Good day and welcome to the Bionano Genomics Second Quarter 2019 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Monique Kosse. Please go ahead..

Thank you, Carolyn, and good afternoon, everyone. Welcome to the Bionano Genomics second quarter 2019 financial results conference call. Leading the call today will be Dr. Erik Holmlin, CEO of Bionano, and Mike Ward, Bionano's, Chief Financial Officer.

After market closed today, Bionano issued a press release announcing its financial results for the second quarter 2019. A copy of the release can be found on the Investor Relations page of the company's website.

Before we begin, I would like to remind everyone that certain statements made during this conference call may contain forward-looking statements including statements about our strategic and commercialization plans, 2019 sales pipeline, anticipated benefits of improvements to the Saphyr system and the advantages of the Saphyr system over current technologies, our expectations regarding timing and content of study results and anticipated benefits of these studies and driving adoption of the Saphyr system.

Such forward-looking statements are based upon current expectations and there can be no assurances that the result contemplated in these statements will be realized.

Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in our press release and our other reports filed with the SEC.

These forward-looking statements are based on the information available to Bionano today and the company assumes no obligation to update statements as circumstances change. An audio recording and webcast replay for today’s conference call will also be available online in the investors section of the company’s website.

For the benefit of those who maybe listening to the replay of the archived webcast, this call is held and recorded on August 8, 2019. With that, I'll now turn the call over to Dr. Erik Holmlin.

Erik?.

Thank you, Monique, and good afternoon everyone. I am pleased to have you join us today for an update on our progress this past quarter. With me on the call today is our Chief Financial Officer, Mike Ward, who will review highlights from our second quarter financials.

And after our prepared remarks, we will open the call for a question-and-answer session. Let me begin today with a review of the highlights from our second quarter. Our revenues this quarter came in at $2.2 million reflecting 17% growth over the first quarter of this year.

Given the particularly strong quarter – strong revenues in the second quarter of 2018, which were $3.4 million. We knew coming into this quarter that the year-over-year comparison would be challenging.

However, in addition to the product sales that drove the $2.2 million in revenues this second quarter, we also established four strategic placements for evaluation of Saphyr for various applications including clinical applications in genetic disease and hematologic malignancies.

During these evaluations, the end users are expected to assess the performance of the Saphyr system against various criteria relevant to their applications. If these evaluations are successful, we expect each placement to be converted into a purchase or a lease plus a commitment to purchase specified volumes of consumables.

So while they don't contribute to the revenues reported today, they will – we anticipate that they will in the future. We think it is important to communicate two things regarding these evaluations. First, they're common in the clinical space.

So as we expand our adoption from research, the research community to one that includes clinicians, we are going to expect to see more of these evaluations prior to a purchase decision.

And two, our view of the placements this quarter and the perspective ones we see coming in the future is that they are an important indicator of our success in building awareness of the value of Saphyr for use in research and clinical applications, especially digital Cytogenetics.

Furthermore, when we look at the year-over-year comparison of the number of Saphyr systems shift to customers in the first half of 2019 versus the same period in 2018. In 2019, we grew the number of Saphyr systems shipped by 45%, which is solid year-over-year growth in the base of Saphyr systems in the field. And so, we are happy with that progress.

Our prominence in the scientific literature and at conferences continues to rise. There are now over 500 papers published that cite Bionano technology.

And this past June at the European Human Genetics Conference in Sweden, users presented posters and gave talks describing the advances in understanding genetic disease and cancer that were made possible by the Saphyr system.

We believe strongly that adoption of Saphyr for applications in clinical cytogenetics labs will accelerate beyond the already significant uptake we're seeing once the cytogenetics community has been able to evaluate Saphyr in comparison to the existing methods and publish their results.

We are at the present time easily awaiting results of two significant studies that are underway using the Saphyr system and we expect those studies to confirm that when compared to the traditional methods used in cytogenetics, the Saphyr system provides a streamlined workflow with superior results at a lower cost.

These two studies are evaluating patients for hematologic malignancies and certain rare genetic diseases and comparing those results to the ones that are obtained using the applicable standard of care test. At the ESHG meeting in Sweden, Dr.

Alex Hoischen from Radboud University Medical Center in the Netherlands presented a preliminary report on one of these studies. In his report, he described a 100% concordance with existing tests and highlighted the improvement in workflow with Saphyr and noted that Saphyr found many additional variants and samples that the other methods did not.

The second study is in North America, led by Dr. Brynn Levy at Columbia University and is also underway. We are expecting to receive a preliminary report from this study next week at the Cancer Genomics Consortium in Nashville and we all have every reason to believe it's progressing smoothly.

Once these results are published, we believe the papers will clear the path to uptake by clinical cytogenetics labs adding an additional growth factor to Saphyr adoption.

In addition to our efforts in market development, we continue to prioritize enhancements to the Saphyr system to make it easier to use faster and more powerful for applications, especially in clinical lab.

In the second quarter of this year, we have released a comprehensive update to our data analysis solutions that enables users, particularly in oncology to detect rare variants in a sample.

It's often the case that the pathogenic variant that – is driving disease may be present in a small fraction of cells and the Saphyr system is now able to detect them in as low as 5% allele fraction with very high sensitivity.

We also launched important advances to our workflow tied to the extraction of DNA from samples; the new kit called Bionano Prep SP simplifies the process and makes it amenable to automation, which speeds the process up, allowing for more samples per day to be processed.

We currently believe that our efforts on the scientific front in addition to our system enhancements and our concerted efforts to raise awareness with our direct sales and marketing efforts will allow us to achieve meaningful revenue growth in the research market.

We also remain optimistic that the study is ongoing in the clinical laboratory community will demonstrate that the digital cytogenetic workflow based on Saphyr is superior to existing methods and will be another key contributor to our revenue growth.

Finally, I would like to add that we continue to strengthen the leadership of Bionano with the appointment this quarter of Dr. Kristiina Vuori to our Board of Directors. Dr. Vuori is President and Member of the Board of Trustees of the Sanford Burnham Prebys Medical Institute here in San Diego. Dr.

Vuori is an exceptional scientist and leader, who has driven cutting edge research to further advance our fundamental understanding of cancer and translate that understanding into actionable solutions in the clinic. We believe that Dr.

Vuori’s experience in biomedical research and translational medicine in cancer in particular, together with her experience leading a large non-profit research organization will be invaluable for helping us to drive our vision forward. With that summary, it is my pleasure to turn the call over to Mike for an update on our financials.

Mike?.

Thank you, Erik, and good afternoon everyone. I will now briefly review some of the highlights from our second quarter 2019 financials. As Erik mentioned during the second quarter, Bionano recorded total revenue of $2.2 million compared to $1.9 million last quarter and $3.4 million in the second quarter of 2018.

This year's second quarter revenue compared to 2018 was impacted by lower contributions from Asia and Europe. U.S. demand remains strong as we see our sales and marketing efforts gaining traction.

Regardless of the geography, however, our business is very seasonal with revenues in the second half of the year, traditionally being significantly higher than the first half. Total cost of revenue decreased by approximately $250,000 or 14% to $1.6 million for the three months ended June 30, 2019, compared to $1.8 million for the same period in 2018.

The decrease was predominantly due to a reduction in both instruments and consumables sales. Second quarter 2019 operating expenses were $7.5 million compared to $5.6 million for the same period in 2018.

The increase was primarily due to SG&A expense, which increased as a result of operating as a public company now as well as the addition of sales and marketing professionals and support personnel to assist with the growth of our worldwide commercial footprint. Finally, as of June 30, our cash balance was $15.3 million. Thank you.

I will now turn it back over to Erik before going into Q&A..

Thank you, Mike.

As I mentioned earlier, we are pleased with the progress and interests we are seeing in our products and optimistic that our continued execution will keep building demand/ And some of the things you can expect to see from us throughout the year include a continued focus on global commercial expansion, improvements to the Saphyr system and execution on our strategy for market development and in particular the ongoing support of studies that demonstrate the equivalency of Saphyr to existing cytogenetic methods and an improvement in the workflows overall.

With that, I will open up the call for Q&A.

Operator?.

Thank you. [Operator Instructions] And we'll go first to Jason McCarthy with Maxim Group..

Hey guys, this is Joanne Lee on for Jason McCarthy. Thanks for taking the question and congratulations on the progress. So, first, I'd like to know if you could point to some of the specific studies that have already been published or are ongoing that are particularly important for driving adoption for Saphyr..

Sure. Thank you, Joanne. I would really want to emphasize two that are ongoing. One is based here in North America. It's led by Dr. Brynn Levy at Columbia University and has an affiliation at New York Presbyterian Hospital.

And he has recruited five additional sites across the United States to develop and execute an IRB approved study that will compare the Bionano Saphyr against traditional workflows and cytogenetics and hematologic malignancies and genetic disorders. The focus initially is on AML.

And the evaluation is a comparison side by side against the traditional methods with the expected end point being equivalency on performance, but superiority in workflow due to the consolidation of multiple testing modalities into one being the Saphyr system. And so, that study is underway. IRB has approved, patients are being enrolled.

And we are expecting Dr. Levy to provide preliminary update on some of the initial patients that have been evaluated as part of this study next week actually at an industry meeting in Nashville, the Cancer Genomics Consortium. That's the first study based in North America. The second study is ongoing in Europe. It's led by Dr.

Alex Hoischen, who is a researcher and clinician at Radboud University Medical Center in the Netherlands. And similar to the study in North America, the comparison is against traditional methods in cytogenetics. And the indications that are being evaluated are hematologic malignancies and genetic disorders. And Dr.

Hoischen has given a preliminary update on about a third of the patients that have been evaluated and in his update he described Saphyr as demonstrating 100% concordance with the existing methods, of course, with the advantage of having a streamline workflow and the further advantage of discovering novel variants in those samples that had not been reported by other methods.

And what's so important about seeing these incremental genomic variations that they may add additional ability to manage patients more effectively than the existing workflows do.

So Saphyr is not only more efficient from a workflow perspective, which is highly desirable throughout these labs, who are working with fairly cumbersome and antiquated methods, but it adds incremental information that could improve outcomes for patients in the long run.

And so, these studies are underway and we expect them to conclude towards the end of this year and that the papers will be written and published early next year..

Great. Thank you for that.

Secondly, could you also discuss some of the differences in how Saphyr could be applied into research market as a complement of sequencing methods versus the digital cytogenetics?.

Sure. I think that that the way to think about the two segments is that in the clinical space, we're seeking to have Saphyr displaced an incumbent technology.

And so, the go-to market strategy there is to make the side by side comparisons and illustrate operational efficiency and improvement that Saphyr provides along with the potential incremental clinical value. And so, the studies are underway to demonstrate that value.

On the research side, we're not really displacing any incumbent technology since there really is no platform that has the remarkable and unique capabilities that Saphyr system has to discover structural variations ranging in size from 500 base pairs to no upper limit.

Saphyr is the only system capable of that level of sensitivity as the kinds of speeds and costs that Saphyr provides. And so, our go-to market strategy and research is to demonstrate the complementarity that Saphyr brings.

You can use sequencing to discover and identify variants that are small and Saphyr to discover and identify variants that are large. And it's very clear that adding additional information into these studies will increase the chances of better discoveries. And those discoveries may take the form of diagnostic biomarkers.

And we've seen examples where combinations of short read sequencing and Saphyr data improved the results for patients or in a discovery setting where they indicate the presence of novel pathogenic variants that otherwise would not have been seen.

And the combination of sequencing and Saphyr data together provide a much more comprehensive answer for all of the studies that are ongoing in research where the applications of genomics is fundamentally to discover drivers of disease.

And so, Saphyr is a complementary platform and we're not seeking to displace any existing incumbent within the research community..

Great, thank you very much..

[Operator Instructions] And we have no further questions at this time. I'll turn things back over to management..

Very good. Well, thank you all for joining today. And we are pleased to provide you this update on our ongoing progress and we look forward to speaking to you again in one quarter’s time..

Thank you..

And that does conclude today's conference call. Thank you everyone for your participation. You may now disconnect..