Q4 2021 Bionano Genomics Inc Earnings Call

March 1, 2022

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

Thank you Judy and good afternoon, everyone welcome to the bio nano genomics fourth quarter and full year 2021 financial results Conference call.

Leading the call today is Dr. Eric <unk> CEO of bio nano.

He is joined by Chris Stewart, CFO , bio nano and rich Chippy, CBO and head of global sales of bio nano.

After market closed today <unk> issued a press release announcing its financial results for the fourth quarter and full year 2021 a.

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 are forward looking including statements about <unk> strategic and commercialization plans.

Sales pipeline anticipated benefits or improvements to the sapphire system goals and anticipated milestones for 2022, the advantages of the Sapphire system over current technologies. The anticipated benefits of recent acquisitions expectations regarding timing and content of study results and anticipated benefits of these studies and drive.

The 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 <unk> in our press release and filing in its 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.

In addition to supplement bound in our financial results reported in accordance with U S. Generally accepted accounting principles or GAAP. The company is reporting non-GAAP operating expense.

This non-GAAP financial measure is not meant to be considered in isolation or as a substitute for comparable GAAP measures should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP has no standardized meaning prescribed by GAAP and is not prepared under any comprehensive set of accounting rules or principles.

A description of non-GAAP operating expense and reconciliation of non-GAAP operating expense to GAAP operating are included at the end of the company's earnings release issued earlier today, which has been posted on the IR page of the company's website.

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 and thanks for joining us today and I want to start out by saying that 2021 was simply a spectacular year for bio nano.

Commercially the results were very strong we grew the installed base of our SAP our systems in the world to 164, which represents 69% growth over the installed base.

On December 31st 2020, and exceeded our goal of 150 by nearly 10% with optical genome mapping being adopted at several notable cytogenetics laboratories and academic medical centers in the United States across Europe .

Australia.

China, Taiwan and Japan.

We also sold $3 204 flow sellers during the fourth quarter of 2021, which represents 29% growth over the same period in 2020.

And that brings the total for 2021 to $12 500 flow cell sold and that represents 96% growth over the $6 311.

So sold in 2020.

Now please remember that the flow cell as the unit consumables in our nano channel arrays for analyzing one human genome.

More of the flow cells that are purchased in the market indicate more utilization in the field, which in turn leads to more data more publications more presentations and we believe more demand for optical genome mapping. So this is outstanding progress.

Our revenues in the fourth quarter of 2021 were $6 3 million.

Which is up 58% versus the same period in 2020.

And revenues for the full year 2020.

One we're.

$18 million, which represents a 111% growth compared to 2020.

Now in clinical development and <unk> laboratories, we also made tremendous progress the sites conducting our postnatal study published their interim technical performance readout of this study and the data gave a incredibly positive view of the utility and.

Bussiness of optical genome mapping across these sites.

The interim results showed that optical genome mapping has consistently performing as well or better than traditional methods used inside of genetics.

And for the analysis of chromosomal aberrations in structural variations.

Data also showed that optical genome mapping can be performed reliably reproduceably across multiple sites multiple sample types and multiple different operators.

Enrollment for our post needle study reached 113 subjects, while enrollment in the prenatal study received IRB approval and reached 132 subjects.

2022 will be a significant year for progress in these studies and I'll say more about that when I cover the 2022 strategy and goal.

Now some of our sites in Europe reported receiving accreditation for their ODM workflows, beginning in Q2 2021.

And these accreditations unlock the potential for menu expansion and reimbursement.

In the U S. During 2021 several sites validated.

GM and laboratory developed test and they submitted applications for reimbursement codes, including Z codes.

Proprietary laboratory analysis or <unk> codes. These.

These codes are what enable them to get paid for the ODM tests that they performed and then our own biodiesel laboratories during the fourth quarter of 2021, we analyzed 341 samples and you can compare that to a 117 samples that were analyzed in the same quarter in 2000.

'twenty.

The total number of samples analyzed in 2021 was one <unk>.

67 samples and that compares to 694.

For the year 2020.

Now we believe these services projects can provide critical proof of principle for newcomers to optical genome mapping as they evaluated in their research with their own samples the data provide them with the ammunition they need to convince their institutions to breed optical genome mapping in house.

And when we see growth in these services samples being processed we view it as a good leading indicator of demand for optical genome mapping.

In product development, we had tremendous progress as well, we released important assays in the third quarter for optical genome mapping with sapphire that enable different applications, including ones for cultured MTO sites, and chorionic villus samples, which enable our prenatal studies.

And customer applications in that area as well as other.

Applications in prenatal analysis and product of conception analysis.

We released version six one of our Nx clinical software in the fourth quarter, which was developed by Bayou Discovery version six one has.

Expanded capabilities for analysis of next generation sequencing and genetic disease and cancer and supports novel assays in these disease areas and importantly in the fourth quarter. We completed a prototype of the next version of optical.

Mapper that we are working on this new instrument is expected to enable.

Optical genome mapping analysis at substantially higher throughput than the Sapphire system currently supports and should improve many aspects of the optical genome mapping workflow.

And financially.

Strengthening the balance sheet with equity financings in the first quarter of 2021, which.

We're significant then but given today's environment they represent highly important steps and enabling the company's ability to continue growing and achieving these outstanding results.

Lastly, I want to mention an important step we took in corporate development, which was the acquisition of Bayou discovery that we completed in October of 2021, and this move brings in their software products for visualization interpretation and reporting of sequencing and micro.

Ray data as well as their team of World Class software engineers, including Dr. <unk>, who is their founder and CEO and has become our Chief Informatics officer, Dr. Sham leads our genome informatics team, including software development and bioinformatics.

And it's motivated by accelerating the importance of optical genome mapping as a unique and valuable tool for all sorts of genome analysis, we were looking to accelerate the development of our own software for this type of visualization interpretation and reporting but focused on obst.

<unk> genome mapping data and so acquiring Bayou discovery gave us the team.

And the platform into which we can incorporate optical genome mapping quickly annex.

The next clinical is industry, leading for these applications in analyzing structural variation and it gives us a tool that.

Integrates optical genome mapping.

Along side these commonly used data types in the industry.

And so when we look back over the year as a whole.

What we really conclude is that we exceeded the goals and expectations for all of our planned milestones.

Across the whole year, but.

But we also advanced the company across our strategy products and finances in ways that we.

Really feel exceeded our plan overall.

In fact, we view 2021 as being a complete transformation.

Iot auto from a life Sciences instrumentation company, where we began into a global genomics company, let's focus now on elevating the health and wellness of all people.

With a suite of products and services that have the potential to transform the way the world sees the genome.

So I'm very proud of 2021.

The momentum that we built there, but I'd like to turn the page on 2021 and begin focusing on 2022.

We see 2022 is representing a key time of inflection for US we want to elevate the company commercially.

We want to improve the product and the services that we provide.

Across the industry.

And we want to change the way in which they are accepted.

In fact, we call the strategic roadmap for 2020 to elevate.

And elevate has five major strategic.

Pillars <unk>.

First and foremost we want to continue the amazing progress that we've made in expanding our commercial traction and validation of optical genome.

We wanted to delight, our customers with our products.

And something that we need to recognize about the level and size of our installed base is that robustness becomes incredibly critical as well as the use of the products for industrial applications at scale.

We want to clear the path for optical genome mapping reimbursement or market access across our target markets on a global basis.

We want to continue advancing our products in a way that enables market expansion and penetration into new markets.

And we want to make software a strategic driver of <unk> solutions.

I've got some milestones to summarize for you in connection with 2022.

Elevate before doing that though I want to turn the call over to Chris Stewart, our CFO for him to walk you through an overview of our financials Chris.

Thanks, Eric.

The fourth quarter of 2021 was an outstanding quarter for us, which capped off a great year, we achieved impressive year over year revenue growth and we're able to leverage our strong balance sheet to grow our business through strategic moves like the acquisition of Bayou discovery.

I'll begin with a review of our revenues.

Revenue in the fourth quarter of 2021 was approximately $6 3 million slightly above the high end of the preliminary range of five 8% to $6 $2 million that we provided back on January 12 of this year.

This is an increase of $1 6 million or 35% over the third quarter of 2021.

Revenue for the full year was $18 million, representing 111% increase over 2020.

The fourth quarter includes revenue of $1 1 million from Bayou discovery since the October 2021 acquisition date.

Revenue from bio discovery is included in the service and other revenue line in our P&L.

The year on year and quarter on quarter increases were driven largely by demand for Sapphire optical genome mapping solutions and of course. The addition of Bayou discovery.

We saw a good balance of growth across all product categories and geographies.

I now want to spend a minute talking about gross margins gross margin for the fourth quarter came in at a disappointing 4% compared to 25% in the third quarter of 2021, and 30% from the fourth quarter of 2000.

The decrease was primarily due to low manufacturing yields yields on our chip consumables produced at one of our contract manufacturers and a resulting $1 $2 million write off of inventory in the fourth quarter.

Full year 2021, gross margin was 22% down from 33% in the prior year.

Largely because of Covid disruptions and personnel turnover at a key supplier manufacturing yields of commercial grade chips.

During 2021.

These wafers passed quality control specifications at the foundry, but failed to meet our final commercial quality specifications and therefore, we would not shipped to customers.

In Q4 continued low yield led to the excess inventory and the write off of about $1 2 million of inventory.

We are actively working with our supplier to get yields back to where they have historically been.

This is a transient issue, but it may take a few quarters for gross margin to recover to prior levels.

Regarding expenses this quarter were updating the way we report our operating expense to include both GAAP and non-GAAP numbers.

The acquisition of Bayou discovery resulted in additional stock based compensation as well as amortization of intangibles expense. These are both noncash expenses and we believe that providing our operating expense. Excluding these ongoing noncash expenses.

As well as certain other one time expenses will provide a more useful measure of our performance.

Fourth quarter 2021, GAAP operating expense was $29 million compared.

Compared to $12 3 million in the prior year.

The year over year increase was primarily due to head count related spending increased R&D expense and transaction costs associated with our acquisition of bio discovery.

Fourth quarter non-GAAP operating expense was $22 1 million compared with $11 4 million in the fourth quarter of 2020.

non-GAAP operating expense excludes $4 8 million in stock based compensation.

$1 2 million in amortization of intangibles and $1 2 million in transaction related costs.

Full year 2021, GAAP operating expense was $81 million.

non-GAAP operating expense was $68 4 million.

non-GAAP operating expense for the year excludes $9 7 million stock based compensation $1 4 million in amortization of intangibles and $1 5 million in transaction costs.

At December 31, 2021, bio nano had cash cash equivalents and short term investments of $250 6 million compared to cash and cash equivalents of $38 4 million at December 31, 2020.

The increase is primarily due to the equity raises that were completed in the first quarter of 2021.

As we begin 2022, we're in our strongest position yet we expect Q1 2022 revenue to be in the range of five five to $5 $8 million, representing normal seasonal declines from the prior fourth quarter.

We expect full year revenue to be in the range of 24 million to $27 million, which.

Which would be a 33% to 50% growth over the full year 2020.

I'm really pleased about what we've achieved and where we're headed and with that I'll turn the call back over to Eric to discuss elevate and our upcoming milestones before we take your questions.

Great.

Thank you Chris.

I want to say.

Say that we couldnt really be more excited about.

The year ahead.

We have challenges to address and the impact of Covid on production quality and supply chain.

Remain concerns and.

And we are cautious about the macro environment beyond Covid given current.

Global events.

Nevertheless, we believe we can make significant progress through elevate.

And here are the key value driving milestones in.

In 2022.

In the first half, we're going to be focused on making progress.

In our clinical studies.

Getting IRB approval for our hematologic study.

And progressing in other areas.

Those clinical trials.

We are also going to be addressing market access through applications for ACP T code for optical genome mapping.

In the second half.

We're going to be adding additional laboratory developed test to bio nano laboratories. These will be optical genome mapping based tests continue progression in our studies through completion of our postnatal study.

And we would expect to have a interim publication on our prenatal study.

We will also advance the product by releasing new labeling protocols.

DNA isolation protocols that will have the effect of simplifying and accelerating streamline the ODM workflow.

We will have what we're calling a pre commercial version of this new high throughput imaging system for optical genome mapping.

That's going to be running in the field. So we will be transitioning from the prototypes of this pre commercial system over the course of the year.

We would expect to achieve in terms of installed base base growth is.

240, Sapphire systems installed around the world.

Which is an increase from the 164 systems that we finished 2021 with.

In closing.

I want to reiterate that we are very proud of 2021.

And what we achieved.

We are extremely excited about 2022.

And what we see is the.

Increasing interest and adoption in optical genome mapping and thats consistent with our objective to make optical genome mapping really a mainstream analytical tool, but now and expanding beyond just offering optical genome mapping we recognize that software plays.

Critical role in driving forward towards the adoption of <unk> solutions across genomics and we believe that that's going to be transformational for us and so we look forward to updating you soon.

About our progress this quarter, the first quarter of 2022 and of course throughout the year.

With that operator, we are ready to take questions.

Ladies and gentlemen, if you would 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.

Press Star one to ask a question.

Our first question comes from the line of sung <unk> Nam from <unk>. Your line is now open.

Hi, Thanks for taking the questions and congratulations on the quarter and the year.

Starting out with your gross margins and the contract manufacturing issues.

Can you talk about whether you might.

And if you might be able to comment but are there alternative options in terms from a supplier standpoint, and do you expect to use the same supplier for.

The next generation platform.

Well looking at our supply chain, making it.

As robust as possible is something we're always looking at but we're not going to talk.

Looking at this point about <unk>.

Specific changes any specific changes that will make but it is something we're always always looking at.

Working on it.

Okay Gotcha.

And then in terms of the Bayou Discovery acquisition I believe you guys had mentioned that there is going to be some sort of.

<unk> integration into the software offering sometime this year or some interim.

Development happening sometime this year am I missing.

You hear that correctly or just kind of curious what are the updated alright.

Yes.

I apologize I should've mentioned that on.

That's a key milestone for the second half.

We will be the release of Nx clinical.

Featuring <unk>.

And our mission.

Pardon.

I don't know that yet.

Second half for me.

Okay that makes sense.

And then for Chris again could you kind of give us.

Guidance in terms of your Opex spending expectation for the year.

Do you think it kind of the spending.

In the fourth quarter.

Good starting point.

Yes.

Again here.

Yeah, Yeah, so from a non-GAAP perspective, yes.

Yes, we think Q4 is a good starting off point and.

We are continuing to add headcount in strategic areas of the organization, but it certainly won't be the magnitude of the the hiring that we did in 2021. So so if we start with Q4 and modest growth.

Throughout the year.

You'd be in the right ballpark.

Okay got you. Thank you so much.

Thank you.

Thank you. Our next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann. Your line is now open.

Hi, everyone. This is actually destiny on for Jeff. Thank you for taking my questions.

I'd like to start with some of these new OTT and the pre commercial rollout of your next generation system.

The LDC is what should we or what could we think about in terms of what that would include and then with your pre commercial rollout. How do you plan to approach that are you starting with five to 10 accounts for most of your largest accounts how should we think about that.

With regard to the <unk> it will be focused on both genetic diseases.

And hematologic malignancies.

The initial menu will include FX HD on the genetic diseases side.

And I don't think we have completely locked down the heme application, but it will be one of the leukemias.

And it's important to kind of emphasize the role of these <unk> that we're developing these are not revenue drivers for us, but they are strategic.

<unk> that we will use to continue to expand demand for optical genome mapping based assays, but importantly.

We will leverage them to engage with third party payers, such as insurance companies and others to reimburse for optical genome mapping assays.

Now with regard to the pre commercial rollout, we will start with sites.

That.

Our design too.

Implement and evaluate.

These pre commercial versions of instruments in a way that gives us useful feedback as we transition to the final development of the actual commercial system for release and so these tend to be sites that have adequate volume, but also are familiar with.

New technologies, and new instruments that haven't yet been released to the market.

And we have a whole host of sites to choose from that have expressed interest and we havent, we havent picked those sites yet.

Got it okay. Yeah, that's a good problem to have definitely.

I am curious about your commentary around accreditation.

How might that impact your commercial strategy O U S.

And then any topline impact you think in 2022.

Well accreditation is a process that's not unlike.

First of all it is.

Unique to each region in which it's happening which can be.

Organisers at the country level or in some countries can be organized at the regional level.

Comparable to two state level organizations in the United States, but.

Accreditation is similar to the validation of a laboratory developed test.

In the U S. It meet certain quality criteria that our laboratory is taking responsibility for and therefore qualifies them to bill their health care systems for reimbursement.

On.

The way in which it impacts topline I wouldn't say that.

That is something that necessarily increases the topline, but it's part of the overall adoption strategy and so once a site has a credited it gives them the ability to run the assays and then increase the menu and so we have an expectation that the.

Pull through on a per site basis will continue to grow from the average that it's at now.

Two higher levels over time and that assumes that there will be the necessary compliance in each region to expand the menu to look at more and more assays, which will in turn drive more and more consumables utilization. So the models that.

We have and that we've seen out there looking at our revenues I think reasonably assume that these accreditations are taking place.

We're informing everyone that they have taken place.

Okay got it. Thank you and then I guess lastly from me in the near term do you have any presentations at any scientific conferences that we should be aware of thank you. So much for taking my questions.

Yes. Thank you Destiny will always keep everyone apprised, we have an active calendar across all of the major.

Scientific meetings that happen over the course of the year and we tend to announce those in advance. So we will be keeping you posted there.

Got it thanks again.

Thank you. Our next question comes from the line of Kevin <unk> from Oppenheimer. Your line is now open.

Hi, This is Susan on for Kevin just a quick question on reimbursement. The first one can you comment on the process.

Applying for category one CPT.

And do you have any idea what the turnaround on that is.

So the process involves a submission to.

The MAA as part of the CPT code.

<unk> an assignment.

Function that they provide.

The application is reviewed by a committee.

And that committee.

We'll look at all of the applications that are submitted in a given period.

And their process would be to evaluate.

The need for such a code and that need is based on the existence of let's call. It a critical mass of utilization in the United States.

Evidence for that critical mass or <unk> that have been developed by different labs.

The applications for different laboratory specific codes, such as Pele codes and so we know we've seen that and so there's a good amount of evidence for utilization.

And the committee determines whether it's appropriate to issue a specific code connected to the methodology and that process unfolds over roughly the first half of the year.

The outcomes could be that the.

Code is denied for any reason and we would have the chance to reapply.

Code could be approved.

And in the event that is approved then there is a process that happens that's connected to development of recommended pricing for the code and so we're obviously at the beginning of that the applications are due and will be submitting it and we're excited that we feel.

That we have reached the level of utilization adoption and need in the market that we believe could potentially reflect.

Favorably on the need for this category, one CPT code, but it's up to the committee to decide.

Yes, no I agree with that Sam I really unplanned milestone.

Just staying on the topic of reimbursement.

You guys have an idea of what the next steps following the postnatal sat in one quarter.

I know that was.

Great. Thank dale on whether or not you get reimbursement.

Yes so.

These studies factor into reimbursement.

I would say something about we're talking about a category one CPT code.

<unk>.

The process of reimbursement I think can be reasonably described as a combination of coding and coverage.

And there are a variety of ways in which an assay can be coated and so we've talked about them of course are the category. One CPT codes is one of the more general ones and that's why we're enthusiastic about going for it but coverage.

Coverage is the process that payers go through to determine whether the assay itself.

Laurence there their reimbursement coding is important.

In some respects clinical but coverage is key and coverage decisions are made by a number of factors again critical massive adoption and utilization.

They rely heavily on where medical societies come out.

On the.

The utility and value of a particular methodology, our assay our workflow technology.

In our case of course, that's optical genome mapping.

So medical societies way and greatly on that.

As do various demonstrations of this utility and so the completion of the post needle study will entail the.

The evaluation of all of our primary endpoint. So we've looked at just those technical performance endpoints. So far in the interim relief, but the completion will entail looking at these critical endpoint like.

Turnaround time.

Overall success rates are a diagnostic yields if optical genome mapping were to be used as a.

Diagnostic assay.

Health economic impact and then over time, we'll of course be looking at patient.

Patient outcomes, but these primary endpoints health economic turnaround time.

Workflow simplification and in overall diagnostic yields were factor in prominently.

And coverage decisions that will be coming over the course of this year and into next year and so that's why that's such a key.

Study for us to to reach completion.

Just one last question.

So you have several AD study timelines in 2022 really exciting.

Confident are you about these timelines.

What are some of the risks that may be for Steve.

So.

We try to be cautious and careful.

About committing to these milestones and so we have enough confidence to put them out there.

Yes.

We believe strongly that we'll be able to hit them.

The risks that we face like anybody conducting a clinical trial.

And to be primarily around enrollment.

But for US it's a process of data generation.

Data analysis.

<unk> interpretation and then ultimately the publication.

If we can get the enrollment.

We have a good shot.

Seeing the other things go reasonably smoothing smoothly according to timeline.

The risk in enrollment is related to COVID-19 and other aspects of staffing shortages and any closures that might happen and we're not we're not seeing closures anymore and I don't know if other companies are talking about that but we have seen.

Through the omicron surge and maybe thats behind us, but we're still filling the ripple effects of it where a lot of staffing.

<unk> have occurred and as a result.

Sites are focused on critical activity as essential activities and so some of these research studies take a back seat and so that's that's probably the biggest risk.

Staffing shortages also impact our ability to generate an annualized data. So we have to be mindful of those but.

It's our job to manage the studies and do the best we can to drive them forward because of the critical role. They play in influencing medical societies that are setting guidelines and these coverage decisions that we've talked about.

Got it.

Congratulations on a quarter and that I thought that thank you.

Yes. Thank you.

Thank you. Our next question comes from the line of Jason Mccarthy from Maxim Group. Your line is now open.

Hey, guys. This is Mike look <unk> on the line for Jason Thanks for taking my questions and congrats on a really great quarter.

<unk>.

Thanks to that.

Actually just start out on the <unk>.

On the revenue line and <unk> could provide a bit more granularity in terms of how much of that growth.

Was organic driven by increased Sapphire utilization.

And then if you could give a bit more in terms of how.

How much of that was consumables versus unit placement and rental income.

Okay.

Yes, so first of all.

We did mentioned or I mentioned that there was a $1 $1 million contribution from <unk>.

That was most of Q4 the acquisition closed October 18th so.

So from Q3 to Q4 organically.

We grew about $5 million.

And that was balanced across.

Both instruments and consumables.

Revenue, so sapphire the ODM business drove most most if not all of that growth.

And it was almost like equally.

It was yes.

It was geared towards instrument and a little bit less growth on the consumable side in.

In Q4.

Alright, thank you.

I'd also like to follow up on the question regarding the post Natal study from a commercial perspective.

Wood.

A covered postnatal assay look like would it primarily be a driver of adoption among diagnostic labs or is there a potential to get a more direct revenue stream from the assay.

It's the former I mean, I think that.

We're not really in the testing services business broadly we are in it and as you know.

We sell diagnostic tests in the pediatric neurodevelopmental disorder space and that's a strategic set of products for us in revenue line for us, but we believe that we are much better off enabling multiple labs.

To run multiple assays per lab than trying to drive.

Revenues by selling a diagnostic tests and.

I think we can point to probably many examples of companies that have taken that route.

Illumina has built their business primarily.

On the proliferation of next generation sequencing and so we want to follow in their path. It doesn't mean that we can't develop high value proprietary assays over time, and we look at that and we have some ideas around that but we're better off driving the adoption of optical genome mappers.

Our software.

Being a solution provider to the genome analysis community, whether thats people working in clinical applications, because that's what they're working on or discovery research or however, they choose to apply the technology now when it comes to application.

And genetic diseases and genetic disorders.

We were very excited to announce our.

Strategic initiative around rare undiagnosed genetic diseases yesterday in recognition of rare disease.

De rare diseases, you may know.

Yes.

Yeah.

Name, that's completely wrong for the condition as a whole there are some 350 million people in the world who are impacted by our so-called rare disease, 75% to 80% of those have a genetic cause an optical genome mapping can play an important role in answering.

Puzzling questions as to why somebody may be sick or puzzling questions as to there is a disease out there, but we don't know what the genetic cause is and so this is an example of where completing our postnatal study will really position optical genome mapping to be a go to.

<unk> in areas like rare undiagnosed genetic diseases or for the rugged field as we call it.

Alright, Thank you very much and again congrats on the quarter.

Thank you.

Thank you at this timeline im showing no further questions I would like to turn the call back over to Eric Haldeman.

<unk> remarks.

Okay.

Great. Thank you Gigi I want to thank everybody for joining and participating that good.

Questions.

And we look forward to speaking to you again about Q1, which will be a call just right around the corner. So thank you very much.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Good day and welcome to the bio nano genomics fourth.

Quarter and full year 2021 earnings conference call.

<unk> conference is being recorded.

At this time I would like to turn the conference over to Amy Conrad from Investor Relations. Please go ahead.

Thank you Gigi and good afternoon, everyone.

Welcome to the bio nano genomics fourth quarter and full year 2021 financial results Conference call.

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

He is joined by Chris <unk>, CFO of bio nano and rich shipping CTO and head of global sales of bio nano.

After market closed today <unk> issued a press release announcing its financial results by the fourth quarter and full year 2021 a.

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 are forward looking including statements about <unk> strategic and commercialization plans.

Sales pipeline.

Peyton benefits or improvements in the Sapphire system.

And anticipated milestones for 2022, the advantages of the Sapphire system over current technologies the anticipated benefits of recent acquisitions.

Spectation 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 <unk> press release and filing in its reports filed with the SEC.

These forward looking statements are based on information available to <unk> today, and the company assumes no obligation to update statements as circumstances change.

In addition to supplement filed in our financial results reported in accordance with U S. Generally accepted accounting principles or GAAP. The company is reporting non-GAAP operating expense is.

Under any comprehensive set of accounting rules or principles.

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.

With that I will turn the call over to Eric.

Thank you Amy and good afternoon, everyone and thanks for joining us today I want to start out by saying that 2021 was simply a spectacular year for bio nano.

Commercially the results were very strong we grew the installed base of our Sapphire systems in the world to 164, which represents 69% growth over the installed base.

On December 31, 2020, and exceeded our goal of 150 by nearly 10% with optical genome mapping be it being adopted at several notable cytogenetics laboratories and academic medical centers in the United States.

Across Europe , Australia.

China, Taiwan and Japan.

We also sold 3204 flow cells during the fourth quarter of 2021, which represents 29% growth over the same period in 2020.

<unk> brings the total for 2021 to $12 500 flow cell sold and that represents 96% growth over the $6 311 flow sales sold in 2020 now.

Now please remember that the flow cell is the unit consumable in our nano channel arrays for analyzing one human genome.

Our revenues in the fourth quarter of 2021 were $6 3 million.

Which is up 58% versus the same period in 2020 and revenues for the full year 2020.

One we're.

$18 million, which represents a 111% growth compared to 2020.

Bussiness of optical genome mapping across these sites.

The interim results showed that optical genome mapping has consistently performing as well or better than traditional methods used inside of genetics.

And for the analysis of chromosomal aberrations in structural variations.

Data also showed that optical genome mapping can be performed reliably reproduceably across multiple sites multiple sample types and multiple different operators.

Enrollment for our post Natal study reached 113 subjects, while enrollment in the prenatal study received IRB approval and reached 132 subjects.

2022 will be a significant year for progress in these studies and I'll say more about that when I cover the 2022 strategy and goal.

Now Sapphire sites in Europe reported receiving accreditation for their ODM workflows, beginning in Q2 2021.

And these accreditations unlock the potential for menu expansion and reimbursement.

In the U S. During 2021 several sites validated.

And laboratory developed test and they submitted applications for reimbursement codes, including Z codes.

Proprietary laboratory analysis or <unk> codes. These.

These codes are what enable them to get paid for the ODM tests that they performed and in our owned by our National laboratories. During the fourth quarter of 2021, we analyzed 341 samples and you can compare that to a 117 samples that were analyzed in the same quarter in 2000.

'twenty.

The total number of samples analyzed in 2021 was one <unk>.

67 samples and that compares to 694 for the year 2020.

Now we believe these services projects can provide critical proof of principle for newcomers to optical genome mapping as they evaluate it in their research with their own samples the data provide them with the ammunition they need to convince their institutions to bring optical genome mapping in house.

And when we see growth in these services samples being processed we view it as a good leading indicator of demand for optical genome mapping.

And customer applications in that area as well as other.

Applications in prenatal analysis and product of conception.

<unk>.

We released version six one of our Nx clinical software in the fourth quarter, which was developed by by our discovery version six one has.

Mapper that we are working on this new instrument is expected to enable <unk>.

Optical genome mapping analysis at substantially higher throughput than the Sapphire system currently supports and should improve many aspects of the optical genome mapping workflow.

And financially.

Strengthening the balance sheet with equity financings in the first quarter of 2021, which.

We're significant then but given today's environment they represent highly important steps and enabling the company's ability to continue growing and achieving these outstanding results.

<unk> genome mapping data and so acquiring Bayou discovery gave us the team.

And the platform into which we can incorporate optical genome mapping quickly and.

<unk> clinical is industry, leading for these applications in analyzing structural variation and it gives us a tool that.

Integrates optical genome mapping.

Long side these commonly used data types in the industry.

And so when we look back over the year as a whole what we really conclude is that we exceeded the goals and expectations for all of our planned milestones.

Across the whole year.

But we also advanced the company across our strategy products and finances in ways that we.

Really feel exceeded our plan overall.

In fact, we view 2021 as being a complete transformation.

<unk> from a life Sciences instrumentation company, where we began into a global genomics company, let's focus now on elevating the health and wellness of all people.

With a suite of products and services that have the potential to transform the way the world sees the genome.

So I am very proud of 2021.

The momentum that we built there, but I'd like to turn the page on 2021 and begin focusing on 2022.

We see 2022 is representing a key time as an inflection for us we want to elevate the company commercially.

We want to improve the product and the services that we provide.

Across the industry.

And we want to change the way in which they are accepted.

In fact, we call the strategic roadmap for 2020 to elevate.

And elevate has five major strategic.

Pillars <unk>.

First and foremost we want to continue the amazing progress that we've made in expanding our commercial traction and validation of optical genome.

We want to delight, our customers with our products.

And something that we need to recognize about the level and size of our installed base is that robustness becomes incredibly critical as well as the use of the products.

For industrial applications at scale.

We want to clear the path for optical genome mapping reimbursement or market access across our target markets on a global basis.

We want to continue advancing our products in a way that enables market expansion and penetration into new markets.

And we want to make software a strategic driver of <unk> solutions.

I've got some milestones to summarize for you in connection with 2022.

And elevate before doing that though I want to turn the call over to Chris Stewart, our CFO for him to walk you through an overview of our financials Chris. Thanks.

Thanks, Eric.

I'll begin with a review of our revenues.

Revenue in the fourth quarter of 2021 was approximately $6 $3 million slightly above the high end of the preliminary range of five 8% to $6 $2 million that we provided back on January 12 of this year.

This is an increase of $1 6 million or 35% over the third quarter of 2021.

Revenue for the full year was $18 million, representing 111% increase over 2020.

The fourth quarter includes revenue of $1 1 million from Bayou discovery since the October 2021 acquisition date.

Revenue from bio discovery is included in the service and other revenue line in our P&L.

The year on year and quarter on quarter increases were driven largely by demand for Sapphire optical genome mapping solutions and of course. The addition of Bayou discovery.

We saw a good balance of growth across all product categories and geographies.

And now let me spend a minute talking about gross margins gross margin for the fourth quarter came in a disappointing 4% compared to 25% in the third quarter of 2021, and 30% from the fourth quarter of 2000.

The decrease was primarily due to low manufacturing yields yields on our chip consumables produced at one of our contract manufacturers and a resulting $1 2 million write off of inventory in the fourth quarter.

Full year 2021, gross margin was 22% down from 33% in the prior year.

Largely because of Covid disruptions and personnel turnover at a key supplier manufacturing yields of commercial grade chips fell during 2021.

These wafers passed quality controls specifications at the foundry, but failed to meet our final commercial quality specifications and therefore, we would not shipped to customers.

In Q4 continued low yield led to the excess inventory and the write off of about $1 2 million of inventory we.

We are actively working with our supplier to get yields back to where they have historically been.

This is a transient issue, but it may take a few quarters for gross margin to recover to prior levels.

Regarding expenses this quarter were updating the way we report our operating expense to include both GAAP and non-GAAP numbers the.

Well as certain other one time expenses will provide a more useful measure of our performance.

Fourth quarter 2021, GAAP operating expense was $29 million compared.

Compared to $12 3 million in the prior year.

The year over year increase was primarily due to head count related spending increased R&D expense and transaction costs associated with our acquisition of Bai of discovery.

Fourth quarter non-GAAP operating expense was $22 1 million compared with $11 4 million in the fourth quarter of 2020.

non-GAAP operating expense excludes $4 8 million in stock based compensation.

$1 2 million in amortization of intangibles and $1 2 million in transaction related costs.

Full year 2021, GAAP operating expense was $81 million and non-GAAP operating expense was $68 4 million.

non-GAAP operating expense for the year excludes $9 7 million stock based compensation $1 4 million in amortization of intangibles and $1 5 million in transaction costs.

At December 31, 2021, bio nano had cash cash equivalents and short term investments of $256 million compared to cash and cash equivalents of $38 4 million at December 31 2020 the.

The increase is primarily due to the equity raises that were completed in the first quarter of 2021.

As we begin 2022, we're in our strongest position yet we expect Q1 2022 revenue to be in the range of five five to $5 $8 million.

Representing normal seasonal declines from the prior fourth quarter.

We expect full year revenue to be in the range of 24 million to $27 million, which would be a 33% to 50% growth over the full year 2020.

I'm really pleased about what we've achieved and where we're headed and with that I'll turn the call back over to Eric to discuss elevate and our upcoming milestones before we take your questions.

Great.

Thank you Chris.

I want to.

Say that we couldnt really be more excited about.

The year ahead.

We have challenges to address and the impact of Covid on our production quality and supply chain.

Remain concerns and.

And we are cautious about the macro environment beyond Covid given current global events.

Nevertheless, we believe we can make significant progress through elevate.

And here are the key value driving milestones in.

In 2022.

In the first half we're going to be focused on making progress in our clinical studies.

Getting IRB approval for our hematologic study.

And progressing in other areas of those clinical trials.

We are also going to be addressing market access through applications.

For a CPT code for optical genome mapping.

In the second half.

We're going to be adding additional laboratory developed test to Bayern our laboratories. These will be optical genome mapping based tests continue progression in our studies through completion of our postnatal study.

And we would expect to have a interim publication on our prenatal study.

We will also advance the product by releasing new labeling protocols.

Isolation protocols that will have the effect of simplifying and accelerating streamline the ODM workflow.

We will have what we're calling a pre commercial version of this new high throughput imaging system for optical genome mapping.

That's going to be running in the field. So we will be transitioning from the prototypes of this pre commercial system over the course of the year and what we would expect to achieve in terms of installed base base growth is.

240, Sapphire systems installed around the world.

Which is an increase from the 164 systems that we finished 2021 with.

In closing.

I want to reiterate that we are very proud of 2021.

And what we achieved.

We are extremely excited about 2022.

And what we see is the.

Increasing interest and adoption in optical genome mapping and thats consistent with our objective to make optical genome mapping really a mainstream analytical tool, but now at expanding beyond just offering optical genome mapping we recognize that software plays.

Critical role in driving forward.

Towards the adoption of <unk> solutions across genomics, and we believe that that's going to be transformational for us and so we look forward to updating you soon.

About our progress this quarter, the first quarter of 2022 and of course throughout the year.

With that operator, we are ready to take questions.

Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.

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 sung <unk> Nam from <unk>. Your line is now open.

Hi, Thanks for taking the questions and congratulations on the quarter and the year.

Starting out with your gross margins and the contract manufacturing issues.

Would you talk about whether you might.

And if you might be able to comment but are there alternative options in terms from a supplier standpoint, and do you expect to use the same supplier for.

The next generation platform.

Well looking at our supply chain and making it.

As robust as possible is something we're always looking at but we're not talking at this point about.

Specific changes any specific changes that will make but it is something we're always always looking at.

Working on it.

Okay Gotcha.

And then in terms of the Bayou Discovery acquisition I believe you guys had mentioned that there is going to be some sort of.

<unk> integration into the software offering sometime this year or some interim.

Development happening sometime this year.

Thank you.

I hear that correctly or just kind of curious what are the updated alright.

Yes.

I apologize I should've mentioned that on.

That's a key milestone for the second half.

We will be the release of Nx clinical.

Featuring <unk>.

<unk>.

On my part.

I don't know that yet.

And then second half for me.

Okay that makes sense.

And then for Chris again could you kind of give us.

Guidance in terms of your opex spending expectation or for the year.

<unk>.

Do you think kind of the spending.

In the fourth quarter.

Good starting point.

Yes.

And again here.

Yes, yes, so from a non-GAAP perspective, yes.

Yes, we think Q4 is a good starting off point.

We are continuing to add head count in strategic areas of the organization, but it certainly won't be the magnitude of the the hiring that we did in 2021. So so if we start with Q4 and modest growth.

Throughout the year.

You'd be in the right ballpark.

Okay got you. Thank you so much.

Thank you.

Thank you. Our next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann. Your line is now open.

Hi, everyone. This is actually destiny on for Jeff. Thank you for taking my question.

I'd like to start with some of these new OTT and the pre commercial rollout of your next generation system.

<unk>.

Should we or what could we think about in terms of what that would include and then with your pre commercial rollout. How do you plan to approach that are you starting with five to 10 accounts for most of your largest accounts how should we think about that.

With regard to the <unk> will be focused on both genetic diseases.

And hematologic malignancies.

The initial menu will include <unk>.

Fsh D on the genetic diseases side.

And I don't think we have completely locked down the heme application, but it will be one of the leukemias.

And it's important to kind of emphasize the role of these <unk> that we're developing these are not revenue drivers for us, but they are strategic.

<unk> that we will use to continue to expand demand for optical genome mapping based assays, but importantly.

We will leverage them to engage with third party payers, such as insurance companies and others to reimburse for optical genome mapping assays.

Now with regard to the pre commercial rollout, we will start with sites that.

Our design too.

Implement and evaluate.

New technologies, and new instruments that haven't yet been released to the market.

And we have a whole host of sites to choose from that have expressed interest and we haven't we haven't pick those sites yet.

Got it okay. Yeah, that's a good problem to have definitely.

I'm curious about your commentary around accreditation.

How might that impact your commercial strategy O U S.

And then any topline impact you think in 2022.

Well accreditation is a process that's not unlike.

First of all it is.

Unique to each region in which it's happening which can be.

Organisers at the country level or in some countries can be organized at the regional level.

Comparable to two state level organizations in the United States, but.

Accreditation is similar to the validation of a laboratory developed test.

In the U S. It meets certain quality criteria that our laboratory is taking responsibility for and therefore qualifies them to bill their health care systems for reimbursement.

On.

The way in which it impacts topline I wouldn't say that.

Pull through on a per site basis will continue to grow from the average that it's at now.

We have and that we've seen out there looking at our revenues I think reasonably assume that these accreditations are taking place.

We're informing everyone that they have taken place.

Yes. Thank you Destiny will always keep everyone apprised, we have an active calendar across all of the major.

Scientific meetings that happen over the course of the year and we tend to announce those in advance. So we will be keeping you posted there.

Got it thanks again.

Okay.

Thank you. Our next question comes from the line of Kevin <unk> from Oppenheimer. Your line is now open.

Hi, This is Steven on for Kevin just a quick question on reimbursement. The first one can you comment on the process.

Applying for category one CPT.

And do you have any idea what a turnaround on that is.

So the process involves a submission too.

The MAA as part of the CPT code.

Valuation and assignment.

Function that they provide.

The application is reviewed by a committee.

And that committee.

We'll look at all of the applications that are submitted in a given period.

And their process would be to evaluate.

The need for such a code and that need is based on the existence of let's call. It a critical mass of utilization in the United States.

Evidence for that critical mass or <unk> that have been developed by different labs.

The applications for different laboratory specific codes, such as Pls codes and so we know we've seen that and so there's a good amount of evidence for utilization.

And the committee determines whether it's appropriate to issue a specific code connected to the methodology and that process unfolds over roughly the first half of the year.

The outcomes could be that the code is denied for any reason and we would have the chance to reapply the code could be approved.

We're excited that we feel that we have reached the level of utilization adoption and need in the market that we believe could potentially reflect.

Favorably on the need for this category, one CPT code, but it's up to the committee to decide.

Yes, no I agree with my rally unplanned milestone.

And just staying on the topic of reimbursement do you guys have an idea of what the next steps following the second quarter.

Great. Thank gail on whether or not you get reimbursement.

Yes so.

Okay.

These studies factor into reimbursement.

I would say something about we're talking about a category one CPT code.

The process.

A reimbursement I think can be reasonably described as a combination of coding and coverage.

And there are a variety of ways in which an assay can be coded and so we've talked about them of course the category. One CPT codes is one of the more general ones and that's why we're enthusiastic about going for it but coverage.

Coverage is the process that payers go through to determine whether the assay itself.

Arent there their reimbursement coding is important.

In some respects clinical but coverage is key and coverage decisions are made by a number of factors again critical massive adoption and utilization.

They rely heavily on where medical societies come out.

<unk>.

The utility and value of a particular methodology, our assay our workflow technology.

In our case of course, that's optical genome mapping.

So medical societies way and greatly on that.

As do various demonstrations of this utility and so the completion of the post needle study will entail the.

The evaluation of all of our primary endpoints. So we've looked at just those technical performance endpoints. So far in the interim relief, but the completion will entail looking at these critical endpoint like.

The turnaround time.

Overall success rates are a diagnostic yields if optical genome mapping were to be used as a.

Diagnostic assay.

Health economic impact and then over time, we'll of course be looking at patient.

Patient outcomes, but these primary endpoints health economic turnaround time.

Workflow simplification and overall diagnostic yields were factor in prominently.

And coverage decisions that will be coming.

Over the course of this year and into next year and so that's why that's such a key.

Study for us to to reach completion.

Just one last question.

So you have several X study timelines in 2022 really exciting.

Confident are you about these timelines.

So what are some of the risks that may be for Steve.

So.

We try to be cautious and careful.

About committing to these milestones and so we have enough confidence to put them out there.

Yes.

We believe strongly that we'll be able to hit them.

The risks that we face like anybody conducting a clinical trial.

Tend to be primarily around enrollment.

But for US it's a process of data generation.

<unk> analysis.

Porting interpretation and then ultimately the publication.

If we can get the enrollment.

We have a good shot at it.

Seeing the other things go reasonably smoothing smoothly according to timeline.

The risks and enrollment is related to COVID-19 and other aspects of staffing shortages and any closures that might happen. We're not we're not seeing closures anymore and I don't know if other companies are talking about that but we have seen.

Through the omicron surge and maybe thats behind us, but we're still feeling the ripple effects of it where a lot of staffing.

<unk> have occurred and as a result.

Sites are focused on critical activity as essential activities and so some of these research studies take a back seat and so that's probably the biggest risk.

Staffing shortages also impact our ability to generate and analyzed data. So we have to be mindful of those but.

Got it.

The relations line at quarter end the call. Thank you.

Thank you.

Thank you. Our next question comes from the line of Jason Mccarthy from Maxim Group. Your line is now open.

Hey, guys. This is Michael <unk> on the line for Jason Thanks for taking my questions and congrats on a really great quarter.

Two.

Hey, actually just start out on the.

On the revenue line and <unk> could provide a bit more granularity in terms of how much of that growth.

Was organic driven by increased Sapphire utilization.

And then if you could give a bit more in terms of.

How much of that was consumables versus unit placement and rental income.

Okay.

Yes, so first of all.

We did mention or I mentioned that there was a $1 $1 million contribution from <unk>.

That was most of Q4 the acquisition closed October 18th so.

That was that so from Q3 to Q4 organically.

Grew about half a million dollars.

And that was balanced across.

Both instruments and consumables.

Revenue so sapphire.

The ODM business drove most.

Just if not all of that growth.

And it was almost like equally.

It was yes.

It was geared towards instrument and a little bit less growth on the consumable side in.

In Q4.

Alright, Thank you and then.

I'd also like to follow up on the question regarding the post Natal study from a commercial perspective.

Wood.

A covered postnatal assay look like would it primarily be a driver of adoption among diagnostic labs or is there a potential to get a more direct revenue stream from the assay.

It's the former I mean, I think that.

We're not really in.

The testing services business broadly we are in it and as you know.

To run multiple assays per lab than trying to drive.

Revenues by selling a diagnostic tests and.

I think we can point to probably many examples of companies that have taken that route.

Illumina has built their business primarily.

The adoption of optical genome mappers.

Our software.

And genetic diseases and genetic disorders.

We were very excited to announce our.

Strategic initiative around rare undiagnosed genetic diseases yesterday in recognition of rare diseases.

De rare diseases, you may know.

As.

Sure.

A name that's completely wrong for the condition as a whole there are some 350 million people in the world who are impacted by our so-called rare disease, 75% to 80% of those have a genetic cause an optical genome mapping can play an important role in answering.

Solution.

In areas like rare undiagnosed genetic diseases are or the rugged field as we call it.

Alright, Thank you very much and again congrats on the quarter.

Thank you.

Thank you at this time I am showing no further questions I would like to turn the call back over to Eric Hoffman for closing remarks.

Okay.

Great. Thank you Gigi I want to thank everybody for joining and participating the good <unk>.

Questions.

And we look forward to speaking to you again about Q1, which will be a call just right around the corner. So thank you very much.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2021 Bionano Genomics Inc Earnings Call

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