What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-09 · 151 added, 89 removed, 208 unchanged (54% of the section changed)

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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, expected savings including from restructuring initiatives, projected cash runway, prospects and plans, expected growth in sales of instruments and consumables, installed bases and provision of clinical services, 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.

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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.

Risk Factors in this Quarterly Report and in our other 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.

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In executing on our commercialization strategy, we expanded the utilization of our Saphyr ® system and:

• Grew our installed base to 281 as of June 30, 2023, an increase of approximately 43% from a total installed base of 196 as of June 30, 2022.

• Grew our installed base to 301 as of September 30, 2023, an increase of approximately 39% from a total installed base of 217 as of September 30, 2022.

Installed base represents the global number of Saphyr ® instruments installed at end-customer locations and therefore having the technology to process OGM.

• Sold 7,062 flowcells in the three-month period ended June 30, 2023, an increase of approximately 108% from 3,394 flowcells sold in the same quarter of 2022.

Sold 12,288 flowcells in the six-month period ended June 30, 2023, an increase of approximately 86% from 6,619 flowcells sold in the same quarter of 2022.The Saphyr cartridge is the consumable that packages nanochannel arrays for DNA linearization.

• Sold 6,176 flowcells in the three-month period ended September 30, 2023, an increase of approximately 55% from 3,975 flowcells sold in the same quarter of 2022.

Sold 18,464 flowcells in the nine-month period ended September 30, 2023, an increase of approximately 74% from 10,594 flowcells sold in the same nine-month period 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.

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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.

Hamas war, any effects of global pandemics 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.

In the past, we have experienced supply chain challenges, attributable to such adverse geopolitical and macroeconomic developments including increased costs to secure certain component parts in our products and to produce our products at our contract manufacturers.

During the three and six months ended June 30, 2023, we did not experience material increases in our supply chain costs, but we may experience such increases in future fiscal periods We expect our costs to remain high for the foreseeable future.

During the three and nine months ended September 30, 2023, we did not experience material increases in our supply chain costs, but we may experience such increases in future fiscal periods.

We expect our 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.

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These negative effects could have a material impact on our operations, business, earnings, and liquidity.

Convertible Notes and Warrants

On October 11, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) with High Trail Special Situations LLC (the “Purchaser”) pursuant to which we agreed to issue and sell, for an aggregate $80.0 million in gross proceeds:

(i) in a registered offering directly to the Purchaser (the “Offering”)

(a) $45.0 million aggregate principal amount of senior secured convertible notes due 2025 (the “Registered Notes”) initially convertible by the Purchaser at a price of $2.86 into 15.7 million shares of our common stock and

(b) warrants to purchase up to 21.7 million shares of our common stock at a price of $3.19 per share (the “Registered Warrants”), and

(ii) in a concurrent private placement (the “Private Placement”), $35.0 million aggregate principal amount of senior secured convertible notes due 2025 initially convertible at a price of $2.86 into 12.2 million shares of our common stock (the “Private Placement Notes” and together with the Registered Notes, the “Notes”).

The Offering and Private Placement closed on October 13, 2023.

Our net proceeds from the sale of the Notes and the Registered Warrants were approximately $75.6 million, after deducting the estimated Offering and Private Placement expenses and placement agent fees.

$35.0 million of the proceeds of the Private Placement Notes was deposited into a restricted account subject to an account control agreement that only permits funds to be released once per calendar month upon the satisfaction of certain funding conditions specified in the Notes.

See Note 5 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on the Notes and Warrants and “Liquidity and Capital Resources” below.

Restructuring

On October 9, 2023, we committed to a corporate reorganization plan, including a reduction in force.

Along with other planned cost-saving measures, including reducing facility costs and discretionary spending unrelated to headcount, and combined with the cost savings from the reduction in force we initiated in May 2023, such plan is intended to decrease expenses and maintain a streamlined organization to support our business.

See “Liquidity and Capital Resources” below.

Financial Overview

We generate product revenue from sales of our systems and consumables, which includes our instruments, and our NxClinical™ software.

We generate product revenue from sales of our systems and consumables, which includes our instruments, and our VIA™ software.

At the end of July 2023 we began installations of VIA software as a replacement to NxClinical software.

Like NxClinical, VIA has a simple integrated workflow for visualization, interpretation and reporting of NGS and microarray data.

VIA additionally incorporates OGM data to that workflow creating a standard software tool for use across molecular pathology and cytogenomics applications.

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.

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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.

Sales of our VIA™ 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.

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The following table presents our revenue for the periods indicated:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Asia Pacific includes China, Japan, South Korea, Singapore, India and Australia.

Three Months Ended June 30, Six Months Ended June 30,

During the three months ended September 30, 2022, the Company changed the presentation of its revenues from India to be included in the Asia Pacific geographic region.

Prior to the three months ended September 30, 2022, the Company had presented revenues from India in the EMEA geographic region.

The impact of this change on prior period disclosures is immaterial.

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

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We have incurred losses in each year since our inception.

Our net loss was $38.9 million and $76.0 million for the three and six months ended June 30, 2023.

As of June 30, 2023, we had an accumulated deficit of $424.8 million.

Our net loss was $112.6 million and $188.6 million for the three and nine months ended September 30, 2023.

As of September 30, 2023, we had an accumulated deficit of $537.3 million.

We expect to continue to incur significant expenses and operating losses as we:

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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 June 30, 2023 and 2022

The following table sets forth our results of operations for the three months ended June 30, 2023 and 2022:

Three Months Ended June 30, Period-to-Period Change

Comparison of the Three Months Ended September 30, 2023 and 2022

The following table sets forth our results of operations for the three months ended September 30, 2023 and 2022:

Three Months Ended September 30, Period-to-Period Change

Product revenue $ 6,456,000 $ 5,253,000 $ 1,203,000 23 %

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Selling, general and administrative 24,896,000 21,216,000 3,680,000 17 %

Goodwill impairment

$ 77,280,000 — 77,280,000 100 %

Total operating expenses 115,961,000 33,958,000 82,003,000 241 %

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Net loss $ (112,566,000) $ (31,809,000) $ (80,757,000) 254 %

We have revised the classification of our revenue between the categories in the table above for the June 30, 2022 statement of operations to present software revenue within “product revenue”.

In our June 30, 2022 statement of operations, “software” was included in “service and other revenue.”

Product revenue increased by $1.8 million, or 38%, to $6.6 million for the three months ended June 30, 2023 compared to $4.8 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 (43%) 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 have revised the classification of our revenue between the categories in the table above for the September 30, 2022 statement of operations to present software revenue within “product revenue”.

In our September 30, 2022 statement of operations, “software” was included in “service and other revenue.”

Product revenue increased by $1.2 million, or 23%, to $6.5 million for the three months ended September 30, 2023 compared to $5.3 million for the same period in 2022.

The increase in product revenue was driven by increased demand for our OGM solutions, including an increase in instrument installed base (39%) when compared to the same period last year.

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 $0.2 million, or 9%, to $2.1 million for the three months ended June 30, 2023 compared to $1.9 million for the same period in 2022.

The increase in service and other revenue was primarily driven by an increase in subscription-based clinical software revenue.

Service and other revenue increased by $0.9 million, or 45%, to $2.9 million for the three months ended September 30, 2023 compared to $2.0 million for the same period in 2022.

The increase in service and other revenue was driven by reimbursements and shifts in test mix in our clinical Bionano Laboratories business.

Cost of Revenue, Gross Profit, and Gross Margin

Three Months Ended June 30, Period-to-Period Change Period-to-Period Percentage Change

Three Months Ended September 30, Period-to-Period Change Period-to-Period Percentage Change

Gross profit (loss):

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Total gross margin 30 % 25 %

Cost of product revenue increased by $0.8 million, or 20%, to $4.8 million for the three months ended June 30, 2023, compared to $4.0 million for the three months ended June 30, 2022.

Cost of product revenue increased by $1.4 million, or 38%, to $5.1 million for the three months ended September 30, 2023, compared to $3.7 million for the three months ended September 30, 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 $0.4 million, or 31%, to $1.6 million for the three months ended June 30, 2023, compared to $1.2 million for the three months ended June 30, 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 126%, to $1.9 million for the three months ended June 30, 2023, compared to $0.8 million for the three months ended June 30, 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 decreased by $0.2 million, or 31%, to $0.5 million for the three months ended June 30, 2023, compared to $0.6 million for the three months ended June 30, 2022.

The decrease in service and other gross profit is primarily due to increased processing costs on our service line.

We anticipate similar increases in future periods as sales of our instruments and consumables are expected to grow.

Cost of service and other revenue decreased $0.2 million, or (14)%, to $1.5 million for the three months ended September 30, 2023, compared to $1.7 million for the three months ended September 30, 2022.

The decrease in cost of service and other revenue is primarily due to decreased costs to support the clinical service offerings from Bionano Laboratories.

Product gross profit decreased $0.2 million, or (13)%, to $1.4 million for the three months ended September 30, 2023, compared to $1.5 million for the three months ended September 30, 2022.

The decrease in gross profit was primarily due to product mix changes.

Service and other gross profit increased by $1.1 million, or 430%, to $1.4 million for the three months ended September 30, 2023, compared to $0.3 million for the three months ended September 30, 2022, driven by reimbursement and shifts in test mix in our clinical Bionano Laboratories business.

Research and Development Expenses

Research and development (“R&D”) expenses increased by $2.8 million, or 24%, to $14.6 million for the three months ended June 30, 2023 compared to $11.8 million for the same period in 2022.

The increase is primarily due to an increase of $0.7 million in product development costs, an increase of $0.5 million in professional services related to research activities, and $0.7 million in software and information technology costs.

Compensation costs tied to headcount, excluding stock-based compensation, increased by $2.8 million.

Stock-based compensation expense decreased by $2.2 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.

Research and development (“R&D”) expenses increased by $1.0 million, or 8%, to $13.8 million for the three months ended September 30, 2023 compared to $12.7 million for the same period in 2022.

The increase is primarily due to an increase of $2.3 million of headcount-related compensation costs (excluding stock-based compensation) and $1.2 million in product development costs.

Stock-based compensation expense decreased by $2.4 million due to the vesting of stock issued as consideration in the BioDiscovery acquisition, which primarily rolled up into R&D expense and vested in full in 2022.

We anticipate that R&D expenses will decrease for the remainder of 2023 as a result of our cost savings initiatives announced May 9, 2023 and October 9, 2023.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased by $5.2 million, or 24%, to $26.9 million for the three months ended June 30, 2023 compared to $21.8 million for the same period in 2022.

Selling, general and administrative (“SG&A”) expenses increased by $3.7 million, or 17%, to $24.9 million for the three months ended September 30, 2023 compared to $21.2 million for the same period in 2022.

The increase is primarily due to a $1.2 million increase in compensation expenses, of which $0.1 million relates to stock-based compensation, a $0.2 million increase in amortization of intangibles related to the acquisition of Purigen, a $2.4 million increase in professional services, a $0.4 million increase in marketing expenses, and a $0.2 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.

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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.

These increases are being offset by a decrease of $0.8 million, of which $0.4 million relates to facilities costs, $0.3 million of IT & software related costs, and $0.1 million of travel related costs.

We anticipate that our SG&A expenses will decrease for the remainder of 2023 as a result of our cost savings initiatives announced May 9, 2023 and October 9, 2023.

Goodwill impairment

Goodwill impairment increased for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

The carrying value of the net assets of the Company’s reporting unit exceeded its enterprise wide fair value and the Company recognized a goodwill impairment charge of $77.3 million on the consolidated statements of operations and comprehensive loss for the quarter ended September 30, 2023.

Interest Income

Interest income was $0.7 million for the three months ended June 30, 2023, as compared to $0.2 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 $62.2 million as of June 30, 2023.

Comparison of the Six Months Ended June 30, 2023 and 2022

The following table sets forth our results of operations for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30, Period-to-Period Change

Interest income was $0.7 million for the three months ended September 30, 2023, as compared to $0.4 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 $29.0 million as of September 30, 2023.

Comparison of the Nine Months Ended September 30, 2023 and 2022

The following table sets forth our results of operations for the nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

Period-to-Period Change

Product revenue $ 18,512,000 $ 14,254,000 $ 4,258,000 30 %

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Selling, general and administrative 77,809,000 63,275,000 14,534,000 23 %

Goodwill impairment

77,280,000 — 77,280,000 100 %

Total operating expenses 197,420,000 98,311,000 99,109,000 101 %

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Net loss $ (188,602,000) $ (93,919,000) $ (94,683,000) 101 %

We have revised the classification of our revenue between the categories in the table above for the June 30, 2022 statement of operations to present software revenue within “product revenue”.

In our June 30, 2022 statement of operations, “software” was included in “service and other revenue.”

Product revenue increased by $3.1 million, or 34%, to $12.1 million for the six months ended June 30, 2023 compared to $9.0 million for the same period in 2022.

In our September 30, 2022 statement of operations, “software” was included in “service and other revenue.”

Product revenue increased by $4.3 million, or 30%, to $18.5 million for the nine months ended September 30, 2023 compared to $14.3 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 (39%) 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.

Service and other revenue increased by $0.7 million, or 19%, to $4.0 million for the six months ended June 30, 2023 compared to $3.4 million for the same period in 2022.

The increase in service and other revenue was driven by higher volume of service samples processed through the Bionano Laboratories business and an increase in subscription-based clinical software revenue.

Service and other revenue increased by $1.6 million, or 29%, to $6.9 million for the nine months ended September 30, 2023 compared to $5.3 million for the same period in 2022.

The increase in service and other revenue was driven by reimbursement and shifts in test mix in our clinical Bionano Laboratories business.

Cost of Revenue, Gross Profit, and Gross Margin

Six Months Ended June 30, Period-to-Period Change Period-to-Period Percentage Change

Nine Months Ended September 30,

Period-to-Period Change Period-to-Period Percentage Change

Gross profit (loss):

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Total gross margin 28 % 21 %

Cost of product revenue increased by $1.1 million, or 14%, to $8.6 million for the six months ended June 30, 2023, compared to $7.5 million for the six months ended June 30, 2022.

Cost of product revenue increased by $2.5 million, or 22%, to $13.7 million for the nine months ended September 30, 2023, compared to $11.3 million for the nine months ended September 30, 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 $0.6 million, or 24%, to $3.1 million for the six months ended June 30, 2023, compared to $2.5 million for the six months ended June 30, 2022.

We anticipate similar increases in future periods as our installed base and the number of Bionano Laboratories services grow.

Product gross profit increased $2.0 million, or 137%, to $3.4 million for the six months ended June 30, 2023, compared to $1.5 million for the six months ended June 30, 2022.

We anticipate similar increases in future periods as sales of our instruments and consumables are expected to grow.

Cost of service and other revenue increased $0.4 million, or 9%, to $4.6 million for the nine months ended September 30, 2023, compared to $4.2 million for the nine months ended September 30, 2022.

The increase in cost of service and other revenue is primarily due to increased service costs on our growing installed base.

We anticipate similar increases in future periods as our installed base is expected to grow.

Product gross profit increased $1.8 million, or 60%, to $4.8 million for the nine months ended September 30, 2023, compared to $3.0 million for the nine months ended September 30, 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 $1.2 million, or 104%, to $2.3 million for the nine months ended September 30, 2023, compared to $1.1 million for the nine months ended September 30, 2022.

The increase in gross profit was primarily due to reimbursement and shifts in test mix in our clinical Bionano Laboratories business.

Research and Development Expenses

Research and development (“R&D”) expenses increased by $6.3 million, or 28%, to $28.5 million for the six months ended June 30, 2023 compared to $22.3 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 $1.3 million in professional services related to research activities, and $1.3 million in software and information technology costs.

Compensation costs tied to headcount, excluding stock-based compensation, increased by $5.4 million.

Stock-based compensation expense decreased by $4.1 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.

Research and development (“R&D”) expenses increased by $7.3 million, or 21%, to $42.3 million for the nine months ended September 30, 2023 compared to $35.0 million for the same period in 2022.

The increase is primarily due to an increase of $7.7 million of headcount-related compensation costs (excluding stock-based compensation), $3.4 million in product development costs, $1.3 million in professional services related to research activities, and $1.3 million in software and information technology costs.

Stock-based compensation expense decreased by $6.5 million due to the vesting of stock issued as consideration in the BioDiscovery acquisition, which primarily rolled up into R&D expense and vested in full in 2022.

We anticipate that our R&D expenses will decrease for the remainder of 2023 as a result of our cost savings initiatives announced May 9, 2023 and October 9, 2023.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased by $10.9 million, or 26%, to $52.9 million for the six months ended June 30, 2023 compared to $42.1 million for the same period in 2022.

Selling, general and administrative (“SG&A”) expenses increased by $14.5 million, or 23%, to $77.8 million for the nine months ended September 30, 2023 compared to $63.3 million for the same period in 2022.

The increase is primarily due to a $6.1 million increase in compensation expenses, of which $0.8 million relates to stock-based compensation, a $1.0 million increase in amortization of intangibles related to the acquisition of Purigen, a $5.2 million increase in professional services, a $1.6 million increase in marketing expenses, and a $2.3 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.

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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.

These increases are being offset by a decrease of $2.4 million, of which $1.0 million relates to facilities costs, $1.0 million of materials & supplies costs, and $0.2 million of IT & software related costs.

We anticipate that our SG&A expenses will decrease for the remainder of 2023 as a result of our cost savings initiative announced May 9, 2023 and October 9, 2023.

Goodwill impairment

Goodwill impairment increased for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

The carrying value of the net assets of the Company’s reporting unit exceeded its enterprise wide fair value and the Company recognized a goodwill impairment charge, of $77.3 million on the consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2023.

Interest Income

Interest income was $1.4 million for the six months ended June 30, 2023, as compared to $0.3 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 $62.2 million as of June 30, 2023.

Interest income was $2.1 million for the nine months ended September 30, 2023, as compared to $0.7 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 $29.0 million as of September 30, 2023.

Liquidity and Capital Resources

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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.

Revenue from our commercial operations has increased due to increased demand for our product offerings and our acquisition of 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 $76.0 million and $62.1 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, we had an accumulated deficit of $424.8 million, cash and cash equivalents of $14.9 million, and available for sale investment securities of $62.2 million.

We incurred net losses of $188.6 million and $93.9 million for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, we had an accumulated deficit of $537.3 million, cash and cash equivalents of $34.6 million, and available for sale investment securities of $29.0 million.

On October 13, 2023, we completed the Offering and Private Placement and received net proceeds from the sale of the Notes and the Registered Warrants of approximately $75.6 million, after deducting the estimated Offering and Private Placement expenses and placement agent fees.

We plan to use the net proceeds for working capital and general corporate purposes, including research and development expenses and capital expenditures.

See Note 5 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on the Notes and Warrants.

Future Capital Requirements

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Since our inception, we have generally incurred significant losses and negative cash flows.

Based on our $14.9 million in cash and cash equivalents and $62.2 million in available for sale securities as of June 30, 2023, we anticipate our available cash balance will not be sufficient for the next twelve months from the issuance of this report.

Based on our $34.6 million in cash and cash equivalents and $29.0 million in available for sale securities as of September 30, 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.

Based on our current business plans, we believe that the net proceeds from the Offering and Private Placement, together with our cash, cash equivalents and short-term investments as of September 30, 2023 will be sufficient to fund our operating expenses and capital expenditures through at least 2024.

However, this estimate assumes the inclusion of $35.0 million that we are required to hold as restricted cash in an account control agreement under the terms of the Purchase Agreement, which we are only able to access upon meeting certain funding conditions as described in the Purchase Agreement and the Notes, including (1) having an average daily dollar trading volume of its common stock of at least $3.5 million during the ten trading days prior to each of the date on which a Restricted Cash Request (as defined in the Notes) is delivered and the Restricted Cash Release Date (as defined in the Notes) to which such Restricted Cash Request relates and (2) certain indebtedness, as provided in the Notes, being less than 25% of our daily market capitalization as calculated on each trading day during the 20 consecutive trading day period ending on the trading day immediately prior to the Restricted Cash Release Date.

We expect these funding conditions may be difficult to achieve, and there is no assurance that we will be able to meet these funding conditions and access such restricted cash.

Excluding this amount of restricted cash, we expect that the net proceeds from the Offering and Private Placement, together with our existing cash, cash equivalents and short-term investments will only be sufficient to fund its operating expenses and capital expenditure requirements through at least into the third quarter of 2024.

In either situation described above, the net proceeds from the Offering and Private Placement, together with our existing cash and cash equivalents and available-for-sale securities, will not be sufficient for us to achieve cash-flow break even and we expect to need to seek additional capital based on favorable market conditions or consider strategic alternatives in the future.

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.

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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.

In addition, our estimate as to the sufficiency of our current cash, cash equivalents and available for sale securities, and our current operating plan as discussed above 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.

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This cost-reduction initiative includes, among other things, a reduction in force that we effected on May 8, 2023, plans to decrease anticipated new hires for the remainder of 2023, a reduction in our safety stock of inventory due to reduced supply chain risks, implementation of operational efficiencies, and other cost controls to reduce previously planned spending.

On October 9, 2023, we committed to a series of cost saving initiatives including a reduction in force intended to decrease expenses and maintain a streamlined organization to support its business.

As part of the reduction, we expect to reduce our overall headcount by approximately 66 employees, which represents 17% of our full-time employees.

Along with other planned cost-saving measures, including reducing facility costs and discretionary spending unrelated to headcount and combined with the cost savings from the reduction in force we initiated in May 2023, the reduction is expected to provide annual savings of approximately $33.0 million starting in 2024, with approximately $31.6 million savings in operating expenses and approximately $1.4 million savings in cost of goods sold.

We expect to incur approximately $0.7 million of costs, consisting primarily of cash severance costs for impacted employees.

Of the total charges, substantially all charges are expected to be future cash expenditures.

We expect the reduction will be substantially completed by the end of the fourth quarter of 2023.

The following table sets forth the cash flow from operating, investing and financing activities for the periods presented:

Net cash provided by (used in):

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities $ (95,402,000) $ (90,299,000)

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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.

See Note 5 to our unaudited condensed consolidated financial statements for a discussion of our recent debt financing included elsewhere in this Quarterly Report on Form 10-Q for more information.

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 $69.1 million during the six months ended June 30, 2023 as compared to $60.8 million during the same period in 2022.

Net cash used in operating activities was $95.4 million during the nine months ended September 30, 2023 as compared to $90.3 million during the same period in 2022.

The increase in cash used in operating activities of $5.1 million was primarily attributed to increased headcount related expenses offset by the cost reduction efforts previously described elsewhere in this Quarterly Report on Form 10-Q and the timing of invoice payments in accounts payable.

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We expect to continue to incur additional costs for capital expenditures related to these efforts in future periods.

During the six months ended June 30, 2023, cash provided by investing activities was $46.1 million, as compared to $63.2 million provided by investing activities during the same period in 2022.

The decrease in cash provided by investing activities of $17.1 million was primarily attributed to the maturity of $46.9 million in available for sale securities during the six months ended June 30, 2023, compared to the maturity of $93.5 million in available for sale securities during the same period in 2022, which was partially offset by a purchase of $29.5 million of available for sale securities during the same period.

During the nine months ended September 30, 2023, cash provided by investing activities was $79.5 million, as compared to $71.2 million provided by investing activities during the same period in 2022.

The increase in cash provided by investing activities of $8.4 million was primarily attributed to the maturity of $84.9 million in available for sale securities during the nine months ended September 30, 2023, compared to the maturity of $135.4 million in available for sale securities during the same period in 2022, which was partially offset by a purchase of $63.2 million of available for sale securities during the same period as compared to only $4.5 million in the current period.

Financing Activities

Net cash provided by financing activities was $32.7 million during the six months ended June 30, 2023 as compared to the same period in 2022 where we had net cash provided by financing activities of $0.2 million, an increase of $32.5 million.

During the six months ended June 30, 2023, we raised approximately $33.5 million in gross proceeds from executing sales under our at-the-market facility with Cowen and Company, LLC (“Cowen”).

Net cash provided by financing activities was $45.3 million during the nine months ended September 30, 2023 as compared to the same period in 2022 where we had net cash provided by financing activities of $22.9 million, an increase of $22.5 million.

During the nine months ended September 30, 2023, we raised approximately $46.4 million in gross proceeds from executing sales under our at-the-market facility with Cowen and Company, LLC (“Cowen”) as compared to $23.1 million during the same period in 2022.

Capital Resources

As of June 30, 2023, we had approximately $14.9 million in cash and cash equivalents, available for sale securities of $62.2 million, and working capital of $89.1 million.

As of September 30, 2023, we had approximately $34.6 million in cash and cash equivalents, available for sale securities of $29.0 million, and working capital of $64.3 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 six months ended June 30, 2023, we sold approximately 3.5 million shares of common stock under the Cowen ATM and received gross proceeds of approximately $33.5 million before deducting offering costs of $0.8 million.

From July 1, 2023 through the date of the filing of this Quarterly Report on Form 10-Q, the Company has sold

approximately 2.1 million shares of common stock under the Cowen ATM at an average share price of $6.16 per share, and received gross proceeds of approximately $13.0 million before deducting offering costs of $0.3 million.

During the nine months ended September 30, 2023, we sold approximately 5.6 million shares of common stock under the Cowen ATM and received gross proceeds of approximately $46.5 million before deducting offering costs of $1.2 million.

Contingent Consideration

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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 as of June 30, 2023 it is highly likely that the milestone will be achieved and therefore used a 100% probability factor which is applied to the $10.0 million milestone consideration.

We determined as of September 30, 2023 it is highly likely that the milestone will be achieved and therefore used a 100% probability factor which is applied to the $10.0 million milestone consideration.

On October 2, 2023, the $10.0 million milestone consideration was paid in full.

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.

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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 June 30, 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 $24.6 million as of June 30, 2023, $10.0 million of which is current as of June 30, 2023.

At September 30, 2023, 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 $24.9 million as of September 30, 2023, $10.0 million of which is current as of September 30, 2023.

Contractual Obligations

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Historically, revisions to our estimates have not resulted in a material change to our financial statements.

As of June 30, 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 June 30, 2023.

If we experience 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, it may result in a goodwill impairment charge in future periods, and such charge may be material.

During the six months ended June 30, 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.

Valuation of Goodwill

Goodwill is tested annually for impairment and in interim periods if events or changes in circumstances indicate that the assets may be impaired.

We first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test.

The qualitative factors include economic environment, business climate, market capitalization, operating performance, competition, and other factors.

If, after completing such assessment, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then there is no need to perform any further testing.If we conclude otherwise, or if we proceed directly to perform a quantitative assessment, then we calculate the fair value of the reporting unit and compare the fair value with the carrying value of the reporting unit.

As describe further in “Note 1:

Organization and Basis of Presentation” in this Quarterly Report on Form 10-Q, we performed qualitative goodwill impairment tests as of September 30, 2023 and concluded that it is more likely than not that the fair value of the reporting unit is less than its carrying value.

Therefore, we performed a quantitative impairment test and recognized a goodwill impairment charge, impairing goodwill of $77.3 million on the consolidated statements of operations and comprehensive loss for the quarter ended September 30, 2023.

No impairments were recorded for the same period in 2022.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors.

While we believe we have made reasonable estimates and assumptions to estimate the fair value of our reporting units, if actual results are not consistent with our current estimates and assumptions;

management significantly changes its estimates and assumptions;

there is a deterioration in market factors outside of our control, such as general economic conditions in the countries in which we operate, discount rates, income tax rates, foreign currency exchange rates, or inflation;

or there is a sustained decline in our stock price and market capitalization, goodwill impairment charges may be recorded in future periods.

The goodwill impairment charges have no effect on liquidity or capital resources.

However, they are a non-cash charge and could adversely affect our financial results in the period recognized.

During the nine months ended September 30, 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

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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-Q

Item 2. Management’s Discussion and Analysis