Twist Bioscience Corporation — FY2019 Form 10-K
Reporting period: Fiscal year ended September 30, 2019. The filing is an annual report, not a standalone fourth-quarter filing; quarterly figures below provide Q4 context. Twist sells synthetic DNA products, including genes, oligo pools, next-generation sequencing (NGS) tools and DNA libraries, using a silicon-based DNA synthesis platform.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $54.4 million | $25.4 million |
| Cost of revenue | $47.4 million | $32.2 million |
| Gross profit and margin | $7.0 million; 12.8% | $(6.8) million; (26.6)% |
| Research and development | $35.7 million | $20.3 million |
| Selling, general and administrative | $80.1 million | $43.5 million |
| Operating loss | $(108.9) million | $(70.6) million |
| Net loss | $(107.7) million | $(71.2) million |
| Cash used in operating activities | $(87.9) million | $(66.2) million |
Revenue grew 114% year over year, while operating expenses rose 70%. FY2019 revenue mix was $26.7 million from synthetic genes, $21.0 million from NGS tools, $4.6 million from oligo pools and $2.0 million from DNA libraries. NGS tools expanded sharply from $2.7 million in FY2018. Research and development and SG&A spending rose substantially as the company expanded product development and its commercial organization; SG&A also included $11.8 million of higher external legal expense.
In the quarter ended September 30, 2019, revenue was $15.7 million, operating loss was $31.6 million and net loss was $31.2 million. Revenue was up from $13.6 million in the preceding quarter and $8.4 million in the prior-year quarter; net loss increased from $27.9 million and $19.8 million, respectively.
At year-end, cash and cash equivalents were $46.7 million and short-term investments were $91.4 million, totaling $138.1 million; working capital was $129.8 million. Total liabilities were $34.9 million. Long-term debt principal was $7.5 million, including $3.3 million due within one year; the company had not drawn its $10 million revolving facility and reported compliance with loan covenants. FY2019 financing activities provided $158.6 million, principally from public offerings. Capital commitments were $2.5 million; disclosed contractual obligations totaled $63.3 million, including operating leases, debt and purchase commitments.
Material changes versus the prior comparable period
- Revenue more than doubled, driven by NGS tools and higher synthetic-gene volumes. NGS tools reached 39% of revenue, compared with 10% in FY2018.
- Gross margin improved to 12.8% from negative 26.6%, but operating and net losses widened as spending increased.
- Cash used in operations increased by $21.8 million. The company raised $156.2 million net from its IPO and May 2019 public offering; year-end cash and short-term investments rose by $57.4 million.
- Ginkgo Bioworks remained the largest customer, but its share of revenue declined to 17% from 34%; sales to it were $9.2 million. Repeat customers generated 97% of FY2019 revenue.
- Healthcare-sector revenue increased to $17.4 million from $4.2 million, while industrial chemicals remained the largest industry at $21.9 million.
Outlook, commentary and key risks
- Management expected available cash and cash equivalents to fund planned expenses, capital expenditures and debt service for at least 12 months from issuance of the financial statements. The filing provides no specific numerical revenue or profit guidance and notes that additional financing may be needed beyond that period.
- Management plans continued investment in platform and product development, sales and marketing, international expansion including China, biologics discovery and DNA data storage. These adjacent opportunities remain development or expansion initiatives, not assured sources of future revenue.
- Agilent litigation alleges trade-secret misappropriation and related claims against Twist, its CEO and individuals. Twist disputes the allegations; trial was scheduled for February 2020. The company said it could not estimate a reasonably possible loss and accrued no amount.
- Other material risks include continued losses and cash burn; customer concentration and lack of minimum-purchase contracts; dependence on a single-source critical component; manufacturing scale-up and facility concentration; competition and pricing pressure; intellectual-property protection; regulatory and biosecurity changes; and China-related legal, currency and trade risks.
- The company reported effective disclosure controls and internal control over financial reporting as of September 30, 2019. Its independent auditor issued an unqualified opinion on the financial statements but was not engaged to audit internal control effectiveness.
Important facts for investors to verify
- Whether NGS and synthetic-gene growth translates into improved gross margins and a sustainable path toward profitability.
- Cash burn, cash runway and financing needs relative to management’s stated outlook; also track debt repayments and contractual commitments.
- Customer concentration, including Ginkgo Bioworks’ orders and the conversion of reported order value into recognized revenue.
- Developments and potential financial exposure in the Agilent litigation, including any trial outcome, settlement or change in accruals.
- Progress and costs for China operations, manufacturing capacity, quality certifications and the critical single-source supply component.