Bionano Genomics Stock: What Exactly Do They Do?

Technological innovation comes and goes constantly. Retail investors should only concern themselves with technology that generates revenue. That’s when something moves from “emerging” to “disruptive.” The time for teams-with-dreams to show traction should be far behind them when they look to the public markets for capital. Special purpose acquisition companies (SPACs) changed that by normalizing the idea of funding a company that hasn’t shown revenue traction. If you’re a firm that’s disrupting something, revenue growth is not optional.

Our recent article on Pacific Biosciences (PACB) offered up a good example of a technology that appears to be – at least based on the last four quarters – breaking out. That is, revenue growth appears to have started a trajectory that implies widespread adoption. As investors, we’re always left wondering whether these revenue breakouts are temporary or permanent. For example, here’s a look at quarterly revenues for Bionano Genomics (BNGO).

Bionano Genomics Revenues
Credit: Nanalyze

Last quarter BNGO saw record revenues making us wonder if this company is finally going to see some sustained revenue growth. But there’s a more important question that needs to be answered first. Just what does Bionano Genomics do, and how big is the opportunity at hand?

What Does Bionano Genomics Do?

When trying to understand complicated life sciences technologies you should always let someone else do the heavy lifting, then leverage their hard work to your own advantage. Hong Kong has some of the most endearing people you’ll ever meet, and three of them – Yuxuan Yuan Claire, Yik-Lok Chung, and Ting-Fung Chan – burned some serious oil putting together a stellar journal article called Advances in optical mapping for genomic research which helps draw some color around the core technology on offer from Bionano Genomics – optical genome mapping (OGM) – which is described as follows:

Optical mapping uses a light microscope-based technique to physically locate specific enzymes or sequence motifs to produce DNA sequence fingerprints

Credit: Advances in optical mapping for genomic research

The technology is intensively used in genomic studies of microorganisms, plants, animals, and human diseases which starts to raise questions around total addressable market (TAM) which we’ll discuss a bit later. Simply put, the technology allows researchers to identify structural variations that go beyond long-read sequencing:

The average molecule length of optical maps (~225 kb) is substantially greater than the read length produced by short-read sequencing (typically 150–300 bp) and long-read sequencing (typically ~ 15 kb on average). Optical maps can easily span genomic regions that are difficult to resolve by DNA sequencing. 

Credit: Advances in optical mapping for genomic research

After nearly two decades of existence, Bionano Genomics is finally starting to sell some machines – 61 of them in 2021 – bringing their total install base to 164 with just over half of their revenues coming from outside the United States.

Bionano Growing Install base
Credit: Nanalyze

Of course, it isn’t just about placing machines, it’s about having customers use them. In their recent 10-K, Bionano Genomics provides us with information on consumables consumption – what they call flowcells.

For the year ended December 31, 2021, total flowcells sold reached 12,518, an increase of approximately 98% over the 6,311 flowcells sold during the year ended December 31, 2020. 

Credit: Bionano Genomics 10-K

This is a key metric to watch going forward while also making sure that revenues match. As you can see below, the growth of consumables (98%) and growth of consumables revenue (85%) are roughly in line.

Bionano Genomics Revenues
Credit: Bionano Genomics

Pay attention to the breakdown between “Product revenue” and “Services revenue” as the latter isn’t scalable in the same way the former is. But ultimately, revenue growth will be limited by just how big the optical genome mapping opportunity is. Let’s explore that by starting at the top.

How Big is the Global Sequencing Market?

Trying to figure out the size of a total addressable market (TAM) is a huge pain in the rear because a bunch of MBAs out there produce $5,000 market research reports which all differ dramatically in their estimates. Who do you believe?

Next-Generation Sequencing Market Size

If we’re to believe companies like Oxford Nanopore and Pacific Biosciences, the next-generation sequencing market was about a $6 billion opportunity in 2021. Some back of the napkin math helps us confirm this. Illumina is said to have 80% market share in next-generation sequencing (NGS), and they had $4.5 billion in 2021 revenues. In other words, Illumina’s revenues accounted for about 75% of the available $6 billion pie to be had. Of course, that’s the pick-and-shovel potential for tool providers. If you ask Illumina what their TAM is they’ll point to the Grail acquisition and say $75 billion. So, we need to be careful about keeping the tools and consumables opportunity separate from the use cases.

Long-Read Sequencing Market Size

Emergen Research produced a $5,000 report that claims long-read sequencing is a $500 million market today which will expand to $2.8 billion by 2028. (To whoever does their PR, thank you so much. Without your press release we’d be dead in the water.) The report summary is riddled with mentions of The Rona as a driver of long-read adoption with (Oxford Nanopore investors take note) notable growth expected in Europe and “a significantly robust revenue growth rate” for nanopore sequencing. The report also provides a technological outlook for nanopore sequencing along with single-molecule real-time (SMRT) sequencing (Pacific Biosciences) and Synthetic Long-Read Sequencing (Illumina), but that’s when they start asking for your credit card number.

Optical Genome Mapping Market

The only research report that estimates OGM market size doesn’t offer up a market size number for free, but they do mention some company names. In addition to Bionano Genomics, they also list a handful of other companies, one of which – Nabsys – has raised $130 million in funding with $25 million of that raised just today from Hitachi.

Bionano Genomics says their principal competitors are PacBio, Oxford Nanopore Technologies, Genomic Vision, and Dovetail Genomics, yet nowhere can we find Bionano Genomics listed as a competitor in any analysis of the long-read space. The aforementioned research paper provides some color around how BNGO stacks up to some competing technologies, stating:

…linked-read sequencing technologies, such as those provided by 10x Genomics, and Hi-C technologies such as those provided by Dovetail Genomics and Phase Genomics, use fluidics and other ligation methods to capture proximity information….Although the cost of these technologies is relatively low, sequencing biases, such as those caused by PCR amplification and enzyme selection, can make these technologies error-prone

Credit: Advances in optical mapping for genomic research

Sure, maybe BNGO has a better technology, but it all comes down to use cases and what customers are willing to pay for. The platform doesn’t sell itself which is why over 50% of BNGO’s 300 staff work in sales and marketing.

And now we’re back to square one – trying to figure out what the potential market size is for technologies like optimal genome mapping that can identify structural variations. Bionano Genomics puts possible machine placements at 10,000 which represents a potential TAM of $2.8 to $3.8 billion dollars including consumables. Selling 67 machines in 2021 is great and all, but we need to see these numbers become much bigger now. Longer term forecasts from the company might be useful for investors to understand how fast they plan to capture this TAM with the $250 million in cash and securities they have remaining to fuel growth. BNGO expects to have an install base of 240 machines by the end of 2022 – an additional 79 machines – and that’s only 12 machines more than they sold in 2021.

Investing in Bionano Genomics Stock

To avoid investing in revenue growth that’s a head fake, we set a rule that says we don’t invest in companies unless they have meaningful revenues which we define as $10 million per annum. BNGO cleared 2021 with nearly $18 million in revenues so that box is checked. As for their size, BNGO’s market cap falls below our $1 billion threshold, so they’re off our radar until they emerge from the death zone. However, whenever some ARK analyst tweets about “your people getting in touch with my people,” this is what happens to the stock:

Bionano Genomics Stock trending up
Credit: Nanalyze article

So, we also have a rule which says that we don’t invest in companies with a simple valuation ratio over 40. Here’s that ratio calculated for BNGO:

  • Market capitalization / annualized revenues
    614 / (4 X 6.3) = 24

Here’s how that ratio compares to a handful of other life sciences companies with platform-consumable business models.

Asset NameNanalyze Valuation Ratio
Illumina12
10X Genomics13
Oxford Nanopore 23
Pacific Biosciences13
Quanterix8
Credit: Nanalyze

Since the last time we looked at how hyped Bionano Genomics was, shares have fallen 84%. There’s nothing keeping them from falling further, or they could double tomorrow because some morons on Reddit decided it’s the next YOLO FOMO must-own stonk. If you’re an investor in BNGO, you should be using dollar-cost-averaging to build your position slowly over time while ignoring the volatility. Key metrics to watch are a growing install base, flowcell usage, and revenues to match. The latter is particularly important to watch. Selling machines is pointless if nobody will pay to use them.

Lastly, in researching this piece we noted quite a few cheerleaders out there who seem to think BNGO is “the next Illumina” while simultaneously talking about how BNGO will be acquired by Illumina any day (which one is it lads?). Bionano Genomics has a platform that’s starting to be adopted and used such that revenue growth is increasing. This is just one of many firms out there trying to get the life sciences community to adopt a platform and use it for use cases that change over time. It’s a small company and inherently risky for that reason alone. Maybe that’s why it’s nowhere to be found in the ARK Invest Genomics ETF (ARKG) when we know full well that ARK came sniffing around when their analyst was asking for meetings on Twitter.

Screenshot of an ARK's analyst tweet
Credit: Twitter

If Bionano Genomics can continue growing revenues through 2022 then perhaps we’ll come back around for another look in 2023.

Conclusion

Investing in upcoming niche markets for sequencing only makes sense if you’re already invested in the market leader – Illumina. That’s because leadership positions are easier to maintain than they are to initially capture. Illumina’s research and development teams are more than capable of analyzing what’s on the market and making build-vs-buy decisions. If there’s an opportunity worth pursuing in optical genome mapping, Illumina has given it plenty of consideration. They’ve had twenty years to mull over what Bionano Genomics was up to back when the company had a market cap of $150 million just 17 months ago. The only difference is that now BNGO is selling more machines and revenue appears to be breaking out. Here’s to hoping they keep that growth going through 2022.

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