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Edited Transcript of BNGO.OQ earnings conference call or presentation 5-Mar-20 9:30pm GMT

Q4 2019 Bionano Genomics Inc Earnings Call

SAN DIEGO Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Bionano Genomics Inc earnings conference call or presentation Thursday, March 5, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Robert Erik Holmlin

Bionano Genomics, Inc. - President, CEO & Director

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Conference Call Participants

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* Jason Wesly McCarthy

Maxim Group LLC, Research Division - Senior MD

* Ashley R. Robinson

LifeSci Advisors, LLC - MD

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Presentation

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Operator [1]

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Greetings. Welcome to the Bionano Genomics Fourth Quarter and Fiscal Year 2019 Conference Call. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Ashley Robinson from Investor Relations. Please go ahead.

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Ashley R. Robinson, LifeSci Advisors, LLC - MD [2]

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Thank you, operator, and good afternoon, everyone. Welcome to the Bionano Genomics Fourth Quarter and Year-End 2019 Financial Results Conference Call. Leading the call today will be Dr. Erik Holmlin, CEO of Bionano.

After the market closed today, Bionano issued a press release announcing its financial results for the fourth quarter and year-end 2019. A copy of the release can be found on the Investor Relations page of the company's website.

Before we begin, I would like to remind everyone that certain statements made during this conference call may contain forward-looking statements, including statements about our strategic and commercialization plans, 2020 sales pipeline, anticipated benefits of improvements to the Saphyr system and the advantages of the Saphyr system over current technologies, our expectations regarding timing and content of study results and anticipated benefits of these studies in driving adoption of the software system. Such forward-looking statements are based upon current expectations, and there can be no assurances that the results contemplated in these statements will be realized. Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in our press release and our other reports filed with the SEC.

These forward-looking statements are based on information available to Bionano today. And the company assumes no obligation to update statements as circumstances change. An audio recording and webcast replay for today's conference call will also be available online in the Investors section of the company's website. For the benefit of those who may be listening to the replay or archived webcast, this call will be -- this call was held and recorded on March 5, 2020.

And for reference, the webcast link provided in today's press release includes slides to accompany Erik's remarks.

With that, I'll turn the call over to Erik Holmlin. Erik?

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Robert Erik Holmlin, Bionano Genomics, Inc. - President, CEO & Director [3]

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Great. Thank you, Ashley, and good afternoon, everyone. I'm pleased to have you join us today for this update on our progress in the fourth quarter and over the course of 2019. After the remarks that I have prepared, we'll open the call for a question-and-answer session.

And as Ashley mentioned, there are some slides to accompany my remarks, and you can follow along with those slides by accessing them through the link to the webcast. So I will go over to the third slide in this presentation, and begin by saying that 2019 has been a year of significant progress for Bionano in the platform and it's really a very exciting time for us. We've had a record expansion in the installed base of our Saphyr instruments and the use of consumables by our end users has also been at all-time highs.

Importantly, 2019 was also a year in which our customers took the very first steps toward expanding their adoption beyond really the halls of academic research and into clinical applications for oncology, including solid and liquid tumors as well as inherited genetic diseases. We had a record number of publications with Bionano data. There were 80 of them. There were multiple presentations given at conferences and scientific meetings, describing very innovative, cutting-edge use of Saphyr for research.

And importantly, we've been completing validation studies that demonstrate the utility of Saphyr for an application in cytogenetics, we call digital cytogenetics. So I want to start, before I go into some of the detail regarding our progress by reminding everybody about the remarkable capabilities of our platform, the Saphyr system. It's the only system for genome analysis that is capable of an unbiased and genome wide analysis of structural variation and it does this with unparalleled sensitivities and false-positive rates that we believe are the lowest in the industry.

And what's important is that the performance that I'm describing for you extends to very complex samples. And so when a variance of interest is present in a heterogeneous sample like a tumor, for example, the Saphyr system is able to find that variant, even when the allele fraction is as low as 1%. Saphyr can now collect over 1,500x coverage of a human genome on 3 samples in parallel for a total of 15 tera base pairs of data on a single Saphyr chip. And we make this available to customers for less than $500 a sample. And so this is really a remarkable capability.

The ability to detect these structural variations with sensitivities reaching 99%, down to this 1% allele fraction enables our users to conduct comprehensive structural variation analysis throughout oncology, detect rare variants that may be responsible for genetic and inherited diseases as well as look at off-target effects that may be occurring during CRISPR-based gene editing.

We also have an upcoming sample prep kit for tissues that will allow scientists, for the first time, to isolate ultra-high molecular weight DNA in a workflow from solid tissue that's faster than the most standard DNA isolation methods. And so as the capabilities of Saphyr have advanced, our users are beginning to tackle increasingly complex problems in genomics as well as transitioning from the research setting into the clinical one. And so if we look at the fourth slide here, or the fifth slide, sorry, I want to describe a little bit about our target markets. We focus in 2 areas. One is the research arena, where our platform is intended to complement sequencing.

We're not asking anybody to stop doing sequencing, but we love it when they conduct genome analysis on Saphyr alongside sequencing. There are thousands of sequencers out there. And so the opportunity to place Saphyrs along them is significant. And the other area of interest for us is in what we call digital cytogenetics. So cytogenetics, and I'll describe a little bit more of it in a couple of slides, but this is an area where clinicians are analyzing patient samples, looking for genomic rearrangements that are not detectable easily by sequencing.

And so if we look on Slide 6, we describe a little bit of what cytogenetic analysis is. So we're looking for abnormalities in a genome that are not point mutations, but would be called translocations, insertions, deletions and other chromosomal rearrangements. And cytogenetics is a field of analysis and clinical testing that is designed to look for these types of genomic structural abnormalities, but not the sequence abnormalities. And it's important to know that next-generation sequencing, because of its short reads is not able to reliably detect these structural variations, and that creates a unique opportunity for Saphyr.

And so if we look at the seventh slide here, we see that sequencers, which are amazing for detecting point mutations are essentially blind to these large chromosomal rearrangements. They can be anywhere from hundreds of base pairs to millions of base pairs in size, and that's the sweet spot for the Saphyr system. And so Bionano and Saphyr are the only system capable of reliably detecting these structural variations, anywhere from a few hundred base pairs up to millions of base pairs in size.

So if we look at Slide 8, it describes for you our thinking about how cytogenetics will be adopted in this space. Today, traditionally, cytogenetics labs rely on 4 technologies: FISH or fluorescence in situ hybridization, karyotyping, microarrays and southern blot analysis to look at a variety of solid, liquid tumors as well as inherited diseases.

And the value proposition that Saphyr brings is that it's capable of consolidating all of the testing that would be done on these 4 different, cumbersome and expensive workflows into a single workflow. And so Saphyr is attractive to cytogenetics labs because it can replace 4 techniques with 1, the Saphyr workflow.

Now the opportunity on Slide 9 for establishing Saphyr as the digital cytogenetics platform is significant. There are 2,500 cytogenetics lab worldwide, processing some 2 million samples. And so if we're charging $500 per test for each of these applications and patient samples, that's a $1 billion market in cytogenetics adoption alone. And so that's why we're very focused on this opportunity.

Now over the course of 2019, on Slide 10, we've been planting the seeds for Saphyr to drive a wide -- a broad wave of adoption across cytogenetics as this replacement for the traditional methods. And so key catalysts for this conversions has included adoption by a variety of thought-leading sites, completion and publication of validation studies in various indications and laying the necessary groundwork for labs to obtain reimbursement through third-party payers for tests that they develop and run on the Saphyr system.

And so you can see a handful of the sites that have adopted Saphyr and are validating it for applications in hematologic malignancies, inherited diseases and other areas of cytogenetics, where they see Saphyr as a replacement for these traditional methods.

Now one of those labs, on Slide 11, PerkinElmer has developed an assay for a debilitating form of muscular dystrophy, FSHD. It's the second leading cause of muscular dystrophy, and PerkinElmer has developed an assay for FSHD based on the Saphyr system. In their validation studies, they found that Saphyr was 100% concordant with the traditional method southern blot and pulsed-field gel electrophoresis, as well as in comparison against multiple sites, there was 100% concordance there as well. And so this progress led PerkinElmer to release commercially this test based on the Saphyr system, and they're offering it to their global network of customers.

Now in addition to the work that PerkinElmer has done, we have a number of ongoing validation studies to prove that Saphyr is a replacement for the traditional methods in cytogenetics and that the workflow is more efficient and robust than what is currently being run.

And so on Slide 12, we summarized a handful of the sites and studies that are ongoing. We recently reported that Radboud University Medical Center in the Netherlands completed their study of 48 leukemia patients and demonstrated that Saphyr was 100% concordant with the existing standard of care, and that clears the path for them to convert their existing workflows over to Saphyr in due course.

And I wanted to point out, it's very important that no other technology has the ability to conduct the simultaneous type of assessment that Saphyr did, where at Radboud University, they looked at markers that would typically require at least 3 technologies, FISH, microarrays and karyotyping. They completed that analysis in a single assay on Saphyr. And no other technology has that capability. There's been no such demonstration in literature to date. And so this is a very powerful advance for us.

Cochin Hospital in France has a similar study that they've completed that's being written up for publication. And our North American study led by Dr. Brynn Levy at Columbia University is progressing. There had been a delay in enrollment, but that has now accelerated, and that study has more than 100 patients that have been enrolled and over 80 samples that have been tested to date, and so we expect that to be wrapped up and published very soon.

A second study in North America got underway this year at MD Anderson Cancer Center, where they are evaluating Saphyr for use in testing in their myelodysplastic syndrome workflow, and they expect to complete their enrollment in that study in the second quarter of this year. So the list of studies that have been presented and/or published describing Saphyr's ability to go beyond the standard of care is growing as well. So Saphyr's unique power includes the ability to consolidate the existing workflows in really a 4-for-1 trade but it also provides insight and information that goes well beyond that which any existing technology can assess.

And so some of the highlights of those studies that were presented included one completed and presented by scientists at Mass General Hospital, who were analyzing newborns with congenital diaphragmatic hernia in which they revealed a much more complex story for patients than was ever seen. Dr. Mark Ebbert from the Mayo Clinic presented his work in neurodegenerative diseases, where he demonstrated the ability of Saphyr to count the individual number of repeated domains in CR1, an important Alzheimer's associated gene. And this type of resolution is just simply impossible with any other genome analysis technique, especially sequencing. And so many other examples of work with Saphyr have been published this year, including the effects of HPV integration in head and neck cancers. Other studies of breast, ovarian and endometrial cancers as well as work in using Saphyr as a tool to screen patients considering pregnancy for infertility. And so we're very proud of all the incredible progress that we have seen in the market where we expect Saphyr to gain significant adoption. And we have seen a lot of progress in our financial results as well.

And so on Slide 13, I'm going to summarize some of the key highlights for us. First, regarding the shipments to customers. There were 11 Saphyrs shipped in the fourth quarter and 39 for the full year, which is a 22% increase over 2018. Now we spoke over the course of the year, how our business model was shifting a little bit from being one that was almost a 100% focused on capital sales to one where we saw more and more reagent rental deals. And so that does impact revenues because now the revenues are spread out over time, over the 3-year period, let's say, of a typical reagent rental. But what's important is that there has been significant growth in the installed base of the Saphyr system. As of December 31, 2019, there were 73 Saphyr systems installed worldwide.

Our revenues for the fourth quarter were $2.8 million and for the full year, $10.1 million. Consumables revenues, importantly, in the fourth quarter were $1.1 million, and that was a record for us. I think that's very important because it shows that the growth in the installed base is starting to drive utilization of Saphyr chips. And the reason that, that's so important is it begins to propagate the message of Saphyr utility throughout the market. And lastly, our cash as of December 31 was $17.3 million.

So overall, we saw tremendous progress over the course of the year, and we're thrilled with everything that we're seeing.

If we look on Slide 14, I summarize for you a number of validations that are currently underway and several disorders, cancer, constitutional diseases, different pediatric and development disorders as well as a class of disorders known as repeat expansion and deletion disorders, and we recently started a study in China tied to genetic origins of infectious disease susceptibility.

And so we expect these studies to progress and provide all sorts of demonstrations of utility of the Saphyr system, and we also expect other diagnostic labs to develop more laboratory developed tests in the U.S. and follow similar paths around the world in Europe as well as in the Asia Pacific region. And as a key revision to our existing go-to-market strategy, we have been taking steps to reduce barriers to adoption of Bionano by offering a commercial services program. And so if labs are unable to adopt a Saphyr system for any reason, we accept their samples and process them here in our labs at Bionano or through our network of certified contract service providers.

And so this approach provides a revenue stream, but importantly, it makes sure that anybody seeking to utilize Bionano data in their study or their project will be able to get it no matter what. And we've also committed to a program of expanding our Saphyr leasing and reagent rental deals. The reason that we're more and more open to this approach is that it shortens the amount of time that a customer goes from being technically sold on a Saphyr system to actually adopting it and operating it.

And this is crucial to -- a crucial time line to shorten because it accelerates the path to having Bionano data available in the market. And it's the awareness of Bionano, the trust and familiarity with us and the Saphyr system and the publication of those data that's going to drive mass adoption. So for us, it's a very exciting time. We're thrilled to see the progress. We're so grateful to the very top-tier thought-leading customers, who have adopted the Saphyr system and who are putting it through its paces as the platform that will drive the transition from traditional cytogenetic methods to the digital cytogenetics, as well as making it a go-to platform for novel discoveries and finding new therapeutic targets and novel diagnostic biomarker signatures.

And so with that, I will open up the call for Q&A. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Jason McCarthy of Maxim Group.

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Jason Wesly McCarthy, Maxim Group LLC, Research Division - Senior MD [2]

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Erik, just a couple of questions. So just first touching on the revenue, the 4Q revenue. Is it more of -- more representative of a shift in the commercial strategy to the lease rental versus buy with a large percent of your user base really, on the academic and research side is making it more amenable to them to have them placed on a lesser upfront payment, but then enticing them to use more of the consumables? And how is that going to impact revenue do you think or the number of Saphyr placements in 2020, particularly, now that grants have reset for the new year?

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Robert Erik Holmlin, Bionano Genomics, Inc. - President, CEO & Director [3]

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Sure. So with regard to the first question, I think the impact of the shift in model is felt on the revenue line. So what we would -- had in the past was that all of those 11 systems that went out, would have brought in revenues tied to a capital purchase. But that's not the case. In this quarter, there was a mix of deals that went out. And in fact, that was the case over the whole course of the year.

I do believe that over time, that will begin to settle out. But our approach to make this type of deal available to the market is really to accelerate the time that people go from being technically sold to utilizing because that's the most critical step for us. And as they utilize chips, that's the long-term profit driver for the company. And so we're comfortable taking that short-term hit, if you will, in the interest of long-term progress and acceptance of the data type. Secondly, with regard to -- on a go-forward basis, as we go more and more into the clinical arena, we see that this reagent rental model is very much the norm. And so I think that whether we had intended to make this transition or not, we would have made it because that's how these labs adopt systems.

And our distribution of academic research sites versus clinical is going to be more and more skewed toward clinical as we go forward. So I do think that there will be a reflection of that transition in 2020, but we do expect the installed base of Saphyrs to continue to grow. It grew 22% on a year-over-year basis, and we would expect that growth, maybe, even a little bit more in 2020.

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Jason Wesly McCarthy, Maxim Group LLC, Research Division - Senior MD [4]

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And then going over more on the data side, you had mentioned Mayo Clinic is involved with the blood cancer work, but also on the neurodegenerative disease side. When do you think, and maybe it's up to them, maybe it's not, would we see any updates or data or publications, because that space, particularly around some things like Alzheimer's in the last year, as you know, have become very, very, very active, once again, and we saw some high-profile sales and a lot of that may have been tied to initial diagnostics. How do you see the relationship with Mayo Clinic in the neurodegenerative disease playing out over the next year, maybe 2 years?

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Robert Erik Holmlin, Bionano Genomics, Inc. - President, CEO & Director [5]

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Yes. So importantly, there are multiple Mayo sites, and we're working with both of them. The Minnesota site, Rochester, Minnesota site is participating in our trials around hematologic malignancies. And the neurodegenerative work is being conducted in Jacksonville, Florida. And that's where Dr. Mark Ebbert is leading the program. And he has a very large study that is being designed, and he's seeking funding for that, of course, but I understand that, that process is progressing well.

And so once that study is designed, they will begin to process multiple hundreds of samples on the Saphyr system for the very specific aims that you cited, and that team is extremely excited about Saphyr and its utility and the data that he presented at ASHG were representative of the pilot study he conducted to justify the bigger study. And so for him, the justification is there and is a matter of kicking that study off.

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Jason Wesly McCarthy, Maxim Group LLC, Research Division - Senior MD [6]

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Just last real quick question. I feel like I have to ask it, just given the company's exposure to China and international markets or placing Saphyrs in business, is there any impact with what's happening with coronavirus?

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Robert Erik Holmlin, Bionano Genomics, Inc. - President, CEO & Director [7]

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Yes. I mean, I think that for most companies, they have felt a bit of a slowdown with regard to the China business overall, and we have seen that. Now as everybody should remember, our business is highly seasonal, and it's slow in Q1. And in fact, China business is almost always slow in Q1 because of the Lunar New Year, but we have experienced some friction in China that we believe to be due to coronavirus. However, our contacts there are progressing well, and we expect things to pick up. In addition to that, the opportunity to do research in key areas, including this disease susceptibility has manifested as a result of coronavirus. And so we're working with a number of hospitals and commercial service providers in China to support those studies.

And so in the long run, I think that there will be a benefit that we'll see as a result of this.

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Operator [8]

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This concludes the question-and-answer session. I will now turn the call back over to Erik Holmlin for closing remarks.

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Robert Erik Holmlin, Bionano Genomics, Inc. - President, CEO & Director [9]

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Great. Well, I want to thank everybody for dialing in. And we hope to speak to you again soon on our first quarter earnings call.

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Operator [10]

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This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.