Bionano Genomics(BNGO) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Bionano Genomics' unaudited condensed consolidated financial statements and detailed notes on accounting policies, balance sheet specifics, debt, equity, and acquisitions Condensed Consolidated Balance Sheets | Metric | September 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------------- | :------------------ | | Assets | | | | Cash and cash equivalents | $28,166,000 | $24,571,000 | | Investments | $152,024,000 | $226,041,000 | | Total current assets | $218,197,000 | $272,414,000 | | Total assets | $323,698,000 | $377,100,000 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $33,500,000 | $21,840,000 | | Total liabilities | $41,956,000 | $39,982,000 | | Total stockholders' equity | $281,742,000 | $337,118,000 | | Total liabilities and stockholders' equity | $323,698,000 | $377,100,000 | Condensed Consolidated Statements of Operations | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenue | $7,221,000 | $4,655,000 | $19,587,000 | $11,679,000 | | Total cost of revenue | $5,412,000 | $3,501,000 | $15,447,000 | $8,044,000 | | Total operating expenses | $33,958,000 | $21,832,000 | $98,311,000 | $51,953,000 | | Loss from operations | $(32,149,000) | $(20,678,000) | $(94,171,000) | $(48,318,000) | | Net loss | $(31,809,000) | $(20,753,000) | $(93,919,000) | $(49,486,000) | | Net loss per share, basic and diluted | $(0.11) | $(0.07) | $(0.33) | $(0.18) | | Weighted-average common shares outstanding | 289,701,000 | 280,173,000 | 286,629,000 | 274,392,000 | Condensed Consolidated Statements of Comprehensive Loss | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(31,809,000) | $(20,753,000) | $(93,919,000) | $(49,486,000) | | Other comprehensive loss | $96,000 | $(116,000) | $(1,283,000) | $(116,000) | | Total comprehensive loss | $(31,713,000) | $(20,869,000) | $(95,202,000) | $(49,602,000) | Condensed Consolidated Statements of Stockholders' Equity (Deficit) - Total stockholders' equity decreased from $337,118,000 as of January 1, 2022, to $281,742,000 as of September 30, 2022, primarily due to a net loss of $93,919,000 and other comprehensive loss, partially offset by additional paid-in capital from stock-based compensation and common stock issuance[16][17] Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(90,299,000) | $(46,305,000) | | Net cash provided by / (used in) investing activities | $71,157,000 | $(185,552,000) | | Net cash provided by financing activities | $22,861,000 | $334,144,000 | | Net increase in cash and cash equivalents | $3,595,000 | $102,287,000 | | Cash and cash equivalents at end of period | $28,166,000 | $140,736,000 | Notes to Condensed Consolidated Financial Statements 1. Organization and Basis of Presentation - Bionano Genomics, Inc. provides genome analysis solutions, including optical genome mapping (OGM), diagnostic services (Bionano Laboratories), and platform-agnostic software (BioDiscovery) for research and clinical applications[23] - As of September 30, 2022, the Company had $28.2 million in cash and cash equivalents and $152.0 million in available-for-sale investment securities, with working capital of $184.7 million. The Company believes these resources are sufficient for at least the next 12 months but expects continued net losses and plans to seek additional funding through equity offerings, debt, or collaborations[26] - The Company experienced supply chain challenges and increased costs due to the COVID-19 pandemic and the Ukraine-Russia conflict, which negatively impacted financial results in Q1-Q3 2021 and 2022. These geopolitical and macroeconomic events introduce significant uncertainty regarding future business operations, costs, and demand[27][29] 2. Net Loss Per Share - Due to the Company's net loss position, there is no difference between basic and diluted net loss per share. Potentially dilutive securities, including stock options, unvested restricted stock, warrants, RSUs, and PSUs, were anti-dilutive and thus excluded from the calculation[35] | Potentially Dilutive Securities | September 30, 2022 | September 30, 2021 | | :------------------------------ | :------------------- | :------------------- | | Stock options | 24,586,000 | 10,661,000 | | Unvested restricted stock | 3,420,000 | — | | Warrants | 4,356,000 | 4,361,000 | | RSUs | 163,000 | 530,000 | | PSUs | 290,000 | 290,000 | | Total | 32,815,000 | 15,842,000 | 3. Revenue Recognition | Revenue Source | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Instruments | $1,830,000 | $1,468,000 | $5,873,000 | $3,507,000 | | Consumables | $1,776,000 | $1,832,000 | $4,762,000 | $4,338,000 | | Total product revenue | $3,606,000 | $3,300,000 | $10,635,000 | $7,845,000 | | Service and other | $3,615,000 | $1,355,000 | $8,952,000 | $3,834,000 | | Total revenue | $7,221,000 | $4,655,000 | $19,587,000 | $11,679,000 | | Geographic Region | Three Months Ended Sep 30, 2022 ($) | Three Months Ended Sep 30, 2022 (%) | Three Months Ended Sep 30, 2021 ($) | Three Months Ended Sep 30, 2021 (%) | Nine Months Ended Sep 30, 2022 ($) | Nine Months Ended Sep 30, 2022 (%) | Nine Months Ended Sep 30, 2021 ($) | Nine Months Ended Sep 30, 2021 (%) | | :------------------ | :---------------------------------- | :---------------------------------- | :---------------------------------- | :---------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | | Americas | $3,679,000 | 51% | $2,557,000 | 55% | $9,618,000 | 49% | $6,419,000 | 55% | | EMEA | $1,969,000 | 27% | $1,234,000 | 27% | $6,317,000 | 32% | $3,762,000 | 32% | | Asia Pacific | $1,573,000 | 22% | $864,000 | 18% | $3,652,000 | 19% | $1,498,000 | 13% | | Total | $7,221,000 | 100% | $4,655,000 | 100% | $19,587,000 | 100% | $11,679,000 | 100% | - The Company expects to recognize approximately $1.1 million in future revenue from unsatisfied performance obligations, with 39.0% in the remainder of 2022, 51.5% in 2023, and 9.5% in 2024 and thereafter, primarily from extended warranty and support services[40] 4. Balance Sheet Account Details | Account | September 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------------- | :------------------ | | Accounts receivable, trade | $6,325,000 | $5,624,000 | | Less allowance for doubtful accounts | $(496,000) | $(690,000) | | Accounts receivable, net | $5,829,000 | $4,934,000 | | Inventory Component | September 30, 2022 | December 31, 2021 | | :------------------ | :------------------- | :------------------ | | Raw materials | $5,254,000 | $4,649,000 | | Work in process | $7,072,000 | $1,660,000 | | Finished goods | $12,720,000 | $6,078,000 | | Total Inventory | $25,046,000 | $12,387,000 | | Intangible Asset | Gross Carrying Amount | Accumulated Amortization (Sep 30, 2022) | Net Carrying Amount (Sep 30, 2022) | Gross Carrying Amount | Accumulated Amortization (Dec 31, 2021) | Net Carrying Amount (Dec 31, 2021) | | :----------------- | :-------------------- | :-------------------------------------- | :--------------------------------- | :-------------------- | :-------------------------------------- | :--------------------------------- | | Trade name | $1,630,000 | $(453,000) | $1,177,000 | $1,630,000 | $(210,000) | $1,420,000 | | Customer relationships | $3,950,000 | $(972,000) | $2,978,000 | $3,950,000 | $(378,000) | $3,572,000 | | Developed technology | $22,800,000 | $(4,370,000) | $18,430,000 | $22,800,000 | $(950,000) | $21,850,000 | | Intangibles, net | $28,380,000 | $(5,795,000) | $22,585,000 | $28,380,000 | $(1,538,000) | $26,842,000 | | Accrued Expense | September 30, 2022 | December 31, 2021 | | :------------------------ | :------------------- | :------------------ | | Compensation expenses | $6,756,000 | $4,529,000 | | Goods received not invoiced | $1,805,000 | $1,073,000 | | Customer deposits | $6,000 | $826,000 | | Taxes payable | $763,000 | $677,000 | | Insurance | $970,000 | $1,011,000 | | Accrued royalties | $82,000 | $288,000 | | Warranty liabilities | $337,000 | $175,000 | | Accrued clinical study fees | $196,000 | $1,000 | | Other | $827,000 | $1,114,000 | | Total | $11,742,000 | $9,694,000 | 5. Debt - The Paycheck Protection Program (PPP) loan of approximately $1.8 million, received in April 2020, was fully forgiven in March 2021, resulting in a gain on forgiveness of $1.8 million recognized in the nine months ended September 30, 2021[46] - The outstanding term loan with Innovatus was paid in full in May 2021 for approximately $17.0 million, including accrued interest, end-of-term fee, and prepayment fee. Interest expense for this loan was approximately $0.9 million for the nine months ended September 30, 2021[47] 6. Stockholders' Equity and Stock-Based Compensation - In January 2021, the Company completed two public offerings, issuing 33.4 million and 38.3 million shares of common stock, generating net proceeds of $101.5 million and $229.6 million, respectively[49] - Under the Cowen ATM facility, the Company sold approximately 2.3 million shares in August-September 2021 for $13.9 million gross proceeds and 6.6 million shares in August 2022 for $23.1 million gross proceeds[50] | Stock-Based Compensation Expense | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $3,606,000 | $745,000 | $10,401,000 | $1,209,000 | | General and administrative | $2,453,000 | $2,043,000 | $6,537,000 | $3,708,000 | | Total stock-based compensation expense | $6,059,000 | $2,788,000 | $16,938,000 | $4,917,000 | - A restricted stock award of 5.0 million shares, granted as part of the BioDiscovery acquisition, vested in full on October 4, 2022, due to a change in the key employee's employment status, with a revalued grant date fair value of $2.04 per share[56] 7. Commitments and Contingencies | Lease Type | September 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------------- | :------------------ | | Operating lease right-of-use assets | $6,030,000 | $6,691,000 | | Total operating lease liability | $6,478,000 | $6,755,000 | | Finance lease right-of-use assets | $3,759,000 | $3,926,000 | | Total finance lease liability | $3,914,000 | $3,941,000 | - The Company recorded $0.5 million and $1.5 million in operating lease expenses for the three and nine months ended September 30, 2022, respectively. Finance lease expenses were $0.1 million and $0.4 million for the same periods in 2022[61][63] - The Company currently has no material loss exposure from legal proceedings and is not a defendant in any claims or legal actions[64] 8. Acquisitions - In October 2021, Bionano Genomics acquired BioDiscovery, LLC, for approximately $52.3 million in cash, $40.0 million in common stock, and $10.0 million in cash contingent on milestone achievement. The acquisition added $49.3 million in goodwill and $26.8 million in identifiable intangible assets[66][68] | Pro Forma Financial Information | Nine Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2021 | | :------------------------------------ | :----------------------------- | :------------------------------ | | Revenue | $15,986,000 | $6,519,000 | | Net loss | $(51,390,000) | $(20,911,000) | | Basic and diluted net loss per share | $(0.19) | $(0.07) | 9. Investments and Fair Value Measurements | Asset/Liability | September 30, 2022 (Total Fair Value) | December 31, 2021 (Total Fair Value) | | :------------------------------------ | :------------------------------------ | :----------------------------------- | | Commercial paper | $48,349,000 | $100,860,000 | | Corporate notes/bonds | $95,695,000 | $125,181,000 | | Securities of government sponsored entities | $7,980,000 | — | | Total investments | $152,024,000 | $226,041,000 | | Money market funds | $12,578,000 | $11,126,000 | | Contingent consideration | $9,303,000 | $9,066,000 | - The fair value of the contingent consideration liability was $9.3 million as of September 30, 2022, determined using a scenario-based technique with a 95% probability of achieving the $10.0 million milestone. This liability was reclassified from non-current to current during the nine months ended September 30, 2022[78] | Investment Type | Amortized Cost (Sep 30, 2022) | Unrealized gains (losses) (Sep 30, 2022) | | :------------------------------------ | :---------------------------- | :--------------------------------------- | | Commercial Paper | $48,477,000 | $(128,000) | | Corporate Notes/Bonds | $97,240,000 | $(1,545,000) | | Securities of Government Sponsored Entities | $7,990,000 | $(10,000) | | Total | $153,707,000 | $(1,683,000) | 10. Related Party Transactions - Through the BioDiscovery acquisition, the Company inherited a building lease with a landlord owned by BioDiscovery's former CEO. Finance lease costs related to this lease were $0.1 million for the three months and $0.4 million for the nine months ended September 30, 2022[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition and operational results, covering business overview, commercial achievements, global event impacts, and detailed financial performance analysis Overview - Bionano Genomics provides genome analysis solutions, including Optical Genome Mapping (OGM), diagnostic services (Bionano Laboratories), and platform-agnostic software (BioDiscovery). The Company estimates the economic potential for OGM in cytogenomics and discovery research at $2.8-$4.2 billion annually, with an additional $4.0 billion opportunity in future markets like newborn screening and population genomics[84] - The Company incurred net losses of $31.8 million and $93.9 million for the three and nine months ended September 30, 2022, respectively, with an accumulated deficit of $310.0 million as of September 30, 2022. Significant expenses are expected to continue due to expansion of sales, R&D, headcount, and public company operating costs[84][86] Recent Highlights - The installed base of Saphyr systems grew by 54% to 217 as of September 30, 2022, compared to 141 in the prior year. Flowcell sales were 3,975 for the three months and 10,594 for the nine months ended September 30, 2022[87] - OGM-based laboratory developed tests (LDTs) have been introduced in the US, with CMS assigning reimbursement amounts of $1,263.53 for two OGM PLA codes and $6,739.33 for another, marking the first time OGM has received reimbursement in a Clinical Diagnostic Laboratory Fee Schedule[87] COVID-19 and Other Geopolitical Events - The Company faces ongoing risks from COVID-19, the Ukraine-Russia conflict, and macroeconomic events, leading to supply chain disruptions, increased costs for components, and potential negative impacts on business operations, clinical studies, and customer support[88][90] - Increased costs to secure component parts and produce products were experienced during the three and nine months ended September 30, 2022, attributed to these global events, and are expected to remain high[90] Financial Overview Revenue - Total revenue increased by $2.6 million (55%) to $7.2 million for the three months ended September 30, 2022, and by $7.9 million (68%) to $19.6 million for the nine months ended September 30, 2022, driven by increased demand for Saphyr OGM solutions, growth in the installed base, and contributions from the BioDiscovery acquisition and Bionano Laboratories[100][108] | Revenue Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Product revenue | $3,606,000 | $3,300,000 | $10,635,000 | $7,845,000 | | Service and other revenue | $3,615,000 | $1,355,000 | $8,952,000 | $3,834,000 | | Total | $7,221,000 | $4,655,000 | $19,587,000 | $11,679,000 | | Geographic Region | 3 Months Ended Sep 30, 2022 (%) | 3 Months Ended Sep 30, 2021 (%) | 9 Months Ended Sep 30, 2022 (%) | 9 Months Ended Sep 30, 2021 (%) | | :------------------ | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Americas | 51% | 55% | 49% | 55% | | EMEA | 27% | 27% | 32% | 32% | | Asia Pacific | 22% | 18% | 19% | 13% | | Total | 100% | 100% | 100% | 100% | Cost of Revenue - Cost of revenue increased by $1.9 million (55%) to $5.4 million for the three months and by $7.4 million (92%) to $15.4 million for the nine months ended September 30, 2022. Gross margin for the three months ended September 30, 2022, remained at 25%, improving from 15% and 22% in Q1 and Q2 2022, respectively, due to better chip yield and higher-margin software revenue[101][109] - Increased cost of product revenue was due to higher instrument and flowcell sales volume, but was negatively impacted by unfavorable flowcell yields, leading to increased scrap and quality control costs. Cost of service and other revenue rose due to increased maintenance, service costs, and laboratory service expenses[101][109] Research and Development Expenses - R&D expenses increased by $6.2 million (96%) to $12.7 million for the three months and by $21.8 million (164%) to $35.0 million for the nine months ended September 30, 2022. This was primarily driven by a $5.4 million (three months) and $17.0 million (nine months) increase in compensation expenses, including stock-based compensation, due to increased headcount, and higher product development costs[103][111] - The Company expects R&D expenses to continue increasing to support scalable manufacturing, expand Saphyr utility, and develop next-generation OGM products, including integration with NxClinical software[103][111] Selling, General and Administrative Expenses - SG&A expenses increased by $5.9 million (38%) to $21.2 million for the three months and by $24.6 million (64%) to $63.3 million for the nine months ended September 30, 2022. Key drivers include a $4.1 million (three months) and $13.9 million (nine months) increase in compensation expenses (including stock-based compensation), a $1.4 million (three months) and $4.2 million (nine months) increase in amortization of intangibles from the BioDiscovery acquisition, and higher marketing and headcount-related expenses[104][112] - The Company anticipates continued growth in SG&A expenses due to investments in customer base support and increased stock-based compensation from recent stock option awards[104][112] Interest Income - Interest income increased significantly to $0.4 million for the three months and $0.7 million for the nine months ended September 30, 2022, compared to $0.03 million and $0.2 million in the same periods of 2021, respectively. This increase is attributed to positive returns on investments, as the Company did not hold available-for-sale securities until August 2021[105][114] Interest Expense - Interest expense decreased by $0.7 million (74%) to $0.2 million for the nine months ended September 30, 2022, compared to $0.9 million in the same period of 2021. This reduction was primarily due to the full repayment of the Innovatus LSA term loan during the nine months ended September 30, 2021[113] Loss on debt extinguishment - A loss on debt extinguishment of $2.1 million was recognized during the nine months ended September 30, 2021, related to the full payment of the Innovatus LSA term loan, including accrued interest, end-of-term fee, prepayment fee, and write-off of unamortized debt issuance costs[115] Gain on forgiveness of Paycheck Protection Program loan - A gain of $1.8 million from the forgiveness of the Paycheck Protection Program (PPP) loan was recognized during the nine months ended September 30, 2021, following its full forgiveness in March 2021[115] Liquidity and Capital Resources Sources of Liquidity - As of September 30, 2022, the Company had $28.2 million in cash and cash equivalents and $152.0 million in available-for-sale investment securities, with an accumulated deficit of $310.0 million. Future liquidity is expected from equity sales, debt financings, and commercial operations[116][118] Future Capital Requirements - Near and longer-term liquidity needs include working capital, general corporate expenses for business growth, scaling operations, increasing manufacturing capacity, sales and marketing, R&D, and building corporate infrastructure. Short-term capital expenditures focus on facilities, service lab capabilities, and IT enhancements[119] Cash Flows | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Operating activities | $(90,299,000) | $(46,305,000) | | Investing activities | $71,157,000 | $(185,552,000) | | Financing activities | $22,861,000 | $334,144,000 | - Net cash used in operating activities increased by $44.0 million to $90.3 million for the nine months ended September 30, 2022, primarily due to incremental headcount growth and increased spending for business operations and international expansion[121] - Net cash provided by investing activities was $71.2 million for the nine months ended September 30, 2022, a $256.7 million increase from the prior year, mainly due to $135.4 million in maturities of available-for-sale securities, partially offset by $63.2 million in new purchases[122] - Net cash provided by financing activities decreased by $311.3 million to $22.9 million for the nine months ended September 30, 2022, compared to $334.1 million in the prior year, reflecting lower proceeds from common stock sales[123][125] Paycheck Protection Program - The $1.8 million Paycheck Protection Program (PPP) loan received in April 2020 was fully forgiven in March 2021, including all accrued interest[126] Capital Resources - As of September 30, 2022, the Company had $28.2 million in cash and cash equivalents, $152.0 million in available-for-sale securities, and $184.7 million in working capital. The Company believes these resources are sufficient for at least the next twelve months[127][129] - In August 2022, the Company sold approximately 6.6 million shares of common stock under the Cowen ATM facility, generating gross proceeds of $23.1 million[127] Contingent Consideration - The Company's contingent consideration liability, related to the BioDiscovery acquisition, was valued at $9.3 million as of September 30, 2022, based on a 95% probability of achieving a $10.0 million commercial milestone within eighteen months. This liability was reclassified to current liabilities during the nine months ended September 30, 2022[130] Contractual Obligations - There were no material changes to the Company's contractual obligations from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[131] Critical Accounting Policies and Estimates - There have been no changes to the Company's critical accounting policies and estimates during the three and nine months ended September 30, 2022, as described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[132] Recent Accounting Pronouncements - Information regarding recent accounting pronouncements is detailed in Note 1 to the unaudited condensed consolidated financial statements[133] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's exposure to market risks, including interest rate, foreign currency, and inflation, and their potential financial impact Interest Rate Risk - As of September 30, 2022, the Company held $28.2 million in cash and cash equivalents and $152.0 million in available-for-sale securities. A hypothetical 100 basis point change in interest rates would have an approximate $0.5 million impact on investments[134] - Changes in interest rates impact the fair value of the contingent consideration liability, which uses a risk-free interest rate as a component of its discount rate. While the risk-free rate has increased, the Company does not expect a material impact on financial statements in future reporting periods[134][136] Foreign Currency Exchange Rate Risk - The Company is exposed to foreign currency exchange rate risk, primarily in British Pound, Chinese Renminbi, Euro, and Canadian dollar, due to international operations and transactions. A hypothetical 10% change in foreign exchange rates as of September 30, 2022, is not expected to have a material impact on the business[137] Inflation - Geopolitical and macroeconomic events have led to inflation, increasing logistical costs and raw material prices. While the Company experienced higher costs for component parts and production in Q3 2022, inflation has not had a material effect on its business or financial results, other than general economic impacts[138] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting, including acquisitions and ERP system implementation Evaluation of Disclosure Controls and Procedures - As of September 30, 2022, management, with the participation of the principal executive and financial officers, concluded that the Company's disclosure controls and procedures were effective[139][141] Changes in Internal Control over Financial Reporting - During the quarter ended September 30, 2022, the Company integrated the internal controls of BioDiscovery LLC, acquired in October 2021, into its overall system of internal control over financial reporting[142] - A new ERP system was implemented across business units during the quarter, leading to automation, modification, or implementation of certain internal controls over financial reporting to adapt to the new control environment[142] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is not currently involved in any material legal proceedings - The Company is not a defendant in any claims or legal actions and currently does not have any material loss exposure from legal proceedings[145] Item 1A. Risk Factors This section outlines significant risks impacting the Company's business, financial condition, and operations, categorized by financial, operational, regulatory, intellectual property, and securities ownership RISK FACTOR SUMMARY - Key risks include the Company's early commercial stage and limited history, recurring net losses, fluctuating operating results, uncertain future capital needs, and potential adverse effects from unfavorable global economic conditions and public health crises like COVID-19[146] - Operational risks involve challenges with acquisitions, market acceptance of products, reliance on single manufacturers and suppliers, potential product defects, and difficulties in international sales and marketing. Regulatory risks include FDA classification of RUO products, complex billing for diagnostic services, and compliance with healthcare fraud and abuse laws[146] - Intellectual property risks encompass the ability to protect patents and trade secrets, potential infringement claims, and the impact of changes in patent laws. Risks related to securities ownership include stock price volatility, potential delisting, lack of dividends, and the influence of principal stockholders[148][242] Risks related to our financial condition and need for additional capital - The Company is an early commercial-stage company with a limited commercial history, making future performance difficult to predict, especially with increased operating costs from acquisitions and expansion[151] - The Company has incurred recurring net losses ($93.9 million for nine months ended Sep 30, 2022) and expects losses to continue due to significant investments in commercial expansion, R&D, and public company expenses[152] - Future capital needs are uncertain, and additional funding may be required through equity or debt, which could dilute stockholders or impose restrictive covenants. Unfavorable global economic conditions, including inflation and geopolitical conflicts, could adversely affect business and access to capital[157][159][160] Risks related to our business operations - Acquisitions, like BioDiscovery, can disrupt business, incur unanticipated expenses, and dilute stockholders. The Company relies on single contract manufacturers for OGM systems and chip consumables, posing supply chain risks if these manufacturers fail[167][184] - Failure to achieve sufficient market acceptance for products, manage new product development, or effectively penetrate existing and new customer bases could adversely affect revenue. International operations expose the Company to foreign regulatory, economic, and currency risks[170][178][181][189] - The Company is subject to risks from IT system compromises, stringent data privacy regulations (e.g., HIPAA, CCPA, GDPR), and intense competition in the life sciences research and diagnostic markets. Inability to recruit and retain key personnel or provide quality technical support could harm operations[194][195][197][200] Risks related to government regulation and diagnostic product reimbursement - If the FDA determines the Company's 'Research Use Only' (RUO) products are medical devices or if they are marketed for clinical diagnostic use, regulatory clearance/approval will be required, which is expensive, time-consuming, and uncertain[204] - Billing for Bionano Laboratories diagnostic testing is complex, with risks of denials, audits, and recoupments. Unfavorable pricing regulations or third-party payor coverage for diagnostic procedures enabled by Saphyr technology could harm the business[207][212] - The Company must comply with CLIA, state laboratory licenses, and federal/state healthcare fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act). Non-compliance could lead to substantial penalties, operational restructuring, and exclusion from healthcare programs[215][217][219] Risks Related to Intellectual Property - The Company relies on patents, trademarks, trade secrets, and contractual restrictions to protect its intellectual property. Failure to protect IP could reduce competitive advantage and lead to substantial litigation costs[220][222] - Some intellectual property is derived from government-funded programs, subjecting it to 'march-in' rights and U.S. manufacturing preferences. The Company also depends on technology licensed from Princeton University, and loss of these rights could prevent product sales[224][225] - The Company faces risks of third-party infringement claims, which are costly and time-consuming to defend, and could result in injunctions or damages. Changes in patent laws (e.g., America Invents Act, Supreme Court rulings) could diminish patent value and protection ability[228][229][235] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the current report - This section is marked as 'Not applicable'[257] Item 3. Defaults Upon Senior Securities The Company reports no defaults upon senior securities - This section is marked as 'None'[257] Item 4. Mine Safety Disclosures This item is not applicable to the current report - This section is marked as 'Not applicable'[257] Item 5. Other Information The Company reports no other information - This section is marked as 'None'[257] Item 6. Exhibits This section lists all exhibits filed with the 10-Q report, including organizational documents, warrant forms, registration rights agreements, and certifications - Exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, various forms of warrants, a Registration Rights Agreement, and certifications from the Principal Executive Officer and Principal Financial Officer[259] SIGNATURES - The report is signed by R. Erik Holmlin, Ph.D., President and Chief Executive Officer, and Christopher Stewart, Chief Financial Officer, on November 3, 2022[265][269]