Bionano Genomics, Inc. quarterly report, Q3 FY2023

Bionano Genomics, Inc. — Q3 2023 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2023; filed November 8, 2023. The unaudited company provides optical genome mapping (OGM) systems and consumables, software, diagnostic testing, and nucleic-acid extraction solutions. Comparisons below are with the corresponding 2022 periods.

Financial performance

• Q3 revenue rose 29%; nine-month revenue rose 30%. Product revenue increased 23% and 30%, respectively, while service and other revenue increased 45% and 29%.
• Q3 product gross margin declined to 21% from 29%, which management attributed primarily to product mix. For the nine months, product margin improved to 26% from 21%; management cited higher sales, improved chip yield, and lower scrap and quality-control costs.
• Q3 and nine-month losses included a $77.3 million non-cash goodwill impairment. The company impaired all reported goodwill, which was $77.3 million at December 31, 2022. Increased R&D and SG&A also contributed to higher operating losses.
• At September 30, cash and cash equivalents were $34.6 million and investments were $29.0 million. Working capital was $64.3 million; total assets were $181.9 million, total liabilities $62.9 million, and stockholders’ equity $119.0 million. The company reported no conventional outstanding borrowings on the September 30 balance sheet; lease liabilities and acquisition-related contingent consideration were reported.
• Cash from investing activities was $79.5 million, mainly reflecting maturities of investments; financing activities provided $45.3 million, primarily from common-stock sales. The company sold about 5.6 million shares through its ATM facility during the nine months for approximately $46.5 million gross proceeds.

Liquidity, financing, and outlook

• Management states that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. It expects operating losses and negative cash flows to continue and says additional funding is needed.
• After quarter-end, the company closed an October 2023 financing for $80 million gross proceeds: $80 million principal of senior secured convertible notes and associated warrants. Reported net proceeds were approximately $75.6 million. Of the proceeds, $35 million was placed in a restricted account and is releasable only if specified conditions are met, which management says may be difficult.
• The notes mature September 1, 2025, do not bear regular interest, and are repayable at 115% of principal, subject to their terms. They are secured by substantially all assets of the company and most subsidiaries. Conversion and warrant exercise could materially dilute existing shareholders; the filing also describes an option for the purchaser to acquire additional notes and warrants.
• Management estimates available funding could support operations and capital expenditures through at least 2024 if restricted funds become accessible; excluding the $35 million restricted amount, it estimates funding only into at least the third quarter of 2024. These estimates do not imply cash-flow break-even, and management expects to seek further capital or consider strategic alternatives.
• Cost actions announced in May and October 2023 include workforce reductions and lower facility and discretionary spending. The October plan targets approximately $33 million in annual savings beginning in 2024, with estimated severance costs of $0.7 million and completion expected by year-end 2023. Management cautions actual results may differ.
• No formal revenue or earnings guidance is provided. Management expects revenue growth alongside greater market awareness and OGM adoption, but also anticipates continued substantial costs and operating losses.

Business developments and key risks

• Saphyr installed base reached 301 systems at September 30, up approximately 39% year over year. Flowcells sold rose 55% in Q3 and 74% for the nine-month period. VIA software installations began in July as a replacement for NxClinical.
• The company effected a 1-for-10 reverse stock split in August 2023; share and per-share financial data are retrospectively adjusted. It reported 38.8 million common shares outstanding as of November 6, 2023.
• The filing highlights risks from early-stage commercialization, dependence on research budgets and customer adoption, reimbursement and FDA regulation of laboratory-developed tests, reliance on single contract manufacturers and limited suppliers, financing needs, dilution and restrictive secured-note covenants, and geopolitical and macroeconomic conditions. The FDA had proposed phasing out enforcement discretion for LDTs over four years; the proposal was not described as final.
• The company reported no material pending legal proceedings. It reported disclosure controls and procedures were effective as of September 30, 2023.

Important facts for investors to verify

• Whether the $35 million restricted financing proceeds can be accessed under the trading-volume and other note conditions, and whether the stated cash runway assumptions remain valid.
• The notes’ redemption, repayment, covenant, default, and collateral terms, including potential dilution from conversion, warrants, and any additional securities issuance.
• Progress toward the projected $33 million annual cost savings, including execution timing, severance costs, and any effects on sales, R&D, and operations.
• Whether OGM installed-base growth and consumables usage translate into durable revenue growth and improved product margins.
• Any developments in FDA regulation of LDTs, clinical reimbursement, Nasdaq listing compliance, and the company’s continuing need for additional capital.