Q3 2021 Bionano Genomics Inc Earnings Call

November 4, 2021

Okay.

Good day and welcome to the bio nano genomics third quarter 2021 earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Amy Conrad from Investor Relations. Please go ahead.

Thank you Michelle.

Hey, good afternoon, everyone welcome to the bio nano genetics third quarter 2021 financial results Conference call.

Leading the call today is Dr. Eric Homeland CEO of bio nano.

He is joined by Chris Stewart, CFO of bio nano and rich Chippy C D O bio nano.

After market closed today I have now issued a press release announcing its financial results for the third quarter of 2021.

A copy of the release can be found on the Investor Relations page of the company's website.

I would like to remind everyone that certain statements made during this conference call maybe forward looking including statements about our strategic and commercialization plans.

<unk> pipeline anticipated benefits or improvements to the Sapphire system.

Dissipated milestones for 2021, and the advantages of the Sapphire system over current technologies.

The anticipated benefits of the acquisition of Bayou discovery.

Expectations regarding timing and content of study results and anticipated benefits of these studies in driving adoption of the Sapphire 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 bio and in its press release and bio Nanos reports filed with the SEC.

These forward looking statements are based on information available to bio nano 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 Companys website with that I will turn the call over to Eric.

Thank you Amy and good afternoon, everyone. We're happy to be here with you today to recap what turned out to be a very busy and productive third quarter.

We believe the momentum that is being driven here is tremendous as we head into this last quarter of 2021.

I'll start off today's call I want to have rich Shippy review with you. Our recent acquisition of Bayou Discovery. This was an important strategic transaction that allows us to accelerate the integration of optical genome mapping or Oh G M and next generation sequencing data with our optics.

Genome mapping workflow.

The addition of Bayou discovery is expected to advance our capabilities is the genomics data solutions provider by adding what is really a best in class analysis interpretation and visualization platform for reporting genomics data.

As a result of the acquisition, we believe we become.

The first and only company to provide truly comprehensive genome analysis solutions that you.

Utilize the optical genome mapping with our Sapphire system and the industry, leading platform agnostic software from Bayou discovery, which transforms bio nano from being the structural variation company into a broad.

Genomics data solutions provider.

And really opens up new opportunities for us.

And so now I will turn the call over to rich, our Chief business Officer to review the Bayou Discovery transaction rich Thanks, Eric and good afternoon, everyone with the acquisition of Bayou Discovery, we are now able to accelerate our efforts to make ODM ubiquitous by simplifying the assessment of clinically relevant variance.

Genomics applications, reducing interpretation time per sample and expanding our research our reach into the discovery and translational research markets, where the combination of next generation sequencing and ODM can reveal more answers and genetic disease and cancer.

And the key to making these big ideas successful stemmed from software.

In particular, the right software acting as a critical interface to solve complex cytogenetics workflow problems.

We plan to utilize bio discovery software to integrate ODM with Ngls and micro data for broader applications, which we believe will accelerate the adoption of our sapphire product.

We expect the true beneficiaries to be the researchers and clinicians who teach who should see improvements in your ability to get the answers they need in a seamless and reliable manner.

In terms of the integration of the buyers got re business into bio in animals, we are making great progress and officially closed the transaction.

We expect the launch of the commercially available version of Nx clinical software that users.

Can visualize interpret annotate and report all classes of structural variance, including absence of heterozygosity.

The initial integration with our Sapphire platform as planned to launch in 2022.

Full integration will be designed to support the evaluation of additional data types and potentially incorporate gene expression and methylation data, which we're really excited about now.

Now I'll turn the call back over to Eric to review the Q3 numbers here.

Thanks, Rich in the third quarter of 2021, we've continued to perform very well and in fact, we recorded the best overall quarter ever in the history of the company and so we're obviously very excited about that and we think it's due to not only the amazing capabilities that we have with optical.

Genome mapping and the amazing product, but the incredible effort that all of our teams have put in too.

Pushing us forward. So total revenue for the quarter was $4 $7 million, which is up 112% versus the same period in 2020, we had great performance in many areas of execution, including seeing customers develop a laboratory developed test based on optical.

Mapping and obtaining accreditation for Sapphire based laboratory developed tests as well as expanding our menu.

To include protocols for isolation of ultra high molecular weight DNA from prenatal samples such as MTO sites add C.

Cvs.

And this allows us to apply optical genome mapping and our users to various applications in prenatal analysis that.

Now we've continued to build out the commercial team and I want to welcome these folks to bio nano.

And we're very excited to have them onboard because what we're doing is preparing to to scale commercially and I want to welcome onboard Amanda let men, who is the vice president of global customer experience Amanda Hernandez, who is the vice president of global sales training and development.

Justin Layton, who is VP and general manager of the lineage M business, Bob Hudson Berg, who is our North American sales director and then announced just today, Stephanie Hoyle, who is our vice president of global corporate marketing and <unk>, who is our vice president strategic.

Product marketing and now these people come to us from amazing companies across multiple industries and I. Thank them choosing to join bio nano and the path that we are on reflects not only the progress that we've made but the incredible opportunity that we have out in front of us and we believe they will drive additional grow.

For our business as we expand across many geographic locations and certainly not last but not least we want to welcome so he'll share them too as the new Chief Informatics Officer, and previously was the Chief Executive Officer of Bio discovery and so we're really.

Rounding out key people across the commercial and development areas of the organization and that's going to be key to growth going forward.

Want to talk a little bit about the sapphire installed base and utilization, we had a record quarter for sapphire system installations and shipments sapphire installations in the quarter brought the total installed base to 141 Sapphire is installed as of September 32021.

We shipped 24 Sapphire systems during the quarter.

You can compare that to 11 systems that were shipped in the same period in 2020 and 13 systems that were shipped just last quarter and we believe we're on track to reach our goal or even exceed the goal of a 150 Sapphire systems installed worldwide by the end of 2021.

We sold 3969 nano channel array flow sellers during the third quarter. This is the highest.

Number of flow cells that we've sold in any quarter ever.

Now please keep in mind that the flow cell is the unit consumable.

For one human genome and so more flow cells that are being sold.

Into the field leads to more utilization and more data to support the value proposition of optical genome not being an increase awareness of its utility.

So the 3969.

<unk> represents 122% growth over the same period third quarter of 2020.

Finally in our services lab.

<unk>, we analyzed 390 samples during the quarter ending September 32021, and we can compare that to the same period, a year ago, which was 84 samples and so.

These numbers of samples that are coming in for analysis are often tied to projects that are happening in the field either in connection with potentially a new sapphire adoption, but certainly new customers coming to learn about optical genome mapping for the first time, so when we see growth.

And samples that are being analyzed we know that that's going to turn into more awareness of optical genome mapping in its capability and so that's an exciting leading indicator regarding innovation. We've continued to improve optical genome mapping with sapphire, making it easier faster and more cost effective to operate and so we hit.

A key goal for the quarter, which was to develop assays that could be.

Be used in prenatal applications that require isolation of ultra high molecular weight DNA from amnio sites and Cvs samples.

These assets support both fresh cultures and cryo preserve cells.

This expands the markets that we can serve for optical genome mapping.

We updated our software and we have incredible new capabilities that have been released.

Recently that are going to expand capabilities of.

Data analysis and data interpretation and of course, we've added the Bayou discovery Nx clinical and Nexus copy number capabilities to our offering.

Our project to build a next generation Sapphire is also on track and we anticipate completing the first prototype system for that platform by the end of this year.

Regarding the proliferation of data that validate optical genome mapping and outright and its incredible scope of utility we announced the publication of the largest clinical research study to date in the which was published in the journal of molecular diagnostics for a rare muscle disease Sshd in that study 300.

Third 51 patients were analyzed and we're very pleased to see the outcomes that the authors found they demonstrated that optical genome mapping provided data more quickly.

Accurately and more reproducible than the current gold standard method of southern block.

And so these findings really support the rationale for opting adopting optical genome mapping as an alternative to traditional methods and also underscore the economic value of the more efficient workflow. We believe that that's going to support labs in the future that adopted and seek.

<unk> from third party payers and we would also note that the applications of.

H D analysis have high interest from biotech and pharma, where drugs for rare diseases are being developed and those protocols often require analysis for fsh D. So this is an important publication in important advancement, we announced that new probe global which is a <unk>.

<unk> diagnostics leader adopted sapphire to be adopted to be integrated into there.

Quantitative applicant sequencing and blocker displacement amplification technologies for R&D efforts and the effort to improve reproductive health and liquid biopsy. So this is an important adoption for us and we expect that to drive new applications and utilization.

We had the largest presence to date at the annual cancer Genomics consortium meeting, which was held in August of this year. It featured 10 presentations by Sapphire customers and bio nano highlighting the benefits of optical genome mapping for clinical research applications in a variety of air.

He is importantly, including solid tumor analysis hematologic malignancies products of conception, pre and post Natal constitutional genetics and others. The attendance at the event was significant with over 400 participants globally.

And in another meeting our customers presented 11.

Posters and talks at the European Society of human genetics, or <unk> meeting, which was held in late August.

Now turning to publications.

There had been 132 optical genome mapping publications year to date, which includes 30.

In Q3.

In addition to the samples that are lab has processed in the quarter those projects put data in the hands of customers that we believe will lead to publications going forward and I would also emphasize that our lineage and business had a good quarter for our samples received across our.

Of assays for pediatric Neurodevelopmental disorders, and so revenues for those diagnostic services are included with all service and other revenue in our financial statements.

So now I'd like to provide an update on the pivotal studies that are being led by Dr. Alka Tshombe, Our chief Medical Officer. Those studies are being conducted to demonstrate the utility of optical genome mapping as an alternative to traditional cytogenetic methods on a path to.

Have them adopted as part of standard of care. So these studies spanned four major growth markets for us pre and post Natal genetic analysis, hematologic malignancies, including leukemias and lymphomas and solid tumor analysis recruitment in these studies is going well.

Well, we have important key opinion leaders as principal investigators.

And study sites across each endpoint.

For the post sale study, which has been the one that was the first to receive IRB approval and underway. The longest we've reached a total of 500 out of 1000 subjects enrolled.

And we have completed analysis over of over 100 samples and in fact at the recent meeting of the society of human Genetics Aaas HG.

The authors of.

That study presented a poster describing the performance across those initial 100 samples and it was very impressive including 100% concordance and also identifying incrementally valuable information that can be leveraged to resolve otherwise unsolved cases.

For our prenatal the IRB has been obtained and site recruitment and training are in progress.

And data generation is beginning will begin.

This quarter.

For the hematologic malignancies programs, we are finalizing contracts with sites and expect IRB approval to begin by the end of the fourth quarter and the studies to begin in the first quarter of 2022 in the fourth quarter of 2022, respectively.

Over the next several years, we believe data to be generated as part of these studies will serve as a basis to support changes in guidelines.

Set by medical societies that will ultimately recommend uses of optical genome mapping as part of the standard of care.

So with that update I would like to turn the call over to Chris who is the chief financial officer for an overview of our financials Chris.

Thanks, Eric.

As Eric mentioned earlier, our revenue for the third quarter of 2021 was $4 7 million up 21% from $3 9 million in the second quarter and up 112% from $2 2 million in the same period of 2020.

The sequential sequential increase was driven by increased demand for sapphire optical genome mapping solutions, including increased instrument sales and greater demand for our reagent rental program and consumables.

Consumable revenue hit an all time high of $1 $8 million this quarter the year over year increase was driven by both higher product sales and by the addition of revenue from lineage and acquisition.

Gross margins for the third quarter of 2021 was 24, 8% compared with 37, 3% in the prior quarter and 33, 4% in the third quarter of 2020.

This decrease was primarily due to an increase in some lab related costs at lineage M and an increase in OEM warranty related expense. The majority of these incremental expenses are expected to be nonrecurring.

Our average selling prices for Sapphire for the Sapphire system and consumables has remained fairly consistent over the course of this year and our product gross margins were the highest they've been in five quarters.

Third quarter operating expense was $21 8 million compared to $17 9 million in the second quarter and $11 million in the third quarter of 2022.

The sequential increase was primarily due to a $1 8 million increase in head count and related expenses and a $1 $5 million increase in R&D related to supply chain development cost intended to lower future product production cost and support higher volumes.

We added a total of 37, new hires in the corner.

Across all parts of the company as we position ourselves to capitalize on the momentum we see in the market.

Third quarter operating expense included $2 8 million of noncash stock based compensation expense.

At September 30th the company had cash cash equivalents and short term investments of $326 $1 million compared with cash and cash equivalents of $38 $4 million in December of 2020.

During the third quarter, we raised $13 3 million in cash net of offering net of offering costs from our ATM facility designed to partially fund the Bayou discovery acquisition.

Like many companies we have faced some challenges with our supply chain. However, our operations team has responded early and proactively and we do not expect any meaningful impact to revenue. This year as a result of these supply chain challenges.

Since quarter end, we successfully completed the acquisition of Bayou Discovery, we're really excited about this deal and integrating the company its employees and technology into bio nano.

We're also really pleased with the terms of the deal as previously disclosed the transaction consideration was up to $100 million.

Insisting of approximately $50 million in cash.

And $40 million in shares of bio nano equity up.

Front, and a $10 million earn out.

Cash contingent on achieving certain commercial milestones for their software development.

Overall I'm pleased with the progress over the last several months and I'm really excited about the momentum we're carrying into the end of the year.

With that I will turn the call back to Eric to discuss our milestones before we take your questions Eric.

Great. Thank you Chris.

We are pleased to have hit a key goal for us in the third quarter and I've mentioned this already but I just want to reiterate that we released really important protocols for isolating ultra high molecular weight DNA from samples that would be typically used for prenatal analysis and now.

This to expand the menu of capabilities of the Sapphire system and in turn.

Penetrate new markets that were otherwise not open to us before we believe this achievement brings us one step closer to our broader mission of transforming the way the world sees the genome.

And so with that Michelle we are ready to take questions.

Thank you, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.

Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Hi, This is actually destiny on for Jeff How's everyone doing.

Hey, Destiny <unk> Destiny grid were great how are you.

I'm doing well thank you Jim.

Wanted to circle back to Chris's commentary around the supply chain could you tell us a little bit more about that and what some of the efforts youre doing now in order to kind of prepare yourself going forward.

Yeah, what I would say is there.

They're our chips and our instruments that have been.

Sure.

Facing shortages like every other company what our supply chain did is they went out and found alternative sources for those chips and built on inventory.

To protect us from from the possibility of delays in future shipments so again.

I bring it up because everybody is asking about.

Supply chain shortages, what I want to say is yes, we're just like everyone else, we're seeing them, but we've worked around them to ensure that they don't impact our ability to deliver sapphire systems.

I see okay. Thank you for that clarity and then turning to a different short HFC you've on boarded a ton of really excellent people into your commercial and marketing team.

As you build out. These teams are you also recognizing some headwinds in regards to the labor shortages.

Well, yes, I mean, so were.

The company is getting bigger we've added incredible executive talent, which we summarized and we put news out about that because we're we think it's so important to tell everybody about it.

The hiring market overall is incredibly competitive and so when we grow the team.

We're out there competing with all sorts of other companies and what we find is that people really recognize the differentiated story that we have here and the opportunity that's in front of us and Theyre energized to join and that's what's made it.

<unk> to get folks over from companies like Illumina decks com and <unk>.

Others, Perkin, Elmer and so forth and so.

That's exciting for us and it's.

It's definitely a challenge, but I think the validation that comes with those folks joining means that we have a competitive advantage in the hiring market.

Got it okay. That's helpful and if I could maybe just squeeze one more in here could you talk to us a bit about any efforts or strategies that you're considering at the moment.

Well, we are active on a global basis and.

Our slides speak to the fact that we see.

Demand really ramping in increasing across the board.

Yeah.

Certainly in North America, we have great progress in Europe has really been leading the penetration of optical genome mapping for applications inside a genetic analysis, especially in consolidation of existing workflows.

Please press star one on your telephone keypad. Our next question comes from the line of Kevin to Jeter with Oppenheimer. Please proceed with your question.

Hey, guys a few from us so really nice unconceivable to you speak to.

Distribution of <unk> you are you see most of the consumer will grow from the reset congratulations side of the business or or the more quite a whole side of the business and.

I guess, what I'm ultimately interested and is better understanding.

Behavior some of your your top customers in China, what type of consumable pull through kind of her her at you saw a good customer or highway detour customer looks I. These days is that.

Is that evolving all the time.

Okay no. Thanks, Thanks, Kevin I appreciate the uhm.

The acknowledgement and we're also excited to see the progress there and.

Let me take a shot at addressing your question and if there is some gaps chris might be able to fill them in and you just let us know, but when you when you talk about the the distribution across applications areas discovering translational versus the clinical research.

Side, I would say that day the needle if you look at the global distribution.

Is definitely pointed more towards the clinical research side and I would say, it's probably you know.

65% clinical research, 35% discovery translational and then.

Within that clinical research segment, the applications are mostly around genetic diseases.

And and.

The portion that is focused on hematologic malignancies in solid tumors is increasing.

We don't we don't see a strong distinction there because they end up being a meeting the 65 35, because they ended up being pre.

Pre similar sites in labs, and whether you are running a steady supply of samples coming in.

For analysis based on.

<unk>.

An order from a physician or whether they're running samples for a clinical trial or a large research study. They all tend to be comparable in volumes and so when we go back and we asked ourselves okay. What's the average the average pull through you can calculate right you have.

Have the installed base. It was 141 you have the consumables revenues, that's and that's in the queue.

And so given that you know that that's why you've asked me to tell you what's the what's the sort of like significant pull through Representitive group and what I would say the way I would answer the question is that.

[noise] significant fraction.

65, 70% of adoption is through the reagent rental vehicle for us and just to remind you that that standard contract is 132000.

Dollars of of overall consumables revenues chips reagents and everything.

On an annualized basis, so if we think that that.

65, or so percent of the systems that are going out in the last couple of quarters are representative of that pull through I think that that that's how I would kind of start to vector toward.

That that.

[noise] higher and pull through number and there are sites that exceed that you.

You have sites that go beyond that and they're ordering exceeds that but.

So far.

Or kind of adhering to that contracted volume, which is probably why we picked it in the first place. It's a good it's a good number and it fits the labs that are adopting the technology.

No that's super helpful and I appreciate the update on the next generation optical mapping.

[noise] mapping platform.

And the goal has been prototype by the end of the year.

What is a reasonable expectation for us in terms of when we may learn more about.

Some of their performance profile is it just something as early as potentially DVT next year or kidney.

How do you frame expectations.

Whenever you're ready to communicate more raw some of their performance.

Hopefully well so so.

No. Good good question and fair question. So we're excited about the progress and here in the company onsite, which you visited but we didn't let you peek in those rooms when he came through.

We see the various components operating and so we're excited about the progress that we're making there.

And we will hit that goal of putting the prototypes together.

This quarter and we feel confident about that with regard to detailed metrics.

I think we're going to have to get a few more quarters behind us before we really start to zero in on them. However, we have communicated that there will be a series of step ups in in.

If you back off of that or upsize that at all but as you well know, we'll get a little bit better information. After we have the fully assembled prototypes and get closer to beta systems, which is going to happen.

Next year.

And then just lastly for us with regard to placements I guess the guidance is.

So more than 150.

At year end, you're at 441.

At the end of September plus some that apparently are kept current installed I mean, I guess really sort of two questions. How do we think about.

That kind of more than 150 as a guidance number and then.

And then maybe add a little bit more granularity what are you seeing in terms of the current quarter.

Any disruption et cetera customers related to COVID-19 or are there factors or do you see sort of.

Perhaps a more normalized environment to operate with regard to.

Converting shipments into installations.

Yes, so what I want to say.

Sort of keep it.

Say, if youre less so to speak is that we're very confident in the $1 58.

I mean.

I think that should be coming up yes, I think there should be apparent, but we're very confident in the $1 50.

We probably have.

<unk> systems shipped into the field that if we install the ones that are waiting we would we would actually get above that.

But the limitations on that and then we're going to ship additional ones. This quarter. So there is there is sort of backlog in the field to exceed that but the constraints that we face are kind of twofold right people.

To go out and install them and get that done and we're adding those people.

Over time here.

But then.

We run into various factors.

In the fourth quarter holidays different site closures.

I'm not going to say that Covid is currently a serious impediment, it's always something that we've got to pay attention to but I think we've reached.

A normalized state there.

I guess, the new normal that people have been thinking that we would get to we're probably pretty close to that range right now it's very different from what the.

The world was like.

At this time.

In 2019 for example, but but I don't think we feel like Covid is is there anything more than a potential disruptor.

And if things stay the way. They are now were normalize. So we're confident about the 150 theres probably some upside there.

But.

Let's just stick with the $1 50 for now.

Thanks for taking our questions.

Youre welcome.

Thanks, Kevin.

We have reached the end of our question and answer session I would like to turn the call back over to Mr. Hoffman for any closing remarks.

Great. Thank you. So I just wanted to thank everybody for joining and following along and we certainly look forward to our fourth quarter call and that will give you give us a chance to update you on.

The progress we continue to make.

These key strategic pillars.

Which are to grow the installed base and expand the utility of optical genome mapping, while we drive the validation of it its utility and value.

In all of the variety of markets, where optical genome mapping is seeing uptake in.

With that I will close the call and say thank you very much.

Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

[music].

Thank you Michelle.

We'll also be available online in the investors section of the company's website with that I will turn the call over to Eric.

Cause you Amy and good afternoon, everyone. We're happy to be here with you today to recap what turned out to be a very busy and productive third quarter.

We believe the momentum that is being driven here is tremendous as we head into this last quarter of 2021 to start off today's call I want to have rich Shippy review with you. Our recent acquisition of bio discovery. This was an important strategic transaction.

It allows us to accelerate the integration of optical genome mapping R. O G M and next generation sequencing data with our optical genome mapping workflow.

The addition of bio discovery is expected to advance our capabilities as a genomics data solutions provider by adding what is really a best in class analysis interpretation and visualization platform for reporting genomics data.

As a result of the acquisition, we believe we become.

The first and only company to provide truly comprehensive genome analysis solutions that.

<unk> to review the Q3 numbers.

Thanks, Rich in the third quarter of two.

2021, we've continued to perform very well and in fact, we recorded the best overall quarter ever in the history of the company and so we're obviously very excited about that and we think it's due to not only the amazing capabilities that we have with optical genome mapping and the amazing product, but the incredible effort that all of our team.

That put into.

Pushing us forward. So total revenue for the quarter was $4.7 million, which is up 112% versus the same period in 2020, we had great performance in many areas of execution, including seeing customers develop laboratory developed tests based on optical.

Mapping in obtaining accreditation for Sapphire based laboratory developed tests as well as expanding our menu.

To include protocols for isolation of ultra high molecular weight DNA from prenatal samples such as amnio sites add.

Cvs.

And this allows us to apply optical genome mapping in our users to various applications in prenatal analysis.

Cells that we've sold in any quarter ever.

And now please keep in mind that the flow cell is the unit consumable.

For one human genome and so more flow cells that are being sold into.

Into the field leads to more utilization and more data to support the value proposition of optical genome mapping and increase awareness of its utility.

So the 3969.

<unk> represents 122% growth over the same period third quarter of 2020.

Finally in our services lab, we analyzed 390 samples during the quarter ending September 32021, and we can compare that to the same period, a year ago, which was 84 samples and so.

Theyre being analyzed we know that that's going to turn into more awareness.

Of optical genome mapping in its capability and so thats, an exciting leading indicator regarding innovation, we've continued to improve optical genome mapping with sapphire, making it easier faster and more cost effective to operate and so we hit a key goal for the quarter, which was to develop assays that <unk>.

Good.

B U's in prenatal applications that require isolation of ultra high molecular weight DNA.

Amnio sites and Cvs samples.

More efficient workflow, we believe that that's going to support labs in the future that adopted and seek reimbursement from third party pairs and we would also note that the applications of Fasd H D analysis have high interest from biotech and pharma where drugs.

For rare diseases are being developed and those protocols often require analysis for Fsh D. So this is an important publication and important advancement, we announced that new probe global which is a molecular diagnostics leader adopted sapphire to be adopted to be integrated into their.

<unk>.

Quantitative African sequencing and blocker displacement amplification technologies for R&D efforts and an effort to improve reproductive health and liquid biopsy. So this is an important.

Adoption for us and we expect that to drive new applications and utilization, we had the largest presence.

To date at the annual cancer Genomics consortium meeting, which was held in August of this year at feature 10 presentations by Sapphire customers and bio nano highlighting the benefits of optical genome mapping for clinical research applications in a variety of areas importantly, including sauce.

Has been the one that was the first to receive IRB approval and underway. The longest we've reached a total of 500 out of 1000 subjects enrolled.

And we have completed analysis over of over 100 samples and in fact at the recent meeting of the society of human Genetics Hsh's G.

The authors of.

Study presented a poster describing the performance across those initial 100 samples and it was very impressive including 100% concordance and also identifying incrementally valuable information that can be leverage to resolve otherwise unsolved cases for prenatal b.

And $11 million in the third quarter of 2020.

The sequential increase was primarily due to a $1 $8 million increase in head count and related expenses and a $1 $5 million increase in R&D related to supply chain development cost intended to lower future product production cost and support higher volumes.

We added a total of 37, new hires in the corner.

Across all parts of the company as we position ourselves to capitalize on the momentum we see in the market.

Third quarter operating expense included $2 8 million of noncash stock based compensation expense.

Yeah.

At September 30th the company had cash cash equivalents and short term investments of $326 $1 million compared with cash and cash equivalents of $38 $4 million in December of 2020.

Where otherwise not open to us before we believe this achievement brings us one step closer to our broader mission of transforming the way the world sees the genome.

And so with that Michelle we are ready to take questions.

First question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Hi, This is actually destiny on for Jeff how is everyone doing.

Hey, Destiny Destiny grid were great how are you.

I'm doing well thank you.

Just wanted to circle back to Chris's commentary around the supply chain could you tell us a little bit more about that and what some of the efforts youre doing now in order to kind of prepare yourself going forward.

Yeah, what I would say is there.

Our chips and our instruments that have been.

Sure.

Facing shortages like every other company what our supply chain did is they went out and found alternative sources for those chips and built on inventory too.

To protect us from from the possibility of delays in future shipments so again.

Got it okay. That's helpful and if I could maybe just squeeze one more in here could you talk to us a bit about any O U S efforts or strategies that you're considering at the moment.

Well, we are active on a global basis.

<unk>.

Yeah.

Our slides speak to the fact that we see.

Demand really ramping in increasing across the board.

And so we're active there, but China had a very solid third quarter and we had other notable adoptions such as one in Australia and so what we see is a pretty broad based interest in the capability.

The pace is is gated only by whatever.

Local funding is available or various.

Higher amounts around things like reimbursement and so forth, but the demand is universally strong around the globe and there are other parts of the globe that we're now <unk> with great interest and one of them that I would mention is India.

So I would expect you should expect to hear us talking more about <unk>.

In subsequent calls.

Okay got it thank you I'll jump back in queue.

Thank you once again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Kevin <unk> with Oppenheimer. Please proceed with your question.

Hey, guys a few from us so really nice growth on consumables.

Speak to.

The distribution of growth are you seeing most of the consumable growth from the research and translational side of the business or the more quite a full side of the business.

I guess, what im ultimately interested in better understanding.

Behavior.

Some of your top customers in China.

What type of consumable pull through per install.

Good customer are highly mature customer look Si these days is that.

Is that evolving on the comp.

Okay no. Thanks, Thanks, Kevin I appreciate the.

The acknowledgement and we're also excited to see the progress there and.

Syed I would say that.

The needle if you look at the global distribution.

Is definitely pointed more towards the clinical research side.

I would say it's probably.

65% clinical research, 35% discovery and translational and then.

In that clinical research segment, the applications are mostly around genetic diseases.

And.

The portion that is focused on hematologic malignancies and solid tumors is increasing.

We don't we don't see a strong distinction there because they end up being meaning the $65 35, because they end up being.

Pretty similar sites and labs.

And whether youre running a steady supply of samples coming in for.

<unk> analysis based on.

An order from a physician or whether theyre running samples for a clinical trial or a large research study. They all tend to be comparable in volumes and so when we go back and we ask ourselves okay. What's the average the average pull through you can.

Calculate right you have the installed base. It was $1 41, you have the consumables revenues that's in the that's in the queue.

And so given that you know that that's why you have asked me to tell you what's the what's the sort of like significant pull through representative group and what I would say the way I would answer the question is that.

A significant fraction.

$65, 70% of adoption is through the reagent rental vehicle for us and just to remind you that that standard contract is 132000.

$1 of of overall consumables revenues chips reagents and everything.

On an annualized basis, so if we think that that.

65, or so percent of the systems that are going out in the last couple of quarters are representative of that pull through I think that that.

How I would kind of start to vector toward.

That that.

Higher end pull through number and there are sites that exceed that right you have sites that go beyond that in their ordering exceeds that but.

So far.

Or kind of adhering to that contracted volume, which is probably why we picked it in the first place. It's a good it's a good number and it fits the labs that are adopting the technology.

No that's super helpful and I appreciate the update on the next generation optical mapping platform.

And the goal has kind of prototype by the end of the year.

What is the reasonable expectation for us in terms of when we may learn more about that.

Some of the performance profile is it just something as early as potentially a DVT next year or should we.

Just kind of how do you frame expectations there.

When you'll be ready to.

Communicate more broadly and some of the performance of Hurricanes.

Well so so.

Good question and fair question. So yeah, we're excited about the progress.

Here in the company onsite, which you have visited but we didn't let you peek in those rooms, when you came through.

We see the various components operating and so we're excited about the progress that we're making there.

And we will hit that goal of putting the prototypes together.

This quarter and we feel confident about that with regard to detailed metrics.

I think we're going to have to get a few more quarters behind us before we really start to zero in on them. However, we have communicated that there will be a.

A series of step ups in <unk>.

Pull through so so if we look at a kind of control sample.

That we collect data on just at 30, <unk> debt, which is not always the depth of coverage that a site may used for one application or another but it is a good baseline for us to make comparisons with the Sapphire system will well processed 96 samples in seven days.

And we assume that the Sapphire system is running 24, seven during that period, and so forth, but 30 ex depth of coverage will give you 96 samples.

And.

Next generation system will.

So that equates to about 5000 samples per year.

The next generation system per <unk>.

Instrument will go up to about 14000 samples per year. So that's a little little bit shy of a three fold increase in throughput overall.

And you May remember that we're going to roll that system out.

In two steps so the first step would be the single instrument module 14000 samples per year.

And then there will be a capability of clustering four of those inched up to four of those instruments together in a robotic system now will operate continuously and so four times 14000.

Is going to get those numbers up even more and so we're kind of sticking to that as our as our projected.

Performance and throughput of the system compared to Sapphire or there is no re we see no reason to.

To back off of that or upsize that at all but as you well know, we'll get a little bit better information. After we have the fully assembled prototypes.

And get closer to beta systems, which is going to happen.

Next year.

And then lastly for us with regard to placements I guess the guidance is.

So more than a 150.

At year end, you're at 441.

At the end of September plus some that apparently.

<unk> installed I mean, I guess really sort of two questions. How do we think about.

That kind of more than 150 as a guidance number and then.

Maybe on a little bit more granularity what are you seeing in terms of the current quarter.

Any disruption et cetera customers.

Covid or other factors or do you see sort of.

Perhaps a more normalized environment to operate with regard to.

Converting shipments into installations.

Yeah. So so what I want to say just to sort of keep it.

Safe year less so to speak is that we're very confident in the $1 58.

I mean.

I think that should be coming out yeah, I think there should be apparent, but we're very confident in the 150.

We probably have.

<unk> systems shipped into the field that if we install the ones that are waiting we would actually get above that.

The limitations on that and then we're going to ship additional ones this quarter. So.

There is sort of backlog in the field to exceed that but the constraints that we face are kind of twofold right people.

To go out and install them and get that done and we're adding those people.

Over time here.

But then.

We run into various factors.

Always in the fourth quarter holidays different site closures.

I'm not going to say that Covid is currently a serious impediment, it's always something that we've got to pay attention to but I think we've reached.

A normalized state there.

I guess, the new normal that people have been thinking that we would get to we're probably pretty close to that range right now it's very different from what the world was like.

At this time.

In 2019 for example, but but I don't think we feel like Covid is is there anything more than a potential disruptor.

And if things stay the way. They are now were normalized so we're confident about the $1 50, there is probably some upside there but.

But.

Let's just stick with the $1 50 for now.

Thanks for taking our questions.

Youre welcome.

Thanks, Kevin.

We have reached the end of our question and answer session I would like to turn the call back over to Mr. Hoffman for any closing remarks.

Great. Thank you.

So I just want to thank everybody for joining and following along and we certainly look forward to our fourth quarter call.

And that will give you give us a chance to update you on the.

The progress we continue to make and these key strategic pillars.

Which are to grow the installed base and expand the utility of optical genome mapping, while we drive the validation of it its utility and value.

All of the variety of markets, where optical genome mapping is seeing uptake and with that I will close the call and say thank you very much.

Okay.

Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

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