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Item 1. Business

2021-03-23 compared with 2020-03-10 · 472 added, 404 removed, 317 unchanged (73% of the section changed)

We are a genome analysis company providing tools and services based on our Saphyr® system to scientists and clinicians conducting genetic research and patient testing.

We developed 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 evaluation of changes in chromosomes, which is known as cytogenetics.

Our commercial offering includes the Saphyr system, which is comprised of an instrument, chip consumables, reagents and a suite of data analysis tools, and genome analysis services to provide access to data generated by the Saphyr system for researchers who prefer not to adopt the Saphyr system in their labs.

We are a global leader in optical genome mapping, or OGM, solutions for genome analysis.

We provide tools and services based primarily on our Saphyr® system to scientists and clinicians conducting genetic research and patient testing.

We also provide diagnostic testing services for pediatric patients suspected of neurodevelopmental disabilities through our wholly owned subsidiary, Lineagen, Inc.

Our Saphyr system is 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 identification of structural changes in chromosomes, known as cytogenetics.

Our Saphyr system is comprised of an instrument, chip consumables, reagents and a suite of data analysis tools.

We also offer genome analysis services with the Saphyr system for researchers who want to evaluate OGM data quickly and with a low up-front investment.

Lineagen has been providing genetic testing services to families and their healthcare providers for over nine years and has performed over 65,000 tests for those with neurodevelopmental concerns.

Optical Genome Mapping

Optical genome mapping is a method of genome analysis that reveals structural variations, or SVs.

Structural variation refers to large-scale structural differences in the genomic DNA of one individual compared to another.

Each structural variation involves the rearrangement or repetition of as few as several hundred to as many as tens of millions of DNA base pairs.

Structural variations may be inherited or arise spontaneously, and many structural variations cause genetic disorders and diseases.

Until our commercial launch of the Saphyr system in February 2017, and since, we believe no other products existed or exist that could more comprehensively and cost and time-efficiently detect structural variation.

Our customers include researchers and clinicians who seek to uncover and understand the biological or clinical impact of genome variation to improve the diagnosis and treatment of patients with better clinical tests and new medicines or to replace existing cytogenetic tests that are expensive, slow and labor-intense, with a modern solution designed to simplify workflow and reduce cost and that has the potential to significantly increase diagnostic yields across the industry.

Each structural variation involves the rearrangement or repetition of as few as several hundred base pairs to as many as tens of millions of base pairs.

Structural variations may be inherited or arise spontaneously.

Structural variations are well known to cause diseases such as genetic disorders, cancer and others.

We believe no other products exists that can detect structural variations more comprehensively or cost and time-efficiently than our Saphyr system does.

Our customers include researchers and clinicians who seek to identify and understand the biological or clinical implications of genome variation.

OGM with the Saphyr system can be used to facilitate new research and to improve the treatment of patients through better testing and development of new medicines or treatment protocols.

It can also be used as a single alternative to multiple traditional cytogenetic tests like karyotyping, microarrays and fluorescent in-situ hybridization (FISH), which are expensive, slow and labor-intense.

OGM with the Saphyr system provides an advanced solution designed to simplify workflow, reduce cost, and increase diagnostic yield.

Our customers also include researchers in non-human segments, such as agricultural genomics, seeking to advance their understanding of how structural variation impacts industrial applications of plants and animals.

We have established relationships with key opinion leaders in genomics research and clinical applications, including rare diseases and oncology, and our installed base of over 138 systems made up of Saphyr and its predecessor system, includes some of the world’s most prominent clinical, translational research, basic research, academic and government institutions as well as leading pharmaceutical and diagnostic companies.

Examples include Children’s Hospital of Philadelphia, Children’s National Health System, Boston Children’s Hospital, PerkinElmer, GeneDx, Mayo Clinic, Columbia University, DuPont Pioneer, Garvan Institute of Medical Research, Genentech, McDonnell Genome Institute at Washington University, National Institutes of Health, Pennsylvania State University, Radboud University Medical Center and Salk Institute for Biological Studies.

Approximately 7,000 research use only, or RUO, high throughput sequencers are currently installed worldwide.

These sequencers are developed and sold almost entirely by Illumina and are owned by an estimated 3,000 unique customers.

Sequencing is very good at detecting genome differences involving just a few base pairs or single-nucleotide variations, which Saphyr cannot detect, but sequencing, including next-generation sequencing, or NGS, cannot reliably detect the larger structural variations that our Saphyr system can detect.

Therefore, Saphyr is being adopted alongside this installed base of sequencers as a complement that is designed to give users the ability to see a much wider scope of genome variation than ever before.

The Saphyr system, which is for RUO, is also beginning to be adopted by cytogenetics labs that seek to use it in commercial clinical tests of its patients as a laboratory-developed test, or LDT.

We estimate that approximately 2,500 cytogenetics labs exist wordwide.

These labs currently rely on existing methods such as karyotyping, fluorescence in situ hybridization, or FISH, and microarrays for clinical tests and research that look at chromosomal structure, location and function in cells.

Major guidelines for oncology and genetic disease clinical diagnostics recommend first-line structural variation testing by these existing methods.

We have established relationships with key opinion leaders in genomics research and clinical applications, including rare diseases and oncology, including some of the world’s most prominent clinical, translational research, basic research, academic and government institutions as well as leading pharmaceutical and diagnostic companies.

Examples include Augusta University, Children’s Hospital of Philadelphia, Children’s National Health System, Boston Children’s Hospital, PerkinElmer, GeneDx, Mayo Clinic, Columbia University, DuPont Pioneer, Garvan Institute of Medical Research, Genentech, McDonnell Genome Institute at Washington University, National Institutes of Health, Pennsylvania State University, Radboud University Medical Center and Salk Institute for Biological Studies.

We believe that Saphyr is the only genome analysis platform capable of comprehensive, cost effective & efficient detection of large structural variations, typically involving 500 base pairs and larger.

Today, these structural variations cannot be reliably detected by gene sequencing.

Research Use Only (RUO) high throughput sequencers, of which there are approximately 6,000 - 7,000 currently installed worldwide, cannot reliably detect the larger structural variations that our Saphyr is designed to detect.

Therefore, Saphyr may be adopted alongside this installed base of sequencers as a complement that is designed to give users the ability to see a much wider scope of genome variation than ever before.

The Saphyr system, which is for RUO, is starting to be adopted by cytogenetics labs that seek to use it in commercial clinical tests of its patients as a laboratory-developed test, or LDT.

We estimate that approximately 2,500 cytogenetics labs exist worldwide.

These labs currently rely on legacy methods for clinical tests and research that look at chromosomal structure, location, and function in cells.

Prominent guidelines for oncology and genetic disease clinical diagnostics recommend use of these existing methods for first-line structural variation testing.

The organizations issuing these guidelines include, among many others, World Health Organization (WHO), National Comprehensive Cancer Network (NCCN), American College of Medical Genetics (ACMG) and American College of Obstetricians & Gynecologists (ACOG).

More than 30 medical institutions are conducting more than 20 human translational research and human clinical studies in 2019 and 2020 to assess Saphyr’s ability to detect structural variations and diagnose patients and, in certain studies, to compare those results to those produced via existing cytogenetic methods.

We expect the findings from these studies, whether assessed internally or published by the institution, to help drive adoption of Saphyr beginning in 2020.

Saphyr and its predecessor system, which we collectively refer to as our system in this Annual Report, have been cited by researchers and clinicians in hundreds of publications covering structural variations in areas of high unmet medical need and research interest, such as rare and undiagnosed pediatric diseases, muscular diseases, developmental delays and disorders, prostate cancer and leukemia.

Importantly, Saphyr can be used alone to provide comprehensive detection of structural variations and enable diagnostic calls without the need for sequencing or cytogenetic technology.

Saphyr enables these diagnostic calls with low cost per patient, high speed and industry leading performance.

Saphyr’s performance characteristics include up to 99% sensitivity, less than 2% false positive rates and accurate diagnosis with allele fraction, or the percentage of sample exhibiting the variant, as low as between 3-5%.

Recent Highlights

Below is a summary of selected highlights since our follow-on public offering in October 2019:

We announced the adoption of our Saphyr system by PerkinElmer Genomics and the University of Iowa, including their development of assays using our optical mapping technology to expand their genetic tests assessing disease-associated chromosomal abnormalities.

We announced that Novogene added the Saphyr system to their repertoire of genomics data services.

We announced the adoption of our Saphyr system by Mayo Clinic for applications in neurodegenerative disease.

We announced the adoption of our Saphyr system by GeneDx, using our system for the clinical detection of genetic variants in muscular dystrophies, developmental and reproductive disorders.

Over the past few years, several major medical institutions have conducted more than 20 human translational research and human clinical studies to assess Saphyr’s ability to detect structural variations and diagnose patients and, in certain studies, to compare those results to those produced via existing cytogenetic methods.

In 2020, the results of several of these studies were published by the institutions.

We believe that these publications, as well as additional forthcoming publications and the results of large-scale clinical studies that are being conducted in 2021 will lead to further adoption of the Saphyr system.

Diagnostic Services

Through our wholly owned subsidiary, Lineagen, acquired in August 2020, we provide proprietary molecular genetic diagnostic services for individuals demonstrating clinical presentations consistent with neurodevelopmental disorders (NDDs), including Autism Spectrum Disorders (ASD) and other disorders of childhood development.

Lineagen's comprehensive genetic testing services can detect a majority of known NDD-causing genome variations, including testing for proprietary variations, and combines testing with Lineagen’s Proprietary Variant Index (PRISM) that uses a proprietary database of over 35,000 individuals with NDDs tested with over 60,000 tests that provides additional evidence for candidate genes associated with NDDs.

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 twelve months ended December 31, 2020, we experienced a $1.6 million decrease in revenue, as compared to the same period of the prior year, which we largely attribute to the COVID-19 pandemic due to labs shutting down and other measures restricting operation of facilities where our instruments are installed.

While the COVID-19 pandemic did not prevent us from operating our business during the twelve months ended December 31, 2020, we took steps to reduce our cash used in operations in order to offset the decrease in cash generated from sales.

For example, 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% from April through June of 2020.

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.

Recent Saphyr System Highlights

Executed on Commercialization Offerings for Saphyr

The Company executed on its commercialization strategy, expanded the utilization of its Saphyr system and increased the amount of Bionano data generated across the globe, driving scientific momentum.

The installed base of Saphyr systems was 97 at the end of the year, an increase of 24 from year-end 2019.

Validated System Utility with Benchmarking, Scientific Publication and Clinical Adoption

Rigorous and extensive benchmarking of Saphyr was conducted against traditional cytogenetic methods and long read sequencing and these results were published and validated in several key publications, presentations and announcements including:

• OGM concordant with traditional cytogenetics in landmark leukemia study;

• International consortium demonstrates that Bionano's Saphyr detects all 100 chromosomal aberrations in 85 Genetic Disease Patients;

• Large multi-center study on 100 AML samples shows that Saphyr outperforms standard-of-care and leads to the recommendation of Saphyr being a first line test.

• Publication reveals in side-by-side comparison that method using PacBio sequencing detects only 72% of the large structural variants detected by optical genome mapping with Saphyr;

• University of Iowa Hospitals and Clinics (UIHC) switched their method of clinical molecular testing for patients with presumed Facioscapulohumeral Muscular Dystrophy (FSHD) to an assay based on OGM that they developed using Bionano’s Saphyr and validated as a Laboratory Developed Test (LDT).

Expanded System Beyond Cytogenetics and Improved Diagnostics

Researchers and clinicians demonstrated the ability of OGM with Saphyr to go beyond the scope of detection of standard cytogenetics and traditional diagnostics as evidenced in several key publications including :

• UCSF & Children’s Hospital Oakland study finds that Saphyr can diagnose an additional 18% of children with genetic disease who were undiagnosed after standard of care testing.

Revealed Genetic Drivers of Severe Covid-19 Susceptibility

OGM with Saphyr identified SVs that affect genes in pathways that control immune and inflammatory response, viral reproduction and mucosal function.

These results became the foundation of multiple research efforts, including one international consortium and publication:

• COVID-19 Host Genome SV Consortium identifies structural variants with possible roles in pathogenesis and outcomes in severely ill COVID-19 patients using Bionano's Saphyr® system.

Expanded Applications of OGM in Human and Non-Human Research

Several other published studies illustrated key applications of OGM to areas of human and non-human research, including:

• Bionano Genomics data is essential part of the first ever complete assembly of a human X-Chromosome;

• Vertebrate Genome Project rules Bionano optical genome mapping technology as essential part of assembling reference quality genomes;

• Bionano's Saphyr plays essential role in identifying three previously unknown genetic mutation types in cancer in study from Weill Cornell.

Advanced and Optimized the Performance of the Saphyr System for Adoption in Labs that will Develop Clinical Assays and LDTs

The Company affected several enhancements to the system and made significant advancements in the system’s capabilities including utility in identifying SVs in solid tumor oncology indications and DNA isolation:

• Bionano Genomics Releases Saphyr Updates for Industry-Leading Data Yields that Enable Analysis of Complex Cancer Samples at Unprecedented Depths;

• Bionano Genomics Solidifies its Entry into Solid Tumor Analysis with Launch of New Kit and Protocol that Significantly Simplify Tissue and Solid Tumor Analysis;

• Bionano Genomics Achieves Key Milestone with Software Update for its Saphyr System that Increases Throughput to 96 Human Genomes Per Week and Adds Saphyr Assure for Monitoring System Health.

Recent Corporate Highlight s

• In January 2021, Bionano raised approximately $350 million in gross proceeds from two underwritten public offerings of shares of its common stock.

The underwriters exercised in full their options to purchase additional shares, which were priced at $3.05 per share and $6.00 per share, respectively;

• The Company successfully closed the acquisition of diagnostics services provider, Lineagen, to accelerate the clinical adoption of Saphyr for digital cytogenetics, expanded diagnostic testing menu with the launch of Lineagen’s EpiPanelDx PLUS Gene Panel Test that identifies genetic conditions related to epilepsy;

• The Company enhanced the senior management team with the appointments of Christopher Stewart as Chief Financial Officer and Dr.

Alka Chaubey as Chief Medical Officer.

Industry Background

Genome analysis is the process of extracting biological information from DNA.

Optical Genome Mapping

Genome analysis is the process of extracting and interpreting biological information from DNA.

DNA is the code that is found in all living cells and determines the characteristics and health of all living organisms.

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Genome variation is defined as at least one base pair differing in a comparison of sequence against a reference standard and can be as large as tens of millions of base pairs.

It had long been believed by the scientific community that all problems in genome analysis could be addressed by DNA sequencing, which is a method of determining the precise order of the bases adenine (A), guanine (G), cytosine (C) and thymine (T) in a genome.

Many in the industry felt that the only bottlenecks for sequencing companies to address were the cost per genome and the throughput of the sequencers.

If these issues could be addressed, it was generally believed that sequencing would usher in a new wave of medical-grade genome analysis that would give rise to an abundance of highly impactful discoveries in medicine.

These discoveries would lead to novel therapies and patient management pathways driven by exquisitely specific and sensitive diagnostic tests.

In recent years, however, it has become evident that sequencing is not completely fulfilling the needs of researchers and clinicians.

For example, after 10 years with next-generation sequencing in use, the diagnostic yields of the leading genetic testing laboratories in the world continue to hover around only 50%, which is where they have been for at least two decades, meaning that only half of patients receive a confirmed pathogenic diagnosis.

Researchers and clinicians now agree that despite major advances in the speed and cost-effectiveness of sequencing, it fails to reliably detect structural variations, which represent an entire class of genome variation.

Structural variation is one of the most biologically important aspects of the human genome.

It is the underlying driver of many known human diseases, including numerous genetic disorders, inherited diseases and cancer.

Structural variations occur when relatively large groups of base pairs change their existence or position in the genome relative to a normal standard.

Structural variations can be as small as a few hundred base pairs or as large as tens of millions of base pairs and can be confined to one chromosome or can unfold between chromosomes.

The changes can be rearrangements in location, order or orientation, and they can involve the insertion, deletion or duplication of entire blocks of base pairs.

As an example of the importance of structural variations, thousands of base pairs can be rearranged and result in the ABL gene from one chromosome joining the BCR gene on an entirely different chromosome to form BCR-ABL, an oncogenic fusion gene which causes certain leukemias.

We believe the available methods to detect structural variations for research and clinical applications, other than Saphyr, are antiquated and cumbersome and can only detect a small proportion of the structural variations across an entire genome.

These methods therefore have very limited utility in population research studies that seek to discover new structural variations to explain pathology.

Genome structure refers to the way in which the various functional elements of the genome such as genes, reading frames, promoters and others are ordered, oriented and organized across the 23 pairs of chromosomes.

Variation in genome structure, or structural variation, is one of the most biologically important aspects of the human genome.

It is the underlying driver of many known human diseases, including numerous genetic disorders, cancer, metabolic disorders and other.

Structural variations occur when large

groups of base pairs are deleted or change their position in the genome relative to a normal standard.

Structural variations can be as small as a few hundred base pairs or as large as tens of millions of base pairs.

Many researchers and clinicians now agree that despite major advances in the speed and cost-effectiveness of DNA sequencing, it fails to reliably detect structural variations.

We believe the currently available methods to detect structural variations for research and clinical applications, other than Saphyr, are antiquated and cumbersome and can only detect a small proportion of the structural variations across an entire genome.

For example, chromosomal microarray analysis (CMA) is a widely accepted, front-line test used in the diagnostic evaluation of children with developmental disabilities.

CMA can detect most unbalanced structural variations, but cannot detect balanced structural variations which are identifiable by the Saphyr system.

Balanced structural variations are known causes of cancer (ex:

BRC-ABL and other fusion genes).

CMA and similar methods therefore have very limited utility in population research studies that seek to discover new structural variations to explain a wide array of disease pathology.

Without additional tools, researchers and clinicians cannot comprehensively study the genome, which we believe will ultimately result in the failure of genomics to deliver on its full promise of new therapies and diagnostics.

The Saphyr system provides a solution for comprehensive structural variation analysis.

The Saphyr system is a proprietary, sample-to-result platform based on physical mapping of the genome, which is the process of assigning the chromosomal location, order and orientation of the functional elements of the genome.

The Saphyr system is a proprietary, sample-to-result platform based on optical mapping of the genome, which is the process of assigning the chromosomal location, order and orientation of all elements of the genome.

We believe that Saphyr is the only product capable of detecting structural variations at high sensitivity and specificity with a workflow that is cost-effective and time-efficient.

A complete and accurate physical map of the genome enables the user to much more readily and systematically detect the structural variations that sequencing and cytogenetics technologies miss.

Our mapping makes it possible for researchers and clinicians to more comprehensively detect structural variations and measure the complete scope of genome variation present in their study populations.

Diagnostic Services

Through our Lineagen subsidiary, we offer tests that use chromosomal microarray analysis (CMA), which is recommended by the American College of Medical Genetics and Genomics (ACMGG), the American Academy of Pediatrics (AAP), and the American Academy of Neurology (AAN), among other renowned societies for evaluation of patients suspected of genetic disease.

We are actively performing research to determine whether OGM with the Saphyr system can replace CMA as the front-line test for children with developmental disorders.

As the scientific, peer-reviewed literature supports this claim, the coding entities such as CMS and the AMA would need to adopt the proper procedural codes to allow for insurance reimbursement of new testing methodologies before they become mainstream clinical diagnostic instruments.

Importantly, OGM is expected to be able to detect full mutations consistent with fragile X syndrome, which is another front-line test for children, especially males, with autism spectrum disorder and intellectual disability.

Studies are ongoing to determine the sensitivity and specificity for OGM as it relates to fragile X syndrome.

We also employ Whole Exome Sequencing (WES), which aims to detect genome single nucleotide variations that are different from genome structural variations and are not detectable by OGM.

Market Opportunity

Optical Genome Mapping

According to Research and Markets, the worldwide market for genomics products and services is expected to reach approximately $54.4 billion by 2025, up from approximately $22.7 billion in 2020, representing a compound annual growth rate of 19%.

We believe that the market opportunity is predominantly split among three regions:

North America, Europe and Asia.

Within Asia, one of the fastest growing genomics markets is China, where adoption of genome analysis technology has been growing at approximately 20% per year.

The two segments of the genomics market that are driving the uptake of our product are:

The two areas of the genomics market that are driving the uptake of our product are:

• Sequencing for Discovery Research.

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Therefore, we believe that our currently addressable portion of the genome analysis market is estimated to be between $2.7 billion and $3.5 billion.

Existing Technologies and Their Limitations

Existing technologies fail to adequately address the need for structural variation detection because they do not overcome the inherent complexity of the genome or they are not capable of providing a cost-effective, scalable solution to meet the increasing demands of genomics research and clinical applications.

The Genome Is Complex

Genome composition itself makes the measurement of genome structure and structural variation inherently difficult.

Genome sequence is built from combinations of only the A, G, C and T nucleotides.

The nucleotides have a natural pairing system in which A pairs with T and G pairs with C.

Each pair of nucleotides is referred to as a base pair.

In humans, the approximately six billion base pairs are distributed across 23 pairs of chromosomes.

A chromosome is an organizational unit that biology has evolved to compartmentalize genomic information.

One set of 23 chromosomes (three billion base pairs) is inherited from each parent.

Within each chromosome, the base pairs are organized into functional elements such as genes, which code for protein production, and other elements that regulate how and when the genes are expressed for protein production.

The six billion base pairs that make up the human genome cannot be read by any existing technology in a simple linear, contiguous fashion.

Due in part to only four unique nucleotides being available to write the entire genetic code, it is very common for stretches of sequence to be identical either within the same chromosome or between chromosomes.

As much as two-thirds of the human genome is

made up of repetitive DNA sequences.

This repetition tends to cause structural variations to be flanked by sequences that are identical to sequences in other parts of the genome which further complicates structural variation detection.

The Genome Orchestrates Life and Genome Structure Is Key

Genome structure is the way in which the functional elements are organized.

Namely, the location on each chromosome where the gene or functional regulatory elements are found, what order and orientation they are in and how many of each element are present.

This organization is an essential part of the instructions that the organism uses in every one of its cells to develop and differentiate and to react and respond to its environment over its lifetime.

When this critical location, order, orientation or quantity vary, it is termed structural variation.

Even though both single nucleotide variation and structural variation are each very common, a much larger number of variant nucleotides in the average human genome are found in structural variations as compared to single nucleotide variations.

A recent study showed that 30 million base pairs, on average, in the human genome are part of structural variations while only 10 million are single nucleotide variations.

Most variations are inconsequential and make up the background variation responsible for the diversity of life.

Over time, these variations can randomly affect genes and proteins which, through natural selection, drive diversity and evolution across species and diversity within them.

Variations can also cause disease.

Relative to single nucleotide variations, structural variations are much more apt to be profoundly disruptive.

They often cause a tectonic shift in the genome.

These genomic shifts can have devastating effects on the health of a human.

Examples where structural variations caused a disruption of genes resulting in disease include:

dystrophin gene variation – structural variation disrupting dystrophin production that is found in Duchenne Muscular Dystrophy;

9pminus variation – deletion found in a rare developmental syndrome in children;

TMPRSS2-ERG fusion – gene fusion found in prostate cancer;

EML4-ALK fusion – gene fusion found in lung cancer;

BCR-ABL fusion (Philadelphia chromosome) – gene fusion found in leukemias such as chronic myelogenous leukemia, acute lymphoblastic leukemia and acute myelogenous leukemia.

It is important to detect these structural variations and the potentially thousands of other structural variations in each individual.

Sequencing and cytogenetics simply do not elucidate comprehensive structural variations in a systematic and cost- and time-efficient manner.

Most structural variations found to date that have been implicated in disease, such as those listed above, were discovered through laborious, expensive, unindustrialized and non-comprehensive methods over the course of many years.

Thousands of additional important structural variations are believed to exist and are expected to be found with a systematic structural variation detection tool such as our Saphyr.

The Limitations of Sequencing

As the first complete draft of the human genome was being assembled in 2000, the belief arose that most questions in genome analysis could be addressed by sequencing.

Over the course of over 15 years, sequencing proliferated across the entire genome analysis community with Illumina becoming the clear sequencing industry leader.

As more sequencing data emerged, it became apparent that sequencing alone would not adequately elucidate the causes of human disease.

The promise of sequencing was not fully delivered due to sequencing’s inability to address the complexities of genome composition.

Nearly all genome sequencing, including next-generation sequencing, uses a method called sequencing by synthesis.

Sequencing by synthesis is an in-vitro process for synthesizing a copy of DNA, one base at a time in a way that makes it possible to measure the identity of each base as it is incorporated into the growing DNA copy.

Sequencing by synthesis involves cutting genomic DNA into small pieces of a few hundred base pairs each, amplifying these pieces many times and anchoring them to a solid support where they are copied by a polymerase using fluorescently labeled bases.

These copies are called sequencing reads.

Illumina, which is the world leader in next-generation sequencing technology, markets systems that provide average read lengths that are 100 to 300 base pairs long.

These short reads are matched by computer programs to a reference genome in a process called alignment.

The reference is meant to represent the “standard” human genome in a normal, non-diseased state.

It is the result of billions of dollars spent on the Human Genome Project and other initiatives begun in the late 1990s and early 2000s to put together the first complete set of human DNA code.

When a patient’s genome is sequenced today, the short reads are compared against the reference as a template.

Using this approach, sequencing attempts to reconstruct, or “resequence,” the genome and infer genome variations.

The read lengths typical for next-generation sequencing are often too short to determine the right location and orientation of a reading frame in the genome because many of the reads from one chromosome are identical to reads from either another chromosome or even another location on the same chromosome.

When reads are indistinguishable from one another, computations cannot be performed to place the reads in the correct location in the genome.

The other significant limitation with next-generation sequencing is that the genome fragments used as templates in the copying process are also very short.

This fragmentation is a result of the methods used for DNA isolation from the cell and the use of polymerase chain reaction, or PCR.

These short lengths disconnect and destroy most of the structural information of the original genome and make next-generation sequencing unable to reliably detect genomic variations larger than a few hundred base pairs.

If the sequencing reads were accurate, on the order of hundreds of thousands of base pairs long and from templates that were even longer, they would overcome the redundancy of genome composition and every read would have a unique position in the genome.

It would then be possible to assemble a structurally accurate picture of the genome.

Accurate structural variation would be revealed upon comparing structurally accurate assemblies of genomes across a population to determine the structural changes that are driving the observed pathology or physiology.

The recognition of the need for greater lengths of sequence reads to determine genome structure, birthed the so-called long-read sequencing submarket.

Because of the need for long-read sequencing, Pacific Biosciences of California developed a system that uses another alternative form of sequencing by synthesis, while Oxford Nanopore Technologies developed a system that uses nanopore technology.

These systems provide users with average read lengths in the tens of thousands of base pairs.

However, these read lengths have proven not to be long enough to reliably and comprehensively detect structural variations.

Pacific Biosciences’ polymerases cannot regularly produce reads that are the necessary hundreds of thousands of base pairs in length.

In addition, Oxford Nanopore’s system has difficulty reliably feeding molecules that are, on average, hundreds of thousands of base pairs in length through each nanopore.

The time and cost of providing a comprehensive whole genome analysis of a patient in a clinical setting is prohibitive when using these longer-read technologies.

In summary, all existing sequencing technologies, whether short or long, do not provide a solution for integrating structural variation into patient diagnosis and management.

The Limitations of Cytogenetics

Cytogenetics is the study of chromosomal structure and how structural variations impact health.

The field has historically relied on karyotyping, FISH and more recently, microarrays.

These methods each can detect some structural variations, but they are all inadequate solutions for high volume and low cost genetic testing for structural variations and none is an approach that can comprehensively detect structural variations with the ultra-high sensitivity and ultra-high specificity of the Saphyr system.

Karyotyping is the gross optical examination of the chromosomes using a microscope.

It is a laboratory technique, modernized in the 1960s, whereby the chromosomes from one cell are stained and visualized by a pathologist or technician to investigate the total number and structure of chromosomes.

Karyotyping has many limitations.

It is cell culture dependent and therefore requires live and actively dividing cells.

Karyotyping has extremely low resolution and is therefore only sensitive for very large structural variations that are unambiguous to identify.

Given that chromosomes are being directly viewed on a slide by a pathologist with a microscope, resolution tends to be limited to structural events that are larger than five million base pairs.

When karyotyping is used to diagnose unknown genetic disease, only about 5% of karyotyping tests result in a confirmed pathogenic finding.

The test is costly, and its results are subject to each pathologist’s interpretation which introduces variability in diagnostic calls and makes the methodology not amenable to automation.

FISH is a molecular cytogenetic technique that is used to detect chromosomal aberrations.

FISH is based on the idea of using a specifically developed probe to detect a particular gene abnormality that is suspected to be in the genome.

When the probe finds targeted variation, it binds to it and generates a fluorescent signal which is observed with a fluorescence microscope.

Several characteristics of FISH limit its productivity and efficiency for use in structural variation detection.

Like karyotyping, it is cell culture dependent and therefore requires live and actively dividing cells.

Also, FISH is limited to known targets and cannot be used for discovery.

Every FISH test performed needs to be chosen to look for a specific genetic marker that the clinician anticipates may be found based on the clinical symptoms of the patient.

In addition, the test results can be ambiguous and inconclusive, and reproducibility

and variability among users can be a significant issue.

Like karyotyping, FISH’s diagnostic yield is very low when used to diagnose unknown genetic disease with only an estimated 7% of FISH providing a confirmed pathogenic finding.

In addition, FISH is expensive, especially for the limited amount of information that it provides.

Chromosomal microarrays and SNP (single nucleotide polymorphism) arrays are tests consisting of slides that contain thousands of spots of DNA fragments that bind to the DNA of the sample.

Microarrays detect gains and losses of specifically chosen DNA sequence and can also infer gene expression levels.

Microarrays interrogate thousands of genes simultaneously that are known to be associated with presumed genetic disorders of interest to the user.

Probe coverage is typically highly focused in regions of known clinical significance.

Microarrays have limited utility as a diagnostic tool as they are only useful when there are gains and losses of base pairs within the sample’s genome that are specific to the probes that are populated on the array.

Microarrays are also limited in their ability to provide specific locations of gains or losses on a chromosome, or even identify on which chromosome that the gains or losses occur.

In addition, microarrays have low resolution as they cannot reliably detect structural variants smaller than 50,000 base pairs.

Also, the diagnostic yield of microarrays is low.

Only an estimated 20% of microarray tests provide a confirmed pathogenic finding when used to diagnose unknown genetic disease.

Our approach to measuring genome structure and structural variation is novel and highly differentiated.

Most efforts in the genomic industry to address structural variation have been based on taking sequencing by synthesis as the starting point and attempting to overcome its deficiencies to make it applicable to structural variation analysis.

In contrast, the Saphyr system directly observes extremely long genomic DNA without any amplification to construct a physical map that accurately assigns the chromosomal location, order, orientation and quantity of all the genome’s functional elements.

Our solution is built upon four key elements:

Extremely long molecules for analysis.

Structural accuracy can only come from analysis of extremely long chromosomal fragments.

The Saphyr system is capable of analyzing single molecules that are on average approximately 250,000 base pairs long.

Such fragments will contain enough unique sequence information that they are distinguishable from other fragments.

These lengths are over 1,000 times longer than the average read length with Illumina systems and approximately 10 times longer than the average read lengths with Pacific Biosciences and Oxford Nanopore systems.

Building a picture of the genome with massive building blocks overcomes the inherent challenge of genome complexity and is the key to Saphyr’s unprecedented sensitivity and specificity.

Proprietary nanotechnology for massively parallel linearization and analysis of long molecules with single molecule imaging.

Analyzing these extremely long chromosomal fragments required invention.

Molecules of this size are more like balls of yarn in a test tube and must be unraveled for meaningful analysis.

We invented, patented, developed and commercialized nanochannel arrays to capture them from solution and unwind and linearize them for structural variation analysis.

Each molecule is imaged separately, making it possible to deconvolute complex mixtures including haplotypes and heterogeneous tumors, as shown in the graphic below.

DNA labeling chemistry specifically for physical mapping.

The detailed analysis of sequence we use is also highly unique and novel.

Instead of identifying the sequence of every base pair in these long fragments, we label and detect specific sequence patterns or motifs that occur universally across every genome with an average frequency of approximately one

site for every few thousand base pairs.

The key to our method entails introducing fluorescent tags at the sequence-specific site using highly specific and robust enzymatic chemistry along the extremely long fragments.

These fragments, stretched out in nanochannels, are then directly imaged allowing us to measure the distance between labels with high accuracy.

The pattern of labels detected on all these fragments can then be related to the pattern of sequence motif sites in a reference genome for comparison.

Changes in the pattern indicate structural variation.

Bioinformatic tools for structural variation analysis.

Finally, our approach includes a novel bioinformatics platform that we developed from the ground-up to take advantage of the unique benefits of our solution.

It comprises proprietary algorithms for the construction of a structurally accurate physical map of the genome without using a reference genome in assignment of structure.

Physical maps of a test subject are then compared in cross-mapping analysis that allows our system to detect genome wide structural variation, including the most complex balanced events.

Our system can do so by comparing one physical map against a common reference, or against the maps of a mother and father in the case of an afflicted child with an undiagnosed disease for example, or against maps of normal blood when studying solid tumor cancers.

This comparative approach uses our proprietary database of healthy individuals to filter out the non-disease causing structural variants found in the general healthy population.

Our Focus Areas

Our Saphyr system serves many segments of the genomics market seeking to find and understand structural variation.

We have identified focus areas where we concentrate our resources to ensure robust adoption of our system and frequent utilization of consumables.

We have selected these segments because of their urgent need to detect structural variations and the significant economic opportunity they represent.

Our current focus areas are human genetic diseases, including rare diseases and oncology.

Our Saphyr system, which is for RUO, is being used for basic and translational research and also beginning to be adopted by cytogenetics labs that seek to use it in commercial clinical tests of its patients as an LDT.

Rare Diseases

In genetic disease, existing tools have reached a plateau where almost half of patients with genetic disease who are tested in clinical laboratories fail to receive a molecular diagnosis.

In order to increase diagnostic yield, a massive increase in the understanding of the complete structure and variation of the genome is essential.

We believe the various studies presented below illustrate how Saphyr is essential to achieving this objective.

Undiagnosed Diseases Network Patient

The National Institutes of Health funded Undiagnosed Diseases Network, or UDN, brings together top clinical and genomics teams from several key institutes in the U.S.

to study the most difficult to diagnose genetic disease patients.

Through a collaboration with UCLA, Dr.

Eric Vilain of Children’s National Medical Center runs all UDN patients of the UCLA cohort on Saphyr to identify pathogenic variants that go undetected using sequencing or cytogenetics in known or novel genes.

While data collection and a full analysis of the cohort is ongoing, at the American Society of Human Genetics, or ASHG, annual meeting, Dr.

Vilain’s team presented preliminary results on the first 12 UDN patients and their parents analyzed with Saphyr.

In each family, Saphyr detected thousands of variants of which more than 100 were rare, and typically three to seven structural variations that were new to the patient, referred to as de novo structural variations, were identified.

In one case presented at ASHG, whole genome sequencing and chromosomal microarray on the DNA of a girl with developmental delay, autism, poor sleep and self-mutilation failed to identify pathogenic variants.

Saphyr was able to detect a 2,500-base pair insertion inherited from the father in a gene where whole genome sequencing had picked up a random mutation inherited from the mother.

Together, the two variants create a compound heterozygous mutation in a gene with a known phenotype that includes poor sleep, developmental delay and autism with self-mutilation.

Large heterozygous insertions like the one presented here are seldomly detected by next-generation sequencing and are too small for microarrays.

The diagnosis of this patient was only possible by the combination of next-generation sequencing and Saphyr.

Vilain’s results, including a study on patients with Duchenne Muscular Dystrophy published in Genome Medicine, Saphyr targets the 40% to 70% of genetics patients who cannot be diagnosed with exome or whole genome sequencing.

Saphyr has the power to replace multiple tests for genetic disorders, including microarrays, PCR tests and chromosomal cytogenetic tests.

Each existing test requires a patient to visit a clinician and most often provides an inconclusive result.

Vilain showed evidence that integration of Saphyr into existing diagnostic regimens can help to change the way that medicine is practiced.

Rare Familial Cancer

A rare cancer, occurring in approximately one in one million people, was found in four members of a single extended family.

A team at MD Anderson Cancer Center had used all standard clinical tools and whole genome sequencing on the affected family members

but failed to identify any causative variants.

Using Saphyr data, a 38,000-base pair sequence was found in these patients in six tandem copies, while unaffected family members had a single copy of this sequence.

The duplication was found to be upstream of an important gene in the pathway known to be upregulated in this rare cancer.

The identification of this mutation could be useful for pre-implantation embryo analysis and targeted treatments.

Repeat Expansion Disorder

In a study by Dr.

Eric Wang of the University of Florida, Saphyr was able to precisely count the number of times that a sequence segment was repeated in muscle cells derived from a patient with Myotonic Dystrophy.

This devastating disease is a repeat expansion disorder, caused by the extreme lengthening of short repeat array in the genome.

Other diseases in this category include ALS, Huntington’s Disease, and Fragile-X disease.

Current methods that do not utilize our Saphyr system cannot measure the length of such repeat arrays accurately.

Saphyr’s ability to measure the normal and expanded repeat with unprecedented accuracy and detail on single molecules could help allow the development of better targeted tests and medicines.

PerkinElmer, based in Atlanta, Georgia, has acquired Saphyr to initially offer an LDT designed to diagnose facioscapulohumeral muscular dystrophy (FSHD).

They also plan to extend the menu of tests offered based on Saphyr to other repeat expansion disorders as well as oncology.

As a result, a number of patients with a variety of birth defects and developmental disorders are being analyzed on Saphyr.

In genetic disease, the standard of care consists usually of a combination of both phenotype-dependent targeted tests, and whole-genome analysis approaches.

Targeted tests can consist of Multiple Ligation Probe Amplification, or MLPA, to test for the presence or absence of specific exons, PCR amplification and Sanger sequencing of candidate genes and multiple FISH probes to pick up specific structural variants common to the expected disease.

For whole genome approaches, first tier diagnostic tools include karyotyping techniques like metaphase chromosome spreads and in some cases microarrays.

More recently, whole exome sequencing or whole genome sequencing are increasingly being introduced.

A future workflow in which Saphyr replaces the large majority of FISH and MLPA tests for a genetics clinic such as PerkinElmer would rely on Saphyr to detect all structural variants larger than 500 base pairs, and on next-generation sequencing to detect all single nucleotide variants and other variants smaller than 500 base pairs.

Since up to numerous FISH and MLPA tests are often performed, Saphyr’s single whole genome analysis provides a cost effective solution that saves significant amounts of time, labor and analysis in lieu of such tests.

In cancer, each patient has a unique disease with a complex pattern of genome changes.

Traditional and recently-developed treatments do not attack the individual changes in each patient’s tumor.

Recent personalized medicine programs aim to provide clinicians with individual treatments specifically targeting the mutations found in each patient’s cancer.

For personalized cancer medicine to be successful, all variants in the cancer genome need to be detected, which is not feasible with cytogenetic or whole genome sequencing approaches.

The studies presented below demonstrate that Saphyr is critical for a complete understanding of a cancer genome, which is essential to enable truly targeted treatments.

Hematologic Malignancies

In a study to be published in Nature Genetics, Dr.

James Broach, Director of the Penn State Institute for Personalized Medicine, presented system’s ability to detect large rearrangements in leukemia, with a strong focus on translocations.

In his research, our system detected all known translocations identified with standard clinical tools and, importantly, many structural variations never before identified in cancer, plus hundreds of structural variations that could not be seen by other methodologies.

Attempts by Dr.

Broach to detect translocations using next-generation sequencing were unsuccessful because of the large number of false positive translocation calls.

Because of the highly repetitive nature of the human genome, many remote genomic regions have high sequence homology, and short-read sequencing often fails to correctly map reads to the correct genomic origin, leading to excessive false positive calls.

The extremely long molecules that our system analyzes span long repetitive segments of sequence and can anchor sequences into the correct genomic context, leading to extremely few false positive calls.

Given the high speed, low cost, industry-leading sensitivity and high reliability of our system displayed in this study, Dr.

Broach showed evidence that our system is well positioned to eventually become the primary tool for clinical detection of genomic structural variation.

Prostate Cancer

In a study published in Oncotarget, Dr.

Vanessa Hayes at the Garvan Institute of Medical Research in Australia presented a complete tumor-normal comparison from a primary prostate cancer.

Hayes’ team identified 85 large somatic deletions and insertions, of which half directly impact potentially oncogenic genes or regions.

Only 11% of these large structural variations were detected using high-coverage, short-read next-generation sequencing and bioinformatics analyses using a combination of the leading structural variation calling algorithms for next-generation sequencing data.

Many structural variations detected with our system were flanked by repetitive sequences, making them undetectable to short-read sequencing.

In subsequent studies presented at the Advances in Genome Biology and Technology annual meeting, Dr.

Hayes detected several oncogenic driver mutations in metastasized prostate cancer samples.

Several of the reported mutations were variants previously found in other cancer types but never before reported in prostate cancer, and for which effective treatments are available.

Existing gene panels or FISH tests performed on cancer samples only test for expected variants.

Our system’s whole genome analysis approach is the only molecular method that is capable of identifying all major structural variants in a cancer genome with sufficiently high sensitivity.

To make existing targeted cancer therapies more effective and to discover new ones, a complete characterization of the genome is important, making our system valuable in personalized cancer medicine.

We develop and market the Saphyr system, a complete sample-to-result solution for structural variation analysis that empowers comprehensive genome analysis and facilitates a deeper understanding of genetic variation and function.

Further, we believe that if Saphyr is able to successfully penetrate the currently addressable market, this will spur additional basic and translational research creating new areas where Saphyr and OGM data can be used to improve medical care.

These may include pre-conception and pre-natal genetic screening, uses to advance gene editing techniques and precision medicine.

Diagnostic Services

According to estimates from the Centers for Disease Control and Prevention (CDC), approximately one in six, or about 17%, of children have one or more developmental disabilities, including ADHD, ASD, and other NDDs.

Excluding the approximate 5% to 6% subset of developmental disabilities that Lineagen does not provide genetic diagnostic genetic testing for, the total addressable market (TAM) for Lineagen’s genetic diagnostic testing is estimated to be approximately 11% of children between the ages of 0 and 18 years old, or approximately 8,140,000 children.

We believe a portion of the TAM is not serviceable due to a number of factors, including suboptimal and/or inaccessible payors that include certain U.S.

Medicaid plans, patients tested by in-house laboratories (i.e., at medical institutions) unavailable for testing by Lineagen, and patients previously tested/diagnosed.

Given that CMA testing is recommended as first-line genetic diagnostic testing for all individuals with ASD and other forms of NDDs, we believe the serviceable addressable market (SAM) in the United States for Lineagen’s first-line FirstStepDx PLUS testing is approximately is 1,971,069 children.

Therefore, based on reimbursement rates for CMA testing established by the Centers for Medicaid & Medicare Services (CMS) of between $900 - $1,160, we believe that our SAM of the first-line genetic testing market for ASD and other NDDs is estimated to be between $1.7 billion and $2.2 billion.

Our Commercial Offerings

Optical Genome Mapping

We develop and market the Saphyr system, a complete sample-to-result solution for structural variation analysis by OGM that empowers comprehensive genome analysis and facilitates a deeper understanding of genetic variation and function.

We believe it is the only solution capable of addressing the needs for structural variation analysis because it is:

• Highly sensitive.

We believe Saphyr is the most sensitive structural variation detector currently on the market in that it can identify structural variations that no other system can.

We believe Saphyr is the most sensitive detector of structural variations larger than 500 base pairs currently on the market.

• Highly specific.

The structural variations found by Saphyr are found by direct observation rather than inference.

Saphyr has a very low false positive rate, typically less than 2%.

• Cost effective.

We expect the cost per sample to continue to decline to less than $300 per sample in 2020 and less than $100 per sample in 2021.

Saphyr generates greater than 1,920 giga base pairs of information per day, on par with some of the faster short-read sequencers in the market.

For highly sensitive structural variation detection, this allows Saphyr to process six human samples per day.

We expect Saphyr’s throughput to increase to 12 per day by the end of 2020.

We expect the end user cost of reagents and chip consumables per sample to continue to decline from less than $500 in 2020 to approximately $100 per sample in 2023.

Saphyr generates over 4,400 giga base pairs of information per day, outpacing the fastest sequencers in the market.

For highly sensitive structural variation detection, this performance allows Saphyr to process twelve human samples per day.

We expect future generations of Saphyr to exhibit throughputs as high as 192 human samples per day by the end of 2023.

Over this same period, we expect to continuously improve the automation of sample prep and bioinformatics to help drive efficiencies of workflow.

Saphyr is being adopted across an extensive base of customers in world-class clinical, translational research, basic research, academic and governmental institutions as well as pharmaceutical and biotechnology companies.

We began marketing the Saphyr system in February 2017.

We sell through a direct sales force and support organizations in North America and Europe, and through distribution partners in the Asia-Pacific and other regions of the world.

We have shipped 104 Saphyr instruments globally, of which 84 have been installed.

We continually seek to expand our product offerings to meet the needs of our customers.

When customers adopt the Saphyr system, they acquire one or more instruments, chips, reagents for DNA isolation and labeling and a suite of bioinformatics tools.

The chips and reagents are used on a recurring basis.

We also sell them ancillary solutions such as servers, reagents and other non-proprietary components used with the system.

We designed Saphyr to accommodate performance upgrades without the need for replacement of the entire instrument.

We intend for these performance enhancements to be delivered through software upgrades, purchased hardware upgrades and new chips and reagents.

The Saphyr Instrument

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The computational hardware is responsible for the secondary processing of the image data being produced on the Saphyr.

The Saphyr instrument currently analyzes two Saphyr chips, containing up to three samples each, per day with statistically relevant depth of coverage across each whole genome.

The instrument configuration along with the planned improvements to the chip mentioned below are expected to enable Saphyr to process up to 12 human samples per day by the end of 2020.

The Saphyr instrument is currently capable of analyzing up to 5,000 human samples per year.

A higher throughput version is currently in development that is expected to dramatically increase the throughput.

The Saphyr Chip

The Saphyr Chip® is the consumable that packages the nanochannel arrays for use in genome analysis.

In its current form, each Saphyr chip has three flow cells.

Each flow cell contains approximately 120,000 nanochannels that are roughly 30 nanometers wide and can hold a unique sample, which enables a researcher to analyze three samples per chip per day.

Two Saphyr Chips can be loaded in the Saphyr instrument and allow it to process six human samples per day.

In 2020, we expect to offer protocols designed to allow more than one sample per flowcell, thereby increasing the capacity of each chip.

With Saphyr’s improving data collection rates and the increased capacity of a Saphyr Chip, we expect the daily throughput of the Saphyr system to reach 9-12 samples per day.

The Saphyr Chip® is the consumable that packages the nanochannel arrays for DNA linearization.

In its current form, each Saphyr chip has three flow cells containing approximately 120,000 nanochannels that are roughly 30 nanometers wide and can hold a unique sample.

To manufacture the arrays, we use photolithography in a semiconductor fabrication facility to print hundreds of thousands of tiny grooves on silicon wafers and then dice the wafers into individual chips.

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The fluidic environment in each channel allows individual molecules to move swiftly utilizing only the charge of DNA.

Our nanochannels allow only a single linearized molecule at a time to enter a given channel while preventing the molecule from tangling or folding back on itself.

Importantly, hundreds of thousands of molecules can move through hundreds of thousands of parallel nanochannels simultaneously, enabling extremely high-throughput processing on a single-molecule basis.

Hundreds of thousands of molecules can move through hundreds of thousands of parallel nanochannels simultaneously, enabling extremely high-throughput processing on a single-molecule basis.

Saphyr Sample Prep and Labeling Kits

Our Bionano Prep Kits™ and labeling kits provide the critical reagents and protocols needed to extract and label high molecular weight, or HMW, DNA for use with the Saphyr system.

Our Bionano Prep Kits™ and DNA labeling kits provide the reagents and protocols needed to extract and label ultra-high molecular weight, or UHMW, DNA for use with the Saphyr system.

These kits are optimized for performing our genome mapping applications on a variety of sample types.

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Each Bionano Prep Kit allows customers to perform five to 10 HMW DNA preps.

Our kits and protocols enable the extraction of HMW DNA from a variety of sample types including soft or fibrous animal tissue, plant tissue, cell lines, bone marrow aspirates and human blood.

Our kits and protocols enable the extraction of HMW DNA from a variety of sample types including human or animal tissue and tumors, plant tissue, cell lines, bone marrow aspirates and human blood.

Our labeling reagents are optimized for applications on our genome mapping systems.

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The result is uniquely identifiable genome-specific label patterns that enable de novo map assembly, anchoring sequencing contigs and discovery of structural variations as small as 500 base pairs to up to chromosome arm lengths.

Our newest and most powerful kit for DNA labeling, the Direct Label and Stain, or DLS, kit is a proprietary, nondestructive chemistry for sequence motif labeling of genomic DNA that improves every aspect of our genome mapping.

Our kit for DNA labeling, the Direct Label and Stain (DLS) kit, is a proprietary, nondestructive chemistry for sequence motif labeling of genomic DNA that improves every aspect of our genome mapping.

DLS uses a single direct-labeling enzymatic reaction to attach a fluorophore to the DNA at a specific 6-base pair sequence motif, yielding approximately 16 labels per 100,000 base pairs in the human genome.

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We also offer a cloud-based solution for data analysis.

Our approach to measuring genome structure and structural variation is novel and highly differentiated.

Our solution is built upon four key elements:

• Extremely long molecules for analysis.

Structural accuracy can only come from analysis of extremely long chromosomal fragments.

The Saphyr system is capable of analyzing single molecules that are on average approximately 250,000 base pairs long.

Such fragments will contain enough unique sequence information that they are distinguishable from other fragments.

Building a picture of the genome with massive building blocks overcomes the inherent challenge of genome complexity and is the key to Saphyr’s unprecedented sensitivity and specificity.

• Proprietary nanotechnology for massively parallel linearization and analysis of long molecules with single molecule imaging.

Analyzing these extremely long chromosomal fragments required invention.

Molecules of this size are more like balls of yarn in a test tube and must be unraveled for meaningful analysis.

We invented, patented, developed and commercialized nanochannel arrays to capture them from solution and unwind and linearize them for structural variation analysis.

Each molecule is imaged separately, making it possible to deconvolute complex mixtures including haplotypes and heterogeneous tumors, as shown in the graphic below.

• DNA labeling chemistry specifically for physical mapping.

The detailed analysis of sequence we use is also highly unique and novel.

The key to our method entails introducing fluorescent tags at the sequence-specific site using highly specific and robust enzymatic chemistry along the extremely long fragments.

These fragments, stretched out in nanochannels, are then directly imaged allowing us to measure the distance between labels with high accuracy.

The pattern of labels detected on all these fragments can then be related to the pattern of sequence motif sites in a reference genome for comparison.

Changes in the pattern indicate structural variation.

• Bioinformatic tools for structural variation analysis.

Finally, our approach includes a novel bioinformatics platform that we developed from the ground-up to take advantage of the unique benefits of our solution.

It comprises proprietary algorithms for the construction of a structurally accurate physical map of the genome without using a reference genome in assignment of structure.

Physical maps of a test subject are then compared in cross-mapping analysis that allows our system to detect genome wide structural variation, including the most complex balanced events.

This comparative approach uses our proprietary database of healthy individuals to filter out the non-disease causing structural variants found in the general healthy population.

Diagnostic Services

• Multiple LDTs focused on pediatric patients with ASD and other forms of NDDs .

All aspects of the testing services we offer were designed with a specific patient cohort in mind;

namely, children with neurodevelopmental disabilities (NDDs).

Based on the extreme hypersensitivities of children with NDDs, in many cases coupled with intellectual disability (ID), blood draws are incredibly challenging.

We have developed and optimized all genetic testing solutions around DNA collected from a cheek swab, which also allows for operational simplicity and efficiency.

In addition to the sample collection, we have sought technical and interpretive expertise specific to this disease group with customized genetic testing technology platforms and in-licensing of proprietary gene databases focused on NDDs.

• Personalized, easy-to-understand results.

Because the number of children who qualify for clinical diagnostic testing for NDDs far exceed the number of genetic specialists, medical societies such as the American Academy of Pediatrics and the American Academy of Neurology recommend CMA testing be performed by other pediatric specialists.

Without specific training in genetics, most test results are too complex to be meaningfully translated into actions that improve patient care.

Our multi-disciplinary team of genetic counselors, laboratory directors, and variant analysts take care to write reports according to industry standard while also bringing the reading level down for non-genetic specialists and parents alike.

• Genetic counseling and clinical education.

While medical societies support the use of diagnostic genetic testing, they also recommend (and some payors even require) genetic counseling prior to testing.

Genetic counseling is a communication process for families provided by a licensed, nationally certified genetic counselor with a 2-year master's degree.

The purpose is to ensure families understand the benefits and limitations of testing, as well as provide informed consent, to undergo testing that may reveal medical diagnoses or other challenging situations for the patient and possibly his/her relatives.

• End-to-end customer support with reimbursement .

Although diagnostic genetic testing is a recommendation by several medical societies, it is not universally or equitably processed and reimbursed by insurance organizations.

This has become a barrier that prevents physicians and medical clinics from employing standard of care genetic testing for children.

Accordingly, we were the first in our class to develop an integrated process to streamline insurance submissions for diagnostic testing for NDDs.

Our Focus Areas

Optical Genome Mapping

Our Saphyr system serves many segments of the genomics market seeking to find and understand structural variation.

We have identified focus areas where we concentrate our resources to ensure robust adoption of our system and frequent utilization of consumables.

We have selected these segments because of their urgent need to detect structural variations and the significant economic opportunity they represent.

Our current focus areas are human genetic diseases, including rare diseases and oncology.

Genetic Diseases

In genetic disease, existing tools have reached a plateau where almost half of patients with genetic disease who are tested in clinical laboratories fail to receive a definitive molecular diagnosis.

In order to increase diagnostic yield, an increase in the understanding of the structure and structural variation of the genome is essential.

The standard of care consists usually of a combination of both phenotype-dependent targeted tests, and whole-genome analysis approaches.

For whole genome approaches, first tier diagnostic tools include CMA and karyotyping techniques like metaphase chromosome spreads.

More recently, whole exome sequencing or whole genome sequencing are increasingly being introduced.

A future workflow in which Saphyr is used as an alternative to karyotyping, the large majority of FISH, microarrays and MLPA tests would allow genetics clinics to rely on Saphyr to detect all structural variants larger than 500 base pairs and on next-generation sequencing to detect all single nucleotide variants and other variants smaller than 500 base pairs.

Since up to numerous FISH and MLPA tests are often performed, Saphyr’s single whole genome analysis provides a cost-effective solution that saves significant amounts of time, labor and analysis in lieu of such tests.

In cancer, each patient has a unique disease with a complex pattern of genome changes.

Traditional and recently-developed treatments do not attack the individual changes in each patient’s tumor.

Recent personalized medicine programs aim to provide clinicians with individual treatments specifically targeting the mutations found in each patient’s cancer.

For personalized cancer medicine to be successful, all variants in the cancer genome need to be detected, which is not feasible with cytogenetic or whole genome sequencing approaches.

The studies presented below demonstrate that Saphyr is critical for a complete understanding of a cancer genome, which is essential to enable truly targeted treatments.

The Saphyr System’s Industry-Leading Sensitivity and Specificity

Our Saphyr system detects structural variations that Illumina’s systems miss.

As shown in the graphic below, the Garvan Institute of Medical Research generated data that we expect to be published which shows the density of structural variations found relative to the size of the structural variation found for our system (blue lines) against next-generation sequencing (Illumina;

orange lines).

Next-generation sequencing has a very significant deficiency in detecting structural variations.

Given our system’s ability to detect structural variations, it picks up essentially where next-generation sequencing drops off, as shown below.

Retaining long-range contiguity throughout the genome mapping process is critical for any comprehensive study of genome structure and function, particularly for the analysis of structural variation in complex genomes.

Saphyr offers unmatched sensitivity for the detection of large structural variations greater than 500 base pairs.

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• 97% sensitivity for copy number variants larger than 500,000 base pairs.

A study of Pacific Biosciences’ long-read sequencing’s ability to detect homozygous and heterozygous insertions and deletions was published recently.

The sensitivity to detect homozygous structural variations using Pacific Biosciences was 87%, compared to 99% using Saphyr.

The sensitivity to detect heterozygous structural variations using Pacific Biosciences was only 41%, which is less than half the 84% sensitivity for heterozygous structural variation detection using Saphyr.

Even when the Pacific Biosciences structural variation calls were limited to insertions and deletions larger than 500 base pairs, the sensitivity for homozygous structural variations was only 81%, and for heterozygous structural variations was only 49%.

Saphyr detects duplications over 30,000 base pairs, in direct or inverse orientation, with a sensitivity of 97%.

Saphyr detects 99% of inversions of that same size range.

Inversions are the invisible variants and have traditionally been the hardest to detect structural events.

They are balanced, without gain or loss of sequence, and unlike translocations they do not create easily visible changes in genomic context.

Inversions often escape detection by traditional cytogenetic techniques.

Chromosomal microarrays cannot identify balanced events, and metaphase chromosome spreads can only visualize some megabase-size inversions.

Next-generation sequencing approaches tend to miss inversions because reads from inside the inversion tend to map back to the reference without any indication that the orientation of the sequence has changed.

Detection of the breakpoints often fails, especially if the inversion is flanked by segmental duplications, repeat sequences or other non-unique sequences.

Saphyr’s imaging of extremely long molecules overcomes these obstacles to identifying inversions.

In a separate study, our system detected seven times more structural variations larger than 5,000 base pairs compared to next-generation sequencing.

A study by the Human Genome Structural Variation Consortium published in the journal Science allowed for a comparison between OGM with Saphyr and Pacific Biosciences’ (PacBio) long-read sequencing technology’s ability to detect structural variation.

The consortium used a custom sequencing method based on high-coverage HiFi reads generated with PacBio’s Sequel II system and the single-strand preparation and sequencing method StrandSeq to establish a comprehensive catalog of human SVs with base-pair and haplotype resolution.

The PacBio-based method detected only 72% of the large SVs that OGM detected across 32 different human genomes.

OGM uniquely made 5,590 large SV calls missed by PacBio, corresponding to 1,175 unique SV loci.

Many of these large SVs consisted of more complex rearrangements or overlap with large repetitive areas called segmental duplications which are associated with developmental delay and adult neuropsychiatric disease, highlighting the importance of OGM in genome structure analysis.

The publication did classify some large SVs as being uniquely detected by the sequencing-based method based on PacBio HiFi.

Upon further analysis, however, most of these SVs were in fact identified by OGM but classified differently.

Overall, less than 2% of the large SVs detected by PacBio were missed by OGM

In another study, our system detected seven times more structural variations larger than 5,000 base pairs compared to next-generation sequencing.

Pui-Yan Kwok at the University of California, San Francisco, demonstrated the robustness of our system for genome-wide discovery of structural variations in a trio from the 1000 Genomes Project.

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Importantly, many of the structural variations that were found were in regions believed to contain functional elements leading to disruption of gene function or regulation.

Our Strengths

We have established ourselves as one of the leaders in the field of genome analysis, and we believe we are the industry’s performance leader in structural variation detection.

Below are our strengths that we believe will enable us to capture a significant portion of the genome analysis market and retain our leadership position in structural variation:

Highly differentiated technology platform enables researchers and clinicians to obtain information that cannot be had systematically and cost efficiently from traditional technologies.

Saphyr’s unique ability to systematically and cost efficiently see structural variations across the genome from 500 base pairs to tens of millions of base pairs is unique in the industry.

We believe this greater insight will facilitate a paradigm shift in healthcare from an emphasis on treatment with

relatively untargeted therapies to a focus on earlier detection, more precise diagnosis and treatment with better targeted therapies.

Validated solution recognized industry-wide.

We have deep and expanding scientific validation.

Our system has been cited in hundreds of publications, and we believe our technology is becoming a vital tool in cutting-edge life sciences research.

Validated solution for genetic testing.

Our system has been validated in a CLIA lab setting at PerkinElmer to test for facioscapulohumeral muscular dystrophy (FSHD).

PerkinElmer introduced the LDT to the market in 2020.

Strong installed base of premier customers.

We have shipped 104 Saphyr instruments globally, of which 84 have been installed.

Our customers include some of the world’s most prominent clinical, translational research, basic research, academic and government institutions as well as leading pharmaceutical and diagnostic companies.

Examples include Children’s National Health System, Boston Children’s Hospital, PerkinElmer, GeneDx, Mayo Clinic, DuPont Pioneer, Garvan Institute of Medical Research, Genentech, Icahn School of Medicine at Mount Sinai, McDonnell Genome Institute at Washington University, National Cancer Institute, National Institutes of Health, Pennsylvania State University and Salk Institute for Biological Studies.

Attractive business model with a growing, high-margin recurring revenue component.

As we continue to grow our installed base of Saphyr systems, optimize workflows and expand our structural variation detection capabilities, we expect to rapidly increase sales of our high-margin consumables.

The successful integration of our technology into our customers’ projects provides ongoing sales of assays and consumables.

Industry-leading intellectual property portfolio.

We have developed a global patent portfolio that includes 65 issued patents across 14 patent families and an exclusively licensed portfolio of patents and applications from Princeton University, which includes 34 patents across two families.

This global patent portfolio has filing dates ranging from 2001 to 2019.

We have robust intellectual property protection surrounding our devices, systems, and methods for macromolecular analysis.

Our ideation stems from our highly active research programs and results in our patent portfolio continually expanding at a significant pace.

Highly experienced senior management team.

We are led by a dedicated and highly experienced senior management team with significant industry experience and proven ability to develop novel solutions.

Each of the members of our senior management has more than 20 years of relevant experience.

Diagnostic Services

We offer a suite of multiple Laboratory Developed Tests (LDTs) specialized for providers focused on caring for pediatric patients with NDDs.

Our LDT suite includes the following tests, several which are supported by multiple reimbursement codes, and all provide personalized, easy-to-understand result reports supported by a robust team of clinical genetic specialists, including genetic counselors, and cytogeneticists:

• FirstStepDx (FSDx) PLUS.

Our FSDx PLUS is a Chromosomal Microarray (CMA) test designed to identify unbalanced structural variations in the genome (deletion and duplications) that are known to be underlying genetic causes of ASD, developmental delay, and intellectual disability.

CMA is recommended as a first-tier genetic test for individuals with ASD and other forms of NDDs by a number of US-based medical organizations, including the American College of Medical Genetics and Genomics (ACMGG), American Academy of Neurology (AAN), and the American Academy of Pediatrics (AAP).

• Fragile X Syndrome Testing.

Fragile X syndrome is a genetic condition caused by mutations in the FMR1 (fragile X mental retardation 1) gene.

Fragile X is the most common heritable single gene cause of ASD.

Fragile X also causes a range of developmental problems including other developmental disabilities and cognitive impairment as such, Fragile is also recommended as a first-tier genetic test for individuals with ASD and other forms of NDDs.

Additionally, Fragile X can be inherited;

a woman with Fragile X syndrome has a 50% chance of passing on the mutation to her children.

Our Fragile X testing provides screening and diagnosis of triplet repeat expansions that cause this and related (FXTAS and FXPOI) conditions.

• Pharmacogenetics (PGx) Testing.

Our PGx test analyzes genetic variations within genes known to play a role in the metabolism of medications that are commonly prescribed to individuals with ASD and other NDDs, including anti-epilepsy, anti-depression and anti-anxiety, and attention-deficit/hyperactivity disorder (ADHD) drugs.

Our PGx test helps identify the risk of side effects from certain medications and provides healthcare professionals additional information on choice and dosage of most efficacious medications.

• NextStepDx (NSDx) PLUS.

Our NSDx PLUS is a Whole Exome Sequencing (WES) test which aims to detect single nucleotide genome changes that are not detectable by the FSDx CMA test.

The method of testing relies on technologies that allow rapid sequencing of large amounts of DNA in parallel, which are known as next-generation sequencing.

As many known mutations that cause ASD and other forms of NDDs occur in gene-coding regions called exons (all exons in a genome make up a the “exome”), WES is an efficient method to identify additional disease-causing mutations.

• EpiPanelDx PLUS.

EpiPanelDx PLUS is a genetic testing panel designed for patients who have experienced seizures, infantile spasms, encephalopathy, or febrile seizures.

Much like CMA, WES, and Fragile X Syndrome testing, identification of the specific genetic etiology through panel testing can help confirm a clinical diagnosis or genetic syndrome, help

determine medical management, provide information about clinical course of disease, and assist family testing for at-risk relatives

• Mitochondrial DNA Testing.

Mitochondrial DNA testing can help identify genetic variants associated with mitochondrial disorders, which comprise a large group of complex conditions with wide clinical variability.

Mitochondrial disorders are caused by dysfunction of the mitochondrial respiratory chain, which is the process by which energy is made for the cell.

Mitochondrial DNA, while largely controlled by genes in the nuclear DNA housed across the 23 chromosomes, is a distinct form of DNA that one inherits only from the mother.

Because it is distinct, it is not included in most genetic testing assays unless specifically ordered.

• Whole Genome Sequence (WGS) Testing.

Our WGS diagnostic test (WGDx) can detect the majority of genome mutations such as deletions, duplications, and single base changes, both within and outside of gene coding regions.

In addition to diagnostic information for ASD and NDDs, understanding one’s genome can give insights that lead to better physician or individual lifestyle, dietary, and disease prevention decisions.

Optical Genome Mapping

Our goal is to enable new research in genomics to allow greater insight into their role in human health in ways that have not been possible with any other current research and diagnostic technologies.

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We believe Saphyr has the capability to enable the development of a new category of diagnostic tests and tools.

• Through our Lineagen subsidiary, develop novel LDT’s and create reimbursement paths on the Saphyr System.

With our recent acquisition of Lineagen, we are uniquely positioned to develop LDT’s based on OGM with Saphyr that can improve upon the existing standards of care for diagnostic testing for neurodevelopmental disorders.

We plan to work with payers to secure reimbursement alternatives for Saphyr based testing, which we would share with our customers to drive demand for the Saphyr system.

• Support the publication of findings with Saphyr by our customers beyond the more than 280 papers published to date.

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For example, hardware upgrades and new consumables are made available to purchase by customers.

We intend for these performance enhancements to be delivered on a regular basis.

We intend for these performance enhancements to be delivered on a regular

In addition, we periodically make available software upgrades to customers through download at no charge.

We expect to continue developing and refining our technologies to improve the ease of use of our Saphyr system and enable our existing installed systems to meaningfully increase sample throughput and sensitivity and specificity of structural variation detection.

Partner with industry-leading companies and laboratories to accelerate adoption in clinical markets.

• Partner with industry-leading companies and laboratories to accelerate adoption of OGM in clinical markets.

Establish additional collaborations with customers to help drive validating studies.

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Sales and Marketing

As of December 31, 2019, our commercial team consisted of 46 individuals, including 16 salespeople, eight marketing personnel, and 22 sales support personnel, including customer solutions personnel, field service engineers and field application specialists.

This commercial staff is primarily located in North America and Europe.

Optical Genome Mapping

As of December 31, 2020, our commercial team consisted of 72 individuals, including 29 salespeople, three marketing personnel, and 40 sales support personnel, including customer solutions personnel, field service engineers and field application specialists.

This commercial staff is primarily located in North America, Europe, and China.

Most of our sales support team is located at our headquarters in San Diego and some work remotely throughout the U.S., Europe, and China.

We sell our products through a direct sales force in North America and Europe.

We sell our products through a direct sales force in based in North America, Europe.

Our sales strategy involves the use of a combination of sales managers and sales representatives.

Our direct sales force includes nine salespeople located in the U.S.

and four located in Europe.

Our direct sales force includes 18 salespeople located in the U.S.

and 7 located in Europe, and 4 in China.

We expect to increase our sales force as we expand our business.

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The role of our field application specialists is to provide on-site training and scientific technical support to prospective and existing customers.

Our field application specialists are technical experts with advanced degrees, including seven with Ph.D.s, and generally have extensive experience in academic research and core sequencing lab experience.

Our field application specialists are technical experts with advanced degrees, including seven with Ph.Ds., and generally have extensive experience in academic research and core sequencing lab experience.

In addition, we maintain an applications lab team in San Diego, California composed of scientific experts who can transfer knowledge from the research and development team to the field application specialists.

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This team also provides commercial services by running samples on Saphyr for researchers who do not have a Saphyr system of their own.

Our domestic and international sales force informs our current and potential customers of current product offerings, new product and new assay introductions, and technological advances in Saphyr systems, workflows, and notable research being performed by our customers or ourselves.

As our primary point of contact in the marketplace, our sales force focuses on delivering a consistent marketing message and high level of customer service, while also attempting to help us better understand evolving market and customer needs.

We intend to significantly expand our sales, support, and marketing efforts in the future by expanding our direct footprint in North America and Europe as well as developing a more comprehensive support network in China where significant market opportunities exist.

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We plan to expand into these regions via initial penetration with distributors.

Our sales and marketing efforts are targeted at key opinion leaders, laboratory directors and principal investigators at leading translational research, clinical institutions, governmental research institutions and pharmaceutical companies.

In addition to our selling activities, we align with key opinion leaders at leading institutions and clinical research laboratories to help increase scientific and commercial awareness of our technology, demonstrate its benefits relative to existing technologies and accelerate its adoption.

We also seek to increase awareness of our products through participation at trade shows, academic conferences, online webinars and dedicated scientific events attended by prominent users and prospective customers.

Our systems are relatively new to the life science marketplace and require a capital investment by our customers.

The sales process typically involves numerous interactions and demonstrations with multiple people within an organization.

Some potential customers

conduct in-depth evaluations of the system including having us run experiments on in-house Saphyr systems.

Some potential customers conduct in-depth evaluations of the system including having us run experiments on in-house Saphyr systems.

In addition, in most countries, sales to academic or governmental institutions require participation in a tender process involving preparation of extensive documentation and a lengthy review process.

Because of these factors and the budget cycles of our customers, our sales cycle, the time from initial contact with a customer to our receipt of a purchase order, can often be nine to 12 months.

Diagnostic Services

We primarily sell our suite of LDTs to pediatric physicians through a physician-directed “in-person” sales model.

As of December 31, 2020, our commercial team consisted of three salespeople, and one sales support personnel.

This commercial staff is located in North America, and the sales personnel primarily work remotely in U.S.

states where we have obtained insurance reimbursement.

Our sales and marketing efforts are targeted primarily on specialty pediatricians, including pediatric neurologists, medical geneticists, and developmental and behavioral pediatricians.

We also target general pediatricians with large numbers of patients.

Our managed care efforts are directed to establishing contracts and/or credentialing with private and governmental insurance carriers that provide coverage for patients with ASD and other forms of NDDs.

As of December 31, 2020, we had contracts or credentials with providers of insurance that cover approximately 90 million lives within the U.S.

Manufacturing and Supply

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Our manufacturing strategy is to outsource instrument and chip manufacturing and internally develop and assemble reagent kits in our own facility.

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This is done through their supply management process where we get notified of any parts that will become obsolete with enough lead time to identify alternatives.

All of our chip consumables are produced by a third party manufacturer at its facility;

All our chip consumables are produced by a third-party manufacturer at its facility;

however, we have established procedures for a replacement manufacturer if required.

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If a vendor is unable to provide sufficient notification, we keep safety stock of the component to minimize disruption to operations.

Diagnostic Services

We take advantage of outsourcing certain components of the genetic testing process.

Instrumentation, chips, and reagents are developed by Illumina, a widely accepted manufacturer of CMA testing platforms.

In fact, across all academic and commercial laboratories performing CMA, Illumina is one of the top three CMA manufacturers (in addition to Affymetrix/Thermo Fisher and Agilent).

We have also historically contracted with third parties for kits, collection devices, and fulfillment.

Finally, we maintain contracts with a network of laboratories to perform the wet work on our various LDT tests in order to conserve capital and maintain flexibility of adjusting contract lab based on the best-in-class/most updated technology and customer service.

As of December 31, 2020, we have established contracts with two primary laboratories to perform wet lab services.

All third-party laboratories have met stringent criteria, including passing a site visit from our management, and being CAP and CLIA-certified.

We obtain raw data from laboratories for expert, optimized, and proprietary interpretation and reporting as previously described.

In fact, we have our own CLIA license, for which regular site visits are held to ensure maintenance of compliance, under which this expert interpretation and reporting is carried out by the multidisciplinary team focused on clinical diagnostics for individuals with NDDs.

Furthermore, we maintain all patient and provider touchpoints in all cases.

Key Agreements

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License Agreement with Princeton University

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We are obligated to pay Princeton an annual license maintenance fee in the mid-four digits, which can be reduced by royalties paid to Princeton during the preceding 12 month period.

We are also obligated to make royalty payments to Princeton equal to (i) a percentage in the mid-single digits of our and any of our sub-licensees’ net sales of products covered by the License Agreement and (ii) a percentage in the low-single digits of our and any of our sub-licensees’ revenue from services covered by the License Agreement.

(ii) a percentage in the low-single digits of our and any of our sub-licensees’ revenue from services covered by the License Agreement.

Our royalty obligations continue on a licensed product-by-licensed product and licensed service-by-licensed service basis, in every country of the world, until the later of the last sale of a licensed product or service or the expiration of all Princeton patent rights.

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Intellectual Property

Genome Analysis

Our core technology for nucleic acid research is related to methods and devices for non-sequencing based analysis of macromolecules such as nucleic acids.

Using this technology, long (high-molecular weight) nucleic acids can be suitably labeled and elongated in order to ascertain structural information such as scaffold organization, copy number, and de novo analysis of genomic repeats that is not readily obtained with current sequencing-based approaches.

Using this technology, long (high-molecular weight) nucleic acids can be suitably labeled and elongated in order to ascertain structural information such as scaffold organization, copy number, and genomic repeats that is not readily obtained with current sequencing-based approaches.

We have secured and continue to pursue intellectual property rights globally, including rights related to analysis of nucleic acid molecules, as well as innovations in the molecular biology and bioinformatics spaces.

We have developed a global patent portfolio that includes 67 issued patents across 14 patent families and an exclusively licensed portfolio of patents and applications from Princeton University, which includes 29 patents across two families.

This global patent portfolio has filing dates ranging from 2001 to 2019.

The owned and licensed families contain issued patents and pending applications that relate to devices, systems, and methods for macromolecular analysis, and reflect our active and ongoing research programs.

The commercial foci of these patent families are discussed below.

Commercial Focus

Number of Issued and Pending Patents

The global patent portfolio owned and licensed by us has effective filing dates ranging from 2001 to 2018.

The owned and licensed patent families contain issued patents and pending applications that relate to devices, systems, and methods for macromolecular analysis, and reflect our active and ongoing research programs.

The commercial focuses of these patent families are discussed below.

Commercial Focus Number of Issued Patents and Pending Patent Applications

Nanochannel devices and systems 79

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Method of genomic sequence and epigenomic analysis.

Biomolecule isolation and processing for use in nanochannel analysis

Method of optimizing nanochannel analysis 6

Next-generation products 12

In addition to pursuing patents, we have taken steps to protect our intellectual property and proprietary technology by entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, corporate partners and, as applicable, our advisors.

Diagnostic Services

Lineagen, Inc.

has registered trademarks to certain of its genetic testing services and a patent portfolio of patent applications that relate to diagnostic tests and methods to diagnose or predict disease by detecting one or more of ASD-associated CNVs, methods for assessing the presence or absence of a chromosomal deletion or duplication syndrome and methods of selecting patients for treatment

based on such assessments, probe compositions, and related PCR-based methods of diagnosis by detecting ASD-associated SNPs and / or CNVs, methods for treating Wolf-Hirschhorn syndrome (4P- syndrome) seizures with cannabidiol or with vitamin B6 combination in patients with deletion of particular seizure susceptibility region, and has exclusively licensed a method of identifying a genome sequence mutation that is linked to causality of a disease using computer program product from The Hospital for Sick Children (SickKids) in in Toronto, Canada.

Government Regulation

Our business is subject to and impacted by extensive and frequently changing laws and regulations in the United States (at both the federal and state levels) and internationally.

These include laws and regulations particular to our business and laws and regulations relating to conducting business generally (e.g., export controls laws, U.S.

Foreign Corrupt Practices Act and similar laws of other jurisdictions).

We also are subject to inspections and audits by governmental agencies.

Set forth below are highlights of certain key regulatory schemes applicable to our business.

Below are discussions concerning government regulation of our OGM products and services and, separately, our Diagnostic Services.

Optical Genome Mapping

Our products are currently intended for research use only, or RUO, applications, although our customers may use our products to develop their own products that are subject to regulation by the FDA.

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Merely including a labeling statement that a product is intended for research use only will not necessarily exempt the device from the FDA’s 510(k) clearance, premarket approval, or other requirements, if the circumstances surrounding the distribution of the product indicate that the manufacturer intends its product to be used for clinical diagnostic use.

These circumstances may include written or verbal marketing claims or links

to articles regarding a product’s performance in clinical applications, a manufacturer’s provision of technical support for clinical validation or clinical applications, or solicitation of business from clinical laboratories, all of which could be considered evidence of intended uses that conflict with RUO labeling.

These circumstances may include written or verbal marketing claims or links to articles regarding a product’s performance in clinical applications, a manufacturer’s provision of technical support for clinical validation or clinical applications, or solicitation of business from clinical laboratories, all of which could be considered evidence of intended uses that conflict with RUO labeling.

When marketed for clinical diagnostic use, our products will be regulated by the FDA as medical devices.

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After a PMA is sufficiently complete, the FDA will accept the application for filing and begin an in-depth review of the submitted information.

By statute, the FDA has 180 days to review the accepted application, although, review of the application generally can take between one and three years.

By statute, the FDA has 180 days to review the accepted application,

although, review of the application generally can take between one and three years.

During this review period, the FDA may request additional information or clarification of information already provided.

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The clinical trials must be conducted in accordance with the FDA’s IDE regulations and good clinical practices.

A clinical trial may be suspended by FDA, the sponsor or an IRB at its institution at any time for various reasons, including a belief that the risks to the study participants outweigh the benefits of participation in the trial.

A clinical trial may be suspended by the FDA, the sponsor or an IRB at its institution at any time for various reasons, including a belief that the risks to the study participants outweigh the benefits of participation in the trial.

Even if a clinical trial is completed, the results may not demonstrate the safety and efficacy of a device to the satisfaction of the FDA, or may be equivocal or otherwise not be sufficient to obtain approval of a device.

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Moreover, if we decide to operate our own clinical testing laboratory, we will be required to comply with CLIA.

If, in the future, we operate our own clinical laboratory to perform clinical diagnostic testing, we would become subject to the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as well as additional federal and state laws that impose a variety of fraud and abuse prohibitions on healthcare providers, including clinical laboratories.

Laboratory Developed Tests

Although the FDA has statutory authority to regulate medical devices, the FDA has historically exercised its enforcement discretion and not enforced applicable provisions of the FDC Act and FDA regulations with respect to laboratory developed tests, or LDTs, which are a subset of in vitro diagnostic tests that are intended for clinical use and designed, manufactured and used entirely within a single laboratory.

If, in the future, we operate our own clinical laboratory to perform clinical diagnostic testing, we would become subject to the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and its corresponding regulations, as well as additional federal and state laws that impose a variety of fraud and abuse prohibitions on healthcare providers, including clinical laboratories.

Laboratory Developed Tests (LDTs)

Federal agencies involved in the regulation of LDTs include CMS and the Food and Drug Administration (FDA).

CMS regulates the quality of clinical laboratories and the clinical testing process pursuant to the Clinical Laboratory Improvement Amendments of 1988 (CLIA) and the FDA regulates the safety and effectiveness of the diagnostic test pursuant to authorities in the Federal, Food, Drug, and Cosmetic Act.

Although the FDA has statutory authority to regulate medical devices, the FDA has historically exercised its enforcement discretion and not enforced applicable provisions of the

Federal Food, Drug, and Cosmetic Act and FDA regulations with respect to LDTs, which are a subset of in vitro diagnostic tests that are intended for clinical use and designed, manufactured and used entirely within a single laboratory.

The FDA does not consider devices to be LDTs if they are designed or manufactured completely, or partly, outside of the laboratory that offers and uses them.

We sell our Saphyr system on an RUO basis to CLIA certified cytogenetics laboratories, which may use the system to develop LDTs.

We sell our Saphyr system on an RUO basis to CLIA certified cytogenetic laboratories, which may use the system to develop LDTs.

At various times since 2006, the FDA has issued documents outlining its intent to require varying levels of FDA oversight of many types of LDTs.

In October 2014, the FDA issued draft guidance that sets forth a proposed risk-based regulatory framework that would apply such oversight to LDTs.

In October 2014, the FDA issued draft guidance that sets forth a proposed risk-based regulatory framework that

would apply such oversight to LDTs.

The FDA has indicated that it does not intend to implement its proposed framework until the draft guidance documents are finalized.

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If the FDA requires laboratories to undergo premarket review and comply with other applicable FDA requirements in the future, the cost and time required to commercialize an LDT will increase substantially and may reduce the financial incentive for laboratories to develop LDTs, which could reduce demand for our instruments and our other products.

In addition, if the FDA were to change the way that it regulates LDTs to require that we undergo pre-market review or comply with other applicable FDA requirements before we can sell our instruments or our other products to clinical cytogenics laboratories, our ability to sell our instruments and other products to this addressable market would be delayed, thereby impeding our ability to penetrate this market and generate revenue from sales of our instruments and our other products.

In addition, if the FDA were to change the way that it regulates LDTs to require that we undergo pre-market review or comply with other applicable FDA requirements before we can sell our instruments or our other products to clinical cytogenetics laboratories, our ability to sell our instruments and other products to this addressable market would be delayed, thereby impeding our ability to penetrate this market and generate revenue from sales of our instruments and our other products.

Europe/Rest of World Government Regulation

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For example, the European Union recently published new regulations that will result in greater regulation of medical devices and IVDs.

The IVD Regulation is significantly different from the IVD Directive that it replaces in that it will ensure that the new requirements apply uniformly and on the same schedule across the member states, include a risk-based classification system and increase the requirements for conformity assessment.

The IVD Regulation is significantly different from the IVD Directive that it replaces in that it will ensure that the new requirements apply uniformly and on the same schedule across the member states, including a risk-based classification system and increasing the requirements for conformity assessment.

The conformity assessment process results in the receipt of a CE designation which has been sufficient to begin marketing many types of IVDs.

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This includes requirements to develop and implement multi-faceted programs to protect workers from exposure to blood-borne pathogens, including preventing or minimizing any exposure through needle stick injuries.

For purposes of

transportation, some biological materials and laboratory supplies are classified as hazardous materials and are subject to regulation by one or more of the following agencies:

For purposes of transportation, some biological materials and laboratory supplies are classified as hazardous materials and are subject to regulation by one or more of the following agencies:

Department of Transportation, the U.S.

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Currently, our product is for research use only, but clinical laboratories may acquire our instrumentation through a capital purchase or capital lease and use the Saphyr and direct label stain chemistry to create their own potentially reimbursable products, such as laboratory developed tests for in vitro diagnostics.

Our customers may generate revenue for these testing services by seeking the necessary approval of their product from the FDA or the Centers for Medicare & Medicaid Services, or CMS, along with coverage and reimbursement from third-party payors, including government health programs and private health plans.

Our customers may generate revenue for these testing services by seeking the necessary approval of their product from the FDA or CMS, along with coverage and reimbursement from third-party payors, including government health programs and private health plans.

The ability of our customers to commercialize diagnostic tests based on our technology will depend in part on the extent to which coverage and reimbursement for these tests will be available from such third-party payors.

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In addition, CMS recently issued a coverage determination providing for the reimbursement of next-generation sequencing for certain cancer diagnostics using an FDA-approved in vitro diagnostic test.

Private health plans often follow CMS coverage and reimbursement guidelines to a substantial degree, and it is difficult to predict what CMS will decide with respect to the coverage and reimbursement of any products our customers try to commercialize.

In Europe, coverage for molecular diagnostic testing is varied.

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In countries such as the United Kingdom with tax-based insurance, adoption and reimbursement for molecular diagnostic testing is not uniform and is influenced by local budgets.

Ultimately, coverage and reimbursement of new products is uncertain, and whether laboratories that use our instruments to develop their own products will attain coverage and adequate reimbursement is unknown.

Ultimately, coverage and reimbursement of new products and services is uncertain, and whether laboratories that use our instruments to develop their own products or services will attain coverage and adequate reimbursement is unknown.

In the U.S., there is no uniform policy for determining coverage and reimbursement.

Coverage can differ from payor to payor, and the process for determining whether a payor will provide coverage may be separate from the process for setting the reimbursement rate.

In addition, the U.S.

government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid healthcare costs, including price controls and restrictions on reimbursement.

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The ACA is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.

For example, the ACA contained a 2.3% excise tax on certain entities that manufactures or imports medical devices offered for sale in the U.S., which has been permanently eliminated as part of the 2020 spending package.

There remains judicial and Congressional challenges to certain aspects of the ACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA.

Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA.

Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA.

For example, the ACA contained a 2.3% excise tax on certain entities that manufacture or import medical devices offered for sale in the U.S., which has been permanently eliminated as part of the 2020 spending package.

There have been executive, judicial and Congressional challenges to certain aspects of the ACA.

For example, President Trump signed several Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA.

Concurrently, Congress considered legislation to repeal or repeal and replace all or part of the ACA.

While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA, such as removing penalties, effective January 1, 2019, for not complying with the ACA's individual mandate to carry health insurance.

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Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well.

On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and has alloted one hour for oral arguments, which are expected to occur in the fall.

It is unclear how such litigation and other efforts to repeal and replace the ACA will impact the ACA.

The United States Supreme Court is currently reviewing this case, but it is unknown when a decision will be reached.

Although the Supreme Court has not yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace.

The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.

It is unclear how the Supreme Court ruling, other such litigation, and the healthcare reform measures of the Biden administration will impact the ACA and our business.

Further, other legislative changes have been proposed and adopted since the ACA was enacted.

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Beginning on January 1, 2018, CMS has begun using reported private payor pricing to periodically revise payment rates under the CLFS.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services.

We expect that additional state and federal healthcare reform measures will be adopted in the future, particularly in light of the new presidential administration, any of which could limit the amounts that federal and state governments will pay for healthcare products and services.

In addition, sales of our tests outside of the U.S.

will subject us to foreign regulatory requirements, which may also change over time.

Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.

Other Healthcare Laws

Our operations are directly or indirectly, through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal and state anti-kickback statutes and false claims laws.

These laws may impact, among other things, our sales and marketing and education programs, and our financial and business relationships with researchers who use our instruments to develop marketed products.

By way of example:

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In addition, the ACA clarifies that the government may assert that a claim that includes items or service resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.

Further, the Eliminating Kickbacks in Recovery Act of 2018, or EKRA, prohibits payments for referrals to recovery homes, clinical treatment facilities, and laboratories.

EKRA’s reach extends beyond federal health care programs to include private insurance (i.e., it is an “all payor” statute).

For purposes of EKRA, the term “laboratory” is defined broadly and without reference to any connection to substance use disorder treatment.

The law includes a limited number of exceptions, some of which closely align with corresponding federal Anti-Kickback Statute exceptions and safe harbors, and others that materially differ.

Additionally, the Stark Law, which prohibits a physician from making a referral for certain designated health services covered by the Medicare or Medicaid program, including laboratory and pathology services, if the physician or an immediate family member of the physician has a financial relationship with the entity providing the designated health services and prohibits that entity from billing, presenting or causing to be presented a claim for the designated health services furnished pursuant to the prohibited referral, unless an exception applies.

There are also state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, that may impose similar or more prohibitive restrictions, and may apply to items or services reimbursed by any non-governmental third-party payors, including private insurers.

In addition, we may be subject to HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization by entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers and their business associates who create, use or disclose individually identifiable health information on their behalf.

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If our operations are found to be in violation of any of these laws, we may be subject to significant penalties, including, without limitation, civil, criminal, and administrative penalties, damages, fines, disgorgement, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs, additional integrity oversight and reporting obligations, imprisonment, contractual damages, and reputational harm.

As of December 31, 2019, we had 97 employees, of which 46 work in sales, sales support and marketing, 35 work in research and development, eight work in manufacturing and operations and eight work in general and administrative.

Diagnostic Services

Clinical Laboratory Improvement Amendments of 1988 and State Regulation

As a clinical laboratory, we are required to hold certain federal and state licenses, certifications and permits to conduct our business.

As to federal certifications, in 1988, Congress passed the CLIA, establishing more rigorous quality standards for all commercial laboratories that perform testing on human specimens for the purpose of providing information for the diagnosis, prevention, or treatment of disease or the assessment of the health or impairment of human beings.

CLIA requires such laboratories to be certified by the federal government and mandates compliance with various operational, personnel, facilities administration, quality and proficiency testing requirements intended to ensure the accuracy, reliability and timeliness of patient test results.

CLIA certification is also a prerequisite to be eligible to bill state and federal healthcare programs, as well as many commercial third-party payers, for laboratory testing services.

Our laboratory located in Salt Lake City, Utah is CLIA certified.

This laboratory must comply with all applicable CLIA requirements.

If a clinical laboratory is found to be out of compliance with CLIA standards, CMS may impose sanctions, limit or revoke the laboratory’s CLIA certificate (and prohibit the owner, operator or laboratory director from owning, operating, or directing a laboratory for two years following license revocation), a directed plan of correction, on-site monitoring, civil monetary penalties, civil actions for injunctive relief, criminal penalties, or suspension or exclusion from the Medicare and Medicaid programs.

CLIA provides that a state may adopt laboratory licensure requirements and regulations that are more stringent than those under federal law and requires compliance with such laws and regulations.

The State of Utah follows all Clinical Laboratory Improvement Amendments (CLIA) regulations for laboratory facility and personnel requirements.

Utah does not have any additional licensure and regulations.

Our laboratory in Salt Lake City, Utah has also been accredited by the College of American Pathologists, or CAP, which means that our laboratory has been certified as following CAP standards and guidelines in operating the laboratory facility and in performing tests that ensure the quality of our test results.

HIPAA and other Privacy Laws

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), established comprehensive federal standards for the privacy and security of health information.

The HIPAA standards apply to three types of organizations:

health plans, healthcare clearing houses, and healthcare providers that conduct certain healthcare transactions electronically (“Covered Entities”).

Title II of HIPAA, the Administrative Simplification Act, contains provisions that address the privacy of health data, the security of health data, the standardization of identifying numbers used in the healthcare system and the standardization of certain healthcare transactions.

The privacy regulations protect medical records and other protected health information by, among other things, limiting their use and release, giving patients the right to access their medical records and limiting most disclosures of health information to the minimum amount necessary to accomplish an intended purpose.

The HIPAA security standards require the adoption of administrative, physical, and technical safeguards and the adoption of written security policies and procedures.

On February 17, 2009, Congress enacted Subtitle D of the Health Information Technology for Economic and Clinical Health Act, or HITECH, provisions of the American Recovery and Reinvestment Act of 2009.

HITECH expanded and strengthened HIPAA, created new targets for enforcement, imposed new penalties for noncompliance and established new breach notification requirements for Covered Entities.

Regulations implementing major provisions of HITECH were finalized on January 25, 2013 through publication of the HIPAA Omnibus Rule (the “Omnibus Rule”).

Under HITECH's breach notification requirements, Covered Entities must report breaches of protected health information that has not been encrypted or otherwise secured in accordance with guidance from the Secretary of the U.S.

Department of Health and Human Services (the “Secretary”).

Required breach notices must be made as soon as is reasonably practicable, but no later than 60 days following discovery of the breach.

Reports must be made to affected individuals and to the Secretary and, in some cases depending on the size of the breach, they must be reported through local and national media.

Breach reports can lead to investigation, enforcement and civil litigation, including class action lawsuits.

We are currently subject to HIPAA and maintain an active compliance program that is designed to identify security incidents and other issues in a timely fashion and enable us to remediate, mitigate harm or report if required by law.

We are subject to prosecution and/or administrative enforcement and increased civil and criminal penalties for non-compliance, including a new, four-tiered system of monetary penalties adopted under HITECH.

We are also subject to enforcement by state attorneys general who were given authority to enforce HIPAA under HITECH.

To mitigate penalties under the HITECH breach notification provisions, we must ensure that breaches of protected health information are promptly detected and reported within the company, so that we can make all required notifications on a timely basis.

However, even if we make required reports on a timely basis, we may still be subject to penalties for the underlying breach.

In addition to the federal privacy and security regulations, there are a number of state laws regarding the privacy and security of health information and personal data that are applicable to our clinical laboratories.

Many states have also implemented genetic testing and privacy laws imposing specific patient consent requirements and protecting test results by strictly limiting the disclosure of those results.

State requirements are particularly stringent regarding predictive genetic tests, due to the risk of genetic discrimination against healthy patients identified through testing as being at a high risk for disease.

We believe that we have taken the steps required of us to comply with health information privacy and security statutes and regulations, including genetic testing and genetic information privacy laws in all jurisdictions, both state and federal.

However, these laws constantly change, and we may not be able to maintain compliance in all jurisdictions where we do business.

Failure to maintain compliance, or changes in state or federal laws regarding privacy or security could result in civil and/or criminal penalties, significant reputational damage and could have a material adverse effect on our business.

The General Data Protection Regulation (“GDPR”), which applies to all EU member states from May 25, 2018, also applies to some of our operations.

The GDPR is discussed in more detail elsewhere in this report.

The GDPR applies not only to organizations within the EU, but also applies to organizations outside of the EU that offer goods or services to EU data subjects or that process or hold personal data of EU data subjects.

The regulation specifies higher potential liabilities for certain data protection violations, and we anticipate that it will result in a greater compliance burden for us as we conduct our business in the European Union.

Fines for non-compliance can range from the greater of 2% of annual global revenues or €10 million, up to the greater of 4% of annual global revenues or €20 million.

The GDPR is discussed in more detail under the heading “International Regulations” below.

Transparency Laws and Regulations

A federal law known as the Physician Payments Sunshine Act (the “Sunshine Act”) requires certain medical device manufacturers to track and report to the federal government certain payments and other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals and ownership or investment interests held by physicians and their immediate family members.

Manufacturers must report data for the previous calendar year by the 90th day of the then-current calendar year.

CMS then publishes the data on a publicly available website no later than June 30th.

Beginning in 2022, applicable manufacturers also will be required to report such information regarding its payments and other transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year.

There are also state “sunshine” laws that require manufacturers to provide reports to state governments on pricing and marketing information.

Several states have enacted legislation requiring medical device manufacturers to, among other things, establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales and marketing activities, and such laws may also prohibit or limit certain other sales and marketing practices.

These laws may adversely affect our sales, marketing, and other activities by imposing administrative and compliance burdens on us.

If we fail to track and report as required by these laws or to otherwise comply with these laws, we could be subject to the penalty provisions of the pertinent state and federal authorities.

Reimbursement and Billing

Reimbursement and billing for diagnostic services is highly complex.

Laboratories must bill various payors, such as private third-party payors, including managed care organizations (“MCO”), and state and federal health care programs, such as Medicare and Medicaid, and each may have different billing requirements.

Additionally, the audit requirements we must meet to ensure compliance

with applicable laws and regulations, as well as our internal compliance policies and procedures, add further complexity to the billing process.

Other factors that complicate billing include:

• variability in coverage and information requirements among various payors;

• patient financial assistance programs;

• missing, incomplete or inaccurate billing information provided by ordering physicians;

• billings to payors with whom we do not have contracts;

• disputes with payors as to which party is responsible for payment;

• disputes with payors as to the appropriate level of reimbursement.

Depending on the reimbursement arrangement and applicable law, the party that reimburses us for our services may be:

• a third-party who provides coverage to the patient, such as an insurance company or MCO;

• a state or federal healthcare program;

• the patient.

Presently, approximately 90% of our diagnostic service revenue is paid by private third-party payors.

Federal and State Fraud and Abuse Laws

A variety of state and federal laws prohibit fraud and abuse involving state and federal health care programs, such as Medicare and Medicaid.

These laws are interpreted broadly and enforced aggressively by various state and federal agencies, including CMS, the Department of Justice, the Office of Inspector General for the Department of Health and Human Services (“OIG”), and various state agencies.

In addition, the Medicare and Medicaid programs increasingly use a variety of contractors to review claims data and to identify improper payments as well as fraud and abuse.

Any overpayments must be repaid within 60 days of identification unless a favorable decision is obtained on appeal.

In some cases, these overpayments can be used as the basis for an extrapolation, by which the error rate is applied to a larger set of claims, and which can result in even higher repayments.

Anti-Kickback Laws

The Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending of an item or service that is reimbursable, in whole or in part, by a federal health care program.

“Remuneration” is broadly defined to include anything of monetary value, such as, for example, cash payments, gifts or gift certificates, discounts, or the furnishing of services, supplies or equipment.

The Anti-Kickback Statute can be interpreted broadly to prohibit many arrangements and practices that are lawful in businesses outside of the health care industry.

Recognizing the potential breadth of interpretation of the Anti-Kickback Statute and the fact that it may technically prohibit many otherwise innocuous or beneficial arrangements within the health care industry, the OIG has issued a series of regulations, or safe harbors intended to protect such arrangements.

Compliance with all requirements of a safe harbor immunizes the parties to the business arrangement from prosecution under the Anti-Kickback Statute.

The failure of a business arrangement to fit within a safe harbor does not necessarily mean that the arrangement is illegal or that the OIG will pursue prosecution but would be evaluated on a case-by-case basis.

Still, in the absence of an applicable safe harbor, a violation of the Anti-Kickback Statute may occur even if only one purpose of an arrangement is to induce referrals.

The penalties for violating the Anti-Kickback Statute can be severe.

These sanctions include criminal, civil and administrative penalties, imprisonment and possible exclusion from the federal health care programs.

Many states have adopted laws similar to the Anti-Kickback Statute, and some apply to items and services reimbursable by any payor, including private third-party payors.

Further, the Eliminating Kickbacks in Recovery Act of 2018, or EKRA, prohibits payments for referrals to recovery homes, clinical treatment facilities, and laboratories.

EKRA’s reach extends beyond federal health care programs to include private insurance (i.e., it is an “all payor” statute).

For purposes of EKRA, the term “laboratory” is defined broadly and without reference to any connection to substance use disorder treatment.

The law includes a limited number of exceptions, some of which closely align with corresponding federal Anti-Kickback Statute exceptions and safe harbors, and others that materially differ.

Physician Self-Referral Bans

The federal ban on physician self-referrals, commonly known as the Stark Law, prohibits, subject to certain exceptions, physician referrals of Medicare patients to an entity providing certain designated health services, which include laboratory services, if the physician or an immediate family member of the physician has any financial relationship with the entity.

Several Stark Law exceptions are relevant to arrangements involving clinical laboratories, including but not limited to:

(1) fair market value

compensation for the provision of items or services;

(2) payments by physicians to a laboratory for clinical laboratory services;

(3) certain space and equipment rental arrangements that satisfy certain requirements;

and (4) personal services arrangements.

Penalties for violating the Stark Law include the return of funds received for all prohibited referrals, fines, civil monetary penalties and possible exclusion from federal health care programs.

In addition to the Stark Law, many states have their own self-referral bans, which may extend to all self-referrals, regardless of the payor.

State and Federal Prohibitions on False Claims

The federal False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the federal government.

Under the False Claims Act, a person acts knowingly if he or she has actual knowledge of the information or acts in deliberate ignorance or in reckless disregard of the truth or falsity of the information.

Specific intent to defraud is not required.

The qui tam provisions of the False Claims Act allow a private individual to bring an action on behalf of the federal government and to share in any amounts paid by the defendant to the government in connection with the action.

Penalties include payment of up to three times the actual damages sustained by the government, plus significant civil penalties, as well as possible exclusion from federal health care programs.

In addition, various states have enacted similar laws modeled after the False Claims Act that apply to items and services reimbursed under Medicaid and other state health care programs, and, in several states, such laws apply to claims submitted to any payor.

Civil Monetary Penalties Law

The federal Civil Monetary Penalties Law, or the CMP Law, prohibits, among other things, (1) the offering or transfer of remuneration to a Medicare or state health care program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies;

(2) employing or contracting with an individual or entity that the provider knows or should know is excluded from participation in a federal health care program;

(3) billing for services requested by an unlicensed physician or an excluded provider;

and (4) billing for medically unnecessary services.

The penalties for violating the CMP Law include exclusion, substantial fines, and payment of up to three times the amount billed, depending on the nature of the offense.

International Regulations

We market some of our tests outside of the United States and are subject to foreign regulatory requirements governing laboratory licensure, human clinical testing, use of tissue, privacy and data security, and marketing approval for our tests.

These requirements vary by jurisdiction, differ from those in the United States and may require us to implement additional compliance measures or perform additional pre-clinical or clinical testing.

For example, the In Vitro Diagnostic Medical Devices (2017/746/EU) (“IVDR”) will replace the existing In Vitro Diagnostic Medical Devices Directive (98/79/EC) (“IVDD”) in the European Union (“EU”).

The IVDR was published in May 2017, marking the start of a five-year period of transition from the IVDD.

During the transitional period the IVDR will come into force gradually, starting with the provisions related to the designation of Notified Bodies and the ability of manufacturers to apply for new certificates under the IVDR.

The transitional period will end on 26 May 2022, the “Date of Application” (“DoA”) of the Regulation.

From that point the IVDR will apply fully.

The EU has also implemented the General Data Protection Regulation, or GDPR, which requires us to meet new and more stringent requirements regarding the handling of personal data about European Union residents.

In many countries outside of the United States, coverage, pricing and reimbursement approvals are also required.

We are also required to maintain accurate information on and control over sales and distributors’ activities that may fall within the purview of the Foreign Corrupt Practices Act, its books and records provisions and its anti-bribery provisions.

Other Regulatory Requirements

Our laboratory is subject to federal, state and local regulations relating to the handling and disposal of regulated medical waste, hazardous waste and biohazardous waste, including chemical, biological agents and compounds, blood and bone marrow samples and other human tissue.

Typically, we use outside vendors who are contractually obligated to comply with applicable laws and regulations to dispose of such waste.

These vendors are licensed or otherwise qualified to handle and dispose of such waste.

We are subject to laws and regulations related to the protection of the environment, the health and safety of employees and the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials.

For example, the U.S.

Occupational Safety and Health Administration (“OSHA”) has established extensive requirements relating specifically to workplace safety for healthcare employers in the U.S.

For purposes of transportation, some biological materials and laboratory supplies are classified as hazardous materials and are subject to regulation by one or more of the following agencies:

Department of Transportation, the U.S.

Public Health Service, the United States Postal Service, the Office of Foreign Assets Control, and the International Air Transport Association.

We generally use third-party vendors to dispose of regulated medical waste, hazardous waste and radioactive materials and contractually require them to comply with applicable laws and regulations.

Human Capital Management

As of December 31, 2020, we had 147 employees, of which 72 work in sales, sales support and marketing, 38 work in research and development, 24 work in operations and 13 work in general and administrative.

As of December 31, 2020, of our 147 employees, 126 were located in the U.S.

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None of our employees are represented by a labor union or are subject to a collective bargaining agreement.

We lease approximately 35,823 square feet of office, laboratory, and manufacturing space at our headquarters in San Diego, California.

Of this, 16,457 square feet is sub-leased under an agreement that expires on December 31, 2020.

As of January 1, 2021, our lease obligation will be 19,216 square feet, with the lease expiring December 31, 2025.

We believe that we will need additional space as we grow our operations, but believe that suitable additional or substitute space will be available to accommodate future growth of our business.

We believe that our existing office, laboratory and manufacturing space will be sufficient to meet our needs in the interim.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants.

The principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of stock-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.

Corporate Information

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Our design logo, “Bionano,” and our other registered and common law trade names, trademarks and service marks are the property of Bionano Genomics, Inc.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

We may take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm under Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments.

We may take advantage of these exemptions for up to five years or until we are no longer an “emerging growth company,” whichever is earlier.

In particular, in this Annual Report, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company.

Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

This provision allows an emerging growth company to delay the adoption of new or revised accounting standards that have different transition dates for public and private companies until those standards would otherwise apply to private companies.

We have elected to use this extended transition period.

As a result of this election, our timeline to comply with these standards will in many cases be delayed as compared to other public companies that are not eligible to take advantage of this election or have not made this election.

Therefore, our financial statements may not be comparable to those of companies that comply with the public company effective dates for these standards.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business