# Twist Bioscience Corp: Form 10-Q for the period ended Dec 31, 2023

- Company: [Twist Bioscience Corp](/companies/twst.md) (CIK 1581280)
- Form: 10-Q
- Filed: 2024-02-02
- Accepted by EDGAR: Feb 2, 2024, 16:04 ET
- Period: 2023-12-31
- Accession: 0001628280-24-003051
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1581280/000162828024003051/twst-20231231.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1581280/000162828024003051/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-10-01 to 2023-12-31 | $71.5m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-10-01 to 2023-12-31 | $42.5m | us-gaap:CostOfRevenue |
| Research and development | 3 months, 2023-10-01 to 2023-12-31 | $23.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-10-01 to 2023-12-31 | $52.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-10-01 to 2023-12-31 | −$47.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-10-01 to 2023-12-31 | $0 | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-10-01 to 2023-12-31 | $120.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-10-01 to 2023-12-31 | −$43.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-10-01 to 2023-12-31 | −$0.75 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-10-01 to 2023-12-31 | −$0.75 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-10-01 to 2023-12-31 | 57,497,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-10-01 to 2023-12-31 | −$23.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-10-01 to 2023-12-31 | $1.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-12-31 | $266.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-12-31 | $390.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-12-31 | $732.8m | us-gaap:Assets |
| Current liabilities | at 2023-12-31 | $65.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-12-31 | $142.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-12-31 | $590.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 20,306 characters.

You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 filed with the U.S. Securities and Exchange Commission, or the SEC, on November 21, 2023, or our Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those discussed in the section entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. In preparing this MD&A, we presume that readers have access to and have read the MD&A in our Annual Report on Form 10-K, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K.

### Overview

We are an innovative synthetic biology and genomics company that has developed a scalable DNA synthesis platform to industrialize the engineering of biology. The core of our platform is a proprietary technology that pioneers a new method of manufacturing synthetic DNA by “writing” DNA on a silicon chip. We have miniaturized traditional chemical DNA synthesis reactions to write over one million short pieces of DNA on each silicon chip, approximately the size of a large mobile phone. We have combined this 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. We are leveraging our unique technology to manufacture a broad range of synthetic DNA based products, including synthetic genes, tools for next-generation sample preparation, and antibody libraries for drug discovery and development.

Additionally, we believe our platform will enable new value-added opportunities, such as discovery partnerships for biologic drugs, and will enable new applications for synthetic DNA, such as digital data storage. We sell our synthetic DNA and synthetic DNA-based products to a customer base of approximately 3,450 customers annually across a broad range of industries.

We launched the first application of our platform, synthetic genes and oligo pools, in April 2016 to disrupt the gene synthesis market and make legacy DNA synthesis methods obsolete.

We have grown rapidly and generated revenues of $71.5 million and $54.2 million in the three months ended December 31, 2023 and 2022, respectively, while incurring net losses of $43.0 million and $41.8 million for the three months ended December 31, 2023 and 2022, respectively. Since our inception, we have incurred significant operating losses and have accumulated net deficit of $1,076.2 million. To support our growth, we have resized our number of employees and increased investment in our manufacturing capabilities. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the success of our existing products and the development and commercialization of additional products in the synthetic biology, biologic drug and data storage industries, including our Express Genes product which we launched in the fall of 2023, as well as leveraging our investment in our manufacturing facility near Portland, Oregon.

For the three months ended December 31, 2023 and 2022, we served approximately 2,140 and 2,060 customers, respectively.

Highlights from three months ended December 31, 2023 compared with three months ended December 31, 2022 include:

- Revenue growth of 32% to $71.5 million from $54.2 million, primarily due to order growth in NGS tools, synthetic genes and DNA libraries; and
- the number of our genes shipped increasing from 134,000 in 2022 to 171,000.

We have built a scalable commercial platform that enables us to reach a diverse customer base in a variety of industries including industrial chemicals/materials, academic research, healthcare, food, agriculture and data storage. To address this diverse customer base, we have employed a multichannel strategy comprised of a direct sales force targeting synthetic DNA customers, international distributors, and an e-commerce platform. Launched in fiscal 2018, our e-commerce platform allows customers to design, validate and place on-demand orders of customized DNA online. This is a key component of our strategy to address and support our diverse and growing customer base, as well as support commercial productivity, enhance the customer experience, and promote loyalty.

### Financial overview

The following table summarizes certain selected historical financial results:

*(in thousands)*

|  | Three months ended December 31, 2023 | 2022 |
| --- | ---: | ---: |
| Revenues | $71,498 | $54,243 |
| Loss from operations | (46,977) | (44,630) |
| Net loss attributable to common stockholders | (43,008) | (41,824) |

### Revenues

We generate revenue from sales of synthetic genes, oligo pools, NGS tools, DNA libraries and antibody discovery services. Our ability to increase our revenues will depend on our ability to further penetrate the domestic and international markets, generate sales through our direct sales force, distributors and over time from our e-commerce digital platform and launch new products.

### Revenues by geography

We have one reportable segment from the sale of synthetic DNA products. The following table shows our revenues by geography, based on our customers’ shipping addresses. Americas consists of United States, Canada, Mexico and South America; EMEA consists of Europe, Middle East and Africa; and APAC consists of Japan, China, South Korea, India, Singapore, Malaysia and Australia.

|  | Three months ended December 31, |  |
| --- | ---: | ---: |
| **(in thousands, except percentages)** | **2023%** | **2022%** |
| Americas | $43,959 61% | $33,646 62% |
| EMEA | 21,220 30% | 16,331 30% |
| APAC | 6,319 9% | 4,266 8% |
| Total revenues | $71,498 100% | $54,243 100% |

### Revenues by product

The table below sets forth revenues by product:

|  | Three months ended December 31, |  |
| --- | ---: | ---: |
| **(in thousands, except percentages)** | **2023%** | **2022%** |
| Synthetic genes | $19,726 28% | $16,175 30% |
| Oligo pools | 4,189 6% | 3,699 7% |
| DNA libraries | 2,939 4% | 1,836 3% |
| Antibody discovery | 5,226 7% | 8,171 15% |
| NGS tools | 39,418 55% | 24,362 45% |
| Total revenues | $71,498 100% | $54,243 100% |

### Revenues by industry

The table below sets forth revenues by industry:

|  | Three months ended December 31, |  |
| --- | ---: | ---: |
| **(in thousands, except percentages)** | **2023%** | **2022%** |
| Industrial chemicals/materials | $16,277 25% | $13,575 25% |
| Academic research | 13,773 19% | 10,015 19% |
| Healthcare | 40,881 55% | 30,013 55% |
| Food/agriculture | 567 1% | 640 1% |
| Total revenues | $71,498 100% | $54,243 100% |

### Product shipments including synthetic genes

Shipments of all products and number of genes shipped in the three months ended December 31, 2023, September 30, 2023, June 30, 2023, March 31, 2023, December 31, 2022, September 30, 2022, June 30, 2022, and March 31, 2022 were as follows:

*(in thousands)*

|  | Three months ended December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Number of genes shipped | 171 | 177 | 171 | 152 | 134 | 146 | 163 | 124 |
| Number of shipments | 18 | 17 | 17 | 15 | 14(1) | 20 | 15 | 14 |

(1) Previously reported number of shipments have been updated to conform to the current period presentation.

### Comparison of the three months ended December 31, 2023 and 2022

### Revenues

*(in thousands, except percentages)*

|  | Three months ended December 31, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $71,498 | $54,243 | $17,255 | 32% |

In the three months ended December 31, 2023, revenues increased to $71.5 million from $54.2 million in the three months ended December 31, 2022. The increase in revenue reflects growth in NGS tools revenue of $15.1 million, growth in synthetic genes revenue of $3.6 million and growth in DNA libraries revenue of $1.1 million, partially offset by a decrease in revenue from antibody discovery of $2.9 million. The growth in NGS tools revenue is primarily attributable to an increase in revenue from our top customers and the adoption of our products by a larger customer base within industrial chemicals/materials, healthcare and academic research industries. Our synthetic genes revenue grew mainly from our top customers and growth in the industrial chemicals/material, healthcare and academic research industries, as well as an improved turnaround time. In the three months ended December 31, 2023, we shipped approximately 171,000 genes compared to approximately 134,000 genes in the three months ended December 31, 2022, an increase of 28%. Changes in our synthetic gene pricing, while favorable, had a minimal impact on our results of operations period-over-period. Our DNA libraries revenue grew mainly due to an increase in customers in the academic research and healthcare industries. Our antibody discovery revenue decreased primarily due to a reduction in orders as we rebuilt our commercial team in late 2023 as a result of internal integration challenges.

### Cost of revenues

*(in thousands, except percentages)*

|  | Three months ended December 31, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenues | $42,536 | $29,442 | $13,094 | 44% |

In the three months ended December 31, 2023, cost of revenues increased to $42.5 million from $29.4 million in the three months ended December 31, 2022. The increase was attributable to an increase in material costs of $7.4 million due to higher volume and increase in depreciation and amortization expense of $2.6 million primarily due to the capital investment to an increase capacity by building out our new manufacturing facility located in Wilsonville, Oregon. The remaining increase was attributable to increase in personnel costs, including stock-based compensation of $2.2 million, which included savings related to the 2023 restructuring plan and increase in facilities costs of $0.3 million and increase in outside services of $0.6 million.

### Research and development expenses

*(in thousands, except percentages)*

|  | Three months ended December 31, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $23,099 | $31,242 | $(8,143) | (26)% |

In the three months ended December 31, 2023, research and development expenses decreased to $23.1 million from $31.2 million in the three months ended December 31, 2022. The decrease is primarily due to decreases in personnel costs of $4.0 million, stock-based compensation of $1.6 million as a result of reduction of personnel, lab supplies of $2.2 million, facilities costs of $0.3 million, and depreciation of $0.2 million.

### Selling, general and administrative

*(in thousands, except percentages)*

|  | Three months ended December 31, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative | $52,840 | $42,324 | $10,516 | 25% |

In the three months ended December 31, 2023, selling, general and administrative expenses increased to $52.8 million from $42.3 million in the three months ended December 31, 2022. The increase is primarily attributable to higher stock-based compensation of $15.2 million due to the reversal of stock-based compensation in the first quarter of 2023 because of employee stock forfeitures related to an acquisition performance condition not being met. Further, the increase was attributable to an increase in personnel costs of $2.7 million, outside services of $1.2 million and IT-related service costs of $1.0 million. These increases were partially offset by a decrease in pre-commercialization costs for the Wilsonville manufacturing facility of $11.8 million.

### Change in fair value of contingent consideration and holdbacks

*(in thousands, except percentages)*

|  | Three months ended December 31, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: |
| Change in fair value of contingent consideration and holdbacks | $— | $(4,135) | $4,135 | (100)% |

In the three months ended December 31, 2022, we recognized a change in fair value of the contingent consideration and holdbacks of $3.7 million and $0.4 million related to the acquisitions of Abveris and iGenomX, primarily as a result of not achieving Abveris revenue target of calendar year 2022 and a change in fair value of our stock price as of December 31, 2022.

### Interest and other income (expense), net

*(in thousands, except percentages)*

|  | Three months ended December 31, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $4,120 | $3,040 | $1,080 | 36% |
| Interest expense | — | (1) | 1 | (100)% |
| Other expense | (31) | (157) | 126 | (80)% |
| Total interest and other income (expense), net | $4,089 | $2,882 | $1,207 | 42% |

In the three months ended December 31, 2023, interest income was $4.1 million compared to $3.0 million in the three months ended December 31, 2022, resulting from increased interest rates on our short-term investments.

### Income tax (provision) / benefit

*(in thousands, except percentages)*

|  | Three months ended December 31, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: |
| Income tax (provision) / benefit | $(120) | $(76) | $(44) | 58% |

We recorded an income tax provision of $0.1 million and $0.1 million in the three months ended December 31, 2023 and December 31, 2022, respectively.

### Liquidity and capital resources

### Sources of liquidity

To date, we have financed our operations principally through public equity raises, private placements of our convertible preferred stock, borrowings from credit facilities and revenue from our commercial operations.

Since our inception on February 4, 2013 and through December 31, 2023, we have received an aggregate of $1,333.7 million in net proceeds from the issuance of equity securities in public offerings and an aggregate of $13.8 million from debt issuances. At December 31, 2023, we had a balance of $266.3 million of cash and cash equivalents and $44.9 million in short-term investments.

### Operating capital requirements

Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs, laboratory and related supplies, legal and other regulatory expenses and general overhead costs and the capital expenditures for our facility expansion including our manufacturing facility located in Wilsonville, Oregon. We had $1.5 million in commitments for capital expenditures as of December 31, 2023.

### Cash flows

The following table summarizes our sources and uses of cash and cash equivalents:

*(in thousands)*

|  | Three months ended December 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(22,973) | $(54,070) |
| Net cash provided by (used in) investing activities | 4,165 | (6,971) |
| Net cash used in financing activities | (1,473) | (395) |

### Operating activities

Net cash used in operating activities was $23.0 million in the three months ended December 31, 2023 and consisted primarily of a net loss of $43.0 million adjusted for non-cash items including depreciation and amortization expenses of $8.2 million, stock-based compensation expense of $11.0 million, non-cash lease expense of $0.2 million and a net change in operating assets and liabilities of $0.5 million. The change in operating assets and liabilities was mainly due to a decrease in accounts receivable of $8.1 million, inventories of $1.2 million, other non-current assets of $0.3 million and accrued expenses of $2.9 million, offset by an increase in prepaid expenses of $1.1 million, accounts payable of $4.2 million, accrued compensation of $5.1 million and other liabilities of $1.5 million.

Net cash used in operating activities was $54.1 million in the three months ended December 31, 2022 and consisted primarily of a net loss of $41.8 million adjusted for non-cash items including depreciation and amortization expenses of $5.3 million, stock-based compensation expense of $2.3 million, non-cash lease expense of $0.3 million, change in fair value of contingent consideration and holdbacks of $4.1 million, and a net change in operating assets and liabilities of $11.6 million. The change in operating assets and liabilities was mainly due to an increase in accounts receivable of $4.1 million, inventories of $5.3 million, prepaid expenses of $1.2 million and accounts payable of $3.3 million offset by a decrease in other non-current assets of $0.5 million, accrued compensation of $3.7 million and accrued expenses of $1.3 million.

### Investing activities

In the three months ended December 31, 2023, our investing activities provided net cash of $4.2 million, which was comprised of the proceeds from the net impact of purchases and maturity of investments of $5.7 million, offset by the purchases of laboratory property, equipment and computers of $1.5 million.

In the three months ended December 31, 2022, our investing activities used net cash of $7.0 million. The use of net cash resulted primarily from the net impact of purchases, sale and maturity of investments of $4.9 million and purchases of laboratory property, equipment and computers of $11.8 million.

### Financing activities

Net cash used in financing activities was $1.5 million in the three months ended December 31, 2023, which consisted of $2.4 million in repurchases of common stock for income tax withholdings, offset by $1.0 million from the exercise of stock options.

Net cash used in financing activities was $0.4 million in the three months ended December 31, 2022, which consisted of $0.6 million from the exercise of stock options, offset by $1.0 million in repurchases of common stock for income tax withholdings.

### Off-balance sheet arrangements

We do not have any off-balance sheet arrangements.

### Contractual obligations and other commitments

Our contractual obligations have not materially changed from those reported in our Annual Report on Form 10-K.

### Critical accounting policies and significant management estimates

The preparation of our Condensed Consolidated Financial Statements in accordance with generally accepted accounting principles in the United States of America requires management to make estimates and judgments that affect the reported amounts in the financial statements and related disclosures. On an ongoing basis, we evaluate our significant accounting policies and estimates. We base our estimates on historical experience and on various market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are assessed each period and updated to reflect current information. Actual results may differ significantly from these estimates. A summary of our critical accounting policies and estimates is presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended September 30, 2023. There were no material changes to our critical accounting policies and estimates during the three months ended December 31, 2023.

### Recent issued accounting pronouncements

For a description of accounting changes and recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements, see Note 2, “Summary of significant accounting policies” in Item 1 of Part I of this Quarterly Report on Form 10-Q.

## Market risk

As filed, 2,636 characters.

### Interest rate sensitivity

We are exposed to market risk related to changes in interest rates. We had cash, cash equivalents, and marketable securities of $311.1 million and $336.4 million as of December 31, 2023 and September 30, 2023, respectively, which consisted primarily of money market funds and marketable securities, largely composed of investment grade, short to intermediate term fixed income securities.

The primary objective of our investment activities is to preserve capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in a variety of securities of high credit quality and short-term duration, according to our board-approved investment policy. Our investments are subject to interest rate risk and could fall in value if market interest rates increase. A hypothetical 10% relative change in interest rates during any of the periods presented would not have a material impact on our condensed consolidated financial statements.

### Foreign currency sensitivity

The majority of our transactions occur in U.S. dollars. However, we do have certain transactions that are denominated in currencies other than the U.S. dollar, primarily the Euro, Chinese Yuan, and British Pound, and we therefore are subject to foreign exchange risk. The fluctuation in the value of the U.S. dollar against other currencies affects the reported amounts of expenses, assets and liabilities primarily associated with a limited number of manufacturing activities.

We do not use derivative financial instruments for speculative trading purposes, nor do we hedge foreign currency exchange rate exposure in a manner that entirely offsets the effects of changes in foreign currency exchange rates. The counterparties to these forward foreign currency exchange contracts are creditworthy multinational commercial banks, which minimizes the risk of counterparty nonperformance. We regularly review our exposure and may, as part of this review, make changes to it.

### Inflation risk

While we have experienced increased operating costs in recent periods, which we believe are due in part to the recent growth in inflation, we do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.

## Controls and procedures

As filed, 4,266 characters.

### Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of December 31, 2023, which is the end of the period covered by this Quarterly Report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures to ensure that information required to be disclosed by the Company in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures were not effective as of December 31, 2023 due to the material weakness in internal control over financial reporting described in Part II, Item 9A of the Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Notwithstanding the material weakness, the Company performed additional analysis and other post-closing procedures to determine its condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

### Previously Identified Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements would not be prevented or detected on a timely basis.

Refer to the management report on internal control over financial reporting in Part II, Item 9A of our Annual Report on Form 10-K for a discussion of the material weakness existing as of September 30, 2023, which continued to exist as of December 31, 2023.

### Remediation Plan of Material Weaknesses

As previously described in Part II, Item 9A of our Annual Report on Form 10-K, we are continuing to enhance our overall control environment and are devoting substantial effort by enhancing our manual and automated controls to remediate the identified material weakness. For a more comprehensive discussion of the remedial measures which are being undertaken to address these material weaknesses, or the Remediation Plan, refer to Part II, Item 9A, “Remediation of Material Weaknesses,” of our Annual Report on Form 10-K.

Additional changes and improvements may be identified and adopted as we continue to evaluate and implement our Remediation Plan. These material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that the enhanced control is operating effectively.

### Changes in Internal Control over Financial Reporting

Except for actions taken under the Remediation Plan described above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 9,691 characters.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our Annual Report on Form 10-K filed with the SEC on November 21, 2023 and this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or future results. There have been no material changes in our risk factors from those described in our Annual Report on Form 10-K, other than the updates to the risk factors set forth below. We may disclose changes to risk factors or additional risk factors from time to time in our future filings with the SEC.

### Risks related to our business

***Our manufacturing operations in the United States currently depend primarily on our Wilsonville facility. If this facility is destroyed or we experience any manufacturing difficulties, disruptions, or delays, this could limit supply of our product or adversely affect our ability to sell products or conduct our clinical trials, and our business would be adversely impacted.***

Although a portion of our manufacturing still takes place at our headquarters in South San Francisco, California, we depend primarily on our manufacturing facility in Wilsonville, Oregon. For example, we have consolidated synthetic biology production in Wilsonville, and our Express Genes product is manufactured solely in Wilsonville. Any manufacturing difficulties at our Wilsonville facility could result in turnaround time delays. If regulatory, manufacturing, or other problems require us to discontinue production at our Wilsonville facility, we will not be able to manufacture our synthetic genes, oligo pools or selected NGS products or create our DNA libraries, which would adversely impact our business. If this facility or the equipment in it is significantly damaged, destroyed, or affected by fire, flood, power loss, or similar events, or is shut down for health and safety reasons, including public health emergencies, severe weather, or other reasons, we may not be able to quickly or inexpensively replace our manufacturing capacity or replace the facility at all. In the event of a temporary or protracted loss of this facility or equipment, we might not be able to transfer manufacturing to another third party. Even if we could transfer manufacturing from one facility to another, the shift would likely be expensive and time-consuming, particularly if we were to maintain the current manufacturing standards procedures at such alternative facility.

***Natural disasters, public health crises, political crises, severe weather events, and other catastrophic events or other events outside of our control may damage our facilities or the facilities of third parties on which we depend and could impact our ability to sell products.***

Our headquarters in South San Francisco, California is located near known earthquake fault zones and is vulnerable to damage from earthquakes. Our primary manufacturing facility in Wilsonville, Oregon is vulnerable to extreme heat, wildfires, and severe weather events, all of which may be further exacerbated by the effects of climate change, as well as damage from earthquakes. An earthquake or other natural disaster or power shortages or outages could disrupt operations or impair critical systems at our headquarters or at any of our other facilities throughout the world. We, our suppliers, third-party service providers and customers are vulnerable to damage from natural disasters, including fire, floods or monsoons, power loss, communications failures, public health crises, such as pandemics and epidemics, political crises, such as terrorism, war, political instability or other conflict and similar events. If any disaster were to occur, our ability to operate our business at any of our facilities could be seriously, or potentially completely, impaired. In addition, the nature of our activities could cause significant delays in our research programs and commercial activities and make it difficult for us to recover from a disaster. The insurance we maintain may not be adequate to cover our losses resulting from disasters or other business interruptions. Accordingly, an earthquake or other disaster could materially and adversely harm our ability to conduct business. Furthermore, our in vivo antibody discovery services involve mice. In the past, vivarium sites have been shut down by animal activists, and any disturbance or shut down at the site where our in vivo antibody discovery work is being conducted could disrupt our business operations or harm our reputation.

***Delivery of our products could be delayed or disrupted by factors beyond our control, and we could lose customers as a result.***

We rely on third-party carriers for the timely delivery of our products. As a result, we are subject to carrier disruptions and increased costs that are beyond our control, including travel restrictions, employee strikes, inclement weather, delays due to public health emergencies, and increased fuel costs. For example, in the past we have experienced shipment delays due to flight cancellations caused by inclement weather. Any failure to deliver products to our customers in a timely and accurate manner may damage our reputation and brand and could cause us to lose customers. If our relationship with any of these third-party carriers is terminated or impaired or if any of these third parties are unable to deliver our products, the delivery and acceptance of our products by our customers may be delayed which could harm our business and financial results. The failure to deliver our products in a timely manner may harm our relationship with our customers, increase our costs and otherwise disrupt our operations.

### Risks related to our intellectual property

***Our ability to protect our intellectual property and proprietary technology through patents and other means is uncertain.***

Our commercial success depends in part on our ability to protect our intellectual property and proprietary technologies. We rely on patent protection, where appropriate and available, as well as a combination of copyright, trade secret and trademark laws, and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage.

Worldwide, we own or exclusively in-license over 50 issued or allowed patents and more than 400 pending patent applications as of September 30, 2023. In addition to these owned and exclusively licensed patents and pending patent applications, we also license patents on a non-exclusive and/or territory restricted basis. Our intellectual property portfolio includes important patents and patent applications directed to DNA synthesis, Next Generation Sequencing, antibody libraries, and DNA data storage.

Several patent applications covering our technologies have been filed recently. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent, or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or, if applicable in the future, licensed to us could deprive us of rights necessary for the practice of our technologies or the successful commercialization of products that we may develop. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our technologies or products. Furthermore, an interference proceeding can be provoked by a third party or instituted by the U.S. Patent and Trademark Office ("USPTO"), or the European Patent Office ("EPO"), to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. For example, on March 3, 2021, our European Patent No. 3030682 which relates to polynucleotide synthesis was opposed by an anonymous third party. An initial decision to revoke the patent was issued on November 29, 2022, which will not become final until all appeals are exhausted. We believe the EPO's decision relating to the original claims is erroneous and we appealed the EPO’s decision on January 27, 2023. The opponent filed a reply to the appeal on August 2, 2023, and the appeal remains pending. We continue to prosecute related pending European applications.

Patent law can be highly uncertain and involve complex legal and factual questions for which important principles remain unresolved. In the United States and in many international jurisdictions, policy regarding the breadth of claims allowed in patents can be inconsistent. The U.S. Supreme Court and the Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. Similarly, international courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and international legislative bodies.

Filed Feb 2, 2024.
Source: SEC EDGAR, the filing index for accession 0001628280-24-003051. Last ingested by Listed: Nov 5, 2026, 16:39 ET. No prices; not investment advice.