Bionano Genomics Stock Analysis


Business Description:

  • Products for RUO for the time being but aiming for clinical use as medical device

  • Saphyr simplifies cytogenetics, is more efficient and cost effective, detecting 100s bp (base pairs) to Millions bp Structural Variations (SVs) on Chromosomes.

Competitors

- Illumina: 1 to 100s bp

- PACBIO: 1 to 10000 bp

  • More detection of SVs means earlier detection of genetic diseases

50 - 70% of patients tested for Constitutional Genetic Diseases have their results negative

50 - 70% of patients tested for Blood Cancers have their results negative

  • Revenues Segments:

FY19: 66% instrument + 27% other products (94% products) + 6% services

product gross margins: 31%, services gross margins: 58%

3Q20: 72% products (-50% YoY) + 28% services (+307% YoY), Total Revenues down 33% YoY

product gross margins: 28%, services gross margins: 52%. Gross Profits down 21.5% YoY


Catalysts:

  • Stock given 180 more days to maintain share price of $1.00 to remain on the NASDAQ

  • Rumors of possible investment from Ark

  • Change in business model allowing customers to rent instruments instead of buying them. Explains shift from product revenues to services in recent quarter. Less revenues but more gross profits

  • 9500 potential customers with recurring revenues on chips, kits, services and now rents.

  • Company estimates a potential market of $2.6 - $3.8 billion with current TTM revenues about $7 million.


Risks:

  • Only one product subject to FDA approval to maximize market

  • Limited customer base of less than 9500.

  • High stock dilution of X15 since IPO in September 2018

  • High salary and compensation to insiders with very little ownership of shares

  • Only a few hundreds of products sold in 17 years for less than $10 million in revenues in the TTM


Financial Analysis:

  • Revenues of $7.30 million in the TTM, down from $10.1 million in 2019. CAGR of 2% since 2016.

  • Spending about $9 million a year on R&D. More than TTM Revenues

  • SG&A costs $27.5 million in TTM, growing by 9% annually since 2016.

  • Net loss of $37.2 million in TTM vs $29.8 million for FY19. $35 million loss as FCF.

  • Good Balance Sheet - Can raise more capital through stocks, raised $19 million in IPO and $36 million post-IPO

Total assets: $41.4 million including $8.5 million in intangibles; total liabilities: $26.7 million, book value of $14.6 million.

Cash: $18.8 million, debts: $1.7 million, current assets: $29.2 million, current liabilities: $24.7 million.

  • New business model can improve on margins but useless if revenues don’t grow.


Valuations

  • My personal Biases:

Not really a fan of pharmaceutical stocks, whereby future depends on approval of only one product

Probably a pump and dump stock with 1000% in a few days

DCF model won’t work because future FCF in the coming years will be negative

Despite big recent gains, it has underperformed the S&P 500, sector and industry since IPO.

  • Assumptions:

Looking at scenarios where they achieve profitability by 2026. Very unlikely to happen.

profit margin of Illumina about 25%. There’s a good correlation between EPS and price (PE of 85, range of 30-200 in last 10 years). Bionano can achieve profit margins of 10% in 2026. PE ratio as Exit Multiple.

Their estimates of $2.6 - $3.8 billion is too optimistic

Bull case: $3.5 billion; Base case: 2.5 billion; Bear case: $1.5 billion in revenues in 2026

Further share dilutions by 300%

PE Ratios: X20, X40, X60, X80, X100 each with equal probabilities of 20%.

Conclusion

  • Looks as good investment if they achieve profitability, which is unlikely

  • Need big margin of safety to account for big risks

  • 25% expected annual returns not worth the risk

  • Most probably a pump and dump, wait for a better opportunity to enter if presents itself, SELL rating for now.

  • Not worth $1 billion for now.

Full analysis: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/28707809

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