Bionano Genomics, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K, or our Annual Report, filed with the Securities and Exchange Commission, or the SEC, on March 9, 2023. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to Bionano Genomics, Inc. and its subsidiaries or, as the context may require, Bionano Genomics, Inc. only. Forward-Looking Statements The information in this Quarterly Report on Form 10-Q contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to any statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in our filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. Overview We are a provider of genome analysis solutions that can enable researchers and clinicians to reveal answers to challenging questions in biology and medicine. Our mission is to transform the way the world sees the genome through optical genome mapping (“OGM”) solutions, diagnostic services and software. We offer OGM solutions for applications across basic, translational and clinical research, and for other applications including bioprocessing. Through our Bionano Laboratories business, we also provide diagnostic testing for patients with clinical presentations consistent with autism spectrum disorder and other neurodevelopmental disabilities. Through our BioDiscovery business, we offer an industry-leading, platform-agnostic software solution, which integrates next-generation sequencing and microarray data designed to provide analysis, visualization, 21 Table of Contents interpretation and reporting of copy number variants, single-nucleotide variants and absence of heterozygosity across the genome in one consolidated view. Through our Purigen business, we offer nucleic acid extraction and purification solutions using proprietary ITP technology. Recent Highlights Commercial Adoption of Offerings for Saphyr In executing on our commercialization strategy, we expanded the utilization of our Saphyr ® system and: • Grew our installed base to 259 as of March 31, 2023, an increase of approximately 47% from a total installed base of 176 as of March 31, 2022. Installed base represents the global number of Saphyr instruments installed at end-customer locations and therefore having the technology to process OGM. • Sold 5,226 flowcells in the three-month period ended March 31, 2023, an increase of approximately 62% from 3,225 flowcells sold in the same quarter of 2022. The Saphyr cartridge is the consumable that packages nanochannel arrays for DNA linearization. In its current form, the Saphyr cartridge has two configurations - one with two flowcells per cartridge and the other with three flowcells per cartridge. Flowcells sold refers to the units of genome mapping consumables used for analyzing one genome, purchased by customers to process optical genome mapping. Macroeconomic and Geopolitical Developments We are subject to additional risks and uncertainties as a result of adverse geopolitical and macroeconomic developments, such as recent and potential future bank failures, the ongoing conflict between Ukraine and Russia and related sanctions, any lingering effects of COVID-19 and uncertain market conditions, including inflation and supply chain disruptions, which could continue to have a material impact on our business and financial results. We closely monitor and comply with various applicable guidelines and legal requirements in the jurisdictions in which we operate. The future effects of the COVID-19 pandemic, if any, are unknown and our financial results may be negatively affected as a result. We may also experience long-term effects on the nature of the office environment and remote working, which may present strategy, operational, talent recruiting and retention and workplace culture challenges that may adversely affect our business. During the three months ended March 31, 2023, we experienced supply chain challenges, which we largely attribute to the COVID-19 pandemic. While the COVID-19 pandemic did not prevent us from operating our business during the three months ended March 31, 2023 and 2022, we experienced increased costs to secure certain component parts in our products and to produce our products at our contract manufacturers. We expect these increased costs to remain high for the foreseeable future. As global economic conditions recover, business activity may not recover as quickly as anticipated, and it is not possible at this time to estimate the long-term impact that these and related events could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. For instance, product demand may be reduced due to an economic recession, a decrease in corporate capital expenditures, prolonged unemployment, rising inflation rates, labor shortages, reduction in consumer confidence, adverse geopolitical and macroeconomic developments, or any similar negative economic condition. These negative effects could have a material impact on our operations, business, earnings, and liquidity. Financial Overview Revenue We generate product revenue from sales of our systems and consumables, which includes our instruments, and our NxClinical™ software. We currently sell our systems for research use only applications and our customers are primarily laboratories associated with academic and governmental research institutions, academic and commercial clinical laboratories, as well as pharmaceutical, biotechnology and contract research companies. In addition, we provide instruments to certain customers under our reagent rental program, under which we provide an instrument to customers at no cost and the customers agree to purchase minimum quantities of consumables. Consumable revenue consists of sales of reagents and chips necessary to process a sample. Sales of our NxClinical™ software, which provides customers with solutions for analysis, interpretation and reporting of genomics data, are made on a subscription basis. We generate service revenue from the sale of diagnostic testing services for those with autism spectrum disorder and other neurodevelopmental disabilities through Bionano Laboratories, as well as services performed related to customer sample evaluations using the Saphyr system. Other revenue consists of warranty and other service-based revenue, including support, repair and maintenance services. 22 Table of Contents The following table presents our revenue for the periods indicated: Three Months Ended March 31, 2023 2022 Product revenue $ 5,447,000 $ 4,206,000 Service and other revenue 1,968,000 1,490,000 Total $ 7,415,000 $ 5,696,000 The following table reflects total revenue by geography and as a percentage of total revenue, based on the billing address of our customers. Americas consists of North America and South America. EMEA consists of Europe, the Middle East, and Africa. Asia Pacific includes China, Japan, South Korea, Singapore, India and Australia. Three Months Ended March 31, 2023 2022 $ % $ % Americas $ 3,444,000 47 % $ 3,328,000 58 % EMEA 2,992,000 40 % 1,739,000 31 % Asia Pacific 979,000 13 % 629,000 11 % Total $ 7,415,000 100 % $ 5,696,000 100 % Cost of Revenue Cost of product revenue for our systems and consumables includes raw material parts costs and associated freight, shipping and handling costs, contract manufacturing costs, salaries and other personnel costs, equipment depreciation, overhead and other direct costs related to those sales recognized as product revenue in the period. Cost of service and other revenue consists of third-party laboratory costs to process the diagnostic samples, salaries of our clinical technicians who interpret and deliver the results to patients, warranty services, and other costs of servicing equipment at customer sites. Research and Development Expenses Research and development expenses consist of salaries and other personnel costs, stock-based compensation, research supplies, third-party development costs for new products, materials for prototypes, equipment depreciation, and allocated overhead costs that include facility and other overhead costs. We have made substantial investments in research and development since our inception, and plan to continue to make investments in the future. Our research and development efforts have focused primarily on the tasks required to support development and commercialization of new and existing products. We believe that our continued investment in research and development is essential to our long-term competitive position. Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and other personnel costs, amortization expense related to acquired intangibles, and stock-based compensation for our sales and marketing, finance, legal, human resources and general management, as well as professional services, such as legal and accounting services. Results of Operations We have incurred losses in each year since our inception. Our net loss was $37.1 million for the three months ended March 31, 2023. As of March 31, 2023, we had an accumulated deficit of $385.8 million. We expect to continue to incur significant expenses and operating losses as we: • expand our sales and marketing efforts to further commercialize our products; • continue research and development efforts to improve our existing products; • hire additional personnel; • enter into collaboration arrangements, if any; • add operational, financial and management information systems; and • incur increased costs as a result of operating as a public company. 23 Table of Contents Accordingly, based on recurring losses from operations incurred since inception, the expectation of continued operating losses, and the need to raise additional capital to finance our future operations, we determined that there is substantial doubt about our ability to continue as a going concern within 12 months of this Quarterly Report on Form 10-Q. Comparison of the Three Months Ended March 31, 2023 and 2022 The following table sets forth our results of operations for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, Period-to-Period Change 2023 2022 $ % Revenues: Product revenue $ 5,447,000 $ 4,206,000 $ 1,241,000 30 % Service and other revenue 1,968,000 1,490,000 478,000 32 % Total revenue 7,415,000 5,696,000 1,719,000 30 % Cost of revenue: Cost of product revenue 3,858,000 3,576,000 282,000 8 % Cost of service and other revenue 1,487,000 1,259,000 228,000 18 % Total cost of revenue 5,345,000 4,835,000 510,000 11 % Operating expenses: Research and development 13,937,000 10,527,000 3,410,000 32 % Selling, general and administrative 25,976,000 20,277,000 5,699,000 28 % Total operating expenses 39,913,000 30,804,000 9,109,000 30 % Loss from operations (37,843,000) (29,943,000) (7,900,000) 26 % Other income (expenses): Interest income 704,000 110,000 594,000 540 % Interest expense (76,000) (77,000) 1,000 (1) % Other income (expenses) 117,000 (33,000) 150,000 (455) % Total other income (expenses) 745,000 — 745,000 100 % Loss before income taxes (37,098,000) (29,943,000) (7,155,000) 24 % Provision for income taxes (26,000) (9,000) (17,000) 189 % Net loss $ (37,124,000) $ (29,952,000) $ (7,172,000) 24 % Revenue We have revised the classification of our revenue between the categories in the table above for the March 31, 2022 statement of operations to present software revenue within “product revenue”. In our March 31, 2022 statement of operations, “software” was included in “service and other revenue.” Product revenue increased by $1.2 million, or 30%, to $5.4 million for the three months ended March 31, 2023 compared to $4.2 million for the same period in 2022. The increase in product revenue was driven by increased demand for our Saphyr OGM solutions, including an increase in instrument installed base (47%) when compared to the same period last year. The increased demand for our reagent rental program continues to drive a significant portion of the increase in consumable sales. We believe increased demand for our OGM systems was primarily driven by increased market awareness and additional published data demonstrating the utility of OGM. We expect revenue to increase as market awareness and published data of OGM utility increases, along with continued efficiencies gained in the OGM workflow through research and development, and the acquisitions of BioDiscovery and Purigen. Service and other revenue increased by $0.5 million, or 32%, to $2.0 million for the three months ended March 31, 2023 compared to $1.5 million for the same period in 2022. The increase in service and other revenue was primarily driven by increased volume through the Bionano Laboratories sample analysis business. 24 Table of Contents Cost of Revenue, Gross Profit, and Gross Margin Three Months Ended March 31, Period-to-Period Change Period-to-Period Percentage Change 2023 2022 2023 to 2022 2023 to 2022 Gross profit (loss): Product $ 1,589,000 $ 630,000 $ 959,000 152% Service and other 481,000 231,000 250,000 108% Total gross profit $ 2,070,000 $ 861,000 $ 1,209,000 140% Gross margin: Product 29 % 15 % Service and other 24 % 16 % Total gross margin 28 % 15 % Cost of product revenue increased by $0.3 million, or 8%, to $3.9 million for the three months ended March 31, 2023, compared to $3.6 million for the three months ended March 31, 2022. The increase in cost of product revenue was due to higher sales of instruments and consumables. We anticipate similar increases in future periods as sales of our instruments and consumables grow. Cost of service and other revenue increased $0.2 million, or 18%, to $1.5 million for the three months ended March 31, 2023, compared to $1.3 million for the three months ended March 31, 2022. The increase in cost of service and other revenue is primarily due to increased service costs on our growing installed base as well as increased costs to support the service offerings from Bionano Laboratories. We anticipate similar increases in future periods as our installed base and the number of Bionano Laboratories services grow. Product gross profit increased $1.0 million, or 152%, to $1.6 million for the three months ended March 31, 2023, compared to $0.6 million for the three months ended March 31, 2022. The increase in gross profit was primarily due to higher sales of instruments and consumables, improvements in chip yield, and reduced scrap and quality control costs. Service and other gross profit increased by $0.3 million, or 108%, to $0.5 million for the three months ended March 31, 2023, compared to $0.2 million for the three months ended March 31, 2022. The increase in service and other gross profit is primarily due to increased sales of services – primarily those offered by Bionano Laboratories – offset by increased costs incurred to maintain our growing installed base. Research and Development Expenses Research and development (“R&D”) expenses increased by $3.4 million, or 32%, to $13.9 million for the three months ended March 31, 2023 compared to $10.5 million for the same period in 2022. The increase is primarily due to an increase of $2.2 million in product development costs, an increase of $0.8 million in professional services related to research activities, and $0.6 million in software and information technology costs. Compensation costs tied to headcount, excluding stock-based compensation, increased by $1.5 million. Stock-based compensation expense decreased by $2.0 million due to the vesting of stock issued as consideration in the BioDiscovery acquisition in 2022, which primarily rolled up into R&D expense and vested in full in 2022. We anticipate that our previously planned R&D expenses will decrease for the remainder of 2023 as we implement our cash savings initiative announced May 9, 2023. Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) expenses increased by $5.7 million, or 28%, to $26.0 million for the three months ended March 31, 2023 compared to $20.3 million for the same period in 2022. The increase is primarily due to a $2.9 million increase in compensation expenses, of which $0.6 million relates to stock-based compensation, a $0.5 million increase in amortization of intangibles related to the acquisition of Purigen, a $1.3 million increase in professional services, a $0.6 million increase in marketing expenses, and a $0.7 million increase in the estimated fair value of the contingent consideration liabilities primarily related to the acquisition of Purigen, which rolls into SG&A expense. The increase in compensation expense is driven primarily by increased headcount. This was due to growth in our global sales, service, and back-office teams to facilitate the expanding customer base, as well as headcount additions attributed to the acquisition of Purigen. We anticipate that our previously planned SG&A expenses will decrease for the remainder of 2023 as we implement our cash savings initiative announced May 9, 2023. 25 Table of Contents Interest Income Interest income was $0.7 million for the three months ended March 31, 2023, as compared to $0.1 million for the same period in 2022 resulting from positive returns on investments due to higher interest rates in 2023. Our total available for sale securities balance was $91.7 million as of March 31, 2023. Liquidity and Capital Resources Sources of Liquidity Since our inception, we have incurred net losses and negative cash flows from operations. We have primarily generated cash flows from sales of equity securities and debt financings. We anticipate that future sources of liquidity will principally come from sales of common stock and other equity instruments, borrowings from credit facilities and revenue from our commercial operations. Revenue from our commercial operations has increased due to increased demand for our product offerings and our acquisition of revenue-positive BioDiscovery and Purigen. See Note 6 to our unaudited condensed consolidated financial statements for a discussion of our recent equity activity included elsewhere in this Quarterly Report on Form 10-Q for more information. We incurred net losses of $37.1 million and $29.9 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had an accumulated deficit of $385.8 million, cash and cash equivalents of $4.1 million, and available for sale investment securities of $91.7 million. Future Capital Requirements We expect that our near and longer-term liquidity requirements will consist of working capital and general corporate expenses associated with the growth of our business, including, without limitation, expenses associated with scaling up our operations and continuing to increase our manufacturing capacity, sales and marketing expense, increasing market awareness of our products and services to target customers, instrument placements with customers via the reagent rental sales strategy, additional research and development expenses associated with expanding and proving the utility of our offerings, expenses associated with continuing to build out our corporate infrastructure, enhancements to information technology, and expenses associated with being a public company. We expect such expenditures to continue throughout the remainder of 2023 and over the next few years. Since our inception, we have generally incurred significant losses and negative cash flows. Based on our $4.1 million in cash and cash equivalents and $91.7 million in available for sale securities as of March 31, 2023, we anticipate our available cash balance will not be sufficient for the next twelve months from the issuance of this report. Accordingly, based on recurring losses from operations incurred since inception, our expectation of continued operating losses, our current business plan, and the need to raise additional capital to finance our future operations, we determined that there is substantial doubt about our ability to continue as a going concern within 12 months after the date that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are issued. We plan to continue to fund our losses from operations through revenues, cash and cash equivalents on hand, sale of marketable securities and equity or debt financings. As a result, in order to continue to operate our business beyond that time, we will need to raise additional funds. Accordingly, we are actively evaluating debt and equity financing sources available to us as well as cost reduction strategies, but there can be no assurance that financing will be available on terms acceptable to us, on a timely basis, or at all, or that we are able to effectively reduce our operating expenses. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. Any disruptions to, or volatility in, the credit and financial markets or any deterioration in overall economic conditions may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. If we are unable to raise additional funds through debt or equity financing or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research and development activities or future commercialization efforts. Even if we raise additional capital, we may also be required to modify, delay or abandon some of our plans which could have a material adverse effect on our business, operating results and financial condition and our ability to achieve our intended business objectives. In addition, our estimate as to the sufficiency of our current cash, cash equivalents and available for sale securities, and our current operating plan are based on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we currently anticipate. See Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information. 26 Table of Contents Cash Flows The following table sets forth the cash flow from operating, investing and financing activities for the periods presented: Net cash provided by (used in): Three Months Ended March 31, 2023 2022 Operating activities $ (32,413,000) $ (32,494,000) Investing activities 16,528,000 31,964,000 Financing activities 14,862,000 7,000 Operating Activities We derive cash flows from operations primarily from the sale of our products and services. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to support our business. We have historically experienced negative cash flows from operating activities as we have developed our technology, expanded our business and built our infrastructure, and this may continue in the future. As discussed above, we anticipate our available cash balance will not be sufficient for the next twelve months from the issuance of this report. We plan to raise additional capital to fulfill our operating and capital requirements for at least 12 months through equity or debt financings, however, we may not be able to secure such financing in a timely manner or on favorable terms, if it all. We anticipate that our cash used in operating activities will decrease over the next 12 to 24 months; however, we may observe fluctuations in the cash used in operating activities on a quarterly basis to sustain the expansion of our commercial offerings. Net cash used in operating activities was $32.4 million during the three months ended March 31, 2023 as compared to $32.5 million during the same period in 2022. The decrease in cash used in operating activities of $0.1 million was primarily attributed to increased headcount-related expenses offset by timing of invoice payments in accounts payable. Investing Activities Historically, our primary investing activities have consisted of capital expenditures for the purchase of capital equipment to support our expanding infrastructure, as well as the acquisitions of Lineagen, BioDiscovery and Purigen to grow our business. We expect to continue to incur additional costs for capital expenditures related to these efforts in future periods. During the three months ended March 31, 2023, cash provided by investing activities was $16.5 million, as compared to $32.0 million provided by investing activities during the same period in 2022. The decrease in cash provided by investing activities of $15.4 million was primarily attributed to the maturity of $16.9 million in available for sale securities during the three months ended March 31, 2023, compared to the maturity of $47.2 million in available for sale securities during the same period in 2022, which was partially offset by a purchase of $15.0 million of available for sale securities during the same period. Financing Activities Net cash provided by financing activities was $14.9 million during the three months ended March 31, 2023 as compared to the same period in 2022 where we had net cash provided by financing activities of $7,000, an increase of $14.9 million. During the three months ended March 31, 2023, we raised approximately $15.2 million in gross proceeds from executing sales under our at-the-market facility with Cowen and Company, LLC (“Cowen”). Capital Resources As of March 31, 2023, we had approximately $4.1 million in cash and cash equivalents, available for sale securities of $91.7 million, and working capital of $104.4 million. We have in place a Sales Agreement with Cowen (the “Cowen ATM”), as amended, pursuant to which we may offer and sell from time to time up to $200.0 million of shares from the date of the amendment going forward through or to Cowen, acting as sales agent or principal. During the three months ended March 31, 2023, we sold approximately 9.5 million shares of common 27 Table of Contents stock under the Cowen ATM and received gross proceeds of approximately $15.2 million before deducting offering costs of $0.4 million. Contingent Consideration As part of the merger agreement related to the acquisition of BioDiscovery, we agreed to pay a milestone payment of $10.0 million in cash contingent on the achievement of a commercial milestone as set forth in the BioDiscovery agreement and plan of merger, as amended. We determined the fair value of the milestone consideration using a scenario-based technique, as the trigger for payment is event driven. The outcome of the milestone consideration is binary, meaning the milestone is either achieved or not achieved, and the only other variable factor is the timing of when the milestone is achieved. We determined it is highly likely that the milestone will be achieved and therefore used a 95% probability factor which is applied to the $10.0 million milestone consideration. As part of the merger agreement related to the acquisition of Purigen, we agreed to pay two independent milestone payments up to an aggregate of $32.0 million. The fair value of the Purigen milestones are reassessed on a quarterly basis using a probability weighted model and a Monte Carlo Simulation. We determined the fair value of this milestone consideration using a scenario-based technique, as the trigger for payment is event driven. We determined the likelihood of each independent milestone and used probability factors ranging from 20% to 80% which were applied to the individual payments. At March 31, 2023 and December 31, 2022, a Monte Carlo Simulation was performed to determine the likelihood that the milestone will be achieved and was applied to the milestone consideration payment. Based on these valuation assumptions, the fair value of the contingent consideration liabilities was determined to be $23.1 million as of March 31, 2023, $9.5 million of which is current as of March 31, 2023. Contractual Obligations There were no material changes to our contractual obligations from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the periods presented. We have discussed the development, selection and disclosure of the accounting estimates with our audit committee. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. Historically, revisions to our estimates have not resulted in a material change to our financial statements. As of March 31, 2023, we performed a qualitative assessment of goodwill impairment which included an evaluation of changes in industry, market and macroeconomic conditions as well as consideration of our financial performance and any significant trends. Our qualitative assessment indicated that it was not more likely than not that goodwill is impaired as of March 31, 2023. However, our stock price has significantly declined after March 31, 2023. A sustained decline in our stock price or other material changes in the significant assumptions that affect the determination of the fair value of the Company’s single reporting unit may result in a goodwill impairment charge in future periods, and such charge may be material. During the three months ended March 31, 2023, there have been no changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Recent Accounting Pronouncements See Note 1 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for information concerning recent accounting pronouncements.