BNGO - Bionano Genomics Inc. (BNGO) Presents at Canaccord Genuity 43rd Annual Growth Conference (Transcript)
2023-08-11 07:28:08 ET
Bionano Genomics, Inc. (BNGO)
Canaccord Genuity 43rd Annual Growth Conference
August 10, 2023 11:30 AM ET
Company Participants
Erik Holmlin - President and Chief Executive Officer
Conference Call Participants
Kyle Mikson - Canaccord Genuity
Presentation
Kyle Mikson
Welcome to the Canaccord Genuity Global Growth Conference. I'm Kyle Mikson of Life Science Tools and Diagnostics for Canaccord. Pleased to have Bionano Genomics here. Bionano offers one of the leading platforms for optical genome mapping. With us from the company, we have Erik Holmlin Eric, the CEO. Thanks, Eric, for joining us this hour.
Erik Holmlin
Thank you very much.
Kyle Mikson
So let's actually just go through maybe the earnings last night that you guys reported, I think it was a pretty solid quarter with regard to guidance. But what happened during the second quarter were some macro issues possibly. What did you guys say?
Erik Holmlin
Well, it was an excellent quarter for us. So, $8.7 million in top line revenues, margin around 29%, which has been stabilizing over a period of the last few quarters and improving. And we saw outstanding performance in all of our regions, and something that was really attractive for us was the interest that we saw from pharma in bringing optical genome mapping in where they're using it to focus on cell and gene therapy. And so that really kind of augments our overall market segment focus to go from genetic diseases, hematologic malignancies, and now cell and gene therapy. We're also focusing on solid tumor, but the applications in solid tumor where samples are mostly FFPE, we focus on fresh tissue applications in solid tumor.
Kyle Mikson
Okay. When you say like the pharma segment was kind of strong, I mean, what has that been like the past few years in biopharma?
Erik Holmlin
Yes. So I would say in the last really 18 months or so -- let's so -- let's call it 6 quarters, what we have been getting is a lot of inbound interest. And anecdotally, what we hear and this comes through the sales channels is that companies are gearing up to develop applications in cell and gene therapy, like gene editing, stem cell therapies that involve either growth of cells to deliver as a therapeutic solution. And the FDA is asking them to develop better methods to monitor genome integrity so to make sure that the genome of the cell that they start with looks the same when they finish the scale up.
The other area is in gene editing, where these gene modification protocols that are being developed and administered are increasingly complex. So we're getting to 6, 8, 10 modifications, and the chances for off target effects are increasingly increasing. And so the FDA is asking programs to look at much higher resolution techniques than what they're typically using, which is karyotyping to look for these off target effects.
Kyle Mikson
Okay. That's pretty promising. I guess. So how did the -- from a margin perspective, I think you guys had like, close to 30% gross margins, are those increasing over the last few years?
Erik Holmlin
So we -- we've been seeing a period of increase, and it really started with some challenges that we had in the supply chain, really at the end of 2021. So we started to see that pressure in the first quarter of 2022. And we've been steadily increasing it since then. And we expect it to continue to increase.
Kyle Mikson
Got it. Okay. Let's take a step back and talk about like, where OGM, kind of like fits into this paradigm of -- it's kind of an adjacent to sequencing. It's definitely not [indiscernible] it can't detect these tricky regions like you can, but [indiscernible] we can't even do that as well. So maybe talk about where this fits, and is this why could be superior, if you will?
Erik Holmlin
Yes. Well, so the way I think about it, and if you look over the past two decades, there's really been a couple of major revolutions in clinical applications of modern technology. So, in the 2000s, early 2000s, PCR methods came into microbiology. Actually my company at the time Genome Sciences, was the leading company to introduce rapid testing for MRSA, C difficile, VRE.
So we converted culture based methods to PCR based methods and it was really a revolution throughout microbiology. 2010s, you saw a next-generation sequencing come in and really revolutionize Sanger sequencing, right, so elevate sequencing to an industrialized scale, and we all know how that's played out.
Optical genome mapping is focused, we at Bionano through optical genome mapping are focused on what I believe is going to be the next big revolution, the one in the 2020s, and that's transforming the cytogenetic methods. Karyotyping has been around for 50 years. It's the global standard, really hasn't changed. Fluorescence, in situ hybridization, FISH has some advantages, but relatively limited utility. Same with microarrays.
And so optical genome mapping is converting all of those methods into a digital streamline workflow. We just launched the Stratys system, which is going to elevate our throughput, substantially to address higher volume labs. And when we look at a sequencing platform, like long read sequencing, which is incredibly powerful. What we see is that, that is really an extension of the sequencing revolution. So it's not -- they really haven't touched any of the cytogenetic applications in a meaningful way. There's anecdotal reports of different applications here or there. But I think the sequencing in that setting is used more to discover novel variants, as opposed to really transforming the industry, which is what we're doing.
Kyle Mikson
And the dollar like -- opportunity, that type of genetics that you're kind of targeting, I guess how large is that?
Erik Holmlin
Well, we estimate it overall, including the cell and gene therapy opportunity to be around 10 billion, and so that breaks down. And if you look at just the number of labs that are out there performing cytogenetics on a global basis, there's about 10,000 of those labs. And then if you start to add up the number of samples that they processed through karyotyping, FISH and microarray, it's actually about 10 million samples on a global basis. And then there's about 1,400, biotech and pharma companies that are working on different cell and gene therapy applications. So take that all together, that's a pretty substantially sized market.
Kyle Mikson
Okay. Let's talk about your strategy, I guess and get to the newer platform in a second. But you launched the second generation Saphyr in like 2020, I think.
Erik Holmlin
Yes.
Kyle Mikson
And then in '21, you acquired BioDiscovery. It's kind of like the back end software, then the front, you acquired Purigen more recently, to kind of integrate the front end DNA isolation, I believe. So, I mean, that's your kind of owning the ecosystem more or less. I think, like right now in sequencing that's more of like a, it's more fragmented, I would say, because we are in the middle there. So how are you viewing this kind of OGM space evolving?
Erik Holmlin
Yes, we think it's critical actually to bring a fully integrated end-to-end solution that is very streamlined, amenable to high degrees of automation. And what we're hearing from the market is that the fact that it comes from a single vendor is something that's very attractive to them, because in troubleshooting situations, or just adapting to changes in the environment within the lab, they have a single point of contact that they can go to, to get support for the whole workflow.
And what's been described to us is that in others, like sequencing, which you mentioned, there becomes -- there can be challenges in terms of really developing an understanding of root causes of issues, where's it really coming from? And so, by controlling the entire workflow, we provide a higher level of support to the customers.
Kyle Mikson
Got you. Okay. And then this new Stratys system, it's much higher throughput. I mean, maybe just talk about what that's been like, is it early access? I think it's like 10 customer sites, maybe, but I'm sure you had an update yesterday. So …
Erik Holmlin
Yes. So we're like sort of beyond excited about Stratys. Really, the response to it is exceeding our expectations. And so what Stratys is designed to do is to extend the capabilities of Saphyr and Saphyr stay in the market, that will be kind of a low volume to medium volume. Think of it as an entry level system. High volume labs can use it, but they'll grow out of it. Low and medium volume labs, that will be their standard platform.
The Stratys system is designed to really address labs that are running, hundreds of samples a week, thousands of samples a year or even hundreds of thousands of samples per year. And that is a key to really driving the company towards profitability going forward, because if we get those high levels of utilization, we're going to bring in the consumables revenue and the consumable is the highest margin component.
Now, Stratys has been in development for a couple of years now, over 2 years, and we completed development. We're excited about the platform that we have. And what we're doing is really ramping up manufacturing. And so we've been able to build about 10 systems here in the second half, or we will be able to build about 10 systems here in the second half. And so we've made them available to the market as part of an early access program.
And what we see already right now is that we have a waiting list for folks who have raised their hand. So they're really excited about bringing it in. And you have some color on who it is that's raising their hand, what we see is that it's predominantly new customers. And that makes sense to us because this really unlocks a segment of the market where customers have been on the sideline saying, we want to bring OGM in, but we don't see it being kind of a comprehensive solution for our lab, but Stratys gives them that roadmap.
One last thing I'll say about Stratys is that out of the gate, it has about 4x the throughput of the Saphyr system. And we are going to evolve it and create a situation where it can be automated and integrated into a multi instrument platform that will enhance the throughput compared to a Saphyr by about 13-fold over time.
Kyle Mikson
A multi instrument platform like a robot -- like a robotic arm [multiple speakers]?
Erik Holmlin
Yes, this is very common. Its typically referred to in the laboratory industry as a work cell. And these work cells can be used to integrate different types of equipment into a single automated workflow. And so we can envision that with our Ionic system for ITP for automated DNA extraction. It can also integrate multiples of the same system to enhance overall throughput.
Kyle Mikson
Okay. And this is the first time you'll be offering OGM instruments, or I guess, multiple OGM instruments at the same time, right, as a multi product company?
Erik Holmlin
Yes, it that would be the first time where there's two OGM platforms commercially.
Kyle Mikson
And that's important, and they address different levels of capacity and throughput more or less. I mean, are you trying to target these higher volume folks with the [indiscernible]?
Erik Holmlin
Well -- so, I mean, I think that the process of introducing optical genome mapping in the market is just that it's a process and it's iterative in many respects. So we've certainly developed a methodology over time, and zeroed in on the applications that we're focusing on now. And that process started to dictate, well this is the level of depth that you need to collect in a single sample to get robust results.
We started working in hematologic malignancies, for example. And there, it's great if every cell looks the same like it does in a genetic disease sample. But in hematologic malignancies, the cell type that actually might be the one that's really causing the severity of disease could be present in a very low fraction. And so we had to evolve the assay to accommodate really what the commercial requirements are. And through that process, we learned that the throughput of Saphyr was limited at a certain level, it's very good for low and medium volume labs. But we were sort of precluded from getting into those higher volume labs.
And so that's when -- we did see it coming, thankfully. And so we launched the development of Stratys. And so, Stratys will accommodate those higher volume labs. What we've seen, though, is that even though a lab may be ultra high volume, and we have a couple of them here in the U.S., they've already adopted Saphyr, because they want to lay the groundwork for OGM within their ecosystem, their own echo system, so that when Saphyr is available, they can really ramp throughput.
Kyle Mikson
Okay. So there's almost 300 Saphyr's out there at the install base. Could the Stratys -- potential install base be higher? And also should all the Saphyr users upgrade to a Stratys?
Erik Holmlin
Yes, I mean -- so I think that Stratys is going to the economics of it, it's more expensive to build. So we're going to be charging more for it. The economics of it were a higher volume setting. Over time, through engineering we will be able to bring some of those costs down, so it may become more affordable and be more amenable to a lower volume setting. Out of the gate, I don't think people are going to necessarily convert away from their Saphyr, they may add Stratys and use Saphyr for developmental applications and so forth research applications. It's early to tell. So I actually don't definitively know and I'm not making a prediction, but my gut tells me that the majority of Stratys users will be new to OGM.
Kyle Mikson
Okay. And on pull through, I think right now pull through for you guys is like 50k …
Erik Holmlin
Yes.
Kyle Mikson
… instrument [ph] annualized. Where could that go with Stratys?
Erik Holmlin
Yes, I mean, so -- when you say it's 50k, per -- on average across the entire Saphyr install base, I think one of the things that we do is, we recognize that the first 100 or so of Saphyr's are relatively low throughput. They went into very basic research labs, some non-human labs. So we kind of backed them out of the calculation. So, it's probably more like 75 or 80k per system that's being installed in our current target markets on an annual basis.
And so right out of the gate, if you just multiply that by four, that's what you're going to get with Stratys. And I think that Stratys will accommodate much higher pull throughs. What you'll see, though, is that these ultra high throughput labs, there are relatively few of them in -- in the world, actually, right. So U.S and Europe have most of them. And what they do is they account for about 40% of the volume overall. So I think what you're going to see is higher throughput on Stratys, higher pull-through consumables revenue, but not necessarily a massive increase in the number of customers.
Kyle Mikson
Got you. All right. I guess, it makes sense. And then maybe we talk about the clinical perspective and clinical potential for cytogenetics and like, what are you guys are doing? What some -- what work have you done thus far, in terms of like reimbursements getting clinical data out there and then what lies ahead, and how challenging is that?
Erik Holmlin
Yes. So I think it's work that has to be done when we -- one of the reasons that we've been commercial on a global basis, and we will continue to be as that, reimbursement sort of frameworks around the world are different. And in countries like Canada, various Western European countries, where it's a single payer system, the route to getting reimbursement support is much more linear, right. So they hire smart people, they ask those smart people to get certifications, and then they let those smart people pick the technology they want to use. And that's happened in Canada.
Already today optical genome mapping is listed right in the Canadian guidelines as a reimburse -- fully reimbursed alternative to karyotyping. Any labs that wants to use it can use it as first line, and they can apply their budget from the health system. And we've seen that in a number of European countries. Spain, we have about 10 different hospitals that are using optical genome mapping, and they've just converted to it as their standard of care.
So reimbursement plays a big role in adoption. I think where it's most important for us to be doing work and making investment is in the United States. And so we have a big clinical trials program that's been underway, first in postnatal, constitutional genetic diseases. We have our second peer review publication submitted to on about 800 research subjects and what it shows is the incremental success rate of detecting pathogenic variants in samples. So about 25% greater than the existing standard of care.
We have the heme -- hematologic malignancy trial underway, and that will similarly show we've already published the concordance with the standard of care. But now we want to show the incremental benefits of how many more research subjects or patients will get informative information when optical genome mapping is being used. And I don't have the data for all of the sites that are working, but our own CLIA lab is one of the sites. And so what we see is about an 85% success rate in detecting a pathogenic or likely pathogenic event in leukemia samples.
The industry standard with the standard of care is 45 to 50%. So a very substantial increase. And so as those data get out and get published, that's what gives payers confidence that they should pay for the technology. Having said that, while all of this is going on, individual labs are applying for PLA codes, Proprietary Laboratory Analysis codes in the U.S. They're getting them and they're getting reimbursed.
So reimbursement is sort of not a steep hill, it's just requires work on a lab by lab basis and we're seeking to solve that generally, right, so that there can be local coverage determinations at payers, so that every lab that wants to do it will be able to do it without having to go to the effort to get their own code.
Kyle Mikson
Yes. And I'm just thinking like in this for a counterintuitive type train of thought might be like, given your reader so much longer, let's say, then like a pack by, like longer sequencing, why -- you would think like as you get longer in the spectrum that gets the less clinically relevant. I mean, like, why does it make sense for [indiscernible] solution compared to like, the longer sequencing which like, I don't think that really has actual plans anytime soon to do that.
Erik Holmlin
Oh, well, that's interesting, you say it that way. If you talk to 100 out of 100 of our customers, they'll tell you that they don't look at anything smaller, like variants, smaller than about 10kb for clinical practice. Everything is bigger than 10kb. Below 10kb, we start to get into an area where there really hasn't been any technique over time to look in that in that region. And so even if you're detecting variants, they don't really have any clue what the clinical significance is.
And so in order for that sort of region of the genome to really gain traction, and utility around clinical applications, there's going to be -- need to be a long, long period of discovery, validation of these new events. And I think long read sequencing will play a really important role there. But it's the large structural variations combined with sequence variants, SNVs, single nucleotide variants that are really driving this sort of clinical utility.
Kyle Mikson
Okay. And then in your, like, long-term kind of guidance, I guess, for financial growth and margins and things you have revenue growth of like 30% or 50%. And then margins are getting near like 70% and then EBIT margin close to 20%, I guess. How important is clinical like executing the clinical market to Bionano?
Erik Holmlin
Yes, I mean, I think that the -- basically all of our, if you look at our sort of growth plans, they're centered around becoming standard of care in hematologic malignancies and genetic diseases, and then really being the go to platform in cell and gene therapy for QC analysis and genome integrity analysis. So clinical is really the principal focus of where we're going.
Now the product right now is for research use only. So people use it for clinical research, and then they develop and validate their own assays on it. But that segment of the market, including the ultra high throughput reference laboratories is what makes all of this revenue growth happen. The margin improvement happens through initiatives that we have around automation and other strategies to reduce costs. But volume is what makes the margin happen, right.
Kyle Mikson
Okay. And I guess final question, like, is there enough I guess, like, is there enough demand in this market for the type of -- the numbers that you're like, talking about here with OGM? Because it's such a -- it's not [indiscernible] known this approach?
Erik Holmlin
Yes, I think that sort of optical genome -- optical genome mapping is been in the shadow of sequencing forever, and then cytogenetics has been kind of ignored for by sequencing. So Bionano lives a little bit in a world of obscurity. But karyotyping is a global standard. There's way more karyotyping that's happening in sequencing. And when you go to a lab in India, and the only thing they're doing is karyotyping, they haven't implemented FISH, they haven't implemented microarray, and they see optical genome mapping, that's what they want to adopt because it really expands their capabilities. So the numbers are out there, the volumes are out there. And it's about delivering everything that's needed to address those volumes.
Kyle Mikson
Okay. Awesome. Let's wrap it up there. Thank you so much, Eric, for coming. It was great.
Erik Holmlin
Thanks, Kyle.
Question-and-Answer Session
Q -
[No formal Q&A for this event.]
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Bionano Genomics, Inc. (BNGO) Presents at Canaccord Genuity 43rd Annual Growth Conference (Transcript)