ISO - Berkeley Lights Generates Further Losses Amid Merger Plan

Summary

• Berkeley Lights, Inc. went public in July 2020, raising around $178 million in an IPO.
• The firm recently announced a merger with IsoPlexis Corporation, with the combined entity to be renamed PhenomeX.
• Both Berkeley Lights and IsoPlexis have produced heavy and worsening losses as we enter a period of pressure on CapEx budgets and longer sales cycles.
• I'm staying away from these stocks.

A Quick Take On Berkeley Lights

Berkeley Lights, Inc. ( BLI ) went public in July 2020, raising $178 million in gross proceeds from an IPO of its common stock.

The firm enables more rapid development of biotherapeutics and other cell-based products.

Berkeley Lights, Inc. is acquiring another heavy loss-making company in an all-stock deal and will rebrand as PhenomeX ((CELL)).

Given the two firms’ record of losses, worsening macroeconomic conditions and the potential for longer sales cycles ahead, I’m staying away from BLI/ISO/CELL.

Berkeley Lights Overview

Emeryville, California-based Berkeley Lights was founded to provide a range of cell research services in the areas of antibody therapeutics, cell therapy, and synthetic biology.

Management is headed by Chief Executive Officer Dr. Siddhartha Kadia, who has been with the firm since March 2022 and was previously president and CEO of EAG Laboratories.

The company’s primary offerings include:

• OptoSelect chips

• Reagent kits

• Advanced automation systems

• Advanced application and workflow software.

The company markets its offerings directly to prospective customers via an in-house sales force aimed at research use only [RUO] markets.

Management says it believes there are about 1,600 companies, government entities, and academic institutions, making its addressable market total $23 billion, comprised of the following:

• Antibody therapeutics - $6 billion

• Cell therapy - $15 billion

• Synthetic biology - $2 billion.

According to a 2019 market research report by MarketsAndMarkets, the global market for cell analysis was an estimated $16 billion in 2019 and is forecast to reach $22.7 billion by 2024.

This represents a forecast CAGR (Compound Annual Growth Rate) of 7.2% from 2019 to 2024.

The main drivers for this expected growth are growing government funding for cell-focused research activities and an increased incidence of chronic and infectious diseases.

Also, the industry is expected to face the twin challenges of the current high cost of its services and not enough skilled workers.

Below is a chart showing the historical and projected growth of the cell analysis industry by region:

Major competitive or other industry participants include:

• Danaher

• Menarini Silicon Biosystems

• Miltenyi Biotec

• Sphere Fluidics

• Others.

BLI’s Recent Financial Performance

• Total revenue by quarter has plateaued or fallen in recent quarters:

• Gross profit margin by quarter has trended higher more recently:

• Selling, G&A expenses as a percentage of total revenue by quarter have jumped in the most recent reporting period:

• Operating losses by quarter have worsened materially in recent periods:

• Earnings per share (Diluted) have also worsened further into negative territory:

(All data in the above charts is GAAP.)

In the past 12 months, BLI’s stock price has fallen 84.9% vs. the U.S. S&P 500 index’s drop of around 19.7%, as the chart below indicates:

Valuation And Other Metrics For Berkeley Lights

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Financial Modeling Prep.)

Commentary On Berkeley Lights

In its last earnings call (Source - Seeking Alpha), covering Q3 2022’s results, management highlighted its goal of "generating positive cash flow by early 2025."

In July 2022, the firm took action to reduce its burn rate, including ending some functional screening service agreements that were uneconomic.

The company is increasing its focus on the gene therapy viral vector manufacturing and development space, which it believes can produce its "largest near term return of R&D investment."

As to its financial results, total revenue dropped 12% year-over-year on difficult comps and partnership revenue reduction of 52%.

SG&A as a percentage of total revenue jumped sharply, while operating losses continued to worsen, as did negative earnings per share results.

For the balance sheet , the firm finished the quarter with $134.7 million in cash, equivalents and short-term investments and $19.8 million in total debt.

Over the trailing twelve months, free cash used was $64.7 million, of which capital expenditures accounted for $12.8 million. The company paid a hefty $22.3 million in stock-based compensation.

Looking ahead, management guided 2022 revenue to be in line with 2021 but fear "global trends that can increase pressure on CapEx budgets" and lengthen sales cycles.

Berkeley Lights, Inc. recently announced the acquisition of IsoPlexis ( ISO ) for $57.8 million in an all-stock deal. It will change the combined company name to PhenomeX.

ISO has generated $89.8 million in operating losses over the trailing twelve-month period.

So, between the two companies, they have generated enormous losses over the past year, in excess of $170 million.

Given the two firms’ record of losses, worsening macroeconomic conditions and the potential for longer sales cycles ahead, I’m staying away from BLI/ISO/CELL.

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