Q2 2020 Bionano Genomics Inc Earnings Call
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Greetings and welcome to the bio not Autonomics Inc. second quarter 2020 conference call.
At this time, all participants Oh listen only mode. A question and answer session will follow the formal presentation, if you'd like to ask a question. Please press star one on your telephone keypad.
If any what's your acquire operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded.
Now my pleasure to introduce your host actually Robinson of Whiteside Pfizer's. Thank you. Please go ahead.
Thank you Donna and good afternoon, everyone welcome to the bound I know genomic second quarter financial results Conference call you didn't call today will be Dr., Eric Homeland CEO, Brian Eno after market close today, Brian Eno issued a press release announcing its financial results for the second quarter 2020, a copy of the release can be found on the Investor Relations page.
The company's website.
Well, we began I would like to remind everyone that certain statements made during this conference call maybe forward looking including statements about our strategic and commercialization plans 2020 sales pipeline anticipated benefits for improvements to the Sapphire system and the advantages of the Sapphire system public current technologies, our expectations regarding timing.
Content of study results 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 these results contemplated. These statements will be realized actual results may differ materially from such statements due to a number of factors and.
Some of which are identified in our press release and our other reports filed with the the FTC.
These forward looking statements are based on information available to Bayano today, and the company assumes no obligation to update statements circumstances change and audio recording and webcast replay for today's conference call will also be available online and the investor section of the company's website.
The benefit of those who maybe listening to the replay archived webcast. This call is held and recorded on August 13, 2020 with that I will turn the call overcame a common Eric.
Oh, Thank you Ashley and good afternoon, everyone I want to thank you for joining us today for this review of our second quarter results yet.
After my prepared marks remarks, we'll open the call for a given a session.
And I just want to say at the outset that we are really amazed and thrilled at the progress we see.
Around the globe in.
In connection with the adoption of Sapphire in its used for really groundbreaking work across genomics.
What we're seeing our papers published recently that are showing how bio nano can be apart, creating solutions such as potential treatments and vaccines for cobot 19, possibly even test used to manage the disease or patients with cobot 19, and all of this progress is happening amongst incredible advances that were.
Making in.
Driving sapphire to become the potential new standard insider genetic analysis for oncology and genetic diseases.
In the business, we're seeing an enthusiastic response to the new go to market strategy. We implemented earlier. This year. Our goal has been to make it easier than ever for clinicians and researchers to access bio down or data.
In a way that's going to enhance their understanding and utility of ourself our technology.
We see that we are gaining traction with significant increases in services projects consumable sales and reagent rental programs and system sales that taken together really grow the installed base of Sapphire systems around the world.
We are saying.
Increasing interest in the academic community amongst researchers who were continuing to publish.
Really groundbreaking research and findings that show using our system.
Advance their understanding of genomics. We're also seeing publications now that illustrate the acceptance of Sapphire by clinical researchers who are developing assays for cytogenetics, including in areas such as genetic diseases and hematology.
Gee oncology.
Back to very powerful papers were published in nature journals this quarter.
And they highlight how sapphire is important in cutting edge research one paper documented the largest study ever genetic disorder, using our technology to date in.
In this study researchers used.
Fire genome imaging technology to establish what are the largest and most.
Structurally accurate data sets of genome a analysis for a cohort of the second children.
And their parents.
And a study did George syndrome, which is the most common disease amongst the classic genetic diseases called micro deletion syndrome.
And I I can't emphasize enough how incredibly complex. This region of the human genome is and should be able to reach the level of resolution that the researchers did in their work is really groundbreaking and that ability to resolve such complex regions of the G. Human genome has.
Has implications across all areas of genome research and clinical applications of genomics, including understanding.
The genome variance the drive diseases.
And these results can all potentially play central rule roles in the development of new medicines.
And diagnostic tests.
The other paper that was noteworthy in nature. This quarter was one that was.
Particularly topical.
And it highlights how bio nano data combined with other and I don't analysis methods can help find.
Vaccines treatments and diagnostic test for Cobot 19.
This work is related to how researchers used bio nanos genome energy technology to build what we call a reference quality genome and in this case the application of that work was on batch species actually six.
Different that species and of course, the bat is remarkably timely and the work has been ongoing but it's implication is remarkably significant now because it can help explain the ability that bad path to tolerate viral infections.
And it may play a role and understanding how.
There can be a transmission of viral disease from bat species to humans and even potentially lead to other areas of development of new vaccines and treatments.
[noise] a significant shift in our go to market strategy has been toward a reagent rental program.
Take a this model continues to increase in all geographies.
And new sites, which were previously in accessible with our instrument sale only model are now adopting sapphire through this reagent rental program and they are making large consumable commitments, we have announced some of these key adoptions already with the.
National Health system in the UK Medical College of Wisconsin University of Iowa, South Korea, you Onsite University hospital among several others. These are all adopting installing ourself our system for the digital cytogenetic applications.
Now turning to our second quarter commercial results. The revenues were 1.2 million for the quarter, which were weaker than the same period of the last of last year of $2.2 million, but.
That's mainly due to the impact of coded which has continued to impact many states and businesses, including our current and potential customers. Nevertheless, this level of performance was consistent with our expectations going into the quarter and so we see that as a as a significant accomplishment under that circumstance.
This is while many regions of the U.S. remain.
Nearly shut down or operating at a significantly lower pace than normal we have seen a significant recovery of our business in Europe.
And during this third quarter, we believed that the.
Worst of the impact of the pandemic may be behind us.
Now the number of Sapphire systems that were shipped to customers continues to be significant.
So far as were shipped this quarter, one of which was a straight instruments sale in five were reagent rental commitments.
And the second second quarter of last year eight systems were sold so considering the pressure that pandemic, especially in the second quarter, while where the effects were felt most dramatically.
The expansion of the number of Sapphire is adopted is extremely positive.
Since the commercial launch of Sapphire in February 2017 through the end of the second quarter of 2020.
There were a total of 87 SAP our systems that had been installed.
And there are 19.
That we're awaiting installation as of the end of the second quarter.
Now as we discussed on our first quarter call. We have added a commercial services component to our product offerings. We have done so as a way to serve customers who are either unable to operate sapphires already in their lab work on able to adopt a sapphire for any reason.
In a favorable response from the market, we have seen tremendous uptake of our services program. When we spoke about this quite a bit a few weeks ago. When we are on discussing the first quarter results, but so far on a year to date basis.
We have run nearly 500 samples 493 samples year to date.
And what's important about that is when we compare it to the same period last year, we had run just to 212 samples and so.
The response or increase in service projects and samples that we're processing really reflects an increasing awareness and acceptance of our data type and its benefits and we believe that.
Offering the community. This service is option will increase that data in the field, even more and serve as a basis of continuous education of the market as to the power of Sapphire and bio nano data.
[noise] consumables sold on a per sample basis were up 189%.
In the second quarter 2020, compared to the second quarter of 2019.
In this quarter chip sales resulted in the sale up.
1421 flow cells, and that's a that's a per sample equivalent and that's compared to just 490 flow sell sold in the same period last year now our focus on driving sapphire adoption through sales of consumables in the form of reagent rental programs and.
Our focus on driving utilization in the growing installed base.
He is clearly working the consumables business is expected to be more profitable overtime.
And it is anticipated to be the primary driver our of our business. We believe that this large increase in data generated on SAP, our systems will yield wider and wider visibility.
Our capabilities and drive acceptance of our data type and its value.
So these are exciting results and we're very pleased with them and we believe that at risk reflects significant momentum.
Even in a relatively tough quarter around the world.
And now that's where the breakdown of these revenues the $1.2 million were comprised of 229000 instrument sales 711000 in consumable sales and 242000 and services and other and the cost of revenues for the quarter was 603.
<unk> thousand which reflects a 49% gross margin for the second quarter of 2020.
And that can be compared to a cost of sales of one point sixmillion for a 28% gross margin for the same period a year ago.
Now this increase in gross margin is notable.
And it really reflects a shift toward the increase in consumables as part of our overall product mix and that is really by design more consumables brings and.
More gross margin for the company.
And it brings more bio nano data into the field.
Our work in supporting Kobin Research has also.
Deepened this quarter as the search for a solution to the virus continues on a global basis bio nanos Sapphire systems capable of providing solutions that researchers are facing.
When a virus elicits different responses to patients who otherwise have similar risk profiles.
And we believe that analyzing the structural variation of the genome can help lead researchers and investigators to solve these challenges and we believe the staff our system, which is being utilized as the part.
Several major initiatives around the globe will lead the way in structural variation analysis.
[noise], that's something I Wanna mention in particular, and it's something that Weve.
Announced to the field and we're very proud of and.
Except extremely excited to be a part of and that is the cobot 19 host genome structural variation consortium, which was started by Dr. Rob E. coli at Augusta University.
The state admission of this consortium is to look for the structural variations in or near genes that play a role and infection as well as the jeans connected to the immune response among many other factors of the host response.
And the hope is to explain the variation, we see and disease severity and progression.
And this project is getting underway there have been about 30 samples run today, but the goal is to map 1000 genomes on Sapphire systems in sites around the world.
So far preliminary results have yielded some promising insights, but we all recognize there's very still very much to be learned and progress continues.
The consortium has been growing it includes more than 50 participating institutions and they have joined forces with the consortium in Germany at the University of Hanover, and so there's a truly global team coming together here and.
Investigating structural variations role in the host responds to covert 19.
In addition to that important consortium, we have a.
Significant research project underway in China, we've talked about that recently as well and while that was the first project that we had actually set up in established access an ability to process samples was something that was tightly controlled in China and we have continued to work through the logistics, but that's study.
We add Grand don't mix, which is a bio nano service provider.
In Recon has expanded it now includes another center in Shanghai, and we are now processing. The initial samples there and that research program continues to go.
At a much quicker pace than originally.
After it was it was first forms.
Now the urgency to find a solution has led to this incredible rise and testing and response globally and.
Yeah, we feel honored to be a part of these these programs, but I would also note that they are.
Making contributions to the health of the business and so while many researchers and have seen their projects have to be put on hold.
As focuses on coded 19 testing have taken over.
Cobot 19 research, especially in regard to the host response is now something that is picking up and so hopefully it can fill a gap that has formed a.
I want to turn the page and now begin to look at various activities that are ongoing designed to validate sapphire as a replacement for traditional cytogenetic and genetic disease testing remember Sapphire offers the offers the opportunity to consolidate.
Three and and even for traditional methods into a single asset.
Running on our platform those assets are karyotyping.
Fluorescence instead you hybridization.
Chromosomal microarray is and southern block analysis.
And we have seen multiple presentations at scientific conferences over the course of this whole year and it has continued even in a challenging second quarter. Those conferences include the European Society of human genetics.
Do cancer genomics consortium.
And others and those presentations that had been made including the webinars and so forth that had been.
Out there had been demonstrating that sapphire is 100% concordant when its compared to its ability to find the clinically relevant structural variations that standard cytogenetic methods fine and this concordance is so important because it gives confidence to cytogenetics laboratories, who are seeking to streamline their work.
Flows.
And replace those traditional methods with a much more digital approach that sapphire offers and streamlined and faster. This concordance gives them confidence to do that.
And European consortium led by Lyla L. cuts hobby from the co Shan Hospital in Paris, France, and Alexander Voice yen, who we've spoken about in the past who is at the right about University Medical center and the Netherlands.
Published data.
From the first very extensive validation of sapphire for constitutional genetic disorders, and they too along with studies that have been done and published in hematology oncology. This study.
It was the first publication, showing 100% concordance with standard cytogenetics and constitutional genetic diseases and so when you think of Sapphire adoption throughout the cytogenetic community. We're now seeing the validation hematology oncology, which is a significant market and that is being extended to constitutional genetic test.
Orders and so this progress is really remarkably significant and these papers.
Even described the resolution of clinical cases of long standing.
Otherwise undiagnosed diseases and.
This is really important because we all know that the standard of care of testing is.
Fairly antiquated relatively cumbersome to practice and so sapphire streamline that but are not only streamlined that sapphire is better because it allows for the resolution of diseases that would not typically BP picked up in diagnose using those traditional methods and this is this is happening.
And leukemia.
Where we're finding novel fusion proteins. These novel novel fusion events that could lead to fusion protein expression, which could be druggable targets and we're seeing this and other areas of genetic diseases as well.
And so the impact of these results on our business moving forward really should not be over looked our own internal data has long convinced us that sapphire cannot just replace but it can't or improve upon the three major cytogenetic testing methods, but these public published in public publicly presented results now.
I show.
That we have an independent clinical validation of Sapphire and it's beginning to build this critical mass of evidence in cytogenetic communities in Europe.
And in North America, where we are expecting a publication imminently following the great presentation.
From the Columbia team.
Recently on their study.
And so we are really witness, saying, what we believed to be a pretty sudden change in the perception of sapphire as a tool for cytogenetic analysis, what we're seeing as adoption by Sapphire and what we consider to be.
Very very short period of time relative to our typical sales cycle and that's just a reflection of the increase in validation and increase in exception to.
The decisions are now being made based on.
More and more on the publish results and they don't require us to run demo studies as much internally.
And so this is this is really a reflection of that that increasing acceptance of the technology and what we're hopeful for is that translates into a ever improvement in the decrease in shortening of our sales cycle.
And so I want I mentioned a few other.
Key financial metrics for example in the second quarter operating expenses had increased by about $550000 to $8 million compared to $7.5 million last year folks should remember that we have had a fairly significant increase in sales and marketing as we have.
Really increased our focus on driving the adoption of Sapphire as well as the support teams that are required to a system and this growth in this.
This is a relatively modest increase in expenses, because it's been offset by salary reductions that we implemented temporarily starting in April of 2020, as well as a decrease in decree discretionary spending another other costs as of June 30.
With our cash was $17.2 million add as as noted in our save the date press release since the end of the second quarter through August 12, we have received about $14 million in cash pursuant to warrant exercises and so.
So we believe that our current cash and cash equivalents are.
Sufficient to fund the company's operations.
Well into the first quarter of 2021.
Now if you're following our filings today, you will see that we have filed a universal shelf registration statement on form S. Three and that it includes an aftermarket sales perspectives.
And these filings should not be interpreted as a reflection of any imminent financing.
Rather we believe that it's prudent to end good cord corporate practice to have our house in order and to be in a position to raise financing when the need as a rises.
And so in closing I would say that we are extremely encouraged by the results that we are seeing Q2 has been a difficult quarter.
Around the globe in our business in another business and despite those challenges our teams.
Have been incredibly focused on driving the company forward.
Our customers have been very responsive to our focus on getting the message out about bio nano and have supported us in a number of online then used to create awareness and understanding of our data tight.
These events have been attended by record numbers of.
Participants.
And these are all in connection to our efforts to establish sapphire as.
A potential new standard and cytogenetic testing.
And we believed that this will lead to staff are replacing.
Traditional genome analysis methods, and assuring and really a new era of abroad.
Accessible reliable structural variation analysis that can create new drug targets.
Leading to new medicines, new diagnostic biomarker signatures, leading to new pathways for patient management.
As well as a complete understanding throughout nature, including such important projects like the bat genome Assembly project as well as the first tila merits of Teal Amir Assembly of the X chromosome.
And so with that I would like to open up the call for Q in a operator.
Thank you Sir the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.
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Our first question is coming from Kevin indicator of Oppenheimer. Please go ahead.
Hey, guys have thanks, sorry question, Eric appreciate the really thorough update.
A few things.
Yes, I appreciate the disclosure with regard to flow chips, I think said about 1200 in the quarter Thats still overwhelmingly research or you begin to see some pull through from.
Cytogenetics customers I suppose it related question is.
Do you always have kind of visibility as to whether or not to customers.
Using this first sort of a research project versus for side it.
Yeah, Yeah, we we are pretty good visibility because we're engaged in the selling process and so there's a pretty deep discussion as to the applications I would I would underscore for everybody. Following along in for you or that the Sapphire is is for research use only and not for diagnostic purposes and so.
Labs will develop it and develop clinical diagnostic assays on at which they offer as laboratory developed tests.
Or an in accordance with whatever their regional regulatory requirements are such as throughout Europe, but when a customer intends to develop clinical assets on the system. We're generally aware of that what I will tell you is that at least half of the flow cells. I think it was about 1400.
Or so flow cells that were sold in the quarter at least half of those are going to sites that are developing assays that they intend to apply a in a clinical setting many of those assay development projects and.
You know adoptions are our or through the reagent rental program, which is sort of predicated on a on a a volume of ships.
Upfront.
But the at least half are going towards these.
Assay development projects.
No that's I'm very positive, it's good to hear and fewer to.
You know kind of characterize.
Uptake for some of this you use potentially in the clinical setting.
You know in Europe versus you asked are you seeing any geographic variation in terms of uptake for applications outside of the research traditional research.
Well, we do and.
You know.
We are Yahoo would be difficult to disentangle be remarkably complex sort of macro environment that we're in right now, but the facts are that Europe.
Is really accelerated in its adoption of Sapphire for these these types of cytogenetic oriented applications and.
No one would need to disentangle, whether that's a reflection only of Europe's relatively.
Regressive state regarding a.
Exit from from pandemic.
Down versus that here in the United States.
Or is it something structural about the European.
Economic health economic system, I think both of those things are playing a role here and it will take some time for it to play out but the facts are that Europe is really doing incredibly well and showing really leadership at least in our company around adopting this cutting edge technology.
Right now and maybe one last one for me that I'll get back into care and that is the yes service rather than you did see what's it looks like a nice sequential uptick which I think is consistent with what some of US hope you have we would say.
You know with their new commercial model, but if we think about that.
240000 give or take revenue.
That is that a base that we should think about is continuing to grow through.
The balance of the year or were there.
Specific service contracts, perhaps a large more one off contracts into kid. It may not make that representative of a trend in service revenue.
No I believe that I believe that this is you know a reflection of what to expect overall and within that services and other revenue Yeah. I would note that there are some other things such as.
No revenues tied to warranty and so service warranty service contract.
So, but but so I do believe that that's not dominated by every single.
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Great listen thanks for taking my questions have actually a pretty nice quarter. Thank you.
Q.
Ladies and gentlemen that a star one if you have additional questions.
Kevin we are coming back to you for any additional questions that you have.
Okay, I actually just had maybe one more and it is sort of largely a housekeeping item in that so you know as you think about a you've really kind of cleaned up the capital structure here. It looks like in fact converted kinda over half of the warrants that were.
You know outstanding Yeah.
We've kind of a little bit more balance sheet flexibility are there certain.
Oh, good or letting it spending cuts that you mentioned kind of salary reductions other items.
Yeah may look to reverse here in the near term or should we think about you know the operating expense structure, yes as reported in Twoq, who is being the baseline for the balance here.
[noise] or what we have we have.
First out the salary reductions.
And so that's that's certainly a portion of the.
[noise] relative benefit even though we were up on a year over year basis, we might have been up more.
The salary reductions weren't in place.
So we have reverse those out but.
[laughter] fairly limited.
Traveling expense.
Costs overall and laboratory work in headquarters is focused primarily on those services projects were able to this in product development, but it's not as much as as we would have been doing a year ago. So some discretionary spending remains relatively.
Down on a year over year basis. So.
It's probably somewhere in between.
And then just lastly from me, Yes, you did mention any upcoming publication, yeah from a very visible a consortium that I think you know many folks figure in the U.S. Yeah. Do you view is kind of thought leaders and decided to AG space and my question is sort of for you.
Yes potential U.S. cider Jack's related business.
Do you think that publication is important to drive.
Potential customer engagement or is there a sense from you know and the data presented at a number of meetings actually over the last 612 months that.
Yes, Sapphire works in that.
Hi, there for side Adaptix, and yeah publications sort of validating that it works.
Yeah may not be is important and driving.
Okay.
Visions.
Well I would say that we are certainly buoyed by the results that are coming from these.
Studies in publications in Europe, we have had the for example, the the Columbia OLED study has been presented and we've been able to show those results are phenomenal results on a percent concordance in that study.
And the publication is.
This proximal and as you know with with publications there they get on timelines that are fairly unpredictable, but theres no there's no.
The reason for the delay other than publications are on a unpredictable timeline, but the results are very positive. So we're buoyed by the study.
The there that are in Europe, but I will say that.
Because of.
You know overall differences in just the structure of approaching.
Clinical testing workflows.
Studies done conducted in and published out of United States based laboratories are also going to be.
Needed and very important in play a significant role and it won't be just one there are several that are ongoing and.
One is great, but there needs to be a critical mass and so that's really something that we're deeply focused on.
Great well, thanks for taking all my questions.
You're welcome.
Thank you. Our next question is coming from Jason Mccarthy of Maxim Group. Please go ahead.
Everyone. Thanks for taking my question on a day on the line or for Jason just looking beyond carbon nine team I'm, just given the fact that tumor heterogeneity.
The central impediment to get therapy in many cancer indication do you see.
To stop the Sapphire platform.
Playing more of an increasingly central role and drug research on.
Becoming an increasingly larger revenue stream.
Yes, I believed that our ability to see adoption by.
Drug developing firms such as pharmaceutical companies biotech companies and the partners that served.
CR Roes for example, we expect that to improve and there have been.
Improvements in enhancements in our product portfolio that will help drive that including the release of a solid tissue DNA isolation kit because that can be directed to solid tumor research. So our product portfolio is rounding out there.
When you couple that with Sapphire is remarkable ability to see.
The pathogenic events, even if they're president and extremely low abundance.
It means you have a very powerful system and data tied to uncover novel events that may be that that that may be druggable targets and so it is our expectation that pharma research you know initially in a in a basic research setting but eventually.
As part of clinical trial enrollment.
And other forms of patient testing will continue to be something that is that as a significant opportunity for us.
Great. Thanks for the additional clarity.
Thank you this brings us at the end of our question and answer session I would like to turn the floor back over to Mr. homerun for closing comments.
[noise] thinking about <unk> very much operator, I want to thank everybody, who has joined the call and.
I wish you all the very best and we're excited about the future of Sapphire in our progress within buyer nano. So thank you very much.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines.
At this time and have a wonderful day.
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