Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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You should read the following discussion and analysis of our financial condition and results of operations together in conjunction with our financial statements and the related notes included elsewhere in this Annual Report. All dollar amounts and share counts presented below have been rounded to the nearest thousand and, thus are approximate. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and expected financial results, includes forward-looking statements that involve risks and uncertainties. You should review the risks described in Part I, Item 1A Risk Factors and elsewhere in this Annual Report.
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 OGM solutions, diagnostic services and software. We offer OGM solutions for applications across basic, translational and clinical research, and for other applications including bioprocessing. We offer a platform-agnostic software solution, which integrates next-generation sequencing, microarray and OGM data designed to provide analysis, visualization, interpretation and reporting of copy number variants, single-nucleotide variants and absence of heterozygosity across the genome in one consolidated view. The Company also offers nucleic acid extraction and purification solutions using proprietary isotachophoresis (“ITP”) technology. Through our Bionano Laboratories business, we also provide OGM-based diagnostic testing services.
We expect to see OGM adoption in cytogenomics, discovery research and cell bioprocessing quality control (“QC”). Within cytogenetics and molecular pathology, we estimate the number of cytogenetic labs on a worldwide basis (excluding India and developing countries) to be approximately 10,000. We estimate that these labs analyze approximately 10.0 million samples per year. Additionally, we estimate the number of pharmaceutical and biotech companies that are engaged in research and development of various cell therapies that rely on methods, including cytogenetics, for QC of the cell modification and manufacturing process to be approximately 1,400. Based on these estimates, we believe the economic potential for OGM in these markets is approximately $10.0 billion annually, $3.0 billion of which we attribute to cell bioprocessing QC. We believe there are additional potential future market opportunities for OGM including newborn screening, population genomics, and neurological and cardiological risk assessment which are not included in our estimates above. Additionally, we believe the market for our platform-agnostic software solution, which can be used in next-generation sequencing and microarray data analysis, includes the clinical NGS market estimated to be $3.4 billion in 2024 and growing at a 20% compound annual growth rate.
We have incurred losses in each year since our inception. Our net losses were $112.0 million and $232.5 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $693.2 million.
We expect to continue to incur significant expenses and operating losses as we:
• continue our sales and marketing efforts to maintain sales of our existing products;
• continue research and development efforts to improve our existing products;
• enter into collaboration arrangements, if any;
• maintain operational, financial and management information systems; and
• incur increased costs as a result of operating as a public company.
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 after the date that the financial statements included in this Annual Report are issued.
We will continue to seek to raise additional capital, but without sufficient additional financing in the near term we will not be able to continue as a going concern. If we are unable to continue as a going concern, we may have to reorganize or liquidate our business and may receive less than the value at which those assets are carried on our consolidated financial statements, and investors may lose all or a part of their investment. The board of directors has established a strategy committee to work with the Company and outside advisors in evaluating our options and considering alternatives that we believe will maximize stakeholder value, including any of the following or a combination thereof: debt financing, equity investments, combinations with other companies, or the sale of all or part of the company. There can be no assurances that any transactions will be available to us or completed and if we are not able to raise sufficient additional capital in the very near term to fund our operation, we may seek relief available under applicable insolvency laws. We do not intend to make further announcements regarding this process unless and until the board of directors approves a specific transaction or otherwise determines that further disclosure is appropriate.
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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 conflicts between Ukraine and Russia and in the Middle East, related sanctions, and any effects of global pandemics and uncertain market conditions, including inflation and supply chain disruptions, which, have not had a material impact on our business and financial results to date, but could result in a material impact to our business or financial results in the future. Additionally, we have experienced a slowdown in our Asia Pacific business, including as a result of headwinds in the region, which negatively impacted our manufacturing partners who are reliant on government funding. While our manufacturing partners in the Asia Pacific region have obtained some approvals from the National Medical Products Administration, and are waiting on more, we do not anticipate that the funding headwinds will change in the near term.
Following the invasion of Ukraine by Russia, the U.S. and global financial markets experienced volatility, which has led to disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity globally. In response to the invasion, the United States, UK and EU, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia and possible future punitive measures that may be implemented, as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted, and could continue to result, in disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity on acceptable terms, in both Europe and globally, and has introduced significant uncertainty into global markets. As a result, our business and results of operations may be adversely affected by the ongoing conflict between Ukraine and Russia and related sanctions, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict.
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 year ended December 31, 2024, 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. For instance, product demand may be reduced due to an economic recession, a decrease in corporate capital expenditures, prolonged unemployment, high 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.
Recent Developments
In March 2024 and September 2024, we announced restructuring plans that aimed to reduce annualized operating expenses by approximately $35.0 to $40.0 million starting in the second half of 2024, and by an additional $25.0 million to $30.0 million beginning in the fourth quarter of 2024. As part of the plans, we reduced our overall headcount by approximately 120 and 83 employees, respectively. In addition, we have phased out the offerings of Bionano Laboratories for certain testing services related to neurodevelopmental disorders, including autism spectrum disorders and other disorders of childhood development. These measures were incremental to the cost saving initiatives previously announced in May 2023 and October 2023. See Note 11 (Commitments and Contingencies) to our consolidated financial statements included elsewhere in this Annual Report for additional information.
As part of the plans we have also made a change in our business strategy and refocused our efforts on the current installed base of OGM systems with less emphasis on new placements of OGM systems and more emphasis on ensuring customers are able to maximize their utilization of the OGM systems.
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Financial Overview
Revenue
We generate product revenue from sales of our OGM and Ionic ® Purification 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. In addition, we provide instruments to certain customers at no cost under our reagent rental program, 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 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 through Bionano Laboratories, as well as services performed related to customer sample evaluations using an OGM system. Other revenue consists of warranty and other service-based revenue, including support, repair and maintenance services.
The following table presents our revenue for the periods indicated:
Years Ended December 31,
2024
2023
Product revenue $ 27,008,000 $ 26,727,000
Service and other revenue 3,768,000 9,389,000
Total $ 30,776,000 $ 36,116,000
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, Middle East and Africa. Asia Pacific includes China, Japan, South Korea, Singapore, Australia and India.
Years Ended December 31,
2024
2023
$ % $ %
Americas $ 13,649,000 44.3 % $ 18,020,000 49.9 %
EMEA 14,234,000 46.3 % 12,963,000 35.9 %
Asia Pacific 2,893,000 9.4 % 5,133,000 14.2 %
Total $ 30,776,000 100 % $ 36,116,000 100 %
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 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
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The following table sets forth our results of operations for the years ended December 31, 2024 and 2023:
Years Ended December 31, Period-to-Period Change
2024
2023
$
%
Revenues:
Product revenue $ 27,008,000 $ 26,727,000 $ 281,000 1%
Service and other revenue 3,768,000 9,389,000 (5,621,000) (60)%
Total revenue
30,776,000 36,116,000 (5,340,000) (15)%
Cost of revenue:
Cost of product revenue 28,449,000 20,415,000 8,034,000 39%
Cost of service and other revenue 1,947,000 6,135,000 (4,188,000) (68)%
Total cost of revenue
30,396,000 26,550,000 3,846,000 14%
Research and development 24,803,000 54,032,000 (29,229,000) (54)%
Selling, general and administrative 51,855,000 92,758,000 (40,903,000) (44)%
Goodwill Impairment
— 77,280,000 (77,280,000) (100) %
Intangible assets and other long-lived assets impairment
19,683,000 — 19,683,000 100%
Restructuring costs
8,022,000 741,000 7,281,000 983%
Total operating expenses
104,363,000 224,811,000 (120,448,000) (54)%
Loss from operations (103,983,000) (215,245,000) 111,262,000 (52)%
Other income (expenses):
Interest income 2,101,000 3,311,000 (1,210,000) (37)%
Other expenses
(10,102,000) (20,497,000) 10,395,000 (51)%
Total other income (expenses)
(8,001,000) (17,186,000) 9,185,000 (53)%
Loss before income taxes (111,984,000) (232,431,000) 120,447,000 (52)%
Benefit (provision) for income taxes (33,000) (62,000) 29,000 (47)%
Net loss $ (112,017,000) $ (232,493,000) $ 120,476,000 (52)%
Revenue
Years Ended December 31, Period-to-Period Change
2024
2023
$
%
Instruments $ 8,043,000 $ 9,999,000 $ (1,956,000) (20)%
Consumables 12,773,000 11,157,000 1,616,000 14%
Software 6,192,000 5,571,000 621,000 11%
Total product revenue 27,008,000 26,727,000 281,000 1%
Services and other 3,768,000 9,389,000 (5,621,000) (60)%
Total revenue $ 30,776,000 $ 36,116,000 $ (5,340,000) (15)%
Total revenue decreased $5.3 million, or 15% to $30.8 million for the year ended December 31, 2024, as compared to $36.1 million for the same period in 2023, driven primarily by a decrease in service and other revenue.
Instrument revenue decreased $2.0 million, or 20%, to $8.0 million for the year ended December 31, 2024, as compared to $10.0 million for the year ended December 31, 2023, due to a decrease in the number of OGM and Ionic® instruments sold. For the year ended December 31, 2024, our installed base grew to 371 OGM systems compared to the 326 OGM systems for the year ended December 31, 2023, which only represented a 14% increase year-over-year as compared to a 36% year-over-year increase in the prior year. In September 2024, we announced a change in our business strategy to focus on driving utilization and adoption of OGM from our existing installed base, with less emphasis on new placements of our OGM systems. We anticipated that this change in strategy would slow the pace of our revenue growth when compared to historical growth rates and that the reduced pace of our revenue growth will continue into 2025.
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Consumables revenue increased $1.6 million, or 14%, to $12.8 million for the year ended December 31, 2024, as compared to $11.2 million for the year ended December 31, 2023. The increase in consumable revenue is in-line with the increase in flowcells sold. For the year ended December 31, 2024, total flowcells sold reached 30,307, an increase of approximately 15% from the 26,444 flowcells sold during the year ended December 31, 2023.
Software revenue increased $0.6 million, or 11%, to $6.2 million for the year ended December 31, 2024, as compared to $5.6 million for the year ended December 31, 2023. The increase is attributed to an increase in sales of our VIA™ software.
Service and other revenue decreased $5.6 million, or 60%, to $3.8 million for the year ended December 31, 2024, as compared to $9.4 million for the year ended December 31, 2023, which is the result of discontinuing sales of certain clinical service offerings from Bionano Laboratories effective March 2024. Such clinical service offerings from Bionano Laboratories contributed $1.7 million in revenue for the year ended December 31, 2024, as compared to $7.1 million for the same period in 2023. We expect service and other revenue to decline in 2025 relative to 2024 as these service offerings have been fully phased out as of December 31, 2024.
Cost of Revenue, Gross Profit, and Gross Margin
Years Ended December 31, Period-to-Period Change
2024
2023
$
%
Cost of revenue:
Cost of product revenue 28,449,000 20,415,000 8,034,000 39%
Cost of service and other revenue 1,947,000 6,135,000 (4,188,000) (68)%
Total cost of revenue 30,396,000 26,550,000 3,846,000 14%
Gross profit (loss):
Product $ (1,441,000) $ 6,312,000 $ (7,753,000) (123)%
Service and other 1,821,000 3,254,000 (1,433,000) (44)%
Total gross profit $ 380,000 $ 9,566,000 $ (9,186,000) (96)%
Gross margin:
Product (5) % 24 %
Service and other 48 % 35 %
Total gross margin 1 % 26 %
Cost of product revenue increased by $8.0 million, or 39%, to $28.4 million for the year ended December 31, 2024, compared to $20.4 million for the year ended December 31, 2023. The increase in cost of product revenue was due to higher sales of consumables offset by lower sales of instruments. In addition, for the year ended December 31, 2024 , $9.8 million in total expenses were recognized to write-off excess Saphyr ® instrument spare parts and other obsolete inventory for $7.2 million as well as dispose of reagent rentals that were underutilized for $2.6 million . We expect cost of product revenue to fluctuate with the volume of product sales. Underperforming assets that were subject to impairment are included in the install base.
Cost of service and other revenue decreased $4.2 million, or 68%, to $1.9 million for the year ended December 31, 2024, compared to $6.1 million for the year ended December 31, 2023. The decrease in cost of service and other revenue was primarily due to discontinuing sales of certain clinical service offerings from Bionano Laboratories effective March 2024. We expect cost of service and other revenue to remain relatively flat in 2025 as these service offerings have been fully phased out as of December 31, 2024.
Product gross profit decreased $7.8 million, or 123%, to $(1.4) million for the year ended December 31, 2024, compared to $6.3 million for the year ended December 31, 2023. The decrease in product gross profit was primarily due to $9.8 million in total expenses recognized to write-off excess Saphyr ® instrument spare parts and other obsolete inventory for $7.2 million as well as dispose of reagent rentals that were underutilized for $2.6 million.
Service and other gross profit decreased by $1.4 million, or 44%, to $1.8 million for the year ended December 31, 2024, compared to $3.3 million for the year ended December 31, 2023. T he decrease in service and other gross profit was primarily due to discontinuing sales of certain clinical service offerings from Bionano Laboratories effective March 2024. We expect service and other gross profit to decline in 2025 relative to 2024 as these service offerings have been fully phased out as of December 31, 2024.
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Research and Development Expenses
Research and development (“R&D”) expenses decreased by $29.2 million, or 54%, to $24.8 million for the year ended December 31, 2024, as compared to $54.0 million for the same period in 2023. The decrease was partially due to decreases of $16.1 million in salaries, wages and benefits driven by headcount reductions announced throughout 2023 and 2024 and $7.7 million in professional and consulting fees, including decreases in costs incurred to support clinical research studies, Stratys™ development, foundry expenses, and cloud computing. Lastly, we reduced information technology and rent and facility costs by $0.8 million, and we reduced our internal consumption of inventory, materials and supplies by $4.2 million. We anticipate that R&D expenses will continue to decrease throughout 2025 as a result of our cost saving initiatives announced in March and September 2024.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses decreased $40.9 million, or 44%, to $51.9 million for the year ended December 31, 2024, as compared to $92.8 million for the same period in 2023. The decrease was primarily due to a $21.0 million decrease in salaries, wages and benefits driven by headcount reductions announced in 2023 and 2024, a $9.4 million decrease in the gain/loss recorded on fair value of the contingent consideration due for Purigen and BioDiscovery milestones, a $8.9 million decrease in professional and consulting fees which is primarily marketing, software, and legal expenses, and a $2.6 million decrease in travel and entertainment. We anticipate that SG&A expenses will continue to decrease throughout 2025 as a result of our cost saving initiatives announced in March and September 2024.
Goodwill impairment
Goodwill of $77.3 million was fully impaired during the year ended December 31, 2023.
Intangible assets and other long-lived assets impairment
The Company recognized $19.7 million in impairment losses on intangible assets and other long-lived assets during the year ended December 31, 2024 due to our restructuring initiatives and change in business strategy. The Company recognized no additional impairment losses during the year ended December 31, 2023. See Note 2 (Summary of Significant Accounting Policies) to our condensed consolidated financial statements included elsewhere in this Annual Report for further discussion on the impairment charges that were recorded during the period.
Restructuring Costs
Restructuring costs were $8.0 million for the year ended December 31, 2024 , as a result of our cost saving initiatives announced in March and September 2024, and $0.7 million for the year ended December 31, 2023, as a result of our cost saving initiatives announced in May and October 2023 .
Interest Income
Interest income decreased by $1.2 million, or 37%, to $2.1 million for the year ended December 31, 2024, as compared to $3.3 million for the same period in 2023 resulting from a reduction in investments offset by higher return s. Our total short-term investments balance was $0.3 million as of December 31, 2024, as compared to $48.8 million for the same period in 2023.
Other expenses
Other expense was $10.1 million for the year ended December 31, 2024 compared to $20.5 million for the same period in 2023. The decrease was driven by a net gain on the extinguishment of the High Trail Note and an option (the “Purchase Option”), which expired on the maturity date of the High Trail Notes to purchase up to an additional $25.0 million aggregate principal amount of private placement notes) of $4.0 million, offset by a loss recorded on the issuance of the JGB Debentures of $1.9 million and a loss recorded on the issuance of the High Trail Notes and Purchase Option of $18.8 million (representing a total change in loss on issuance of $16.9 million), an increase in the change in fair value (net gain) of $5.7 million for the convertible High Trail Notes, Purchase Option, and convertible debentures, an increase in interest expense of $2.8 million incurred for the debt issuance costs recorded in connection with the debt instruments, and a loss on extinguishment of $7.3 million for the convertible debentures payable. See Note 9 (Debt) to our consolidated financial statements included elsewhere in this Annual Report for further discussion on the debt transactions that took effect during the year.
Liquidity and Capital Resources
Since our inception, we have incurred net losses and negative cash flows from operations. We incurred net losses of $112.0 million and $232.5 million, and used $68.9 million and $125.2 million of cash from our operating activities for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $693.2 million, cash and cash equivalents of $9.2 million, $0.3 million in short-term investments and $11.4 million in restricted cash and cash equivalents and restricted short-term investments.
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Sources of Liquidity and Capital Resources
In the years ended December 31, 2024 and 2023, we have generated cash flows from sales of common stock, other equity instruments and the issuance of convertible notes and debentures payable. We anticipate that future sources of liquidity will principally come from sales of common stock and other equity instruments, borrowings from credit facilities and revenue from our commercial operations. See Notes 9 (Debt) and 10 (Stockholder’s Equity and Stock-Based Compensation) to our consolidated financial statements for a discussion of our recent debt and equity activity.
On October 13, 2023, we completed a registered offering (the “October 2023 Registered Offering”) of senior secured convertible notes payable due 2025 (the “High Trail Registered Notes”) and warrants (the “Registered Warrants”) and a concurrent private placement (the “October 2023 Private Placement” and together with the October 2023 Registered Offering, the “October 2023 Offering”) of senior secured convertible notes payable due 2025 (the “High Trail Private Placement Notes” and, together with the High Trail Registered Notes, the “High Trail Notes”) and warrants (the “Private Placement Warrants” and, together with the Registered Warrants, the “Warrants”) and received net proceeds from the sale of the High Trail Notes and the Registered Warrants of approximately $75.2 million, after deducting the offering expenses and placement agent fees.
On February 27, 2024, we entered into a letter agreement (the “Letter Agreement”) and an Amendment to the Registered Notes (the “Amendment”), with the purchaser of the High Trail Registered Notes which provided reduction (i) of the minimum liquidity covenant from $50.0 million, and (ii) of the restricted cash covenant from $35.0 million, to the amount equal to the sum of (iii) the outstanding principal amount of the High Trail Registered Notes plus (iv) approximately $0.7 million, which will be further reduced as the remaining principal on the High Trail Registered Notes are retired. We also redeemed the outstanding $17.0 million of the High Trail Private Placement Notes for a redemption payment of approximately $19.6 million and a retirement fee of $3.2 million paid concurrently and $10.7 million of the High Trail Registered Notes for a redemption payment of approximately $12.3 million.
On March 1, 2024, we redeemed $27.7 million aggregate principal amount of the High Trail Notes at a redemption price of 115% of the outstanding principal (the “Repayment Price”) or $31.8 million, and for the period January 1, 2024 through May 1, 2024, redeemed an additional $18.0 million aggregate principal amount of the High Trail Notes at the holders’ option at the Repayment Price for an aggregate of $20.7 million.
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On May 24, 2024, we entered into a securities purchase agreement with certain accredited investors (the “Holders”) and JGB Collateral LLC, as collateral agent for the Holders, for the sale by the Company in a private placement (the “JGB Debentures Offering”) of:
• 0.04 million shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), and
• Senior Secured Convertible Debentures in the aggregate principal amount of $20.0 million (the “Debentures”), for an aggregate purchase price of $18.0 million.
The closing of the JGB Debentures Offering occurred on May 24, 2024. In connection with the closing of the JGB Debentures Offering, the Company received net proceeds of approximately $16.6 million, after payment of placement agent fees, and other offering expenses. The Company used the proceeds received to fully redeem the outstanding balance due under the High Trail Note of approximately $17.6 million, as amended (see further discussion below).
On May 23, 2024, in connection with the JGB Debentures Offering, the Company entered into a redemption agreement with High Trail (“HT Agreement”). Pursuant to the HT Agreement, the Company agreed to redeem the entire outstanding principal amount of $15.3 million under the High Trail Note at a redemption price of 115% for a total redemption payment of $17.6 million (the “Redemption Payment”). Upon High Trail’s receipt of the Redemption Payment on May 24, 2024, the High Trail Note and related Purchase Option to purchase additional High Trail Notes at fair value were cancelled. In addition, the Company agreed to pay High Trail a retirement fee of $2.2 million and to reimburse High Trail for all of its reasonable and documented out-of-pocket expenses incurred with the release and termination of security interests relating to the High Trail Note.
On December 31, 2024, the Company entered into an amendment of the Debentures (the “Amendment”) with the Selling Securityholders. Pursuant to the Amendment, the parties agreed that (i) no amortization payment would be paid in December 2024; (ii) the maximum monthly amortization payments due between January 2025 and July 2025 would be reduced from $1.0 million per month to $0.5 million per month; (iii) the maximum monthly amortization payments due from August 2025 through repayment in full of the principal aggregate amount would be $1.4 million per month; (iv) the conversion price of the Debentures would be reduced from $120.00 to $16.20; and (v) the Debentures will become non-callable by the Company until August 2025. As consideration for the Amendment, the Company issued to the Selling Securityholders approximately 83,000 shares of its common stock (the “Private Placement Shares”).
As of December 31, 2024, the Company reported $20.4 million of Debentures at fair value, which is classified as current on the consolidated balance sheet. Through December 31, 2024, the Company paid $1.2 million in interest and $5.0 million in principal redemption amounts on the Debentures. As of December 31, 2024, the Company may be required to redeem up to $10.4 million of principal and expects to pay an additional $1.3 million in interest on the Debentures in 2025.
See Note 9 (Debt) to our consolidated financial statements included elsewhere in this Annual Report for further information.
On April 4, 2024, the Company entered into a securities purchase agreement (the “April 2024 Purchase Agreement”) with certain institutional investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market (the “April 2024 Registered Direct Offering”): (i) an aggregate of approximately 109,000 shares of the Company’s common stock (as adjusted for the reverse stock split), (ii) pre-funded warrants to purchase up to an aggregate of approximately 37,000 shares of common stock (as adjusted for the reverse stock split) (the “April Pre-Funded Warrants”), and (iii) warrants to purchase up to approximately 146,000 shares of common stock (as adjusted for the reverse stock split) (the “April Purchase Warrants”). Each share of common stock and each April Pre-Funded Warrant sold pursuant to the April 2024 Purchase Agreement was accompanied by an April Purchase Warrant. The combined purchase price of each share of common stock and accompanying April Purchase Warrant was $68.70 per share. The combined purchase price of each April Pre-Funded Warrant and accompanying April Purchase Warrant was $68.64 (equal to the combined purchase price per share of common stock and accompanying April Purchase Warrant, minus $0.001). The gross proceeds to the Company from the April 2024 Registered Direct Offering was $10.0 million. The Company received net proceeds of $9.3 million after deducting placement agent fees and other offering expenses of $0.7 million payable by the Company.
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On July 4, 2024, the Company entered into a securities purchase agreement (the “July 2024 Purchase Agreement”) with certain institutional investors, pursuant to which the Company agreed to issue and sell, (i) in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market (the “July 2024 Registered Direct Offering”): (a) an aggregate of approximately 195,000 shares of the Company’s common stock (as adjusted for the reverse stock split), and (b) pre-funded warrants to purchase up to an aggregate of approximately 97,000 shares of common stock (as adjusted for the reverse stock split) (the “July Pre-Funded Warrants”), and (ii) in a concurrent private placement (the “Private Placement” and together with the July 2024 Registered Direct Offering, the “July 2024 Offering”), Series A warrants to purchase up to an aggregate of approximately 292,000 shares of common stock (as adjusted for the reverse stock split) (the “Series A Warrants”) and Series B warrants to purchase up to an aggregate of approximately 292,000 shares of common stock (as adjusted for the reverse stock split) (the “Series B Warrants”, and together with the Series A Warrants, the “July Purchase Warrants”). Each share of common stock and each July Pre-Funded Warrant sold pursuant to the July 2024 Purchase Agreement was accompanied by one Series A Warrant and one Series B Warrant. The combined purchase price of each share of common stock and accompanying July Purchase Warrants was $34.260 per share (as adjusted for the reverse stock split). The combined purchase price of each July Pre-Funded Warrant and accompanying July Purchase Warrants was $34.259 (equal to the combined purchase price per share of common stock and accompanying July Purchase Warrant, minus $0.001) (as adjusted for the reverse stock split). The gross proceeds to the Company from the July 2024 Offering were approximately $10.0 million (excluding up to $20.0 million of aggregate gross proceeds that may be received in the future upon the cash exercise of the July Purchase Warrants issued in the Private Placement), before deducting placement agent fees and other offering expenses payable by the Company. The Company received net proceeds of $9.3 million after deducting placement agent fees and other offering expenses of $0.7 million payable by the Company.
On October 30, 2024, the Company entered into a securities purchase agreement (the “October 2024 Purchase Agreement”) with certain institutional investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market (the “October 2024 Offering”): (i) an aggregate of approximately 165,000 shares of the Company’s common stock (as adjusted for the reverse stock split) , (ii) Series C warrants to purchase up to an aggregate of approximately 165,000 shares of the Company’s common stock (as adjusted for the reverse stock split) (the “Series C Warrants”) and (iii) Series D warrants to purchase up to an aggregate of approximately 165,000 shares of the Company’s common stock (as adjusted for the reverse stock split) (the “Series D Warrants”, and tog ether with the Series C Warrants, the (“October Purchase Warrants”). Each share of common stock sold pursuant to the October 2024 Purchase Agreement was accompanied by one Series C Warrant to purchase one share of common stock and one Series D Warrant to purchase one share of common stock . Each share of common stock and accompanying October Purchase Warrant are immediately separable and were issued separately. The combined purchase price of each share of common stock and accompanying October Purchase Warrant was $18.234 per share (as adjusted for the reverse stock split) . The gross proceeds to the Company from the October 2024 Offering were approximately $3.0 million (excluding up to approximately $6.0 million of aggregate gross proceeds that may be received in the future upon the cash exercise of the October Purchase Warrants), before deducting placement agent fees and other offering expenses payable by the Company.
On January 3, 2025, the Company entered into a securities purchase agreement (the “January 2025 Purchase Agreement”) with certain institutional investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market (the “January 2025 Offering”) (i) an aggregate of approximately 382,000 shares of the Company’s common stock, (ii) pre-funded warrants to purchase up to an aggregate of approximately 280,000 shares of common stock (as adjusted for the reverse stock split) (the “January Pre-Funded Warrants”) and (iii) warrants to purchase up to an aggregate of approximately 661,000 shares of common stock (as adjusted for the reverse stock split) (the “January Purchase Warrants”). Each share of common stock and each January Pre-Funded Warrant sold pursuant to the January 2025 Purchase Agreement were accompanied by a January Purchase Warrant. Both the shares of common stock and the accompanying January Purchase Warrants, and the January Pre-Funded Warrants and the accompanying January Purchase Warrants were immediately separable and were issued separately. The combined purchase price of each share of common stock and accompanying January Purchase Warrant was $15.120 per share (as adjusted for the reverse stock split) . The combined purchase price of each January Pre-Funded Warrant and accompanying January Purchase Warrant was $15.119 (equal to the combined purchase price per share of common stock and accompanying January Purchase Warrant, minus $0.001) (as adjusted for the reverse stock split) . The gross proceeds to the Company from the January 2025 Offering were approximately $10.0 million (excluding up to approximately $20.0 million of aggregate gross proceeds that may be received in the future upon the cash exercise of the January Purchase Warrants which is contingent upon stockholder approval), before deducting placement agent fees and other offering expenses payable by the Company. Each January Purchase Warrant is exercisable for one share of common stock at an exercise price of $15.120 per share beginning on the effective date of stockholder approval of the issuance of the shares of common stock upon exercise of the January Purchase Warrants (the “Stockholder Approval”). The January Purchase Warrants will expire on the five-year anniversary of the Stockholder Approval.
See Note 10 (Stockholder’s Equity and Stock-Based Compensation) to our consolidated financial statements included elsewhere in this Annual Report for further information.
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Based on our current business plans, we will continue to require additional capital in the very near term to fund our operating expenses and capital expenditure requirements, or we may need to further curtail or cease operations and seek protection by filing a voluntary petition for relief under the United States Bankruptcy Code. If this were to occur, the value available to our various stakeholders, including our creditors and stockholders, is uncertain and trading prices for our securities may bear little or no relationship to the actual recovery, if any, by holders of our securities in bankruptcy proceedings, if any. This estimate assumes the inclusion of the amount equal to the outstanding principal amount of the Debentures. Our existing cash and cash equivalents and short-term investments, will not be sufficient for us to achieve cash-flow break even and we expect to need to seek additional capital. Based on the Company’s current business plans we believe we will be able to fund our operating expenses and capital expenditure requirements into the first quarter of 2026.
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, restructuring and advisory fees, and expenses associated with being a public company. We expect such expenditures to continue throughout 2025.
We had $9.2 million in cash and cash equivalents, $0.3 million short-term investments, and $11.4 million in restricted cash and cash equivalents and restricted short-term investments as of December 31, 2024. The amount we are required to hold as restricted cash or restricted investments is equal to the lesser of (a) $11.0 million and (b) the then outstanding principal balance of the Debentures. Based on recurring losses from operations incurred since inception and the expectation of continued operating losses, we anticipate our available cash balance will not be sufficient to operate our business for the next twelve months from the issuance of this Annual Report. Accordingly, we determined that there is substantial doubt about our ability to continue as a going concern within 12 months after the date that the financial statements included in this Annual Report are issued. In order to continue to operate our business beyond that time, we will need to raise substantial additional capital. 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 short-term investments 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 (Organization and Operations) to our consolidated financial statements included elsewhere in this Annual Report for more information. If we are unable to continue as a going concern, we may have to reorganize or liquidate our business and may receive less than the value at which those assets are carried on our consolidated financial statements, and investors may lose all or a part of their investment. The board of directors has established a strategy committee to work with the Company and outside advisors in evaluating our options and considering alternatives that we believe will maximize stakeholder value, including any of the following or a combination thereof: debt financing, equity investments, combinations with other companies, or the sale of all or part of the company. There can be no assurances that any transactions will be available to us or completed and if we are not able to raise sufficient additional capital in the very near term to fund our operation, we may seek relief available under applicable insolvency laws. We do not intend to make further announcements regarding this process unless and until the board of directors approves a specific transaction or otherwise determines that further disclosure is appropriate.
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Cash Flows
The following table sets forth the cash flow from operating, investing and financing activities for the periods presented:
Years Ended December 31,
2024
2023
Net cash provided by (used in):
Operating activities $ (68,922,000) $ (125,181,000)
Investing activities 73,839,000 24,158,000
Financing activities (13,685,000) 113,815,000
Operating Activities
2024 Compared to 2023
We derive cash flows from operations primarily from the sale of our products and services. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to support the growth of our business. We have historically experienced negative cash flows from operating activities as we have developed our technology, expanded our business and built our infrastructure, and this may continue in the future. 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 expect to seek 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, and if we are unable to raise sufficient additional capital in the very near term, we may need to further curtail or cease operations and seek protection by filing a voluntary petition for relief under the United States Bankruptcy Code. Our recent restructuring activities are anticipated to reduce the cash used in operating activities over the next 12 months; however, our financial condition may result in certain additional restructuring or advisory expenses which may result in our corporate expenditures increasing, potentially materially, and we may observe fluctuations in the cash used in operating activities on a quarterly basis to sustain our current commercial offerings.
Net cash used in operating activities was $68.9 million during the year ended December 31, 2024, as compared to $125.2 million during the year ended December 31, 2023. The decrease in cash used in operating activities of $56.3 million was primarily attributed to a decrease in our net loss and a decrease in our working capital usage as a result of our cost saving initiatives that were initiated in March and September of 2024.
Investing Activities
2024 Compared to 2023
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. Net cash provided by investing activities was $73.8 million during the year ended December 31, 2024, as compared to $24.2 million provided by investing activities during the year ended December 31, 2023. This increase in cash provided by investment activities of $49.7 million is attributed to an increase in the sales and maturity of available-for-sale securities of $307.0 million as of December 31, 2024, as compared to the sales and maturity of available-for-sale securities of $137.0 million as of December 31, 2023. The increase in cash is offset by an increase in the purchases of available-for-sale securities of $233.0 million as of December 31, 2024, as compared to purchases of available-for-sale securities of $111.3 million as of December 31, 2023.
Financing Activities
2024 Compared to 2023
Net cash used in financing activities was $13.7 million during the year ended December 31, 2024, as compared to net cash provided by financing activities of $113.8 million during the year ended December 31, 2023, a decrease of $127.5 million. During the year ended December 31, 2024, the Company made principal payments of $61.0 million and payments on debt extinguishment costs of $5.4 million towards the High Trail Notes payable, $5.0 million in principal payments made toward the Debentures payable, which was offset by approximately $18.0 million in gross proceeds from the issuance of the Debentures and $44.4 million in gross proceeds from executing sales under our at-the-market facility with Cowen and Company, LLC (“Cowen”) and other equity registered direct offerings (see Note 10. (Stockholders’ Equity and Stock-Based Compensation) as compared to $57.7 million during the year ended December 31, 2023.
Financial Information about Affiliates Whose Securities Collateralize a Registrant’s Securities and Consolidated Subsidiaries
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The High Trail Notes were secured by a first-priority lien, subject only to certain permitted liens, on substantially all of our and our subsidiaries’ (other than certain foreign subsidiaries) tangible and intangible assets, whether now owned or hereafter acquired (other than certain excluded property). For a list of subsidiaries whose securities collateralize the High Trail Notes, see Exhibit 22 to this Annual Report.
The High Trail Notes were our senior secured obligations, ranked pari passu with the up to $25.0 million of additional notes that have been issued pursuant to the securities purchase agreement, were senior in right of payment to all of our indebtedness that was expressly subordinated to the High Trail Notes in right of payment, effectively senior to all of our unsecured indebtedness to the extent of the collateral securing the High Trail Notes, effectively junior to all of our indebtedness secured by permitted liens, to the extent of the value of the assets subject to such permitted liens and to the extent such permitted liens had lien priority by contract or law and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries that were not party to the security documents. We do not believe there is any trading market for any of our subsidiaries whose securities were pledged as collateral for the High Trail Notes.
See Note 9 (Debt) to our consolidated financial statements for further details about the terms, conditions and other factors and the collateral arrangements of the High Trail Notes.
Rule 13-02 of Regulation S-X requires the presentation of summarized financial information of the combined affiliates whose securities were pledged as collateral for the High Trail Notes unless such information is not material. Because the combined assets, liabilities and results of operations of the Company and the affiliates whose securities were pledged as collateral for the High Trail Notes are not materially different than the corresponding amounts presented in our consolidated financial statements, summarized financial information of affiliates whose securities were pledged as collateral for the High Trail Notes is not required to be presented under Rule 13-02.
Capital Resources
As of December 31, 2024, we had approximately $9.2 million in cash and cash equivalents, $0.3 million in short-term investments, $11.4 million in restricted cash and cash equivalents and restricted short-term investments, and working capital of $2.1 million. The amount we are required to hold as restricted cash or investments is equal to the lesser of (a) $11.0 million and (b) the then outstanding principal balance of the Debentures (as defined in Note 9 (Debt) to our consolidated financial statements).
We had in place a Sales Agreement with Cowen (the “Cowen ATM”), as amended, pursuant to which we could 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 year ended December 31, 2024, the Company sold approximately 0.5 million (as adjusted for the reverse stock split) shares of common stock under the Cowen ATM and received gross proceeds of approximately $21.4 million before deducting offering costs of $0.6 million. On February 4, 2025, the Company provided notice of its termination, effective February 14, 2025, of the Cowen ATM.
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 within eighteen months of the acquisition date. 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. 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.
The fair value of the Purigen milestones were 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 which were applied to the individual payments over the five year milestone term. For the second milestone, we performed a Monte Carlo Simulation to determine the likelihood that the milestone will be achieved and was applied to the milestone consideration payment.
During the quarter ended September 30, 2024, the Company concluded that the probability of achievement of the two independent milestones was 0% which resulted in a reduction in the contingent consideration liability to zero.
Contractual Obligations
The following table summarizes our future cash outflows for contractual obligations as of December 31, 2024.
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Payments Due by Period
Total Less than 1 Year 1-3 Years 3-5 Years More than 5 years
Operating lease obligations, including interest $ 3,406,000 $ 2,608,000 $ 798,000 $ — $ —
Finance lease obligations, including interest
6,634,000 338,000 702,000 737,000 4,857,000
Convertible debentures payable
15,472,000 10,375,000 5,097,000 — —
Total contractual obligations $ 25,512,000 $ 13,321,000 $ 6,597,000 $ 737,000 $ 4,857,000
Operating lease obligations relate to our office, laboratory and manufacturing space for our corporate headquarters in San Diego, California. Finance lease obligations relate to our BioDiscovery office in El Segundo, California. See Note 11 (Commitments and Contingencies) to our consolidated financial statements included elsewhere in this Annual Report.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. 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 financial statements, as well as the reported amounts of revenues and expenses during the periods presented. 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. While our significant accounting policies are more fully described in Note 2 (Summary of Significant Accounting Policies) to our consolidated financial statements included elsewhere in this Annual Report, the significant accounting estimates that we believe are important to aid in fully understanding and evaluating our reported financial results include the following:
Valuation of Long-Lived Assets (including Finite-Lived Intangible Assets)
Long-lived assets are reviewed for impairment if indicators of potential impairment exist. If the Company identifies a change in the circumstances related to its long-lived assets, such as property and equipment and intangible assets (other than goodwill), that indicates the carrying value of any such asset may not be recoverable, the Company will perform an impairment analysis. A long-lived asset (other than goodwill) is not recoverable when the undiscounted cash flows expected to be generated by the asset (or asset group) are less than the asset’s carrying amount. Any required impairment loss would be measured as the amount by which the asset’s carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and a charge to operating expense. If a fair value assessment is performed, the evaluation includes a discounted cash flow method to estimate the fair value of the asset group. The cash flows were determined using market comps obtained from similar asset groups and includes estimates and assumptions for future sublease rental rates that reflect current sublease market conditions as well as discount rates. Refer to Note 2 (Summary of Significant Accounting Policies) to our consolidated financial statements included elsewhere in this Annual Report, for further information on the impairment losses we recorded to our long-lived assets and intangible assets as of December 31, 2024.
Convertible High Trail Notes and Debentures Payable
As described further in Note 2 (Summary of Significant Accounting Policies) to our consolidated financial statements included elsewhere in this Annual Report, the Company elected to account for the convertible High Trail Notes and Debentures payable issued using the fair value option under ASC 825-10. Such instruments are recognized at estimated fair value on the date of issuance, with changes in fair value after issuance recorded in other (income) expense, net on the consolidated statements of operations as a gain or loss, unless the change is a result of a change in credit risk, in which case such change in estimated fair value is recorded within other comprehensive income.
Increases or decreases in the fair value of the convertible High Trail Notes and Debentures payable can result from updates to assumptions such as the expected timing or probability of a qualified financing event, expected volatility or changes in discount rates. Judgment is used in determining these assumptions as of the initial valuation date and at each subsequent reporting period. Updates to assumptions could have a significant impact on the Company’s results of operations in any given period.
Recent Accounting Pronouncements
Refer to Note 2 (Summary of Significant Accounting Policies), in the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report for a discussion of recent accounting pronouncements.