TWST - A New Look At Twist Bioscience

2023-11-02 16:55:06 ET

Summary

• Today, we take a look synthetic biology company Twist Bioscience Corporation for the first time since spring.
• The company recently signed collaboration deals with two new drugmakers and saw upward analyst price target revisions after strong Q2 results.
• Twist Bioscience is also making progress in reducing its quarterly cash burn rates and has a solid balance sheet.
• An updated analysis follows in the paragraphs below.

There is only one kind of shock worse than the totally unexpected: the expected for which one has refused to prepare .”? Mary Renault.

Today, we tee up Twist Bioscience Corporation ( TWST ) for the first time since May , as a Seeking Alpha follower requested a follow up on this small biotech name. The company recently inked a new collaboration deal with a large drugmaker, and third quarter results should be out shortly ( expected November 17th). The company also saw a rash of upward price target revisions after second quarter results from the analyst community. An updated analysis follows in the paragraphs below.

Company Overview:

Twist Bioscience Corporation is a synthetic biology company that is based out of South San Francisco, CA. The company develops products from its DNA synthesis platform enables the manufacturing of synthetic DNA by writing DNA on a silicon chip. These include synthetic genes, tools for sample preparation, antibody libraries for drug discovery and development. Twist Bioscience has numerous collaboration arrangements with development concerns. The stock currently trades around $17.00 a share and sports an approximate market capitalization of $900 million.

The company's fiscal year begins on October 1st, and Twist Bioscience has three main business divisions: Next-Generation Sequencing or NGS, Biopharma, and Synthetic Biology.

Second Quarter Results:

Twist Bioscience posted its second quarter numbers on August 4th. The company produced a GAAP loss of $1.01 a share and sales rose 13.6% on a year-over-year basis to just under $64 million. Both top and bottom line results were nicely above expectations. NGS provided $33.2 million of sales in the quarter and Synthetic Biology accounted for $25.9 million. Twist shipped products to approximately 2,200 different customers during the quarter from some 1,900 customers in the year earlier period.

The company's recent restructuring efforts are starting to pay off. R&D costs dropped to $24.5 million during the quarter from $36.8 million in the same period a year ago. SG&A expenses also fell to $46.1 million from $53.7 million in 3Q2022. Cost of revenues did rise to $41.8 million from $31.0 million in the prior period a year ago, it should be noted.

Management did bump up FY2023 guidance to $241 million to $242 million from $235 million to $238 million based on Q3 results. It also dropped its projection for capital expenditures in the year by $5 million to $35 million, and estimates R&D costs will come in at $308 million, down from previous guidance of $313 million to $319 million.

Since second quarter results came out, Twist Bioscience has entered into two more collaboration arrangements. In late August, the company announced a drug discovery partnership with Japanese pharma company Ono Pharmaceutical. Then in early October, Twist disclosed a new collaboration deal with German drugmaker Bayer. While Twist can garner developmental, regulatory and commercial milestone payments as well as royalties from sales of any antibody products developed within these agreements, neither new deal has any upfront payments.

Analyst Commentary & Balance Sheet:

Since third quarter results posted, Barclays ($26 price target), Evercore ISI ($28 price target, up from $22 previously) and Robert W. Baird ($27 price target, up from $18 previous) have reissued Buy ratings, while Berenberg Bank initiated the shares as new Outperform this week with a $27 price target. JP Morgan maintained its Underweight rating on the shares but did boost its price target to $19, from $11 previously and Goldman Sachs ($25 price target, up from $22 previously) reiterated its Hold rating.

Nearly 30% of the outstanding float in the shares is currently held short. There has been very little insider activity in the stock so far in 2023. A couple of insiders sold nearly $100,000 worth of shares collectively in January and February. A different insider bought $132,000 of new equity on May 10th.

The company ended the first half of this year with just over $355 million of cash and marketable securities. Twist Bioscience has no outstanding long-term debt. Management providing guidance that it expects to end FY2023 with $325 million of cash on hand.

Verdict:

Twist Bioscience lost $4.04 a share in FY202 on just over $203 million worth of revenue in FY2022. The current analyst firm consensus has the company losing $3.68 a share in FY2023 on sales of just over $241 million, followed by losses of $2.97 a share in FY2024 as sales move up to nearly $300 million.

It is possible that the company does another capital raise at some point in 2024 or 2025 despite management's stated goal of being EBITDA breakeven by Q4 of next year and end FY2024 with $220 million of cash on hand. This is a less like probability than the last time we looked at Twist, thanks to positive efforts to reduce cash burn, it should be noted.

The two recent new collaboration deals did not mitigate the need for funding and the company is likely to remain unprofitable for years to come. This is not a theme that has played out well since the Fed began lifting interest rates some 19 months, and a key reason the small biotech space has been a painful area to be for investors.

So, while the recent upward price target revisions from analysts and new collaboration deals are encouraging, the investment advice for TWST is the same as in my last article on it. And that is while Twist Bioscience Corporation is an interesting long-term growth story, the shares should continue to be avoided until Twist is much closer to profitability. Investors will be treated to a new set of fresh quarterly data points in the coming days it should also be noted.

Sometimes the most scenic roads in life are the detours you didn't mean to take .”? Angela N. Blount.

For further details see: