California-based life sciences instrument manufacturing company Bionano Genomics (NASDAQ:BNGO) has been on a roll in the past couple of months. BNGO stock is up a whopping 312% in the past two months.
Its optical genome mapping (OGM) system Saphyr, was lauded by scientists and doctors in the recently-concluded Next-Generation Cytogenomics Symposium. As a result, Bionano could be a pioneer in its relatively nascent industry, as it currently faces no direct competition. However, I feel it’s a bit too early to invest in BNGO stock.
Bionano’s been on quite a roller-coaster ride. The stock was hovering around the $1 mark last year but quickly fell below that level in March.
In December it was given a 180-day extension to maintain its share price above $1. Luckily for the company, the recent positive news surrounding Saphyr has steered it away from the danger zone.
Dilution could potentially be a significant problem though down the line. It had 7 million listed shares initially, but it could have as many as 133 million shares if its warrants were converted.
The average executable price for these warrants is significantly lower than its current price and will result in massive dilution. Let’s look at why I believe it’s best to avoid it at this time.
The Novelty of Saphyr
The company’s Saphyr genome mapping system can detect variations and irregularities in the chromosome, which typical gene sequencers fail. Therefore, the system is generally more reliable in diagnosing neurodevelopmental disorders resulting from structural variations. The system has already been used in researching conditions such as ALS, Covid-19, Leukemia, Alzheimer’s, and others.
In addition to its approval for research use, Saphyr is getting traction due to its recent successes. Praxis Genomics recently received the go-ahead to use the system for laboratory testing. Similar efforts are ongoing, which will continue to strengthen its long-term case.
Genomics is an emerging field, and management feels that its total addressable market could be as large as $3.8 billion annually. This includes one-off hardware sales along with consumables to run each test.
With the company’s trailing revenues at just $7.3 million, there is plenty of room for expansion. Moreover, rising awareness among doctors and scientists will continue to fuel adoption.
Risks for Bionano
Though Bionano and its Saphyr system have a lot of potential, several risks currently limit their attractiveness. For instance, the system cannot detect small mutations in genetic codes though it can detect large irregularities in chromosomes. Therefore, it’s not a substitute for traditional gene sequencing machines.
Another critical problem is that many of the tests performed by the company are already being performed through different laboratory workflows. These tests require unique reagents, equipment, and trained personnel to deliver the best results. Though Saphyr could save time, it might not fit into well-established and complex traditional workflows.
Moreover, liquidity and solvency troubles are likely to plague the company’s development moving forward. Though it has done well to raise finances for its ongoing product research, it has been ineffective in managing its costs.
For example, Bionano’s selling, general and administrative costs almost doubled in the third quarter of 2020 on a year-over-year basis. The lead-time for meaningful sales is significant, which will continue to exert pressure on the company’s finances.
Bottom Line on BNGO Stock
Bionano Genomics has a lot of potential for long-term success and could have the first-mover advantage in its sector. Its machine could save a lot of time and money for resource-strapped healthcare systems. However, widespread adoption is still way-off, and with unstable revenue streams, the company could be burning cash at a frantic pace.
I feel that the stock deserves to be on your watch list for the future. At this time, though, it’s best to avoid it and look for other stalwarts in its field.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.