Greetings. And welcome to Bionano Genomics First Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Monique Kosse. Please go ahead..

Thank you, Operator, and good afternoon, everyone. Welcome to the Bionano Genomics first quarter financial results conference call. Leading the call today will be Dr. Erik Holmlin, CEO of Bionano. After the market closed today, Bionano issued a press release announcing its financial results for the first quarter 2020.

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, including statements about our strategic and commercialization plans, 2020 sales pipeline, anticipated benefits of improvements to the Saphyr system, the advantages of the Saphyr system over current technologies, our expectations regarding timing and content of study results and anticipated benefits of these studies in driving adoption of software system.

Such forward-looking statements are based upon current expectations and there can be no assurances that the results 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 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 may be listening to the replay or archived webcast, this call is being held and recorded on June 18, 2020. With that, I will turn the call over to Erik Holmlin. Erik, please go ahead..

Very good. Thank you, Monique, and good afternoon, everyone.

I’m very pleased to have you join us today for this review of our first quarter financial results, which will include an update on progress in a number of areas, especially what we’re up to in educating our markets on the utility of Bionano data and the progress we’re seeing in different groups who are validating our Saphyr system as one they can replace multiple traditional genome analysis methods that are currently used in a clinical setting with a single higher resolution assay that we believe is better for labs.

It’s better for clinicians. It’s better for patients because it’s easier to perform. It requires less labor. It’s faster than existing methods and it provides much more extensive information.

I’m also going to outline some of the impact that we’ve seen from COVID-19 on our business and provide an outlook for this -- the second quarter that we’re in now and the remainder of the year. I want to say that I really appreciate everyone’s patience we use the opportunity that the SEC provided to extend the timing of our first quarter report out.

And as you know, we did put some numbers out and I will reiterate those here today. But as I go through the information, I’m going to try to re-establish a baseline for everybody so that they know what we’re focused on.

I will go through some of the numbers and basically providing a summary of a number of factors that includes some year-to-date progress in different areas.

And I want to begin by reminding folks of something that we introduced at the beginning of the year and we talked about in our fourth quarter earnings call, and that is that this year we really transform the way we go to market with Saphyr. Our focus was to make it easier than ever for clinicians and researchers to get their hands on Bionano data.

And our goal in this process has been to really substantially increase the understanding in the market of the value and utility that Bionano data have. And we believe that if we are successful in increasing this understanding that future adoption of our Saphyr system will accelerate that more and more consumables will be used.

And these two things together will be drivers of revenue growth. And so customers can now submit samples to a commercial services lab in our headquarters in San Diego or to one of our service -- certified service providers.

We have a couple in the United States, we have some in Europe and we have others in China including Novogene, which is up and running as a service provider.

And these are fee-for-service arrangements and so instead of a customer having to acquire an entire system to work with Bionano data they can send a few samples in and get it -- get the data back quickly and we believe that this approach is the fastest way for these labs to experience our unique and powerful data type to see how game changing it can be and drive really powerful breakthroughs in their research and understand how it will simplify their workflows for clinical analysis.

So customers who are currently using this system will understand this value and we believe that that will lead them to eventually bring the Saphyr system in house, so it’s a way to accelerate that Saphyr adoption for anybody who has decided that they want to bring the Saphyr system in house, we now have a few different options for them and so they can acquire this system for as little as $150,000 and we’ve been able to do a lot of value engineering in the way in which we manufacture that product.

Our average selling prices over the last couple of years have been higher, but that represents a barrier for sites to adopt the system and so by improving our own manufacturing costs, we’ve been able to pass some of that savings along to customers and so they can acquire the system for as little as $150,000.

And we’ve also introduced a program that allows them to lease the Saphyr system by making a commitment to purchasing consumables the minimum commitment they would make would be to analyze 100 genomes in a six month period, they would pay $550 per genome in that arrangement, which means that for $66,000 they can have a Saphyr system in their lab over six months and then that program is renewable indefinitely.

And customers who own the Saphyr can get consumables for as little as $450 per sample and this really changes the game in the way in which your prospective customers and folks are looking at bringing Bionano data into their work, because in the past, they would be facing something like a $250,000 commitment to bring Saphyr on Board and now it’s as low as $650 for a single sample to run the service and $66,000 to rent the system for six months and $150,000 to purchase it.

And so these programs have dramatically reduced the barrier to adoption and this is something that we believe has been an impediment to faster adoption. And once labs are experiencing the data through a service, running samples on a Saphyr that they have purchased or rented, the data that they collect can be published more quickly.

Those publications in turn expand the awareness of Bionano and the value and we think in turn will contribute to higher demand and greater adoption of the system and revenue growth, which is something that eventually is going to be a key factor for this company.

Right now what we are focused on is really driving that adoption, getting folks to be subscribers of Bionano data. And what we can tell you is that the response to our reagent rental program has been tremendous in all geographies, multiple sites have gotten in line to begin to rent that system and bring it into their labs.

The services option has also been met with great interest. Projects have already been in discussion. And in some cases, where labs have experienced a shutdown as a result of COVID, they can’t access their existing Saphyr, but they’ve been able to send samples to us.

And so what -- when you look at the number of customer samples we’ve already processed year-to-date in 2020, it actually exceeds the number that we did for all of 2019.

And so we’re very pleased with the way in which this new go-to-market approach has been met tremendous enthusiasm, and of course, all this is taking place with the backdrop of COVID and the complications there. And so, that situation has certainly hampered our ability to progress as significantly as we want on all fronts.

But I can tell you that, the response to these programs has been very positive. And so among the sites have committed to Saphyr adoption are some notable ones.

Folks know that we’ve been working with MD Anderson Cancer Center for a while and we have a program there in which a validation study is underway to look at myelodysplastic syndrome and MD Anderson Cancer Center has recently committed to purchasing a second system.

This one will go in their genomic core facility and that’s going to provide access to Saphyr for their entire research community in what should be regarded as the world’s leading center for clinical cancer research and that system is going to ship to MD Anderson next week. Augusta University in Georgia adopted a system.

They made a commitment to analyze 240 genomes and so we placed the system there. Their plan is to develop a laboratory developed tests that they will run for comprehensive cancer genome analysis.

And they have now become one of the world’s leading sites running a consortium to look at genomics of COVID-19 disease progression and severity, and this is something I’ll go into a little bit more detail later on. So that’s a significant adoption.

And other reagent rental programs that have been undertaken include the one that we announced for the National Health System in the U.K. at King’s College in London. That goes alongside another NHS site in Lothian, Scotland.

The University of Basel in Switzerland has committed to a reagent rental program as has the Catholic University in Leuven in Belgium.

And all of these sites have started to validate their Saphyr system as replacements for the traditional methods in cytogenetics and there are many others that are in the process of being finalized and we will expect to keep you abreast of those adoptions as they come through.

Another notable site is the diagnostic company GeneDx, which adopted a second system to speed up their development of clinical assay on Saphyr as laboratory developed tests. They’re planning to launch their first such assay this year. And Quest agreed to evaluation program just before they became the country’s top COVID testing site.

They have not begun that program yet but they are beginning to see the resources that have been taken away from that and focus on COVID testing to start to free up. We don’t have a timeline for when that program will begin. But they have informed us that they remain committed and so we hope that it starts soon.

And those are just some of the notable sites that we are working within the context of this new go-to-market program, which appears to be very successful. Now regarding the detailed breakdown of commercial results, through the first quarter, we shipped five instruments to customers versus six in the first quarter of 2019.

Now that brings the net total number of Saphyr instruments that we shipped since its launch through March 31st to 116, 83 of those 116 have been installed and undergone a qualification at users sites.

And when we look at the fact that we shipped one fewer Saphyr in the first quarter of this year versus the first quarter last year, that certainly reflects the impact of the global shut down due to Coronavirus, because we have had sites that have committed, but had to put their shipments on hold.

And so, all-in-all, we felt like it was a good quarter with regard to expanding the number of sites that are taking on the Saphyr system. Now year-to-date in our services programs, we’ve received 42 projects and run 416 samples.

And that, as I mentioned, is a significant improvement over 2019, when we ran 38 projects and 212 samples over the course of the entire year.

And this increase in projects and samples reflects our active marketing of the services offering and it also reflects the fact that some customers are seeking a services offering during the COVID shut down, because they’re unable to operate their labs.

And so I think it’s been very timely that we’ve opened up our commercial offering to include this fee-for-services option. Now something that is significant and I want to underscore is the consumables that were sold on a per sample basis.

And so, in the first quarter of 2019, the number of consumables, which we measure on a per sample basis were up 46% compared to the number of consumables sold on a per sample basis in 2019.

So, again, this is really important, because we are focused on getting sites that have Saphyr to use them and so this increase in consumable sales is consistent with that emphasis.

And the reason that consumables utilization is important is, obviously, it’s a source of revenues and future profits for the companies, because the profit margins on consumables are significant.

But in the short-term, the more consumables that are purchased and utilized means more Bionano data are generated, the more Bionano data that are generated means more information about our system and its value get out into the market and so we’re very pleased to see that kind of increase.

And we have an expectation of similar year-over-year growth when we look at the second quarter of 2020 compared to the second quarter of 2019. Now revenues were $1.1 million, which was comprised $534,000 or 47% in instruments sales, $449,000 or 39% in consumable sales and $154,000 or 14% in services sales.

This was for the first quarter ending March 31st. And if we compare that to revenues for the first quarter of 2019, those were $1.8 million. So we did see a year-over-year decrease. I think it’s important to point out that, certainly some of the macro factors contributed to that. But in addition, what we’ve seen is a shift in our approach to the market.

So, some of these leases cause those revenues to be extended out. The total cost of revenues decreased by $300,000 or 25% to $900,000 for the three months ending March 31st and that’s compared to $1.1 million for the same period in 2019.

And as I mentioned, this reduction in revenue is certainly connected and primarily connected to the impact of COVID, but it reflects these fewer systems that have been shipped out. And certainly, it also reflects the fact that in the first quarter of 2019 we actually sold six systems.

In 2020, five systems were shipped, but only three of them were sold and two of them were tied to consumables commitments. Now the trade-off in this type of transition in product mix sold versus leased systems is that revenues up front are lower and revenues combined with chips consumption will extend over time.

And then we believe that this latter approach where chip consumption is encouraged and encouraged over time is better, because that’s going to drive more data into the market, increasing awareness and increasing understanding and demand for Bionano data and Saphyr system.

Now I want to make one final announcement regarding commercial execution and that is that effective Friday, June 19th, our Chief Commercial Officer, Warren Robinson will be leaving Bionano to pursue other opportunities. Warren has led our commercial teams well and we wish him the best in the future.

Beginning on Monday, our regional leaders in Europe, Stan Morine [ph] and in North America, Sam Crawford will report directly to me. Our Head of Marketing and Scientific Affairs, Dr. Sven Bocklandt will report to me and Dr. Goran Pljevaljcic will also report to me.

Our China leader, Gloria Li will report to Yvonne [ph] who has already been leading international distribution for the company for three years.

The flattening of our organization is expected to help us streamline our efforts to drive the strategies that we’re implementing that we believe will result in better understanding of Bionano data and higher revenue growth and return. So I now want to turn to an update on our work in COVID-19 research.

This global pandemic including the shutdown of research labs and reallocation of staff from research in cytogenetics to COVID testing has been a challenge for us and that challenge has continued certainly past the first quarter and even growing stronger in the second quarter, we are seeing an easing now.

But the upside for us is the rapid response globally and the research for a solution to the virus, which can benefit from the type that -- of information that only Bionano’s Saphyr system can provide.

We are actively partnering with clinicians and researchers who are using Saphyr in their COVID-19 research as they search for answers to critical questions like, why do patients with similar risk profiles exhibit very different responses to COVID-19 infection? If those answers lie in structural variation of the genome, we believe Saphyr is going to be ideal for identifying them.

And that possibility exists that there’s a structural variation signature that can be used to guide patient management in the future. And so in support of these efforts, we’re a part of three major initiatives across the globe, that are really only just getting started. And the first one I want to mention is a consortium.

It’s called the COVID-19 Host Genome Structural Variation Consortium. It’s led by Dr. Ravi Kolhe at Augusta University and they’re looking for structural variants in or near genes that play a role in the response to infection and can explain a large amount of the variation that we see in disease, severity and progression.

The initiative was launched at Augusta and the goal is to evaluate at least 1,000 patients. It’s at the very beginning.

About 40 samples have been analyzed with Saphyr so far and the initial data I’m happy to say show promising leads where a large amount of structural variation has been detected by Saphyr in known COVID response associated genes and these data are at the very early stage, but they provide the impetus for multiple sites around the country to sign up and be a part of this study, so we can really run down these leads.

In China, as we have announced, we’re part of a study group that has a clinical site in Wuhan, as well as access to samples now in Shanghai.

That study has been tightly controlled or at least access to samples and that study has been tightly controlled by local governments and our study partners are working out the logistics of getting those samples into their labs.

Our work with the Shanghai Public Health Clinical Center is going to make those samples available sooner than the ones that are waiting for us in Wuhan. But I want to stress that processing is going to begin soon.

And these studies are critically important in China and we believe that they will be a source of significant use of the Saphyr system and demonstration of its power and that those programs will drive future adoption. In Germany we’re also part of a large effort led by the University of Hannover.

There they are analyzing the genomes of COVID patients in a similar fashion, and for that study, Amazon, Microsoft and Google have all donated computational resources to accelerate data analysis. Patient enrollment in Hannover is progressing and data and sample processing has begun there as well.

And the initial goal of that study is also to analyze about 1,000 patients, and importantly, they’re going to be using multiple tools, not just Saphyr and so we expect to be able to see the comparative value of each technology in analyzing the genomes of COVID-19 patients.

Now, lastly, I would like to provide an update on the variety of activities that are ongoing to validate Saphyr as a replacement for the traditional cytogenetic and genetic disease testing technologies like karyotyping, FISH, microarrays and Southern blot. These technologies are used in approximately 2,500 labs worldwide.

They test between 1 million and 2 million samples per year for multiple indications. And lab directors running these technologies are nearly all seeking a platform they can use to convert these three or four separate assays into one single asset.

And we believe that Saphyr will fit that bill and so Saphyr can be shown to be equivalent or better than these technologies but all in a single day, we expect that these 2,500 labs would see a cost benefit and better data alternative to their existing technologies and that that would motivate them to adopt Saphyr.

So that’s why we’ve been so focused on these validation studies and talking about them. And so the first one I want to mention is the one that has been conducted by a group in the Netherlands at the Radboud University Medical Center.

They published their results on a study of 48 leukemia patients analyze with Saphyr compared to standard cytogenetic methods. They showed 100% concordance in all sample with the existing methods and so that underscores the idea that they can replace those traditional methods with Saphyr.

And this paper, which was published earlier this year, is the first one to ever show that there’s a technology that’s capable of replacing and consolidating those different assays.

Another group Hospital Cochin in Paris is leading a study in constitutional genetics, Radboud is part of that as our other sites in France and their initial study has been completed. There’ll be presenting a webinar this Friday, June 26th.

And their paper on this initial study and those results, which showed again 100% concordance with traditional methods will be submitted for publication by June 30th. And Columbia University has been leading a consortium of cytogeneticists and they have now processed over 90 AML samples as part of a hematologic malignancy study.

And that builds their knowledge base and comfort with our system and in their webinar, which was recently hosted by the Cancer Genomics Consortium. They also reported 100% concordance with the gold standard methods in cytogenetics. Publication of that study is accepted soon.

We’re hoping it will be published in July, but as we all know, publication timelines can be uncertain. Dr.

Rashmi Kanagal-Shamanna from MD Anderson has given an update also during the Cancer Genomics Consortium webinar showing 100% concordance between Saphyr and standard methods in 13 patients as part of a myelodysplastic syndrome or MDS study that she has conducted.

Her program is much more ambitious and expects to go well beyond those initial samples, but it’s been interrupted by COVID. Nevertheless, her initial data set is so exciting that she plans to publish her work in bio archives. We expect that to be submitted in the next few weeks as well.

University of Iowa has completed their development of a laboratory test for FSHD, a leading cause of muscular dystrophy and they’ve announced the commercial launch of that test. They joined PerkinElmer as now the second site in North America in offering a commercial diagnostic tests based on Saphyr.

And two leading European sites MVZ in Germany, which is a leading hematologic malignancy testing site and Radboud, the University Medical Center have also announced that they will put Saphyr into clinical use later this year based on their successful validation studies.

It’s important to note that MVZ also announced that they were getting Saphyr accredited for clinical use under the German regulatory system, which will allow it to be used more broadly in the country and be reimbursed in the U.S. Other work with reimbursement programs are underway.

So that labs will be able to use CPT codes or PLA codes in order for them to be reimbursed for testing that they conduct on that system.

And so one of the reasons that we’re so focused on these validation studies is that cytogenetics labs rely on these published validation studies as a key argument in justifying to their administration’s their interest in adopting the system and so these studies are starting to get completed and published.

More and more publications will come out this year and that’s going to be a key driver of future adoption and reimbursement for testing in the different sites that are running the system.

Regarding other financial metrics, operating expenses for the three months ended March 31st increased by $3.1 million to $10 million, compared to $6.9 million last year.

The increase was related to higher G&A expense due to additional headcount in our selling and marketing teams, but we also had a bad debt expense of nearly $1 million which we recorded and that was in connection to receivables that had age beyond a certain amount of time and we eventually deem them to be uncollectible and that’s connected in large part to COVID driven factors that has impacted those particular customers.

Our cash balance as of March 31st was $8.1 million. We completed a public offering in April, which grows $18 million through debt retirement of $2.1 million in March and $2.9 million in April in total of $5 million of our outstanding debt was retired and we believe that we have cash to last us through the end of the year.

We took steps since the shutdown to conserve cash. We implemented a 50% temporary salary reduction for senior executives and for most of our employees throughout the world. And we believe that those efforts in addition to the funding that we received earlier in the year give us a solid cash runway.

And I want to thank all of our shareholders for their participation in our proxy process.

I would draw their attention to the materials -- all the materials that are on file, including the one that was on file yesterday that gives our Board up to 12 months now to evaluate the need to implement a reverse stock split and only implement that in the event that our stock does not regain compliance during that period and so I really appreciate their participation and they should focus on those filed -- the proxy filings that are in place.

In closing, I want to say that we are definitely seeing easing of restrictions in our markets. Lab techs and scientists and clinicians are returning to work. We are optimistic that the easing will translate to an improvement in our business.

The timing of a return to normal business depends upon a return to normal business for our customers and so we work hand in hand with them and -- in monitoring that transition and I’m extremely proud of our team, which has universally risen to this challenge of operating remotely, conducting conferences and trade shows through various virtual formats and really focusing on driving the message of Bionano value.

And so I appreciate everybody listening to this significant update. We covered a lot of material, but there’s a lot of great stuff to talk about and we’re certainly very excited about where we’re at today and we know we have a lot of work ahead of us to continue to turn things on in 2020. And with that, I will open up the call for Q&A.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Kevin DeGeeter with Oppenheimer. Please go ahead..

Hey. Thanks for taking my questions. Erik, really appreciate the update, a lot of positive trends going on. I guess a few questions for me. First, with some of the capital funding that might be available to certain hospitals and labs through the CARES Act.

Are you seeing any change in customer appetite for capital versus raise your rent on Saphyr?.

Well, what I would say is that, we’re seeing a mix and we have certainly seen customers seeking our support of their process to apply for these types of funds for capital purchase. So there are new funds available. They’re using Saphyr as one of the examples of technology they want to use to put that capital to work.

At the same time, though, because of the attractiveness of the reagent rental program. We see a tremendous response there and we have quite a few of sites that are evaluating that program and taking it under consideration..

Great. That’s very helpful. And then, with regard to adoption for cytogenetics in Europe, which is pretty variable country by country in terms of the reimbursement landscape.

Can you give us your perception or understanding of what level of clinical validation will be necessary to drive reimbursement in key markets such as, Germany and France, and you’ve got a lot of activity in Netherlands as well and some of the differences perhaps relative to the U.S.

reimbursement models?.

Yeah. I actually see that it’s a much more straightforward process in Europe and it does vary country by country. But because these systems tend to be single payer systems, there are much more transparent approaches to gaining reimbursement.

And in most cases, the Saphyr system in its approach can be used under the same programs with the same amounts of reimbursement. And most of these sites and countries are viewing that as being economically favorable for them when they transition to Saphyr..

Great. Then maybe there is one more for me then I’ll get back in the queue and that is in your learnings we’ve been struck by, we’ve now seen really interesting cytogenetics validation data from at least for well respected labs always somewhat similar performance admittedly have a slightly different patient types.

So from a proof-of-concept basis that’s a really interesting trend.

My question is, given that sort of consistency of profile, do you think it’s appropriate to explore funding sources for a larger validation study, perhaps in a more unified structure, that might improve the visibility of the cytogenetics performance or do you think the work from some of these leading labs and upon being published will be enough to change behavior with what looks like pretty consistent data across the multiple datasets?.

Yeah. So it’s sort of sum of both. The results that are coming out and the Columbia study 90 AML patients is starting to be pretty significant. And it’s -- because we’re looking at indications and comparing to existing gold standards, larger studies are not necessarily required. We’re not validating a multi-marker biomarker signature for example.

And so, sample sizes that 100 sample ranges are definitely adequate. And so I think that these initial studies and we need more in each geography, but that -- those data are going to are going to be coming. So I think that those studies are going to drive more and more sites to adopt.

But really to get those would be sort of leading adopters, right? So, some of the more cutting edge sites will move on the basis of those, as you call them proof-of-concept studies, we will need bigger studies and future studies will also need to be covering broader indications.

The hope that we have and certainly the expectation is that, the company will not need to fund those studies.

In fact, almost all, not all the studies have been completed to-date, but almost all of them have not been funded by the company and these bigger ones will be funded at least significantly to a significant part by the community and so we champion those as examples of utility and pull-through on our systems.

But I think what we’re going to want to see is larger studies, and importantly, in more, more indications, so AML, ALL, CML, CLL. And so it may not just be -- it may not be that we’re going to do 1000 AML patients next, but we’re going to do 100 in multiple hematologic malignancy indications, for example..

No. That makes a lot of sense. Thanks so much for taking my questions..

Yeah..

Our next question comes from Scott Henry with ROTH Capital. Please go ahead..

Thank you and good afternoon. I’ve got a couple questions. Firstly, did you give a mix of revenues between instruments and consumables? I wasn’t sure if I missed that..

I did. I did. And it’s going to be in the press release and it was $534,000 in instruments, $449,000 in consumables and $154,000 in services and others for a total of $1.1 million through March 31st..

Great. That’s helpful. And I guess, you -- I appreciate the as [ph] disclosure, I think, you’re starting to give a Saphyr unit, a current quarter and prior quarter. Could you give those for Q2 and Q3 the units place to so we can have an apples-to-apples comparison, I don’t know if you have that readily available or not..

I’m sorry, Q2 and Q3..

Of 2019, just for the….

Of 2019..

I believe you gave us Q4 on the last quarter..

Right. Right. So I’ll have to look at that. Scott, I don’t have it in front of me right now..

Fair enough. A couple other questions. In the press release, you talk about shipping 116 instruments, of which 83 have been installed. That seems like a pretty significant discrepancy. I think 33 units have been shipped but not installed, which is 30% of the base.

What do you think that is? What would you attribute that to?.

Well, so, let’s look, historically, a little bit because we had 100 and I think 110 or 111 systems shipped through December 31st and I think the number was 71 systems installed. And so we have narrowed the gap this quarter even in the difficult time. So we got some stuff installed before the shutdown hit.

So we did narrow the gap by about five or six systems. And we always expect to have a lag and one of the reason is that some of the systems that we count as shipped are examples of upgrades and so maybe we shipped an upgraded system out and changed out a system that’s in the field and so that might count.

But also we have sites that will commit to the system, take the shipment and then they need to organize their lab and buy lab equipment. So there is always a lag and sometimes that lag can be as much as three months before installation happens..

Okay. It seems lot. It seems like such a high cost item. If you want it you would install it right away. But, okay, that’s fair enough. I guess I’ll just track that quarter-to-quarter..

Yeah. Let me just comment on your comment because….

Yeah..

And I think that because when we saved up to buy that new car, we want to drive it that like night. And certainly our customers feel that way, but oftentimes this is one part of the overall program and it can be the trickiest part. So they focused on getting that nailed down first. And once that’s locked in, they build the other elements.

Sometimes that means hiring people or training people or bringing in other lab equipment that is complimentary, maybe not as expensive and so it’s actually not, A, uncommon, or B, illogical..

Okay. I appreciate that color, Erik. Shifting gears though.

The announcement on University of Iowa Hospitals and Clinics, certainly promising, could you tell, how big is that contract? How many kind of tests per year do you think they would do, just still exists?.

Meaning in their case, they have made a commitment to analyze a few hundred genomes in the first year.

And the system has the capacity to expand beyond that and we would expect them to grow beyond just the sort of low single-digit hundreds into the mid hundreds of samples and that that’s the type of per system productivity you can expect out of a clinical testing center like that..

Okay. Great. And if I could just shift over to the model, just getting a sense on SG&A a trend, I think it was about $7.4 million call it, but minus $1 million for the bad debt expense is $6.4 million. That still seems like pretty high number.

Should I expect that to come down in Q2, particularly since sounds like there are a couple of less bodies around there and there was the pay cuts people took? What’s kind of the -- how should we think of what’s kind of the new normal for SG&A and I think as well there’s less travel.

I would think that number would be coming down and I’m just curious if I am….

Yes. So there are a handful of things. I mean, some of the rationalization of salaries is really going to hit later, but, yeah, big time, SG&A is plotlines. I mean, we haven’t been to any conferences. We’re calling customers on the phone and doing Zoom meetings.

We’re not sitting on airplanes and so there’s going to be, I think, notable savings in those areas for the second quarter, which aren’t really reflected in the first quarter..

Okay. And I mean, I guess, I don’t know if we talked about it. So I was jumping around on a couple things. But how do you think about 2Q, obviously, right in the middle of COVID-19, Q2 relative to Q1, clearly a lot of extracurricular stuff going on.

How should we think about that quarter since we are two and a half months through it already?.

Yeah. I think it’s going to look similar to the first quarter in most respects. Our systems that are installed, they’re starting to use more. We are seeing here at the back end of the quarter some easing that is allowing us to receive orders and ship against them.

But it’s going to be a similar quarter to what we saw in the first quarter here in the second quarter..

Okay. And then final question, obviously with the lower revenues right now and the new kind of business model lease versus sale, that has an impact on gross margins, which came down in Q1.

But how should we think, I mean, with Q1 get a little tougher than normal? Should we see some improvement the rest of the year or should we expect them to be lower, maybe not this low, but just how -- just trying to get a sense of how….

That’s right. I mean, I think….

…about gross margin?.

I think that, I mean, we just do have a reset around how we’re marketing and one of the things important to pay attention to is kind of as we incentivize customers to make larger commitments to consumables by giving them volume pricing, that there’s -- and that volume adds up will benefit, right? So our production volumes will go up and there will be a cost reduction that comes as a result of that but not at the same time, right? So the higher volume comes after we sold.

The chips that we produced at higher costs, so I do think it’s reasonable to have an expectation for margins to improve that, but we are also seeing a little bit of a reset. I think it’s early to focus on exactly what that number is right now other than the fact that it’s hopefully kind of a low watermark..

Okay. Great. Thank you for taking the question..

Thanks, Scott..

Next question comes from Jason McCarthy with Maxim Group. Please go ahead..

Hey, guys. This is Mike Okunewitch on for Jason. Thanks for taking my questions. And so -- my first one, I’d like to touch on the COVID study. You mentioned that you’re starting to get some samples done. They’re starting to get some initial data.

And so, as COVID-19 is starting to kind of wane in the public eye, without mentioning whether there’s going to be a second wave or if we can test the first one.

I’d like to see if, as you get data from the COVID-19 research, does that potentially open up another avenue, another fields drive adoption of Saphyr in determining susceptibility for other infectious diseases more broadly?.

Sure. I think that’s reasonable. But the focused on COVID within the medical and genetic and genomic research communities is only going to continue to increase. Scientists are shifting their careers away from some areas toward the study of COVID genetics.

I also agree with you though that this is not only an example of a line of research that’s relevant to COVID, but how other infectious diseases are driving an immune response in patients is already known to have an effect as a result of genomic variants and sub-structural variation is known to be protective in some cases and deleterious in others.

And so this can be a whole new field, but with regard to Bionano, I want to say very strongly that, this is a new area of keen applied interest. And I would think that for all of the companies that you’re looking at that have some COVID related value that it’s going to be something that will support them for a while..

All right. Thank you. And then shifting gears a bit over, the past year you guys have presented a fair bit of data from top labs demonstrating that Saphyr has 100% concordance with really gold standard cytogenetic method.

I’d like to see if as this data has been released and gotten out there, have you noticed an increase in interest from the cytogenetics market segment or, as you know, the COVID effect kind of obscured the impact of that research?.

Well, so, if you stop the question at have you seen an increased interest in cytogenetics as a result of these data? The answer is absolutely. We have announced the sites that have committed to coming on Board.

One example that just comes to mind is part of the National Health System in the U.K., King’s College in London, and I mean, their motivation is based on what they see in the market and what they hear about these data and multiple sites are examples of that.

I think through our discussions, there are 11 different sites that really started engaging and coming on Board just since the announcement of the adoption of the system by PerkinElmer and really the first comprehensive update from the Radboud University Medical Center. And so as the data continue to come out, the interest goes up.

Now, it’s a layer on the whole COVID effect. Who knows, I mean, so should we say that this tremendous interest that we see could have been greater that it’s potentially muted by COVID, that’s possible. COVID has definitely disrupted labs, scientists and their ability to look at things.

On the other hand, many cytogeneticists have been sent home and that has given them the opportunity to look around and see what’s out there. So maybe COVID is help, maybe COVID is hurt. But the answer to your question is we’ve seen tremendous opening of interest as a result of this relative trickle of data that have come out.

And so as those data continue to come out more and more, what we believe and we’re very hopeful, and of course, markets are markets, but we have an expectation that this is the beginning of more and more adoption throughout cytogenetics..

All right. Thanks very much for taking my questions..

Next question comes from Kevin DeGeeter with Oppenheimer. Please go ahead..

Hi, Erik. Can you give us the current headcount or just configuration of the commercial organization and as you think about the most relevant metric for evaluating sales force productivity, as well -- as these labs begin to reopen.

What would you guide as far as our leaders towards in terms of the most productive metrics of future demand?.

Yeah. So, yeah, I would tell you to -- we have -- if we look at sales and marketing, just as an example, because sometimes we combine the customer support, field applications and so forth in that commercial headcount. But we’re right around 18 to 20 in sales and marketing.

If you add in the field applications and field support organizations that number goes up, and so, you probably 25 overall in sales and marketing, and another 25 in our customer solutions department..

Great. And then as we think about productivity metrics, I think, that’s an area you serve across the industry where there’s clearly an evolutions number of the metrics we use six months ago probably are not going to be the most relevant ones for the next six months.

Yeah, how do you sort of evaluate that and you sort of, I recognize, yeah, you’re not yet prepared to provide any guidance or any thought on placement metrics for the year.

But what selling metrics do you think are potentially most predictive of future unit placement?.

Yeah. I mean, I think that -- if we just look at revenue overall, these services projects and services samples coming in, are a good indication of our ability to get some subscribers, right? I mean, really, if somebody is willing to send us a project of five samples, they’re engaging.

And so, what I’m very hopeful of is that we’ll see those projects and sample numbers grow. And as you know, a lot of sites want to use services and they never want to bring a technology in house. But usually what happens is that they start sending samples out and their own institutions that say it’d be better if we ran that ourselves.

But I think we’ll continue to report how services samples and projects are growing. And we believe it’s a relatively straightforward program for customers to engage in around these reagent rentals. And so, let’s look at those and monitor them, because as we expand the number of sites that are out there that have a Saphyr system.

They’ll use consumables that’s going to drive awareness. And so, I think, adoption overall, and so systems add sites and the services projects and samples coming through are some of the better leading indicators of future consumables revenue and Saphyr purchases overall.

And then, of course, the best leading indicator that we have at all is publications and presentations. And so we track that and we try to give updates on those when they come out.

Our numbers are getting bigger and bigger, so it’s less and less straightforward to track them, but the more buzz there is in the literature, the higher our expectations grow around those other indicators..

Extremely helpful. Thanks so much, Erik..

Thank you. I would like to turn the floor over to management for closing comments..

Well, I just want to say that I thank everybody for participating and for sticking it out for the relatively long discussion. We had a lot of material that we felt was important to cover and get out for you and we hope that you found that informative and helpful. And so, with that, I believe that that concludes the call..

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation..