Bionano Genomics, Inc. (NASDAQ:BNGO) Q1 2019 Results Earnings Conference Call May 9, 2019 4:30 PM ET
Ashley Robinson - IR
Erik Holmlin - CEO
Mike Ward - CFO
Conference Call Participants
Jason McCarthy - Maxim Group
Scott McHenry - ROTH Capital
Welcome to Bionano Genomics First Quarter 2019 Earnings Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Ashley Robinson from Investor Relations. Please go ahead.
Thank you, operator and good afternoon, everyone. Welcome to the Bionano Genomics first quarter 2019 financial results conference call. Leading the call today will be Dr. Erik Holmlin, CEO of Bionano, and Mike Ward, Bionano's, Chief Financial Officer. After market closed today, Bionano issued a press release announcing its financial results for the first quarter 2019. A copy of the release can be found on the Investor Relations page of the company's website.
Before we begin, I would like to remind everyone that certain statements made during this conference call may contain forward-looking statements including statements about our strategic and commercialization plans, 2019 sales pipeline, anticipated benefits of improvements to the Saphyr system and the advantages of the Saphyr system over current technologies, our expectations regarding timing and content of study results and anticipated benefits of these studies and driving adoption of the Saphyr system.
Such forward-looking statements are based upon current expectations and there can be no assurances that the result 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 our press release and our other 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.
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. For the benefit of those who maybe listening to the replay of the archived webcast, this call is held and recorded on May 09, 2019.
With that, I'll turn the call over to Erik Holmlin. Erik.
Thank you, Ashley, and good afternoon, everyone. I'm very pleased to have you join us today for an update on our progress this past quarter. With me on the call today is our Chief Financial Officer, Mike Ward, who will review our first quarter financials. After our prepared remarks, we will open the call for a question-and-answer session.
Now let me begin today by reviewing some of the highlights from our first quarter. We were pleased with our financial performance this quarter with revenues of $1.9 million reflecting growth of 4.8% compared to the same period last year.
After coming off such a strong fourth quarter, revenue increased to 41% compared to the fourth quarter 2017, it's important to recognize that our business like that of others in this space is seasonal and we'll continue to build over the course of the year.
Our revenues this quarter reflect the growing interest in the Saphyr system for genome analysis and translational research. And in clinical labs around the world, our sales results exceeded the analysts’ expectations and we remain focused on continuing the kind of performance we've seen year-over-year on a full year basis going forward.
We are of course happy with the financing transactions completed this quarter as well, providing us with the capital needed to advance our strategy. The highlight of this quarter is our continued execution of our strategy for commercialization of Saphyr and the ongoing development of target segments within the genomics market, translational research and cytogenitics.
The application of Saphyr has been featured in multiple publications already this year, consistently demonstrating its ability to discover genomic variations that essentially only the Saphyr system can detect, and demonstrating its ability to diagnose patients with diseases driven by structural variation.
So far in 2019, the number of publications describing the use of Saphyr to analyze human genomes has eclipsed the number of publications inhuman for the whole year in 2017, and is over half the number published last year in just this beginning portion of the year.
A major focus of our teams currently is on key, independent clinical studies designed to establish Saphyr as the platform to replace the relatively outdated technologies such as fluorescence in-situ hybridization or FISH, karyotyping and microarrays.
Bionano is currently conducting two studies that will evaluate patients for hematologic malignancies and certain rare genetic diseases and compare the results obtained using Saphyr to those obtained using standard of care tests. These studies are designed to show that Saphyr provides equivalent results to the standard-of-care in a simplified and more reliable workflow that is less susceptible to errors and test failures.
In addition to our investment in market development, we have continued to build on the capabilities of the Saphyr system making it easier to use, more powerful in different applications, faster and less expensive on a per sample basis.
So far this year, we have launched several important advances including chip and instrument updates that increase our weekly throughput to as many as 42 samples per week. A new sample preparation protocol that finishes in four hours, versus our previous one that could require as many as 48 hours and new data analysis capabilities that find all types of structural variations including in complex heterogeneous samples like cancer, and mosaics.
Bionano and early-access users have successfully applied this new analytical workflow to various cancer samples, including leukemia, breast, ovarian, prostate and pancreatic cancer.
We continue to believe that this progress will for the foreseeable future allow us to maintain our historical growth rate of 25% to 35% revenue growth on a year-over-year basis driven mainly by adoption in the research market as we clear the path for commercialization in clinical cytogenetics.
With that summary, it is my pleasure to turn the call over to Mike for an update on our financials. Mike?
Thank you Erik and good afternoon everyone. I will now briefly review some of the highlights from our first quarter 2019 financials. As Erik mentioned, during the first quarter Bionano recorded total revenue of $1.9 million compared to $1.8 million in the first quarter of last year, an increase of 4.8%.
Growth this quarter was driven by a $0.8 million increase in sales to EMEA customers. The growth in our EMEA market was mostly offset by a $0.5 million decrease in sales to customers in Asia Pacific.
Regardless of the geography, our business is very seasonal with Q1 traditionally being the lowest revenue quarter, and quarterly revenues tending to increase as the year Progresses. Total cost of revenue increased by $0.3 million or 36% to $1.1 million for the three months ended March 31, 2019 compared to $0.8 million for the same period in 2018.
The increase was due to instrument sales representing a larger percentage of total product sales. First quarter 2019 operating expenses were $6.9 million compared to $5.3 million last year, reflecting the additional costs of being a public company and the cost of expanding our global commercialization presence.
Finally, as of March 31, our cash balance was $20.8 million, which reflects cash received in the debt and equity financings entered into in March 2019 with affiliates of Innovatus Capital, East West Bank and Aspire Capital.
We may be eligible to raise additional cash pursuant to the terms of these debt and equity financings. Our existing cash is expected to be sufficient to support operations for at least the next 12 months.
Thank you. And I will now turn it back over to Eric before going to Q&A.
Thank you, Mike. And as I mentioned earlier, we are pleased with our performance and enthusiastic about continued execution as we look forward, and see the demand in our pipeline continuing to grow. Our team is focused on executing and growing sales globally.
Some of the things you can expect to see from us throughout this year include a continued focus on global, commercial expansion, improvements to the Saphyr system and execution on our strategy for market development.
And with that, I will open up the call for Q&A. Operator?
[Operator Instructions] We will now take our first question from Jason McCarthy of Maxim Group. Please go ahead.
Hi, thanks for taking the question, and congratulations on the progress. So I'd like to see if you could actually discuss some of the differences in how Saphyr could be applied in the research market as a complement to sequencing versus the digital cytogenetics market?
It's a very good question, Jason. So those really are two different environments with two very unique value propositions and of course there's overlap in the middle. But going to that first segment, with regard to complementing, sequencing in translational research, you know the principal objective of these projects are to identify variations in a genome, that drive a particular observed phenotype, let's say therapeutic response, manifestation of a disease, resistance to therapy, likelihood of progression of disease and so forth.
And very often, it's a completely unknown area and scientists who are evaluating those questions want to bring to bear every possible tool at their disposal to evaluate the drivers of those phenotypes. And therefore sequencers can be very powerful, because they enable the researchers to look at those variants that are small in the smaller end. Long read sequencers which are continuing to evolve and improve would allow researchers to see variations that are larger than just the single nucleotide events that a traditional next generation sequencer would see, but nowhere near as big as what Bionano Saphyr looks at.
And so the Saphyr comes into that picture by enabling the researchers to not only see these smaller variations, but see larger ones we can look at events that are 500 base pairs and bigger. And so, when analyzing a patient population and coming to a conclusion that there were no findings. If the Bionano Saphyr data type hasn't been incorporated into that study, you really wonder about the definitiveness of that conclusion. And so the use is to really improve the sensitivity to events that are driving different phenotypes.
That's the application in sequencing and -- two in translational research. And the two technologies sequencing and the mapping that that the Saphyr provides really go together very nicely there.
When we transition and look at the digital side of genetics application. Here, we have a completely different set of tools that are in use today. FISH, which are basically nucleic acids probes that stain chromosomes and the staining is visualized through microscope, karyotyping where other stains are used to look at chromosomal structure, again optically through a microscope. And then micro arrays that allow for the slightly more detailed characterization of variation events, but a relatively limited number of scope.
We believe that the Saphyr system has the ability to look at everything that each of those modalities does when those modalities are being used on to diagnose patients. And so, the Saphyr system would be adopted to look at the content that is routinely tested for today in a clinical cytogenetic lab who which may be doing cancer testing and hematologic malignancies for example or constitutional testing for genetic diseases, the Saphyr system can be use to replace those existing incumbent technologies which are known to be relatively difficult to work with, error-prone, subjective in their interpretation and the Saphyr would overcome those limitations.
And the last thing I would say is that, on an ongoing basis Saphyr offers the opportunity for these cytogenetics labs to look at more and more information. But at the outset it would really be a replacement for incumbent technologies looking at existing known validated clinical markers.
Thank you. And then, so, looks like the number of publications is really been accelerating recently. Have you noticed that correspond with an increase in interest from customers or potential customers as new publications highlight [Indiscernible] the Saphyr?
Yes, very much. I think that these publications that are coming out are very good leading indicators of what we should expect from your expansion in demand. And there is also a benefit associated with the increasing awareness that those publications drive and that is that it’s our expectation that they will accelerate the sales cycle overall. As you can imagine when somebody learns about the Saphyr and its capabilities for the first time in a seminar that a Bionano salesperson gives, that's the beginning of the sales process and it can take some time to achieve the level buy-in from the customer, but then the customer has to do obtain the funding to purchase this system and operate it.
When the customer and the market learns about the capabilities of the Saphyr long before they meet a Bionano sales representative that process should be shortened. And so we’re delighted to see the expansion in publications and not only the growth in publications but their focus in these very critical translational areas and improving the utility in clinical diagnostic studies.
All right. Thank you. And then just one last quick one from me. Are there any particular ongoing studies or upcoming events you could point to that you would view as particularly important for driving adoption or awareness of Saphyr?
Yes. First of all, I would say that there are a number of studies that are ongoing. Many of those driven by our customers and users relatively outside the scope of our purview, completely independently of us; but there are two studies in particular that we have engaged with heavily; these are both led by customers who have purchased the system, but were working involved in their design and supporting them.
And that is in relation to demonstrating the equivalency of Saphyr performance in comparison the Standard of Care methods in a few areas of hematologic malignancies, AML, ALL, multiple myeloma and then some constitutional diseases. one of those is based in the United States that involve several, it’s a multisite -- multicenter study involving several prominent centers that’s led by Dr. Bryn Leavy who’s at Columbia and that New York Presbyterian Hospital.
The other is in Europe led by Dr. Alex Hoeschin who is a Radboud University Medical Center in the Netherlands. And what we believe is that these will be foundational studies that will really lay the groundwork for any cytogenetics lab who has an interest in optimizing their workflow and modernizing it to use these publications as a roadmap for doing so. And those studies are underway.
IRB approval have been obtained. Patient recruitment is underway and by the latest reports that we've gotten some patient testing has begun. And so we would expect those studies did you finish – at least begin to get through the initial phases this year and be on track for publication hopefully in the beginning of next year.
Okay. Thank you very much.
We will now take our next question from Scott McHenry of ROTH Capital. Please go ahead.
Thank you and good afternoon. Just a couple of questions. First, on the expense side SG&A little bit higher in Q1 then typically. How should we think about that? Is that kind of the new level going forward? Or was it perhaps just a little higher than it would be kept for this quarter?
Well, couple of thinks. Hey, Scott, it’s Mike. I think the – two things to highlight is that, we’re now a public company and the comparison period is when we were still private. So those costs are substantial and those will continue. The other thing that change is, as we said during the IPO processing and thereafter we are committed to using IPO proceeds and other proceeds to expand our commercialization presence around the world. And so on in our sales and marketing which is in SG&A is helping to drive that number upwards and that will also continue.
So, I think those are the main factors. I think also what you can count on loop is that we had a couple transactions that occurred in the first quarter and there are expenses associated with those transactions, the Aspire equity deal and the Innovatus debt deal which going forward. We wouldn’t have those one-time transaction expenses upon consummation.
Okay. Thank you for the color. And then with regards to [Indiscernible] obviously mix factors into that. At what point would you start to some expansion in gross margins, you know economies of scale coming in. What revenue levels we start to see that expand?
Yes. So, we’re already enjoying it. Beginning to enjoy it I guess I should say. We are enjoying it in two forms; one is we are just putting in more instrument orders having economies of scale on the instrument side and that increasing the instrument gross margin, that’s the main driver. And on the consumable side what's driving it is that we are now fitting more patient each chip and it enables us to demand the higher price and be able to enjoy some of the higher-priced via gross margin that way. Even though it is not as large of an increase on the cost side to switch at chip from, for example, a two patient chip to a three patient chip, you’re do adding another well, but you can imagine that the cost associate with that are not that incremental.
So that is what’s driving each of the instrument margin and chip margin. I think the other thing to note is as we move forward and our install base grows and grows, grows we’re to see more consumable usage and as that takes over obviously as I’d mentioned in the past the consumer side of the equation is a much higher margin than the instrument side and that will begin to become a product mix that will drive the higher gross margin overall.
Okay, great. And then just perhaps one kind of bigger picture question. Obviously growth historically very strong, 25% to 35%, I think the number you typically give, but publications are growing even faster than that. The question is, do you think you actually see that growth hitting acceleration point as publications start move past the early adopters? And how should we think about that?
Yes. I think we – I think it’s very reasonable to have a scenario in which that growth rate does decelerate. Some of the accelerants would be the penetration into the cytogenetics market and so the gating item there or some of the studies and publications that we talked about, I'm not so much a critical mass of publications, but certain key -- forms of key content. And then the overall critical mass of publications that supports our growth in the research arena.
What I'll say is that, we think is prudent to be conservative at least in the short term as to what that that growth rate is and that's why we have the perspective that this pattern that we’ve seen in recent years would continue certainly for the foreseeable future over the course of this year. But there are definitely reasons to believe that the actions that we were that we are taking would enhance and accelerate that growth rate as those key studies are completed.
Okay, great. Thank you for taking my questions.
It appears there are no further questions. At this time I would like to turn the conference back for any additional remark.
Okay. Thank you operator and thank you everyone for joining us today. And we look forward to updating you again on our next earnings call.
This concludes today’s conference. Thank you for participation. You may now disconnect.