Twist Bioscience Stock: Cash burn continues to be the problem (NASDAQ: TWST)

Evgenii Kovalev

It is amazing how complete the illusion that beauty is goodness is.“- Leo Tolstoy

We put our first research paper on Twist Bioscience Corporation (NASDAQ: TWST) in May this year. The company has been somewhat in the news in recent months and the stock jumped almost 20% in trading on Thursday, coinciding with the biggest daily rally in markets since 2020. Therefore, it seems like the time has come to look back on this unique game in the field of biology. An updated analysis follows below.

Stock chart

Looking for Alpha

Company presentation:

Twist Bioscience Corporation is headquartered in South San Francisco. The stock is currently trading at nearly $34.00 per share and has an approximate market capitalization of $1.8 billion. The Company manufactures and sells synthetic DNA products from its DNA synthesis platform which enables the manufacture of synthetic DNA by writing DNA onto a silicon chip. Among the products offered by Twist are synthetic genes, sample preparation tools, antibody libraries for drug discovery and development, and DNA as a digital data storage medium. These products have many uses in the industrial, agricultural and medical fields.

Second quarter results:

On August 5, the company released its second quarter results. The company lost $1.08 per share on a GAAP basis. Despite the deep loss, it was nearly a quarter share above consensus. Revenue increased 60% year over year to $60.1 million, about $4 million higher than expected.

Income distribution

Presentation of the company in August

The company launched several new products during the quarter, including its MRD Rapid 500 panel which allows customers to implement fully customizable panels for $50 per sample. Twist’s revenue comes from three main sources/industries. Here’s how they fell apart in the second quarter.

Next Generation Sequencing or NGS:

ENG income

Presentation of the company in August

Synthetic biology:

Synthetic biology revenue

Presentation of the company in August

Biopharma:

Biopharma revenues

Presentation of the company in August

Additionally, DNA can be used to encode and store digital data and the company continues to develop its data storage capabilities. The company is investing approximately $40 million of its planned R&D spending of $125 million in 2022 in this effort. In Q2, Twist participated in panels and presentations at key data storage and industry conferences including the 12th Annual Fujifilm Global IT Executive Summit, MRS 2022 Spring Meeting and Expo and the top on flash memory. Management estimates that DNA data storage could eventually represent a $2 billion annual market for the company.

Data Storage Efforts

Presentation of the company in August

Management raised its fiscal 2022 sales forecast to about $203 million, an increase from its previous forecast of $191 million to $199 million. Management expects a net loss of approximately $250 million for the current fiscal year.

RECENT DEVELOPMENTS:

In late October, the company promoted its chief commercial officer to the new president and chief operating officer. Last week, the company announced that it would partner with Illumina (ILMN) to expand customer access to the Illumina Exome 2.0 Plus panel to promote disease research. Finally, Twist revealed in mid-September that it will work with Enzolytics (OTCPK:ENZC) on the discovery of monoclonal antibodies against several viruses.

Analysts’ comments and review:

Since the release of second quarter figures, the analyst community has been mixed on Twist’s outlook. Goldman Sachs reissued its sell rating and price target of $35, while last month SVB Securities maintained its hold rating and price target of $46 on TWST. Barclays ($45 price target) and Robert W. Baird ($56 price target) reiterated buy ratings on the stock.

Approximately 11% of TWST’s outstanding float is currently held short. There have been frequent but generally modest selling by many insiders here in 2022. In Q3 they sold just over $1 million in total equity. The company ended the second quarter with just over $525 million in cash and marketable securities on its balance sheet after posting a net loss for the quarter of $60.5 million. The company posted a net loss of $60.7 million in the first quarter of this year.

Verdict:

The analyst firm’s current consensus is that the company will lose about $4.50 per share in fiscal 2022, even if revenue increases more than 50% to just north of $200 million. They forecast similar losses for fiscal 2023, even if sales exceed $250 million.

Twist Bioscience shows solid revenue growth. Unfortunately, the company continues to lose cash substantially and is likely to do so continuously until at least fiscal 2023. The company has over half a billion dollars of cash on its balance sheet. DNA data storage offers intriguing long-term possibilities. The company is also building a 110,000 square foot facility that is expected to be completed in 2023 and is expected to generate economies of scale and open up the fast gene market.

However, until Twist Biosciences management shows meaningful progress in reducing its quarterly cash burn rate and is much closer to breaking even; I will avoid sharing. We should get a new set of data points to analyze, it’s worth noting, as Q3 results will be released shortly.

The greater the gap between self-perception and reality, the more aggression is unleashed on those who report the gap.”― Stefan Molyneux

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