BNGO - Bionano Genomics: Dilution Coming

2023-04-13 13:15:44 ET

Summary

• Today, we circle back on an interesting diagnostic concern called Bionano Genomics, Inc.
• The company continues to build out its promising optical genome mapping capabilities.  However, Bionano is also bleeding cash.
• Are Bionano Genomics, Inc. shares worthy of a small investment?  An investment analysis follows in the paragraphs below.

Nothing great will ever be achieved without great men, and men are great only if they are determined to be so. ”? Charles de Gaulle.

Today, we put small-cap Bionano Genomics, Inc. ( BNGO ) back in the spotlight for the first time since our initial take on this genomic testing solution concern just over a year ago. We concluded that article this way:

Despite some bullish analyst price targets, it is hard to give a 'thumbs up' around the stock at the present moment despite the huge recent pull back in the shares ."

That turned out to be the right call, given BNGO stock has fallen some 55% since that piece was posted. The stock now trades just above a buck a share and sports an approximate market capitalization of $330 million. Has the equity finally become cheap enough for a small bet? An updated analysis follows below.

Company Overview:

This San Diego diagnostic concern provides tools and services based on its Saphyr system to those conducting genetic research and patient testing. The company incorporates a razor and razor blade business model. It sells or leases its Saphyr system that retails for approximately $150,000 and then also supplies the consumables (primarily nanochannel array flow cells) this machine uses to conduct genomic tests.

The Saphyr enables clinicians and others to accelerate the search for new diagnostics and therapeutic targets and to streamline the study of changes in chromosomes.

Fourth Quarter Results:

The company reported its fourth quarter numbers on March 6th. Bionano now has 240 Saphyr systems in its installed base. This is a 46% increase from the same period a year ago. This was up from the 217 installed systems at the end of the 3Q2022 as well. However, revenues were up only 30% from 4Q2021 to $8.2 million, a bit shy of estimates. For the year, the company delivered $27.8 million in sales, above leadership's guidance of $24 million to $27 million earlier in FY2022. Bionano sold 4,781 nanochannel array flow cells in the fourth quarter, which was up 49% from 4Q2021. For the year, the company sold 15,375 flow cells, a 23% improvement from FY2021.

Gross margin for the fourth quarter of 2022 improved substantially to 22%, from just 4% from the fourth quarter of 2021. Management stated the increase was primarily due to major improvements in chip yield. However, full year 2022 total gross margin was 21%, this was slightly down from 22% in FY2021.

Operating expense in the fourth quarter came in at $39.3 million. This was up significantly from the $29 million worth of operating expenses recorded in the same period a year ago. Management attributed the rise to " increased headcount-related spending, increased R&D expenses, and expenses associated with the acquisition of Purigen Biosystem s." The latter was acquired in late 2022 for $32 million worth of cash at closing, along with $32 million in potential contingency payouts.

Purigen is one of several small purchases Bionano has made over the years as it looks to create an end-to-end solution for optical genome mapping or OGM. The company plans to incorporate Purigen's ITP-based methods into the OGM workflow of the Saphyr system. The company's newly launched Bionano Laboratories unit also recently launched two new laboratory developed tests (LDTs) based on this OGM capability. A pre-commercial version of a next generation OGM system is currently running in the field. The company is planning a commercial launch of this system before the end of this quarter.

Analyst Commentary & Balance Sheet:

Since fourth quarter results were posted, BTIG ($3 price target), Maxim Group ($6 price target) and Scotiabank ($3 price target, down from $4 previously) have all reissued Buy ratings on BNGO.

Approximately 18% of the outstanding float of Bionano Genomics, Inc. shares are currently held short. There has been no insider activity in this stock for nearly eight months. The company ended FY2022 with just over $113 million of cash and marketable securities on its balance sheet after posting a net loss of nearly $38.7 million in 4Q2022. Bionano Genomics started FY2022 with just over $250 million worth of cash and marketable securities on its balance sheet. The company has no long-term debt.

Verdict:

The current analyst consensus has Bionano Genomics, Inc. losing around 45 cents a share in FY2023 as sales rise nearly 30% to $35.7 million. Revenue growth is projected to accelerate by over 70% in FY2024 even as EPS is expected to only improve very marginally.

Bionano Genomics, Inc. would seem to have a bright long-term future. The company has been adept in building out its capabilities in this space and has consistently been published in many scientific journals.

The problem is that Bionano still has minimal revenue and is burning cash at a prodigious rate. At the cash burn rate of the fourth quarter, the company will run out of cash around the end of the third quarter of this year. That means Bionano Genomics, Inc. is likely to do a large capital raise either via debt or more likely the equity markets. This means significant dilution is on the horizon for current Bionano Genomics, Inc. shareholders. In addition, profitability seems far out in the future for Bionano Genomics. Therefore, I would continue to avoid Bionano Genomics, Inc. shares until after the likely capital dilution and the company makes substantial progress reducing its cash burn rate.

The man who has faith in logic is always cuckolded by reality. ”? Alexander Theroux.

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