Bionano Genomics, Inc. (NASDAQ:BNGO) Q2 2022 Results Conference Call August 4, 2022 4:30 PM ET
Company Participants
Amy Conrad – Investor Relations
Erik Holmlin – Chief Executive Officer
Christopher Stewart – Chief Financial Officer
Conference Call Participants
Michael Okunewitch – Maxim Group
Operator
Good day and welcome to the Bionano Genomics’ Second Quarter 2022 Earnings Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Amy Conrad from Investor Relations. Please go ahead.
Amy Conrad
Thank you, Victor and good afternoon, everyone. Welcome to the Bionano Genomics’ Second Quarter 2022 Financial Results Conference Call. Leading the call today is Dr. Erik Holmlin, the CEO of Bionano. He is 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 2022. A copy of the press 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 revenue outlook, strategic and commercialization plans, anticipated benefits or improvements to Bionano’s products, including the Saphyr System and NxClinical software, anticipated milestones for 2022 including progress on ELEVATE! And each pillar of ELEVATE!, advantages of the Saphyr System over current technologies and Bionano’s expectations regarding study results and anticipated benefits of these studies 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 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.
In addition, to supplement Bionano’s financial results recorded in accordance with U.S. Generally Accepted Accounting Principles or GAAP, the Company is reporting non-GAAP operating expense. This non-GAAP financial measure is 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, has no standardized meaning prescribed by GAAP and is not prepared under any comprehensive set of accounting rules or principles.
A description of non-GAAP operating expense and reconciliation of non-GAAP operating expense to GAAP operating expense 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. An audio recording and webcast replay for today’s conference call will also be available online on the Company’s Investor Relations page.
With that, I will turn the call over to Erik.
Erik Holmlin
Thanks Amy, and thanks everyone for joining the call today. We had an outstanding second quarter, and Chris and I are excited to talk to you about our key results and analysis for the quarter. And we also want to continue the deeper discussion of our growth strategy ELEVATE!, which we began on our last call.
But first I would like to talk about what we view as an absolutely spectacular publication on Optical Genome Mapping or OGM, which appeared in the peer review journal leukemia, on Monday. It describes a study that was conducted by leading oncologists and gene pathologist in which they used Optical Genome Mapping and Next Generation Sequencing or NGS to determine the complete array of single nucleotide variants and structural variants for 101 subjects, that had been diagnosed with Myelodysplastic Syndrome or MDS, which is a hematologic malignancy that affects bones, blood cell production.
Now the results show that when Optical Genome Mapping was used instead of karyotyping that 28% of the subjects in the study had either a different prognostic risk score or additional structural variations that were not found by karyotyping or both.
And when the results of an 81 gene NGS panel and those of Optical Genome Mapping were combined, the findings indicated that at least one clinically significant colonel abnormality was found in 97 out of the 101 subjects.
This research demonstrates that, among the modalities tested Optical Genome Mapping and next generation sequencing taken together, provide the most comprehensive set of genome variants for MDS analysis in this study, and therefore suggest the potential for a new standard inside genetic and molecular analysis for malignancies altogether.
Now I would like to talk a little bit about the second quarter results and Chris will go into some more detail about them. Total revenue for the quarter was $6.7 million, which is another record for us and represents growth of 73% over the revenues from the second quarter in 2021.
We sold 3,394 flow cells in the second quarter, which represents 24% growth over the second quarter of 2021. And we analyzed 373 samples in our laboratories, which represents 96% growth over Q2 2021. Finally, we ended the quarter with an installed base of 196 Saphyr Systems, which represents 62% growth over the 121 systems installed at the end of the second quarter of 2021.
Now, at this point, I would like to turn the call over to Chris, so he can go a little deeper into the financials for the second quarter. And after Chris’s remarks, I will discuss our growth strategy ELEVATE!, and provide some updates across its five strategic pillars. Chris.
Christopher Stewart
Thanks, Erik. The second quarter of 2022 was another outstanding quarter for Bionano. As Erik mentioned, we recorded significant year-over-year revenue growth and continued growth in the installed base of our Saphyr OGM systems.
We believe this reflects the building excitement in the market about the capabilities of OGM that is driving the momentum we are seeing. We couldn’t be more pleased with the execution our team demonstrated, despite the ongoing headwinds in the overall market. And we remain on-track to achieve our full-year 2022 revenue and instrument placement guidance.
Revenue in the second quarter of 2022 was $6.7 million, representing an increase of 73% over the second quarter of 2021 and our highest quarterly revenue to-date. We came in above our previous guidance range of $6.0 million to $6.5 million for the quarter, mainly due to stronger than expected instrument sales in Europe and China and improved reimbursement in our clinical services business.
Our gross margin in the second quarter came in at 22%, compared to 37% in the second quarter of 2021 and 15% in the first quarter of 2022. As we have mentioned previously, the year-on-year decrease was primarily due to low yields on our chip consumables produced at one of our contract manufacturers. We are making good progress on improving yields and we expect to see continued improvement in our gross margins in coming quarters.
Second quarter 2022 GAAP operating expense was $33.6 million, compared to $17.9 million in the second quarter of the prior year. Q2 22 non-GAAP operating expense was $26.4 million, compared to [$15.1] (Ph) million in the second quarter of 2021. Q2 2022 non-GAAP operating expense, excludes $5.8 million in stock-based compensation and $1.4 million in amortization of purchased intangibles.
The year-over-year increase in OpEx was primarily due to increased headcount related spending, increased R&D expense and increased marketing expenses. Our capitalization remains strong, with $187.3 million in cash, cash equivalents and available for sale securities as a June 30, 2022.
And as I mentioned, in the beginning of my remarks, we are on-track to achieve our full-year revenue guidance in the range of 24 million to 27 million. We expect Q3 revenue to be in the range of 6.7 million to $7.1 million.
With that, I will turn the call back over Erik.
Erik Holmlin
Great. Thank you, Chris and great job. In addition to a generally improving macro environment in our target markets, we believe our ELEVATE! strategy is working well. The Optical Genome Mapping story is continuing to build, showing that not only can OGM be a powerful tool for identifying structural variants, but then when combined with next generation sequencing, the two methods have the potential to address a number of challenges that cytogenetic and molecular pathology labs have been facing from decades.
I would like to spend the remainder of the call discussing our growth strategy, which we call ELEVATE! by drilling down into its strategic pillars and highlighting some of the key progress we have made.
The first pillar is expanding the commercial traction and validating Optical Genome Mapping with Saphyr. Our goal for OGM is for it to become a standard tool used routinely for genomic applications in clinical, research and industrial settings. To meet that goal, we need labs using OGM and talking about it. We believe expanding the installed base of our Saphyr System gets that done.
This quarter, we grew the install base to 196 systems, which puts us on-track to hit our year-end goal of 240. And the addition of 20 systems in the second quarter is 67% higher than the 12 systems that were added in the first quarter of 2022.
We believe the growing number of labs around the world with Saphyr Systems is creating a community of OGM users that can help propel the methodology forward through their presentations and publications and workshops and advocacy throughout Consortia and medical policy working groups.
During the second quarter of 2022 OGM was part of the agenda and content at a number of conference events across the United States and Europe. We saw our first Spanish Optical Genome Mapping user group meeting with over 100 participants co-hosted by Jose Carreras Institute and Hospital Del Mar in Barcelona. We have eight Saphyr Systems installed in Spain and we are starting to see momentum there and believe others across Europe are watching closely.
With all of the growth in installed base and the additional utilization that happens with it. There is more OGM data in the world. Those data get presented at meetings and eventually published. And we are really happy with the number of papers that have come out year-to-date.
We appear to be on-track to beat the number of 184 papers published last year, but something that really stands out to us in 2022 so far is the significant shift in the distribution of topics contained within these publications. Over the course of 2021, about 60% of papers that were published, covered non-human applications of OGM and 40% covered human applications.
Well, that picture has flipped in a year and so now when we look at 2022 publications today, it is actually 60% human. It is a really significant shift in the overall focus of OGM, much lower towards human translational and human clinical research. And what we believe is that this shift is significant because we believe that these areas will drive more consumables utilization in the long run.
And I also want to make a comment about what looking at publications really means publications are a leading indication, leading indicator of future potential adoption. But they are a lagging indicator of the work that was happening at the time that they were published.
So this picture that we are seeing now probably represents the distribution of utilization that is been happening over the last couple of years. And so when we think about the future, that distribution is going to shift a lot more towards human because that is where Optical Genome Mapping is being adopted today.
Now the second pillar of ELEVATE! is to delight our customers with robust products. We strive to learn from our customers and what might be done to improve the Saphyr System. Our product development pipeline currently includes a number of products that are designed to either simplify the Optical Genome Mapping workflow, make it faster, or make it perform better.
One exciting advance was the announcement in June of the Long String VANTAGE System by us and Hamilton. This product would be the first the world’s first walkaway automation solution for ultra high molecular weight DNA extraction, we expect it to significantly reduced time to results for OGM reduced hands on time, and to improve OGM performance by standardizing the process connected to the DNA isolation.
We have additional products planned for release later this year, including updates to our DNA isolation protocols and to our labeling chemistries, as well as the integration of Optical Genome Mapping data into our MS clinical software platform. We believe all of these products will be transformative for our workflow and truly delight customers.
Now the third pillar centers on clearing the path for reimbursement of Optical Genome Mapping and changing medical practice to include Optical Genome Mapping into Medical Society guidelines.
Our labs in San Diego, which are part of the Bionano labs business, which also includes Lineagen is planning to develop Laboratory Developed Tests or LDTs for optical genome mapping in genetic disorders, and hematologic malignancies.
We are working towards clear certification and plan to begin releasing LDTs once that process is completed later this year. We believe that these LDTs can help us work with third-party payers to obtain coverage for Optical Genome Mapping assays.
The path to reimbursement of LDTs by payers requires several key steps. We believe that, an important step is obtaining a category one CPT code. In the first quarter of this year, we submitted our application for a category one CPT code for OGM.
We have received helpful feedback on the application, which was that firstly, the American Medical Association would like us to resubmit the application and break it into two separate codes, one code for genetic disorder testing and one code for cancer. And I would like to add that this is how codes for other solutions like micro arrays and sequencing have gone through the process.
Secondly, they are looking to see more peer reviewed publications on Optical Genome Mapping, which is why we are so excited about publications, like the one I talked about coming from MD Anderson and specifically they are looking for more publications that are coming from U.S. sites as well as additional adoption of Optical Genome Mapping.
And so, based on that feedback, which we thought was very constructive and positive, we decided to withdraw the application, while we addressed these points. And we plan to resubmit the application in early 2023.
Now, while we were hopeful that we could get the code approved on this first attempt, we understand that it is very common in this process for it to take more than one round of applications.
And in the meantime, we know of labs with LDTs that are based on OGM that have attained so-called PLA codes or Proprietary Laboratory Analysis codes, and they are now going through the process of establishing pricing for these codes. And we know of other labs that are using existing CPT codes and getting reimbursed for them. So, this process will continue and be ongoing for us.
Now to achieve change in medical practice, by getting Optical Genome Mapping included into medical guideline, it is clear that, we need data on thousands of samples showing the benefits of Optical Genome Mapping over standard-of-care. And we are actively building that data and have been through our family of clinical studies.
We believe that the results of these studies are compelling that they could provide sufficient evidence to support Optical Genome Mapping being incorporated into medical society recommendations and guidelines, which would make adoption of Optical Genome Mapping, even easier for labs that are following guidelines very closely.
We have been making great progress in these clinical studies throughout the first half of 2022. As you may know, they are directed at four major areas, pre and postnatal genetic analysis, hematologic malignancies, which includes leukemias and lymphomas and solid tumors.
Now these are designed to demonstrate utility optical genome as an to traditional cytogenomics methods by evaluating these primary endpoint. Number one is concordance with standard-of-care and there is a lot of evidence that has been demonstrating this concordance, but we are hopeful that these studies will demonstrate that through close to a 1,000 thousand patients in each of the arms.
Number two is to increase the success rates for finding pathogenic variants. And so, what we know is that traditionally, and laboratories practicing cytogenetics 50% or more of the time, samples are returned with no findings of pathogenic events. And so if we can improve upon that we think that it is going to be an important factor and inclusion in these guidelines.
Thirdly, we are evaluating the health economic impact of Optical Genome Mapping. We know that it streamlines workflows and we believe that that streamlining process reduces costs. But we will also look at the efficiency of performing Optical Genome Mapping and its success rates compared to other platforms and technologies that are in use routinely.
And fourth, we will be looking at the potential for revising protocols for patient management. And that type of outcome is something that was measured in the MD Anderson study. And so we know that we have the potential to make significant progress there. Now, three of the four studies in our portfolio are underway. And the fourth, which will cover solid tumors will begin initially, in the fourth quarter of this year.
Two key milestones that were anticipated and previously announced for the second half of 2022 are to complete our postnatal study, and start the interim publication on our prenatal study. And we believe we are on-track with both of those anticipated milestones.
Now, the fourth pillar of ELEVATE! is to advance our product to support higher market adoption and entry into new markets. We have been working on new products, two very important ones. One is a version of our NX clinical software, which was developed by biodiscovery. And our new version will integrate Optical Genome Mapping alongside the other data types that are in use today.
And I can tell you that when we have been talking about this capability at conferences, including a very productive meeting we had recently at the Cancer Genomics Consortium annual meeting, that users see this single view for data analysis as being something that has a lot of power for them and so they are very excited about it.
We have been making progress with the software. It has begun and evaluation process with our clinical team. As they use it, to start analyzing their clinical studies data. We expect that team’s feedback to propel additional development in this release of software. And we believe that that release is on-track for the end of this year.
Another very significant product that we are working on is the next generation version of our Saphyr System. We are pleased with the progress on this system that we have made so far and we look forward to placing pre-commercial version of that platform by the end of this year.
In addition to the higher throughput that that system offers, it will include random sample access that should allow for short turnaround time or STAT processing, and the ability to scale from one to six systems working in unison, which would bring about another dramatic increase in throughput overall.
We also expect that to be part of an integrated workflow with automation of sample preparation and this new version of the NxClinical software. So our product development pipeline is robust. And there are a number of catalysts that will be released into the market going forward.
And finally, the fifth pillar of ELEVATE!, we are focused on making software a strategic driver of our business. In addition to working on integrating Optical Genome Mapping within NxClinical, the software itself is a very powerful platform that can be used in a broad array of genomic applications, even if it doesn’t involve Optical Genome Mapping, such as applications with microarrays or next generation sequencing.
In fact, we believe anyone using microarrays or whole genome sequencing or NGS panels would benefit from using NxClinical software for a number of applications, including detection of copy number variations and their analysis together with the analysis of single nucleotide variants.
We also believe many of these labs will have an interest in OGM and in Q1 we launched a version of NxClinical with an integrated genomic scar analysis for Homologous Recombination Deficiency or HRD.
And this feature provides comprehensive, consistent and automated analysis of biomarkers from NGS as well as microarray. And in fact, we will be able to determine EHR use scores using OGM as well. And all of this will help clinical researchers stratified therapeutic responses across multiple tumor types.
And so what I hope you will see is that this software platform is something that can really open doors independently of its ability to analyze Optical Genome Mapping data. And we see that as a driver of future growth for Bionano.
And so in closing, I want to reiterate that we are really excited about our continued growth in 2022. As I mentioned earlier, we are on-track with all of our outlined ELEVATE! milestones, and we look forward to updating you on our progress going forward. We would also like to share that we are in the early stages of planning for an investor event that we will hold in the first quarter of 2023 and there will be more information to come about that.
So with that operator, I would like to turn it over to you and open the floor to questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Jason McCarthy from Maxim Group. Your line is open.
Michael Okunewitch
Hey guys. This is Michael Okunewitch on the line. Thank you for taking question and congrats for the quarter. So first, I guess I wanted to touch a bit more on the data from that M.D. Anderson Study and if you could talk about what sort of variants were detected by Saphyr that were missed by – and how having this new information could potentially or did in the study changed physician treatment decisions?
Erik Holmlin
Yes. It is pretty darn interesting and I like that you picked up on it because, I mean, M.D. Anderson is just a household brand name in cancer. And so, when these researchers take on a project, they do it knowing that there will be an expectation of significant impact. And I think this study is really compelling on a number of different levels.
And so, some of the results that we called out and talked about are connected to really the workflow in analyzing MBS patients, which as you know and I want to say to everybody who is listening in can be thought of as really a kind of pre-leukemia. And so the chances of a good outcome, if MBS is caught early and properly stratified are good.
And so, what Dr. Shamanna Kanagal showed in this paper was that when they used karyotyping, they were able to classify patients according to what medical guidelines recommended into risk categories. So called prognostic risk categories. Low, medium and high and there are some finer grades to that risk stratification.
And they compared that prognostic risk score or stratification when karyotyping was used to the score that they obtained when Optical Genome Mapping was used. And there are a couple of different scoring systems that exist in the community, one is CCSS abbreviated, one is IPSS.
And remarkably for one of those scoring systems, 21% of the study subjects had a different prognostic score, when OGM was used compared to when karyotyping was used and for one of the other scoring systems, 17% of study subjects had a different score.
And so, think about what that means. Your oncologist thinks that, you have MDS and is trying to figure out how to manage you and they rely heavily on these risk scores. And so, when the standard-of-care is used, you get one risk score or when Optical Genome Mapping is used, you get another one.
Now importantly, these researchers rigorously used orthogonal methods to confirm that all of the findings by OGM were validated and accurate. And so, it means that the standard-of-care is lumping people into these risk categories incorrectly, which in turns means that, they are not being treated or managed correctly.
And so, I can’t really think of a more impactful finding for OGM. And if it was one patient out of a of 100, or something like that, that would still be noteworthy. But we are talking about up to 20%. Now, in addition to those – or up to 21%, actually.
So in addition to those 21%, there is another segment of patients for whom additional structural variants were identified that again, the traditional methods did not pick up and I think that that number was also significant like about 13% of patients. So when you add all of the unique study subjects together who had findings that were different from the standard-of-care that adds up to 28%.
So it just means that 28% patients in this study certainly and maybe you might extend that to others. But certainly this study showed that for 28% of subjects, the standard-of-care is not giving the same answer as OGM, and it is reasonable to conclude that the OGM answer is the correct answer based on the rigorous validation that was conducted. I think that that is pretty earth shattering and significant.
Michael Okunewitch
Yes, certainly a profound result. As a follow-up, but let’s shift gears just ask about, you mentioned improving macro factors for the business. You expand a bit on what you mean by this is largely COVID related stuff or are there other factors at play here?
Erik Holmlin
Yes. I mean, so we talked during the first quarter about that we are able to install, grow the install base by 12 systems in the first quarter and that we had some systems waiting to be installed. And we felt that one of the factors that might have been giving us a little bit of headwind there, we knew was COVID, and some of the staffing shortages.
And so, we have seen access to labs improve in general. But there are a number of factors that there are broader, including supply chain shortages and COVID overall, that are still in play. But our access to laboratories has opened up and that has allowed us to get back to, I think, a more typical cadence. We grew the number of – the growth of the install base was 67%, higher in the second quarter than it was in the first quarter. So access to labs help that.
Michael Okunewitch
Great. thank you very much and just one more, if you don’t mind. I wanted to ask about the health economic analyses in your clinical program and simply how important those are when talking about securing reimbursement and not just for Bionano, but also for some of the third-party LDTs. Many of the developers of those as you mentioned, currently have PLA codes and are looking into pricing. Could you just comment on that a bit?
Erik Holmlin
Yes. I mean health economic analysis is kind of a standard endpoint, in driving guidelines. And so I know that these clinical studies that we are conducting are going to benefit the process of clearing the path for reimbursement.
But I do want to be clear that their design is really intended to provide the evidence necessary for the key opinion leaders and others who are involved in these medical societies to really develop recommendations and integrate Optical Genome Mapping into the standard of care and we are hopeful that one day it would become a first year platform that is recommended for use.
But, health economic factors will also play into the stance that payers take in terms of how they cover the assay. And a number of factors connected to broader adoption of Optical Genome Mapping.
Now, with regard to labs that are seeking coverage and reimbursement for their PLA codes, this is something that they conduct on their own. And we don’t get directly involved in it. Because as you know, Optical Genome Mapping with the Saphyr System is – this is a research use only platform.
But what I know about that process is that it tends to follow gap filling. And so the labs will work out a detailed cost analysis of what it takes them to perform to generate the test result, including the cost of reagents and instruments, but really the all-in fully burdened cost. And so that is going to have a large factor in the crosswalk process and the pricing of these PLA codes.
And I know that that process is ongoing for labs, and I expect that we will be hearing more about it. I would like to say that it is going to happen this year, and I believe it will, but we don’t have a definitive sense of that timeline, so we are not going so far as to commit to anything like that and it is really out of our hands.
But health economic factors were really influenced the guidelines. And they can begin to drive value based pricing, PLA codes will be priced in a crosswalk process.
Michael Okunewitch
Alright. Thank you very much. I really appreciate the additional color.
Christopher Stewart
Thank you.
Operator
Thank you. And I’m not showing any further questions in the queue. I would like to turn the call back over to Eric for any closing remarks.
Erik Holmlin
Well, thank you Victor and thank you to everyone who joined the call. We look forward to updating everyone on our Q3 results.
Operator
And this concludes the conference call for today. Thank you for participating. You may now disconnect. Everyone have a great day.
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