Hey, welcome to the Canaccord Growth Conference. I'm Kyle Mixon. I cover life science, tools, and diagnostics for Canaccord. Pleased to really have this fireside chat with Bionano Genomics here with us today. Bionano offers optical genome mapping technologies for genome analysis, which we'll learn more about today. With us from the company, we have Erik Holmlin, CEO. Thanks, Erik, for joining us today. Appreciate it. This is a growth conference. You're a growth-oriented company. Maybe not everyone knows the story super well, so we want to just go through like an overview of Bionano.
Yeah, sure. I appreciate it. I appreciate the invitation, Kyle. You know, your work is really well done, and you know, everybody on my team loves reading your reports and what you're covering. You're doing a great job. What I would say is that when you think about Bionano , we are a traditional life sciences instrumentation company in that we offer a platform for genome analysis, but we really don't want to be thought of as a traditional life sciences instrumentation company because what we do is look at the applications that customers use when they adopt our platform. Across this landscape of human analysis and genomics, actually, there's a long history of clinical testing that's been going on in pathology, cytogenetics. Molecular pathology is newer, but there's tons of anatomic and clinical pathology. This is where our proprietary platform, optical genome mapping, is really making inroads.
What we're focused on is transforming those workflows. If you look at cytogenetics, for example, karyotyping is the gold standard across the world in hematologic malignancies. Every leukemia, lymphoma, myeloma, there is an attempt to karyotype. Now, half of the time, that result comes back normal karyotype, but the sample is being analyzed in the first place because the oncologist knows they have leukemia. This is a workflow we think we can digitize and completely transform. In addition to karyotyping, there's something called FISH or fluorescence in situ hybridization. Optical genome mapping does what karyotyping and FISH do in leukemias and lymphomas. Microarrays, which have been the first line standard in genetic disease analysis, optical genome mapping can replace that as well. OGM for short is consolidating these three legacy methods into one digital platform.
Publications are now showing that it not only is faster, so karyotyping takes four weeks, mapping takes four days, but it's much more accurate. Better results. Instead of getting 50% of your samples coming back normal karyotype, there are studies that are published that show that that number can be as high as 85% with mapping. We have a very focused end-user application. It's transforming this cytogenetic workflow within pathology.
Great. You have a multi-billion dollar opportunity. You want to just walk through the different segments as you see them?
Yeah, I think that, you know, there's a couple of key elements here. Number one is for optical genome mapping as a workflow, certainly within those hematologic malignancies, leukemias, lymphomas, then across genetic diseases. Think of your developmental delays, intellectual disability, autism spectrum disorder. Any of these sort of situations where a child is missing a milestone, it's indicated to be looking at some form of a genetic analysis. Mapping can be used there. We call that constitutional genetic disorders. A third area and a really important one is in pharmaceutical R&D. Cell and gene therapies, CAR-T, various gene therapies, stem cell therapies, all require some sort of genetic analysis in order to confirm that on-target effects have been put in place and that there are no off-target effects.
What we see is a lot of adoption within pharmaceutical companies to use optical genome mapping as an alternative there as well. That's another significant opportunity for mapping outside of the clinical research pathology segment.
Got it. In terms of your products, you had the Saphyr for three years. That was the main platform for OGM. I think early last year you announced the Stratus, which was the next-gen kind of platform, four-fold increase in, I think, throughput. Can you talk about how that kind of ramp has gone, recognizing there's been some macro constraints and stuff?
Yes. The macro environment has been an interesting one to navigate. What, you know, our sort of historical progress has been led by the Saphyr System, which is really the first mapping platform for at-scale utilization. It's the one that we broke into these other indications with. The majority of publications are, you know, based on data that were generated with the Saphyr System. What we recognized was that higher volume labs, reference laboratories would need higher throughput in order to really adopt optical genome mapping in a routine and industrial way. We developed the Stratus . It's based on the same core technology. It uses the same proprietary consumable, which linearizes DNA and enables detection of structural variations. The Stratus, as you mentioned, has about four times the throughput of the Saphyr. We offer those together in the market today. We have seen, I think, excellent adoption.
There's right around 20 Stratus Systems in the field today, and they're all being used by high-volume users. Typically, the customers that are coming on board with Bionano and mapping tend to be those higher volume users. It's really found its place with people that are running routine clinical research applications. We're still selling the Saphyr System. It's proving to be maybe an entry model for some labs. The two of them go together. What links all of this together is our software. We've developed something called the VIA software. VIA stands for Variant Intelligence Applications. What's really great about VIA is that for the optical genome mapping workflow, it uses AI to completely automate the whole process from interpretation, annotation, analysis, and reporting.
The laboratory, which historically would be delivering multiple reports to an end user at multiple stages, different times, now gives one single consolidated report, which they customize and develop on their own, but they're able to build it around various guidelines such as the NCCN guidelines. It's an incredibly streamlined workflow. VIA not only allows for the analysis of optical genome mapping data, but you can look at microarray data on it and next-generation sequencing data. You can analyze structural variations from NGS as well. In addition to our sales of optical genome mapping systems, we also sell the software. Those are the two products that are really driving the growth of the company going forward.
Got it. Given maybe like the placements and the shipments of the instruments, maybe a slowdown or like what will be slow going forward, how has the utilization per instrument kind of trended, especially when you compare Stratus to, you know, Saphyr?
Yeah, I think, certainly, our highest volume users, we have more than one customer. I guess that's multiple customers that are actually running close to $1 million a year in consumables. You know, across the, you know, 150 or so routine users, those are relatively rare. What we're seeing is that a lot of customers are coming in and running at higher volumes, and some of those are Stratus customers, others are customers that have built a network of Saphyr Systems to work together to generate the pull-through. Our focus, as times got tight for equity financing and the pressure was on to reduce operating expenses, we've taken over $100 million of non-GAAP operating expenses out of the P&L over the last several quarters. We're burning substantially less cash. Those actions and others have enabled us through the end of the first quarter.
We report the second quarter tomorrow, but through the end of the first quarter have enabled us to take gross margin from about 22% in the first quarter of 2023. We reported 46% last quarter. We expect that trend to continue. That's related to cost reductions and volumes. We have focused our company on really addressing mostly our existing routine users, training them on our software so that they have a higher internal capacity and can run more. What we're seeing is, we're starting to look at sort of same customer consumables purchases, and it's growing. We'll have more to say about that actually in the earnings call. We saw good growth so far with this group. We understand strategically how to work with customers and have them expand their menu.
The key to growth and utilization is somebody may adopt optical genome mapping to analyze, you know, ALL, for example. Once they have validated a workflow for ALL, then they can bring CLL, CML, and they can bring other indications on, some run constitutional genetic disease analyses like FSHD is a common one, common genetic test that people will bring on. Growing that menu expands consumables revenues on a per-customer basis. Obviously, customer profitability, we're not using our capital for customer acquisition. I think we're much more capital efficient and we're seeing the growth. It's good overall and the margin is way up. That's very positive.
Yep. You're talking about a lot of clinical applications. Are you seeing that the clinical customers, let's say, kind of start at a lower utilization or a pull-through metric and that grows and becomes even more recurrent, whereas the academic guys might be a lot early on but might be more lumpy or stop kind of short at some point?
Yes, it's very lumpy on the academic basic research side, and you know, that's driven by they get a grant, they run some samples. Sometimes those grants are enormous, and so they might run, you know, 500 samples and that's great. Then the same postdoc that was running the samples buckles down and analyzes them. That continuity or routine use pattern isn't always there. Since we sell an RUO product, we tend not to say clinical customers, but we refer to them as routine users. That's the same in pharma. It may not be a clinical end use, but it's still a routine user, and those applications are much more consistent, predictable, and, you know, higher volume overall. That really is, you know, that is the dream overall, to build that customer base.
I think if you look at the history of Bionano and you've been following us for a while, optical genome mapping, we've known has incredible capabilities and we've had to feel our way through to find exactly where it was going to make the biggest impact. I think we've done that, and that's why we're seeing this adoption. Now at the front end of your question, you said you were talking kind of like, what does the ramp look like, utilization ramp for one of these routine users? They tend to offer the technology in a validated environment. We sell them an RUO product. They bring it in. They themselves develop an assay on it. Let's say a laboratory developed test, for example. They will develop an LDT and they'll start running samples and then they expand that menu. Then they develop a second LDT and a third LDT.
We have some labs now that are running multiple LDTs on Saphyr or Stratus.
Got it. Yeah. On that note, it has been three years, for five years at least, you've been kind of working towards that goal of having OGM LDTs, OGM tests out there, like commercialized almost. I think you had some recent news about Category I CPT code. Can you just talk about that as well as next steps for reimbursement for OGM?
Yes. You go to a lab and you say, listen, this is going to be a great technology. You're going to want to use it to replace your karyotyping and FISH. Of course, they're getting paid for those, and so they're interested in, will I get paid for OGM? Historically, that's been, well, maybe you can get some grant funding, maybe you can use your institutional funding. Last year, in June, so in 2023, the AMA established a Category I CPT code for using OGM in leukemias and lymphomas, hematologic malignancies. In June of this year, the AMA established a CPT code for using it in these constitutional genetic disorders. Really, our entire routine use portfolio is covered by a Category I CPT code. Category I is an incredibly high bar, and we've been able to pass that.
Anecdotally, we hear from labs that they are getting paid at the CMS rate or whatever rate it is that they're contracted, which is always related to the CMS rate. We expect there to be coverage decisions coming out over time related to OGM. One of the things that's, I think, a little bit easier with OGM compared to other novel solutions in the space is that this is just a different mousetrap. Labs are already processing these samples to get this information. We're not asking a physician to do something they aren't always doing. Those labs are not asking an insurance company to pay for something that they're not always paying for. The Category I CPT code is a tremendous leap forward for OGM.
The thought is that your customers will get reimbursed or paid for tests that are developed on your platform. Therefore, you will get consumables revenue as that becomes a recurring kind of test for that customer.
That's right. A barrier to adoption for them is economic. Will they be able to overcome the opportunity cost of not using something that they would otherwise get paid for? Our belief is that the CPT code is filling that gap, and that is really one of the final remaining gaps to increasingly widespread adoption.
Yeah, exactly. What else remains from the clinical side of things?
Yeah, I mean, I think that we have certainly reached a certain tier where we've addressed a lot of the really existential questions, like without this, I simply cannot move forward. I believe that all of those are set aside. By the way, we have tremendous adoption across Europe. Europe is a little bit more evolved when it comes to healthcare reimbursement policy, and what we've seen there is that they've been getting paid for their OGM for a while. They need to continue to jump through hoops. Europe is a very solid and established OGM business for this routine use. We're at this level where we've overcome these major barriers. Now, methodologic tweaks that allow for menu expansion, a lot of that gets done by current customers.
For example, multiple myeloma is a notoriously difficult sample type to work with in cytogenetics because it typically does not grow in culture. The number of affected cells in a given sample is usually very low, so it hasn't met our commercial criteria for QC of the sample. One of our users in France actually published a paper demonstrating that they could reduce that input requirement by a factor of two, and now they run multiple myeloma on a routine basis. We're seeing this sort of adoption happen in other places. There remain hurdles here and there. A major update that we recently released was to our software, which took the workflow for analysis, interpretation, reporting in constitutional genetic diseases and fully automated that.
We had a history, or the first release of VIA software only addressed that need in hematologic malignancies, but we now have released that for constitutional genetic disorders. Innovation that we can do that continuously streamlines and simplifies the workflow, expands the utility, is the thing that we're focused on. We're getting help from the existing customer base, which is nice.
Got it. Given, you know, cash is like so precious and you're trying, you have tried to get OpEx down and get the burn down and kind of set up a path of profitability. How are you going to invest going forward? Is it more on the pushing boxes out there side of things or kind of beefing up or improving the system and the software to enable expanded applications?
Yeah, I think that if we look across the sort of OpEx line in the company, the area that is kind of 2x at least any other area is what we would call like customer success, customer support, and really focused on making sure customers understand the workflow, can perform it at a high level, and increase their utilization based on that training and support. That's the area of greatest investment for us, which is sort of the opposite side of getting more boxes out there. We really have, explicitly, we have said to the market that we're not, I mean the stock market, but to the end user market that we are not going to be out there driving new system placements like we had in the past, that we are going to focus on our existing users.
Interestingly, when we said that on conference calls, we have large organized networks of users in three or four different geographic regions. They were alarmed because the lab up the street from them is excited to get OGM, a Saphyr, or a Stratus, their friend, their colleague, their mentor. We assured them that we will continue to put systems out. We set guidance to do up to 20 systems this year. I can tell you just through our, through Q1, we haven't reported Q2 yet, but just based on what Q1 looked like, we'll exceed that number. We have a healthy expansion of new systems, but instead of doing 80- 100, we're doing 20 or so thereabouts. These are all to routine users that will pull through a high volume of consumables.
Okay, great. At the moment, your revenue guidance for the year is $26 million- $30 million. It is like a, you know, year- over- year decrease, but given the changes, it makes sense. You know, you're going to have an update tomorrow. You might adjust that range or, you know, increase, decrease it. When you think qualitatively about the path forward on the U.S. academic side of things, given the NIH kind of news flow, the international side of things, whether it be AMIA or Asia, APAC, and then the clinical world as well, what are just some, you know, the puts and takes that we should be thinking about going forward? What could really impact your performance without giving any numbers?
Yeah, sure. I mean, I think that overall we find ourselves in a reasonably safe zone. We do see it. We were at a conference last week, I think, in Houston, the Cancer Genomics Consortium Conference taking place in Houston. We have a big presence at MD Anderson. We spent a lot of time with them, and they indicated that even though their primary focus as MD Anderson is treating patients, they do see impacts of the uncertainty around funding, and it is affecting things for them. Oncologists at MD Anderson will not treat their leukemia patients, we understand, we're being told this anecdotally, without an OGM report, right? They're relying on it. Oncology patients are not going anywhere. That seems to be a very consistent and stable place for us to be, somewhat insulated from NIH uncertainty.
Europe is stable, and we're not seeing any of those kinds of pressures. There are different pressures there in Europe, certainly, but that's relatively stable. China was big for us for a while in the academic research market. That has slowed down, but there's tremendous potential there. We have a partner who has gotten a version of the Saphyr System registered with the National Medical Products Administration, or NMPA, there, and we're working through how they might commercialize OGM there. I think that there's upside potential there. In the Middle East, we have a very significant presence in Turkey, and the Turkish Health Ministry in the last 45 days just placed optical genome mapping into its registry of clinical tests. A physician can order it there, and we see a lot of growth potential there as well as across the Middle East.
Our focus directly is on the United States, Canada, Western Europe, and we also have a big business in Israel. I would say that overall there's quite a bit of upside there, and we're in a stable place with growth potential here in the U.S.
All right. On your cash flow perspective, you have cash flow only until in, in 2026, I guess. That's not, you know, extremely long. What are some of your options to extend that, I guess, as you think?
Yeah, I mean, I think that like any public company, we have a variety of vehicles that are available to us, including a shelf registration that we have, an S-3 shelf, but we can finance on other platforms in the public equity markets. We have a debt on the books now, on the balance sheet now. There could be some things that we might do with that debt to release additional cash. Yes, I think that we're at a level of cash reserves, which mean that management should focus on finding ways to replenish those. I think we'll need to raise equity capital. I think with the new expense and cost structures, these improvements in gross margin, our capital needs, I mean, they are a fraction of what they have been in the last several years, which is great. I think we put that capital to good use.
We figured out where our proprietary products could be adopted for routine use, both optical genome mapping systems and software. Now we can drive those forward to get to cash flow break even.
Got it. Okay. Finally, let's wrap up with a couple of questions in one. First, what are some attributes that people underappreciate or don't exactly expect from Bionano , let's say? As you think about next year, how are you going to surprise people?
Yeah, I mean, I think that, you know, I'm the CEO of the company. I check the stock every once in a while, and, you know, I look at our market capitalization and it's one third of our revenues. We're traded at a multiple of 0.3x, you know, and to me, that reflects certain attitudes around our cash balance, but also a true underappreciation of what our potential is. One of the things that we'll hear in an investor meeting very common is, wait a minute, this isn't sequencing. I'm thinking like, that's the epiphany. You got it. There are a lot of sequencers out there. By the way, they're kind of struggling. We're something that's in that space but adds completely unique value with tremendous upside. I think people are missing that.
A year from now, I think that what we're going to see is a lot of progress on the reimbursement landscape here in the U.S. We'll see a lot more traction with third-party payers in a way that is really systematic. Right now, it's a little bit more anecdotal based on the CPT code that seems to be working, and there's the potential that prices could change for these CPT codes in the positive direction, but I'm not making that prediction. That would be cool to see. We are aware that customers have been asking CMS to take the pricing up. Let's see what happens there.
What is the price right now?
It's around $1,263.
Got it. Okay. All right. Awesome. Good way to end. Thanks a lot, Erik.
Yeah.
Appreciate it.
Thank you, Kyle.