Bionano Genomics, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K, or our Annual Report, filed with the Securities and Exchange Commission, or the SEC, on March 10, 2020. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to Bionano Genomics, Inc. Forward-Looking Statements The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to any statements concerning the potential effects of the COVID-19 pandemic on our business , statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in our filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. Overview We are a life sciences instrumentation company in the genome analysis space. We develop and market the Saphyr system, a platform for ultra-sensitive and ultra-specific structural variation detection that enables researchers and clinicians to accelerate the search for new diagnostics and therapeutic targets and to streamline the study of changes in chromosomes, which is known as cytogenetics. Our Saphyr system comprises an instrument, chip consumables, reagents and a suite of data analysis tools. We have incurred losses in each year since our inception. Our net losses were $8.1 million and $7.7 million for the three months ended June 30, 2020 and 2019, respectively, and $18.6 million and $15.5 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, we had an accumulated deficit of $121.2 million. We expect to continue to incur significant expenses and operating losses as we: • expand our sales and marketing efforts to further commercialize our products; • continue research and development efforts to improve our existing products; • hire additional personnel; • enter into collaboration arrangements, if any; • add operational, financial and management information systems; and • incur increased costs as a result of operating as a public company. 15 Table of Contents COVID-19 Overview The COVID-19 pandemic, and the measures imposed to contain this pandemic in areas where we operate our business and elsewhere have disrupted and are expected to continue to impact our business. For example, to comply with applicable regulations and to safeguard the health and safety of our employees and customers, we temporarily reduced our on-site business operations, implemented work-from-home practices, and modified other business practices, including those related to employee travel and physical participation in meetings, events, and conferences. In addition, the quarantine of our personnel and the inability to access our facilities or customer sites adversely affected, and is expected to continue to adversely affect, our operations. During the six months ended June 30, 2020, we experienced a $1.7 million decrease in revenue, as compared to the same period of the prior year, which is largely due to the COVID-19 pandemic. While the COVID-19 pandemic did not prevent us from operating our business during the six months ended June 30, 2020, we have taken steps to reduce our cash used in operations to offset the decrease in cash generated from sales. For example, on April 15, 2020, our Board of Directors approved the implementation of temporary salary reductions for certain of our executive officers and other employees, including 50% salary reductions for Erik Holmlin, President and Chief Executive Officer, Mark Oldakowski, Chief Operating Officer, and Warren Robinson, Chief Commercial Officer. These reductions were effective for two months beginning on April 16, 2020 and ended on June 15, 2020. Also in April 2020, we implemented salary reductions for most of our salaried employees and reduced the number of working hours of most of our hourly employees by 25% , with such measures also ending on June 15, 2020. These disruptions resulting from the COVID-19 pandemic, may continue to impact our operations and overall business. The impact of COVID-19 is evolving rapidly and its future effects remain uncertain. As a result of such uncertainties, the duration of the disruption and the related impact on our business, operating results and financial condition cannot be reasonably estimated at this time. We are continuing to closely monitor the impact of the COVID-19 pandemic on our business and are taking proactive efforts designed to protect the health and safety of our workforce, continue our business operations and advance our corporate objectives. Financial Overview Revenue We generate product revenue from sales of our instruments and consumables. We currently sell our products for research use only applications and our customers are primarily laboratories associated with academic and governmental research institutions, as well as pharmaceutical, biotechnology and contract research companies. Consumable revenue consists of sales of complete assays which are developed internally by us, plus sales of kits which contain all the elements necessary to run tests. Other revenue consists of warranty and other service-based revenue. The following table presents our revenue for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Product revenue $ 940,000 $ 2,021,000 $ 1,923,000 $ 3,708,000 Service and other revenue 242,000 154,000 395,000 319,000 Total $ 1,182,000 $ 2,175,000 $ 2,318,000 $ 4,027,000 16 Table of Contents The following table reflects total revenue by geography and as a percentage of total revenue, based on the billing address of our customers. North America consists of the United States and Canada. EMEIA consists of Europe, Middle East, India and Africa. Asia Pacific includes China, Japan, South Korea, Singapore and Australia. Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 $ % $ % $ % $ % North America $ 788,000 66 % $ 1,379,000 64 % $ 1,514,000 66 % $ 2,218,000 55 % EMEIA 315,000 27 % 507,000 23 % 705,000 30 % 1,425,000 35 % Asia Pacific 79,000 7 % 289,000 13 % 99,000 4 % 384,000 10 % Total $ 1,182,000 100 % $ 2,175,000 100 % $ 2,318,000 100 % $ 4,027,000 100 % Cost of Revenue Cost of product revenue for our instruments and consumables includes costs from the manufacturer, raw material parts costs and associated freight, shipping and handling costs, contract manufacturer costs, salaries and other personnel costs, overhead and other direct costs related to those sales recognized as product revenue in the period. Cost of service and other revenue consists of salaries and other personnel costs and costs related to warranties and other costs of servicing equipment at customer sites. Research and Development Expenses Research and development expenses consist of salaries and other personnel costs, stock-based compensation, research supplies, third-party development costs for new products, materials for prototypes, and allocated overhead costs that include facility and other overhead costs. We have made substantial investments in research and development since our inception, and plan to continue to make investments in the future. Our research and development efforts have focused primarily on the tasks required to support development and commercialization of new and existing products. We believe that our continued investment in research and development is essential to our long-term competitive position. Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and other personnel costs, and stock-based compensation for our sales and marketing, finance, legal, human resources and general management, as well as professional services, such as legal and accounting services. 17 Table of Contents Results of Operations Comparison of the Three Months Ended June 30, 2020 and 2019 The following table sets forth our results of operations for the three months ended June 30, 2020 and 2019: Three Months Ended June 30, Period-to-Period Change 2020 2019 $ % Revenues: Product revenue $ 940,000 $ 2,021,000 $ (1,081,000) (53.5) % Service and other revenue 242,000 154,000 88,000 57.1 % Total revenue 1,182,000 2,175,000 (993,000) (45.7) % Cost of revenue: Cost of product revenue 515,000 1,525,000 (1,010,000) (66.2) % Cost of other revenue 88,000 30,000 58,000 193.3 % Total cost of revenue 603,000 1,555,000 (952,000) (61.2) % Operating expenses: Research and development 2,401,000 2,408,000 (7,000) (0.3) % Selling, general and administrative 5,613,000 5,056,000 557,000 11.0 % Total operating expenses 8,014,000 7,464,000 550,000 7.4 % Loss from operations (7,435,000) (6,844,000) (591,000) 8.6 % Other income (expenses): Interest expense (561,000) (645,000) 84,000 (13.0) % Other income (expenses) (73,000) (171,000) 98,000 (57.3) % Total other income (expenses) (634,000) (816,000) 182,000 (22.3) % Loss before income taxes (8,069,000) (7,660,000) (409,000) 5.3 % Provision for income taxes (5,000) (5,000) — — % Net loss $ (8,074,000) $ (7,665,000) $ (409,000) 5.3 % Revenue Total revenue decreased by $1.0 million, or 45.7%, to $1.2 million for the three months ended June 30, 2020 compared to $2.2 million for the same period in 2019. The decrease impacted all regions, largely driven by customers temporarily shutting down their lab operations in response to COVID-19 shelter-at-home orders. Below is a summary of changes for the three months ended June 30, 2020 as compared to the same period in 2019: • North America revenue decreased by $0.6 million, or 43%; • EMEIA revenue decreased by $0.2 million, or 38%; and • Asia Pacific revenue decreased by $0.2 million, or 73%. Cost of Revenue Total cost of revenue decreased by $1.0 million, or 61.2%, to $0.6 million for the three months ended June 30, 2020 compared to $1.6 million for the same period in 2019. Total cost of revenue decreased for the three months ended June 30, 2020 as compared to 2019 primarily due to a decrease in the number of instruments units sold during the quarter from 8 to 1. This was partially offset by an increase in consumable units sold of 189%. Research and Development Expenses There was no significant change to research and development expenses during the three months ended June 30, 2020 compared to the same period in 2019. 18 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $0.5 million, or 11.0%, to $5.6 million for the three months ended June 30, 2020 compared to $5.1 million for the same period in 2019. This is primarily due to headcount additions to our global sales and marketing teams as well as back-office support teams to assist with the growth of our world-wide product distribution. In addition, we incurred increased professional fees to support business operations and our international presence. Salary reductions implemented in April 2020 partially offset cost increases driven by our headcount additions. Comparison of the Six Months Ended June 30, 2020 and 2019 The following table sets forth our results of operations for the six months ended June 30, 2020 and 2019: Six Months Ended June 30, Period-to-Period Change 2020 2019 $ % Revenues: Product revenue $ 1,923,000 $ 3,708,000 $ (1,785,000) (48.1) % Service and other revenue 395,000 319,000 76,000 23.8 % Total revenue 2,318,000 4,027,000 (1,709,000) (42.4) % Cost of revenue: Cost of product revenue 1,289,000 2,645,000 (1,356,000) (51.3) % Cost of other revenue 170,000 57,000 113,000 198.2 % Total cost of revenue 1,459,000 2,702,000 (1,243,000) (46.0) % Operating expenses: Research and development 5,075,000 4,508,000 567,000 12.6 % Selling, general and administrative 12,981,000 9,846,000 3,135,000 31.8 % Total operating expenses 18,056,000 14,354,000 3,702,000 25.8 % Loss from operations (17,197,000) (13,029,000) (4,168,000) 32.0 % Other income (expenses): Interest expense (1,322,000) (959,000) (363,000) 37.9 % Loss on debt extinguishment — (1,333,000) 1,333,000 — % Other income (expenses) (55,000) (186,000) 131,000 (70.4) % Total other income (expenses) (1,377,000) (2,478,000) 1,101,000 (44.4) % Loss before income taxes (18,574,000) (15,507,000) (3,067,000) 19.8 % Provision for income taxes (10,000) (9,000) (1,000) 11.1 % Net loss $ (18,584,000) $ (15,516,000) $ (3,068,000) 19.8 % Revenue Total revenue decreased by $1.7 million, or 42.4%, to $2.3 million for the six months ended June 30, 2020 compared to $4.0 million for the same period in 2019. The decrease impacted all regions, largely driven by customers temporarily shutting down their lab operations in response to COVID-19 shelter-at-home orders and related restrictions to address the pandemic. Below is a summary of changes for the six months ended June 30, 2020 as compared to the same period in 2019: • North America revenue decreased by $0.7 million, or 32%; • EMEIA revenue decreased by $0.7 million, or 51%; and • Asia Pacific revenue decreased by $0.3 million, or 74%. Cost of Revenue Total cost of revenue decreased by $1.2 million, or 46.0%, to $1.5 million for the six months ended June 30, 2020 compared to $2.7 million for the same period in 2019. Total cost of revenue decreased for the six months ended June 30, 2020 as compared to 2019 primarily due to a decrease in the number of instruments units sold from 14 to 4. This was partially offset by an increase in consumable units sold of 120%. 19 Table of Contents Research and Development Expenses Research and development expenses increased $0.6 million, or 12.6%, to $5.1 million for the six months ended June 30, 2020 compared to $4.5 million for the same period in 2019. This is due to headcount additions to our development teams, but slightly offset by the salary reductions implemented in April 2020. In addition, our materials and supply expense increased during the six months ended June 30, 2020 due to continued efforts to innovate our product. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $3.2 million, or 31.8%, to $13.0 million for the six months ended June 30, 2020 compared to $9.8 million for the same period in 2019. This is primarily due to headcount additions to our global sales and marketing teams as well as back-office support teams to assist with the growth of our world-wide product distribution. In addition, we incurred increased professional fees to support ongoing business operations and international presence. Lastly, the Company determined that its collection efforts had been exhausted for a portion of its accounts and deemed the accounts receivables balance as not collectible. As a result, the Company recognized bad debt expense of $1.3 million during the six months ended June 30, 2020. Interest Expense Interest expense increased $0.4 million, or 37.9%, to $1.3 million for the six months ended June 30, 2020 compared to $0.9 million for the same period in 2019, driven by changes in our term-loan debt. In March 2019, the Company retired its $10 million Credit and Security Agreement with MidCap Financial (the “CSA”) and replaced it with a $20 million facility under our Loan and Security Agreement with Innovatus Life Sciences Lending Fund I, LP, as further discussed below. Loss on Debt Extinguishment A loss on debt extinguishment of $1.3 million was recognized during the six months ended June 30, 2019 in association with retiring the MidCap Financial CSA prior to maturity. Liquidity and Capital Resources Since our inception, we have incurred net losses and negative cash flows from operations. We incurred net losses of $8.1 million and $7.7 million for the three months ended June 30, 2020 and 2019, respectively, and $18.6 million and $15.5 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, we had an accumulated deficit of $121.2 million and cash and cash equivalents of $17.2 million. Sources of Liquidity Prior to our initial public offering (IPO) in August 2018, we financed our operations principally through private placements of convertible preferred stock, convertible notes, borrowings from credit facilities, and revenue from our commercial operations. Since our IPO, we have generated cash flows from sales of common stock and other equity instruments instead of convertible preferred stock. We anticipate that future sources of liquidity will principally come from sales of common stock and other equity instruments, borrowings from credit facilities and revenue from our commercial operations. See Note 6 to our condensed consolidated financial statements for a discussion of our recent equity activity and Note 5 to our condensed consolidated financial statements for a discussion of terms and provisions of our debt included elsewhere in this Quarterly Report on Form 10-Q for more information. Follow-On Offering In April 2020, we completed an underwritten public offering of 16,896,000 shares of its common stock and, to certain investors, pre-funded warrants to purchase 37,650,000 shares of its common stock, and accompanying common warrants to purchase up to an aggregate of 54,546,000 shares of its common stock. Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase one share of common stock. The public offering price of each share of common stock and accompanying common warrant was $0.33 and $0.329 for each pre-funded warrant. The pre-funded warrants are immediately exercisable at a price of $0.001 per share of common stock. The common warrants are immediately exercisable at a price of $0.33 per share of common stock and will expire five years from the date of issuance. The shares of common stock and pre-funded warrants, and the accompanying common warrants, were issued separately and were immediately separable upon issuance. The gross proceeds to us were approximately $18.0 million, before deducting underwriting discounts and commissions and other offering expenses. 20 Table of Contents Warrant Exercise Update From July 1, 2020 through August 12, 2020, we have received gross proceeds of approximately $13.9 million pursuant to the exercise of outstanding common and pre-funded warrants to purchase an aggregate of 46,505,000 shares of our common stock. Cash Flows The following table sets forth the cash flow from operating, investing and financing activities for the periods presented: Net cash provided by (used in): Six Months Ended June 30, 2020 2019 Operating activities $ (15,250,000) $ (12,868,000) Investing activities — (30,000) Financing activities 15,133,000 11,670,000 Operating Activities We derive cash flows from operations primarily from the sale of our products and services. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to support the growth of our business. We have historically experienced negative cash flows from operating activities as we have developed our technology, expanded our business and built our infrastructure and this may continue in the future. Net cash used in operating activities was $15.3 million during the six months ended June 30, 2020 as compared to $12.9 million during the same period in 2019. The increase in cash used in operating activities of $2.4 million is attributed to increased headcount across the business, increased professional fees to support ongoing business operations and increase our international presence, and increased investments in marketing and promotions. Investing Activities Historically, our primary investing activities have consisted of capital expenditures for the purchase of capital equipment to support our expanding infrastructure. We expect to continue to incur additional costs for capital expenditures related to these efforts in future periods. There was no significant cash used in investing activities during the six months ended June 30, 2020 as well as for the same period in 2019. Financing Activities Net cash provided by financing activities was $15.1 million during the six months ended June 30, 2020 as compared to the same period in 2019 where we had net proceeds from financing activities of $11.7 million, a decrease of $3.4 million. During the six months ended June 30, 2020, we raised approximately $16.4 million in net proceeds from a follow-on offering, and $3.5 million from warrant exercises. In addition, we received approximately $1.8 million pursuant to the PPP Loan (as defined below). Offsets included payments of $1.5 million on our revolving line of credit and $5.0 million in term-loan principal prepayments in accordance with the Second Amendment. During the six months ended June 30, 2019, we had net proceeds from the issuance of the Innovatus LSA as well as aggregate proceeds from Innovatus and Aspire Purchase Agreements of approximately $11.0 million. Paycheck Protection Program In April 2020, we received loan proceeds of approximately $1.8 million (the “PPP Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). The PPP Loan is scheduled to mature in April 2022 (the “Maturity Date”), bears interest at a rate of 1.00% per annum, and is subject to the standard terms and conditions applicable to loans administered by the SBA under the CARES Act. The PPP Loan is evidenced by a promissory note issued by East West Bank (the “Lender”). The PPP note contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. Under the terms of the CARES Act, recipients of loans under the PPP can apply for and be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and certain other eligible costs (the “Eligible Costs”). Pursuant to the Paycheck Protection Program 21 Table of Contents Flexibility Act (the “PPPFA”), enacted on June 5, 2020, we may continue to use loan proceeds on Eligible Costs through October 2, 2020, or the date that is 24 weeks from the PPP Loan origination date (the “Covered Period”). However, no assurance is provided that forgiveness for any portion of the PPP Loan will be obtained. Pursuant to the PPPFA, payments of principal and interest due under the PPP Loan are deferred until the date on which the SBA remits the forgiveness amount, if any, back to the PPP Lender, or if forgiveness isn't sought within 10 months after the last day of the Covered Period, until the date that is 10 months from the last day of the Covered Period. The amounts outstanding under the PPP Loan may be prepaid by us at any time prior to maturity without penalty. The PPP Loan is also described in Note 5 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Capital Resources We performed an analysis of our ability to continue as a going concern. We believe, based on our current business plan, that our existing cash and cash equivalents as of June 30, 2020, plus proceeds from the recent warrant exercises described above, will be sufficient to fund our operations and obligations into the first quarter of 2021. We plan to continue to fund our operations through cash and cash equivalents on hand, as well as through public or private equity or debt financings, strategic collaborations, licensing arrangements, asset sales, or other arrangements. Additional funds may not be available when needed from any source or, if available, may not be available on terms that are acceptable to us. In addition, as a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. It is possible that further deterioration in credit and financial markets and confidence in economic conditions will occur. If equity and credit markets deteriorate, it may affect our ability to raise equity capital, borrow on our existing facilities or make any additional necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. In addition, while we are currently in compliance with our loan agreement, the COVID-19 pandemic may compromise our ability to comply with the terms of our loan agreement and could result in an event of default. If an event of default were to occur, our lender could accelerate our repayment obligations or enforce other rights under our loan agreements. Any such default may also require us to seek additional or alternative financing, which may not be available on commercially reasonable terms or at all. Even if we raise additional capital, we may also be required to modify, delay or abandon some of our plans which could have a material adverse effect on our business, operating results and financial condition and our ability to achieve our intended business objectives. Any of these actions could materially harm our business, results of operations and future prospects. See Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information. As discussed in Note 1 to our condensed consolidated financial statements included in this Quarterly Report, in April 2020, we received a Notice (the “Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) advising us that for 30 consecutive trading days preceding the date of the Notice, the bid price of our common stock had closed below the $1.00 per share minimum required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The Notice has no effect on the listing of our common stock at this time, and our common stock continues to trade on The Nasdaq Capital Market under the symbol “BNGO.” We intend to monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options to regain compliance with the Minimum Bid Price Requirement. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, and similarly did not and do not have any holdings in variable interest entities. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements requires us to make estimates and assumptions that materially affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the 22 Table of Contents circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions. There were no material changes in our critical accounting policies and estimates during the six months ended June 30, 2020. Recent Accounting Pronouncements See Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for information concerning recent accounting pronouncements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide the information required by this Item.