10-Q: Twist Bioscience Posts Q3 Profit on Strategic Asset Sale

Twist Bioscience reported a net income of $20.4 million for the quarter ended June 30, 2025, driven by an 18% revenue increase and a significant gain from the sale of its DNA data storage business.

Summary

• Revenues increased by 18% to $96.1 million for the three months ended June 30, 2025, compared to $81.5 million for the same period in 2024.
• Gross margin improved significantly to 53.4% for the quarter, up from 43.3% in the prior year, primarily due to increased revenues and stable manufacturing costs.
• The company reported a net income of $20.4 million for the three months ended June 30, 2025, a substantial improvement from a net loss of $85.6 million in the comparable period of 2024.
• A gain of $48.8 million was recognized from the sale of the DNA digital data storage business to Atlas Data Storage, Inc. on May 2, 2025.
• For the nine months ended June 30, 2025, revenues grew 22% to $277.6 million, and the net loss decreased to $50.5 million from $174.1 million in the prior year.
• Net cash used in operating activities decreased to $35.8 million for the nine months ended June 30, 2025, from $48.8 million in the prior year.
• The company's cash and cash equivalents stood at $201.4 million, with short-term investments of $49.4 million as of June 30, 2025.
• The number of genes shipped increased by 12% to approximately 237,000 in the three months ended June 30, 2025, and by 16% to 669,000 for the nine-month period.
• The company entered into a Royalty Purchase Agreement with XOMA (US) LLC on October 21, 2024, receiving an upfront payment of $15.0 million for future milestone and royalty payments from certain antibody discovery and biopharma services agreements.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. While the company still has an accumulated deficit and a net loss for the nine-month period, the quarterly net income, strong revenue growth, and significant gross margin improvement indicate positive operational momentum. The strategic divestiture of the DNA data storage business is a key positive, allowing for greater focus on core competencies and potentially unlocking future value. Ongoing legal proceedings and cash burn from operations remain areas of concern, but the overall direction of the core business metrics and strategic clarity are favorable.

Positives

• Strong revenue growth of 18% for the quarter and 22% for the nine-month period, driven by NGS tools and synthetic genes.
• Significant improvement in gross margin to 53.4% for the quarter, reflecting increased revenues and cost savings.
• Achieved net income of $20.4 million for the quarter, a substantial turnaround from a net loss in the prior year, largely due to the sale of the DNA data storage business.
• Reduced operating loss by 66% for the quarter and 42% for the nine-month period.
• Decreased net cash used in operating activities, indicating improved operational efficiency in cash management.
• Strategic divestiture of the DNA data storage business to Atlas Data Storage, Inc. is expected to unlock value and allow for focused development in core areas.

Negatives

• Despite quarterly net income, the company still reported a net loss of $50.5 million for the nine months ended June 30, 2025.
• Interest income decreased by 27% for the quarter and 26% for the nine-month period due to lower cash and short-term investment balances.
• Selling, general and administrative expenses increased by 12% for the quarter and 11% for the nine-month period, driven by higher stock-based compensation, personnel, marketing, and IT service costs.
• Net cash used in investing activities increased significantly to $12.4 million for the nine months ended June 30, 2025, compared to $1.8 million in the prior year.

Risks

• Ability to increase revenue and sustain revenue growth rate.
• Accurately estimating capital requirements and the need for additional financing.
• Estimates of the size of market opportunities may be inaccurate.
• Ability to increase DNA production, reduce turnaround times, and drive cost reductions for customers.
• Effectively managing growth and successfully entering new markets, including international expansion.
• Developing and commercializing additional products in the synthetic biology and biologic drug industries.
• Leveraging investment in the Wilsonville, Oregon manufacturing facility.
• Protecting intellectual property, including the proprietary DNA synthesis platform, and managing costs associated with defending infringement claims.
• Effects of increased competition and the ability to keep pace with changes in technology and competitors.
• Successfully identifying, evaluating, and managing future acquisitions of businesses, solutions, or technologies.
• Success of marketing efforts.
• Significant disruption in, or breach of security of, information technology systems and resultant service interruptions or reputational impact.
• Ability to attract and retain qualified employees and key personnel.
• Effects of natural or man-made catastrophic events or public health emergencies.
• Effectiveness of internal controls.
• Changes in government regulation affecting the business.
• Uncertainty as to economic and market conditions and the impact of adverse economic conditions.
• Ongoing legal proceedings, including a securities class action lawsuit and a shareholder derivative suit, which could result in significant costs or unfavorable outcomes.

Future Outlook

The company's ability to achieve profitability is heavily dependent on the success of its existing products, the development and commercialization of additional products in the synthetic biology and biologic drug industries, and effectively leveraging its manufacturing facility in Wilsonville, Oregon. The strategic sale of the DNA data storage business is intended to accelerate technology development and allow for a more focused strategic direction for both the company and the newly formed Atlas Data Storage, Inc.

Management Comments

• The purpose of the DNA data storage business transaction is to unlock value by accelerating data storage technology development and allowing each company to focus strategically on its unique products, customers and investors.

Industry Context

The company operates in the rapidly evolving synthetic biology and biotechnology sectors, which are characterized by continuous innovation in DNA synthesis, next-generation sequencing (NGS) tools, and biopharma services. The divestiture of the DNA data storage business allows the company to sharpen its focus on its core synthetic biology platform and biopharma partnerships, aligning with a trend towards specialization in high-growth, capital-intensive segments of the life sciences industry. The growth in NGS tools and synthetic genes revenue indicates strong demand in key areas of genetic research and drug discovery.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• A putative securities class action lawsuit (Peters v. Twist Bioscience Corporation, et al.) was filed on December 12, 2022, alleging violations of federal securities laws based on a Scorpion Capital report. An amended complaint was filed on October 11, 2023, and a motion to dismiss was filed on December 6, 2023, with a hearing held on November 13, 2024. The company is awaiting the judge's decision and intends to vigorously defend itself.
• A shareholder derivative suit (Shumacher vs. Leproust et al.) was filed on September 25, 2023, based on similar allegations as the securities class action. This suit has been stayed pending the resolution of the motion to dismiss in the securities class action.

Related Party Transactions

• Revenues from related parties totaled $2.8 million for the three months and $9.6 million for the nine months ended June 30, 2025.
• Accounts receivable balances with related parties were $1.2 million as of June 30, 2025.
• Atlas Data Storage, Inc. is considered a related party following the sale of the DNA data storage business. Transactions with Atlas include $0.4 million in sublease income for both the three and nine months ended June 30, 2025.
• Other receivable balance related to the transition services agreement and sublease income with Atlas was $1.7 million as of June 30, 2025.
• The carrying value of the promissory note receivable from Atlas was $1.7 million as of June 30, 2025.
• A sublease security deposit balance from Atlas was $0.2 million as of June 30, 2025.

Stakeholder Impact

• Shareholders: Experienced a positive quarterly net income due to the strategic asset sale, potentially improving investor confidence. The increase in authorized shares and amendment to the equity incentive plan could impact future dilution.
• Employees: Certain employees from the DNA data storage business were transitioned to Atlas Data Storage, Inc. The company is making offers of employment or service to 'Offered Employees' and ensuring continuous employment for Transferred Employees.
• Customers: Continued growth in NGS tools and synthetic genes revenue indicates strong customer demand and satisfaction with core products.
• Creditors: The $15.0 million upfront payment from XOMA for future revenue streams provides additional liquidity, potentially strengthening the company's financial position.
• Regulatory Authorities: The company continues to comply with SEC filing requirements and is subject to ongoing legal proceedings, which are being monitored by regulatory bodies.

Next Steps

• Continue to develop and commercialize additional products in the synthetic biology and biologic drug industries.
• Leverage investment in the manufacturing facility in Wilsonville, Oregon.
• Monitor and defend against ongoing legal proceedings, including awaiting the judge's decision on the motion to dismiss the securities class action.
• Recognize revenue over the next twelve months relating to performance obligations unsatisfied as of June 30, 2025.
• Evaluate the full effects of the recently enacted H.R.1 (One Big Beautiful Bill Act) on financial statements, with certain provisions effective in 2025 and others through 2027.

Key Dates

Recommendation

The company's Q3 results show significant improvement, primarily driven by the strategic divestiture of the DNA data storage business, which generated a substantial one-time gain. This move, coupled with strong revenue growth in core segments (NGS tools and synthetic genes) and improved gross margins, indicates a positive strategic direction and operational efficiency. However, the company still reported a net loss for the nine-month period and continues to burn cash from operations, albeit at a reduced rate. The ongoing securities class action and derivative lawsuit present a material legal risk. While the strategic focus and improved core business performance are encouraging, the company has not yet achieved sustained profitability from its core operations, and the legal uncertainties warrant a cautious approach. A 'hold' recommendation allows investors to observe the company's progress in achieving consistent profitability and resolving legal matters, while acknowledging the positive strategic shifts.

Keywords

Synthetic Biology, DNA Synthesis, NGS Tools, Antibody Discovery, Biopharma, Genomics, Biotechnology, Life Sciences, DNA Data Storage, SEC Filing