During a Bloomberg interview, Cathie Wood was asked where do you see the biggest growth catalyst coming from? She replied while TSLA already has a fantastic run-up, it’s potential gains are getting narrower.
Instead, the biggest surprising upside is going to come from genomic companies. ARK believes they are going to make up the next FAANG stocks in the future as these companies start curing diseases and health problems.
It is at this moment, along with many others, when I decided I am in. In my telegram channel, I announced selling all my other US shares except TSLA and used half of the proceeds to get into ARKG. The other half would be reserved as bullets to DCA down should ARKG dips.
As I was diving deep into understanding the companies that ARKG invests in, I chanced upon an extremely undervalued gem. That stock is Bionano Genomics with the ticker symbol BNGO. I loaded up some shares of BNGO just one week before their genomic symposium from Jan 11-15. It is an event where scientists and researchers around the world showcase their discoveries from Bionano’s flagship product, the Saphyr.
I am not going to pretend that I understand much from the conference. If you think blockchain developer geeks speak an alien language, wait till you listen to genomic scientists and researchers. It’s another dimension and I feel that is the case for the genomic sector generally.
Nevertheless, I am still able to capture the gist of what is going on, I think. So please take my words with a pinch of salt.
Here is what Bionano Genomics is trying to solve.
1. What does Bionano Genomics (BNGO) do?
Each of us has 23 pairs of chromosomes – 22 pairs called autosomes and the last pair called sex chromosomes, X and Y, which determines your gender. Each parent contributes one chromosome of each pair to an offspring.
Chromosomal abnormalities happen when a part of them are mutated as shown above. It could be an insertion, deletion, inversion, duplication, translocation and some other rearrangements. This results in misregulation of gene expression which is a common cause of many health diseases such as cancer, infertility, leukaemia, down syndrome and etc.
Cytogenetic analysis is the study and detection of these chromosomal disorders. The current methodology and medical guideline are to use KT/FISH/CMA/microarray and etc. A microarray is currently the most common genetic test (first test ordered for any child with global developmental delays). These are all antiquated methods that are costly, timely, outdated and inefficient.
Here is a sample workflow of how a typical cytogenetic looks like.
What Bionano Genomics is trying to do is to make the detection of structural variants, the cause of many health diseases, simple, easy, cheap and efficient. You put some DNA samples into the Saphyr machine, it generates a clean report out for you with exact precision on where are all the SVs located.
BNGO wants to make Saphyr the gold standard of cytogenetics analysis.
2. BNGO vs Illumina & PacBio
The scientific community believes that since DNA is the root cause of all health diseases, then being able to edit them is the cure for it.
If we have the technology to read the entire human genome DNA sequence, pinpoint the location of the variant, fix them and cure diseases, then that would be the golden age for the genomic sector. Gene-editing belongs to the CRISPR/Cas9 category and this is another topic for another time.
BNGO is frequently compared with DNA-sequencing companies like Illumina and PacBio. These 2 are the current leaders in sequencing along with Oxford Nanopore, but the last one has not IPO.
Each human genome contains about 3 billion base pairs of DNA packaged into 23 pairs of chromosomes.
Illumina and PacBio are very good at reading ALL the order of the letters in our human genome. So they are focusing right down to every base pair to find genome variants. The difference is Illumina uses short-read while PacBio uses long-read. Each has its pros and cons in accuracy and comprehensiveness.
Hence BNGO is trying to look at what has changed on the chromosome level. But sequencing companies are trying to look at what has changed on the DNA base-pair level, which makes up the chromosomes.
One good analogy to think of is this. Illumina and PacBio detect the order of every single letter in a harry potter book while BNGO detects the order of the paragraphs in the book.
Or another way is to imagine a big puzzle. Illumina and PacBio look at each puzzle piece and see whether they fit each other while BNGO looks top-down and see which area of the puzzle is wrong.
3. Bionano Genomics (BNGO)’s Position in the Market
Hence BNGO is complementary giving wider scope to Illumina & PacBio rather than being a direct competitor to it. BNGO can’t do DNA-sequencing and Illumina/PacBio can’t detect larger structural variants. Both need each other for the greater good.
Nevertheless, it is interesting to note that while sequencing technology has been improving, diagnostic yields continue to hover around 50%. This means half of the patients walk out of the doctor’s room with no diagnosis.
Despite them trying to come up with faster speed, lower cost, higher accuracy, it is still not able to pick up structural variations consistently. Often they have to resort to cytogenetic methods for further analysis and this is where BNGO comes in. Perhaps is time to figure out new approaches to doing things?
Currently, there are no competitors in the cytogenetic space. Bionano’s Saphyr is the only product that has successfully digitize manual cumbersome methods into an elegant solution.
In the Bionano genomics symposium, scientists from all over the world compared the samples of using the traditional cytogenetic workflow against Saphyr’s samples. Almost all come to the conclusion that Saphyr is in 100% concordance with the clinical standards.
This means that Saphyr can detect 100% of whatever the old method detects. Except that it is cheaper, faster and more efficient. In a couple of studies, Saphyr can even detect critical SVs that traditional methods FAIL to detect. This is the pivotal moment for the cytogenetic industry and BNGO is here to revolutionize it.
Hence I am positive that there will be a huge adoption and demand for their products. As Elon Musk quotes, “Great companies are built on great products.” Bionano Genomics has a great product which is their Saphyr machine. It has already passed all standards by statistical measures as seen from the symposium results.
4. Bionano Genomics (BNGO) Turnaround Stock
BNGO is almost at the brink of delisting from NASDAQ after its share price fails to trade above a dollar. It only gained the attention of penny stock traders after Simon (ARK Invest’s genomic analyst) tweeted that he is interested in their tech and is keen to have a conversation with the CEO. This led to the speculation that ARKG might invest in BNGO and everyone start piling in.
Additionally, Human Genome Structural Variation Consortium also released a publication announcing that PacBio sequencing detects only 72% of SVs that are detected by Saphyr across 32 different human genomes.
The consortium combined PacBio’s sequencing tech to create its own custom method and it is estimated to cost between $10,000 and $20,000 per genome. Meanwhile, Saphyr costs less than $500 per genome.
PACB is one of ARKG’s largest holdings and they do not yet own any BNGO shares. Now a report comes out saying BNGO detects more SVs than PACB at a lower cost? And Simon wants to talk to the CEO of BNGO?
5. Bionano Genomics (BNGO) Financials
Investors start comparing BNGO’s market cap to PACB’s market cap and realised how undervalued this company is. This stock shot up from $0.50 to $7 before consolidating to around $5+ before the week of the symposium.
As of the latest quarter 30 Sep 2020, BNGO’s revenue is $2.2m and they only have about $19m cash in their balance sheet. Net operating cash flow is -$11m and they have $14m out of the $16m long-term debt that is due within the next 12 months.
This company has not yet made a profit and their cash runway is at most a few more quarters. Bears think this company would not survive long but bulls think otherwise.
Fortunately, soaring stock prices allow BNGO to do favourable equity fundraising. Two stock offering were announced, one before the symposium and one after. They issued about 70 mil shares + 10mil options and raised about $330 million in cash.
All short-term liquidity concerns are removed from thoughts.
This company, like TSLA, almost fall into the pits of darkness but rebounded back strongly. It is certain that this company is going to charge ahead at full-gear and we will see what comes next from them.
They estimate to sell as many as 10,000 Saphyr systems and accessories to 2,500+ cytogenetic labs and 7,000+ to discovery research in sequencing. The Saphyr system starts from $150,000 upwards. That is about $2.6 billion – $3.8 billion in revenue, compared to the current $10 million for the previous FY.
6. Is Bionano Genomics (BNGO) stock a buy?
After attending Bionano Genomic’s symposium, I am more assured than ever on the team’s promise and product. There would be renewed interest and demand from all over the world. Clinical labs and research centres would request for samples service and sales of Saphyr system could go up.
BNGO’s next earnings date is on 9th March 2021.
In Ark Invest’s latest big ideas 2021 report, Bionano Genomics is also featured in their deck slides. The team believes that BNGO helps to provide a fuller, richer and more accurate view. ARK would not have taken notice or interest in it if their tech is not revolutionary.
ARKG owned most of the companies in the slides except for Illumina (they sold it all after a failed merger with PACB) and BNGO. As a genomic ETF, I believe that ARKG would want to cover as many grounds as possible and diversify within the sub-segments of genomics. BNGO is one area that is left unfilled.
However, when asked about Simon’s thoughts on BNGO, he is of the view that PACB’s long-read sequencing would eventually solve and detect bigger SVs with Google’ deep variants. Ironically, ARKG has been selling PACB almost every day since Bionano Genomic’s symposium. A rebalancing move? Or a move to include something? I believe it is the latter.
Nevertheless, I have already bought BNGO shares at $5.25 and I believe it is a good buy now. Additionally, I also sold some cash-secured puts at $10 expiring on 19 Feb 2021. I am investing in BNGO’s potential to cure cancers, one step at a time. The upside potential and future looks bright here as they got a product that sells and fits the market needs.
On a caution note, the genomic space is filled with unknowns and it is a complex topic altogether. We are trying to map out the human genome and there are thousands of discoveries that are yet to be made. The innovative attempts towards this path is a feat in itself.
It is an exciting future and in Elon Musk’s words, “You have to be optimistic about the future, there is no point in being pessimistic. It is negative and it doesn’t help. I would rather be optimistic and wrong rather than pessimistic and be right.”