The Saphyr System
Bionano Genomics (NASDAQ: BNGO) is a biotech company that has analytical genome systems and services that can be used for doctors and scientists looking to better understand their patients.
This technology is influential as it can improve the quality of life for patients as unknowns are solved through its genome-mapping machine known as Saphyr. Alongside the Saphyr system, Bionano Genomics has services to keep existing customers coming back for more.
To understand Bionano Genomics as a company, it’s crucially important to understand the product currently moving its business to new heights in the genome-mapping industry.
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In all DNA, large structural segments are responsible for most diseases and conditions that can occur. This includes cancers and disorders that can develop over time. However, optimal genome mapping in the Saphyr system detects these structural variations. The accuracy is so high that the possibility of false positives is below 2% on any given procedure.
In most cases, Saphyr detects and signals all variations of the structures in mosaic or heterogeneous cancer samples down to 1%.
The pros of this system are that we can begin to understand patient’s DNA better. The false positives are fairly low, making sure that the best results are provided. Genome scaffolding is very fast, only taking a matter of 4 days for some results to appear.
Cons are minimal, however, the cost-to-entry starts at $150,000 per Saphyr system, alongside $550 per genome. While this will likely be a massive driver for growth, this currently limits the potential as the entry point is so high.
There’s no doubt these systems are beneficial, but what matters is the upfront costs associated with the product.
While peering into the fundamentals of Bionano Genomics, revenue for its recent quarters has been fairly impressive. The second quarter of this year generated $3.9 million in revenue, up 226% year-over-year. This was heavily driven by the growth in nanochannel array flow cells.
While the fundamentals for Bionano Genomics are relatively steady, the company in the second quarter spent over $17.9 million on operating expenses which includes almost $4.1 million on research and development costs.
Research and development is great to see, but lowering the overall costs, or increasing the revenue is what will make Bionano Genomics intriguing to more investors in the future.
Bionano Genomics with the Saphyr system is extremely compelling. However, it’s important to note the high valuation already baked into the stock.
Since Bionano Genomics is not yet profitable, another way to measure valuation is the price-to-sales (P/S) ratio which currently sits at over 120. This is extremely high as it shows that investors are paying an extraordinary price for so little, at least fundamentally.
This company has got a substantial amount of potential. However, at the current valuation, it’s really difficult to consider purchasing the stock anytime soon until either the price falls, or the revenue accelerates at a faster rate in the future.
With that being said, the products and services offered are incredible and becoming more in-demand as the healthcare industry recognizes the potential of these technology applications.
Further advancement in the pace of identifying genome variations will take Bionano Genomics and the industry as a whole to new levels which were previously unthinkable.
As incredible as Bionano Genomics’s business model, Saphyr system, research, and developments fascinate me, it’s hard to justify its current valuation. This means investors should be wary of deciding to invest or holding off until the business can prove the valuation over the long term.
Overall, I can realistically see Bionano Genomics making a dent in the market to make room for themselves by rapidly advancing the pace at which they distribute Saphyr systems to new clients. They are heading in the right direction which is promising.
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Author’s Trade insights
This is not intended to be investment advice. As always do your own due diligence and invest based upon your own risk appetite and consult your own financial advisor for the right investment strategy for your specific needs.
Even though BNGO is not generating a profit yet, an investor or trader can still gain exposure for potential profits using different option strategies. My favorite was to play this would be to sell a Cash Secured Put for a few months out. Since I would not mind owning this stock it will be a great strategy to collect so cash upfront and if price falls below the strike price of my choosing by expiration, then I will own the stock at a discount and sell out of the money covered calls as I participate in some expected upside.
Lets map out a trade that I would take: As of this writing BNGO is trading for $5.31 a share. To sell one Put contract I have to be willing to purchase 100 shares at a strike price of my choosing. I would choose the $5 strike so I would need to have collateral of $500 to execute this trade.
I will choose the January 21, 2022 expiration date and once executed I will collect an immediate credit to my trading account of $0.94 a share or $94 (.94*100 shares). This $94 I keep regardless of what happens in the trade. I can withdraw this and do what ever I like even invest it in more stocks. That money is now cash that I own!
If BNGO by January 21st 2022 is $5 or higher, then my collateral will be released and I can use that same collateral to execute another contract or what ever I want to do with it. However, if BNGO is below $5 at expiration then my collateral will be used to purchase 100 shares at the strike price of $5. My profitability or loss will be the current price relative to my break even point. My break even price is the strike price minus the premium I received ($5-$0.94 or $4.06).