Twist Bioscience Corp. 10-K Summary (Fiscal Year Ended Sept 30, 2018)
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended September 30, 2018. Twist Bioscience Corporation is a synthetic biology company that utilizes a proprietary silicon-based platform to manufacture synthetic DNA. The company offers synthetic genes, oligo pools, next-generation sequencing (NGS) tools, and DNA libraries. As of the reporting date, the company served 719 customers across healthcare, industrial chemicals, academic research, and agriculture sectors. The company completed its Initial Public Offering (IPO) in October 2018, shortly after the fiscal year-end.
Key Financial Metrics
| Metric | Fiscal 2018 | Fiscal 2017 | Fiscal 2016 |
|---|---|---|---|
| Revenue | $25.4 million | $10.8 million | $2.3 million |
| Net Loss | $(71.2) million | $(59.3) million | $(44.1) million |
| Operating Loss | $(70.6) million | $(58.5) million | $(43.7) million |
| Cost of Revenues | $32.2 million | $24.0 million | $9.4 million |
| Research & Development | $20.3 million | $19.2 million | $18.2 million |
| Selling, General & Admin | $43.5 million | $26.1 million | $18.3 million |
| Cash & Equivalents (End of Period) | $80.8 million | $31.2 million | $28.6 million |
| Working Capital | $77.1 million | $58.4 million | $50.4 million |
| Long-Term Debt (Principal) | $10.0 million | $10.0 million | Refinanced |
Note: Gross margins were negative for all periods presented due to high fixed costs and scaling of manufacturing infrastructure relative to revenue.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 136% year-over-year to $25.4 million, driven by a 136% increase in synthetic gene sales and the commercial launch of NGS tools in February 2018.
- Customer Concentration: Ginkgo Bioworks remained the largest customer, accounting for 34% of total revenue ($8.7 million). Revenue from non-Ginkgo customers grew 160% to $16.7 million.
- Expense Expansion: Selling, General, and Administrative (SG&A) expenses surged 67% to $43.5 million, primarily due to increased headcount in sales, marketing, and costs associated with preparing for the IPO. Cost of revenues increased 34% due to higher production volumes and the introduction of NGS products.
- Gene Shipments: The company shipped 247,102 genes in fiscal 2018, a 96% increase compared to fiscal 2017.
Guidance, Outlook, Risks, and Contingencies
- Outlook: Management expects to continue incurring significant losses as it expands manufacturing capacity, enters new markets (pharmaceutical biologics, DNA data storage), and scales its sales organization. The company believes its cash position, bolstered by the October 2018 IPO proceeds of $69.6 million, is sufficient to fund operations for at least 12 months.
- Legal Proceedings: The company is involved in ongoing litigation with Agilent Technologies, Inc., alleging trade secret misappropriation and breach of contract. A trial is scheduled to begin in February 2020. The company believes it has meritorious defenses but notes the outcome is uncertain and could be costly.
- Supply Chain Risk: The company relies on a single-source supplier for a critical component of its DNA synthesis process. Disruption to this supply could materially harm operations.
- Regulatory: While current products are largely "Research Use Only," future expansion into clinical diagnostics could subject the company to FDA regulation.
Key Facts for Investor Verification
- Profitability Path: Verify the timeline and assumptions for achieving positive gross margins and operating profitability, given the current negative gross margin structure.
- Customer Concentration: Assess the risk associated with Ginkgo Bioworks representing nearly one-third of revenue and the potential impact of Ginkgo's internal manufacturing capabilities (acquired via Gen9) on future orders.
- Agilent Litigation: Monitor the status of the trade secret lawsuit with Agilent, as an adverse ruling could result in significant damages or injunctive relief.
- Single-Source Supplier: Confirm the status of the critical single-source component supply and the company's contingency plans.
- Capital Burn Rate: Review the rate of cash consumption against the $80.8 million cash balance and $69.6 million IPO proceeds to validate the 12-month liquidity runway.