Bionano Genomics, Inc.

Good day and welcome to the Bionana Third Quarter 2024 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.

Thank you, Operator, and good afternoon, everyone. Welcome to the Bionana Third Quarter 2024 Financial Results Conference Call. Leading the call today is Dr. Eric Holman, CEO and Principal Financial Officer of Bionano. And he is joined by Mark Adamczyk, Bionano's Vice President of Accounting and Principal Accounting Officer. After market today, Bionano issued a press release announcing its financial results for the third quarter 2024. A copy of the release can be found on the investor relations page of the company's website. Bionano expects to file its form 10Q no later than 5.30 p.m. Eastern Time tomorrow, November 14th. Certain statements made during this conference call may be forward-looking statements, including statements about BioNano's revenue outlook, profitability, cash runway, cost savings initiatives, and commercialization and product plans. Such statements are based on 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 risks and factors, 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, November 13, 2024. 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 reports certain non-GAAP financial measures. A description of these non-GAAP financial measures, as well as a reconciliation to the nearest GAAP financial measures, are included at the end of the company's earnings release issued earlier today, which has been posted on the investor relations page of the company's website. These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. It should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP, have no standardized meeting prescribed by GAAP, and are not prepared under any comprehensive set of accounting rules or principles. An audio recording and webcast replay for today's conference call will be available online on the company's investor relations page. With that, I would like to turn the call over to Eric. Please go ahead.

Oh, thank you, David, and good afternoon, everyone. I'm pleased to provide you all with an update on the third quarter of 2024. as well as a report on our ongoing efforts to position BioNano to be more cash efficient while still driving the advancement of optical genome mapping for routine use in cytogenetics, as well as our software business. In May of 2023, we began to systematically lower operating expenses and cash burn by reducing headcount, then discontinuing non-core products and services, scaling back certain development initiatives, and shifting our strategic focus toward driving utilization of consumables across our customers who use or plan to use optical genome mapping on a routine basis, which is a group we estimate to be about 150 customers. Since then, our headcount has come down from around 426 employees in May of 2023 to 125 as of September 30, 2024, which we further expect to come down to less than 100 employees entering 2025. In September of 2024, to further reduce expenses and cash burn, we implemented a shift in the go-to-market strategy that went away from heavy spending on growth of the OGM install base in any geography to a focus on conserving cash and concentrating on those customers who use their SAFIRE and Stratus systems routinely in cytogenomics. We estimate that during the six to seven trailing quarters, we have reduced non-GAAP operating expenses by approximately $100 million on an annualized basis and reduced the cash needed to reach profitability substantially. The transition in operating and go-to-market strategies is not without challenges. The results in this recorder reflect the transition the operation is undergoing, which is resulting in several one-time charges that affect the P&L and the balance sheet. Overall, these are transitory non-cash charges that we don't anticipate seeing again at this magnitude. Although this transition is not without its challenges, we are learning how to operate within a streamlined team and pleased to see the signs of stability across the business, including a return to growth in consumable sales, in particular in connection with sales of OGM consumables to customers using it routinely as a replacement for karyotyping and fish, especially in analysis of hematological malignancies, constitutional genetic diseases, and for analysis in bioprocessing applications, such as cell and gene therapy. Now, changing the slide and taking a look at key results for the third quarter, revenue was $6.1 million, which importantly comprises 6.6 million in sales of core products and softwares, which is in line with our pre-announcement, but is then offset by $500,000 because of a write-down of age receivables that is tied to our discontinued clinical services product. Q3 2024 overall represents a 35% year over year decrease compared to the same period of 2023, but keep in mind that this decrease includes a 29% reduction in revenues tied to the discontinued clinical services products alone. The remaining 6% decrease is driven by the shift away from instrument sales, both in the China market as previously discussed, but also as a result of some system sales in other regions that were delayed relative to our expectations. The OGM install base grew to 368 systems during the quarter, which represents a net increase of 67 systems during the last year and 22% growth over the install base of 301 systems at the end of the third quarter of 2023. Overall, the rate of the increase of installed base is slowing, and that is a direct result of our shift in go-to-market strategy and cost-saving initiatives. We sold 7,835 flow cells in Q3 2024, which represents a 27% increase from the 6,176 flow cells sold in the same period last year. Looking into the results a bit more, we view this as a key metric as we drive increased utilization from the existing customers who are running optical genome mapping routinely. Sales of flow cells in the second quarter of 2024 relative to Q2 2023 were flat. And so we believe this return to growth we're seeing in this quarter is an important sign that our focus on growing utilization within this current installed base is working. Going on to the next slide, some of the key highlights in other areas of the business include publications that keep growing. With 83 publications in the third quarter, The total publications grew by 12% compared to the same period in 2023. The total number of clinical research subjects covered in publications year-to-date has grown by 82% from the same period in 2023. We believe publications and the overall critical mass of published data to be a reflection of not only the ongoing expansion and utilization of optical genome mapping, but potentially a leading indicator for increases in adoption and utilization going forward as global acceptance increases based on the proof sources in the scientific literature. Our clinical studies program is focused on advancing our trial and hematological malignancies and supporting continuing publication and presentation of data. The programs are being led by key sites that participated in the creation of the trials and enables them to continue without as much of a cost burden on BioNano. In fact, related to the heme trial, in a preliminary readout from the arm of this trial looking at the impact and the decision impact and health economic impact of OGM versus traditional methods, Dr. Michael Phillips from Harvard Medical School presented some interim results at the Cancer Genomics Consortium meeting in St. Louis last August. The data showed in those results that optical genome mapping detected pathogenic findings in 42 percent of cases that were otherwise negative when they were evaluated by the current standard of care testing, and OGM results yielded a turnaround time of just four days at a lower cost compared to karyotyping alone and clearly lower than the standard combination of karyotyping and FISH. Initiatives in support of reimbursement of optical genome mapping by insurance companies and other third-party payers are progressing. As we previously reported, a Category 1 CPT code was established by the American Medical Association in June of this year with the descriptor of cytogenomic genome-wide analysis for hematologic malignancies to evaluate structural variations and copy number of variations using optical genome mapping. Now, newly established Codes are sent annually from the AMA to the Center for Medicare and Medicaid Services, or CMS, for pricing and listing on the clinical lab fee schedule for the following year. Preliminary prices for new codes were published September 25, 2024, and we expect the final pricing to be established by the end of November or early December this year. which means that beginning in January of 2025, labs will be able to bill for their use of optical genome mapping using this new code, which is 81195. Now, we have continued to ship commercial production units of the Stratus system, and we are continuing to see good demand for Stratus system in our focus geographies of Europe, U.S., Canada, and Israel. Customers are working through the differences between SAFIRE and Stratus, and we're learning how to support the Stratus system effectively, which is the way it works when a completely new instrument, consumable, and computational system enters the market. Even though our commercial shift places less of an emphasis on growing the installed base, we are focused on externalization amongst routine users with higher sample volume, and customers recognize that Stratus addresses their higher throughput needs. Regarding key financial metrics, the third quarter 2024 GAAP operating expense was $35.5 million, and non-GAAP operating expense was $16.1 million, which reflect decreases of 69% and 49% respectively from the third quarter of 2023. Operating cash burn in the quarter was approximately $14 million, a 46% reduction compared to the approximately $26 million in the prior year, and a 33% reduction compared to the approximately $21 million in the second quarter of These results are really important as they reflect the success of our ongoing efforts to reduce expenses and cash burn. We expect operating expense to reduce further into 2025 as a result of actions taken in September of 2024. Our cash and cash equivalents and available for sale securities as of September 30th, 2024 were 23.4 million, of which $11.4 million was subject to certain restrictions. Now, GAAP gross margin for the third quarter was actually negative 139% compared to 30% during the third quarter of 2023, and non-GAAP gross margin was 26% compared to 32% in the same quarter last year. This large negative gap gross margin was driven by $9.8 million in one-time charges that are flowing through cost of goods sold and related to the fact that we have shifted our focus away from driving systems into the field and we therefore no longer value the spare parts and other inventory items that we had previously in inventory at the same level. We've also taken charges for some rented systems in the field that remain installed but have not kept up with their committed reagent purchase levels. So both GAAP and non-GAAP margin were impacted by also the $500,000 write-off in revenues related to AIDS receivables from clinical services. On the next slide, we summarize some of the financing activity in the third quarter and subsequently. We have completed two registered direct offerings and raised capital with our ATM. In July, we completed a registered direct offering with upfront gross proceeds to the company of $10 million and a concurrent placement of clinical milestone-linked Series A and Series B warrants. The warrants have potential additional gross proceeds of up to $20 million upon the cash exercise at an exercise price of 57 cents per share. The Series A and Series B warrants are subject to stockholder approval and we will be convening a special meeting of stockholders on November 27th, 2024 in connection with the warrants. In October, we raised $3 million in gross proceeds in another registered direct offering, this one with Series C and Series D warrants that could add an additional $6 million in gross proceeds upon exercise at an exercise price of 30 cents per share. The October warrants are also subject to shareholder approval. Moving on to the next slide and looking ahead to the fourth quarter, and remainder of the year, our focus is very clear. We're driving the adoption of VIA software for analysis of optical genome mapping across routine use sites as we believe adoption and utilization of VIA enables customers to expand utilization and therefore purchase more consumables. We are leveraging this existing customer base and install base to increase utilization and importantly add new assays to their menu, so additional applications of optical genome mapping beyond what they have initially been running. We are maintaining our focus on driving the initiatives for optical genome mapping reimbursement. We talked about the CPT code, which was established and pricing is underway, but we have also sought coverage determinations from Medicare administrative contractors, such as Moldex. And we are working to improve the gross margin profile by reducing the cost of goods sold and our efforts to increase sample pull-through will also improve gross margin. With regard to guidance for the fourth quarter and full year, we expect Q4 revenues to be in the range of $6 to $7 million. We expect the OGM install base to reach 370 to 380 systems, and our full year revenues based on the Q4 guidance would then be in the range of $28 to $30 million. We understand that we may be seeing slower growth in the adoption and expansion of OGM as a result of these expense reductions, but we believe that cash preservation and reaching profitability are more important targets than growth at any cost. So in closing, our results this quarter reflect improving momentum for optical genome mapping utilization with the gross and flow cells sold, despite overall revenues, which have come in a little bit lighter than expected. Our disciplined approach to reducing operating expenses and cash burn has been challenging, but it's necessary to preserve the value of optical genome mapping that's being brought to labs around the world and impacting their clients who they're using it for. I'm very proud of our team's determination, grit, and perseverance as we prepare for these new opportunities and challenges in the future. And with that, operator, please open up the line for questions.