Twist Bioscience Corp

1. Organization and description of business

Twist Bioscience Corporation (the Company) was incorporated in the state of Delaware on February 4, 2013. The Company is a leading, rapidly growing synthetic biology company that has developed a disruptive DNA synthesis platform to industrialize the engineering of biology. The Company’s fiscal year ends on September 30.

The core of the Company's platform is a proprietary technology that pioneers a new method of manufacturing synthetic DNA by “writing” DNA on a silicon chip. The Company has combined our silicon-based DNA writing technology with proprietary software, scalable commercial infrastructure and an e-commerce platform to create an integrated technology platform that enables us to achieve high levels of quality, precision, automation, and manufacturing throughput at a significantly lower cost than our competitors. The Company has applied its unique technology to manufacture a broad range of synthetic DNA-based products, including synthetic genes, tools for next generation sequencing, or NGS, sample preparation, and antibody libraries for drug discovery and development, all designed to enable its customers to conduct research more efficiently and effectively. The Company has leveraged the same technology to expand its footprint beyond DNA synthesis to manufacture synthetic RNA as well as antibody proteins to disrupt and innovate within larger market opportunities, in addition to discovery partnerships for biologic drugs and developing completely new applications for synthetic DNA, such as digital data storage.

The Company has recognized annual losses from operations since inception and has an accumulated deficit of $1,273.5 million as of December 31, 2024. The Company incurred net losses of $31.6 million and $43.0 million for the three months ended December 31, 2024 and 2023, respectively. As of December 31, 2024, the Company had cash and cash equivalents of $221.4 million and short-term investments of $49.4 million. The Company expects that its current cash, cash equivalents, and short-term investments will be sufficient to fund its operations for a period of at least one year from the date the condensed consolidated financial statements are issued.

2. Summary of significant accounting policies

Basis of presentation

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2024 (the Annual Report on Form 10-K) filed with the Securities and Exchange Commission on November 18, 2024. The condensed consolidated financial statements are unaudited and have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of the condensed consolidated financial statements. The condensed consolidated balance sheet at September 30, 2024 is derived from audited consolidated financial statements but does not include all disclosures required by GAAP. The operating results for the three months ended December 31, 2024 are not necessarily indicative of the results expected for the full year ending September 30, 2025 or any interim period.

Use of estimates

The presentation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The Company’s unaudited condensed consolidated financial statements include its wholly owned subsidiaries. All intercompany balances and accounts are eliminated in consolidation.

Cash and cash equivalents and restricted cash

The following table provides a reconciliation of the Company’s cash and cash equivalents and non-current portion of restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total cash, cash equivalents and restricted cash shown in the Company’s condensed consolidated statements of cash flows:

Significant accounting policies

There have been no material changes in the accounting policies from those disclosed in the audited consolidated financial statements and the related notes included in the Annual Report on Form 10-K other than disclosed below.

Liability related to the sale of future revenue

The Company accounts for the proceeds received from the monetization of future milestone and royalty payments from its contracts with certain customers as a debt instrument, which is amortized using the effective interest rate method over the estimated term of the arrangement. The Company recognizes interest expense thereon using the effective rate, which is based on its current estimates of future milestone and royalty payments under its customer contracts to be paid to the counterparty over the term of the arrangement. The Company periodically assesses these future estimated payments to impute interest on the carrying value of the liability. To the extent its estimates of future payments to the counterparty are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, the Company will account for any such changes by adjusting the effective interest rate on a prospective basis, with a corresponding impact to the liability. The assumptions used in determining the expected repayment term of the liability also requires that the Company makes estimates that could impact the classification of the liability, interest recorded on such liability, as well as the period over which such interest will be incurred. For further discussion, please see Note 5, Liability related to the sale of future revenue liability.

Recent accounting pronouncements

New accounting guidance issued but not yet effective

In December 2023, the FASB issued ASU No. 2023-09 "Income Taxes (Topic 740)". The amendments in this ASU require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. The amendments in this update are effective for annual periods beginning after December 15, 2024. The standard is not expected to have a material impact to the Company's consolidated financial statements.

In November 2023, the FASB issued ASU No. 2023-07 "Segment Reporting (Topic 280)". The amendments in this ASU improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied retrospectively. The standard is not expected to have a material impact to the Company's consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, which will require additional expense disclosures for all public entities. The amendments require that at each interim and annual reporting period, an entity will disclose certain disaggregated expenses included in each relevant expense caption, as well as the total amount of selling expenses and, in annual periods, an entity’s definition of selling expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the incremental disclosures that will be required in its financial statements.

The Company has evaluated other recently issued accounting pronouncements and has concluded that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

3. Revenue

The Company’s revenue is generated through the sale of synthetic biology tools, such as synthetic genes, oligo pools, NGS tools, DNA libraries and biopharma services for antibody discovery, optimization and development ("Biopharma").

Contract balances

The following table summarizes our contract balances:

(1) Consists of unbilled amounts primarily related to Biopharma contracts which consists of research and development agreements with third parties.

(2) Consists of receipt of advance payment before our performance obligations related to Biopharma contracts are met.

For the three months ended December 31, 2024 and December 31, 2023, the Company recognized revenue of $1.7 million and $1.3 million, respectively, from the amount that was included in the contract liability balance at the beginning of each period.

In addition, for all periods presented, there was no revenue recognized in a reporting period from performance obligations satisfied in previous periods. The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied as of December 31, 2024 was $8.1 million. The Company expects to recognize revenue over the next twelve months relating to performance obligations unsatisfied as of December 31, 2024.

Based on the nature of the Company’s contracts with customers which are recognized over a term of less than 12 months, the Company has elected to use the practical expedient whereby costs to obtain a contract are expensed as they are incurred. The Company states its revenues net of any taxes collected from customers that are required to be remitted to various government agencies. The amount of taxes collected from customers and payable to governmental entities is included on the balance sheet as part of “Accrued expenses and other current liabilities.”

Disaggregation of revenues

The table below sets forth revenues by geographic region, based on ship-to destinations. Americas consists of the United States, Canada, Mexico and South America; EMEA consists of Europe, the Middle East, and Africa; and APAC consists of Japan, China, South Korea, India, Singapore, Malaysia and Australia.

The table below sets forth revenues by products.

The table below sets forth revenues by industry.

4. Cash, cash equivalent and investments

The following table sets forth the cash and cash equivalents, and investments as of December 31, 2024:

The following table sets forth the cash and cash equivalents, and investments as of September 30, 2024:

During the three months ended December 31, 2024 and 2023, gross realized gains and losses related to our short-term investments were not material.

During the three months ended December 31, 2024 and 2023, the Company did not recognize any credit losses.

5. Fair value measurement

The Company assesses the fair value of financial instruments based on the provisions of ASC 820, Fair Value Measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considering counterparty credit risk in its assessment of fair value.

Assets measured at fair value on a recurring basis

As of December 31, 2024, financial assets measured and recognized at fair value are as follows:

As of September 30, 2024, financial assets measured and recognized at fair value are as follows:

Contractual maturities of short-term investments, as of December 31, 2024, were less than 12 months. Accrued interest receivable balances included in the prepaid expenses and other current assets within the condensed consolidated balance sheets were $1.4 million and $1.0 million as of December 31, 2024 and September 30, 2024, respectively.

As of December 31, 2024 and September 30, 2024, there were no financial liabilities measured and recognized at fair value.

There were no transfers between Level 1, Level 2 and Level 3 in the periods presented.

Assets and liabilities without readily determinable values measured on a non-recurring basis

The Company holds equity investment in a privately held company. The privately held company is a VIE, but the Company is not the primary beneficiary. The Company does not have the power to direct the activities that most significantly impact the economic performance of the investee. The Company’s maximum exposure to loss from this VIE consist of an equity investment of $1.5 million. Equity investments held by the Company lack readily determinable fair values and therefore the securities are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar equity securities of the same issuer. The Company reviews the carrying value of its equity investments for impairment whenever events or changes in business circumstances indicate the carrying amount of such asset may not be fully recoverable. Impairments, if any, are based on the excess of the carrying amount over the recoverable amount of the asset. The Company recorded $2.2 million of impairments during the three months ended September 30, 2024. There wereno such impairments during the three months ended December 31, 2024 and December 31, 2023.

6. Balance sheet components

Allowance for credit losses

Allowance for credit losses were $0.7 million and $0.7 million as of December 31, 2024 and September 30, 2024, respectively.

Inventories

Inventories consist of the following:

There isno consigned inventory balance as of December 31, 2024 and September 30, 2024.

Property and Equipment, net

Property and Equipment, net consists of the following:

Construction in progress mainly represents equipment costs, leasehold improvements costs and internal use software development costs. For the three months ended December 31, 2024 and December 31, 2023, the total depreciation and amortization expense was $6.1 million and $6.9 million, respectively.

Other current liabilities

Other current liabilities consist of the following:

7. Goodwill and intangible assets

The goodwill balance is presented below:

The finite-lived intangible assets balances are presented below:

Total amortization expense related to intangible assets was $0.3 million for the three months ended December 31, 2024 and $1.3 million for the three months ended December 31, 2023.

8. Leases

The Company leases certain of its facilities under non-cancellable operating leases expiring at various dates through 2044. The Company is also responsible for utilities, maintenance, insurance, and property taxes under these leases. The lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms, as well as payments for common-area-maintenance and administrative services. The Company often receives customary incentives from its landlords, such as reimbursements for tenant improvements and rent abatement periods, which effectively reduce the total lease payments owed for these leases. Leases are classified as operating or financing at commencement. The Company does not have any material financing leases.

Certain leases include options to renew or terminate at the Company’s discretion. The lease terms include periods covered by these options if it is reasonably certain the Company will renew or not terminate. The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants.

The following table presents the Company's right-of-use assets and lease liabilities related to the Company’s operating leases as of December 31, 2024:

Future minimum lease payments under all non-cancelable operating leases as of December 31, 2024 are as follows:

The components of lease expense and supplemental information were as follows:

Supplemental cash flow information related to leases are as follows:

9. Commitments and contingencies

Legal proceedings

The Company may be subject to litigation, claims and disputes in the ordinary course of business. Certain significant matters are described below. We recognize accruals for matters to the extent that we conclude that a loss is both probable and reasonably estimable. If we determine that a material loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss.

Securities Class Action

On December 12, 2022, a putative securities class action lawsuit captioned Peters v. Twist Bioscience Corporation, et al., Case No. 22-cv-08168 (N.D. Cal.) (“Securities Class Action”) was filed in federal court in the Northern District of California (“Court”) against the Company, its Chief Executive Officer, and its Chief Financial Officer (the “Defendants”) alleging violations of federal securities laws. The Securities Class Action’s claims are based in large part on allegations made in a report issued on November 15, 2022 by Scorpion Capital (“Scorpion Report”) concerning, among other things, the Company’s DNA chip technology and accounting practices. The initial complaint filed in the Securities Class Action alleges that various statements that the defendants made between December 13, 2019 and November 14, 2022 were materially false and misleading in light of the allegations in the Scorpion Report. The plaintiff who initiated the lawsuit sought to represent a class of shareholders who acquired shares of the Company’s common stock between December 13, 2019 and November 14, 2022 and sought damages as well as certain other costs. On July 28, 2023, the Court appointed a new plaintiff, not the original plaintiff who filed the case, as lead plaintiff in the case and appointed a new law firm as lead counsel. On October 11, 2023, the lead plaintiff filed an amended complaint. The amended complaint is purportedly brought on behalf of all persons other than the Defendants who acquired the Company’s securities between December 20, 2018 and November 15, 2022. The amended complaint alleges that certain statements regarding, among other things, the Company’s DNA products and accounting practices were false and misleading.

This case remains in the preliminary stage. Given the inherent uncertainty of litigation and the legal standards that must be met, including class certification and success on the merits, the Company cannot express an opinion on the likelihood of an unfavorable outcome or on the amount or range of any potential loss. The Company and the other defendants intend to vigorously defend themselves against the claims asserted against them and filed a motion to dismiss the amended complaint on December 6, 2023. A hearing on the motion to dismiss was held on November 13, 2024 and the Company is now awaiting the judge's decision.

Derivative Action

On September 25, 2023, a shareholder derivative suit captioned Shumacher vs. Leproust et al., No. 1:23-cv-01048-UNA, was filed in the United States District Court for the District of Delaware against directors of the Company and an employee (the “Derivative Action”). The suit is based on substantially the same allegations in the Securities Class Action and seeks to recover, on behalf of the Company, damages to the Company arising from, among other things, the Securities Class Action. On November 13, 2023, the parties to the Derivative Action entered into a stipulation staying the Derivative Action pending resolution of the anticipated motion to dismiss the defendants have filed in the Securities Class Action.

10. Related party transactions

During the three months ended December 31, 2024 and 2023, the Company had revenues from related parties in the amount of $4.0 million and $2.3 million, respectively. During the three months ended December 31, 2024, the purchases of raw materials from related parties were immaterial. During the three months ended December 31, 2023, the Company purchased raw materials from related parties in the amount of $1.3 million. As of December 31, 2024 and September 30, 2024, receivable balances with related parties were $0.7 million and $0.5 million, respectively. As of December 31, 2024 and September 30, 2024, payable balances with related parties were immaterial.

11. Income taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date profit or loss, adjusted for discrete items arising in that quarter. For the three months ended December 31, 2024 and 2023, the Company recorded provisions for income taxes of $0.1 million and $0.1 million, respectively.

12. Common stock

As of December 31, 2024, the Company had reserved sufficient shares of common stock, with a par value of $0.00001 per share, for issuance upon exercise of outstanding stock options. Each share of common stock is entitled toone vote. The holders of shares of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors.

13. Stock-based compensation

Stock-based compensation expense

The Company recorded stock-based compensation expense in the condensed consolidated statement of operations and comprehensive loss for the periods presented as follows (in thousands):

An immaterial amount of stock-based compensation expense was capitalized to property and equipment related to capitalized software development costs for the three months ended December 31, 2024 and 2023.

Restricted stock units

A summary of the Company’s restricted stock unit activity excluding the performance-based restricted stock units during the three months ended December 31, 2024 was as follows:

As of December 31, 2024, there was $91.7 million of total unrecognized compensation cost related to these awards that is expected to be recognized over a weighted average period of 3.1 years. The total grant date fair value of the restricted stock units excluding performance-based restricted units awarded during the three months ended December 31, 2024 was $48.1 million.

Performance stock units

During the three months ended December 31, 2024, the Company granted additional performance-based restricted stock units to executives and employees that will vest upon achievement of multiple year revenue, gross profit, and profitability metrics as determined by the board of directors. Stock compensation expense for these awards is recorded over the vesting period based on the grant date fair value of the awards and probability of the achievement of specified performance targets. The grant date fair value is equal to the closing share price of the Company’s common stock on the date of grant. These awards will vest from a minimum of 10 months to a maximum of 34 months service period following the grant date, provided that the recipient is a Company employee at the time of vesting and the performance targets applicable to each award are achieved. The percentage of these awards that vest will depend on the achievement of specified performance targets at the end of the performance period and can range from 0% to 140% of the number of units granted.

A summary of the Company’s performance-based restricted stock units during the three months ended December 31, 2024 was as follows:

As of December 31, 2024, the unrecognized compensation costs related to these awards was $66.4 million based on the maximum achievement of the performance targets. The Company expects to recognize those costs over a weighted average period of 2.0 years. The total grant date fair value of performance-based restricted stock units awarded during the three months ended December 31, 2024 was $62.1 million.

Stock options

A summary of the Company’s stock option activity excluding the performance-based stock options during the three months ended December 31, 2024 was as follows:

As of December 31, 2024, the unrecognized compensation costs related to these awards was $0.1 million. The Company expects to recognize those costs over a weighted average period of 0.8 years.

Performance stock options

A summary of the Company’s performance-based stock option activity during the three months ended December 31, 2024 was as follows:

As of December 31, 2024, the unrecognized compensation costs related to these awards was $0.1 million. The Company expects to recognize those costs over a weighted average period of 0.3 years. As of December 31, 2024, the Company determined that 30,000 shares of common stock are expected to vest based on the probability of the performance condition that will be achieved under this equity award program.

2018 Employee Stock Purchase Plan

The number of shares of the Company's common stock reserved for issuance under the 2018 Employee Stock Purchase Plan ("ESPP") at December 31, 2024 was as follows:

During the three months ended December 31, 2024, ESPP expenses of $0.5 million was recognized. During the three months ended December 31, 2023, activity under the 2018 ESPP wasimmaterial.

14. Net loss per share

The following table sets forth the computation of the Company’s basic and diluted net loss per share:

The potentially dilutive common shares that were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive for the periods presented are as follows:

15. Liability related to the sales of future revenue

On October 21, 2024, the Company executed the Royalty Purchase Agreement with XOMA (US) LLC ("XOMA Royalty"). Under the Royalty Purchase Agreement, XOMA Royalty provided Twist Bioscience an upfront payment of $15.0 million in cash in exchange for the right to receive half of the future potential milestone and royalty payments resulting from certain antibody discovery and biopharma services agreements between the Company and its customers ("underlying customer agreements"). The terms of the underlying customer agreements provide for milestone and royalty payments to the Company contingent upon the Company's customers achieving certain clinical, regulatory, development and commercial milestones. Under the terms of the underlying customer agreements, the Company has significant continuing involvement as the Company has ongoing obligations such as services to support the generation of these milestone and royalty payments. As such, the Company applied the guidance under ASC 470, Debt, and recorded the upfront payment of $15.0 million as a liability related to the sale of future revenue, which will be amortized using the effective interest method over the estimated term of the Royalty Purchase agreement.

As milestone and royalty payments are remitted to XOMA Royalty, the balance of the liability related to the sale of future revenue will be effectively repaid over the term of the Royalty Purchase Agreement. In addition, in accordance with ASC 470, Debt, the Company will account for any milestone and royalty payments received in the future as revenue.

The estimate of the effective interest rate contains significant assumptions regarding the timing and amount of expected milestone and royalty payments, which are considered Level 3 fair value inputs, and impact the interest expense that will be recognized over the term of the Royalty Purchase Agreement. As of December 31, 2024, the Company's estimate of aggregate future milestone and royalty payments expected to be paid to XOMA Royalty over the term of the Royalty Purchase Agreement did not exceed $15.0 million, therefore, no imputed interest expense has been recorded during the three months ended December 31, 2024.