Bionano Genomics: Intriguing Technology. Troubling Trajectory (NASDAQ:BNGO) – Digitalmunition




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Published on September 8th, 2020 📆 | 7757 Views ⚑

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Bionano Genomics: Intriguing Technology. Troubling Trajectory (NASDAQ:BNGO)

The funny thing about truth, everyone seems to have their own version.”― Carlos Wallace

Today, we look at a ‘Busted IPO‘ with potentially ‘best of breed’ technology in its medical niche. A full investment analysis on this intriguing name is presented in the paragraphs below.

Company Overview:

Bionano Genomics, Inc. (BNGO) is a San Diego based commercial-stage life sciences instrumentation concern focused on genome analysis. It currently has one core product (the Saphyr system) that it launched in 2017, representing an alternative to present genome sequencing approaches. Bionano was formed in 2003 and went public in 2018, raising net proceeds of $19.4 million at $6.125 per unit, consisting of one share of stock and one five-year warrant struck at $6.125. Shares of BNGO are currently deep in busted IPO territory, trading at just over 50 cents a share, translating to a market cap of under $100 million.

Genome Analysis:

To understand what differentiates Bionano from its competition, a background on the genome analysis is warranted. All DNA is composed of the same four nucleotides: adenine {A}, guanine [G], cytosine [C] and thymine [T]. A pairs with T and C pairs with G. The human genome consists of six billion base pairs, which are distributed across 23 chromosomes. Genome variation is defined as at least one base pair differing in a comparison of sequence against a reference standard and can be as large as tens of millions of base pairs. When the human genome was completely mapped in 2003, many thought it would usher in a new era of medical breakthroughs. However, gene sequencing – determining the order of nucleotides in DNA – fails (in many instances) to reliably detect structural variations in DNA.

Source: Company Presentation

The current paradigm uses a method known as sequencing by synthesis, which makes a copy of DNA, one base pair at a time. This process, spearheaded by Illumina (ILMN), involves splicing and sequencing DNA into small pieces of a few hundred base pairs each, known as short reads. These short reads are compared against a reference genome to infer genome variations. Sequencing by synthesis has two major drawbacks. First, the short reads are generally too short to determine the correct location and orientation in the genome as many short reads from one chromosome are identical to short reads from either another chromosome or another location on the same chromosome. Second, the genome fragments used as templates in the copy process are also very short, which can disconnect and destroy most of the structural information on the original genome.

The deficiencies of short reads have birthed a long-read submarket, pioneered by Pacific Biosciences (PACB) and privately held Oxford Nanopore, that provide users with average read lengths in the tens of thousands base pairs. However, these lengths have proven, in many instances, to still not be of adequate size to detect structural variations in the genome. Additionally, the time and cost of providing a comprehensive whole genome analysis of a patient in a clinical setting is prohibitive when utilizing these longer-read technologies.

In addition to sequencing technologies, other methods to extract biological information from DNA have originated in the field of cytogenetics, which is the study of chromosomal structure and its impact on health. They include karyotyping (an optical examination using a microscope); fluorescence in situ hybridization (FISH – probing to detect a specific gene abnormality); and microarrays (that detect gains and losses of base pairs in a specifically chosen gene sequence). Each of these approaches are also riddled with shortcomings.

The Saphyr System:

Bionano believes it has overcome many of the limitations of other gene sequencing technologies with its Saphyr System, which can observe extremely long genomic DNA without any amplification to construct a physical map that assigns the chromosome location, order, orientation, and quantity of all the genome’s functional elements. Saphyr can analyze molecules with lengths of 250,000 base pairs or longer, ~1,000 times greater than Illumina’s short reads. It incorporates nanotechnology to unwind genomic ‘balls of yarn’ into linearized and more thoroughly readable molecules, making structural variation analysis possible. This methodology overcomes the redundancy of genome composition, delivering every read to its unique position in the genome, providing a cost efficient and accurate rendering of the entire genome.

Source: Company Presentation

The company accomplishes this by detecting specific sequence patterns or motifs that occur universally across every genome with an average frequency of ~1 in several thousand base pairs, as opposed to identifying the sequence of every base pair in these long fragments. This method is supported by fluorescent tags at the sequence-specific site, the pattern of which is compared to a reference genome to distinguish structural variations.

Bionano’s management believes that its Saphyr system can replace multiple traditional genome analysis methods since it requires less labor, is easier to perform, has a faster turnaround, and provides significantly more information. It should be noted that Saphyr cannot detect genome differences involving just a few base pairs or single-nucleotide variations, which can be determined by Illumina’s sequencers. As such, Bionano expects its device to complement existing technology, allowing users the ability to see a greater scope of genome variation. On August 20th, the company announced that it had selected Praxis Genomics as its service provider to offer Bionano genome imaging on Saphyr

Addressable Market for Saphyr:

The market for genomics products and services is significant, expected to grow at a CAGR of 10.2% from 2017-2022, reaching $23.9 billion by 2022. Bionano is targeting two types of end users. First, are the ~3,500 facilities employing ~7,000 research-use only [RUO] sequencers that are predominantly sold by Illumina. Second, are the ~2,500 cytogenic labs, who could benefit from Saphyr’s less expensive and less cumbersome workflows and ability to scale to higher volumes or more complex testing panels for detecting structural variations. Those machines represent a total instrument market opportunity of ~$2.1 million, or ~$220,000 per for Bionano.

Tepid Launch:

Despite launching in 2017 with what appears to be superior and/or complementary technology into a potential installed base of ~9,500, Bionano had only shipped ~116 Saphyr systems, of which 83 have been installed as of March 31, 2020. The slow rollout – which generated 2019 revenue of $10.1 million, down 16% from 2018 revenue of $12.0 million – has been further exacerbated by the coronavirus in 2020 with 1Q20 revenue of $1.1 million as compared to $1.9 million in 1Q19 as revenue from Europe plummeted 58% to $390,000. In the second quarter the company installed just 8 additional Saphyr systems and posted revenue of just $1 million, compared to $2.2 million in the second quarter of 2019.

New Commercial Approach:

Owing to this poor performance, Bionano has pivoted to a new commercial strategy, providing customers with three options. First, consumers can purchase the Saphyr system as they did previously with pricing starting at $150,000, $550 per genome or $450 per genome with a 240-genome bundle. Installation and training are included at no cost. Second, Bionano has set up a third-party service where it will provide structural variation data from submitted samples for customers at $650 per genome for standard samples and $750 per genome for mosaic and cancer samples. Third, for those who do not wish to be burdened with the cost of ownership, Bionano will install a Saphyr System on premises free of charge so long as customers commit to purchasing at least 120 genomes every six months at $550 per genome.

Source: Company Presentation

So far this new strategy has shown signs of promise, with 493 customer samples processed through the end of the second quarter, as compared to 212 customer samples for all of 2019. The company’s consumables model has the potential to generate revenue between ~$60,000 and ~$150,000 annually per client, for an additional market opportunity of $0.7 billion to $1.5 billion.

To support this effort, Bionano has enlisted key opinion leaders and has employed over 30 medical institutions to conduct more than 20 clinical validation studies in 2019 and 2020, which should drive reimbursement in certain countries. Additionally, over 200 papers have been published since 2017 featuring data generated by the Saphyr system.

Balance Sheet & Analyst Commentary:

The slow launch of its Saphyr system has not only gradually cratered Bionano’s stock price; it has also impacted its balance sheet, which held cash of $8.1 million and debt of $17.0 million on March 31st, 2020. The debt is termed “current” owing to Bionano violating covenants of its loan agreement at YE19, forcing amendments that included $5.0 million of loan repayments by April 30, 2020, of which $2.9 million was paid after the close of the quarter. The balance of principal is due in 24 equal payments commencing in April 2022. The company also received a $1.8 million loan from the Paycheck Protection Program in April 2020.

The loan covenant violation forced Bionano into a significantly dilutive capital raise in April 2020, in which it raised net proceeds of ~$16.4 million through the sale of stock and prefunded warrants at ~$0.32 per, raising the total amount of shares outstanding from 37.8 million to 83.9 million. Additionally, 54.5 million five-year common warrants were issued with a strike of $0.33. The company ended the second quarter with just over $17 million in cash and marketable securities on the balance. The company filed a prospectus for a $125 mixed shelf offering in mid-August. I expect Bionano to raise additional capital before year end. Also, look for Bionano to execute a reverse stock split at some time in 2020.

Considering Bionano’s sub-$1 stock price, it has some support from the three Street analysts who follow it. Each prognosticator rates shares of BNGO a buy with price targets of $1, $1.50, and $2.

Verdict:

Bionano’s technology is top shelf and its new commercial approach to provide potential consumers three options is a smart pivot and should reduce the barriers to adoption, positioning it for substantial revenue growth going forward. It becomes a question whether its top line growth can outstrip the steep rise in its shares outstanding.

This company reminds so much of T2 Biosytems (TTOO) with its potentially best of breed technology, slow acceptance in the marketplace and financing challenges. Given that, it is hard to recommend it as this point in its journey. I do find its technology fascinating and this is a name we will keep on our ‘radar’ and definitely revisit if its ramp up gains traction.

If there is no disparity of opinions there is nothing of value being discussed”― Vineet Raj Kapoor

Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum

Author’s note: I present and update my best small-cap Busted IPO stock ideas only to subscribers of my exclusive marketplace, The Busted IPO Forum. Join our community by clicking on our logo below!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.


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