Rapid Micro Biosystems, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. Amounts are in U.S. dollars. The company develops and sells the Growth Direct automated microbial quality-control platform, consumables, software and related services to pharmaceutical and other manufacturers.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $6.9m | $5.2m | $18.0m | $10.8m |
| Operating loss | $12.1m | $7.6m | $32.7m | $20.8m |
| Net loss | $25.0m | $8.5m | $58.9m | $25.7m |
| Net loss per share | $0.71 | $30.08 | $5.14 | $89.20 |
Q3 revenue increased 31.5%; nine-month revenue increased 66.3%. Product revenue rose 18.6% in Q3 and 82.5% year to date; service revenue rose 65.3% and 101.6%, respectively. For the nine months, recurring product and service revenue grew 104.2% to $5.5m. It represented 30.7% of total revenue, versus 25.0% a year earlier. Management says recurring sales depend on systems being installed and validated, a process that typically takes three to nine months, followed by customer transition to regular use.
Cost of product, service and non-commercial revenue exceeded revenue by $1.3m in Q3 and $5.2m in the first nine months, implying gross margins of approximately negative 19% and negative 29%, respectively. Operating expenses increased, particularly sales and marketing and general and administrative costs. R&D, sales and marketing, and G&A expense for the nine months were $6.9m, $8.5m and $12.1m.
Net losses included substantial unusual expenses: a $8.2m Q3 and $19.6m nine-month loss from remeasurement of preferred-stock warrant liabilities before their IPO-related conversion to equity warrants; a $3.1m debt-extinguishment loss in Q3 and year to date; and approximately $0.8m of exit-fee expense associated with the IPO. These items contributed to net loss exceeding operating loss.
Cash and cash equivalents were $219.6m at September 30, 2021, versus $30.1m at year-end 2020; current assets were $244.2m and current liabilities $17.7m. The company reported no long-term debt at quarter-end after repaying its term loan in September; the repayment and related fees contributed to the extinguishment loss. Nine-month operating cash use was $42.1m, compared with $25.8m in 2020. Financing provided $218.0m, primarily from the IPO and preferred-stock issuance. Management expected available cash to fund operating and capital needs for at least 12 months after the statements were issued; a risk-factor discussion separately says the IPO proceeds and cash were expected to fund operations through at least 2023.
Changes, outlook and risks
- IPO and capitalization: The July 2021 IPO led to conversion of preferred stock into Class A and non-voting Class B common shares, and the company repaid its term loan. It reported 34.4m Class A and 6.9m Class B shares outstanding at September 30.
- Operating progress: The company placed 26 systems in the first nine months, versus 16 in 2020, and validated 17, versus 10. Cumulative placements reached 113 and cumulative validations 68. In Q3, placements were 10 versus 11 in the prior year.
- Management plans: The company expects continued investment in sales and marketing, manufacturing capacity, R&D and personnel, and expects operating losses for the foreseeable future. It provided no specific revenue or earnings guidance in this filing.
- BARDA: Nine-month non-commercial revenue declined 33.2% to $1.2m due to lower reimbursable activity. Management expected current BARDA funding to be fully earned by the end of 2021.
- Principal risks: COVID-19-related travel and customer-site restrictions delayed shipping, installation, validation and training; the duration and financial effect remained uncertain. The company also cited customer and revenue concentration, extended time to generate recurring sales, ongoing losses and possible need for future capital, reliance on suppliers (including single-source components), and dependence on its sole manufacturing and development facility. One camera supplier planned to discontinue production; the company said it had inventory to support qualification of a replacement, but noted the timing and adequacy were uncertain.
- Other disclosures: The company reported effective disclosure controls at September 30, no material changes in internal control during the quarter, no material legal proceedings and no defaults upon senior securities.
Important facts for investors to verify
- Reconcile the filing’s IPO proceeds disclosures: the narrative cites approximately $143.8m from the IPO plus $20.2m from the partial over-allotment, while the cash-flow statement reports $165.5m of net IPO proceeds.
- Assess cash runway against the $42.1m nine-month operating cash use and reconcile management’s statements of at least 12 months of funding and funding through at least 2023.
- Monitor system installation-to-validation timelines and whether recurring consumables and service revenue continue to grow as the validated installed base expands.
- Review customer concentration: two customers generated 43.5% of Q3 revenue; one generated 16.4% of nine-month revenue.
- Track the BARDA funding transition, supplier continuity and camera replacement qualification, as well as the continuing effects of COVID-19 on customer-site access and operations.