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Bionano Genomics Stock on Offer in IPO

If you’ve been an Illumina (ILMN) investor for a while, you have to be stoked about how well your investment has performed. This is a company that has an 80% market share selling machines that are the “picks and shovels” of the growing genomics market. More than half of the company’s revenues come from “consumables”, in other words, they don’t just make money selling their sequencing machines but also from recurring revenues once the machines are sold. And they’re selling like hotcakes:

Source: Illumina Investor Presentation

Consequently, investors have increasingly high expectations of future performance based on how much shares have soared over the past years. Check out these returns:

NASDAQ AAPL ILMN
5-Year +118% +174% +294%
10-Year +230% +690% +612%
15-Year +332% +11,747% +16,995%

Firstly, all you tech investors out there should note that simply buying a low-fee NASDAQ tracker ETF would have netted you more than +330% over the past 15 years. That means your portfolio of tech stocks should have exceeded those returns, else you’ll join the ranks of professional stock pickers, 80% of whom can’t beat a benchmark. If you were smart enough to invest in Illumina around the same time we dismissed it as “not being nano enough”, a $10,000 investment would be worth about $1.7 million today – enough to buy a small studio flat in the Bay Area.

If you’ve been holding Illumina for a while, or you were fortunate enough to back the truck up on the last dip, one concern you might have is around potential competitors popping up. That’s why we took a closer look at Oxford Nanopore Technologies recently to see how their product offering competes with Illumina. Today, we’re going to look at another sequencing startup that recently filed for an IPO.

Bionano Genomics

The Saphyr System

Founded way back in 2002, San Diego startup Bionano Genomics has taken in just over $132 million from investors that include pharmaceutical giant Novartis to “provide essential genomic information no other technology can provide.” Their system is called Saphyr, and like the Illumina product offering, it is comprised of an instrument, chip consumables, reagents and a suite of data analysis tools.

Source: Bionano Genomics

With an installed base of over 90 systems, Saphyr is being used by researchers to detect something called “structural variation” which refers to “large-scale structural differences in the genomic DNA of one individual compared to another.” (Two thirds of the human genome consists of repetitive sequences.) Apparently, “dissecting structural variants from next-generation sequencing data presents several challenges”, that’s according to a bunch of smart Italian guys who wrote an entire paper on the topic titled “Detection of Genomic Structural Variants from Next-Generation Sequencing Data.” The reason we care about structural variants is because they “play a role in various diseases including neurological/neurocognitive disorders and cancer development and progression.” Until the launch of Saphyr in February 2017, no products existed that could detect structural variation as accurately and efficiently as Saphyr. Here’s a chart which shows something interesting in the genome of a leukemia patient:

We’re not really sure what any of this means but it sure looks interesting

The Total Addressable Market

Now we can see how Saphyr instruments are meant to compliment next-generation sequencing machines like those sold by Illumina. With an installed base of 90 machines so far, Bionano Genomics thinks that they could sell “8,500 Saphyr systems, representing a current total instrument market opportunity of approximately $2.1 billion.” If you throw in recurring revenues on top of that at $75,000 to $150,000 a year per machine, the conservative estimate rises to $2.7 billion. As it turns out, that number is the same number as Illumina’s 2017 revenues – $2.7 billion.

Bionano acknowledges that other “longer-read technologies” exist, particularly those on offer by Pacific Biosciences and Oxford Nanopore Technologies. However, using these competing technologies, the “time and cost of providing a comprehensive whole genome analysis of a patient in a clinical setting is prohibitive.” Here’s a chart which shows how much better Saphyr technology is:

That superior performance is made possible by “proprietary nanotechnology” which in essence, unravels DNA strands that look like “balls of yarn” such that they can be analyzed as nice long strands.

Saphyr is being put to good use so far, having been cited by researchers and clinicians in “approximately 130 publications covering structural variations in areas of high unmet medical need and research interest”, half of which were published in 2017 alone. This shows how researchers are increasingly focused on analyzing structural variations, perhaps because this is the first time they have a tool that actually lets them do that.

Intellectual Property

When it comes to protecting their technology, Bionano has a “global patent portfolio that includes 43 issued patents across 14 patent families” along with an exclusively licensed portfolio of patents and applications from Princeton University. Even the Chinese have come sniffing around. Berry Genomics, a publicly-traded Chinese genomics company focused on reproductive health testing, has entered into a collaboration agreement with Bionano where they plan to use certain elements of the technology for in-vitro diagnostics.

Conclusion

Retail investors who are looking for “the next Illumina” will appreciate how Bionano Genomics shares many similarities with Illumina. They’re offering a product which seems to be unmatched when it comes to the costs and time required to analyze each specimen. There’s an increasing research focus which seems to be driving adoption. The system generates recurring revenues which allows for more predictable cash flows. While it all sounds great on paper, if picking winning technology stocks were that easy, then you wouldn’t have 80% of stock pickers underperforming broader technology benchmarks like the Nasdaq.

Should the Bionano Genomics IPO take place successfully, the stock will trade under the ticker “BNGO”.

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