we see that as being relatively low risk and critical for continuing to enable the growth of optical genome mapping utilization.
spk04: All right, thank you. One more for me and I'll hop back into the queue. I'd like to see if you could talk a little bit about the complexity of applying VIA to different applications. How does a workflow differ for something like hemes versus genetic disease when talking about the VIA software?
spk06: Yeah, that's a very good question. And I think at some level, VIA is generic in that it can really be applied to any analysis of any genome variant. And what's so exciting and powerful about it is that extends from sequence variants, single nucleotide variants that would be detected by NGS, all the way up through large chromosomal rearrangements and structural variants that only optical genome mapping is reliable at picking up. And so why is it that these releases are application specific? That comes into the interpretation. So if you detect a variant, what do you do with it? VIA, through its intelligence applications, allows you to, in an automated fashion, query the available data on that particular variant that's available in different knowledge bases, databases, publication databases, and so forth. And that allows you to really accelerate your interpretation. And so what we're doing, what we did first is we really optimized that process for hematologic malignancies. And we're now doing that for constitutional genetic disorders. And this process kind of illustrates something about structural variation analysis that people don't really... you know, I would say are not that familiar with when it comes to sequence variants because, you know, sequencing's been around and, you know, robust for discovery for a long time. Next generation sequencing's been out and available for, you know, well over a decade now. And so the databases around sequence variants are well populated and it's easy to query variant calls in these databases. But when it comes to structural variants, the databases are not nearly as far along. And so it requires... some development and customization. The other piece that's critical is the reporting. And VIA, right out of the gate, provides incredibly customizable reports that laboratorians will integrate into their validated workloads. But now it's done in a way that it is really specific to the guidelines that are out there, such as those for National Comprehensive Cancer Network, World Health Organization, and others. And those are the sort of frameworks that these hematologic malignancy researchers will use to evaluate samples. And so we needed to integrate that capability into VIA. And similarly, constitutional genetic disorders has its own unique nuances around reporting and what laboratories are accustomed to delivering. And so there is some application customization when it comes to interpretation. and reporting.
spk09: All right. Thank you very much.
spk14: Thank you. And I'm showing no further questions at this time. And I'd like to hand the conference back over to Eric Homland for any further remarks.
spk06: Thank you, Michelle. And I want to thank everybody for joining today. And I want to emphasize that we are tremendously excited about the future of bio-nano and optical genome mapping. And we look forward to updating you on our Q3 call, which will be upcoming soon. So thank you and speak to you shortly.
spk14: This does conclude today's program. Thank you for participating. You may now disconnect. Thank you. I'm Thank you. you you Good day and welcome to the Bionano second quarter 2023 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to David Holmes from Investor Relations. Please go ahead.
spk20: Thank you, Michelle, and good afternoon, everyone. Welcome to the Bionano second quarter 2023 financial results conference call. Leading the call today is Dr. Eric Holman, CEO of Bionano. He's joined by Chris Stewart, CFO of Bionano. After market closed today, Bionano issued a press release announcing its financial results for the second quarter of 2023. 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 the conference call may be forward-looking, including statements about Bionano's annual and quarterly revenue outlook, strategic and commercialization plans, anticipated benefits or improvements to BioNano's products, including the SAFIRE system, NX clinical software, or VIA, SAFIRE compute, and the timings for release of such products and impacts of such products, anticipated milestones for 2023, the advantages of the SAFIRE system over current technologies, BioNano's anticipated benefits, and the timing of those benefits from its announced reduction in force and other cost-saving initiatives, The anticipated effects and benefits of BioNano's recent reverse stock split and associated increase in authorized shares available for issuance. Achievement of publicly announced 2023 elevated anticipated milestones. Advances in obtaining reimbursement of OGM and BioNano's expected expectations regarding study results and publications and anticipated benefits of these studies and publications in driving adoption of OGM. 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 BioNano's press release and BioNano's reported files with the SEC. These forward-looking statements are information available to BioNano today, and the company assumes no obligation to update statements as circumstances change. In addition, to supplement BioNano's financial results reported in accordance with U.S. generally accepted accounting principles, or GAAP, the company is reporting non-GAAP operating expense and non-GAAP gross margin. These non-GAAP financial measures are not meant to be considered in isolation. or as a substitute for comparable GAAP measures, should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP, have no standardized meaning prescribed by GAAP, and are not prepared under the comprehensive set of accounting rules or principles. A description of both non-GAAP operating expense and non-GAAP gross margin and reconciliations of non-GAAP operating expense to GAAP operating expense and non-GAAP growth margin to GAAP gross margin are included at the end of the company's press release issued earlier today, which has been posted on the investor relations page of the company's website. An audio recording and webcast replay for today's conference call will be available online on the company's investor relations page. And with that, I will turn the call over to Eric.
spk06: Great. Thank you, David, and good afternoon, everyone. We are very pleased to provide a full report on our Q2 results as well as the business overall. We've had a great second quarter with overall global support for optical genome mapping or OGM on the rise, including important steps forward like recent approvals from the Israel Ministry of Health for the use of optical genome mapping in blood cancer research and OGM reimbursement for heme malignancies in the Ontario province in Canada. We've had several transformational product releases this quarter and more are expected in the second half of the year and we believe that these products will act as accelerants for our growth and start to bring new customers in from the sidelines who have been waiting on these products which will catalyze our entry into new segments of the market, like the high-volume segment. I think as everybody is aware, we also affected a 1 for 10 reverse split of the company's common stock. This step is a part of a process of elevating Bionano's stock price, which we believe will make it more attractive to institutional investors and will enable us to restore compliance with NASDAQ's listing requirements. I want to thank the stockholders for their support of this initiative. This step was an important one that we believe will provide us with flexibility as we look to extend our cash runway through the management of our expenses consistent with the initiative we announced in May of this year and providing us with more choices as we consider future financing options. We will now move forward and let the performance of the business speak for itself. For the business update, revenue for the quarter was $8.7 million, which exceeded our guidance and represented a 30% year-over-year increase compared to the same period of 2022. The Sapphire install base grew by 22 systems to 281 during the second quarter of 2023, which represents 43% growth over the same period last year. Something that stood out in the quarter was the consumables volume. There were 7,062 flow cells sold in the second quarter of 2023, and that represents 108% year-over-year increase compared to the second quarter of 2022. We announced two important products that we have been investing in and developing for some time now. They will play a significant role in accelerating the adoption of OGM on a global basis, and particularly for labs that run medium to high volumes of samples. The first is Stratus. Stratus is a powerful new mapping system designed to provide four times the throughput of SAFIRE when it's first released, and we expect that to increase. that will be in the field as part of an early access program over the course of the second half of 2023 and will ramp to full-scale commercial availability in the first quarter of 2024. The second product is VIA, which stands for Variant Intelligence Applications. VIA replaces NX Clinical by including optical genome mapping data alongside next-generation sequencing data and microarray data and now includes a powerful workflow for heme malignancies. VIA addresses serious bottlenecks in the application of optical genome mapping to various applications in hematologic malignancies with a simple and integrated workflow that drives visualization and interpretation and reporting across multiple data types, including optical genome mapping, microarray, and next generation sequencing. We also released new kits for the ionic purification system, which feature new chemistry for nucleic acid extraction from FFPE and tumor tissue. Now, these kits are designed to provide samples that will be sequenced And we are still working on developing the optical genome mapping compatible kits for ionic. And we expect to have those in the field later this year. This quarter was a tremendous quarter also for publications on OGM applications in human clinical research. There were 32 publications validating the utility of optical genome mapping for applications in clinical cytogenetics research. We also submitted the second constitutional post-natal study manuscript that is developed through our clinical trials for peer review. We expect that to be published soon. Overall, publications featuring optical genome mapping are up 57% year over year. Finally, we announced the 2023 winners of the BioNano Innovator Research Program, which we established to fuel novel research using optical genome mapping. The three winners from Stanford University, Hospitals for Sick Children in Toronto, and Duke University will receive a SAFIRE system and optical genome mapping reagents to continue their projects, which we believe will open new areas of utility for optical genome mapping and be a big part of driving future adoption and growth. Before discussing key milestones for the remainder of the year, I'd like to turn the call over to Chris Stewart, our CFO, for an overview of the second quarter financials. Chris?
spk18: Thanks, Eric. Diving a little deeper into the numbers, revenue in the second quarter of 2023 was $8.7 million. reflecting an increase of $2 million or 30% over the second quarter of 2022, and exceeding our prior guidance of $7.8 to $8.3 million for the quarter, due mainly to increased demand for OGM instruments and consumables. Gap gross margin for the second quarter came in at 27% compared to 22% in Q2 of 2022, and non-gap gross margin was 29%, compared again to 22% in the second quarter of 2022. Second quarter 2023 non-GAAP gross margin excludes $200,000 in stock-based compensation. Second quarter 2023 GAAP operating expense was 41.5 million compared to 33.6 million in the second quarter of 2022. Non-GAAP operating expense was 34.6 million compared to $26.3 million in the second quarter of 2022. The increase was mainly driven by increases to headcount, R&D expense related to our upcoming product launches, and marketing expense. While we have implemented cost savings initiatives, including a reduction in headcount that we expect to save approximately $20 million as we discussed on our Q1 call, we expect to start to see the effect of those initiatives in our operating expenses in the second half of this year and going forward into the first half of 2024. Second quarter 2023 non-GAAP operating expense excludes $3.7 million in stock-based compensation, $1.8 million in amortization of intangibles, and $1.4 million increase in the estimated fair value of contingent consideration primarily related to our acquisition of Purigen. Our cash, cash equivalents and available for sale securities as of June 30th, 2023 was 77.1 million. We have been and will continue to be proactive in identifying the best path to raising the capital we need. In Q2, we raised net proceeds of approximately $17.8 million on our ATM facility, selling 25.5 million shares at an average price of 72 cents per share. which on a split adjusted basis is 2.5 million shares at an average price of $7.15 per share. This capital is useful as it offsets a portion of our cash burn and extends our runway. We are maintaining our full year 2023 revenue guidance in the range of 35 to 38 million, and we expect Q3 revenue to be in the range of 8.8 to $9.2 million. Now I'll turn it back to Eric to wrap up. Eric?
spk06: Thank you, Chris. I want to look ahead at strategic milestones that we've outlined for the second half of 2023. We remain on track to meet our goal of installing 325 SAFIRE systems by the end of 2023, and we are pleased to share that BioNano Laboratories recently received its CAP accreditation, which validates the strict quality control standards for our lab and opens the door for collaboration with companies like pharmaceutical companies that require this level of quality system. We also completed enrollment of our prenatal study, which is on track and progressing successfully. We have a few major product advances planned that we believe are keys to continuing and potentially accelerating revenue growth and adoption. The first product, which will initially be available to select customers in the field with full release in 2024, is the ionic system, which will be compatible with isolation of ultra-high molecular weight DNA for OGM, offering an automated protocol using isotacrophoresis, and that will clear a significant bottleneck in the current workflow. The second is the high-throughput SAFIRE compute to go with the Stratus system, which is high-throughput itself. It's been developed in collaboration with NVIDIA. And finally, we will release a version of VIA software that will include an analytical workflow for constitutional genetic disorders. Continuing in 2023, we will focus on advancing our clinical studies in support of changing medical practice and clearing the path for reimbursement of OGM through clinical research and seeking FDA clearance to market optical genome mapping with clinical use claims. Overall, bringing a focus on cost controls together with commercial execution, data generation, Further evidence development and growing publications through our Elevate strategy, we believe we can succeed in delivering innovative genome analysis solutions to our customers while containing sustainable long-term value for stockholders. With that, Michelle, we are ready to take questions.
spk14: Thank you. If you have a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Jason McCarthy with Maxim Group. Your line is open. Please go ahead.
spk19: Hi, guys. Thanks for taking the questions. Eric, I want to get right to it from a financial aspect. Can you talk a little bit about the costs saving measures or kind of business streamlining that you're expecting? And Chris had mentioned that it should be taking effect relatively soon. And combined with the cash balance and any use of the ATM in the current quarter and where that cash runway gets you.
spk01: Yeah.
spk06: Thanks, Jason. Let me talk a little bit about the initiatives overall. And I'll ask Chris Stewart to comment on the cash and cash runway. But I think that the company is certainly aware of some of the shifts in capital markets environment towards the focus on cash burn, cash runway, and certainly emphasizing the need for companies to be more cash conservative. And as a result, we implemented a series of cost reductions and cost savings programs in May, and we expect those to play out over the future five quarters, including Q3, starting with Q3. And that will save us about $20 million, but we see that as basically a beginning. We have to operate much more carefully and strive to extend the cash runway as much as possible and remain opportunistic about sources of financing, including equity financing, but also non-dilutive financing options as well. And so we're actively evaluating those and pursuing them. I'll let Chris talk about where the $77 million on the balance sheet as of the end of Q2 and any additional financing activity so far in Q3, where that takes us. Chris?
spk18: Sure, yeah. As Eric said, we ended Q2 with $77 million in cash. During Q3, we continued to leverage the ATM, which is a great asset for us. Our trading volume allows us to participate and raise money without any discount through the ATM. In Q3 so far, we've raised over just shy of $13 million, about $12.7 million. And that gives us runway well into Q2 of 2024. So we're leveraging the ATM. We intend to know we need to raise additional capital, but the ATM is giving us some flexibility in terms of choosing our window and the timing of that raise.
spk19: Got it. And Eric, maybe you could talk a little bit about you know, how the company remains committed and on track with its timelines from a development and commercial strategy that was outlined at your investor day over the winter. I think it was earlier this year.
spk06: Yeah, in February. Sure. You know, I think that so we've been, you know, these product releases which were announced last This quarter, VIA and Stratis are major milestones for the company because we're introducing new capabilities for optical genome mapping in the market that open the capacity of optical genome mapping for high volume analysis. That's really the key. I think that the consumable is the highest margin component of the OGM workflow, and being able to enable labs to run higher volumes of it is financially beneficial, both on the top line and certainly supportive of the cash runway. And so these product launches we announced were very important. Looking ahead, when we look at the capabilities for isolating ultra-high molecular weight using isotacrophoresis, which is the proprietary product, technology we acquired through Purigen and that team is developing so we'll run on the ionic system. That's another key component of opening up the workflow for OGM to higher volumes and greater levels of utilization. And so we expect to have something in the field running in customer sites towards the end of this year and can be commercializing it early next year. And again, the reason that's important is that what we see is that labs are developing assays for optical genome mapping in their labs, and they're building full menus. And so the capacity that they need is increasing, and we're happy to be able to support it with the tools and technology. And so we remain on track for these milestones. And what we see is that the growth that we're experiencing has the potential to to even accelerate as these new capabilities are online. Similarly, the publications, the clinical trials are progressing, and this wave of publications that are starting to come out is what's really going to make these other barriers to adoption, such as reimbursement, really come down.
spk07: Great. Thank you, fellas. Thank you, Jason.
spk12: Thank you.
spk14: And one moment for our next question. Our next question is going to come from the line of Mark Massario with BTIG. Your line is open. Please go ahead.
spk02: Hey, guys. Thank you very much for the questions. Congrats on a strong quarter. I would love to ask about how the Stratus is going. Now, I believe you guys soft launched it. I'm curious if you have initiated the full rollout yet. Can you share any initial feedback? and perhaps how many stratus systems have gone out. And I would also be curious to know if you expect any near-term change in flow cells as a result of it.
spk06: Yeah. Thanks, Mark. And what I would say is that the response to stratus is very positive. And in many respects is validating our expectation that the market was seeking something which was capable of a higher throughput. I think we can say that also the response is exceeding our expectations. It's very enthusiastic. What we are doing in this initial period, which is between roughly now through the end of the year, getting about 10 systems into the market. And the reason that it's around 10 is that there's a bit of a supply constraint. So we'll be ramping manufacturing up during this second half of the year. And what I can tell you is that immediately upon announcement, almost all of the 10 were spoken for. And so we don't see any problem in having those systems come online and we expect to have a waiting list as the year progresses. And so we're super enthusiastic about it. And the other thing I want to point out is that the demand is global. So we're seeing European sites, North American sites in the United States and Canada, as well as China, all reaching for Stratus. With regard to the second part of your question, whether we expect that to have a meaningful impact on flow cells, I think that the patterns that we're seeing so far will continue to repeat. I wouldn't expect that curve to accelerate upwards yet, only because it's a few systems getting into the field. A laboratory brings the system in and takes it through an evaluation and validation process, which is relatively limited in terms of its volume. But we do, in the next few quarters, expect flow cells sold to increase as a result of labs having a higher capacity. And that will play out over the remaining quarters in the future.
spk02: That's great. My second question is, you know, the flow cell number really exceeded our expectations and, you know, obviously triple digit growth year over year, but the 35% sequential is quite surprising. Maybe, do you have visibility as to what these flow cells are being used on, like which projects? And are there any particular disease state areas that you could call out
spk06: Yes, so, you know, first of all, I want to sort of, you know, acknowledge and validate that that was a very strong quarter. And, you know, we've got to be mindful that, you know, there can be peaks and maybe lower peaks, you know, high peaks and lower peaks as this growth curve unfolds. But an outstanding quarter based on optical genome mapping demand, on a global basis, and we expect it to generally continue at this rate or similar. With regard to visibility into utilization, we don't have perfect visibility. Somewhere around 25 to 30 percent of our business is in pharma, and we know that those applications are generally cell and gene therapy, where they're using optical genome mapping as an alternative to karyotyping for analysis of target effects, looking for off-target effects in gene editing, and also for assessing genome integrity in cell therapy and manufacturing of batches of cells, therapeutic cells. But we don't know in detail what they're doing. But when we look across the cytogenetics labs that are adopting, I would say that utilization is probably two to one in favor of blood cancers. So leukemias, lymphomas, ALL, CLL, AML, ALL, and the list of critical... hematologic malignancies where the traditional methods that are used include karyotyping, fluorescence in situ hybridization, some arrays to look at large structural rearrangements. And what all of these labs tell us is that they use next generation sequencing to look at sequence variants, but no sequencing method comes close to optical genome mapping for looking at these large events. And when they put it to work in their labs, they find that somewhere in the neighborhood of 20% or so of research subjects that would be evaluated, for example, by looking at their risk, prognostic risk score, that somewhere around 20% of those research subjects have their prognostic risk reclassified when optical genome mapping is used. And so that's why we see so much utilization in hematologic malignancies.
spk02: Excellent. Last question for me. I know earlier this year you withdrew your Category 1 CPT code application in order to kind of pursue an LCD from Palmetto Moldex. I'd just be curious if you've had a chance since our last call if you've had any interactions with Palmetto, if you have any sense for timing, and my thinking is maybe year-end 24 at the earliest, but I would just be curious if you have any updates there.
spk06: Sure. I think that process is definitely progressing, and it's really a nationwide program working with multiple of the MACs, but just because of the significant role that Moldeax and Palmetto play. They're kind of the tip in the spear. And so we're interacting with them frequently, and we'll have some more formal discussions with them later in the year. And I would say that we're enthusiastic about the prospects for getting these determinations in place, but it's probably a little bit early to peg the timing. But, you know, your expectation is, is in line with what is kind of just the timeline for these types of projects. I also want to say that there is quite a bit of progress happening around labs getting reimbursement codes, and we're aware of other labs that are now talking about going after the Category 1 CPT code. generally believed to be a simpler process for a lab to seek the Category 1 code than a manufacturer because the labs really know the volume utilization. And so that process continues, and we remain bullish about there being a Category 1 CT code covering optical genome mapping. We're excited to see all the progress that individual labs are getting, and we know several labs that have PLA codes, and they're being routinely reimbursed for optical genome mapping assays.
spk08: Thank you, and one moment for our next question.
spk14: Our next question is going to come from the line of Sungjin Nam with Scotiabank. Your line is open. Please go ahead.
spk15: Hi. Thanks for taking the questions. Just one quick housekeeping, if you will, question for you guys. Could you remind us again kind of your exposure to the biopharma and market and also in China? You know, obviously those two are kind of have been significant headwinds for your larger peers this quarter. So just kind of curious what you guys are seeing. Thank you.
spk06: Yeah, I think it's a good question, and we have certainly seen certain projects in cell and gene therapy being impacted by programs that are slowing down, and so it's something that we're mindful of, but we reiterate our guidance for the full year, and our exposure to these projects I don't want to say it's limited because we have good adoption by pharma now and biotech but what we see is that these are really critical high-value projects that tend to get the investment needed to advance them and optical genome mapping is really being used as better alternative to work that they would be doing anyhow so I think that we have some insulation there with regard to China again you know China has made important contributions to the progress that we've made so far this year and was also important last year and the applications of optical genome mapping that we're seeing in China are related to uses for the same sorts of applications in the United States, namely hematologic malignancies, leukemias and lymphomas, and genetic diseases. Within genetic diseases, the focus in China is very strongly on maternal-fetal medicine and fertility applications. Those markets are very strong. I think where some of the headwinds are coming in China are more related to basic research, and we're more in the applied translational research side of it, and certainly commercial services that are being provided. That's been strong for us, and the degree to which China is factored into the guidance that we put out this year, we're reiterating that guidance of 35 to 38 million for the full year.
spk12: Thank you.
spk14: And one moment for our next question. Our next question comes from the line of Francois with Oppenheimer. Your line is open. Please go ahead.
spk13: Hi. This is Dan on for Frank. Congrats on the progress this quarter, and thanks for taking our questions. Firstly, could you talk about the criteria you're using in choosing these early sites where the 10 stratus systems would be deployed? Wondering what the criteria are there. Any color.
spk06: Yeah, sure. The focus is really on selecting sites which will benefit from the higher throughput that the stratus systems offer and I think that that's kind of the primary focus and then we certainly want to see them working in areas like hematologic malignancies and genetic diseases as opposed to basic research applications. And so that's where we're seeing the interest in the demand, and that's who the product has been designed for.
spk13: Great. Thanks for that. And a quick one from me. With regard to the strength of the peer-reviewed publications so far across indications, do you feel like you're getting closer to reaching that critical mass of data to start conversations with guideline bodies to make OGM first here?
spk06: Yes, we are. I mean, we're going to start to see what I would call consensus statements coming out into the field where groups of thought leaders have come together, evaluated existing published research, discussed it within groups, international groups, international consortium, and they're going to start writing these consensus statements which really make preliminary recommendations and then guidelines agencies will see those and begin their own evaluation and development of their own consensus statements and what I know is that these efforts are underway and have been making great progress. We still have some time before we see those consensus statements out in print, but they're coming. I would say that the work is done. So your point about the peer reviewed publications to date, very, very good progress, which has gotten a lot of data out and is enabling these statements to be put together. And so, you know, I think, I think we're, We're making great progress and I'm very happy with everything that has unfolded and we're starting really to turn the page towards, you know, in addition to data generation and publication, there's a synthesis of these consensus statements, which is the next key step. The other thing is that the consortia that have come together to evaluate these data include members of key guideline setting agencies, right? There's already involvement from these key agencies and so the progress is outstanding and it will continue. Having said that, we still have enrollment goals in our hematologic malignancy trial and we want to meet those goals this year and continue that progress and continue publishing those data.
spk13: Thanks for the color there. And a final one from me. Are you still expecting to have the dossier submitted for OGM coverage to Medicare in the second half?
spk06: Yes, that's part of what Mark Massaro was asking about our applications and work around local coverage determinations. And we're progressing and on track for that.
spk13: Great. Thanks for taking my questions, and congrats again.
spk06: Thank you. Thank you.
spk14: Thank you. And as a reminder, if you have a question at this time, please press star 1-1 on your telephone. Our next question comes from the line of Michael Oakenwich with Maxim Group. Your line is open. Please go ahead.
spk04: Hey, Eric, thank you for taking my questions, and congratulations on the progress this quarter. Thanks, Michael. So I guess to start off, I'd just like to follow up on Dan's question and see if you could talk a little bit about the nature of Stratus customers. Are you expecting Stratus to appeal to customers who already use OGM, the Sapphires, or would you anticipate that this appeals to accountants but have avoided it because Sapphire doesn't meet their needs in terms of throughput?
spk06: So I do expect there to be, you know, that's kind of a yes and a yes, but I really do want to emphasize the higher volume users who in some cases already do have a Sapphire, but it's for kind of evaluation as they really intend to bring the higher volume system on site. SAFIRE will continue to be available in the field and I think represent a key entry level OGM platform that sites can use for low to medium volumes and get outstanding, incredible results and really transform their workflows. Stratus just increases the capabilities by several folds. What we see already is that labs that are coming on board and raising their hand are labs that are running literally thousands of samples per year. That's the kind of business that I think we want to really see driving adoption and utilization of OGM. it simply wouldn't be really practical to have that many Sapphire systems installed in a lab. So Stratich is bridging that gap, and it's bringing in folks who have been following all the progress, the advancement around the data that's in the field and the proof, and saying, well, we want to have these value propositions playing out for our lab, community. And the only way to do that is to be able to offer something that's higher volume. And so that's really our principal target. And that's of course who we see bringing the system on board.
spk04: All right. Thank you for that. I'd like to follow up just on what steps you really need to take in order to bring status to that 13-fold data generation rate that you're targeting.
spk06: Well, to get there, it's a system and it's modular, right? So customers will be able to adopt Stratus, which is about a four-fold increase in throughput over what the Sapphire workflow delivers. And there are other ways. you know, sort of a trade-off between what is the bottleneck. Is it DNA isolation? Well, we're going to automate that with ITP on Ionic, right? So, you know, which sort of platform is the bottleneck in the system? But the degree to which somebody adopts Stratus, they're going to get about a four-fold increase in at least their data generation throughput. And our strategy to really increase their capabilities is to leverage mechanical systems that allow you to link multiple instruments together and have them operate modularly so that the collective number of systems increases throughput. And what's exciting about that is that the development that we need to do is really in working on the robotic system, not on the instrument. So the instrument is developed and I'm sure we'll continue to upgrade components to drive the manufacturing cost down over time. We've done that with Sapphire to enhance throughput by bringing in new components over time. But we don't have a lot of real invention required to achieve these higher levels of throughput. It's really a mechanical process of integrating multiple systems together using mechanical robotic systems. And so we see that as being relatively low risk and critical for continuing to enable the growth of optical genome mapping utilization.
spk04: All right, thank you. One more for me and I'll hop back into the queue. I'd like to see if you could talk a little bit about the complexity of applying VIA to different applications. How does a workflow differ for something like hemes versus genetic disease when talking about the VIA software?
spk06: Yeah, that's a very good question. And I think at some level, VIA is generic in that it can really be applied to any analysis of any genome variant. And what's so exciting and powerful about it is that extends from sequence variants, single nucleotide variants that would be detected by NGS all the way up through large chromosomal rearrangements and structural variants that only optical genome mapping is reliable at picking up. And so why is it that these releases are application specific? That comes into the interpretation. So if you detect a variant, what do you do with it? VIA, through its intelligence applications, allows you to, in an automated fashion, query the available data on that particular variant that's available in different knowledge bases, databases, publication databases, and so forth. And that allows you to really accelerate your interpretation. And so what we're doing, what we did first is we really optimized that process for hematologic malignancies. And we're now doing that for constitutional genetic disorders. And this process kind of illustrates something about structural variation analysis that people don't really you know, I would say are not that familiar with when it comes to sequence variants because, you know, sequencing's been around and, you know, robust for discovery for a long time. Next generation sequencing's been out and available for, you know, well over a decade now. And so the databases around sequence variants are well populated and it's easy to query variant calls in these databases. But when it comes to structural variants, the databases are not nearly as far along. And so it requires... some development and customization. The other piece that's critical is the reporting. And VIA, right out of the gate, provides incredibly customizable reports that laboratorians will integrate into their validated workloads, but now it's done in a way that it is really specific to the guidelines that are out there, such as those for National Comprehensive Cancer Network, World Health Organization, and others. And those are the sort of frameworks that these hematologic malignancy researchers will use to evaluate samples. And so we needed to integrate that capability into VIA. And similarly, constitutional genetic disorders has its own unique nuances around reporting and what laboratories are accustomed to delivering. And so there is some application customization when it comes to interpretation. and reporting.
spk09: All right. Thank you very much.
spk14: Thank you. And I'm showing no further questions at this time. And I'd like to hand the conference back over to Eric Homland for any further remarks.
spk06: Thank you, Michelle. And I want to thank everybody for joining today. And I want to emphasize that we are tremendously excited about the future of bio-nano and optical genome mapping. And we look forward to updating you on our Q3 call, which will be upcoming soon. So thank you and speak to you shortly.
spk14: This does conclude today's program. Thank you for participating. You may now disconnect.
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