TELESIS BIO, INC. Unless the context otherwise requires, all references in this section to the "Company," "we," "us, or "our" refer to the business ofCodex DNA, Inc. and its subsidiaries. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes, appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and management's discussion and analysis of financial condition and results of operations for the fiscal year endedDecember 31, 2021 included in our Annual Report on Form 10-K (the Annual Report) filed with theSecurities and Exchange Commission (theSEC ) onMarch 23, 2022 . Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a leading synthetic biology company focused on enabling researchers to rapidly, accurately and reproducibly build or "write" high-quality synthetic DNA and mRNA that is ready to use in many downstream synthetic biology enabled markets. Our synthetic biology solution addresses the bottlenecks across the multi-step process of building DNA and mRNA, as well as the significant limitations of existing solutions that prevent the rapid building of virtually error-free DNA and mRNA at a useable scale. A key part of our solution is our BioXp system, an end-to-end automated workstation that fits on the benchtop and is broadly accessible due to its ease-of-use and hands-free automation. We believe our BioXp system can democratize synthetic biology by simplifying the process of building DNA and mRNA, thereby accelerating the discovery, development and production of novel high-value products, including antibody-based biologics, mRNA-based vaccines and therapeutics and precision medicines.
Our synthetic biology solution is comprised of our:
? BioXp system: which we believe is the first commercially available push-button, walkaway, end-to-end automated workstation that empowers researchers to go from a digital DNA sequence to endpoint-ready synthetic DNA in as few as 8 hours and mRNA in less than 24 hours, exclusive of shipment time; ?
BioXp portal: a user-friendly online portal that offers an intuitive guided workflow and design tools for building new DNA sequences and assembling them into vector(s) of choice;
? BioXp kits: contain all the necessary building blocks and reagents, including our proprietaryGibson Assembly branded reagents, for specific synthetic biology workflow applications; ? Benchtop reagents: contain all the reagents necessary to proceed with a specific synthetic biology workflow on the benchtop using products generated on the BioXp system; ? Biofoundry Services: enable a customer to order and receive any of the BioXp system endpoint-ready products, such as genes, clones, cell-free amplified DNA and variant libraries; and ?Short Oligo Ligation Assembly (SOLA) enzymatic DNA synthesis (EDS): SOLA EDS is a sustainable, scalable, and cost-effective approach designed to significantly reduce timelines for constructing synthetic DNA, RNA, and proteins compared to traditional chemical synthesis, paving the way for more efficient and effective development of mRNA-based vaccines, diagnostics, therapeutics, and personalized medicines. SOLA EDS technology will be integrated intoCodex DNA's future BioXp Oligo Printer and BioXp Digital-to-Biological Converter systems, providing customers with an end-to-end solution for their life science research and synthetic biology needs. 25
--------------------------------------------------------------------------------
Table of Contents
We have developed and commercialized products that include BioXp systems, including our current BioXp 3250 system, BioXp kits for generating a wide array of synthetic DNA and mRNA, and benchtop reagents that complement the automated synthetic biology workflow applications and workflow solutions. We believe that our integrated BioXp systems and BioXp kits represent the industry's leading synthetic biology workflow automation solution and provide us with a first mover advantage in the rapidly growing synthetic biology market. As part of our continuing effort to improve the processes of synthetic biology, we are currently developing next-generation BioXp systems and BioXp kits with the goal of transforming rapid demand-response workflows in synthetic biology and consolidating supply chains and enabling global distributed manufacturing for discovery, preclinical and clinical applications. We also use our BioXp 3250 system, BioXp kits and benchtop reagents to perform services for customers. We were incorporated in the state ofDelaware inMarch 2011 , asSynthetic Genomics Solution, Inc. , a wholly owned subsidiary ofSynthetic Genomics, Inc. (SGI). We changed our name toSGI-DNA, Inc. (SGI-DNA) inFebruary 2013 . OnMarch 8, 2019 , SGI sold SGI-DNA toGATTACA Mining, LLC (GATTACA) by entering into a stock purchase agreement to sell all of our outstanding common and preferred stock in exchange for a$10.0 million non-recourse promissory note (the Purchase Note) and a warrant to purchase common stock equal to 6% of the shares of common stock issued and outstanding as of the time of exercise, which will automatically be exercised immediately prior to the consummation of an initial public offering. This warrant and participation right were later amended inAugust 2019 to provide a warrant on 1,081,745 shares of common stock, a participation right to receive property with a value equal to the net proceeds a person would receive as a holder of 1,081,745 shares of common stock in a change of control transaction, and additional warrants equal to 3% of the shares sold in future equity financings prior to an initial public offering or certain change of control transactions. In connection with our Series A-1 convertible preferred stock financing inDecember 2019 , we issued SGI warrants in connection with the participation right described above to purchase Series A-1 convertible preferred stock. These warrants have an exercise price of$3.61 per share. The common stock warrant has an aggregate exercise price of$3.00 . We were a co-borrower with GATTACA on the Purchase Note. Subsequently, we focused our efforts on launching new synthetic biology products and expanding our distribution and marketing efforts on our existing research using only products. We also changed our name toCodex DNA, Inc. inMarch 2020 . We commercially launched our current synthetic biology solution inSeptember 2019 , which now includes the BioXp 3250 system, BioXp kits with associated cloud-based application scripts, and benchtop reagent kits. Since the introduction of our solution throughJune 30, 2022 , we have launched eight BioXp kits, three benchtop reagent kits, and we have placed over 200 BioXp systems globally. We currently offer several other synthetic biology products, which currently includes 11 SARS-CoV-2 full-length genomes and RNA controls as well as our Vmax X2 cells. We target customers in the fields of personalized medicine, biologics drug discovery, vaccine development, genome editing and cell and gene therapy. As ofJune 30, 2022 , our customer base was composed of over 450 customers and included 15 of the 25 largest biopharmaceutical companies in the world ranked by 2020 revenue, excluding affiliates of those companies. Our customer base also includes leading academic research institutions, government institutions, CROs and synthetic biology companies. Since our inception as a stand-alone company onMarch 8, 2019 , we have devoted substantially all of our efforts to raising capital, organizing, and staffing our company, commercializing existing products and developing new products. OnJune 18, 2021 , we completed our IPO of 7,666,664 shares of common stock, including the exercise in full by the underwriters of their option to purchase up to 999,999 additional shares of common stock, for aggregate gross proceeds of$122.7 million . We received$112.5 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by us. Prior to our IPO, we had funded our operations with proceeds from the issuance of convertible notes and convertible preferred stock, payments received from royalties and product sales, and proceeds from borrowings under our credit facilities. Prior to our IPO, we had received gross proceeds of$32.8 million from sales of our convertible preferred stock,$6.8 million from the issuance of our convertible notes and and gross proceeds of$20.0 million through borrowings under our loan and security agreements withOxford Finance LLC (the 2019 Loan Agreement) andSilicon Valley Bank (the 2021 Loan Agreement). We have incurred significant operating losses since our inception. During the six months endedJune 30, 2022 and 2021, our revenue was$11.3 million and$5.2 million , respectively. As ofJune 30, 2022 , we had cash and cash equivalents of$22.3 million and short-term investments of$39.6 million . Our ability to generate product revenue sufficient to achieve profitability will depend on the 26
--------------------------------------------------------------------------------
Table of Contents
successful development and commercialization of our products. We reported net losses of$28.0 million and$16.6 million for the six months endedJune 30, 2022 and 2021, respectively. As ofJune 30, 2022 , we had an accumulated deficit of$93.3 million . Eton Acquisition OnNovember 18, 2021 , we entered into a Share Purchase Agreement, with the stockholders ofEtonBio Inc. (Eton), aCalifornia corporation, pursuant to which we agreed to purchase all of the outstanding shares of capital stock of Eton. The total purchase price was approximately$13.6 million , which was funded with our existing cash on hand. Eton is aSan Diego -based biotech company specializing in synthetic biology products and services, including DNA sequencing and oligo synthesis, for the global academic research, pharmaceutical, and biotechnology industries. Eton also markets DNA prep services and products such as antibodies, peptides, and metabolism assay kits.
Components of Results of Operations
Revenue
Revenue consists of product sales and royalties and other revenue. Net product sales primarily consist of sales of our BioXp systems, BioXp kits, benchtop reagents and biofoundry services. In providing biofoundry services, we use our own instruments and reagents to create DNA products for our customers. Royalties and other revenue consist of fees charged for the license of non-exclusive rights of our patents to third parties and grant revenue received from government entities as reimbursement of expenses related to the development and use of synthetic biology tools to develop solutions to address various areas of concern. The grants typically require the performance of specific activities and timely reporting of results. Historically, revenue growth has come from BioXp systems, BioXp kits and biofoundry services. Growth in BioXp systems sales has come from investments in direct and indirect distribution channels and new product introductions. Growth in BioXp kit sales has come from the growth of the installed base of BioXp systems and new application kits. Biofoundry services were launched late in 2019. Growth in biofoundry services has been driven by new product introductions and prospective customers using biofoundry services to validate our BioXp systems. We have also seen an increase in demand for our biofoundry services driven by COVID-19-related access problems to researchers' labs. As we continue to expand our revenue opportunities, we launched our collaboration research program which works with government entities to develop solutions to specific areas of concern. Cost of Revenue Cost of revenue primarily consists of material and labor costs, freight and indirect overhead costs associated with sales of our BioXp instruments, BioXp kits, benchtop reagents, biofoundry services and collaboration research programs. Cost of revenue also includes period costs related to certain inventory adjustment charges, and unabsorbed manufacturing and overhead costs, as well as any write-offs of inventory that fail to meet specification or are otherwise no longer suitable for commercial manufacture. Cost of revenue is expected to increase as revenue increases.
Research and Development Expenses
Research and development expenses include pre-production costs related to the
design, development and improvement of our products and technologies, including
employee compensation, benefits and related costs of sustaining our engineering
teams, project material costs, third party fees paid to consultants, prototype
development expenses, legal costs related to intellectual property, patent fees,
and other costs incurred in the product design and development process. We
expense research and development costs as incurred. Non-refundable advance
payments that we make for goods or services to be received in the future are
recorded as prepaid expenses. The prepaid amounts are expensed as the related
goods are delivered or the services are performed, or when it is no longer
expected that the goods will be delivered or the services rendered.
27--------------------------------------------------------------------------------
Table of Contents
We expect that our research and development expenses will increase significantly, both in the near term and subsequently, in connection with our planned product development activities. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the development of any of our future products. The successful development and commercialization of our future products is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including but not limited to the following: ?
we can never be certain that we can solve any technical challenge;
?
if such solution can be found, we can never be certain of the timing of such a solution;
?
once we find a technical solution, we cannot be certain that the solution will be commercially feasible; and
?
any solution may not be desired by our customers.
These uncertainties with respect to the development of any of our future products could significantly impact the costs and timing associated with the development of these products.
Sales and Marketing Expenses
Sales and marketing expenses include employee compensation, including compensation and benefits for sales, marketing, customer service, corporate development personnel and related administrative expenses. In addition, sales and marketing expenses also include costs for international employees and facility overhead based on headcount. We anticipate that our sales and marketing expenses will increase in the future as we increase our headcount to support increasing sales and expanding our international operations. Sales and marketing costs are expensed as incurred.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, and administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs, administrative travel expenses, other operating costs; and facility costs not otherwise included in research and development or sales and marketing expenses. We anticipate that our general and administrative expenses will increase in the future as we increase our administrative headcount to support our continued research, development and commercialization activities. We also anticipate that we will incur significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a publicly traded company. General and administrative expenses are expensed as incurred.
Other Income (Expense), Net
Interest Expense, Net
Interest expense, net primarily consists of cash and non-cash interest on our term loan facilities and our finance leases and of interest income earned on our cash equivalents and investment balances.
Change in Fair Value of Derivative Liabilities
Change in fair value of derivative liabilities consists of the change in fair value of our SGI participation right liability, warrant liabilities, contingent put option liability, and success fee contingent liability. We classify derivative liabilities as a liability on our condensed consolidated balance sheets that we remeasure to fair value at each reporting date. We recognize changes in the fair value of the derivative liabilities as a component of other income (expense) in our condensed consolidated statements of operations and comprehensive loss. In connection with our IPO inJune 2021 , the participation right was extinguished and the warrants underlying 28
--------------------------------------------------------------------------------
Table of Contents
our warrant liability were exercised. The success fee contingent liability was paid in full inJuly 2021 . AtJune 30, 2022 , the contingent put option liability is listed as a derivative liability on our condensed consolidated balance sheet.
Other Expense, Net
Other expense, net consists primarily of gains on the disposal of fixed assets, losses on the write off of intangible assets and the loss on extinguishment of debt. Income Taxes Since our inception, we have not recorded any income tax benefits for the net operating loss carryforwards (NOLs) we have incurred in each year or for our earned research and development tax credits generated in each period, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our NOLs and tax credit carryforwards will not be realized. As ofDecember 31, 2021 and 2020, we had federal NOL carryforwards of$62.1 million and$28.4 million , respectively and state NOL carryforwards of$38.5 million and$15.9 million , respectively. The federal NOL carryforwards of$1.3 million generated beforeJanuary 1, 2018 will begin to expire in 2034, but can be used to offset up to 100% of taxable income. Amounts generated afterDecember 31, 2017 will carryforward indefinitely, but will be subject to 80% taxable income limitation. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended June 30,
2022 2021 Change
(in thousands)
Revenue
Product sales $ 4,092 $ 2,120 $ 1,972
Royalties and other revenue 1,563 732 831
Total revenue 5,655 2,852 2,803
Cost of revenue 2,943 1,899 1,044
Gross profit 2,712 953 1,759
Operating expenses:
Research and development 7,124 2,746 4,378
Sales and marketing 4,514 2,630 1,884
General and administrative 5,561 3,149 2,412
Total operating expenses 17,199 8,525 8,674
Loss from operations (14,487 ) (7,572 ) (6,915 )
Other income (expense), net:
Interest expense, net (299 ) (379 ) 80
Change in fair value of derivative liabilities (27 ) (1,251 )
1,224
Other expense, net (12 ) 3 (15 ) Total other income (expense), net (338 ) (1,627 )
1,289
Loss before provision for income taxes (14,825 ) (9,199 ) (5,626 ) Provision for income taxes (6 ) (2 ) (4 ) Net loss$ (14,831 ) $ (9,201 ) $ (5,630 ) Revenue
Revenue for the three months ended
29--------------------------------------------------------------------------------
Table of Contents
BioXp instruments, offset in part by a$0.1 million decrease in biofoundry services. Royalties and other revenue increased$0.8 million primarily due to revenue associated with the Pfizer agreement which was signed inDecember 2021 , offset in part by lower collaboration research program revenue as the prior year had elevated initial revenue.
Cost of Revenue
Cost of revenue for the three months endedJune 30, 2022 was$2.9 million , compared to$1.9 million for the three months endedJune 30, 2021 . The increase of$1.0 million was primarily driven by higher revenue, including$0.9 million in costs primarily related to DNA sequencing,$0.2 million of higher raw material costs associated with sales of reagents, and$0.2 million in other costs, which are composed of overhead, indirect costs, manufacturing and pricing variances, offset in part by a$0.3 million reduction in costs related to our collaboration research programs.
Research and Development Expenses
Research and development expenses for the three months endedJune 30, 2022 were$7.1 million , compared to$2.7 million for the three months endedJune 30, 2021 . The$4.4 million increase was primarily due to higher personnel expenses, consulting and professional services, lab supplies and equipment, as well as facility and other costs, offset in part by increased allocations of costs attributable to our revenue from collaborations. Personnel expenses increased$2.1 million as we continue to increase our headcount in support of ongoing product development efforts, as well as payroll costs associated from our Eton acquisition. Consulting and professional services, as well as lab supplies and equipment increased$1.0 million and$0.8 million , respectively, due to our ongoing product development efforts, and facility and other costs increased$0.5 million based on increased allocations due to higher headcount over the prior period. Sales and Marketing Expenses Sales and marketing expenses for the three months endedJune 30, 2022 were$4.5 million , compared to$2.6 million for the three months endedJune 30, 2021 , an increase of$1.9 million . The increase was primarily attributable to higher personnel related costs of$1.5 million as we continue to expand our global sales and marketing teams to support our increased revenue,$0.2 million in increased marketing activities related to our revenue growth and$0.2 million of higher travel costs due to increased headcount and less restrictive COVID-19 travel protocols.
General and Administrative Expenses
General and administrative expenses for the three months endedJune 30, 2022 were$5.6 million , compared to$3.1 million for the three months endedJune 30, 2021 . The$2.4 million increase was primarily due to an increase of$2.1 million in personnel expenses due to higher headcount, including additions to our executive leadership team and costs related to our Eton acquisition, as well as stock compensation expense,$0.5 million in higher insurance costs related to being a publicly traded company and$0.4 million in increased facilities and other costs due to higher headcount, offset in part by a$0.6 million decrease in professional services due to reduced utilization of consultants and legal expenses. Other Income (Expense), Net Other income (expense), net for the three months endedJune 30, 2022 was a net expense of$0.3 million , compared to a net expense of$1.6 million for the three months endedJune 30, 2021 . The decrease of$1.3 million was primarily due to the absence of the one-time$1.2 million charge on the change in fair value of derivative liabilities for warrants due to the completion of the IPO inJune 2021 and a$0.1 million reduction to net interest expense due to interest income received on the short-term investments. 30
--------------------------------------------------------------------------------
Table of Contents
Comparison of the Six Months Ended
The following table summarizes our results of operations for the six months
ended
Six Months Ended June 30,
2022 2021 Change
(in thousands)
Revenue
Product sales $ 8,220 $ 3,919 $ 4,301
Royalties and other revenue 3,071 1,260 1,811
Total revenue 11,291 5,179 6,112
Cost of revenue 5,801 2,924 2,877
Gross profit 5,490 2,255 3,235
Operating expenses:
Research and development 13,505 5,624 7,881
Sales and marketing 7,975 4,905 3,070
General and administrative 11,360 5,562 5,798
Total operating expenses 32,840 16,091 16,749
Loss from operations (27,350 ) (13,836 ) (13,514 )
Other income (expense), net:
Interest expense, net (635 ) (620 ) (15 )
Change in fair value of derivative liabilities (4 ) (1,547 ) 1,543
Loss on extinguishment of debt - (618 )
618
Other expense, net (24 ) (16 ) (8 ) Total other income (expense), net (663 ) (2,801 )
2,138
Loss before provision for income taxes (28,013 ) (16,637 ) (11,376 ) Provision for income taxes (12 ) (6 ) (6 ) Net loss$ (28,025 ) $ (16,643 ) $ (11,382 ) Revenue Revenue for the six months endedJune 30, 2022 was$11.3 million , compared to$5.2 million for the six months endedJune 30, 2021 . The increase of$6.1 million was primarily driven by a$4.3 million increase in product sales consisting of$2.9 million in revenue attributable to the Eton acquisition, mainly from DNA sequencing and a$1.4 million increase in revenue related to our BioXp instruments. Royalties and other revenue increased$1.8 million mainly due to revenue associated with the Pfizer agreement which was signed inDecember 2021 , offset in part by lower collaboration research program revenue as the prior year had elevated initial revenue.
Cost of Revenue
Cost of revenue for the six months endedJune 30, 2022 was$5.8 million , compared to$2.9 million for the six months endedJune 30, 2021 . The increase of$2.9 million was primarily driven by an increased volume of revenue, including$1.9 million in costs primarily related to DNA sequencing,$0.6 million of higher raw material costs associated with sales of reagents and biofoundry services, a$0.2 million increase due to higher instrument sales, and$0.3 million in other costs, which are composed of overhead, indirect costs, manufacturing and pricing variances, offset in part by a$0.1 million reduction in costs related to our collaboration research programs.
Research and Development Expenses
Research and development expenses for the six months endedJune 30, 2022 were$13.5 million , compared to$5.6 million for the six months endedJune 30, 2021 . The$7.9 million increase was primarily due to higher personnel expenses, consulting and professional services, lab supplies and equipment, as well as facility and other costs, offset in part by increased allocations of costs attributable to our revenue from collaborations. Personnel expenses increased$3.7 million as we continue to increase our headcount in support of ongoing product development efforts, as well as payroll costs associated from our Eton acquisition. Consulting and professional services, as well as lab supplies and equipment increased$1.8 million and$1.5 million , respectively, due to our ongoing 31
--------------------------------------------------------------------------------
Table of Contents
product development efforts, and facility and other costs increased
Sales and Marketing Expenses
Sales and marketing expenses for the six months endedJune 30, 2022 were$8.0 million , compared to$4.9 million for the six months endedJune 30, 2021 , an increase of$3.1 million . The increase was primarily attributable to higher personnel related costs of$2.4 million as we continue to expand our global sales and marketing teams to support our increased revenue,$0.4 million in increased marketing activities related to our revenue growth and$0.3 million of higher travel costs due to increased headcount and less restrictive COVID-19 travel protocols.
General and Administrative Expenses
General and administrative expenses for the six months endedJune 30, 2022 were$11.4 million , compared to$5.6 million for the six months endedJune 30, 2021 . The$5.8 million increase was primarily due to an increase of$3.3 million in personnel expenses due to higher headcount, including additions to our executive leadership team and costs related to our Eton acquisition, as well as stock compensation expense,$1.2 million in higher insurance costs related to being a publicly traded company, a$0.8 million increase in professional services due to higher utilization of consultants and legal expenses and$0.4 million in increased travel and other costs.
Other Income (Expense), Net
Other income (expense), net for the six months endedJune 30, 2022 was a net expense of$0.7 million , compared to a net expense of$2.8 million for the six months endedJune 30, 2021 . The decrease of$2.1 million was primarily due to the absence of a$1.5 million charge on the change in fair value of our derivative liabilities for warrants due the completion of the IPO inJune 2021 and a one-time charge of$0.6 million on loss on extinguishment of debt in 2021.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have incurred significant operating losses. OnJune 18, 2021 , we completed our IPO of 7,666,664 shares of common stock, including the exercise in full by the underwriters of their option to purchase up to 999,999 additional shares of common stock, for aggregate gross proceeds of$122.7 million . We received$112.5 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by us. Prior to our IPO, we had funded our operations with proceeds from the issuance of convertible notes and convertible preferred stock, payments received from royalties and product sales, and proceeds from borrowings under our credit facilities. Prior to our IPO, we had received gross proceeds of$32.8 million from sales of our convertible preferred stock,$6.8 million from the issuance of our convertible notes and gross proceeds of$20.0 million through borrowings under our loan and security agreements withOxford Finance LLC (the 2019 Loan Agreement) andSilicon Valley Bank (the 2021 Loan Agreement). As ofJune 30, 2022 , we had cash and cash equivalents of$22.3 million and short-term investments of$39.6 million . We will continue to incur significant expenses and expect to incur increasing operating losses for the foreseeable future. We also expect that our expenses and capital expenditures will increase substantially in connection with our ongoing activities, particularly as we: ?
seek to develop new products and services and hire additional research, development and engineering personnel;
?
expand our distribution and marketing infrastructure to further commercialize current and future products and support our growing customer base;
?
add operational, financial, and administrative systems and personnel to support growing sales; and
32--------------------------------------------------------------------------------
Table of Contents ?
maintain, expand, enforce, defend and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;
Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, or other capital sources, including collaborations with other companies, and other strategic transactions. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Debt financing and equity offerings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common shares. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves. The field of synthetic biology is rapidly developing and subject to numerous risks and uncertainties associated with new technologies and novel products. Consequently, we are unable to accurately predict the timing or amount of increased product sales or expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to continue to generate significant product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
Cash Flows
Comparison of the Six Months Ended
The following table summarizes our consolidated cash flows for the six months
ended
Six Months Ended June 30,
2022 2021
(in thousands)
Net cash used in operating activities
(42,940 ) (165 )
Net cash provided by financing activities 389 122,081
Net (decrease) increase in cash $ (60,524 ) $ 110,308
Operating Activities
During the six months ended June 30, 2022 , operating activities used $18.0
million of cash, primarily resulting from our net loss of $28.0 million ,
partially offset by changes in our operating assets and liabilities of $7.0
million and non-cash charges of $3.0 million . Net changes in our operating
assets and liabilities for the six months ended June 30, 2022 consisted
primarily of a $6.0 million increase in deferred revenue related to the Pfizer
Agreement and a $1.6 million increase in accounts payable, accrued payroll and
accrued liabilities, partially offset by a $1.2 million increase in accounts
receivable. Non-cash charges consisted primarily of $1.6 million in stock-based
compensation, depreciation and amortization expense of $0.7 million , and
amortization of our right-of-use operating lease asset of $0.6 million .
During the six months ended June 30, 2021 , operating activities used $11.6
million of cash, primarily resulting from our net loss of $16.6 million ,
partially offset by non-cash charges of $3.4 million and net cash provided by
changes in our operating assets and liabilities of $1.7 million . Non-cash
charges consisted primarily of the change in fair value of derivative
liabilities of $1.5 million as a result of our IPO, loss on debt extinguishment
of $0.6 million , depreciation and amortization expense of $0.4 million , $0.3
million related to amortization of our debt discount, amortization of our
right-of-use operating lease asset of $0.3 million and $0.2 million in
33--------------------------------------------------------------------------------
Table of Contents
stock-based compensation. Net changes in our operating assets and liabilities for the six months endedJune 30, 2021 consisted primarily of a$1.9 million increase in accounts payable, accrued payroll and accrued liabilities, offset in part by a$0.5 million increase in inventory.
Investing Activities
During the six months endedJune 30, 2022 , net cash used in investing activities was$42.9 million , consisting primarily of$65.3 million of purchases of short-term investments and$3.3 million of purchases of property and equipment, partially offset by$25.7 million of maturities of short-term investments.
During the six months ended
Financing Activities
During the six months ended
During the six months endedJune 30, 2021 , net cash provided by financing activities was$120.6 million , consisting primarily of net proceeds from our IPO of$112.5 million and from borrowings of$14.9 million from the issuance of debt under the 2021 Loan Agreement, partially offset by the repayment and extinguishment of debt from the 2019 Loan Agreement of$5.4 million .
2021 Loan Agreement
OnMarch 4, 2021 , we entered into a Loan and Security Agreement withSilicon Valley Bank (SVB) as the lender (the 2021 Loan Agreement). Under the 2021 Loan Agreement, onMarch 5, 2021 , we borrowed a$15.0 million senior secured term loan, the proceeds of which were used to repay all of our existing obligations under the 2019 Loan Agreement, with the remaining proceeds available for our working capital and general corporate purposes. Under the 2021 Loan Agreement, we may elect to obtain a second term loan from SVB in a principal amount up to but not exceeding$5.0 million , provided certain revenue milestones are achieved. In connection with the 2021 Loan Agreement, we issued to SVB a warrant to purchase a number of shares of preferred stock (the Preferred Warrant). The Preferred Warrant was exercisable into the number of preferred shares equal to approximately$0.2 million divided by the applicable warrant price. The Preferred Warrant was initially exercisable for Series A-1 convertible preferred stock at an exercise price of$3.61 per share. The Preferred Warrant also provides for the grant of additional shares upon the disbursement of an advance under the 2021 Loan Agreement. Such additional shares will be equal to 1.5% of the principal amount of the advance divided by the warrant price. The Preferred Warrant is exercisable at the original purchase price of the Series A-1 convertible preferred stock. When the Series A-1 convertible preferred stock in which the warrant would have been exercisable into converted into common stock, the warrant holder gained the right to exercise the warrant for such number of shares of common stock into which the preferred shares would have converted into had they been exercised prior to the conversion. The Preferred Warrant may be exercised at any time, in whole or in part. Unless previously exercised, the Preferred Warrant will expire onMarch 4, 2031 . The Preferred Warrant was exercised inJune 2021 in exchange for 51,409 shares of common stock. The term loans bear interest at a per annum rate equal to the greater of (a) 4.0% above the prime rate and (b) 7.25%. The interest rate as ofMarch 5, 2021 was 7.25% per annum. The loans are secured by substantially all of our assets, other than our intellectual property. We have also agreed not to encumber our intellectual property assets, except as permitted by the 2021 Loan Agreement. A final payment (the Final Payment) equal to$0.4 million will be due at the earlier of the maturity date, acceleration of the loans, or a voluntary or mandatory prepayment of the loans. The Final Payment is being accrued through interest expense using the effective interest method. 34
--------------------------------------------------------------------------------
Table of Contents
The 2021 Loan Agreement also includes customary indemnification obligations and customary events of default, including, among other things, payment defaults, breaches of covenants following any applicable cure period, material misrepresentations, a failure of the loans or the lender's security interest in the collateral to have the priority as required under the 2021 Loan Agreement, a material adverse change as defined in the 2021 Loan Agreement (including without limitation as a result of a government approval having been revoked, rescinded, suspended, modified or not renewed), certain material judgments and attachments, and events relating to bankruptcy or insolvency. The 2021 Loan Agreement also contains a cross default provision under which, if a third party (under any agreement) has a right to accelerate indebtedness greater than$0.5 million , we would be in default of the 2021 Loan Agreement. During the continuance of an event of default, SVB may apply a default interest rate of an additional 5% to the outstanding loan balances, and SVB may declare all outstanding obligations immediately due and payable and may exercise other rights and remedies as set forth in the 2021 Loan Agreement and related loan documents. Acceleration would result in the payment of all outstanding loans, any default interest charged by the lender, all expenses of the lender and the Final Payment.
Funding Requirements
We expect our expenses to increase significantly in connection with our ongoing activities, particularly with respect to research and development efforts related to our future products and our efforts to expand sales of current products and to commercialize future products. The timing and amount of our operating and capital expenditures will depend largely on:
?
the cost of developing new products that are commercially viable;
?
the costs of marketing and selling our products globally; and
?
the potential additional expenses attributable to adjusting our development plans (including any supply-related matters) due to the COVID-19 pandemic.
We believe that our existing cash and available borrowings will enable us to fund our operating expenses and capital expenditure requirements for the next twelve months Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. If we are unable to raise additional funds through equity offerings or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
The following table summarizes our commitments to settle contractual obligations atJune 30, 2022 : Payments Due by Period Less than More than 5 Total 1 Year 1 to 3 Years 4 to 5 Years Years (in thousands)
Operating lease commitments (1)
40 40 - - -
Debt obligations (3) 17,450 5,007 12,443 - -
Total $ 19,700 $ 5,763 $ 13,119 $ 686 $ 132
(1)
Consists of payments due for our leases of office space and laboratory space in
San Diego, California and Durham County, North Carolina that expire between
September 2022 and November 2027 . Payments under signed leases that have not
commenced yet are not included.
(2)
Consists of payments due for our leases of two pieces of equipment that expire
between
35--------------------------------------------------------------------------------
Table of Contents (3) Consists of the contractually required principal and interest payable under the 2021 Loan Agreement. For purposes of this table, the interest due under the 2021 Loan Agreement was calculated using an assumed interest rate of 8.75% per annum, which was the interest rate in effect as ofJune 30, 2022 and assumes no borrowings under the second term loan.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have any, off-balance sheet arrangements, as defined in the rules and regulations of theSEC .
Critical Accounting Policies and Significant Judgments and Estimates
This management's discussion and analysis is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reported periods. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates. There have been no significant changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report.
Recently Issued Accounting Pronouncements
See Note 2 to our annual consolidated financial statements included in the Annual Report for a description of recent accounting pronouncements applicable to our consolidated financial statements.
Emerging Growth Company Status
InApril 2012 , the JOBS Act was enacted. Section 107 of the JOBS Act provides that an "emerging growth company," or an EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early. We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have more than$1.07 billion in annual revenue; (ii) the date we qualify as a "large accelerated filer," with at least$700.0 million of equity securities held by non-affiliates; (iii) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period; and (iv) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.
© Edgar Online, source
