The story underpinning Bionano Genomics (NASDAQ:BNGO) stock unquestionably is intriguing. Bionano claims to offer a substantial improvement in genome analysis that enables more patients to be correctly diagnosed and treated.
If the company is right and its technology truly is that disruptive, then BNGO stock should climb, and it could potentially rise tremendously.
But there’s a catch. Every medical/life sciences startup — and even 18 years after its founding, Bionano Genomics still is a startup — has an intriguing story. Such a story is the bare minimum needed to acquire enough capital to open the doors, let alone to launch an IPO.
Most of those intriguing stories, however, end in failure. Technological advancements that work on paper stumble in practice. Even approved products aren’t always adopted on a widespread basis
Institutional investors often use a “basket” approach with companies like Bionano because multiple investments in multiple startups might yield a few bets that don’t work out and a couple of winners that more than offset the losers.
At the moment, individual investors seem to be forgetting just how difficult medical advances truly are. Whether it’s Ocugen (NASDAQ:OCGN), Zomedica (NYSEAMERICAN:ZOM) or BNGO stock, they’re pricing good stories as if the odds of success are 100% or close to it.
For Bionano in particular, we don’t yet have much evidence that its success is guaranteed. In fact, what we’ve seen so far suggests skepticism from those investors who are likely most familiar with the industry and with the company.
That doesn’t mean BNGO stock is headed to $0. Experts get it wrong, and the company’s outlook has improved of late. It just means that, as attractive as the stock’s potential is, investors need to keep a close eye on the risks that it poses as well.
The Story so Far
To be blunt, so far we haven’t seen much evidence that Bionano Genomics truly is a transformative company.
Certainly, its financial results don’t suggest that it’s transformative. Last year, its revenue fell 16% year-over-year to $8.5 million That’s with a $1.5 million boost from Lineagen, a company that it acquired in August.
And while both a change in Bionano’s go-to-market strategy and the novel coronavirus pandemic were factors in its top-line decline, its long-term trend isn’t promising either. Its sales declined 16% in 2019, obviously long before the pandemic arrived.
Bionano’s technology simply hasn’t been adopted yet. And before this year, there was seemingly little optimism that it would be.
Bionano raised just $20 million when it went public in 2018. It originally aimed to generate $38 million, but the demand for BNGO stock wasn’t there. By April of last year, the company was selling stock for just 33 cents per share and had to add warrants to sweeten the deal.
Bionano has been telling roughly the same story since it was founded in 2003. Customers haven’t really been interested in it and neither have investors.
The Case for BNGO Stock
But here’s the important and wonderful thing about investing: history doesn’t define the future.
That’s particularly true for Bionano Genomics because it has changed in important ways.
Most notably, the meteoric rise of BNGO stock has cleaned up the company’s balance sheet. Bionano has raised more than $300 million in 2021 alone. Bankruptcy — a possible outcome just 12 months ago — is off the table. More importantly, the company has the ability to rev up its marketing initiatives and strengthen its research and development efforts.
A changing go-to-market strategy helps as well. Bionano isn’t just selling products; it’s also renting some out in return for commitments to purchase a certain amount of its consumable products. And Bionano’s improved balance sheet allows the company to more aggressively trade upfront revenue in exchange for adoption and sales over the longer term.
So its outlook is better than it was just 12 months ago or three months ago. Whether it’s better enough to support a roughly $1.6 billion increase in enterprise value is up for debate. Personally, I’m skeptical: I’m not yet convinced enough of Bionano’s edge to pay quite this much for its stock.
Patience and Caution
Reasonable investors can disagree, particularly with BNGO stock down by more than half from its February highs. But what’s not reasonable is to expect that the stock is going to explode to $10 by the end of the month, jump $20 by the end of the year, or reach whatever round-number target so many investors pull out of the air these days.
Even a positive outcome for the company’s underlying technology will take time. As Bionano’s management detailed on the company’s fourth-quarter earnings conference call, third-party payors (i.e, insurance companies) will have to approve its products before their adoption rates can steadily climb. Getting those authorizations alone is a multi-year process.
During that process, Bionano will face risks. The offerings of its rivals, Pacific Biosciences (NASDAQ:PACB) and Illumina (NASDAQ:ILMN), could be adopted more quickly and/or their existing technologies could improve meaningfully. Bionano’s execution can falter or, more simply, it could simply never quite gain the needed traction.
Again, a story alone isn’t enough. Every company has a good story of some kind.
Those stories have to play out. That process is rarely quick and never guaranteed to happen. Bionano is not a magical exception to that rule.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.