Good day, and welcome to the Bionano Fourth Quarter and Full Fear 2022 earnings conference call. At this time, all participants are in a listen-only mode. To ask a question during the question-and-answer session, you will need to press star one one on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star one one again. Please be advised that this 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, Michelle. Good afternoon, everyone. Welcome to the Bionano Genomics Fourth Quarter and Full Year 2022 Financial Results Conference Call. Leading the call today is Dr. Erik Holmlin, CEO of Bionano. He is joined by Chris Stewart, CFO of Bionano. After market close today, Bionano issued a press release announcing its financial results for the fourth quarter and full year 2022. 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 Bionano's strategic and commercialization plans, sales pipeline, future fundraising activities and prospects, anticipated benefits or improvements to the Saphyr system and Ionic purification system, goals and anticipated milestones for 2023, and achievement of our ELEVATE growth strategy, our anticipated compound annual growth rate, the size and our ability to access our estimated target markets, the advantage of the Saphyr system and Ionic purification system over current technologies, the anticipated benefits of recent acquisitions, expectations regarding timing and content of study results, and anticipated benefits of these studies in driving adoption of the Saphyr system and Ionic purification 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 Bionano's press release and Bionano's reports filed with the SEC. These forward-looking statements are based on information available to Bionano today, and the company assumes no obligation to update statements as circumstances change. In addition, to supplement Bionano's 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 expense are included at the end of the company's earnings release issued earlier today, which has been posted on the investor relations 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 company's website. With that, I will now turn the call over to Erik.
Thank you, Amy. Good afternoon, everyone. Thank you for joining us today. I want to start off by saying that 2022 was simply a spectacular year for Bionano. We really couldn't be happier with the results. In fact, we're just blown away with what we see as progress around the world in adopting optical genome mapping. We started 2022 in a pretty difficult macro environment. There was continued uncertainty around COVID, which was limiting our access to laboratories and impacting our ability to install the Saphyr system. We faced challenges with chip suppliers, and production yields were lower than anticipated. I'm happy to report that over the course of the year, we were able to get production yields back up and restore them to levels that they were previously, and that we hit our installed base milestone for Saphyr systems for the year.
Never once did we face any backlog or any inability to ship product to customers based on supply chain issues. That's a credit to so many incredible employees across our company who battled through difficult conditions to produce a great result, and I'm thankful to them. We kicked off our strategy for growth, which we named ELEVATE, at the start of 2022, and we delivered against all of our ELEVATE milestones for the year. We met or exceeded our guidance for revenues on both a full year basis and in each quarter over the course of the year. I'd like to take a little bit of time to share with you some highlights from our 2022 achievements, including those in the fourth quarter.
To begin, we grew the install base of Saphyr systems in the world to 240, which represents a 46% increase over the 164 systems that were installed at the end of 2021. In the fourth quarter of 2022, we sold 4,781 flow cells, which represents 49% growth over the same period in 2021, and brought the total for 2022 to 15,375 flow cells sold. That represents a 23% growth over the 12,518 flow cells sold in 2021. That's just tremendous progress. You have to remember that the flow cell is the unit consumable that really connects most closely to the number of human genomes that are being analyzed by optical genome mapping, this growth is truly impressive.
We continue to process a substantial number of samples for optical genome mapping through Bionano Laboratories. This is a vehicle that we leverage to introduce people who are interested in OGM to how powerful that data is on their samples. Revenues for the fourth quarter of 2022 were $8.2 million, which is up 30% versus the fourth quarter of 2021. Revenue for the full year was, 2022, was $27.8 million, which represents year-over-year revenue growth of 55%. We're incredibly impressed by the performance on the top line in the fourth quarter, and we believe it really shows what we're capable of doing in this business, both from an absolute standpoint, but on an ongoing growth basis. It's an outstanding outcome for our team selling optical genome mapping and our other products, clinical services and software.
In fact, we exceeded the goals and expectations for all of our planned milestones over the course of the year and advanced the company strategy as well as our products. I'd like to share some of those key highlights from the full year. We made significant progress towards streamlining the optical genome mapping workflow with our acquisition of Purigen Biosystems, which closed in November 2022. That acquisition brings their Ionic system, which uses isotachophoresis technology into our optical genome mapping workflow, and we believe that it really completes the assembly of the extremely streamlined end-to-end workflow for optical genome mapping once we launch the Ionic system and its consumables for OGM. We developed and released enhanced kits for DNA isolation and labeling in our OGM workflow, the SP-G2 labeling kit, and the Bionano Prep Direct Label and Stain-G2 DNA isolation and labeling kits.
These enable sample to results in as little as 3 days for cancer samples. They are proving to dramatically increase the reliability of the workflow in customers' hands. It's always been a key pillar of our strategy to delight customers with robust products. These new kits do exactly that. We also released an automated version of our DNA isolation chemistry, which has been done in partnership with Hamilton and is linked to their Long String VANTAGE DNA isolation robot. We launched a number of optical genome mapping laboratory developed tests or LDTs through Bionano Laboratories. One is for hematologic malignancies, and another is for the genetic disorder FSHD1.
We believe these allow healthcare providers to explore the clinical utility of Optical Genome Mapping-based assays through these LDTs. We believe that this utilization will support efforts to gain coding and coverage for reimbursement by third-party payers. We also met all of our milestones in our clinical studies for prenatal and postnatal and hematologic trials, including study enrollment targets, completion of our postnatal study, which has now been published as a preprint, as well as the interim publication of the prenatal study, which was published in December of 2022. We also initiated our solid tumor trial. These trials are critical to providing the critical mass of data that will be used to drive medical societies to support the inclusion of Optical Genome Mapping in their recommended first-line tests. Several sites across the U.S. and Europe validated laboratory-developed tests.
In the United States, they submitted applications for reimbursement codes, including Z codes and proprietary laboratory analysis, or PLA codes, which enable them to get paid for optical genome mapping tests. They have been very pleased with the level of reimbursement that's been assigned to these codes, ranging in the area of about $1,300 for constitutional genetic disorder testing, which is comparable to reimbursement rates available in the market today. NxClinical software version 7.0, which is the version of that software enabled for OGM data analysis, is being used in the field, and we are planning a full commercial release for applications in hematologic malignancies in the first half of 2023.
A pre-commercial version of our next generation high throughput Saphyr system has been running in the field with excellent results, and we plan to launch that new instrument into the field this year. Initial launch will be in the first half of 2023, and we'll see adoption and installation towards the second half of the year. We expect this instrument to enable optical genome mapping analysis at substantially higher throughputs compared to the Saphyr system, and that it will support labs that are running much higher volumes. Finally, there were a number of amazing publications that were published in 2022, and we believe they tell the story of optical genome mapping and how the future of the company will unfold. Five groundbreaking publications that I wanna outline for you today are as follows.
You may remember that we talked about an incredibly powerful publication from a number of scientists at the University of Texas MD Anderson Cancer Center, where they describe the use of optical genome mapping and evaluation of myelodysplastic syndrome, or MDS, prognostication. What was incredible about this paper is it showed that up to 21% of study subjects had a different prognostic risk score when optical genome mapping was used to evaluate them, compared to the standard of care. That's one in five people, the impact of OGM cannot be denied. This publication really underscores it.
Researchers from Necker Hospital in France found that optical genome mapping detected more clinically relevant variants in 33% of MDS patients and 54% of acute myeloid leukemia samples, which is a critical demonstration of the utility of optical genome mapping to go above and beyond the standard of care. Researchers from 8 different institutes analyzed OGM's utility for cytogenetic abnormalities in, again, AML samples, here they found that 12% of the cases had different risk levels and were eligible for clinical trials as a result of these new findings. This inclusion in clinical trials is incredibly meaningful because it connects these patients to potentially life-saving therapeutics that they otherwise would not have had access to without the findings of OGM. You can imagine the impact of these findings.
Researchers from Augusta University published the first validation study to evaluate the performance of optical genome mapping versus traditional methods for hematologic neoplasms, which showed an incredibly high technical performance and concordance rate with, importantly, a 100% first pass rate, meaning that the reliability of optical genome mapping in these workflows is highly reliable and does not require repetition of the test, which drives up costs for payers and delays results to patients. Researchers from a foundation at Kyoto University demonstrated the utility of optical genome mapping as part of a workflow to evaluate immunogenic induced pluripotent stem cells, iPSCs, and that this workflow could be used in regenerative medicine, showing OGM's ability to detect off-target effects or areas where genome modification has gone awry and reveals that these modified stem cells may or may not be useful in a particular patient setting.
This is an area of significant interest in the adoption of optical genome mapping for various applications in cell therapy. At the close of this call, I wanna go through our milestones planned as part of ELEVATE for 2023. Before doing that, I wanna turn the call over to Chris Stewart, our CFO, who will review the financials for the year. Chris?
Thanks, Erik. The fourth quarter of 2022 was another outstanding quarter, which capped off a great year where we achieved impressive year-over-year revenue growth and diversified our revenue across product lines and geography. With the acquisition of Purigen, we now control the end-to-end OGM workflow and expect to expand our target markets. To get to the numbers. Revenue in the fourth quarter of 2022 was approximately $8.2 million, a 30% increase over the fourth quarter of 2021, and within the preliminary range of $8.1 million-$8.4 million that we provided on January 5 of this year. Revenue for the full year was $27.8 million, representing a 55% increase over the full year 2021.
This year-over-year increase was driven by strong performance in all three of our core businesses, OGM, Bionano labs, and software, and across all three major geographies. Gross margin for the fourth quarter of 2022 was 22%, compared to 4% in the fourth quarter of 2021. For the full year, gross margin was 21%, compared to 22% in 2021. The slight decrease from 2021 was mainly due to the yield challenges that we experienced beginning in late 2021. As Eric mentioned, yields on product being produced today is now back to the levels we saw pre-COVID, we expect that that issue is now behind us. Regarding operating expense, we report both GAAP and non-GAAP numbers. We believe that providing our operating expense, excluding certain ongoing non-cash expenses and other one-time expenses, provides a more useful measure of our performance.
Fourth quarter 2022 GAAP operating expense was $39.3 million, compared to $29 million the prior year. Full year 2022 GAAP operating expense was $137.6 million, compared to $81 million in 2021. The increase for the quarter and the year was primarily due to increased headcount and headcount-related expenses and an increase in marketing and R&D expense. Full year 2022 non-GAAP operating expense was $107.7 million, and excludes $22.4 million in stock-based compensation, $5.8 million in amortization of intangibles, and $1.8 million in acquisition-related transaction costs. Fourth quarter non-GAAP operating expense was $30.6 million, compared to $21.8 million in the fourth quarter of 2021.
Fourth quarter non-GAAP operating expense excludes $5.5 million in stock-based comp, $1.5 million in amortization of intangibles, and $1.7 million in expenses related to our acquisition of Purigen. We ended the fourth quarter with $113.2 million in cash equivalents and available-for-sale securities, compared to $180 million at the end of Q3. During the quarter, we incurred costs of approximately $34 million related to the Purigen acquisition, and we increased our safety stock of inventory by about $4.7 million to ensure supply to our customers. We have been and will continue to be proactive and opportunistic in terms of raising additional capital in order to position the company to capitalize on the promise of OGM.
Since the start of the year, of this year, we've been active on our ATM facility, raising $14.8 million so far in Q1 of 2023. This morning, we filed an amendment to our current S-3, placing a cap on the total amount of capital that can be raised under our existing shelf to $400 million, of which $200 million can be raised under the ATM. This is a reduction to the $350 million under our previous ATM agreement. Tomorrow, we will file a new S-3 with the same capital limits that will replace our current S-3 once declared effective by the SEC.
Looking forward, as we begin 2023, we expect Q1 2023 revenues to be in the range of $7 million-$7.5 million, in line with the typical seasonal softness that we see in Q1. We expect full year 2023 revenue to be in the range of $35 million-$38 million, which at the midpoint would be 31% growth over 2022 revenue. I'm really pleased about the progress we're making across all aspects of the business and very excited about where we're headed. With that, I'm gonna turn the call back to Erik to discuss our anticipated business plans before we take your questions. Erik?
Thanks, Chris. Congratulations on the incredible results. I'd like to close out today by diving into the 2023 milestones that will be tied to our growth strategy. Before doing that, I wanna remind everyone that we held our first-ever Strategy Day at Nasdaq in New York, where this whole team went through an in-depth review of our strategy, growth drivers, financial objectives, key initiatives related to clinical trials and new product advancements, as well as in-depth discussions with 6 current users of the Saphyr system, who are regarded as world leaders in their fields, who gave incredible testimonials about the utility of that platform and its positioning. I encourage everyone to check out the recording of the event, which can be accessed on the investor side of our webpage.
As we reviewed in depth during Strategy Day, we're focused on driving what we believe is a cytogenetics revolution. ELEVATE is our growth strategy. ELEVATE is based on 6 strategic pillars. The first one is to expand commercial traction and validation of optical genome mapping and really all of our solutions, to delight customers with robust products, clear the path for OGM reimbursement in our target markets, continue to advance the product to enable further penetration of our existing markets, as well as expand the market for penetration into new ones, make software a strategic driver of Bionano solutions, and with the acquisition of Purigen Biosystems, we'll extend that to include making sample prep solutions for DNA isolation, another strategic driver.
Finally, the sixth pillar, and one that's really important on a go-forward basis, is that we need to execute these pillars with operations and strategies that will scale with this growing business. We have a number of key milestones that are planned in 2023. They cover areas of product developments, our ongoing clinical studies, milestones in reimbursement, milestones around expanding the base, installed base of optical genome mapping systems, and important regulatory developments with the FDA. I want to run through a few of these, and you'll be able to review them through the recording of this call, which will be archived on our website. We intend to expand the OGM system installed base to 325 systems by the end of 2023.
We intend to add to our menu of LDTs at Bionano Labs, with one for whole genome evaluation of structural variations in constitutional genetic disease. We're going to be inspected by the College of American Pathologists at Bionano Laboratories in connection with our application for accreditation by CAP. In the first half of 2023, we'll be launching the high throughput Saphyr system, which we believe will increase throughput substantially and will be connected to the new Saphyr Compute, which has been developed in collaboration with NVIDIA. We're going to have important pre-submission discussions with the FDA that are leading up to a pre-submission in connection with the high throughput Saphyr system later on. We plan to submit an important dossier to Medicare for something called a local coverage determination in 2023, and we will advance our clinical studies.
There are a number of milestones in connection to these studies, including ongoing enrollment of our prenatal study, as well as ongoing enrollment of the heme study, around which we expect to achieve about 50% enrollment. We are continuing to pursue our category one CPT codes for heme and constitutional use of optical genome mapping, and we expect to have pre-commercial versions at a minimum of our OGM kits for isotachophoresis that will run on the Ionic purification system in the field by the end of the year.
Lastly, we will be launching and having a full commercial release of VIA, which is the newly named software for data analysis based on what we acquired from BioDiscovery, and VIA includes the ability for optical genome mapping analysis, and it will target heme applications in the first half of 2023, and then a whole genome analysis version available in the second half of the year. These are incredibly important milestones that we expect to achieve this year, and the whole driver behind them is to provide catalysts that will enable ongoing revenue growth and the development of a very robust P&L. As we continue to execute on these core elements of the strategy, we expect to grow revenue for the next few years at a healthy compound annual growth rate ranging from 30%-50% through 2025.
We believe that we're building a business that will eventually scale into this enormous market opportunity that we're pursuing and deliver exceptional financial results. In closing, I want to say that we are really excited about what we can achieve this year, and we look forward to updating you soon about the first quarter and throughout the year going forward. With that, Michelle, we are ready to take questions.
Thank you. If you would like to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one. Our first question comes from the line of Jeffrey Cohen with Ladenburg. Your line is open. Please go ahead.
Hi, Erik and Chris, how are you?
Good. Good.
Hi, Jeff. Doing great.
I guess first, just a quick one for Chris, as far as the inventory and inventory build from Q4, you did call out a couple things. Was that is there some relationship there to your new high throughput instrument, or was the build-up with flow cells or existing Saphyr instruments?
It was existing Saphyr and flow cells. Basically, you know, in the height of the supply chain challenges, we wanted to ensure that we wouldn't be constrained on demand. We started building safety stock. I guess the key point is, we're just about done with that in Q4, a little bit in Q1, then we'll start bringing that safety stock down as we bring up the new instrument and consumables later in the year and into next year.
Okay, got it. That's helpful. It's not necessarily gonna increase along with your revenues, but it may have peaked for the shorter term.
Correct.
Okay, got it. Erik, you did call out the 2 LDTs thus far. Would you expect others to be introduced during 2023 as well?
Yes, we're gonna continue building that menu. In 2023, for sure, we're going to release a LDT for constitutional genetic disorders that's looking at the whole genome and revealing structural variations that may be connected to a variety of indications such as intellectual disability, developmental delay, and so forth.
Got it. As far as the new instrument introduction in the first half this year, do you expect that will replace Saphyr at high throughput facilities and centers, or would it be adjunct at high throughput centers?
I believe it's going to be incremental adjunct because the Saphyr system operates well and performs just as well as its high throughput version will, but it can be used in a setting like that for the development of new assays and other techniques that a laboratory or a customer may wanna work on or evaluate. I really do expect that to be that the new system would be adjunctive to what they already have.
Got it. Lastly, one more, if I may. As far as the margins and, looking forward into 2023, would you expect that they grow from 2022 levels, and if so, where are the levers? Is it on the product side or the service and other side?
Yeah, we do expect it to trend up from here. You know, we're not providing any more, you know, guidance on exactly how much, but the reason is that we've now worked through the inventory of chips that were produced during the time when we were struggling with our yields. You know, we built up a lot of inventory during that time again, to make sure that we could service our customers. As Erik Holmlin mentioned, thankfully, we, you know, we didn't miss any deliveries to any of our customers. You know, we did that by virtue of having this inventory.
We've now worked through that, and we're back to production at kind of the yield levels that we were at prior to early 2020. That's what's really gonna drive it up.
Okay. One more quick one for Erik. As far as the payer environment, both the payers and Medicare, what's your sense on their receptiveness more recently to the overwhelming body of data that you're delivering to them and how they're thinking about the economics in the space now?
I mean, I think that the progress that we're seeing is very positive. And, you know, we have a function in the company, market access, led by a real veteran in the industry, and she's in the process of putting these data in front of these payers. While you and I follow Bionano's communications and press releases and publications incredibly closely, the payers are still catching up. Donna is going to make it an issue for them and put it in front of them. We have a lot of discussions ongoing already, and payers get it. There's just a process that we have to go through, you know, to satisfy them.
You know, Donna is developing a multi-pronged strategy, and we'll be able to say more about that in the future as we start delivering against some of these key milestones. You know, I think the fundamental answer is that they like what they see, and we have to make sure that all of them see it and then continue to see more and more and more and more.
Got it. Okay, super. Thanks for taking our questions.
Thanks, Jeff.
Thank you. One moment for our next question. Our next question comes from the line of Sung Ji Nam with Scotiabank. Your line is open. Please go ahead.
Hi. Thanks for taking the question. Was wondering about the completion of the postnatal study and the publication there. Kinda what are the next steps? Is this something where you kind of wait for all the other studies to be completed, you know, in terms of, you know, beginning your conversations with the, you know, the guideline bodies or whatnot? Or just kinda curious what, what the next steps might be.
I think that the principal next step is to finalize the preprint, which has been published, and then submit it for peer review publication. I think that that's the key next step for that body of data. There are some 1,047 datasets associated with this study, and they all contain within them Multiple publications that we'll be able to dive deeply into and highlight some of the key endpoints that we've been seeking to measure. The preprint goes into a couple of subpopulations, one with autism spectrum disorder, another which was a prospective cohort that was collected, and it already shows almost an increase of 20% in pathogenic findings compared to the standard of care for both of those populations. It also reveals that there were a substantial number of presumably reportable findings that have a high likelihood of being pathogenic.
We need to sort that out by looking deeply into the nature of those events. I think the way to think about it is that this preprint has been published, and we'll get that out. It's going to cover 1,047 data sets, which is an incredibly impactful number that nobody can run from. We show 100% concordance with the standard of care and substantial increase in performance overall. It's very powerful, but there are many, many more publications that will dig out of that data set and proliferate. You should expect there to be just more and more information coming out, highlighting the incredible importance of optical genome mapping.
Those publications will support our efforts to convince guideline agencies, medical societies, to embrace optical genome mapping, write things like consensus statements that ultimately result in the medical societies recommending optical genome mapping as first-line testing.
Gotcha. That's super helpful. Just curious about the HRD detection publication that came out. You know, obviously very interesting there. Is that something that you might be able to incorporate into your solid tumor studies? Or is that just kind of something that you think the customers will continue to potentially, you know, develop on their own?
Bionano is a player in HRD at two levels. Number one, we have what we believe is the most robustly performing approach to calling HRD and scoring HRD from existing data types like sequencing, next-generation sequencing and other data types, microarrays. That's commercially available now and labs are adopting it and utilizing it. In addition, optical genome mapping has now been shown to be as good as sequencing, if not substantially better. There was a paper, and maybe this is the one that you're referring to, that was published from the Institut Curie in Paris, and it showed that optical genome mapping way outperformed whole genome sequencing for identifying patients in the study who were in fact qualified for PARP inhibitors.
If they only used sequencing to pick up those patients, they wouldn't have picked up as many. Optical genome mapping appears to be more powerful. That's a long way of saying, yes, we expect optical genome mapping to feature prominently in HRD scoring, and that that will be something that we will measure as part of these studies. I've got to, you know, be fair and point out that the vast majority of solid tumor specimens that are collected and analyzed throughout oncology today are in formalin-fixed, paraffin-embedded tissue. That's not something that we have an assay for optical genome mapping on yet. We expect to be able to work on that eventually, using isotachophoresis.
What I can tell you is that the results that Curie is getting are so incredibly impactful that their institution is now advocating the collection of and preservation of frozen fresh tissue in breast cancer because it seems that optical genome mapping is so powerful that it warrants a change in practice of sample collection and sample utilization. Maybe that's something that can influence, be an influence on practices here in the United States.
Great. Then lastly from me, on your 2023 guidance, for the 325 OGM system, guidance, I was wondering if that's including the new net high-throughput systems. Also, are you seeing maybe some of your potential customers or existing customers kind of wait, waiting or holding off in terms of adopting OGM systems in the currently or in the first half of the year in anticipation of the launch in the second half of the year?
We don't see that. You know, the availability of this new high-throughput system will be relatively limited in the second half of this year, and that's somewhat by design to protect against any hesitation in the market. We also will have different commercial terms, and we'll continue to make it very attractive to bring Saphyr in and, you know, adopt and get up and running with it, whereas the commitment for the high throughput system will be a little bit higher. We're working on ways in which we can really engineer the demand and make sure that there isn't a pause. You know, having said that, I'm sure that there will be some sites that will be, you know, go ahead and wait on the sidelines.
We know that there are sites that are waiting on the sidelines today, but we're not thinking that it's gonna pause substantially, existing opportunities in the sales pipeline. You know, we have to see there is that risk. With regard to the first question, the 325 is inclusive of both Saphyr systems and the new high throughput system.
Great. Thank you so much.
Thanks, Sanjeev.
Thank you. One moment for our next question. Our next question comes from the line of Jason McCarthy with Maxim Group. Your line is open. Please go ahead.
Hey, guys. Thank you for taking my question. This is Michael Okunewitch on the line for Jason. I want to congratulate you on the fantastic progress, not just over this most recent quarter, but really over 2022 overall.
Thanks, Michael. That's great. Love it. Appreciate it.
Yeah. Thank you. I actually wanted to ask a follow-up question on the publication that you just released recently from the postnatal study. There were 2 real key takeaways. Obviously, you had the high technical performance, and that's key, but there was also a 30%-40% increase in diagnostic yields in some of those data sets. Could you talk a little bit about how both payers and guidelines assign importance to demonstrating full concordance within a simplified and streamlined workflow versus the increases in diagnostic yield?
I think that it's obviously the name of the game. That's what we're aiming for. We believe that we would be seeing these kinds of outcomes, and we went for it, or I should say that Alka Chaubey, our Chief Medical Officer, believed it so strongly that she left PerkinElmer to come here and make these things happen. You know, she's been right on target. When it comes to talking about pontificating, if you will, on how medical societies and payers and so forth will respond, of course, it's speculation we don't know, but we have history to look at. Karyotyping was once the recommended first-line method of analysis in constitutional genetic testing, and its overall diagnostic yield was pretty poor, low single digits.
Microarrays offered the same kind of concordance that we're seeing with optical genome mapping relative to the standard of care, but an incremental improvement. If you look at the performance of microarrays, it's anywhere between 10%-20% or so diagnostic yield on average across all labs that are performing it. So when we are, you know, when microarray studies were conducted and this increase in diagnostic yield was reported, we saw the medical societies and payers come on board enthusiastically and make recommendations for microarrays to be considered as the first-line test. That's how those guidelines are written on a global basis. So when we bring the level of performance against the standard of care, so now we're 100% concordant, not to karyotyping, but to the newly increased standard set by microarrays and karyotyping combined.
By the way, in many cases, in constitutional genetic disorders, it was additional modalities were used as well, FISH, Southern blot. So we compared against the whole kitchen sink that's available today, 100% concordance. When you look at this incremental performance, it's really outstanding. We feel like the medical community would see this as an incredible advancement in the performance alone. When you add, as you did, the fact that it's coming from a single assay, which shrinks the time to results, which is incredibly impactful for these families who are waiting to hear the answers, you know, we think it's kind of, you know, very clear the path forward in this case.
The work remains, though, to continue the studies, to continue the analysis, to drive the publications, and to get this in front of these societies. We have a little bit of a head start because many of the PIs on this study are involved in these societies, they're certainly aware. It's incredible results. I think it's just the beginning.
All right. Yes, thank you so much for that. I also want to touch on NxClinical 7.0, now that that's out in the field, have you gotten any feedback from the early adopters on that new software solution?
We have. They're enthusiastic about it and, you know, they love our current systems, which is great because I think, you know, our team has worked for years in developing analytical platforms for OGM data, and it's a brand-new data type. Everybody was excited to develop methods for sequencing out in the world academically, but we were on our own with OGM and Mark Oldakowski, the leader of product development, chief operating officer, assembled a team, and they built an incredibly powerful platform that's being utilized. There are elements of that platform that these KOLs and customers had been asking for around reporting. They want to look at a report that tells them whether a variant was detected or not detected. They want that report to be driven by the medical guidelines. This is a critical step in their workflow.
They want to be able to immediately interpret the structural variation findings that they see either through Access or what we call VIA, that's NxClinical 7.0. We shortened that name to VIA, which stands for Variant Intelligent Application. They're able to visualize it either way, Access or VIA, but the interpretation is something that we've now built into NxClinical for structural variations, and we're delivering these reports. These are incredibly powerful. Why are these reports important? Because of course, they're customized and validated in customers' hands. Remember, this product is research use only, so customers have to select the panels that they want to have reported out. Once they select that, they're able to put these incredibly actionable reports in the hands of clinicians, and oncologists can interpret them immediately.
It's incredibly powerful, and what they tell us is that they love this workflow, and that it really simplifies their life incredibly. Because today, even with optical genome mapping and Access, that's an incredible power, they're having to deal with multiple different software platforms. This kind of advancement is something that they've been waiting for. I want to underscore, and it's the reason that making software a strategic, you know, driver of business for us is one of our pillars, is that VIA is not only a solution for optical genome mapping, but it integrates these other data types. When you look at the sequencing landscape out there and you see all of these companies that are introducing next-generation sequencing solutions, we have talked to them, and we're enthusiastic about working with them. We all see them bringing value to the end user.
What the end user sees is that they need a solution that integrates this information all together for one-stop reporting, and our VIA provides that. We're only at the beginning of the power of this software. We believe software is gonna be a strategic driver of our solutions and customer adoption going forward. We're excited to roll out the full commercial release of the heme, hematologic malignancy application in the first half of this year and really keep that ball rolling on an ongoing basis.
All right. Thank you very much for taking my questions. I'll hop back in the queue.
Thanks, Michael.
Thank you. One moment for our next question. Our next question comes from the line of François Brisebois with Oppenheimer. Your line is open. Please go ahead.
Hi, this is Dan on for Frank. Congrats on the quarter, thanks for taking our questions. Firstly, I just want to start with, if you could add some color on how the integration of the Purigen Ionic system has been going? Have the development team and commercialization team all been completely onboarded? In terms of the market, are you starting to see renewed interest from those customers who are on the sidelines? Also related to that, how are you thinking about the additional markets you could expand into?
Yeah. Thanks, Dan. Appreciate the comments and great questions. With regard to the acquisition, integration is, to a certain degree, ongoing, but this one was very straightforward. We had an outstanding product, which we have integrated into our commercial teams in Europe and in the United States. Our channel partners or distribution partners around the world are being onboarded to sell the Ionic system. We think that as a standalone business, it has a lot of great potential. It's gonna take some time to really figure out how much of the market we can penetrate with it, but we know it's outstanding technology and that the current users love the system.
We think we can multiply it, that team has been fully integrated under the sales leadership that we have in place and marketing leadership that we have in place. From a development perspective, that team is led by Klint Rose, who is one of the cofounders of Purigen Biosystems and, you know, really one of the gurus of isotachophoresis. What I can tell you is that Klint and his team are super fired up to be part of Bionano. If you wanna learn something about isotachophoresis and its applications, I encourage everybody to look at the archived recording of our workshop at the Advances in Genome Biology and Technology, or AGBT meeting, which was held February 6. Klint gives a brilliant talk, and we're really pleased to have him on board here.
His team, as a standalone sample prep company, was focused on developing solutions for the entire spectrum of samples that might need to be used in genome analysis, and that's great, that's exciting, but it includes a lot of things that are tough to work on. We have really taken them and said, "Listen, let's focus on human genome analysis stuff that's highly relevant for clinical translational work. You've done an incredible job in formalin-fixed, paraffin-embedded tissue, FFPE, so far. Keep doing that, but now let's start to work on the optical genome mapping workflow." Initially, they're focused on blood, bone marrow, frozen tissue, and that really complements what's currently available in the market in manual workflows, so we wanna automate that as quickly as possible using isotachophoresis, which will be a complement to what Hamilton has out in the field.
We're gonna expand the menu, as you say, start to go into new markets, looking at prenatal sample prep, all sorts of sample types that are very minute, you know, such as punch biopsies, and sample types that are very common in genetic disease, including buccal or cheek swabs, where the cells of interest are present in a very dilute concentration. Isotachophoresis looks to be the perfect solution to making those samples compatible with optical genome mapping and gives us the opportunity to penetrate these new markets within our, you know, kind of addressable TAM overall. You know, with regard to customers sitting on the sidelines, I think, you know, really, obviously, these new markets would represent an opportunity to bring new customers in.
The reality of it is that, the degree to which anybody's waiting to adopt optical genome mapping, they're more waiting on us addressing their throughput needs in hematologic malignancies, which we already have supported sample prep solutions for and will be integrating onto ITP going forward, and reimbursement. You know, ITP is key to advance the workflow and then bring in these new sample types to expand the workflow, but a lot of the customers that already have optical genome mapping will add isotachophoresis, and their volume, their utilization volumes will grow as opposed to customers coming in from the sidelines.
Thanks for that. Just, finally, a quick one from me. You highlighted some COVID-related challenges at the start of the year. Are you now seeing production yield sort of normalize to pre-pandemic levels, or is it more of a gradual return?
It was a gradual return that unfolded over the course of the year, and the actual production yield, which had basically tanked in the fourth quarter of 2021, we've reached those levels. However, the impact of that reduced yield translated into the need to build more inventory because we just needed to recover more chips, you know, from, you know, as a result of the lower yield. The production of those chips came at a higher cost, and so we're burning through that inventory. The production yield itself has been restored. We gotta work hard to keep it there. There's no guarantee that it stays there, but we believe it's stabilized for now. We need to work through the chips that were built at a higher cost overall.
It's going to take some time now for the margin to recover.
Great. Thanks for taking my questions. Congrats again on the quarter.
You're welcome, Dan.
Thank you. One moment. Our last question comes from the line of Mark Massaro with BTIG. Your line is open. Please go ahead.
Hey, guys. Thanks for taking the questions. Congrats on a strong year and a nice Analyst Day and AGBT last month. I wanted to start off with the guidance. I saw your Q1 revenue guide of $7 million-$7.5 million, that's down 10%-15% sequentially. Just wanted to make sure that it's largely just a function of seasonality, you know, a lot of people may have exhausted budgets at the end of Q4. Do you think that Q1 will mark the low point of the year and that we can have likely an acceleration from the Q1 level?
That's certainly typically what we see. You know, combination of things just getting a slow start with new budgets in the beginning of the year. Like you said, people kind of rushing to spend the remaining capital budgets at the end of the prior year. You know, we always see this level of drop from Q4 to Q1. Then, you know, at least for the last 3 years, we've seen growth off of that Q1 number steadily throughout the year, and that's certainly what we expect to see again this year.
Okay, excellent. I noticed in your 10K, I think you broke out the software revenue from the service and other line. I think you noted that software revenue is expected to even out. Should we expect, you know, flattish software? Then when I think about the buckets, I think you grew instruments 46% in 2022. You grew consumables 16% in 2022. Is it likely that instruments will continue to outpace consumables in 2023? Maybe can you give us a sense for what type of contribution you might get from services? Again, I assume software is flattish, but any additional color there would be helpful.
Yeah. software, you know, flattish is probably under calling it a little bit. We'll see, you know, we'll see modest growth. The core economic engine of the company is OGM, and that's, you know, that's where we'll see the bulk of the growth come from. The software and services business both will, you know, are projected to be up from last year. Well, with the growth in the installed base, we should expect to continue to see growth in the consumables. You know, ultimately the consumables will start to exceed the instrument revenue. You know, that's certainly the goal and the expectation. We'll see that consumable revenue grow as a percentage of total revenue.
Okay, that's.
I think something to keep in mind...
Yeah.
Mark, I was gonna say something to keep in mind is that, you know, the instrument revenues can be very lumpy. You know, the deals tend to be pretty big in size and, you know, we had pretty significant instrument purchases coming from certain geographical regions and, you know, so we're gonna see that for a little while where, you know, just a particular type of adoption is gonna, you know, kinda skew the numbers a little bit. But, but Chris is right, which is that, you know, we're seeing the consumables growth on a year-over-year basis. From a unit perspective, the growth of units is significant. So, you know, everything that we're seeing is pointing towards substantial growth on the consumables line. I wanna thank you for asking the question about the $7 million-$7.5 million guidance.
You know, that is, as Chris said. I wanna underscore it for you and for everybody that that's typical seasonality. I think, you know, we were five and change in the first quarter of 2022. Typical seasonality.
All right. Perfect. I also wanted to ask about the next gen Saphyr. I think at the Analyst Day you mentioned a 13x increase in throughput capacity. If I have it right, the Saphyr list price is $150,000. Given the fact that this is higher throughput, can we assume maybe a higher list price? I don't know if you can provide any specificity to that. As it relates to the cost per sample, I know that NGS has been dropping. I think you guys are at around $450 per sample. Can you give us a sense for where you think that might trend on a dollar basis exiting 2023 or 2024?
You know, with regard to, you know, consumables pricing, I mean, over the course of the year I, you know, I think that, you know, ASP and what we, what we've seen historically for the last, you know, handful of quarters, you know, four quarters, maybe six quarters, is that we don't have a lot of pressure on price. The $450 is actually list price if you own a system. If you rent a system, it's a little bit higher. We, we don't see a lot of pressure there. We, we know that as we expand geographically, if we wanna get the business, we're probably gonna have to, you know, lower price.
A lot of our efforts around, especially on the next gen side, development of consumables, is to drive costs of production down so that, you know, we have more flexibility around price. I see, you know, maybe some erosion of the $450 overall this year in 2023, but not a substantial amount. You know, it's healthy to imagine that going down over the subsequent years because of the price elasticity that exists out there. We have said that we would expect to, you know, that it's kind of one of our goals to be able to, if we had to produce our consumables in such a way that if we ever had to get down to sub $200, we could do it and have good margins.
You know, but that's gonna happen over time, and that's gonna be driven by really, really substantial increases in volume. Now, turning to your question about the high throughput, Saphyr system, we haven't set pricing for it yet. We certainly think that the value is there. I wanna emphasize one thing, and that is that yes, it's a 13-fold increase in throughput overall compared to Saphyr, but that goes stepwise. On a per instrument basis, it's right around 4-fold increase in throughput. We have a scheme developed where we will leverage something called a work cell, which is very common in the industry and enables us to link together multiple systems. That's where we get that second phase of throughput increase that gets us to the 13x or so, maybe even higher.
You know, that work cell will be available in 2024. Now something that is an important lever that we are looking at with regard to the commercialization of this high throughput system is whether or not it's gonna be available in the reagent rental program. I think that it will probably be a more demanding rental program than we have put out there for the Saphyr. I think what might happen on average is that you're gonna see more purchases for the high throughput system than you see for the Saphyr system. That would have the effect of driving up revenues. You know, the cost of building that high throughput system, you know, will enable us to have, you know, acceptable margins at the $150K level.
Yeah, makes sense. Thanks for all that. My last question is, can you expand a little bit on conversations you're having to obtain an LCD for OGM reimbursement? You know, is that with Palmetto GBA or Noridian? Can you give us a sense for timing and, you know, perhaps what data you may need to submit?
Those discussions have been ongoing with Palmetto for some time, actually. We talked with them in, you know, certainly in early 2021 about laying the groundwork. You know, something that they've been looking for is to see adoption of optical genome mapping and validation of laboratory developed tests by users in the field because they don't wanna work on something that only the manufacturer cares about. You know, I respect that. What we've seen now is a tremendous increase in the number of laboratory developed tests, and importantly, in their jurisdiction, in Palmetto's jurisdiction. They're starting to see, you know, submissions for reimbursement in their regions.
You know, our strategy is to be a facilitator in the market and, you know, work with Palmetto, the degree to which we're allowed as a manufacturer of research use only platform in connection with users, but also with what's going on at Bionano Laboratories, our own CLIA lab. We wanna work with them and other MACs to establish local coverage decisions, and we're pursuing them all in parallel, I think you can say, in principle. There are some merits to going after Palmetto initially, but I think, you know, our view is that we need to be in conversations with all of them.
Palmetto and MolDX have pretty clear, you know, requirements for information that needs to be submitted around things like clinical utility, clinical validity, analytical validity, things like limit of detection and other forms of performance that establish that optical genome mapping workflow is robust, it's reliable, and it can be operated, you know, on a lab-to-lab basis. We've communicated with them. We have that list, and we're working against it in developing a dossier that we'll be submitting to them sometime this year.
Perfect. That's it for me. Thanks, guys.
Thank you.
Thanks, Mark.
Thank you. I would like to turn the conference back over to Dr. Erik Holmlin for any further remarks.
Thank you, Michelle, and thank you to everyone for joining. Thanks to everyone who asked such incredibly insightful and penetrating questions. We look forward to updating you on our progress, on the first quarter 2023 call in short order. Thank you very much.
This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.