S-1/A 1 d83801ds1a.htm AMENDMENT NO. 1 TO FORM S-1 Amendment No. 1 to Form S-1
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As filed with the Securities and Exchange Commission on June 21, 2021.

 

Registration No. 333-256795

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ALPHA TEKNOVA, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   8731
  94-3368109
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

2290 Bert Dr.

Hollister, CA 95023

(831) 637-1100

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Stephen Gunstream

President and Chief Executive Officer

Alpha Teknova, Inc.

2290 Bert Dr.

Hollister, CA 95023

(831) 637-1100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Jeffrey T. Hartlin

Elizabeth A. Razzano

Paul Hastings LLP

1117 S. California Avenue

Palo Alto, CA 94304

(650) 320-1800

 

Michael S. Kagnoff

Patrick J. O’Malley

Michael Maline

DLA Piper LLP (US)

4365 Executive Drive, Suite 1100

San Diego, CA 92121-2133

(858) 677-1400

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b 2 of the Exchange Act.:

 

Large accelerated filer      Accelerated filer  
Non-Accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

 

TITLE OF EACH

CLASS OF SECURITIES

TO BE REGISTERED

  AMOUNT TO BE
REGISTERED(1)
  PROPOSED MAXIMUM
OFFERING PRICE
PER SHARE
 

PROPOSED
MAXIMUM AGGREGATE 

OFFERING PRICE(1)(2)

  AMOUNT OF
REGISTRATION FEE(3)

Common Stock, par value $0.00001 per share

  5,750,000  

$16.00

  $92,000,000   $10,037.20

 

 

(1)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(2)

Includes the offering price of shares that the underwriters may purchase pursuant to an option to purchase additional shares.

(3)

Includes $8,182.50 previously paid by the registrant.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PROSPECTUS (Subject to completion)

Dated June 21, 2021

 

 

5,000,000 Shares

 

LOGO

 

Alpha Teknova, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of Alpha Teknova, Inc. All of the                  shares of common stock are being sold by us.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $14.00 and $16.00. We have applied to list our common stock on the Nasdaq Global Market under the symbol “TKNO.”

We are an “emerging growth company” and a “smaller reporting company,” each as defined under the federal securities laws, and as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings. Following the closing of this offering, Telegraph Hill Partners IV, L.P. and its affiliate THP IV Affiliates Fund, LLC will continue to own a majority of the shares entitled to vote in the election of our directors. As a result, we will be a “controlled company” under the corporate governance standards of The Nasdaq Stock Market LLC and will be exempt from certain corporate governance requirements of the rules thereof. See the sections titled “Prospectus Summary—The Offering—Controlled company” and “Risk Factors—Risks Related to Our Common Stock and this Offering.”

See the section titled “Risk Factors” beginning on page 15 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

             Per Share                     Total          

Initial public offering price

   $                       $                    

Underwriting discount(1)

   $       $    

Proceeds, before expenses, to Alpha Teknova, Inc.(1)

   $       $    

 

(1)

See the section titled “Underwriting” for additional information regarding compensation payable to the underwriters.

We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to an additional 750,000 shares of common stock from us at the initial public offering price, less the underwriting discount.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on                  , 2021.

 

 

 

Joint Book-Running Managers

 

Cowen   William Blair

 

 

Co-Managers

BTIG   Stephens Inc.

                 , 2021


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LOGO

 


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TABLE OF CONTENTS

 

    Page  

Prospectus Summary

    1  

Risk Factors

    15  

Cautionary Note Regarding Forward-Looking Statements

    62  

Market, Industry and Other Data

    64  

Use of Proceeds

    65  

Dividend Policy

    66  

Capitalization

    67  

Dilution

    69  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    72  

Business

    96  

Management

    114  

Executive Compensation

    125  

Certain Relationships and Related Party Transactions

    147  

Principal Stockholders

    151  

Description of Capital Stock

    153  

Shares Eligible for Future Sale

    161  

Material U.S. Federal Income Tax Consequences to Non-U.S. Holders

    164  

Underwriting

    168  

Legal Matters

    176  

Experts

    176  

Where You Can Find Additional Information

    176  

Index to Financial Statements

    F-1  

 

 

You should rely only on the information contained in this prospectus and any free writing prospectus that we may provide to you in connection with this offering. We have not, and the underwriters have not, authorized anyone to provide you with different information or to make any other representations, and we and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information others may give you. We are offering to sell, and seeking offers to buy, shares of our common stock only under circumstances and in jurisdictions where it is lawful to do so. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or the possession or distribution of this prospectus in any jurisdiction where action for those purposes is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.

Through and including                 , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.


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Unless otherwise indicated or the context otherwise requires, references in this prospectus to the term:

 

   

“2016 Plan” means the Alpha Teknova, Inc. 2016 Stock Plan, as amended;

 

   

“2020 Plan” means the Alpha Teknova, Inc. 2020 Equity Incentive Plan, as amended;

 

   

“2021 Plan” means the Alpha Teknova, Inc. 2021 Equity Incentive Plan, which shall become effective on the date immediately preceding the date upon which the registration statement of which this prospectus forms a part is declared effected by the SEC;

 

   

“Bribery Act” means the U.K. Bribery Act 2010;

 

   

“CAGR” means compound annual growth rate;

 

   

“COBRA” means Consolidated Omnibus Budget Reconciliation Act;

 

   

“Code” means the Internal Revenue Code of 1986, as amended;

 

   

“Credit Agreement” means, collectively, that certain credit and security agreement (Term Loan), dated as of March 26, 2021, by and among the company and MidCap Financial Trust, as agent and as a lender, and the additional lenders from time to time party thereto, and that certain credit and security agreement (Revolving Loan), dated as of March 26, 2021, by and among the company and MidCap Financial Trust, as agent and as a lender, and the additional lenders from time to time party thereto;

 

   

“DGCL” means the General Corporation Law of the State of Delaware, as amended;

 

   

“EBITDA” means earnings before interest, taxes, depreciation and amortization;

 

   

“EEA” means the European Economic Area;

 

   

“EMA” means the European Medicines Agency;

 

   

“ESPP” means the Alpha Teknova, Inc. 2021 Employee Stock Purchase Plan, which shall become effective on the date immediately preceding the date upon which the registration statement of which this prospectus forms a part is declared effected by the SEC;

 

   

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended;

 

   

“FCPA” means the U.S. Foreign Corrupt Practices Act;

 

   

“FDA” means the U.S. Food and Drug Administration;

 

   

“GAAP” means U.S. generally accepted accounting principles;

 

   

“GCP” means Good Clinical Practices;

 

   

“GDPR” means the European Union’s General Data Protection Directive;

 

   

“GMP” means Good Manufacturing Practices;

 

   

“IRS” means the Internal Revenue Service;

 

   

“ISO” means the International Organization for Standardization;

 

   

“JOBS Act” means the U.S. Jumpstart Our Business Startups Act of 2012, as amended;

 

   

“mRNA” means messenger RNA;

 

   

“Nasdaq Rules” means the rules and listing standards of The Nasdaq Stock Market LLC;

 

   

“QC” means quality control;

 

   

“QMS” means quality management system;

 

   

“R&D” means research and development;

 

   

“RNA” means ribonucleic acid;

 

   

“RUO” means research use only;

 

   

“Sarbanes-Oxley Act” means the U.S. Sarbanes-Oxley Act of 2002, as amended;

 

   

“SEC” means the U.S. Securities and Exchange Commission;

 

   

“Securities Act” means the U.S. Securities Act of 1933, as amended;

 

   

“TAM” means our total addressable market;

 

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“THP” means, collectively, Telegraph Hill Partners IV, L.P. (“THP LP”) and its affiliate THP IV Affiliates Fund, LLC (“THP LLC”); and

 

   

“underwriters” means the firms listed on the cover page of this prospectus.

For ease of reference, we have repeated definitions for certain of these terms in other portions of the body of this prospectus. All such definitions conform to the definitions set forth above.

 

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PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information included elsewhere in this prospectus. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and the related notes included elsewhere in this prospectus before making an investment decision. Unless the context otherwise requires, the terms “Teknova,” “company,” “we,” “us” and “our” refer to Alpha Teknova, Inc.

Overview

We are a leading provider of critical reagents that enable the discovery, research, development and production of biopharmaceutical products such as drug therapies, novel vaccines, and molecular diagnostics. Our 3,000 active customers span the entire continuum of the life sciences market and include leading pharmaceutical and biotechnology companies, contract development and manufacturing organizations, in vitro diagnostics franchises, and academic and government research institutions. Our company is built around proprietary manufacturing processes that are highly adaptable and versatile. These proprietary processes enable us to manufacture and deliver high quality, custom, made-to-order products on a short turnaround time and at scale, across all stages of development, including commercialization.

We have substantial expertise in manufacturing customer-specified formulations and have demonstrated the ability to manufacture and deliver our products to customers quickly. Due to our expertise in supply chain management, product creation, chemical formulation, and QC, developed over more than two decades, we are typically able to move a new custom product into production in less than one week from order receipt. This allows our customers to potentially receive their products in weeks as compared to months from alternative suppliers employing traditional production environments. Our processes are designed to handle a diverse array of customer-requested inputs, which vary by volume, chemical formulation, quality specifications, container types, and transportation requirements, enabling broad use of our products across the full scope of the life sciences market.

Our proprietary capabilities and products underpin the value we provide to customers across the entire product development workflow, allowing us to scale with our clients over time and as they grow, support their need for materials in greater volume and meet increasingly stringent regulatory requirements. We offer three primary product types: pre-poured media plates for cell growth and cloning, liquid cell culture media and supplements for cellular expansion, and molecular biology reagents for sample manipulation, resuspension, and purification. Our products are introduced to customers in the discovery phase of development, where off-the-shelf (stock) formulations are used for initial experimentation. As customers’ product development progresses and they advance to requiring products with improved performance, increased volume amounts, and the capability of meeting certain GMP regulatory requirements, they routinely order high value, custom, made-to-order and GMP-grade products. We believe the highly bespoke nature of our portfolio makes us a critical, trusted supplier to our customers.



 

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LOGO

Due to the extensive validation required for these custom products, our customers frequently integrate them as components into the lifecycle of their own products and, we believe, are unlikely to substitute Teknova’s components with alternatives. As a result, our customer relationships typically span many years and help drive recurring business. Moreover, we are committed to delivering high levels of customer satisfaction through continued investment in our customer service, infrastructure, quality systems and manufacturing processes. Since 2018, we have achieved an annual customer retention rate of approximately 97% for customers purchasing more than $10,000 yearly, which customers account for just over 12% of our customer base and more than 88% of our average annual revenue during that period. We believe the Teknova brand is well established in the life sciences industry as a result of our track record of delivering high quality, custom products and providing superior customer service over two decades.

We participate in multiple market segments because customers use our products across the life sciences, including in high growth areas like cell and gene therapy research, development, and production. We believe our prospects for growth will also benefit from developments in other fields, including the validation of mRNA vaccines and their possible use in therapies, continued significant investment in synthetic biology, and growing interest in molecular diagnostics and genomics. Based on industry consultants and our internal estimates, we believe our TAM opportunity in 2020 was approximately $8.2 billion and expect that addressable market to grow at a 9.7% CAGR to $11.9 billion by 2024. Our internal estimates reflect our judgments about, among other things, future economic, competitive, regulatory and market conditions, and our future business decisions, all of which are inherently subject to significant uncertainties and contingencies, including, among others, the risks and uncertainties described under the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

The investment capital raised by companies developing and commercializing cell and gene therapies increased from $9.8 billion in 2019 to $19.9 billion in 2020, according to the Alliance for Regenerative Medicine. Based on third party research, the global market for cell and gene therapies is expected to grow from $2.3 billion in 2020 to $45.4 billion by 2026. As a supplier to more than 65 leading cell and gene therapy organizations, we are well positioned to benefit from the rapid growth in this market through our high quality, custom, made-to-order products.

Teknova is a leading provider of research and GMP-grade bacterial cell culture media and specialized chromatography solutions—reagents required for plasmid and therapeutic nucleic acid



 

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production—which we believe positions us especially well to capture share in the high-growth cell and gene therapy markets.

We believe the key industry factors that will drive our growth include:

 

   

the central role that bacterial cell culture plays in producing plasmids, an essential ingredient in cell and gene therapy bioproduction;

 

   

the complexity of viral purification, which requires new, customized research and GMP-grade chromatography formulations to increase viral production efficiency, yield and purity;

 

   

the growing demand for a single, adaptable, end-to-end provider that can offer both research use only (“RUO”) as well as GMP-grade, custom, made-to-order products with short turnaround times;

 

   

the importance of GMP-grade products in a highly scrutinized development and manufacturing process, with a variety of complex and stringent regulatory requirements; and

 

   

the need for suppliers capable of scaling the volume of product up and down, readily shifting with customers’ needs.

The nature of many of our products and their uses require that they be manufactured by highly trained personnel in contamination-controlled environments, following exacting procedures to ensure quality. We manufacture our products at our facilities in California, which were purpose-built to address our customers’ needs for custom-made, research or GMP-grade critical input components.

We recorded net sales of $9.1 million, a net loss of $0.7 million, and Adjusted EBITDA of $0.0 million for the three months ended March 31, 2021. We generated revenue growth of approximately 49% for the three months ended March 31, 2021 as compared to the same period in the prior year. During the twelve months ended December 31, 2020 we recorded net sales of $31.3 million, net income of $3.6 million, and Adjusted EBITDA of $7.0 million. Also during that period, our revenue grew approximately 51% compared to the twelve months in the combined predecessor and successor periods of 2019. Revenue of approximately $0.9 million and $4.3 million in the quarter ended March 31, 2021 and the year ended December 31, 2020, respectively, from sales of our sample transport medium, a product used to aid in the transport of COVID-19 test samples, contributed to our growth in each such period and helped to offset decreased spending by some of our customers during the early stages of the pandemic. For the definitions of Adjusted EBITDA, and a reconciliation of Adjusted EBITDA to net income or loss, see the sections titled “—Summary Historical Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

Our Competitive Strengths

 

   

Expertise in Complex Chemical Formulation Manufacturing.    Through two decades of capital investment and process optimization, we have created a production system designed to manufacture complex, customer-specified formulations, which we believe enables us to produce and QC custom products faster than our competitors. We utilize our proprietary chemical formulation and production knowhow, supported by a product database consisting of the formulations of thousands of previously made products. This database, along with our tenured staff, allows us to quickly determine the optimal production process and meet the associated complexity requirements for custom orders. We believe our ability to rapidly customize has led to significant adoption of our products.

 

   

Quality and Regulatory Expertise Drives Deep Customer Relationships.    Our customers rely on us to meet the high quality, reliability and performance standards required by the life sciences industry while also facilitating the development of novel, innovative products. We



 

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establish trusted relationships during the early stages of product development, as we manufacture customer-specified formulations to aid in the optimization of therapeutic or diagnostic production processes. Our customers frequently validate these custom-made research and GMP-grade components into their production processes, which often leads to deep relationships with our customers, and the purchasing of our components for the life of a product.

 

   

Industry Leading Delivery Time for Custom Products.    Our operations, built upon our proprietary manufacturing processes developed over the past 20 years, enables adaptable, versatile, and rapid production of complex, custom, made-to-order chemical formulations. Due to our expertise in supply chain management, product creation, chemical formulation, and QC, developed over more than two decades, we are typically able to move a new custom product into production in less than one week from order receipt. In addition, we can provide custom solutions at low minimum volumes and increase in scale by 100-fold within the same production environment, allowing customers to potentially receive their products in weeks rather than the months associated with traditional production environments. We ship 90% of our custom products less than three weeks from order placement.

 

   

Well Positioned in Rapidly Evolving Cell and Gene Therapy Market.    Our products are critical components frequently used in the research and development of cell and gene therapy derived pharmaceuticals and vaccines. In particular, we are a leading provider of RUO and GMP bacterial cell culture media and specialized chromatography solutions—reagents required for plasmid and therapeutic nucleic acid production—which we believe positions us especially well to capture share in these growing markets.

 

   

Experienced Leadership and Talented Workforce.    Our senior management team has vast experience across the life sciences, diagnostics, and biopharmaceutical market segments and has more than 80 years of collective experience in these segments. Our employees, a number of whom have been with the company for over a decade, provide tailored support, guidance and service for our customers.

Our Strategy

Our goal is to provide our customers the products necessary to accelerate their therapeutic development efforts, from basic research to commercialization of drugs that improve human health. The key elements of our business strategy to achieve this goal include:

 

   

Increase Integration of Our Products into Our Customers’ Workflows.    Building long-term partnerships and embedding our products within our customers’ key workflows are at the core of our strategy. As customers move from stock to custom and, ultimately, to clinical production, their total expenditure significantly increases. Based on our cumulative purchase data from 2018 to 2020, excluding purchase data relating to sample transport medium, our customers that purchased our custom products, catalog products and GMP-grade products represented approximately 9%, 90% and fewer than 1%, respectively, of our total customers over such period. We intend to further integrate into customer workflows during their product development by partnering with them to develop customized reagents for their workflows, providing excellent customer and technical support, and facilitating the scale-up in volume and regulatory stringency as they move towards production.

 

   

Provide Superior Customer Service Through Operational Excellence.    We are committed to providing superior customer service and to continuously developing our existing operational excellence. We intend to invest heavily in automation and infrastructure to substantially increase the manufacturing capacity at our facilities, which we believe will improve our operating efficiency and reduce delivery time for custom research and GMP-grade products.



 

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Expand R&D and Commercial Scale to Establish Leadership in High Growth Market Segments.    We are investing substantially in our marketing, sales, R&D, and technical support capabilities. We believe this investment will allow us to increase our brand awareness, develop new products and services, and attract new customers, particularly those in the high growth gene therapy and nucleic acid therapeutic market segments. We intend to onboard new gene therapy and mRNA therapeutic customers by expanding our viral and nucleic acid bioproduction expertise and establishing a scientific field presence to provide new services and support models. We believe these efforts will also allow us to support our existing customers when they migrate from research to GMP-grade products.

 

   

Selectively Expand in Geographies with Attractive Growth Potential.    We believe there is significant opportunity for our high quality, custom products in markets outside of the U.S., including Europe. Based on our knowledge of the industry, we believe the local supply base in Europe is not able to produce customer-specified formulations with the diversity and at the scale necessary to satisfy the corresponding demand, with the short turnaround times customers will expect. We intend to expand into these markets by developing new relationships enabling us to establish manufacturing capabilities or by acquiring existing operating businesses in Europe.

Risks Associated with Our Business

There are a number of risks related to our business, this offering and our common stock that you should consider before you decide to participate in this offering. You should carefully consider all the information presented in the section titled “Risk Factors” in this prospectus. Some of the principal risks related to our business include the following:

 

   

we have incurred operating losses in the past and may incur losses in the future;

 

   

our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide, including the potential decline of revenue from our Sample Transport product line or other product lines as the COVID-19 pandemic eases;

 

   

our efforts to increase the scale and capacity of our manufacturing processes and systems could be disruptive to our operations and adversely affect our results of operations and financial condition, and we may not realize some or all of the anticipated benefits of these initiatives in the time frame anticipated or at all;

 

   

we depend on a limited number of customers for a high percentage of our revenue. For the year ended December 31, 2020, our largest customer is a distributor that accounted for 15% of our total revenue and our next largest customer accounted for 10% of our total revenue, each of which buy from us on a purchase order basis. If we cannot maintain our current relationships with customers, fail to sustain recurring sources of revenue with our existing customers, or if we fail to enter into new relationships, our future operating results will be adversely affected;

 

   

we compete with life science, pharmaceutical and biotechnology companies, some of whom are our customers, who are substantially larger than we are and potentially capable of developing new approaches that could make our products and technology obsolete or develop their own internal capabilities that compete with our products;

 

   

it may be difficult for us to implement our strategies for revenue growth in light of competitive challenges;

 

   

future strategic investments or transactions may require us to seek additional financing, which we may not be able to secure on favorable terms, if at all;



 

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future acquisitions may expose us to risks that could adversely affect our business, and we may not achieve the anticipated benefits of acquisitions of businesses or technologies;

 

   

until very recently, the company has not invested in marketing and selling our products. If we are unable to build a successful commercial (product development, marketing, and sales) function, our business and operating results will be adversely affected;

 

   

our long-term results depend upon our ability to improve existing products and introduce and market new products successfully;

 

   

the market may not be receptive to our new products and services upon their introduction;

 

   

our activities are and will continue to be subject to extensive government regulation, which is expensive and time consuming;

 

   

we rely on assumptions, estimates and data to calculate certain of our key metrics, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business;

 

   

our management has limited experience in operating a public company;

 

   

we rely primarily on trade secret laws, as well as confidentiality and non-disclosure agreements, and other contractual protections, to protect our technologies. If we are unable to protect the confidentiality of our technology, the value of our technology and products could be materially adversely affected;

 

   

the terms of the Credit Agreement may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions;

 

   

THP controls us, and its interests may conflict with ours or yours in the future; and

 

   

upon the listing of our shares of common stock on the Nasdaq Global Market, we will be a “controlled company” within the meaning of the Nasdaq Rules and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections as those afforded to stockholders of companies that are subject to such governance requirements.

Our Controlling Stockholder

We have a valuable relationship with our controlling stockholder, Telegraph Hill Partners Management Company LLC (“Telegraph Hill Partners”). In connection with this offering, our amended and restated certificate of incorporation, which will take effect immediately prior to the closing of this offering, will effectively provide THP (our controlling stockholders and affiliates of Telegraph Hill Partners) with certain rights not otherwise available to all of our stockholders, subject to certain conditions. See the sections titled “Management—Board of Directors” and “Description of Capital Stock” for more details with respect to certain rights of THP under our amended and restated certificate of incorporation.

Telegraph Hill Partners, founded in 2001 and based in San Francisco, California, invests in commercial stage companies in growth areas within the healthcare sector, including life science technologies, medical devices, chemistry and reagent suppliers, and healthcare services. Telegraph Hill Partners seeks to partner with these companies by providing capital and strategic guidance to innovate and expand.

Implications of Being an Emerging Growth Company and a Smaller Reporting Company

We qualify as an “emerging growth company” as defined in the JOBS Act. For as long as we qualify as an emerging growth company, we may take advantage of certain exemptions from various



 

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reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include, but are not limited to:

 

   

reduced obligations with respect to financial data, including presenting only two years of audited financial statements;

 

   

an exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

 

   

reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements, and registration statements; and

 

   

exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from adopting new or revised accounting standards, and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or that have opted out of using such extended transition period, which may make comparison of our financial statements with those of other public companies more difficult. We may take advantage of these reporting exemptions until we no longer qualify as an emerging growth company, or, with respect to adoption of certain new or revised accounting standards, until we irrevocably elect to opt out of using the extended transition period.

Under the JOBS Act, we will remain an emerging growth company until the earliest of:

 

   

the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more;

 

   

the last day of our fiscal year following the fifth anniversary of the date of the closing of this offering;

 

   

the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; and

 

   

the date on which we are deemed to be a “large accelerated filer” under the Exchange Act (i.e., the first day of the fiscal year after we have (i) more than $700.0 million in outstanding common equity held by our non-affiliates, measured each year on the last business day of our most recently completed second fiscal quarter, and (ii) been public for at least 12 months).

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that (i) the market value of our voting and non-voting common stock held by non-affiliates equals or exceeds $250.0 million measured on the last business day of our most recently completed second fiscal quarter, and our annual revenues are more than $100.0 million during the most recently completed fiscal year or (ii) the market value of our voting and non-voting common stock held by non-affiliates equals or exceeds $700.0 million measured on the last business day of our most recently completed second fiscal quarter.

Corporate Information

The company was founded in 1996 and initially incorporated in California on May 30, 2000 under the name “eTeknova Inc.” On January 11, 2019, the company filed a certificate of merger and merged with and into Alpha Teknova, Inc., a Delaware corporation, which continued as the surviving entity



 

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bearing the corporate name of “Alpha Teknova, Inc.” Our principal executive offices are located at 2290 Bert Dr., Hollister, California 95023. Our telephone number is (831) 637-1100. Our website address is www.teknova.com. Information contained on, or that can be accessed through, our website is not part of and is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.

Trademarks and Service Marks

The name “Teknova”, the “Teknova Science Matters” logo, and other registered or common law trademarks or service marks of Alpha Teknova, Inc. appearing in this prospectus are the property of Alpha Teknova, Inc. This prospectus contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. Solely for convenience, trade names, trademarks, and service marks referred to in this prospectus may appear without the ® or TM symbols. Such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to such trade names, trademarks, and service marks.



 

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The Offering

 

Common stock being offered hereby

5,000,000 shares

 

Common stock outstanding after this offering

26,111,917 shares

 

Underwriters’ option to purchase additional shares of common stock

The underwriters have an option, exercisable for 30 days from the date of this prospectus, to purchase up to an additional 750,000 shares from us.

 

Use of proceeds

We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be approximately $66.1 million (or approximately $76.6 million if the underwriters’ option to purchase additional shares is exercised in full) based upon the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and thereby enable access to the public equity markets for us and our stockholders. We intend to use the net proceeds to us from this offering to increase our manufacturing capacity and capabilities, improve operating efficiency, scale up our marketing, sales and R&D staff, to increase brand awareness, develop new products and services and attract new customers, pursue acquisition opportunities, and for other general corporate purposes. See the section titled “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

 

Controlled company

Immediately following closing of this offering, THP will control approximately 67.1% of the total voting power of our outstanding common stock. As a result, THP will be able to control the outcome of all matters submitted to a vote of our stockholders, including, for example, the election of directors, amendments to our certificate of incorporation and mergers or other business combinations. See the section titled “Description of Capital Stock.” In addition, we currently intend to avail ourselves of the



 

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controlled company exemption under the Nasdaq Rules, and so you will not have the same protections afforded to stockholders of companies that are subject to such requirements.

 

Proposed Nasdaq trading symbol

“TKNO”

 

Risk factors

You should read the section titled “Risk Factors” and the other information included elsewhere in this prospectus for a discussion of some of the risks and uncertainties you should carefully consider before deciding to invest in our common stock.

 

Dividend policy

We currently do not intend to declare any dividends on our common stock in the foreseeable future. Our ability to pay dividends on our common stock is limited by the covenants of our Credit Agreement and may also be limited by the terms of any future debt or preferred securities we may issue or any future credit facilities we may enter into. See the section titled “Dividend Policy.”

The total number of shares of our common stock to be outstanding after this offering is based on 21,111,917 shares of our common stock outstanding as of March 31, 2021, assuming the conversion of all outstanding shares of our Series A preferred stock into an aggregate of 17,512,685 shares of our common stock upon the closing of this offering, and excludes, as of March 31, 2021:

 

   

322,174 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2021 under the 2016 Plan, at a weighted average exercise price of $0.42 per share;

 

   

2,111,830 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2021 under the 2020 Plan, at a weighted average exercise price of $1.45 per share;

 

   

1,032,018 shares of common stock available for future issuance as of March 31, 2021 under our 2020 Plan, which will no longer be available for issuance thereunder at the time our 2021 Plan becomes effective;

 

   

2,908,283 shares of our common stock reserved for future issuance under our 2021 Plan, which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for issuance under our 2021 Plan and any shares underlying outstanding stock awards granted under our 2020 Plan that expire or are repurchased, forfeited, cancelled or withheld, as more fully described in the section titled “Executive Compensation—Actions Taken in 2021 or in Connection with This Offering—2021 Equity Incentive Plan”; and

 

   

290,828 shares of our common stock reserved for issuance under the ESPP, which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for future issuance under our ESPP.



 

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See the section titled “Executive Compensation—Actions Taken in 2021 or in Connection with This Offering” for additional information.

Unless otherwise indicated, this prospectus assumes or gives effect to the following:

 

   

a 1.8746-for-1 forward stock split, which was effected on June 17, 2021;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation to be effective immediately prior to the closing of this offering, and the adoption of our amended and restated bylaws to be effective immediately prior to the closing of this offering;

 

   

the conversion of all outstanding shares of our Series A preferred stock into 17,512,685 shares of our common stock immediately prior to the closing of this offering;

 

   

no exercise of the outstanding options described above;

 

   

an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus; and

 

   

no exercise by the underwriters of their option to purchase an additional 750,000 shares of our common stock.


 

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Summary Historical Financial and Other Data

On January 14, 2019, we entered into a stock purchase agreement with THP, pursuant to which THP acquired majority control of the company (the “THP Transaction”). As of March 31, 2021, THP owned 83% of our outstanding voting stock. In connection with the change of control effected by the THP Transaction, we elected to apply “pushdown” accounting by applying the guidance in Accounting Standards Codification (“ASC”) Topic 805, Business Combinations and the financial reporting periods are presented as follows:

 

   

the “2019 Predecessor Period” means the period from January 1, 2019 through January 13, 2019;

 

   

the “2019 Successor Period” means the period from January 14, 2019 through December 31, 2019;

 

   

the “2020 Successor Period” means the year ended December 31, 2020;

 

   

the “2020 Interim Successor Period” means the three months ended March 31, 2020; and

 

   

the “2021 Interim Successor Period” means the three months ended March 31, 2021.

The following tables present our summary historical financial and other data as of and for the periods indicated. The audited financial statements for the period from January 1, 2019 through January 13, 2019, include all accounts of the company for the 2019 Predecessor Period. The audited financial statements for the period from January 14, 2019 through December 31, 2019, and the year ended December 31, 2020 include all accounts of the company for the 2019 Successor Period and 2020 Successor Period, respectively. The unaudited financial statements for the three months ended March 31, 2021 and March 31, 2020, include all accounts of the company for the 2020 Interim Successor Period and the 2021 Interim Successor Period, respectively. The summary statements of operations data for the 2020 Successor Period, the 2019 Successor Period and the 2019 Predecessor Period, and the summary balance sheet data as of the end of the 2020 Successor Period are derived from our audited financial statements included elsewhere in this prospectus. The summary statements of operations data for the 2021 Interim Successor Period and the 2020 Interim Successor Period, and the summary balance sheet data as of March 31, 2021, are derived from our unaudited interim condensed financial statements included elsewhere in this prospectus and are not necessarily indicative of results to be expected for the full year. In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair statement of the financial information in those statements.



 

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You should read the summary historical financial and other data below together with our audited financial statements and related notes, as well as the information in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that you should expect in any future period.

 

    Successor     Successor     Predecessor  
    For the Three
Months Ended
March 31,
2021
    For the Three
Months Ended
March 31,
2020
    For the Year
Ended
December 31,
2020
    For the Period
from January 14,
2019 through
December 31,
2019
    For the Period
from January 1,
2019 through
January 13,
2019
 

Revenue

  $ 9,078     $ 6,112     $ 31,297     $ 20,094     $ 686  

Cost of sales

    4,053       2,483       13,542       11,520       461  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    5,025       3,629       17,755       8,574       225  

Operating expenses:

             

Research and development

    700       326       1,507       769       21  

Sales and marketing

    705       349       2,229       928       30  

General and administrative

    4,161       1,655       8,208       7,633       2,910  

Amortization of intangible assets

    287       287       1,148       1,100        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    5,853       2,617       13,092       10,430       2,961  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    (828     1,012       4,663       (1,856     (2,736

Other income (expenses), net

             

Interest income

    7       32       87       66        

Other expense, net

    1       (21     (24     (10      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

    8       11       63       56        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (820     1,023       4,726       (1,800     (2,736

Provision for income taxes (benefit)

    (165     75       1,156       (495     (2,601
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (655     948       3,570       (1,305     (135
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in unrealized gain on available-for-sale securities, net of tax

    (7     (34     (13     20        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  $ (648   $ 914     $ 3,557     $ (1,285   $ (135
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

             

Net income (loss)

    (655     948       3,570       (1,305     (135

Less: undistributed income attributable to preferred stockholders

          (787     (2,962 )             
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

  $ (655   $ 161     $ 608     $ (1,305   $ (135
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to common stockholders(1)

             

Basic

  $ (0.18   $ 0.04     $ 0.17     $ (0.37   $ (0.01

Diluted

  $ (0.18   $ 0.04     $ 0.16     $ (0.37   $ (0.01

Weighted average shares used in computing net income (loss) per share attributable to common stockholders(1)

             

Basic

    3,599,232       3,599,232       3,599,232       3,522,924       11,398,906  

Diluted

    3,599,232       3,636,724       3,800,696       3,522,924       11,398,906  

Net income (loss) per share attributable to common stockholders (unaudited)(2)

             

Pro forma net income per share—Basic

  $ (0.03   $ 0.04     $ 0.17     $ (0.06   $ (0.01

Pro forma net income per share—Diluted

  $ (0.03   $ 0.04     $ 0.17     $ (0.06   $ (0.01

Weighted average shares used to compute the pro forma net income per share (unaudited)(2)

             

Pro forma—Basic

    21,111,917       21,111,917       21,111,917       21,035,609       11,398,906  

Pro forma—Diluted

    21,111,917       21,149,409       21,594,482       21,035,609       11,398,906  

 

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(1)

See Note 13 to our audited financial statements appearing elsewhere in this prospectus for an explanation of the method used to calculate the historical net income (loss) per share, basic and diluted, and the number of shares used in the computation of the per share amounts.

(2)

The pro forma income per share data gives effect to the conversion of all outstanding shares of our Series A preferred stock into an aggregate of 17,512,685 shares of our common stock which will occur immediately prior to the closing of this offering, resulting in an aggregate of 21,111,917 outstanding shares of our common stock.

 

    As of March 31, 2021  
Balance sheet data (in thousands):   Actual      Pro
forma(1)
     Pro forma,
as adjusted(2)
 
           (unaudited)      (unaudited)  

Cash and cash equivalents

  $ 14,466      $ 14,466      $ 80,595  

Total assets

    76,120        76,120        142,249  

Total liabilities

    24,194        24,194        24,194  

Working capital(3)

    20,291        20,291        86,420  

Series A preferred stock

    35,638                

Retained earnings

    1,610        1,610        1,610  

Total stockholders’ equity:

  $ 16,288      $ 51,926      $ 118,055  

 

(1)

The pro forma balance sheet data gives effect to the conversion of all outstanding shares of our Series A preferred stock into an aggregate of 17,512,685 shares of our common stock which will occur immediately prior to the closing of this offering, resulting in an aggregate of 21,111,917 outstanding shares of our common stock.

(2)

The pro forma as adjusted column in the balance sheet data table above gives effect to (a) the pro forma adjustments described in footnote (1) above and (b) the issuance and sale of 5,000,000 shares of common stock in this offering at the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(3)

We define working capital as current assets less current liabilities. See our audited financial statements included elsewhere in this prospectus for further details regarding our current assets and current liabilities.



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, including our financial statements and the related notes thereto, before making a decision to invest in our common stock. The risks and uncertainties described below are not the only ones we face. If any of the following risks occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business and Strategy

We have incurred operating losses in the past and may incur losses in the future.

We have incurred operating losses in the past, may incur operating losses in the future and may never achieve or maintain profitability. While we had net income of approximately $3.6 million for the year ended December 31, 2020, we incurred net losses in the past, including $1.3 million for the period from January 14, 2019 through December 31, 2019, and approximately $0.1 million for the period from January 1, 2019 through January 13, 2019. We expect that our operating expenses will continue to increase as we grow our business and we anticipate additional costs in connection with legal, accounting and other administrative expenses related to operating as a public company. Since our inception, we have financed our operations primarily through revenue from our products and the sale of our equity securities. While our revenue has grown in recent years, if our revenue declines or fails to grow at a rate sufficient to offset increases in our operating expenses, we will not be able to achieve and maintain profitability in future periods. We may never be able to generate sufficient revenue to maintain profitability and our recent and historical growth and profitability should not be considered indicative of our future performance.

Our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.

Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may be driven by a variety of factors, many of which are outside of our control and, as a result, may not fully reflect the underlying performance of our business. These fluctuations may occur due to a variety of factors, including, but not limited to:

 

   

demand from our largest customers, which account for a significant percentage of our sales and orders, may not meet our expectations regarding volume and price in any given time period;

 

   

the level of demand for our products, which may vary significantly, and our ability to increase penetration in our existing markets and expand into new markets;

 

   

customers accelerating, canceling, reducing or delaying orders, including as a result of developments related to their pre-clinical studies and clinical trials, or plans for commercialization;

 

   

impacts on us, our suppliers and our customers as a result of the novel coronavirus (“COVID-19”) pandemic;

 

   

changes in any governmental declaration of a global pandemic, for example impacting the status of our Sample Transport products currently subject to the FDA’s COVID-19 enforcement policy guidance on viral transport media;

 

   

the relative quality, performance, and reliability of our products;

 

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changes in governmental regulations or the regulatory posture toward our business and the businesses of our customers;

 

   

the volume and mix of the products we sell or changes in the production or sales costs related to our products;

 

   

the success of our newer products, such as our Sample Transport products, and the introduction of other new products or product enhancements by us or others in our industry;

 

   

the timing and amount of expenditures that we may incur to acquire, develop or commercialize additional products, services and technologies or for other purposes, including the expansion of our facilities;

 

   

changes in governmental and academic funding of life sciences research and developments or changes that impact budgets, budget cycles or seasonal spending patterns of our customers;

 

   

future accounting pronouncements or changes in our accounting policies;

 

   

difficulties encountered by our commercial carriers in delivering our products, whether as a result of external factors such as weather or internal issues such as labor disputes;

 

   

general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors; and

 

   

the other factors described in this “Risk Factors” section.

The impact of any one of the factors discussed above, or the cumulative effects of a combination of such factors, could result in significant fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparisons of our operating results on a period-to-period basis may not be meaningful. Further, our historical results are not necessarily indicative of results expected for any future period, and quarterly results are not necessarily indicative of the results to be expected for the full year or any other period, and accordingly should not be relied upon as indicative of future performance.

As a result of variability and unpredictability, we may also fail to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall short of the expectations of analysts or investors or any guidance we may provide, or if the guidance we provide falls short of the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met or exceeded any publicly stated guidance we may have provided and could in turn negatively impact our business, financial condition, results of operations, cash flows and prospects.

Our efforts to increase the scale and capacity of our manufacturing processes and systems could be disruptive to our operations and adversely affect our results of operations and financial condition, and we may not realize some or all of the anticipated benefits of these initiatives in the time frame anticipated or at all.

We intend to extend our rapid custom production capability by investing in automation and infrastructure to substantially increase the manufacturing capacity at our facilities, improve operating efficiency through the use of automation, and reduce delivery time for our custom RUO products and our products manufactured subject to GMP requirements. We have recently expanded our footprint from 64,000 square feet to approximately 137,000 square feet and expect to expand our total production capacity by five-fold over the course of the next two years. The expansion and automation of existing manufacturing facilities, as well as new or expanded manufacturing operations, could be disruptive to our operations, divert the attention of management and require significant investments. Our ability to increase our manufacturing capacity is subject to a number of uncertainties inherent in all new manufacturing operations, including ongoing compliance with regulatory requirements, procurement and maintenance of construction, environmental and operational licenses and approvals for additional expansion, delays in construction, potential supply chain constraints, hiring, training and

 

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retention of qualified employees and the pace of bringing production equipment and processes online with the capability to manufacture high-quality products at scale. If we experience any issues or delays in meeting our projected timelines for expansion, our projected costs or capital efficiency expectations are not met or the anticipated production capacity for our expansion efforts is not as expected, our business, financial condition, results of operations, cash flows and prospects may be harmed.

Our efforts to increase the scale and capacity of our manufacturing processes and systems may result in temporary constraints upon our ability to produce the quantity of products necessary to fill orders and thereby complete sales in a timely manner. In addition, system upgrades at our manufacturing facilities that impact ordering, production scheduling, manufacturing and other related processes are complex, and could impact or delay production. A prolonged delay in our ability to fill orders on a timely basis could affect customer demand for our products and increase the size of our product inventories, causing future reductions in our manufacturing schedules and adversely affecting our performance. Furthermore, delays in production could harm our reputation of being a supplier that is able to deliver customer-specified formulations on a short turnaround time, which may harm our brand, business, financial condition, results of operations, cash flows and prospects.

We may be unable to successfully expand our operations or manage our growth effectively.

The expansion of our manufacturing operations, the development of our marketing and sales organization and our organic growth have all increased and will continue to increase the complexity of our business. Acquisitions we may pursue in the future, including of businesses located outside the United States, would contribute to that increased complexity. Expansion of our operations may place significant demands on our management, finances and other resources. Our ability to manage the anticipated future growth, should it occur, will depend upon a significant expansion of our accounting and other internal management systems and the implementation and subsequent improvement of a variety of systems, procedures and controls. There can be no assurance that significant problems in these areas will not occur. Any failure to expand these areas and implement and improve such systems, procedures and controls in an efficient manner at a pace consistent with the growth of our business could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

If our products do not possess the required or expected quality characteristics or perform as expected or the reliability of the technology on which our products are based is questioned, we could experience lost revenue, delayed or reduced market acceptance of our products, increased costs and damage to our reputation.

Our success depends on the market’s confidence that we can provide reliable, high-quality reagents for the development and commercialization of drug therapies, novel vaccines and molecular diagnostics, including products manufactured subject to GMP requirements. We believe that customers in our target markets are particularly sensitive to product nonconformances, defects, and errors given the potential for impact on their own products and processes, which in many cases are regulated. Our reputation and the public image of our products and technologies may be impaired if our products fail to perform as expected.

Although our products undergo QC testing prior to release for shipment, nonconformances, defects or errors could nonetheless occur or be present in products that we release for shipment to customers. Our operating results depend on our ability to execute and, when necessary, improve our quality management strategy and systems, our ability to effectively train and maintain our employee base with respect to quality management, and our ability to consistently meet GMP regulatory requirements and agreements with customers relative to product specification and quality. A failure of our QC systems could result in problems with facility operations, the preparation or provision of products or our ability to meet GMP regulatory requirements. In each case, such problems could arise for a variety of reasons,

 

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including equipment malfunction, failure to follow specific manufacturing and quality control and assurance protocols and procedures or other human error, problems with raw materials or environmental factors and damage to, or loss of, manufacturing operations. Such problems could affect production of a particular batch or series of batches of products, requiring the destruction of such products or a halt of facility production altogether. Furthermore, some of the products that we manufacture are subsequently incorporated into products that are sold by other life sciences companies and we have no control over the manufacture and production of those products.

In addition, in the event we, or our suppliers, fail to meet required quality standards and if our products experience, or are perceived to experience, a material nonconformance, defect, or error, our products could be recalled or we may be unable to timely deliver products to our customers, which in turn could damage our reputation for quality and service. Although we take steps to continually improve our quality review, product documentation and reference testing procedures, we cannot guarantee that we will not experience quality assurance issues with our products in the future. Any such failure could, among other things, lead to increased costs, delayed or lost revenue, delayed market acceptance, damaged reputation, diversion of development resources, legal claims, reimbursement to customers for lost drug product, starting materials and active pharmaceutical ingredients, other customer claims, damage to and possible termination of existing customer relationships, increased insurance costs, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other batches or products, any of which could harm our business, financial condition, results of operations, cash flows and prospects. Such nonconformances, defects or errors could also narrow the scope of the use of our products, which could hinder our success in the market.

Even after any underlying concerns or problems are resolved, any lingering concerns in our target markets regarding our technology or any manufacturing defects or performance errors in our products could continue to result in lost revenue, delayed market acceptance, damage to our reputation and claims against us.

In addition, we may be unable to maintain the quality, reliability, robustness and expected turnaround times of our products and services to continue to satisfy customer demand as we grow. Fast delivery time is of crucial importance to the cell and gene therapy market segment and our customers rely on us to provide swift delivery of their custom-made formulations. To effectively manage our growth, we must continue to improve our operational, manufacturing, quality control and assurance and monitoring systems and processes and other aspects of our business and continue to effectively expand, train and manage our personnel. The time and resources required to improve our existing systems and procedures, to implement new systems and procedures and to adequately staff such existing and new systems and procedures is uncertain, and failure to complete this in a timely and efficient manner could adversely affect our operations and negatively impact our business and financial results. We may need to purchase additional equipment, some of which can take several months or more to procure, set up and validate, establish new production processes and increase our personnel levels to meet increased demand. We also plan to expand our manufacturing capabilities over the course of the next two years. There can be no assurance that any of these anticipated increases in scale, personnel growth, equipment or process enhancements or manufacturing expansion will be successfully implemented. Failure to manage this growth could result in delays in turnaround times, higher product costs, declining product quality, deteriorating customer service and slower responses to competitive challenges. A failure in any one of these areas could make it difficult for us to meet market expectations for our products and could damage our reputation and our business, financial condition, results of operations, cash flows and prospects could be adversely affected.

 

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If the quality or delivery of our products does not meet regulatory requirements or our customers’ expectations, our reputation could suffer and ultimately our sales and operating earnings could be negatively impacted.

In the course of conducting our business, we must adequately address quality issues associated with our products, including defects in our engineering, design, manufacturing and delivery processes, as well as defects in third-party components included in our products. Because our consumables are highly complex, the occurrence of defects may increase as we continue to introduce new products and services and as we rapidly scale up manufacturing to meet increased demand for our products and services. Although we have established internal procedures to reduce the risks that may arise from product quality issues, there can be no assurance that we will be able to eliminate or mitigate occurrences of these issues and associated liabilities. We have not to date been the subject of inspections by the FDA, and cannot predict or guarantee what the results would be if we were to be so inspected. In addition, identifying the root cause of quality issues, particularly those affecting reagents and third-party components, may be difficult, which increases the time needed to address quality issues as they arise and increases the risk that similar problems could recur. Finding solutions to quality issues can be expensive and we may incur significant costs or lost revenue in connection with, for example, shipment holds, product recalls or other service obligations. In addition, quality issues can impair our relationships with new or existing customers and adversely affect our brand image, and our reputation as a producer of high quality products could suffer, which could adversely affect our business, financial condition, results of operations, cash flows and prospects.

Our business, financial condition and results of operations may be materially adversely affected by global epidemics, including, but not limited to, the COVID-19 pandemic.

In March 2020, the World Health Organization declared that the outbreak of COVID-19 was a global pandemic. The COVID-19 pandemic has and continues to significantly affect the United States and global economies. Because our business is categorized as being a part of the country’s critical infrastructure, we were able to continue operations during the COVID-19 pandemic. However, the outbreak has affected and may continue to affect our operations, including our operations in San Benito County, California where our management team and a significant portion of our employees are located. The COVID-19 pandemic is evolving and to date has led to the implementation of various responses, including government imposed shelter-in-place orders, quarantines, travel restrictions and other public health safety measures, as well as reported adverse impacts on healthcare resources, facilities and providers across the United States and in other countries. In response to the spread of COVID-19, and in accordance with direction from state and local government authorities, we have restricted access to our facilities mostly to personnel and third parties who must perform critical activities that must be completed on-site, limited the number of such personnel who can be present at our facilities at any one time, and requested that many of our personnel work remotely. In the event that government authorities were to further modify current restrictions, our employees conducting research and development or manufacturing activities may not be able to access our laboratory or manufacturing facilities and our core activities may be significantly limited or curtailed, possibly for an extended period of time.

As a result of the COVID-19 pandemic, or any similar pandemics and outbreaks that may occur in the future, we have experienced and may in the future experience severe disruptions, including:

 

   

interruption of or delays in receiving products and supplies from the third parties we rely on to, among other things, manufacture our products, due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems, which may impair our ability to manufacture and sell our products;

 

   

limitations on our business operations by the local, state or federal government that could impact our ability to manufacture, sell or deliver our products;

 

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on-site visit limitations and prohibitions imposed by customers that could impact our ability to engage in pre-sales activities, and to provide post-sale activities, such as training, service and support;

 

   

delays in customers’ purchasing decisions and negotiations with customers and potential customers;

 

   

business disruptions caused by workplace, laboratory and office closures and an increased reliance on employees working from home, travel limitations, cyber security and data accessibility limits, or communication or mass transit disruptions; and

 

   

limitations on employee resources that would otherwise be focused on the conduct of our activities, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people.

Any of these factors could severely impact our research and development activities, manufacturing business operations and sales or delay necessary interactions with local regulators, third-party vendors and other important contractors and customers. These and other factors arising from the COVID-19 pandemic could worsen in countries that are already experiencing significant levels of COVID-19 infections, could continue to spread to additional countries or could return to countries where the pandemic has been partially contained and could further adversely impact our ability to conduct our business generally and have a material adverse impact on our business, financial condition, results of operations, cash flows and prospects.

As global demand for transport medium exceeded supply, we developed and commercialized a suite of sample transport mediums to aid in COVID-19 sample collection and transport, our Sample Transport products, which accounted for $4.3 million of our revenue for the fiscal year ended December 31, 2020. To address the enforcement parameters relative to transport media during the COVID-19 pandemic, in July 2020 the FDA issued the Enforcement Policy for Viral Transport Media During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency. Under this enforcement policy, the FDA requires that manufacturers developing transport media devices in support of expanding opportunities for testing of the SARS-COV-2 virus, provide notification of validation to the FDA and include a statement that the transport medium has not been reviewed by the FDA in addition to other labeling information so that the product does not create an undue risk in light of the public health emergency. We cannot predict how long this guidance and the related policy will remain in effect and while we intend to file a 510(k) application on an active transport medium product line that would allow for marketing outside of this guidance, there is no guarantee that the FDA will grant 510(k) clearance of this or any future sample transport mediums.

Our custom automation enables us to manufacture our Sample Transport products in high-throughput under GMP quality standards, and to produce over 200,000 units of transport medium per week. The end-to-end manufacturing automation developed in 2020 provides us with a new capability for high volume “GMP-grade” production, which we expect will be useful in molecular diagnostics and bioprocessing in the future. We do not expect, however, that our transport medium will benefit from competitive advantages over others in the long term. Moreover, the longevity and extent of the COVID-19 pandemic is uncertain. If the pandemic were to end, whether due to a significant decrease in new infections, due to the availability and rapid distribution of vaccines, or for other reasons, the need for a COVID-19-related transport medium could decrease significantly and this could have an adverse effect on the portion of our results of operations and profitability attributable to this product. As a result, the increase in revenue in 2020 due to the sale of our Sample Transport products may not be indicative of our future revenue.

The extent to which the pandemic may negatively impact our operations and results of operations or those of our suppliers, partners or customers will depend on future developments, which are highly

 

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uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, the extent of travel restrictions, additional or modified government actions, new information that will emerge concerning the severity and impact of COVID-19 and actions to contain the pandemic or treat its impact, such as social distancing, quarantines, lock-downs or business closures.

We cannot predict the scope and severity of any potential or ongoing business shutdowns or disruptions as a result of the COVID-19 pandemic. If we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Changes in economic conditions could negatively impact our revenue and earnings.

Our chemical formulations are sold primarily to biopharmaceutical companies, life science research companies, contract research organizations (“CROs”), contract development and manufacturing organizations (“CDMOs”), in vitro diagnostics franchises, and academic and government research institutions developing novel vaccines and therapies and performing basic research. Research and development spending by our customers and the availability of government research funding can fluctuate due to changes in available resources, mergers of pharmaceutical and biotechnology companies, spending priorities, general economic conditions and institutional and governmental budgetary policies. Changes in government funding for certain research or reductions in overall healthcare spending could negatively impact us or our customers and, correspondingly, our sales to them. Currently, the U.S. and global economies are experiencing a period of economic downturn as a result of the COVID-19 pandemic. Other global economies have been slow to recover from past downturns. Any continued or further economic downturns or reductions or delays in governmental funding could cause customers to delay or forego purchases of our products. A substantial majority of our sales are made on a purchase order basis, which permits our customers to cancel, change or delay their product purchase commitments with little or no notice to us and often without penalty to them. Changes in the level of orders received and filled can cause fluctuations in our quarterly revenue and earnings.

We are dependent on our customers’ spending on and demand for our products. A reduction in spending or demand could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

The success of our business depends primarily on the number and size of purchase orders from our customers, primarily biopharmaceutical companies, life science research companies, CROs, CDMOs, in vitro diagnostics franchises, and academic and government research institutions, for our products. Over the past several years, we have benefited from an increased demand for our products as a result of the continued growth of the global biologics and diagnostics market segments, increasing research and development budgets of our customers and greater degree of outsourcing by our customers. A slowing or reversal of any of these trends could have a significant adverse effect on the demand for our products.

In addition to these industry trends, our customers’ willingness and ability to utilize our products are also subject to, among other things, their own financial performance, changes in their available resources, their decisions to acquire in-house manufacturing capacity, their spending priorities, their budgetary policies and practices and their need to develop new biological products, which, in turn, are dependent upon a number of factors, including their competitors’ discoveries, developments and commercial manufacturing initiatives and the anticipated market, clinical and reimbursement scenarios for specific products and therapeutic areas. In addition, consolidation in the industries in which our

 

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customers operate may have an impact on our customers’ spending as they integrate acquired operations, including research and development departments and associated budgets. If our customers reduce their spending on our products as a result of any of these or other factors, our business, financial condition, results of operations, cash flows and prospects would be materially and adversely affected.

We depend on a limited number of customers for a high percentage of our revenue. If we cannot maintain our current relationships with customers, fail to sustain recurring sources of revenue with our existing customers, or if we fail to enter into new relationships, our future operating results will be adversely affected.

For the 2020 Successor Period, and the combined 2019 Predecessor Period and 2019 Successor Period (each, as defined in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), revenue from our three largest customers accounted for approximately 33% and 42% of our total revenue, respectively. However, we note that two of these customers are distributors representing highly diversified customer bases. For the 2020 Successor Period, one of our largest customers is a distributor that accounted for 15% of our total revenue, and our next largest customer accounted for 10%, each of which buy from us on a purchase order basis. The revenue attributable to our top customers has fluctuated in the past and may fluctuate in the future, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. In addition, the termination of these relationships could result in a temporary or permanent loss of revenue.

Our future success depends on our ability to maintain these relationships, to increase our penetration among these existing customers and to establish new relationships. We engage in conversations with other companies and institutions regarding potential commercial opportunities on an ongoing basis, which can be time consuming. There is no assurance that any of these conversations will result in a commercial agreement, or if an agreement is reached, that the resulting relationship will be successful. Speculation in the industry about our existing or potential commercial relationships can be a catalyst for adverse speculation about us, our products and our technology, which can adversely affect our reputation and our business. In addition, if our customers order our products but fail to pay on time or at all, our liquidity, financial condition, results of operations, cash flows and prospects could be materially and adversely affected.

We compete with life science, pharmaceutical and biotechnology companies, some of whom are our customers, who are substantially larger than we are and potentially capable of developing new approaches that could make our products and technology obsolete or develop their own internal capabilities that compete with our products.

The market for biologics components products and services in the biopharmaceutical development, life science research, and diagnostics space is intensely competitive, rapidly evolving, significantly affected by new product introductions and other market activities by industry participants and subject to rapid technological change. We also expect increased competition as additional companies enter our market and as more advanced technologies become available. We compete with other providers of outsourced biologics components products and services. We also compete with the in-house discovery, development and commercial manufacturing functions of pharmaceutical and biotechnology companies. Many of our competitors, which in some cases are also our customers, are large, well-capitalized companies with significantly greater resources and market share than we have. They may undertake their own development of products that are substantially similar to or compete with our products and they may succeed in developing products that are more effective or less costly than any that we may develop. These competitors may be able to spend more aggressively on product and service development, marketing, sales and other initiatives than we can. Many of these competitors also have:

 

   

broader name recognition;

 

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longer operating histories and the benefits derived from greater economies of scale;

 

   

larger and more established distribution networks;

 

   

additional product and service lines and the ability to bundle products and services to offer higher discounts or other incentives to gain a competitive advantage;

 

   

more experience in conducting research and development, manufacturing and marketing;

 

   

more experience in entering into collaborations or other strategic partnership arrangements; and

 

   

more financial, manufacturing and human resources to support product development, sales and marketing and patent and other intellectual property litigation.

These factors, among others, may enable our competitors to market their products and services at lower prices or on terms more advantageous to customers than we can offer. Competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. Additionally, our current and future competitors, including certain of our customers, may at any time develop additional products and services that compete with our products and new approaches by these competitors may make our products, technologies and methodologies obsolete or noncompetitive. We may not be able to compete effectively against these organizations.

In addition, to develop and market our new products, services, technologies and methodologies successfully, we must accurately assess and meet customers’ needs, make significant capital expenditures, optimize our development and manufacturing processes to predict and control costs, hire, train and retain the necessary personnel, increase customer awareness and acceptance of such services, provide high-quality services in a timely manner, price our products and services competitively and effectively integrate customer feedback into our business planning. If we fail to create demand for our new products, services or technologies, our future business could be harmed.

It may be difficult for us to implement our strategies for revenue growth in light of competitive challenges.

We face significant competition across many of our product lines. In addition, consolidation trends in the pharmaceutical, biotechnology and diagnostics industries have served to create fewer customer accounts and to concentrate purchasing decisions for some customers, resulting in increased pricing pressure on us. Moreover, customers may believe that larger companies are better able to compete as sole source vendors, and therefore prefer to purchase from such businesses. Failure to anticipate and respond to competitors’ actions may impact our future revenue and profitability.

Certain of our products are used by customers in the development and production of novel vaccines, drug therapies and molecular diagnostics, some of which represent relatively new and still-developing modes of treatment and testing. Unforeseen adverse events, negative clinical outcomes, or increased regulatory scrutiny of these treatments and their financial cost may damage public perception of the safety, utility, or efficacy of these vaccines and therapies or other modes of treatment and may harm our customers’ ability to conduct their business. Such events may negatively impact our revenue and have an adverse effect on our performance.

Gene therapy and mRNA vaccines remain relatively new and are under active development, with only a few gene therapies and mRNA vaccines authorized or approved to date by regulatory authorities. Public perception may be influenced by claims that gene therapy or mRNA vaccines are unsafe or ineffective, and gene therapy may not gain the acceptance of the public or the medical community. In addition, ethical, social, legal and financial concerns about gene therapy and mRNA vaccines could result in additional regulations or limitations or even prohibitions on certain gene

 

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therapies or vaccine-related products. More restrictive regulations or negative public perception could reduce certain of our customers’ use of our products, which could negatively affect our revenue and performance. In addition, certain of the COVID-19 vaccine development and diagnostic testing programs utilize our Sample Transport products, our bacterial cell culture media and our molecular biology reagents, which we manufacture subject to GMP requirements. While some are still in early stages of development, others have been through clinical trials and have received Emergency Use Authorization (“EUA”) from the FDA. There can be no assurance that products receiving EUA will receive full FDA approval or that there will not be changes in formulation affecting the use of our products. There can be no assurance that any gene therapy, vaccine programs or diagnostic tests will proceed to clinical trials or result in a commercial product, or that any resulting gene therapies, vaccines or diagnostic tests will incorporate or utilize our products.

Our products are highly complex and are subject to manufacturing and quality control and assurance regulatory compliance requirements.

We apply QC procedures, including inspection of the product or materials, the verification of stability and/or performance and, for certain products, additional validation requirements, whether a product we offer is designed and manufactured by us, or purchased from outside suppliers. All of our QC processes are administered under a system designed to adhere to the Quality System Regulation (“QSR”) under 21 CFR Part 820, and ISO 13485:2016. Certain of our products, such as RUO products, and some other products offered for limited uses or that are the subject of certain exemptions, are manufactured following QSR that, while not required by existing regulatory requirements, are in place to assure product quality throughout the process, from receiving through final packaging. We believe these products are exempt from compliance with the U.S. Food, Drug, and Cosmetic Act (“FDCA”) and the current GMP (“cGMP”) regulations of the FDA, as they are further processed by our customers and we do not make claims related to their safety or effectiveness. In the event we or our suppliers manufacture products that fail to comply with required quality standards, we may incur delays in fulfilling orders, recalls, damages resulting from product liability claims and/or harm to our reputation.

If our customers do not qualify our manufacturing lines or if we are unable to maintain our ISO certification, our operating results could suffer.

Our manufacturing lines have passed our qualification standards, as well as our technical standards. However, our customers may also require that our manufacturing lines pass their specific qualification standards and that we be registered under international quality standards. In addition, our customers may require that we maintain our ISO 13485:2016 certification. Problems in the design or quality of our products may have a material and adverse effect on our business, financial condition, results of operations, cash flows and prospects, and could result in us losing our ISO certification. In the event we are unable to maintain process controls required to maintain ISO certification, or in the event we fail to pass the ISO certification audit for any reason, we could lose our ISO certification. We may also encounter quality issues in the future as a result of the expansion and reconfiguration of existing manufacturing facilities or ramping new products to full volume production. We may be unable to obtain customer qualification of our manufacturing lines or we may experience delays in obtaining customer qualification of our manufacturing lines. Such delays or failure to obtain or maintain qualifications may delay the manufacturing of our products or require us to divert resources away from other areas of our business, which could adversely affect our operations and financial results.

If we cannot provide quality technical and applications support, we could lose customers and our business and prospects would suffer.

The introduction of our products into our customers’ existing laboratory workflows and ongoing customer support for our products can be complex. Accordingly, we need highly trained technical support personnel. Hiring technical support personnel is very competitive in our industry due to the limited number of people available with the necessary scientific and technical backgrounds and ability

 

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to understand our products and their uses at a technical level. To effectively support potential new customers and the expanding needs of current customers, we will need to substantially expand our technical support staff. If we are unable to attract, train or retain the number of highly qualified technical services personnel that our business needs, our business and prospects will suffer.

We depend on a stable and adequate supply of quality raw materials from our suppliers, and price increases or interruptions of such supply could have an adverse impact on our business, financial condition, results of operations, cash flows and prospects.

Our operations depend upon our ability to obtain raw materials at reasonable prices. If we are unable to obtain the materials we need at a reasonable price, we may not be able to produce certain of our products at marketable prices or at all, which could have a material adverse effect on our results of operations. Certain of our raw materials are sourced from a limited number of suppliers. For the years ended December 31, 2020 and 2019, purchases from two suppliers accounted for 54% and 52% of all of our inventory purchases, respectively. However, we note that one of these suppliers is a distributor that sells products on behalf of a diversified supply chain. Delays or difficulties in securing these raw materials or other laboratory materials could result in an interruption in our production operations if we cannot obtain an acceptable substitute. Any such interruption could significantly affect our business, financial condition, results of operations, cash flows and prospects.

Although we believe that we have stable relationships with our existing suppliers, we cannot assure you that we will be able to secure a stable supply of raw materials going forward. Our suppliers may not be able to keep up with our pace of growth or may reduce or cease their supply of raw materials to us at any time. While we may identify other suppliers, raw materials furnished by such replacement suppliers may require us to alter our production operations or perform extensive validations, which may be time consuming and expensive. In addition, we cannot assure you that our suppliers have obtained and will be able to obtain or maintain all licenses, permits and approvals necessary for their operations or comply with all applicable laws and regulations, and the failure to do so by them may lead to interruption in their business operations, which in turn may result in shortages of raw materials supplied to us. Some of our suppliers are based overseas and therefore may need to maintain export or import licenses. If the supply of raw materials is interrupted, our business, financial condition, results of operations, cash flows and prospects may be adversely affected.

If we are unable to manufacture in specific quantities, our operating results will be harmed.

Our revenue and other operating results depend in large part on our ability to manufacture and ship our products in sufficient quantities and on specific timelines. Any interruptions we experience in the manufacturing or shipping of our products could delay our ability to recognize revenue in a particular quarter. Manufacturing problems can and do arise, and as demand for our products increases, any such problems could have an increasingly significant impact on our operating results. While we have not generally experienced problems with, or delays in, our production capabilities that resulted in delays in our ability to ship finished products, there can be no assurance that we will not encounter such problems in the future. We may not be able to quickly ship products and recognize anticipated revenue for a given period if we experience significant delays in the manufacturing process. In addition, we must maintain sufficient production capacity in order to meet anticipated customer demand, and we may be unable to offset the associated fixed costs if orders slow, which would adversely affect our operating margins. Furthermore, our customers rely on us for fast delivery of their custom-made formulations, and if our production timeline slows down, we may not be able to meet their expectations and our relationships could suffer. If we are unable to manufacture our products consistently, in sufficient quantities and on a timely basis, our business, financial condition, results of operations, cash flows and prospects will be materially and adversely affected.

 

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Future strategic investments or transactions may require us to seek additional financing, which we may not be able to secure on favorable terms, if at all.

We plan to continue a strategy of growth and development for our business. To this end, we actively evaluate various strategic transactions on an ongoing basis, including licensing or acquiring complementary products, technologies or businesses that would complement our existing portfolio of products and services. We may need to seek additional financing to fund these strategic investments or transactions. Should we need to do so, we may not be able to secure such financing, or obtain such financing on favorable terms because of the volatile nature of the life sciences marketplace. In addition, future acquisitions may require the issuance or sale of additional equity, or equity-linked securities, which may result in additional dilution to our stockholders. The Credit Agreement contains a number of restrictive covenants that impose significant restrictions on our ability to make acquisitions or certain other investments and our ability to make such acquisitions or other investments may be further limited by the terms of any future debt or preferred securities we may issue or any future credit facilities we may enter into.

Natural disasters, geopolitical unrest, war, terrorism, public health issues or other catastrophic events could disrupt the supply, delivery or demand of our products, which could negatively affect our operations and performance.

We are subject to the risk of disruption by earthquakes, hurricanes, floods and other natural disasters; fire; power shortages; geopolitical unrest, war, terrorist attacks and other hostile acts; public health issues, epidemics or pandemics, such as the COVID-19 pandemic; and other events beyond our control and the control of the third parties on which we depend. Any of these catastrophic events, whether in the United States or abroad, may have a significant negative impact on the global economy, our employees, facilities, partners, suppliers, distributors or customers and could decrease demand for our products, create delays and inefficiencies in our supply chain and make it difficult or impossible for us to deliver products to our customers.

We rely upon our internal manufacturing, packaging and distribution operations to produce many of the products we sell and our warehouse facilities to store products pending sale. Our primary manufacturing and storage operations are located in California, near major earthquake faults, which makes us susceptible to earthquake and fire risks. A catastrophic event that results in damage to specific equipment that would be difficult to replace, in the destruction or disruption of our research and production facilities or in the disruption of our critical business or information technology systems would severely affect our ability to conduct normal business operations. Any disruptions in our operations could adversely affect our business, financial condition and results of operations and harm our reputation. We may not carry sufficient business insurance to compensate for losses that may occur. Any such losses or damages could have a material adverse effect on our business, financial condition and results of operations. In addition, the facilities of our suppliers and customers may be harmed or rendered inoperable by such catastrophic events, which may cause disruptions, difficulties or otherwise materially and adversely affect our business.

Because we rely heavily on third-party package-delivery services, a significant disruption in these services, damages or losses sustained during shipping or significant increases in prices could adversely affect our business, financial condition, results of operations, cash flows and prospects.

We ship a significant portion of our products to our customers through independent package delivery companies, such as FedEx, UPS and FedEx Freight. If one or more of these third-party package-delivery providers were to experience a major work stoppage, preventing our products from being delivered in a timely fashion or causing us to incur additional shipping costs we could not pass on to our customers, our costs could increase and our relationships with certain of our customers could be adversely affected. In addition, if one or more of these third-party package-delivery providers were

 

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to increase prices, and we were not able to find comparable alternatives or make adjustments in our delivery network, our profitability could be adversely affected. Furthermore, if one or more of these third-party package-delivery providers were to experience performance problems or other difficulties, it could negatively impact our operating results and our customers’ experience. In the past, some of our products have sustained serious damage in transit such that they were no longer usable. Although we have taken steps to improve our packaging and shipping containers, there is no guarantee our products will not become damaged or lost in transit in the future. If our products are damaged or lost in transit, it may result in a substantial delay in the fulfillment of our customer’s order and, depending on the type and extent of the damage, it may result in a substantial financial loss. If our products are not delivered in a timely fashion or are damaged or lost during the delivery process, our customers could become dissatisfied and cease using our products, which would adversely affect our business, financial condition, results of operations, cash flows and prospects.

If we are unable to continue to hire and retain skilled personnel, we will have trouble developing and marketing our products.

We are highly dependent, and our success depends largely, upon the continued service of our management and scientific staff and our ability to attract, retain and motivate highly skilled technical, scientific, engineering, management and marketing personnel, who deliver high-quality and timely services to our customers and keep pace with cutting-edge technologies and developments in biology and manufacturing. We also face significant competition in the hiring and retention of such personnel from other companies, other providers of outsourced biologics services, research and academic institutions, government and other organizations who have superior funding and resources. Each of our executive officers may terminate their employment with us at any time. The loss of key personnel or our inability to hire and retain skilled personnel could materially adversely affect the development of our products and our business, financial condition, results of operations, cash flows and prospects. We do not maintain “key personinsurance for any of our executives or employees.

In addition, we rely on consultants, to assist us in developing and implementing engineering and operational advancements. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture and our business may be harmed.

We believe that our culture has been and will continue to be a critical contributor to our success. We expect to continue to hire aggressively as we expand. If we do not continue to develop our corporate culture or maintain and preserve our core values as we grow and evolve, we may be unable to foster the innovation, curiosity, creativity, focus on execution, teamwork and the facilitation of critical knowledge transfer and knowledge sharing we believe we need to support our growth. Our anticipated headcount growth and our transition from a private company to a public company may result in a change to our corporate culture, which could harm our business.

Until very recently, we have not invested in marketing and selling our products. If we are unable to build a successful commercial (product development, marketing, and sales) function, our business and operating results will be adversely affected.

Our future financial performance and our ability to commercialize our products and to compete effectively will depend, in part, on our ability to manage our future growth without compromising quality. We currently have limited commercialization expertise, and have only recently begun to invest in our sales, marketing and distribution capabilities. These activities will require significant capital expenditures, management resources and time. We will have to compete with other companies to

 

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recruit, hire, train and retain qualified marketing and sales personnel. Competition for employees capable of selling our products within the pharmaceutical and biotechnology industries is intense. We may not be able to attract and retain personnel or be able to build an efficient and effective sales organization, which could negatively impact sales and market acceptance of our products and limit our revenue growth and potential profitability.

We may enter into additional distribution arrangements and marketing alliances for certain products and services and any failure to successfully identify and implement these arrangements on favorable terms, if at all, may impair our ability to effectively distribute and market our products.

We may pursue additional arrangements regarding the sales, marketing and distribution of one or more of our products and our future revenue may depend, in part, on our ability to enter into and maintain arrangements with other companies having sales, marketing and distribution capabilities and the ability of such companies to successfully market and sell any such products. Any failure to enter into such arrangements and marketing alliances on favorable terms, if at all, could delay or impair our ability to distribute or market our products and could increase our costs of distribution and marketing. Any use of distribution arrangements and marketing alliances to commercialize our products will subject us to a number of risks, including the following:

 

   

we may be required to relinquish important rights to our products;

 

   

we may not be able to control the amount and timing of resources that our distributors or collaborators may devote to the distribution or marketing of our products;

 

   

our distributors or collaborators may experience financial difficulties; and

 

   

business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement.

Our success depends on the market acceptance of our bacterial cell culture media, specialized chromatography solutions and molecular biology reagents, which we manufacture subject to GMP regulatory requirements. Our bacterial cell culture media, specialized chromatography solutions and molecular biology reagents may not achieve or maintain significant commercial market acceptance.

Our commercial success is dependent upon our ability to continue to successfully market and sell our bacterial cell culture media, specialized chromatography solutions and molecular biology reagents, which are manufactured subject to GMP regulatory requirements. Our ability to achieve and maintain commercial market acceptance of our products will depend on a number of factors, including:

 

   

our ability to increase awareness of the capabilities of our technology and solutions;

 

   

our ability to continue to quickly produce and deliver custom-made formulations to our customers that scale to clinical use;

 

   

our ability to maintain compliance with GMP regulatory requirements for certain of our products;

 

   

our ability to assess and determine, consistent with the interpretation of the FDA and similar regulatory bodies, the regulatory categories and status of our product offerings which may develop and change over time and to obtain any regulatory clearances or approvals, if and/or when required by the FDA or similar regulatory authorities;

 

   

our customers’ willingness to adopt new products, services and technologies;

 

   

whether our products reliably provide advantages over legacy and other alternative technologies and are perceived by customers to be cost effective;

 

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our ability to execute on our strategy to scale-up our technology and manufacturing capabilities to meet increasing demand;

 

   

the rate of adoption of our products by biopharmaceutical companies, academic institutions and others;

 

   

the relative reliability and robustness of our products as a whole;

 

   

our ability to develop new tools and solutions for customers;

 

   

whether competitors develop and commercialize products and services that provide comparable features and benefits at scale;

 

   

whether competitors effectively link their instruments and/or capital equipment to their reagents;

 

   

the impact of our investments in product innovation and commercial growth; and

 

   

negative publicity regarding our or our competitors’ products resulting from defects or errors.

We cannot assure you that we will be successful in addressing these criteria or other criteria that might affect the market acceptance of our products. If we are unsuccessful in achieving and maintaining market acceptance of our products, our business, financial condition, results of operations, cash flows and prospects could be adversely affected.

Our long-term results depend upon our ability to improve existing products and introduce and market new products and services successfully.

Our business is dependent on the continued improvement of our existing products and our development of new products and services utilizing our current or other potential future technology. As we introduce new products and services or refine, improve or upgrade versions of existing products, we cannot predict the level of market acceptance or the amount of market share these products or services will achieve, if any. We cannot assure you that we will not experience material delays in the introduction of new products and services in the future. Consistent with our strategy of offering new products and product refinements, we expect to continue to use a substantial amount of capital for product development and refinement. We may need additional capital for product development and refinement than is available on terms favorable to us, if at all, which could adversely affect our business, financial condition, results of operations, cash flows and prospects.

We generally sell our products in industries that are characterized by rapid technological changes, frequent new product introductions and changing industry standards. If we do not develop new products and product enhancements based on technological innovation on a timely basis, our products may become obsolete over time and our revenues, cash flow, profitability and competitive position will suffer. Our success will depend on several factors, including our ability to:

 

   

correctly identify customer needs and preferences and predict future needs and preferences;

 

   

allocate our research and development funding to products with higher growth prospects;

 

   

anticipate and respond to our competitors’ development of new products and technological innovations;

 

   

innovate and develop new technologies and applications, and acquire or obtain rights to third-party technologies that may have valuable applications in the markets we serve;

 

   

successfully commercialize new technologies in a timely manner, price them competitively and manufacture and deliver sufficient volumes of new products of appropriate quality on time; and

 

   

convince our customers to adopt new technologies.

In addition, if we fail to accurately predict future customer needs and preferences or fail to produce viable technologies, we may invest heavily in research and development of products that do not lead to significant revenue. Even if we successfully innovate and develop new products and product enhancements, we may incur substantial costs in doing so, and our profitability may suffer.

 

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The market may not be receptive to our new products and services upon their introduction.

We expect a portion of our future revenue growth to come from introducing new products to support the growing cell and gene therapy market and the increasing use of mRNA vaccines and therapies. The commercial success of all of our products will depend upon their acceptance by the life science and biopharmaceutical industries. Some of the products and services that we are developing are based upon new technologies or approaches. As a result, there can be no assurance that these new products and services, even if successfully developed and introduced, will be accepted by customers. If customers do not adopt our new products, services and technologies, our results of operations may suffer and, as a result, the market price of our common stock may decline.

Due to the significant resources required to enable access in new markets, we must make strategic and operational decisions to prioritize certain markets, technology offerings or partnerships, and there can be no assurance that we will expend our resources in a way that results in meaningful revenue or capitalizes on potential new markets.

We believe our products have potential applications across a wide range of markets and we have targeted certain markets in which we believe we have a higher probability of success or revenue opportunity or for which the path to commercialize products and realizing or achieving revenue is shorter. However, due to the significant resources required for the development of applications for new markets, we must make decisions regarding which markets to pursue and the amount of resources to allocate to each. Our decisions concerning the allocation of research, development, collaboration, management and financial resources toward particular markets or applications may not lead to the development of any viable products and may divert resources away from better opportunities. Similarly, our potential decisions to delay or terminate efforts to address, or to collaborate with third parties in respect of, certain markets may subsequently also prove to have been suboptimal and could cause us to miss valuable opportunities. In particular, if we are unable to develop additional relevant products and applications for markets such as the cell and gene therapy market, it could slow or stop our business growth and negatively impact our business, financial condition, results of operations, and prospects.

The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

Addressable market estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. These estimates and forecasts are based on a number of complex assumptions and third-party estimates and other business data, including assumptions and estimates relating to our ability to generate revenue from existing products and the development of new products and services. The estimates and forecasts in this prospectus relating to the size and expected growth of our markets may prove to be inaccurate. Even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at the rate we anticipate, if at all.

Product liability lawsuits against us could cause us to incur substantial liabilities, limit sales of our existing products and limit commercialization of any products that we may develop.

Our business exposes us to the risk of product liability claims that are inherent in the development, production, distribution, and sale of biotechnology products. We face an inherent risk of product liability exposure related to the use of our products and product liability lawsuits may allege that our products failed to perform as designed. We may also be subject to liability for errors in, a misunderstanding of or inappropriate reliance upon, the information we provide in the ordinary course of our business activities. If any of our products harm people due to our negligence, willful misconduct, unlawful activities or material breach, or if we cannot successfully defend ourselves against claims that our products caused injuries, we could incur substantial liabilities. Regardless of merit or eventual

 

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outcome, liability claims may result in the following, any of which could impact our business, financial condition, results of operations, cash flows and prospects:

 

   

decreased demand for our products and any products or services that we may develop in the future;

 

   

injury to our reputation;

 

   

costs to defend the related litigation;

 

   

loss of revenue; and

 

   

the inability to commercialize products that we may develop.

We maintain product liability insurance, but this insurance is subject to deductibles, limits and exclusions and may not fully protect us from the financial impact of defending against product liability claims or the potential loss of revenue that may result. Any product liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future.

We are subject to stringent and evolving data privacy and information security laws, regulations and standards, as well as policies and contractual obligations related to data privacy and security, and changes in these could adversely affect our business.

We are subject to data privacy and information security laws and regulations that apply to the collection, transmission, storage and use of proprietary information and personal information. Failure to comply with any of these laws and regulations could result in enforcement actions against us, including fines, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. Additionally, if we are unable to properly protect the privacy and security of information, we could be found to have breached our contracts.

In the U.S., numerous federal and state laws, including state data breach notification laws, and federal and state health information privacy and consumer protection laws, govern the collection, use, disclosure and security of personal information. These laws continue to change and evolve and are increasing in breadth and impact. Many states in which we operate have laws that protect the privacy and security of personal information. For example, the California Consumer Privacy Act of 2018 (“CCPA”), which increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California residents and provide such residents with new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. Further, in November 2020, California voters approved the California Privacy Rights Act (“CPRA”) through a ballot measure. The CPRA will amend the CCPA, giving California residents additional control over their personal information and imposing further obligations on businesses processing the personal information of California residents. The CPRA includes the creation of a privacy-specific enforcement agency, the first of its kind in any U.S. state, which will be responsible for enforcing the new law. The CPRA takes effect on January 1, 2023. These laws subject us to increased regulatory scrutiny, litigation, and overall risk. State laws are changing rapidly and there is discussion in Congress of a new federal data protection and privacy law to which we would become subject, if it is enacted. Without an overarching federal law driving privacy compliance in the U.S., however, the risk is high of a patchwork of privacy legislation formed by individual state laws, similar to the patchwork created by differing state data breach notification obligations. Requirements to comply with varying state laws not only increase costs for compliance, but also create the potential for enforcement by individual state attorneys general.

 

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Various foreign countries also have, or are developing, laws that govern the collection, use, disclosure, security and cross-border transmission of personal information. The legislative and regulatory landscape for data privacy and information security continues to evolve, and there has been an increasing focus on data privacy and information security issues that have the potential to affect our business. To the extent applicable, we are, or could be subject to these laws, rules, and regulations, and, we cannot guarantee that we are, or will be, in compliance with all applicable laws, rules, and regulations as they are enforced now or as they evolve.

We use third-party credit card processors to process payments from our customers. Through our agreements with our third-party credit card processors, we are subject to payment card association operating rules, including the Payment Card Industry Data Security Standard (“PCI-DSS”), which governs a variety of areas, including how consumers and customers may use their cards, the security features of cards, security standards for processing, data security and allocation of liability for certain acts or omissions, including liability in the event of a data breach. Any change in these rules or standards and related requirements could make it difficult or impossible for us to comply. Additionally, any data breach or failure to hold certain information in accordance with PCI-DSS may have an adverse effect on our business and results of operations.

It is possible that the laws governing data privacy and information security may be interpreted and applied in a manner that is inconsistent with our practices and our efforts to comply with the evolving data protection rules may be unsuccessful. We must devote significant resources to understanding and complying with this changing landscape. Failure to comply with U.S. federal and state and non-U.S. laws regarding data privacy and information security could expose us to penalties under such laws, orders requiring that we change our practices, claims for damages or other liabilities, regulatory investigations and enforcement action, litigation and significant costs for remediation, any of which could adversely affect our business. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Our internal computer systems, or those of our vendors, customers, or contractors, have been and may in the future be subject to cyberattacks or security breaches, which could result in a material disruption of our product development programs or otherwise adversely affect our business, financial condition, results of operations, cash flows and prospects.

Despite the implementation of security measures, our internal computer systems and those of our vendors, customers and contractors, are vulnerable to damage from computer viruses and unauthorized access. We and our vendors, including security and infrastructure vendors, manage and maintain our data using a combination of on-site systems and cloud-based data centers. We face a number of risks related to protecting information, including inappropriate use or disclosure, unauthorized access or acquisition, or inappropriate modification of, information. Cyberattacks are increasing in their frequency, sophistication and intensity and have become increasingly difficult to detect. Cyberattacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. Cyberattacks also could include phishing attempts or e-mail fraud to cause unauthorized payments or information to be transmitted to an unintended recipient, or to permit unauthorized access to systems. A material cyberattack or security incident could cause interruptions in our operations and could result in a material disruption of our business operations, damage to our reputation, financial condition, results of operations, cash flows and prospects.

In the ordinary course of our business, we collect and store data that we are required to protect, including, among other things, personal information about our employees, credit card data, intellectual property, and proprietary business information. Any cyberattack or security incident that leads to

 

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unauthorized access, acquisition, use or disclosure of personal or proprietary information could harm our reputation, cause us not to comply with U.S. federal and/or state, or non-U.S., data breach notification laws, or our contractual obligations, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. In addition, we could be subject to risks caused by misappropriation, misuse, leakage, falsification or intentional or accidental release or loss of information maintained in our information systems and networks and those of our vendors, including personal information of our employees, and company, customer and vendor confidential data. In addition, outside parties have previously attempted and may in the future attempt to penetrate our systems or those of our vendors or fraudulently induce our personnel or the personnel of our vendors to disclose information in order to gain access to our data and/or systems or make unauthorized payments to third parties. The number and complexity of these threats continue to increase over time. If a material breach of our information technology systems or those of our vendors occurs, the market perception of the effectiveness of our security measures could be harmed and our reputation and credibility could be damaged.

Our insurance coverage may not be adequate to cover losses associated with security incidents, and in any case, such insurance may not cover all of the types of costs, expenses and losses we could incur to address a security incident. As a result, we may be required to expend significant additional resources to protect against the threat of these issues or to alleviate problems caused by the same. In addition, we could be subject to regulatory actions and/or claims made by individuals and groups in private litigation related to data collection and use practices and other data privacy laws and regulations, including claims for misuse or inappropriate disclosure of data, as well as unfair or deceptive practices. Although we develop and maintain systems and controls designed to prevent these events from occurring, and we have a process to identify and mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely and there can be no assurance that any measures we take will prevent cyberattacks or security incidents that could adversely affect our business, financial condition, results of operations, cash flows and prospects.

Changes in political, economic or governmental regulations may reduce demand for our products or increase our expenses.

We compete in many markets in which we and our customers must comply with federal, state, local and international regulations, such as environmental, health and safety and food and drug regulations. We develop, configure and market our products to meet customer needs created by those regulations. The U.S. and international healthcare industry is subject to changing political, economic and regulatory influences that could significantly affect the drug development process, research and development costs and the pricing and reimbursement for pharmaceutical products. Any significant change in regulations could have an adverse effect on both our customers’ business and our business, which could result in reduced demand for our products and services or increases in our expenses. For example, we provide products used for basic research and input components used by biopharmaceutical customers for further processing.

Changes in the FDA’s regulation of the drug discovery and development process may have a negative impact on the ability of our customers to conduct and fund clinical trials, which could have a material adverse effect on the demand for the products we provide these customers. Additionally, the U.S. government and governments worldwide have increased efforts to expand healthcare coverage while at the same time curtailing and better controlling the increasing costs of healthcare. If cost-containment efforts limit our customers’ profitability, they may decrease research and development spending, which could decrease the demand for our products and materially adversely affect our growth prospects. Any of these factors could harm our customers’ businesses, which, in turn, could

 

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materially adversely affect our business, financial condition, results of operations, cash flows and prospects.

We are subject to financial, operating, legal and compliance risk associated with global operations.

We engage in limited business globally, with approximately 4% of our revenue for the years ended December 31, 2020 and 2019 coming from outside the U.S. However, one of our strategies is to expand geographically, both through distribution and through direct sales. We may also seek to expand geographically by acquiring complementary businesses outside of the U.S. This will subject us to a number of risks, including international economic, political, and labor conditions; currency fluctuations; tax laws (including U.S. taxes on income earned by foreign subsidiaries); increased financial accounting and reporting burdens and complexities; compliance with legislative and regulatory requirements that govern the collection, use, disclosure, security and cross-border transmission of personal information; unexpected changes in, or impositions of, legislative or regulatory requirements; failure of laws to protect intellectual property rights adequately; inadequate local infrastructure and difficulties in managing and staffing international operations; delays resulting from difficulty in obtaining export licenses for certain technology; tariffs, quotas and other trade barriers and restrictions; transportation delays; operating in locations with a higher incidence of corruption and fraudulent business practices; and other factors beyond our control, including terrorism, war, natural disasters, climate change and diseases.

Laws and regulations applicable to international transactions are often unclear and may at times conflict. Compliance with these laws and regulations may involve significant costs or require changes in our business practices that result in reduced revenue and profitability. Non-compliance could also result in fines, damages, criminal sanctions, prohibited business conduct, and damage to our reputation. We expect to incur additional legal compliance costs associated with our global operations and could become subject to legal penalties in foreign countries if we do not comply with local laws and regulations, which may be substantially different from those in the U.S.

We may expand our operations in countries with developing economies, where it may be common to engage in business practices that are prohibited by anti-corruption and anti-bribery laws and regulations that either do, or likely will, apply to us, such as the U.S. Foreign Corrupt Practices Act, the U.S. Travel Act, and the UK Bribery Act 2010, which prohibit improper payments or offers of payment by us for the purpose of obtaining or retaining business. Although we intend to implement policies and procedures designed to ensure compliance with these laws, there can be no assurance that all of our employees, contractors, distributors and agents, including those based in foreign countries where practices that violate such U.S. laws may be customary, will comply with our internal policies. Any such non-compliance, even if prohibited by our internal policies, could have an adverse effect on our business and result in significant fines or penalties.

Future acquisitions may expose us to risks that could adversely affect our business, and we may not achieve the anticipated benefits of acquisitions of businesses or technologies.

We may, in the future, make selected opportunistic acquisitions of complementary businesses, products, services or technologies. Any acquisition involves numerous risks, uncertainties and operational, financial, and managerial challenges, including the following, any of which could adversely affect our business, financial condition, results of operations, cash flows and prospects:

 

   

difficulties in integrating new operations, systems, technologies, products, services and personnel of acquired businesses effectively;

 

   

problems maintaining uniform procedures, controls and policies with respect to our financial accounting systems;

 

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lack of synergies or the inability to realize expected synergies and cost-savings, including enhanced revenue, technology, human resources, cost savings, operating efficiencies and other synergies;

 

   

difficulties in managing geographically dispersed operations, including risks associated with entering foreign markets in which we have no or limited prior experience;

 

   

underperformance of any acquired technology, product, or business relative to our expectations and the price we paid;

 

   

negative near-term impacts on financial results after an acquisition, including acquisition-related earnings charges;

 

   

the potential loss of key employees, customers, and strategic partners of acquired companies;

 

   

declining employee morale and retention issues affecting employees of businesses that we acquire, which may result from changes in compensation, or changes in management, reporting relationships, future prospects or the direction of the acquired business;

 

   

claims by terminated employees and stockholders of acquired companies or other third parties related to the transaction;

 

   

the assumption or incurrence of additional debt obligations or expenses, or use of substantial portions of our cash;

 

   

the issuance of equity or equity-linked securities to finance, or as consideration for, any acquisitions may dilute the ownership of our stockholders;

 

   

the issuance of equity or equity-linked securities to finance, or as consideration for, any acquisitions may not be an option if the price of our common stock is low or volatile, which could preclude us from completing any such acquisitions;

 

   

acquisitions financed with borrowings could increase our leverage and interest expense, which could make us more vulnerable to business downturns;

 

   

any collaboration, strategic alliance and licensing arrangement may require us to relinquish valuable rights to our technologies or products, or grant licenses on terms that are not favorable to us;

 

   

disruption of our ongoing operations and diversion of management’s attention and company resources from existing operations of the business;

 

   

inconsistencies in standards, controls, procedures, and policies;

 

   

the impairment of intangible assets as a result of technological advancements, or worse-than-expected performance of acquired companies;

 

   

assumption of, or exposure to, historical liabilities of the acquired business, including unknown contingent or similar liabilities that are difficult to identify or accurately quantify, litigation-related liabilities and regulatory compliance or accounting issues, and potential litigation or regulatory action arising from a proposed or completed acquisition;

 

   

the need to later divest acquired assets at a loss if an acquisition does not meet our expectations; and

 

   

risks associated with acquiring intellectual property, including potential disputes regarding acquired companies’ intellectual property.

In addition, the successful integration of acquired businesses requires significant effort and expense across all operational areas, including sales and marketing, research and development, manufacturing, finance, legal, and information technologies. There can be no assurance that we will be able to identify or complete promising acquisitions for many reasons, including competition among buyers, the high valuations of businesses in our industry, the need for regulatory and other approvals and the availability of capital. Even if we are able to complete acquisitions in the future, there can be no assurance that such acquisitions will be successful or profitable. Our failure to successfully address the foregoing risks may prevent us from achieving the anticipated benefits from any future acquisitions in a reasonable time frame, or at all.

 

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We and our customers’ respective business operations are and will continue to be subject to extensive government laws and regulations, and assessing the applicability and relevant requirements of, and maintaining compliance with, these laws and regulations can be expensive and time consuming.

We are subject to various local, state, federal, foreign and transnational laws and regulations, and, in the future, any changes to such laws and regulations could adversely affect us. We offer certain products that may be deemed medical devices and become subject to related regulation. Additionally, we provide products used by third parties for the development and commercialization of drug therapies, novel vaccines, and molecular diagnostics by biopharmaceutical companies, life science research companies, CROs, CDMOs, in vitro diagnostics franchises, laboratories, and academic and government research institutions that are also subject to an extensive range of regulatory requirements.

The quality of our products is critical to our customers, including researchers looking to develop novel vaccines and drug therapies and for biopharmaceutical customers who use our products as components in their preclinical studies and clinical trials. Biopharmaceutical customers are subject to extensive regulations by the FDA and similar regulatory authorities in other countries for conducting clinical trials and commercializing products for therapeutic or diagnostic use. This regulatory scrutiny results in our customers imposing rigorous quality requirements on us as their supplier through supplier qualification processes and customer contracts, including quality agreements. Regulatory authorities and our customers may conduct scheduled or unscheduled periodic inspections of our facilities to monitor our regulatory compliance or compliance with our quality agreements with our customers. There are significant risks at each stage of the regulatory scheme for our customers.

Regulatory agencies may in the future take action against us or our customers for failure to comply with applicable regulations governing clinical trials and the development and testing of diagnostic and therapeutic products, as well as requirements to fall within certain regulatory categories to qualify for exemption from marketing authorization, or where applicable to obtain clearance, authorization, or approval prior to marketing of regulated products. Failure by us or by our customers to comply with the requirements of these regulatory authorities, including without limitation, remediating any inspectional observations to the satisfaction of these regulatory authorities, could result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution, restrictions on our operations, civil or criminal sanctions, or withdrawal of existing or denial of pending approvals, including those relating to products or facilities. In addition, such a failure could expose us to contractual or product liability claims, contractual claims from our customers, including claims for reimbursement for lost or damaged active pharmaceutical ingredients, as well as ongoing remediation and increased compliance costs, any or all of which could be significant.

We are also subject to a variety of federal, state, local and international laws and regulations that govern, among other things, the importation and exportation of products, the handling, transportation and manufacture of substances that could be classified as hazardous, and our business practices in the U.S. and abroad such as anti-corruption and anti-competition laws. Any noncompliance by us with applicable laws and regulations or the failure to maintain, renew or obtain necessary permits and licenses could result in criminal, civil and administrative penalties and could have an adverse effect on our results of operations.

Establishing policies, procedures, and monitoring and oversight with consideration of both legal requirements and industry best practices in these areas are costly and time consuming. Defending against any actions for non-compliance of such laws can also be costly, time consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.

 

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Our products could become subject to more onerous regulation by the FDA or other regulatory agencies in the future, which could increase our costs and delay or prevent commercialization of our products, thereby materially and adversely affecting our business, financial condition, results of operations, cash flows and prospects.

We make certain of our products available to customers as research-use-only (“RUO”) products. RUO products belong to a separate regulatory classification under a long-standing FDA regulation. From an FDA perspective, products that are intended for research use only and are labeled as RUO are not regulated by the FDA as in vitro diagnostic devices for clinical use, and are therefore not subject to those specific regulatory requirements. RUO products may be used or distributed for research use without first obtaining FDA clearance, authorization or approval. The products must bear the statement: “For Research Use Only. Not for Use in Diagnostic Procedures.” RUO products cannot make any claims related to safety, effectiveness or diagnostic utility, and they cannot be intended for human clinical diagnostic use. Accordingly, a product labeled RUO but intended or promoted for clinical diagnostic use may be viewed by the FDA as adulterated and misbranded under the FDCA and subject to FDA enforcement action. The FDA will consider the totality of the circumstances surrounding distribution and use of an RUO product, including how the product is marketed and to whom, when determining its intended use. The FDA could disagree with our assessment that our products are properly marketed as RUO, or could conclude that products labeled as RUO are actually intended for clinical diagnostic use, and could take enforcement action against us, including requiring us to stop distribution of our products until we are in compliance with applicable regulations, which would adversely affect our business, financial condition, results of operations, cash flows and prospects. In the event that the FDA requires us to obtain marketing authorization of our RUO products in the future, there can be no assurance that the FDA will grant any clearance or approval requested by us in a timely manner, or at all. Our raw material products are manufactured following the voluntary quality standards of ISO 13485:2016. Additionally, products we offer as “GMP-grade” raw material products that we voluntarily manufacture consistent with GMP requirements also follow ISO 13485:2016 standards. We believe these raw material products, including our raw material products offered as “GMP-grade,” are exempt from compliance with FDA regulatory requirements, given that we do not believe they are finished devices as our raw material products are further processed by our customers. Our products are provided to customers under contracts and purchase orders that outline quality standards and product specifications. As products advance through the clinical phases, requirements become more stringent and we work with customers to define and agree on requirements and risks associated with their product.

The FDA could disagree with our assessment that our products are exempt from current GMP regulations. In addition, the FDA could conclude that the raw material and biologics components products we provide to our customers are actually subject to the pharmaceutical or drug quality-related regulations for manufacturing, processing, packing or holding of drugs or finished pharmaceuticals, and could take enforcement action against us, including requiring us to stop distribution of our products until we are in compliance with applicable regulations, which would adversely affect our business, financial condition, results of operations, cash flows and prospects. In the future, we may receive a customer request that an RUO product be available for manufacturing and not research use only, or receive notification from the FDA requiring us to comply with certain FDA regulations for our raw material and biologics components products. As a result, there can be no assurance that the FDA will find our operations are in compliance in a timely manner, or at all, and our results of operations may suffer.

We have no experience submitting 510(k) applications to the FDA, and cannot be certain that the FDA will accept our application as filed or that we will not experience any delays or that we will eventually receive 510(k) clearance.

We intend to file a 510(k) application on an active transport medium product line in the second half of 2021. To obtain 510(k) clearance, we will submit to the FDA a premarket notification demonstrating

 

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that the device is substantially equivalent to a device legally marketed in the U.S. for which premarketing approval was not required. Under its regulations, the FDA could make a substantial equivalence determination within 90 days of FDA’s receipt of the 510(k), but it may take longer if the FDA requests additional information. After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new clearance or possibly a pre-market approval. There is no guarantee that the FDA will grant 510(k) clearance of this or any future sample transport mediums.

We rely on assumptions, estimates and data to calculate certain of our key metrics, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

In addition to our financial results, our management regularly reviews a number of operating and financial metrics, including a breakdown of product revenue into Lab Essentials revenue, Clinical Solutions revenue and Sample Transport revenue, revenue by customer market (pharmaceutical/biotechnology, and academia, government, distributors and healthcare providers), average sale price by product, orders per day, quotes per day, delivery times, order type, new customer metrics, and status of pipeline opportunities that represent potential customers, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. As both the industry in which we operate and our businesses continue to evolve, so too might the metrics by which we evaluate our businesses and the company. In addition, while the calculation of the metrics we use is based on what we believe to be reasonable estimates, our internal tools are not independently verified by a third party and have a number of limitations and, furthermore, our methodologies for tracking these metrics may change over time, for example, the industry breakdown of our customer revenue by government, pharma/bio and academia sales. Accordingly, investors should not place undue reliance on these metrics.

We may be required to record a significant charge to earnings if our goodwill and other intangible assets, or other investments become impaired.

We are required under GAAP to test goodwill and indefinite lived intangibles for impairment at least annually and to review our goodwill, intangible assets and other assets acquired through merger and acquisition activity for impairment when events or changes in circumstance indicate the carrying value may not be recoverable. Factors that could lead to impairment of goodwill, intangible assets and other assets acquired via acquisitions include significant adverse changes in the business climate and actual or projected operating results (affecting our company as a whole or affecting any particular segment) and declines in the financial condition of our business. As of December 31, 2020 and 2019, goodwill and intangible assets represented approximately 58% and 64%, respectively, of our total assets. If we determine that there has been impairment, our financial results for the relevant period would be reduced by the amount of the impairment, net of tax effects, if any. We may be required in the future to record charges to earnings if our goodwill, intangible assets or other investments become impaired. Any such charge would adversely impact our financial results.

Changes in accounting principles and guidance could result in unfavorable accounting charges or effects.

We prepare our financial statements in accordance with GAAP. These principles are subject to interpretation by the SEC and various bodies formed to create and interpret appropriate accounting principles and guidance. The adoption of new or revised accounting principles may require us to make changes to our systems, processes and internal controls, which could have a significant effect on our reported financial results and internal controls, cause unexpected financial reporting fluctuations, retroactively affect previously reported results or require us to make costly changes to our operational processes and accounting systems upon our following the adoption of these standards.

 

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For example, during February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-02 (Topic 842), Leases. The updated standard requires the recognition of a liability for lease obligations and a corresponding right-of-use asset on the balance sheet, and disclosures of certain information regarding leasing arrangements. We are currently assessing the timing and impact of adopting the updated provisions.

Our revenue recognition and other factors may impact our financial results in any given period and make them difficult to predict.

Under ASU No. 2014-09 (Topic 606), Revenue from Contracts with Customers, (“ASU 606”), we recognize revenue when our performance obligations have been satisfied in an amount that reflects the consideration that we expect to receive in exchange for those performance obligations. Our revenue includes revenue from the sale of manufactured products, including products from our catalog or available for purchase on our website and custom manufactured products (such as custom bacterial cell culture media and specialized chromatography solutions). All of our contracts contain a single performance obligation, namely the delivery of consumable products. Our application of ASU 606 with respect to the nature of future contractual arrangements could impact the forecasting of our revenue for future periods, as both the mix of products we will sell in a given period, as well as the size of contracts, is difficult to predict. We adopted the requirements of ASU 606, effective January 1, 2019, using the modified retrospective method. Under the modified retrospective method, this guidance is applied to those contracts that were not completed as of January 1, 2019, with no restatement of contracts that were commenced and completed within fiscal years prior to January 1, 2019.

Furthermore, the presentation of our financial results requires us to make estimates and assumptions that may affect revenue recognition. In some instances, we could reasonably use different estimates and assumptions, and changes in estimates may occur from period to period. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Revenue Recognition.”

Given the foregoing factors, comparing our revenue and operating results on a period-to-period basis may not be meaningful, and our past results may not be indicative of our future performance.

Our ability to use net operating loss carryforwards to reduce future tax payments may be limited.

As of December 31, 2020, we had $2.0 million of U.S. federal and $4.1 million of state net operating loss (“NOL”) carryforwards available to reduce taxable income in future years. Our ability to utilize those NOLs may be limited based on our operating performance and tax laws in effect. Under the Tax Cuts and Jobs Act (the “Tax Act”), as modified by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), federal NOLs incurred in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such federal NOLs in taxable years beginning after December 31, 2020 is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act.

Separately, under Sections 382 and 383 of the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income or taxes may be limited. We may experience ownership changes as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. As a result, our ability to use our pre-change NOL carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

 

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Our business is subject to a number of environmental risks.

Our manufacturing business involves the controlled use of hazardous materials and chemicals and is therefore subject to numerous environmental and safety laws and regulations and to periodic inspections for possible violations of these laws and regulations. The costs of compliance with environmental and safety laws and regulations are significant. Any violations, even if inadvertent or accidental, of current or future environmental and safety laws or regulations and the cost of compliance with any resulting order or fine could adversely affect our operations.

Our management has limited experience in operating a public company.

Our executive officers have limited experience in the management of a publicly traded company. Our management team may not successfully or effectively manage its transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to the management and growth of our business. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal controls over financial reporting required of public companies in the U.S. The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company in the U.S. may require costs greater than expected. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company, which will increase our operating costs in future periods.

Risks Related to Our Intellectual Property

If we are unable to obtain, maintain and enforce intellectual property protection for our current or future products, or if the scope of our intellectual property protection is not sufficiently broad, our ability to commercialize our products successfully and to compete effectively may be materially adversely affected.

Our success depends on our ability to obtain and maintain intellectual property protection in the United States and other countries with respect to our current and future proprietary products. We rely primarily upon a combination of trade secret protection and confidentiality agreements to protect our technology, manufacturing processes, and products. Our commercial success depends in part on obtaining and maintaining trade secret protection of our current and future products, if any, and the methods used to manufacture them, as well as successfully defending such trade secrets against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products is dependent upon the extent to which we have valid and enforceable intellectual property rights that cover these activities.

Although we do not currently own any issued patents or patent applications covering our proprietary products or manufacturing processes we may, in the future, file patent applications or acquire or license intellectual property rights including patents and patent applications. The patent prosecution process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that we may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. In addition, we or our collaborators may only pursue, obtain or maintain patent protection in a limited number of countries. Even if patents do successfully issue, such patents may not adequately protect our intellectual property, provide exclusivity for our current or future products, prevent others from designing around our claims or otherwise provide us with a competitive advantage.

 

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Additionally, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of intellectual property rights, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement, misappropriation, or other violation of our intellectual property rights, including the unauthorized use or reproduction of our manufacturing or other trade secrets. Any of these outcomes could impair our ability to prevent competition from third parties, which may have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

We rely primarily on trade secret laws, as well as confidentiality and non-disclosure agreements, and other contractual protections, to protect our technologies. If we are unable to protect the confidentiality of our technology, the value of our technology and products could be materially adversely affected.

We rely on trade secret protection and confidentiality agreements to protect our technology. To maintain the confidentiality of trade secrets and other proprietary information, we enter into confidentiality agreements with our employees, consultants, contractors, collaborators, CDMOs, CROs and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or entity or made known to the individual or entity by us during the course of the individual’s or entity’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees as well as our personnel policies also generally provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property or that we may obtain full rights to such inventions at our election. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, collaborators, CDMOs, CROs and others may unintentionally or willfully disclose our information to competitors. We also face the risk that present or former employees could continue to hold rights to intellectual property used by us, demand the registration of intellectual property rights in their name, and seek payment of damages for our use of such intellectual property.

Enforcing a claim that a third party illegally obtained or is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. We may not have adequate remedies in the event of unauthorized use or disclosure of our trade secrets or other proprietary information in the case of a breach of any such agreements and our trade secrets and other proprietary information could be disclosed to third parties, including our competitors. Many of our partners also collaborate with our competitors and other third parties. The disclosure of our trade secrets to our competitors, or more broadly, would impair our competitive position and may materially harm our business, financial condition, results of operations, cash flows and prospects. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our rights, and failure to maintain trade-secret protection could adversely affect our competitive business position. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. Courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop substantially equivalent or superior knowledge, methods and know-how, and the existence of our own trade secrets affords no protection against such independent discovery.

If we are sued for infringing, misappropriating, or otherwise violating intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our current or future products.

Our products may infringe on, or be accused of infringing on, one or more claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may be subsequently issued and to which we do not hold a license or other rights.

 

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Because patent applications in the United States and many foreign jurisdictions typically are not published until 18 months after filing, or in some cases not at all, and publications in the scientific literature often lag behind actual discoveries, we cannot be certain whether others have filed patent applications for technology that we were the first to invent. Others, including our competitors, may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over any future patent applications or patents that we may file or obtain, which could further require us to obtain rights to issued patents by others covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the United States Patent and Trademark Office (the “USPTO”) to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss of our U.S. patent position with respect to such inventions.

Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our current or future products or the use of our current or future products. After issuance, the scope of patent claims remains subject to construction based on interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. These third parties could bring claims against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages.

The life sciences industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Third parties have, and may in the future have, U.S. and non-U.S. issued patents and pending patent applications that may cover our current or future products. Such a third party may claim that we or our manufacturing or commercialization partners are using inventions covered by the third party’s patent rights and may go to court or a tribunal to stop us from engaging in our normal operations and activities, including making or selling our current or future products. In the event that any of these patent rights were asserted against us, we believe that we may have defenses against any such action, including that such patents would not be infringed by our current or future products and/or that such patents are not valid. However, if any such patent rights were to be asserted against us and our defenses to such assertion were unsuccessful, unless we obtain a license to such patents, we could be liable for damages, which could be significant and include treble damages and attorneys’ fees if we are found to willfully infringe such patents, and we could be precluded from commercializing any future products that were ultimately held to infringe such patents, any of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

If we are found to infringe the patent rights of a third party, or in order to avoid potential claims, we or our collaborators may choose or be required to seek a license from a third party and be required to pay license fees or royalties or both. These licenses may not be available on reasonable terms, or at all. In particular, any of our competitors that control intellectual property that we are found to infringe may be unwilling to provide us a license under any terms. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access

 

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to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent. Further, if a patent infringement suit is brought against us or our third-party service providers and if we are unable to successfully obtain rights to required third-party intellectual property, we may be required to expend significant time and resources to redesign our current or future products, or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis, and may delay or require us to abandon our development, manufacturing or sales activities relating to our current or future products. A finding of infringement could prevent us from commercializing our future products or force us to cease some of our business operations, which could harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Intellectual property litigation and other proceedings could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

Even if resolved in our favor, intellectual property litigation or other legal proceedings relating to our, our licensors’ or other third parties’ intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. Patent litigation and other proceedings may also absorb significant management time. If not resolved in our favor, litigation may require us to pay any portion of our opponents’ legal fees. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Our competitors or other third parties may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from our participation in patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Furthermore, because of the substantial amount of discovery required in certain jurisdictions in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, the perceived value of our current or future products or intellectual property could be diminished. Accordingly, the market price of our common stock may decline. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may be subject to claims by third parties asserting that our employees, consultants, independent contractors or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property and proprietary technology.

We try to ensure that our employees do not use the proprietary information or know-how of others in their work for us. We may, however, be subject to claims that we or these employees have inadvertently or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’s former employer or that patents and applications we have filed to protect inventions of these individuals, even those related to one or more of our current or future products, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are successful in defending ourselves, such litigation could result in substantial costs to us or be distracting to our management. If we fail to defend any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or

 

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personnel or we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on an exclusive basis or on commercially reasonable terms or at all.

In addition, while we typically require our employees, consultants and independent contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own, or such agreements may be breached or alleged to be ineffective, and the assignment may not be self-executing, which may result in claims by or against us related to the ownership of such intellectual property or may result in such intellectual property becoming assigned to third parties. If we fail in enforcing or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management and scientific personnel. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

We rely on confidentiality agreements that, if breached, may be difficult to enforce and could have a material adverse effect on our business and competitive position.

Our policy is to enter agreements relating to the non-disclosure and non-use of confidential information with third parties, including our contractors, consultants, advisors and research collaborators, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them. However, these agreements can be difficult and costly to enforce. Moreover, to the extent that our contractors, consultants, advisors and research collaborators apply or independently develop intellectual property in connection with any of our projects, disputes may arise as to the proprietary rights to the intellectual property. If a dispute arises, a court may determine that the right belongs to a third party, and enforcement of our rights can be costly and unpredictable. In addition, we rely primarily on trade secrets and proprietary know-how that we seek to protect, in large part, by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ, we still face the risk that:

 

   

these agreements may be breached;

 

   

these agreements may not provide adequate remedies for the applicable type of breach; or

 

   

our trade secrets or proprietary know-how will otherwise become known.

Any breach of our confidentiality agreements or our failure to effectively enforce such agreements would have a material adverse effect on our business and competitive position.

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business, financial condition, results of operations, cash flows and prospects may be adversely affected.

Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names or marks which we need for name recognition by potential partners or customers in our markets of interest. During trademark registration proceedings, we may receive rejections. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive

 

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such proceedings. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business, financial condition, results of operations, cash flows and prospects may be adversely affected.

Intellectual property rights do not necessarily address all potential threats.

The degree of future protection afforded by our proprietary and intellectual property rights is uncertain because such rights offer only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

 

   

we do not currently own or license any patents, and others may be able to develop products that are similar to, or better than, our current or future products in a way that is not covered by the claims of the patents we may own or license in the future;

 

   

the trade secret protection that we rely on to protect our proprietary information and know-how does not protect us against any third parties independently developing competing technology;

 

   

we, or our licensing partners or current or future collaborators, might not have been the first to make the inventions covered by issued patents or pending patent applications that we may own or license in the future;

 

   

we, or our licensing partners or current or future collaborators, might not be the first to file patent applications for certain of our or their inventions;

 

   

we may choose not to file a patent for certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property;

 

   

the patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business; or

 

   

any patents that we obtain may not provide us with any competitive advantages or may ultimately be found not to be owned by us, invalid or unenforceable.

Should any of these events occur, they could significantly harm our business, financial conditions, results of operations, cash flows and prospects.

We may need or may choose to obtain licenses from third parties to advance our research or allow commercialization of our current or future products, and we cannot provide any assurances that we would be able to do so.

We may need or may choose to obtain licenses from third parties to advance our research or allow commercialization of our current or future products, and we cannot provide any assurances that third party patents do not exist that might be enforced against our current or future products in the absence of such a license. We may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. If we could not obtain a license, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected products, which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation.

Licensing of intellectual property involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

whether, and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

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our right to sublicense patent and other rights to third parties under collaborative development relationships;

 

   

our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our products, and what activities satisfy those diligence obligations; and

 

   

the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain the licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product, or the dispute may have an adverse effect on our results of operation.

We may, in the future, grant licenses under our intellectual property. Like in licenses, out licenses are complex, and disputes may arise between us and our licensees, such as the types of disputes described above. Moreover, our licensees may breach their obligations, or we may be exposed to liability due to our failure or alleged failure to satisfy our obligations. Any such occurrence could have an adverse effect on our business.

Risks Related to Our Indebtedness

Our existing indebtedness could adversely affect our business and growth prospects.

In March 2021, we entered into the Credit Agreement which provides for loan commitments in an aggregate amount of up to $27.0 million. Our indebtedness, including any indebtedness we may incur under the Credit Agreement or otherwise, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.

Our indebtedness, the cash flow needed to satisfy our debt and the covenants contained in the Credit Agreement may have important consequences, including:

 

   

limiting funds otherwise available for financing our capital expenditures by requiring us to dedicate a portion of our cash flows from operations to the repayment of debt and the interest on this debt;

 

   

limiting our ability to incur or prepay existing indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments and make changes in the nature of the business, among other things;

 

   

making us more vulnerable to rising interest rates, as certain of our borrowings, including borrowings under the Credit Agreement, bear variable rates of interest; and

 

   

making us more vulnerable in the event of a downturn in our business.

Fluctuations in interest rates can increase borrowing costs. Increases in interest rates may directly impact the amount of interest we are required to pay and reduce earnings accordingly. In addition, tax laws, including the disallowance or deferral of tax deductions for interest paid on outstanding indebtedness, could have an adverse effect on our liquidity and our business, financial condition, results of operations, cash flows and prospects. Further, our Credit Agreement contains customary affirmative and negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business.

 

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We expect to use cash flow from operations to meet current and future financial obligations, including funding our operations, debt service requirements and capital expenditures. The ability to make these payments depends on our financial and operating performance, which is subject to prevailing economic, industry and competitive conditions and to certain financial, business, economic and other factors beyond our control.

Despite current indebtedness levels, we may incur substantially more indebtedness, which could further exacerbate the risks associated with our substantial indebtedness.

We may incur significant additional indebtedness in the future. We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness. If new debt is added to our current indebtedness levels, the related risks that we face could intensify.

The phase-out of the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.

Borrowings under our Credit Agreement bear interest at rates determined using LIBOR as the reference rate. On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021, or if alternative rates or benchmarks will be adopted, and currently it appears highly likely that LIBOR will be discontinued or substantially modified by 2021. Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs. This could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks. Furthermore, we may need to renegotiate our Credit Agreement or incur other indebtedness, and changes in the method of calculating LIBOR, or the use of an alternative rate or benchmark, may negatively impact the terms of such indebtedness.

The terms of the Credit Agreement may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions. If we fail to comply with the covenants and other obligations under the Credit Agreement, the lender may be able to accelerate amounts owed under the facilities and may foreclose upon the assets securing our obligations.

The Credit Agreement contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may, unless waived by the lender, limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to:

 

   

incur additional indebtedness;

 

   

incur liens;

 

   

merge, dissolve, liquidate, amalgamate, consolidate or sell all or substantially all of our assets;

 

   

declare or pay certain dividends, payments or distribution or repurchase or redeem certain capital stock; and

 

   

make certain investments.

These restrictions could limit, potentially significantly, our operational flexibility and affect our ability to finance our future operations or capital needs or to execute our business strategy. Our indebtedness under the Credit Agreement is secured by substantially all of our assets. If we fail to comply with the covenants and our other obligations under the Credit Agreement, the lender would be able to accelerate the required repayment of amounts due and, if they are not repaid, could foreclose upon the assets securing our obligations with respect to such indebtedness.

 

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Risks Related to Our Common Stock and This Offering

THP controls us, and its interests may conflict with ours or yours in the future.

Immediately following this offering, THP will control approximately 67.1% of the voting power of our outstanding common stock, or 65.2% if the underwriters exercise in full their option to purchase additional shares, which means that, based on its percentage voting power controlled after the offering, THP will control the vote of all matters submitted to a vote of our stockholders. This control will enable THP to control the election of the members of our board of directors and all other corporate decisions. In particular, for so long as THP continues to own a majority of our common stock, THP will be able to cause or prevent a change of control of us or a change in the composition of our board of directors and could preclude any unsolicited acquisition of us. Pursuant to our investors’ rights agreement and our amended and restated certificate of incorporation, which will take effect immediately prior to the closing of this offering, THP will have certain rights, and the ability to take certain actions, that are not otherwise available to all stockholders. For example, our investors’ rights agreement provides THP the right, following the closing of this offering and subject to certain conditions, to demand that we file a registration statement or request that their shares of our common stock be covered by a registration statement that we are otherwise filing. See the section titled “Description of Capital Stock—Registration Rights” for additional information regarding these rights. In addition, our amended and restated certificate of incorporation will, until such time as THP first ceases to own greater than 50% of the outstanding voting power of our common stock, effectively provide THP with the ability to fill vacancies on the board, remove directors (with or without cause), call a special meeting of our stockholders, amend our certificate of incorporation (subject to approval of our board of directors) and amend our bylaws. See the section titled “Description of Capital Stock—Anti-Takeover Matters in our Governing Documents and Under Delaware Law” for additional information regarding THP’s ability to take such actions. Even when THP ceases to control a majority of the total voting power, for so long as THP continues to own a significant percentage of our common stock, THP will still be able to significantly influence the composition of our board of directors and the approval of actions requiring stockholder approval. Accordingly, for such period of time, THP will have significant influence with respect to our management, business plans and policies. The concentration of ownership and availability of the foregoing rights could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of us and ultimately might affect the market price of our common stock.

THP and its affiliates engage in a broad spectrum of activities, including investments in our industry generally. In the ordinary course of their business activities, THP and its affiliates may engage in activities where their interests conflict with our interests or those of our other stockholders, such as investing in or advising businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. Our amended and restated certificate of incorporation to be effective at or prior to the closing of this offering will provide that none of THP and its affiliates and any person or entity who, while a stockholder, director, officer or agent of the company or any of its affiliates, is a director, officer, principal, partner, member, manager, employee, agent and/or other representative of THP and its affiliates (each, an “Identified Person”) will have any duty to refrain from (i) engaging in a corporate opportunity in the same or similar business activities or lines of business in which we or our affiliates are engaged or that are deemed to be competing with us or any of our affiliates or (ii) otherwise investing in or providing services to any person that competes with us or our affiliates engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. In addition, to the fullest extent permitted by law, no Identified Person will have any obligation to offer to us or our subsidiaries or affiliates the right to participate in any corporate opportunity in the same or similar business activities or lines of business in which we or our affiliates are engaged or that are deemed to be competing with us or any of our affiliates. This means that THP may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, THP may have an interest in pursuing acquisitions, divestitures and other

 

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transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you or may not prove beneficial.

Upon the listing of our shares of common stock on the Nasdaq Global Market, we will be a “controlled company” within the meaning of the Nasdaq Rules and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections as those afforded to stockholders of companies that are subject to such governance requirements.

After the closing of this offering, THP will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these corporate governance standards, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements. For example, controlled companies, within one year of the date of the listing of their common stock:

 

   

are not required to have a board that is composed of a majority of “independent directors,” as defined under the Nasdaq Rules;

 

   

are not required to have a compensation committee that is composed entirely of independent directors or have a written charter addressing the committee’s purpose and responsibilities; and

 

   

are not required to have director nominations be made, or recommended to the full board of directors, by its independent directors or by a nominations committee that is composed entirely of independent directors, and to adopt a written charter or a board resolution addressing the nominations process.

For at least some period following this offering, we intend to utilize these exemptions. As a result, immediately following this offering, we do not expect a majority of our directors will have been affirmatively determined to be independent or that our compensation committee or nominating and corporate governance committee of the board will be comprised entirely of directors who have been determined to be independent. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.

We may allocate the net proceeds from this offering in ways with which you and other stockholders may disagree.

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section titled “Use of Proceeds.” Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment, and the failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected results, which could cause our stock price to decline.

 

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As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act. We may not be able to complete our evaluation, testing and any required remediation prior to becoming a public company or in a timely manner thereafter. If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting as of the end of the fiscal year that coincides with the filing of our second annual report on Form 10-K. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We will also be required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to report on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an “emerging growth company” as defined in the JOBS Act if we take advantage of the exemptions contained in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect our business and stock price.

To comply with the requirements of being a public company, we may need to undertake various costly and time-consuming actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff, which may adversely affect our business, financial condition, results of operations, cash flows and prospects.

Material weaknesses in our internal control over financial reporting may cause us to fail to timely and accurately report our financial results or result in a material misstatement of our financial statements.

In connection with the audit of our financial statements included elsewhere in this prospectus, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a

 

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reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weakness resulted from not having internal controls that were designed, documented and executed to support the accurate and timely analysis and reporting of financial results associated with accounting for complex, non-routine transactions under GAAP. Consequently, we inappropriately accounted for the THP Transaction in 2019, including as to certain tax benefits and the allocation of transaction costs across periods. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting.”

We are implementing additional procedures to remediate this material weakness, however, we cannot assure you that these or other measures will fully remediate the material weakness in a timely manner or prevent future material weaknesses from occurring. As part of our remediation plan to address the material weakness identified above, we are working to hire accounting employees and/or consultants with the specific technical accounting experience necessary to assist with complex, non-routine transactions. We believe that the measures we are implementing will remediate the material weakness and strengthen our internal control over financial reporting.

While we are implementing our plan to remediate the material weakness, we can give no assurance that this implementation will remediate the material weakness in internal control over financial reporting or that additional material weaknesses in our internal control over financial reporting will not be identified in the future. If we identify future material weaknesses in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected. If additional material weaknesses exist or are discovered in the future, and we are unable to remediate any such material weaknesses, our reputation, financial condition, and operating results could suffer. Moreover, we could become subject to investigations by regulatory authorities, which could require additional financial and management resources.

We are an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. We intend to take advantage of certain exemptions and relief from various public reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act. We will be exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.

Section 107 of the JOBS Act provides that an “emerging growth company” 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. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of our financials to those of other public companies more difficult. Additionally, because we have taken advantage of certain

 

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reduced reporting requirements, the information contained herein may be different from the information you receive from other public companies in which you hold stock.

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, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the completion of our initial public offering.

We are also a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company for so long as either (i) the market value of our common shares held by non-affiliates is less than $250.0 million as of the end of our second fiscal quarter or (ii) we have annual revenues of less than $100.0 million and the market value of our common shares held by non-affiliates is less than $700.0 million as of the end of our second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

Investors may find our common stock less attractive to the extent we rely on the exemptions and relief granted by the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline or become more volatile.

The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an “emerging growth company.”

As a public company, we will incur legal, accounting and other expenses that we did not previously incur. We will become subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act, the listing requirements of Nasdaq and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires that we file annual, quarterly and current reports with respect to our business, financial condition, results of operations, cash flows and prospects. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert our management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition, results of operations, cash flows and prospects. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These additional obligations could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are

 

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subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of our management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and there could be a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Provisions of our corporate governance documents could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders.

Our amended and restated certificate of incorporation and amended and restated bylaws, each of which will be effective at or prior to the closing of this offering and the DGCL contain provisions that could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. Among other things, these provisions:

 

   

allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of other stockholders;

 

   

provide for a classified board of directors with staggered three-year terms;

 

   

provide that, at any time after THP first ceases to beneficially own more than 50% in voting power of the outstanding shares of our common stock entitled to vote generally in the election of directors (the “THP Trigger Event”), directors may only be removed for cause, and only by the affirmative vote of holders of at least 66 2/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class;

 

   

prohibit stockholder action by written consent from and after the THP Trigger Event;

 

   

provide that, at any time after the THP Trigger Event, special meetings may only be called by or at the direction of the Chairman of our board of directors, our board of directors or our Chief Executive Officer;

 

   

provide that, at any time after the THP Trigger Event, any alteration, amendment or repeal, in whole or in part, of any provision of our bylaws by our stockholders will require the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; and

 

   

establish advance notice requirements for nominations for elections to our board of directors and for proposing matters that can be acted upon by stockholders at stockholder meetings.

Section 203 of the DGCL generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder. We have expressly elected not to be governed by Section 203 of the DGCL, until such time as THP beneficially owns, in the aggregate, less than a majority of the total voting power of all outstanding shares of our common stock entitled to vote generally in the election of directors. At that time, such election shall be automatically withdrawn and we will thereafter be governed by Section 203 of the DGCL, except that THP will not be deemed to be an interested stockholder under Section 203 of the DGCL regardless of its percentage ownership of our common stock. These provisions could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your

 

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choosing and cause us to take other corporate actions you desire, including actions that you may deem advantageous, or negatively affect the trading price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team.

These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including actions to delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction. For information regarding these and other provisions, see the section titled “Description of Capital Stock.”

Our amended and restated certificate of incorporation will designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders and the federal district courts of the United States as the exclusive forum for litigation arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our amended and restated certificate of incorporation, which we will adopt at or prior to the closing of this offering, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, employees or stockholders to us or our stockholders, (3) any action asserting a claim against us, or any of our current or former directors, officers, employees or stockholders arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws, (4) any claim or cause of action seeking to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws, (5) any action or proceeding asserting a claim against us or any of our current or former directors, officers, employees or stockholders as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware, and (6) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware; provided that, for the avoidance of doubt, the foregoing forum selection provision will not apply to claims arising under the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our amended and restated certificate of incorporation will also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Our amended and restated certificate of incorporation will further provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the provisions of our amended and restated certificate of incorporation described above. See the section titled “Description of Capital Stock—Anti-Takeover Measures in our Governing Documents and Under Delaware Law—Exclusive Forum.”

The forum selection provisions in our amended and restated certificate of incorporation may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings and there is uncertainty as to whether a court would enforce such provisions. In addition, investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. If the enforceability of our forum selection provisions were to be challenged, we

 

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may incur additional costs associated with resolving such challenge. While we currently have no basis to expect any such challenge would be successful, if a court were to find our forum selection provisions to be inapplicable or unenforceable with respect to one or more of these specified types of actions or proceedings, we may incur additional costs associated with having to litigate in other jurisdictions, which could have an adverse effect on our business, financial condition, results of operations, cash flows and prospects and result in a diversion of the time and resources of our employees, management and board of directors.

If you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of your investment.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. Based on an assumed initial public offering price of $15.00 per share, the mid-point of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $11.86 per share, representing the difference between our pro forma net tangible book value per share at December 31, 2020 after giving effect to this offering and the initial public offering price. We also have a significant number of outstanding options to purchase shares of our common stock with exercise prices that are below the assumed initial public offering price of our common stock. To the extent these options are exercised, you will experience further dilution. For more information on the dilution you may suffer as a result of investing in this offering, see the section of this prospectus titled “Dilution.”

This dilution is due to the substantially lower price paid by our investors who purchased shares prior to this offering as compared to the price offered to the public in this offering. It is also due to the conversion of our preferred stock into shares of our common stock upon the closing of this offering and the exercise of stock options granted to our employees as the conversion and exercise prices of such securities and options are substantially below the price offered to the public in this offering.

An active, liquid trading market for our common stock may not develop, which may limit your ability to sell your shares.

Prior to this offering, there was no public market for our common stock. Although we have applied to list our common stock on the Nasdaq Global Market under the trading symbol “TKNO,” an active trading market for our common stock may never develop or be sustained following this offering. The initial public offering price will be determined by negotiations between us and the underwriters and may not be indicative of market prices of our common stock that will prevail in the open market after the offering. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our common stock. The market price of our common stock may decline below the initial public offering price, and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by issuing additional shares of our common stock or other equity or equity-linked securities and may impair our ability to acquire other companies or technologies by using any such securities as consideration.

A significant portion of our total outstanding shares of common stock are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of

 

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common stock intend to sell shares, could reduce the market price of our common stock. After this offering, we will have 26,111,917 outstanding shares of common stock based on the number of shares outstanding as of December 31, 2020, which includes 17,512,685 shares of our common stock issuable upon the conversion of all outstanding shares of our Series A preferred stock as of December 31, 2020. All shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act (“Rule 144”), including our directors, executive officers and other affiliates (including THP), which may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale.”

Following the closing of this offering, substantially all of the shares that are not being sold in this offering will be subject to a 180-day lock-up period provided under lock-up agreements executed in connection with this offering described in “Underwriters” and restricted from immediate resale under the federal securities laws as described in “Shares Eligible for Future Sale.” Upon the expiration of the contractual lock-up period pertaining to this offering, an additional 21,111,917 shares will be eligible for sale in the public market, substantially all of which are held by directors, executive officers and other affiliates and will be subject to volume, manner of sale and other limitations under Rule 144. Following the closing of this offering, shares covered by registration rights would represent approximately 80.7% of our outstanding common stock, or 78.5% if the underwriters’ option to purchase additional shares is exercised in full. Registration of any of these outstanding shares of common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See the section titled “Shares Eligible for Future Sale.”

As restrictions on resale end, the market price of our stock could decline if the holders of currently restricted shares of common stock sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities. In addition, shares of our common stock that are issued pursuant to our equity incentive plans and our ESPP will become eligible for sale in the public market, subject to provisions relating to various vesting agreements, lock-up agreements and Rule 144, as applicable. As of December 31, 2020, there were 322,174 and 1,924,370 shares of common stock reserved for issuance pursuant to outstanding stock option awards under the 2016 Plan and the 2020 Plan, respectively. In addition, a total of 2,908,283 and 290,828 shares of common stock have been reserved for future issuance under the 2021 Plan and our ESPP, respectively. In addition, the 2021 Plan and the ESPP provide for annual automatic increases in the number of shares reserved thereunder. In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

Because we have no current plans to pay regular cash dividends on our common stock following this offering, and are prohibited from paying cash dividends under the Credit Agreement, you may not receive any return on investment unless you sell your common stock for a price higher than you paid for it.

We do not anticipate paying any regular cash dividends on our common stock following this offering. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, the terms of the Credit Agreement prohibit us from paying dividends, other than dividends payable in our stock, without the prior written consent of the lender. Our future ability to pay cash dividends on our common stock may also be limited by the terms of any future debt or preferred securities we may issue or any future credit facilities we may enter into. Therefore, any return on

 

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investment in our common stock is solely dependent upon the appreciation of the price of our common stock on the open market, which may not occur.

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.

Our amended and restated certificate of incorporation will authorize us to issue one or more series of preferred stock. Our board of directors will have the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium to the market price, and materially adversely affect the market price and the voting and other rights of the holders of our common stock.

Our future capital needs are uncertain and we may need to raise additional funds in the future.

We believe that our existing cash and cash equivalents as of December 31, 2020, together with the cash generated from this offering and the MidCap Credit Facility entered into on March 26, 2021, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months. However, we may need to raise substantial additional capital to:

 

   

expand the commercialization of our products;

 

   

fund our operations;

 

   

further our research and development; and

 

   

pursue strategic transactions, such as acquisitions.

Our future funding requirements will depend on many factors, including:

 

   

market acceptance of our products;

 

   

the cost and timing of establishing additional sales, marketing and distribution capabilities;

 

   

revenue and cash flow derived from existing or future collaborations;

 

   

the cost of our research and development activities;

 

   

the cost and timing of regulatory clearances or approvals;

 

   

the effect of competing technological and market developments; and

 

   

the extent to which we engage in strategic transactions, such as the acquisition of, investment in or disposal of businesses, assets, products and technologies, including inbound or outbound licensing arrangements.

We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or equity financing may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercialization of our products. We also may have to reduce marketing, customer support or other resources devoted to our products or cease operations. Any of these factors could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

 

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Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation and amended and restated bylaws will provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. In addition, as permitted by Section 145 of the DGCL, our amended and restated bylaws, to be effective immediately prior to the closing of this offering, and the indemnification agreements that we have entered into with our directors and officers, will provide that:

 

   

we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the company and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;

 

   

we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;

 

   

we may, in our discretion, advance expenses incurred by our directors and officers in connection with defending or participating in a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;

 

   

we will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification; and

 

   

the rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.

While we maintain a directors’ and officers’ insurance policy, such insurance may not be adequate to cover all liabilities that we may incur, which may reduce our available funds to satisfy third-party claims and may adversely impact our cash position.

General Risk Factors

We are subject to export and import control laws and regulations that could impair our ability to compete in international markets or subject us to liability if we violate such laws and regulations.

We are subject to U.S. export controls and sanctions regulations that restrict the shipment or provision of certain products to certain countries, governments and persons. While we take precautions to prevent our products from being exported in violation of these laws, we cannot guarantee that the precautions we take will prevent violations of export control and sanctions laws. If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the individuals working for us. We may also be adversely affected through other penalties, reputational harm, loss of access to certain markets, or otherwise. Complying with export control and sanctions regulations may be time consuming and may result in the delay or loss of sales opportunities or impose other costs. Any change in export or import regulations; economic sanctions or related legislation; or change in the countries, governments, persons or technologies targeted by such regulations could result in our decreased ability to export or sell certain products and services to existing or potential customers in affected jurisdictions.

 

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Fluctuations in our effective tax rate may adversely affect our results of operations and cash flows.

We are subject to a variety of tax liabilities, including federal, state and other taxes such as income, sales/use, payroll, withholding, and ad valorem taxes. Changes in tax laws or their interpretations could decrease our net income, the value of any tax loss carryforwards, the value of any tax credits recorded on our balance sheet and our cash flows, and accordingly could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. In addition, some of our tax liabilities are subject to periodic audits by the relevant taxing authority, which could increase our tax liabilities.

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition.

We are currently subject to income taxes in the United States only, but our future tax liabilities may be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

   

changes in the valuation of our deferred tax assets and liabilities;

 

   

expected timing and amount of the release of any tax valuation allowances;

 

   

expansion into foreign jurisdictions that require us to pay local income taxes;

 

   

expiration of, or detrimental changes in, research and development tax credit laws; or

 

   

changes in tax laws, regulations or interpretations thereof.

In addition, we may be subject to audits of our income, sales and other transaction taxes. Outcomes from these audits could have an adverse effect on our operating results and financial condition.

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. We base our estimates on historical experience and on various other 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, liabilities, equity, revenue and expenses that are not readily apparent from other sources. It is possible that interpretation, industry practice and guidance may evolve over time. If our assumptions change or if actual circumstances differ from our assumptions, our operating results may be adversely affected and could fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Upon the closing of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. We have designed our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations

 

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include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

Our employees, consultants, distributors and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, consultants, distributors and commercial partners. Misconduct by these parties could include intentional failures to comply with the applicable laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. These laws and regulations may restrict or prohibit a wide range of pricing, discounting and other business arrangements. Such misconduct could result in legal or regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and any other precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant civil, criminal and administrative penalties, which could have a significant impact on our business. Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees and divert the attention of management in defending ourselves against any of these claims or investigations.

Our operating results and stock price may be volatile, and the market price of our common stock after this offering may drop below the price you pay.

Our quarterly operating results are likely to fluctuate in the future. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations, including as a result of the COVID-19 pandemic. This market volatility, as well as general economic, market or political conditions, could subject the market price of our common stock to wide price fluctuations regardless of our operating performance. Our operating results and the trading price of our common stock may fluctuate in response to various factors, including:

 

   

market conditions in our industry or the broader stock market;

 

   

actual or anticipated fluctuations in our quarterly financial and operating results;

 

   

introduction of new products or services by us or our competitors;

 

   

issuance of new or changed securities analysts’ reports or recommendations;

 

   

sales, or anticipated sales, of large blocks of our stock;

 

   

additions or departures of key personnel;

 

   

regulatory or political developments;

 

   

litigation and governmental investigations;

 

   

changing economic conditions;

 

   

investors’ perception of us;

 

   

events beyond our control such as weather, war and health crises such as the COVID-19 pandemic; and

 

   

any default on our indebtedness.

 

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These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our common stock to fluctuate substantially. Fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the market price and liquidity of our shares of common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

If securities or industry analysts do not publish research or reports about our business, if they publish unfavorable research or reports, or adversely change their recommendations regarding our common stock or if our results of operations do not meet their expectations, our stock price and trading volume could decline.

If a trading market for our common stock develops, the trading market will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. As a newly public company, we may be slow to attract research coverage. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research, issue an adverse opinion regarding our stock price or if our results of operations do not meet their expectations, our stock price could decline. Moreover, if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements relating to our financial condition, results of operations, plans, objectives, future performance and business, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “would,” “potential,” “likely,” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

our future financial performance, including our revenue, costs of revenue and operating expenses;

 

   

our ability to achieve and grow profitability;

 

   

our ability to consistently deliver high-quality, custom, made-to-order products meeting our customers’ expectations and quality requirements, as they scale over time;

 

   

the continued adaptability and versatility of our proprietary manufacturing processes;

 

   

the longevity of our customer relationships and the likelihood of customers to substitute our components with alternatives;

 

   

the promising nature of cell and gene therapy research, the size and growth of our potential markets and our ability to capture market share;

 

   

the impact COVID-19 or any pandemic, epidemic or outbreak of infectious disease, natural disasters, geopolitical unrest, war, terrorism, public health issues or other catastrophic events may have on our business;

 

   

the ability of our products and services to perform as expected and the reliability of the technology on which our products and services are based;

 

   

the suitability of our products to meet customers’ growing needs and our ability to collaborate with our customers to meet their demands;

 

   

the increasing use of mRNA vaccines and therapies and the resulting demand for more customized, GMP bacterial cell culture media and associated formulations over the short- and long-term;

 

   

our ability to make the investments required to maintain our operational excellence, including through extending our rapid custom production capabilities;

 

   

our ability to continue to expand our total manufacturing capabilities;

 

   

our future investments to strengthen our marketing, sales, R&D and technical support organizations;

 

   

our ability to onboard new gene therapy and mRNA therapeutic customers and migrate our current customer base from research to GMP-grade products;

 

   

our ability to continue to hire and retain skilled personnel;

 

   

the accuracy of our estimates of market opportunity and forecasts of market growth, including our estimated total addressable market;

 

   

regulatory developments in the United States and other foreign countries;

 

   

the impact of revenue recognition and other factors on our financial results;

 

   

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;

 

   

our ability to obtain, maintain and enforce intellectual property protection for our current and future products, including our ability to protect our trademarks and trade names;

 

   

the increased expenses associated with being a public company; and

 

   

our anticipated use of the net proceeds from this offering.

 

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We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. These risks are not exhaustive. Other sections of this prospectus include additional factors that could adversely impact our business and financial performance. Furthermore, new risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

The forward-looking statements made in this prospectus relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this prospectus or to conform such statements to actual results or revised expectations, except as required by law.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus forms a part, completely and with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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MARKET, INDUSTRY AND OTHER DATA

We use market and industry data, forecasts and projections throughout this prospectus. We have obtained certain market and industry data from publicly available industry publications and from certain sources that are not publicly available. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on historical market data, and there is no assurance that any of the forecasts or projected amounts will be achieved. The market and industry data used in this prospectus involve risks and uncertainties that are subject to change based on various factors, including the COVID-19 pandemic and those discussed in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in, or implied by, the estimates made by independent parties and by us. Furthermore, we cannot assure you that a third party using different methods to assemble, analyze or compute industry and market data would obtain the same results.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be approximately $66.1 million, based upon the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares is exercised in full, we estimate that the net proceeds to be received by us will be approximately $76.6 million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds that we receive from this offering by approximately $4.7 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) the net proceeds that we receive from this offering by approximately $14.0 million, assuming that the initial public offering price remains $15.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility and create a public market for our common stock and thereby enable us to access the public equity markets.

We intend to use the net proceeds from this offering to increase our manufacturing capacity and capabilities, improve operating efficiency, scale up our marketing, sales and R&D staff, increase brand awareness, develop new products and services and attract new customers, pursue acquisition opportunities and for other general corporate purposes. Although we intend to use the proceeds of this offering for the foregoing purposes, we are not able to quantify the approximate amount of the proceeds that will be devoted to particular uses because we have not made specific determinations regarding the amount or type of any such expenditures, and we do not have agreements or commitments for any material acquisitions or investments at this time.

This expected use of net proceeds from this offering represents our intentions based on our current plans and business conditions, which could change in the future as our plans and business conditions evolve. As a result, our management will have broad discretion over the uses of the net proceeds from this offering and investors will be relying on the judgement of our management regarding the application of the net proceeds from this offering.

Pending the use of the proceeds from this offering as described above, we intend to invest the net proceeds from the offering that are not used as described above in investment-grade, interest-bearing instruments such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.

 

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DIVIDEND POLICY

We have not paid any dividends since our inception. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. We do not currently intend to declare or pay any cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends on our capital stock will be at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements and other factors that our board of directors considers relevant. In particular, unless waived, the terms of the Credit Agreement prohibit us from paying dividends, other than dividends payable in our stock, without the prior written consent of the lender. Our future ability to pay cash dividends on our common stock may also be limited by the terms of any future debt or preferred securities we may issue or any future credit facilities we may enter into.

 

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CAPITALIZATION

The following table sets forth our cash, cash equivalents and short-term investments and our capitalization as of March 31, 2021:

 

   

after giving effect to the 1.8746-for-1 forward stock split, which was effected on June 17, 2021;

 

   

on an actual basis;

 

   

on a pro forma basis to reflect (i) the conversion of all outstanding shares of our Series A preferred stock as of March 31, 2021 into 17,512,685 shares of common stock immediately prior to the closing of this offering, and (ii) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the closing of this offering; and

 

   

on a pro forma as adjusted basis to give effect to (i) the pro forma items described immediately above, and (ii) our issuance and sale of 5,000,000 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma and pro forma as adjusted information below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with our financial statements and the related notes included elsewhere in this prospectus, the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information contained in this prospectus.

 

    As of March 31, 2021  
(in thousands, except shares and per share data)   Actual      Pro forma      Pro forma, as
adjusted(1)
 
    (unaudited)      (unaudited)      (unaudited)  

Cash and cash equivalents

  $ 14,466      $ 14,466        80,595  

Long-term debt(2)

    11,736        11,736        11,736  

Series A preferred stock, $0.00001 par value per share; 9,600,000 shares authorized, 9,342,092 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

    35,638                

Stockholders’ equity:

       

Preferred stock, $0.00001 par value per share; no shares authorized, issued or outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

                   

Common stock, $0.00001 par value, 30,000,000 shares authorized, 3,599,232 shares issued and outstanding, actual; 490,000,000 shares authorized, 21,111,917 shares issued and outstanding, pro forma; shares authorized, 26,111,917 shares issued and outstanding, pro forma as adjusted

                   

Additional paid-in capital

    14,678        50,316        116,445  

Retained earnings

    1,610        1,610        1,610  
 

 

 

    

 

 

    

 

 

 

Total stockholders’ equity

    16,288        51,926        118,055  
 

 

 

    

 

 

    

 

 

 

Total capitalization

  $ 63,662      $ 63,662      $ 129,791  
 

 

 

    

 

 

    

 

 

 

 

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(1)

A $1.00 increase (decrease) in the assumed initial public offering price of our common stock of $15.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) the as adjusted amount of cash, and cash equivalents, additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $4.7 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) the as adjusted amount of additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $14.0 million, assuming that the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(2)

On March 26, 2021, we closed on a $27.0 million credit facility with MidCap Financial Trust, pursuant to the terms of the Credit Agreement. The outstanding balance on the credit facility as of March 31, 2021 was $12.0 million ($11.7 million net of deferred fees). See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—MidCap Credit Facility” for more details.

The outstanding share information in the table above is based on 21,111,917 shares of our common stock outstanding as of March 31, 2021, which includes 17,512,685 shares of our common stock issuable upon the conversion of all outstanding shares of our Series A preferred stock as of March 31, 2021, and excludes:

 

   

322,174 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2021 under the 2016 Plan, at a weighted average exercise price of $0.42 per share;

 

   

2,111,830 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2021 under our 2020 Plan, at a weighted average exercise price of $1.45 per share;

 

   

1,032,018 shares of common stock available for future issuance as of March 31, 2021 under our 2020 Plan, which will no longer be available for issuance thereunder at the time our 2021 Plan becomes effective;

 

   

2,908,283 shares of our common stock reserved for future issuance under our 2021 Plan, which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for issuance under our 2021 Plan and any shares underlying outstanding stock awards granted under our 2020 Plan that expire or are repurchased, forfeited, cancelled or withheld, as more fully described in the section titled “Executive Compensation—Actions Taken in 2021 or in Connection with This Offering—2021 Equity Incentive Plan”; and

 

   

290,828 shares of our common stock reserved for issuance under our ESPP, which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for future issuance under our ESPP.

See the section titled “Executive Compensation—Actions Taken in 2021 or in Connection with This Offering” for additional information.

 

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DILUTION

If you invest in our common stock in this offering, your interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock after this offering. As of March 31, 2021, we had a historical net tangible book value of $15.7 million, or $4.37 per share of common stock. Our net tangible book value represents total tangible assets less total liabilities, all divided by the number of shares of common stock outstanding on such date. Our pro forma net tangible book value as of March 31, 2021 was $15.7 million, or $0.75 per share. Pro forma net tangible book value per share represents the amount of our net tangible book value divided by the number of shares of our common stock outstanding as of March 31, 2021, after giving effect to (i) the conversion of all outstanding shares of our Series A preferred stock as of March 31, 2021 into 17,512,685 shares of common stock immediately prior to the closing of this offering, and (ii) the filing of our amended and restated certificate of incorporation immediately prior to the closing of this offering.

After giving further effect to the sale of 5,000,000 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2021 would have been approximately $81.9 million, or approximately $3.14 per share. This represents an immediate increase in pro forma net tangible book value of $2.39 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $11.86 per share to new investors purchasing shares of common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this per share dilution:

 

Assumed initial public offering price per share

     $ 15.00  

Historical net tangible book value per share as of March 31, 2021

  $ 4.37     
 

 

 

    

Decrease per share attributable to the pro forma adjustments described above

    (3.62   
 

 

 

    

Pro forma net tangible book value per share as of March 31, 2021

  $ 0.75     
 

 

 

    

Increase in pro forma net tangible book value per share attributable to this offering

    2.39     
 

 

 

    

Pro forma as adjusted net tangible book value per share after this offering

       3.14  
    

 

 

 

Dilution per share to new investors in this offering

     $ 11.86  
    

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease), our pro forma as adjusted net tangible book value per share after this offering by $0.18, and would increase (decrease) dilution per share to new investors in this offering by $0.82, in each case assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by approximately $0.43 per share and decrease (increase) the dilution to new investors by approximately $0.43 per share, in each case assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters’ option to purchase additional shares is exercised in full, pro forma as adjusted net tangible book value after this offering would be approximately $3.44 per share, the increase in pro forma net tangible book value per share to existing stockholders would be $2.69 per share and the dilution per share to new investors would be $11.56 per share, in each case assuming an initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, on a pro forma as adjusted basis as of March 31, 2021, the differences between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and to be paid by the new investors purchasing shares of common stock in this offering, at the assumed initial public offering price of common stock of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

    Shares purchased     Total consideration     Average
price
per share
 
    Number      Percent     Amount      Percent  

Existing investors

    21,111,917        80.9   $ 36,710,276        32.9   $ 1.74  

New investors in this offering

    5,000,000        19.1   $ 75,000,000        67.1   $ 15.00  
 

 

 

    

 

 

   

 

 

    

 

 

   

Total

    26,111,917        100   $ 111,710,276        100  
 

 

 

    

 

 

   

 

 

    

 

 

   

The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters’ option to purchase additional shares is exercised in full, the number of shares of our common stock held by existing stockholders would be reduced to 78.6% of the total number of shares of our common stock outstanding after this offering, and the number of shares of common stock held by new investors purchasing common stock in this offering would be increased to 21.4% of the total number of shares of our common stock outstanding after this offering.

The number of shares of our common stock that will be outstanding after this offering is based on 21,111,917 shares of our common stock outstanding as of March 31, 2021, which includes 17,512,685 shares of our common stock issuable upon the conversion of all outstanding shares of our Series A preferred stock as of March 31, 2021, and excludes:

 

   

322,174 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2021 under the 2016 Plan, at a weighted average exercise price of $0.42 per share;

 

   

2,111,830 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2021 under our 2020 Plan, at a weighted average exercise price of $1.45 per share;

 

   

1,032,018 shares of common stock available for future issuance as of March 31, 2021 under our 2020 Plan, which will no longer be available for issuance thereunder at the time our 2021 Plan becomes effective;

 

   

2,908,283 shares of our common stock reserved for future issuance under our 2021 Plan, which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for issuance under our 2021 Plan and any shares underlying outstanding stock awards granted under our 2020 Plan that expire or are repurchased, forfeited, cancelled or withheld, as more fully described in the section titled “Executive Compensation—Actions Taken in 2021 or in Connection with this Offering—2021 Equity Incentive Plan”; and

 

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290,828 shares of our common stock reserved for issuance under our ESPP, which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for future issuance under our ESPP.

See the section titled “Executive Compensation—Actions Taken in 2021 or in Connection with This Offering” for additional information.

To the extent any of the outstanding options are exercised or new options or other securities are issued under our equity incentive plans, you will experience further dilution as a new investor in this offering. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Furthermore, we may choose to issue common stock as part or all of the consideration in acquisitions as part of our planned growth strategy. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis of Teknova’s financial condition and results of operations should be read in conjunction with Teknova’s financial statements and the notes thereto contained elsewhere in this prospectus. This discussion contains forward-looking statements reflecting Teknova’s current expectations, estimates and assumptions concerning events and financial trends that may affect its future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” appearing elsewhere in this prospectus. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” and “our” are intended to mean the business and operations of Alpha Teknova, Inc.

Overview

Since our founding in 1996, we have been providing critical reagents that enable the discovery, research, development and production of biopharmaceutical products such as drug therapies, novel vaccines, and molecular diagnostics. Our 3,000 active customers span the entire continuum of the life sciences market, including leading pharmaceutical and biotechnology companies, contract development and manufacturing organizations, in vitro diagnostics franchises, and academic and government research institutions. We offer three primary product types: pre-poured media plates for cell growth and cloning, liquid cell culture media and supplements for cellular expansion, and molecular biology reagents for sample manipulation, resuspension, and purification.

In 2017, we achieved ISO 13485:2016 certification, enabling us to manufacture products for use in diagnostic and therapeutic applications. Our certification allows us to offer solutions across the entire customer product development workflow, supporting their need for materials in greater volume and that meet increasingly stringent regulatory requirements.

On January 14, 2019, we entered into the THP Transaction, pursuant to which THP acquired majority control of the company. As of March 31, 2021, THP owned 83% of our outstanding voting stock. The change of control effected by the THP Transaction resulted in a new basis of accounting beginning on January 14, 2019 and the financial reporting periods are presented as follows:

 

   

the “2019 Predecessor Period” means the period from January 1, 2019 through January 13, 2019;

 

   

the “2019 Successor Period” means the period from January 14, 2019 through December 31, 2019;

 

   

the “2020 Successor Period” means the year ended December 31, 2020;

 

   

the “2020 Interim Successor Period” means the three months ended March 31, 2020; and

 

   

the “2021 Interim Successor Period” means the three months ended March 31, 2021.

We manufacture our products at our Hollister, California headquarters and stock inventory of raw materials, components and finished goods at that location. We rely on a limited number of suppliers for certain raw materials, and we have no long-term supply arrangements with our suppliers, as we order on a purchase order basis. We ship our products directly from our warehouses in Hollister, California and Mansfield, Massachusetts to our customers and distributors pursuant to purchase orders. We typically recognize revenue when products are shipped.

We sell our products to pharmaceutical and biotechnology companies, contract development and manufacturing organizations, in vitro diagnostics franchises, and academic and government research

 

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institutions. Approximately 77% and 69% of our revenue for the three months ended March 31, 2021 and 2020, respectively, was generated from sales through direct channels and a limited salesforce, with the remainder generated through distributor sales. Approximately 77% of our revenue for the year ended December 31, 2020 was generated from sales through direct channels and a limited salesforce, with the remainder generated through distributor sales.

During the three months ended March 31, 2021, we generated revenue of $9.1 million, which represents an increase from $6.1 million in revenue during the three months ended March 31, 2020. During the year ended December 31, 2020, we generated revenue of $31.3 million, which represents an increase from $20.1 million in revenue during the period from January 14, 2019 to December 31, 2019 and $0.7 million in revenue in the period from January 1, 2019 to January 13, 2019. During the three months ended March 31, 2021, we reported $0.8 million of operating loss as compared to an operating income of $1.0 million during the three months ended March 31, 2020. During the year ended December 31, 2020, we had $4.7 million of operating income as compared to an operating loss of $1.8 million during the period from January 14, 2019 to December 31, 2019 and an operating loss of $2.7 million in the period from January 1, 2019 to January 13, 2019. For the three months ended March 31, 2021 and 2020, only 4.0% and 4.8%, respectively, of our revenue was generated from customers located outside of the United States and for the year ended December 31, 2020, only 3.7% of our revenue was generated from customers located outside of the United States. Our sales outside of the United States are denominated in U.S. Dollars.

We expect our expenses will increase substantially in future periods in connection with our ongoing activities as we:

 

   

attract, hire and retain qualified personnel;

 

   

invest in processes and infrastructure to enable manufacturing automation and expand capacity;

 

   

build R&D to introduce new products and services and create intellectual property;

 

   

market and sell new and existing products and services;

 

   

potentially acquire businesses or technologies to accelerate the growth of our business; and

 

   

function as a public company.

Key Factors Affecting Our Results of Operations and Future Performance

We believe that our financial performance has been, and in the foreseeable future will continue to be, primarily driven by a number of factors as described below, each of which presents growth opportunities for our business. These factors also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risks and uncertainties, including those described in the section titled “Risk Factors.”

Favorable R&D Funding

Investment in R&D activities in the life sciences sector is rapidly increasing. As a supplier of critical reagents that enable the discovery, research, development and production of biopharmaceutical products such as drug therapies, novel vaccines and molecular diagnostics, we expect to benefit from these favorable R&D dynamics.

Development of New Therapeutic Modalities

Increased innovation and R&D activity in our addressable markets is driving the development of a plethora of new therapeutic modalities. Further, we expect much of the R&D activity geared toward COVID-19 to shift more broadly over time to other vaccines and therapeutic areas.

 

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Favorable Demographic Trends

We believe the global demand for healthcare is significantly increasing due to factors such as aging populations, better access to healthcare systems and care, and an increased occurrence of chronic illness.

Rapid Growth in Cell and Gene Therapy

The investment capital raised by companies developing and commercializing cell and gene therapies increased from $9.8 billion in 2019 to $19.9 billion in 2020, according to the Alliance for Regenerative Medicine. Based on third party research, the global market for cell and gene therapies is expected to grow from $2.3 billion in 2020 to $45.4 billion by 2026. Factors expected to drive this growth include an increasing incidence of cancer and other chronic diseases, a rising number of clinical trials, increased funding and investments in cell and gene therapy, a favorable regulatory environment and additional FDA approvals for cell and gene therapy products.

Increasing Use of mRNA Vaccines and Therapies

As a leader in bacterial cell culture media and supplements, we are a supplier to this market today and are well positioned to benefit from the increasing use of mRNA vaccines and therapies. We believe the demand for mRNA will continue to increase and therefore drive the need for more customized, GMP bacterial cell culture media and associated formulations. The short development timeline and proven effectiveness of the COVID-19 mRNA vaccines have demonstrated the promise of mRNA therapies.

Basis of Presentation

In connection with the change of control effected by the THP Transaction, we elected to apply “pushdown” accounting by applying the guidance in ASC Topic 805, Business Combinations. Our assets and liabilities were recognized at fair value as of January 14, 2019. Additionally, the excess of the portion of the total purchase price of the THP Transaction attributable to the purchase of assets and liabilities over their estimated fair value as of the closing date of the THP Transaction was allocated to goodwill. The new basis of accounting primarily impacted the values of our long-lived and indefinite-lived intangible assets and resulted in increased depreciation and amortization expense due to the increased carrying value of our assets. Accordingly, our financial statements for periods before and after January 14, 2019 reflect different bases of accounting, and the financial positions and results of operations of those periods are not comparable.

COVID-19 Impacts

In March 2020, the World Health Organization declared that the outbreak of COVID-19 was a global pandemic. The COVID-19 pandemic has and continues to significantly affect the United States and global economies. Because our business is categorized as being a part of the country’s critical infrastructure, we were able to continue operations during the COVID-19 pandemic. We have mobilized our operations to support the global COVID-19 response with products that help analyze, diagnose and protect from the virus. It is not possible to exactly predict the total impact of the global COVID-19 outbreak; however, the company has seen an increase in demand for certain products that are used in COVID-19 testing and COVID-19 vaccine development. The COVID-19 pandemic continues to be dynamic, and near-term challenges across the economy remain. Although vaccines are currently being distributed, we expect continued volatility and unpredictability related to the impact of COVID-19 on our business, financial condition, and results of operations. We continue to actively monitor the pandemic and we will continue to take appropriate steps to mitigate the adverse impacts on our business posed by the ongoing spread of COVID-19.

 

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The extent of the impact of the COVID-19 pandemic on our ability to raise sufficient additional capital on acceptable terms, if at all, and the future value of and market for our common stock will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S. and in other countries, and the effectiveness of actions taken globally to contain and treat COVID-19. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, financial condition, and results of operations. See the section titled “Risk Factors” for additional information.

Components of Results of Operations

Revenue

We support customers in pharmaceutical and biotechnology industries, contract development and manufacturing organizations, in vitro diagnostics franchises, and academic and government research institutions. Our product offerings include pre-poured media plates, liquid cell culture media and supplements, and molecular biology reagents for the life sciences and healthcare communities. We recognize revenue when control of the product has transferred to the customer at the time of shipment. Revenue is recognized in an amount that reflects the consideration we expect to be entitled to in exchange for the products.

Our products are manufactured under RUO or GMP regulatory standards, the latter of which refers to a more stringent level of quality standards supported by additional levels of documentation, testing, and traceability to meet our and our customers’ desire to receive products suitable for use in diagnostic and therapeutic applications. We expect GMP products to be an increasing portion of our overall revenue in the future. Because of the increased liquid volume needed and more stringent quality standards of GMP products, they typically have a higher average selling price compared to similar RUO products.

Cost of Sales

Cost of sales includes salaries, wages and benefits, raw materials consumption, including direct and indirect material, payroll taxes, product testing and analytics expense, repairs and maintenance of equipment, scrap, inbound freight charges, depreciation, and other production overhead. We are continually making investments in our production capabilities and facilities to be flexible and meet growing customer demand for custom products. In addition, we are making investments in production automation to be able to scale capacity with limited incremental costs. Capital investments result in additional depreciation charges which increase the fixed costs of our operation.

Operating Expenses

Research and Development Expenses

Our research and development expenses primarily consist of employee-related expenses, including salaries, benefits and stock-based compensation expense for personnel in process engineering and product development functions; expenses related to occupancy costs, laboratory supplies, consulting fees and depreciation associated with various assets used in the research and development of our products.

We have recently increased our level of investment in research and new product development activities. In December 2020, we hired our Chief Scientific Officer with the goal of developing new products, services and related intellectual property that may assist us in attracting and retaining customers as well as expanding into new market segments. We expect these types of expenses will be higher in the future.

 

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Sales and Marketing Expenses

Our sales and marketing expenses primarily consist of employee-related expenses, including salaries and benefits, commissions, advertising, occupancy costs and stock-based compensation expense for sales and marketing employees. We continue to increase headcount to drive commercial activity and provide support to our growing operational activity in areas such as sales and marketing and expect these types of expenses will be higher in the future.

General and Administrative Expenses

Our general and administrative expenses primarily consist of executive and administrative staff, and other expenses such as shipping charges, professional service fees, occupancy, IT systems, insurance, depreciation, and stock-based compensation expense for executive and administrative staff.

We expect our general and administrative expenses to increase as we expand our operations. Additionally, we expect to incur increased expenses related to headcount, professional service fees, facilities, insurance, IT systems, quality and regulatory, and other infrastructure related to operating as a public company. In late 2020 and early 2021, we made several additions to our executive staff, which have significantly increased our general and administrative costs that will be reflected in our 2021 results.

In 2019, we incurred certain non-recurring general and administrative expenses related to the THP Transaction, which include one-time bonuses to certain employees, advisory, legal, accounting, valuation, and other professional and consulting fees.

Provision for (benefit from) Income Taxes

Our provision for (benefit from) income taxes consists primarily of federal and state taxes in the United States. Tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities, and require us to exercise judgment in determining our income tax provision, our deferred tax assets and deferred tax liabilities and the potential valuation allowance recorded against our net deferred tax assets. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. A valuation allowance is established when it is more likely than not that the future realization of all or some of the deferred tax assets will not be achieved.

Results of Operations

The accompanying results of operations are presented for three periods: Predecessor and Successor, which relate to the periods preceding and succeeding the THP Transaction, respectively.

 

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The following tables set forth our results of operations for the periods presented (in thousands, except for percentages):

 

    Successor     Successor     Predecessor  
    For the Three
Months Ended
March 31,
2021
    For the Three
Months Ended
March 31,
2020
    For the Year
Ended
December 31,
2020
    For the Period
from January 14,
2019 through
December 31,
2019
    For the Period
from January 1,
2019 through
January 13,
2019
 

Revenue

  $ 9,078     $ 6,112     $ 31,297     $ 20,094     $ 686  

Cost of sales

    4,053       2,483       13,542       11,520       461  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    5,025       3,629       17,755       8,574       225  

Operating expenses:

             

Research and development

    700       326       1,507       769       21  

Sales and marketing

    705       349       2,229       928       30  

General and administrative

    4,161       1,655       8,208       7,633       2,910  

Amortization of intangible assets

    287       287       1,148       1,100        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    5,853       2,617       13,092       10,430       2,961  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    (828     1,012       4,663       (1,856     (2,736

Other income (expenses), net

             

Interest income

    7       32       87       66        

Other expense, net

    1       (21     (24     (10      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

    8       11       63       56        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (820     1,023       4,726       (1,800     (2,736

Provision for income taxes (benefit)

    (165     75       1,156       (495     (2,601
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (655     948       3,570       (1,305     (135
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in unrealized gain on available-for-sale securities, net of tax

    (7     (34     (13     20        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  $ (648   $ 914     $ 3,557     $ (1,285   $ (135
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common stockholders

             

Net income (loss)

    (655     948       3,570       (1,305     (135

Less: undistributed income attributable to preferred stockholders

          (787     (2,962 )             
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

  $ (655   $ 161     $ 608     $ (1,305   $ (135
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to common stockholders(1)

             

Basic

  $ (0.18   $ 0.04     $ 0.17     $ (0.37   $ (0.01

Diluted

  $ (0.18   $ 0.04     $ 0.16     $ (0.37   $ (0.01

Weighted average shares used in computing net income (loss) per share attributable to common stockholders(1)

             

Basic

    3,599,232       3,599,232       3,599,232       3,522,924       11,398,906  

Diluted

    3,599,232       3,636,724       3,800,636       3,522,924       11,398,906  

Net income (loss) per share attributable to common stockholders (unaudited)(2)

             

Pro forma net income per share—Basic

  $ (0.03   $ 0.04     $ 0.17     $ (0.06   $ (0.01

Pro forma net income per share—Diluted

  $ (0.03   $ 0.04     $ 0.17     $ (0.06   $ (0.01

Weighted average shares used to compute the pro forma net income per share (unaudited)(2)

             

Pro forma—Basic

    21,111,917       21,111,917       21,111,917       21,035,609       11,398,906  

Pro forma—Diluted

    21,111,917       21,149,409       21,594,482       21,035,609       11,398,906  

 

(1)

See Note 13 to our audited financial statements appearing elsewhere in this prospectus for an explanation of the method used to calculate the historical net income (loss) per share, basic and diluted, and the number of shares used in the computation of the per share amounts.

(2)

The pro forma income per share data gives effect to the conversion of all outstanding shares of our Series A preferred stock into an aggregate of 17,512,685 shares of our common stock which will occur immediately prior to the closing of this offering, resulting in an aggregate of 21,111,917 outstanding shares of our common stock.

 

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Comparison of 2021 Interim Successor Period and 2020 Interim Successor Period

Our revenue disaggregated by product category, for the 2021 Interim Successor Period and the 2020 Interim Successor Period was as follows (in thousands):

 

    Successor  
    For the Three Months Ended March 31,  
    2021     2020  
    (unaudited)  

Lab Essentials

  $ 6,790     $ 5,249  

Clinical Solutions

    1,071       579  

Sample Transport

    924       —    

Other

    293       284  
 

 

 

   

 

 

 

Total Revenue

  $ 9,078     $ 6,112  
 

 

 

   

 

 

 

Total revenue was $9.1 million for the 2021 Interim Successor Period and $6.1 million for the 2020 Interim Successor Period.

Lab Essentials revenue was $6.8 million for the 2021 Interim Successor Period and $5.2 million for the 2020 Interim Successor Period. The increase in Lab Essentials revenue was primarily driven by higher average revenue per customer and, to a lesser extent, increased number of customers.

Clinical Solutions revenue was $1.0 million for the 2021 Interim Successor Period and $0.6 million for the 2020 Interim Successor Period. The increase in Clinical Solutions revenue was attributable, in roughly equal measure, to an increased volume of customers and higher average revenue per customer. Clinical Solutions products were introduced beginning in 2017.

Revenue from Sample Transport products commenced during the second quarter of 2020 and generated $0.9 million of revenue in the 2021 Interim Successor Period. The increase in Sample Transport products revenue was primarily attributable to the fact that this product line was not available in the first quarter of 2020.

COVID-19 provided an increase to revenue of approximately $1.5 million in the 2021 Interim Successor Period inclusive of $0.9 million in Sample Transport revenue. There was no COVID-19 impact in the 2020 Interim Successor Period.

Revenue by Geographic Area

Our revenue disaggregated by geographic region, for the 2021 Interim Successor Period and the 2020 Interim Successor Period was as follows (in thousands):

 

    Successor  
    For the Three Months Ended March 31,  
    2021     2020  

United States

  $ 8,715     $ 5,821  

International

    363       291  
 

 

 

   

 

 

 

Total Revenue

  $ 9,078     $ 6,112  
 

 

 

   

 

 

 

Revenue from sales to customers in the United States was $8.7 million in the 2021 Interim Successor Period and $5.8 million in the 2020 Interim Successor Period. Revenue from U.S. sales

 

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represented 96.0% and 95.2% of our total revenue in the 2021 Interim Successor Period and 2020 Interim Successor Period, respectively. We experienced significant U.S. growth due to strong performance in our core Lab Essentials products and a net benefit of sales attributable to COVID-19.

Revenue from sales to customers in markets outside of the U.S. was $0.4 million in the 2021 Interim Successor Period and $0.3 million in the 2020 Interim Successor Period. Revenue from international sales represented 4.0% and 4.8% of our total revenue in the 2021 Interim Successor Period and 2020 Interim Successor Period, respectively. The increase in such revenue was attributable to COVID-19-related product demand from a customer’s facilities located outside of the U.S.

Gross Profit

Our gross profit for the 2021 Interim Successor Period and the 2020 Interim Successor Period was as follows (in thousands, except percentages):

 

    Successor  
    For the Three Months Ended March 31,  
    2021     2020  

Cost of sales

  $ 4,053     $ 2,483  

Gross profit

    5,025       3,629  
 

 

 

   

 

 

 

Gross profit %

    55.4     59.4

Gross profit percentage was 55.4% in the 2021 Interim Successor Period and 59.4% in the 2020 Interim Successor Period. The decrease in gross profit percentage was primarily driven by higher depreciation and labor costs.

Operating Expenses

Research and Development Expenses

Our research and development expenses for the 2021 Interim Successor Period and the 2020 Interim Successor Period were as follows (in thousands):

 

    Successor  
    For the Three Months Ended March 31,  
    2021     2020  

Research and development expenses

  $ 700       326  

Research and development expenses were $0.7 million in the 2021 Interim Successor Period and $0.3 million in the 2020 Interim Successor Period. The increase was primarily driven by an increase in headcount and spending on outside services.

Sales and Marketing Expenses

Our sales and marketing expenses for the 2021 Interim Successor Period and the 2020 Interim Successor Period were as follows (in thousands):

 

    Successor  
    For the Three Months Ended March 31,  
    2021     2020  

Sales and marketing expenses

  $ 705     $ 349  

Sales and marketing expenses were $0.7 million in the 2021 Interim Successor Period and $0.3 million in the 2020 Interim Successor Period. The increase was primarily driven by an increase in sales and marketing headcount.

 

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General and Administrative Expenses

Our general and administrative expenses for the 2021 Interim Successor Period and the 2020 Interim Successor Period were as follows (in thousands):

 

    Successor  
    For the Three Months Ended March 31,  
    2021     2020  

General and administrative expense

  $ 4,161     $ 1,655  

General and administrative expenses were $4.2 million in the 2021 Interim Successor Period and $1.7 million in the 2020 Interim Successor Period. The increase was primarily driven by an increase in headcount and spending on professional services, stock based compensation, depreciation and information technology. For the 2021 Interim Successor Period and 2020 Interim Successor Period, general and administrative expenses as a percentage of revenue was 45.8% and 27.1%, respectively.

(Benefit from) provision for Income Taxes

Our (benefit from) provision for income taxes for the three months ended March 31, 2021 and 2020 was as follows (in thousands, except percentages):

 

    Successor  
    For the Three Months Ended March 31,  
    2021     2020  

(Benefit from) provision for income taxes

  $ (165   $ 75  
 

 

 

   

 

 

 

Effective tax rate

    20.1     7.3

Our benefit from income taxes was $0.2 million in the 2021 Interim Successor Period, which was primarily due to deferred tax benefit from federal loss. The effective tax rate for the 2021 Interim Successor Period being lower than the statutory rate was primarily due to the impact from stock-based compensation.

Our provision for income taxes was $0.1 million in the 2020 Interim Successor Period, which was primarily due to an increase in our deferred tax liabilities net of a $0.2 million discrete tax benefit as a result of our ability under the CARES Act to carry back NOLs incurred to certain years when the U.S. federal income tax rate was 34% versus the current rate of 21%. The effective tax rate for the 2020 Interim Successor Period being lower than the statutory rate was primarily due to the impact from the NOL carryback discussed above.

Comparison of 2020 Successor Period and 2019 Successor and Predecessor Periods

 

    2020      2019      2019  
(in thousands)   Successor
Period
     Successor
Period
     Predecessor
Period
 

Lab Essentials

  $ 21,240      $ 17,479      $ 626  

Clinical Solutions

    4,807        1,336        24  

Sample Transport

    4,297        —          —    

Other

    953        1,279        36  
 

 

 

    

 

 

    

 

 

 

Total Sales

  $ 31,297      $ 20,094      $ 686  
 

 

 

    

 

 

    

 

 

 

Total revenue was $31.3 million for the 2020 Successor Period, $20.1 million for the 2019 Successor Period, and $0.7 million for the 2019 Predecessor Period.

 

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Lab Essentials revenue was $21.2 million for the 2020 Successor Period, $17.5 million for the 2019 Successor Period, and $0.6 million for the 2019 Predecessor Period. The increase in Lab Essentials revenue was driven by higher average revenue per customer.

Clinical Solutions revenue was $4.8 million for the 2020 Successor Period, $1.3 million for the 2019 Successor Period, and minimal for the 2019 Predecessor Period. The increase in Clinical Solutions revenue was primarily attributable, in roughly equal measure, to an increased volume of customers and higher average revenue per customer. Clinical Solutions products were introduced beginning in 2017.

Revenue from Sample Transport products commenced in 2020, generating $4.3 million of revenue in the 2020 Successor Period. We launched this product line to support the demand for transport of viral samples associated with a surge of COVID-19 testing in 2020. Sample Transport products are manufactured under GMP standards; however, due to the uncertainty and fluctuations associated with this market, which is different than our other GMP products, we elected to show revenue from this product line separately. While this is not a strategic product line for us, the opportunity allowed us to develop new production capabilities that support future growth in our Lab Essentials and Clinical Solutions product lines.

COVID-19 impacted our business in several different ways. When the pandemic began, orders for Lab Essentials products declined because many research labs temporarily closed and we estimate that the resulting negative impact to our revenue was $1.7 million, primarily in the second quarter of 2020. This negative impact was offset by the launch of our Sample Transport product line, which generated revenue of $4.3 million in 2020. In addition, we experienced COVID-19-related growth in the second half of 2020 from a large customer that was supplying COVID-19 test kits with one of our GMP products included and another large customer that was supplying COVID-19 vaccines into the market, the result of which we estimate was an approximate $3.0 million increase in revenue. In total, we estimate that we realized a net increase of approximately $5.6 million in revenue attributable to conditions created by the COVID-19 pandemic, which we expect may significantly decline in the future as the COVID-19 pandemic eases.

Revenue by Geographic Area

Our revenue disaggregated by geographic region, for the 2020 Successor Period, the 2019 Successor Period, and the 2019 Predecessor Period was as follows (in thousands):

 

    Successor      Predecessor  
    For the Year
Ended
December 31,
2020
     For the Period
from January 14,
2019 through
December 31, 2019
     For the Period
from January 1,
2019 through
January 13, 2019
 

United States

  $ 30,138      $ 19,146      $ 668  

International

    1,159        948        18  
 

 

 

    

 

 

    

 

 

 

Total Revenue

  $ 31,297      $ 20,094      $ 686  
 

 

 

    

 

 

    

 

 

 

Revenue from sales to customers in the United States was $30.1 million in the 2020 Successor Period, $19.1 million in the 2019 Successor Period and $0.7 million in the 2019 Predecessor Period. Revenue from U.S. sales represented 96.3%, 95.3% and 97.4% of our total revenue in the 2020 Successor Period, 2019 Successor Period, and 2019 Predecessor Period, respectively. We experienced significant U.S. growth in 2020 due to strong performance in our core Lab Essentials and Clinical Solutions products and a net benefit of sales attributable to COVID-19, somewhat offset by reduced revenue from shipping charges.

 

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Revenue from sales to customers in markets outside of the U.S. was $1.2 million in the 2020 Successor Period, $0.9 million in the 2019 Successor Period and minimal in the 2019 Predecessor Period. Revenue from such sales represented 3.7%, 4.7% and 2.6% of our total revenue in the 2020 Successor Period, 2019 Successor Period, and 2019 Predecessor Period, respectively. The increase in such revenue was attributable to COVID-19-related product demand from a customer’s facilities located outside of the U.S. We do not currently have international sales representatives or otherwise actively market to customers outside of the U.S.

Gross Profit

Our gross profit for the 2020 Successor Period, the 2019 Successor Period, and the 2019 Predecessor Period was as follows (in thousands, except percentages):

 

    Successor            Predecessor  
    For the Year
Ended
December 31,
2020
    For the Period
from January 14,
2019 through
December 31, 2019
           For the Period
from January 1,
2019 through
January 13, 2019
 

Cost of sales

  $ 13,542     $ 11,520          $ 461  

Gross profit

    17,755       8,574            225  
 

 

 

   

 

 

        

 

 

 

Gross profit %

    56.7     42.7          32.8

Gross profit percentage was 56.7% in the 2020 Successor Period, 42.7% in the 2019 Successor Period and 32.8% in the 2019 Predecessor Period. The increase in gross profit was primarily driven by the strong revenue growth and volume increases experienced in 2020 compared to 2019. In addition, gross profit in 2019 was significantly impacted by purchase accounting write up of inventory to fair value related to the THP Transaction, which resulted in an additional $1.5 million in cost of sales during the 2019 Successor Period. Excluding this, gross profit percentage would have been 50.3% during the 2019 Successor Period. Most of our cost of sales are of a fixed nature so volume increases lead to better cost utilization improving our gross margins. In addition, product mix plays an important role in gross margin development. Specifically, the increase in GMP product revenue as a percentage of total revenue contributes to higher gross margins due to the premium average selling prices of these products.

Operating Expenses

Research and Development Expenses

Our research and development expenses for the 2020 Successor Period, the 2019 Successor Period and the 2019 Predecessor Period were as follows (in thousands):

 

    Successor      Predecessor  
    For the Year
Ended
December 31,
2020
     For the Period
from January 14,
2019 through
December 31, 2019
     For the Period
from January 1,

2019 through
January 13, 2019
 

Research and development expenses

  $ 1,507      $ 769      $ 21  

Research and development expenses were $1.5 million in the 2020 Successor Period, $0.8 million in the 2019 Successor Period and insignificant in the 2019 Predecessor Period. The increase was primarily driven by increased headcount in Process Engineering and Product Development to support business growth.

 

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Sales and Marketing Expenses

Our sales and marketing expenses for the 2020 Successor Period, the 2019 Successor Period and the 2019 Predecessor Period were as follows (in thousands):

 

    Successor      Predecessor  
    For the Year
Ended
December 31,
2020
     For the Period
from January 14,
2019 through
December 31, 2019
     For the Period
from January 1,
2019 through
January 13, 2019
 

Sales and marketing expenses

  $ 2,229      $ 928      $ 30  

Sales and marketing expenses were $2.2 million in the 2020 Successor Period, $0.9 million in the 2019 Successor Period, and insignificant in the 2019 Predecessor Period. The increase was primarily driven by increased headcount in functional areas, including Sales and Marketing. Additionally, we spent significantly more in 2020 compared to 2019 on marketing and advertising.

General and Administrative Expenses

Our general and administrative expenses for the 2020 Successor Period, the 2019 Successor Period and the 2019 Predecessor Period were as follows (in thousands):

 

    Successor      Predecessor  
    For the Year
Ended
December 31,
2020
     For the Period
from January 14,
2019 through
December 31, 2019
     For the Period
from January 1,
2019 through
January 13, 2019
 

General and administrative expenses

  $ 8,208      $ 7,633      $ 2,910  

General and administrative expenses were $8.2 million in the 2020 Successor Period, $7.6 million in the 2019 Successor Period, and $3.0 million in the 2019 Predecessor Period. The 2019 Predecessor Period included $2.6 million of transaction expenses related to the THP Transaction and the 2019 Successor Period included $1.8 million in non-recurring bonuses. Excluding these expenses related to the THP Transaction, general and administrative expenses as a percentage of revenue would have been 28.8% and 39.5% for the 2019 Successor and Predecessor Periods, respectively. In 2020, we increased our headcount in a few functional areas, including Quality Assurance and Administration. Additionally, we spent more in 2020 compared to 2019 on professional fees, recruiting fees, and information technology. For the 2020 Successor Period, general and administrative expenses as a percentage of revenue was 26.2%.

Provision for (benefit from) Income Taxes

Our provision for (benefit from) income taxes for the 2020 Successor Period, the 2019 Successor Period, and the 2019 Predecessor Period was as follows (in thousands, except percentages):

 

    Successor     Predecessor  
    For the Year
Ended
December 31,
2020
    For the Period
from January 14,
2019 through
December 31, 2019
    For the Period
from January 1,
2019 through
January 13, 2019
 

Provision for (benefit from) income taxes

  $ 1,156     $ (495   $ (2,601
 

 

 

   

 

 

   

 

 

 

Effective tax rate

    24.5     27.5     95.1

Our provision for income taxes was $1.2 million in the 2020 Successor Period, which was due to an increase in our deferred tax liabilities net of current tax benefit. The effective tax rate for the 2020 Successor Period being higher than the statutory rate was primarily due to state taxes but somewhat offset by refund claims under the CARES Act as prior tax losses were allowed to be carried back to periods where the corporate tax rate was higher.

 

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Our benefit from income taxes was $0.5 million in the 2019 Successor Period and $2.6 million in the 2019 Predecessor Period, which was primarily due to the company generating future tax benefits from operating losses arising from non-recurring expenses as a result of the THP Transaction. The effective tax rate for the 2019 Successor Period being higher than the statutory rate was primarily due to state taxes. The effective tax rate for the 2019 Predecessor Period being higher than the statutory rate was primarily attributable to deductions for repurchased stock options.

Quarterly Results of Operations and Other Data

The following table sets forth selected unaudited consolidated quarterly statements of operations data for the quarter ended March 31, 2021 and the four fiscal quarters ended December 31, 2020. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of this information in accordance with GAAP. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly results are not necessarily indicative of our results of operations to be expected for any future period.

 

    For the Three Months Ended (unaudited)  
(in thousands)   March 31,
2021
    December 31,
2020
    September 30,
2020
    June 30,
2020
    March 31,
2020
 

Revenue

  $ 9,078     $ 10,157     $ 8,984     $ 6,044     $ 6,112  

Cost of sales

    4,053       4,588       3,896       2,575       2,483  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    5,025       5,569       5,088       3,469       3,629  

Operating expenses:

         

Research and development

    700       482       358       341       326  

Sales and marketing

    705       840       558       481       349  

General and administrative

    4,161       3,165       1,733       1,656       1,655  

Amortization of intangible assets

    287       287       287       287       287  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    5,853       4,774       2,936       2,765       2,617  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from operations

    (828     795       2,152       704       1,012  

Other income (expenses), net

         

Interest income

    7       13       19       23       32  

Other income (expense), net

    1       3       (2     (4     (21
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income, net

    8       16       17       19       11  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

    (820     811       2,169       723       1,023  

(Benefit from) provision for income taxes

    (165     234       636       211       75  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (655     577       1,533       512       948  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in unrealized (loss) gain on available-for-sale securities, net of tax

    (7     (12     (10     43       (34
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

  $ (648     565     $ 1,523     $ 555     $ 914  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income available to common stockholders

         

Net (loss) income

    (655     577       1,533       512       948  

Less: undistributed income attributable to preferred stockholders

          (479     (1,271     (425     (787
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to common stockholders

  $ (655   $ 98     $ 262     $ 87     $ 161  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Quarterly Revenue Trends

Our quarterly revenue increased in each period presented, with the exception of the two quarters ended June 30, 2020 and March 31, 2021. Revenue, in particular from our Lab Essentials products, was negatively impacted in the three months ended June 30, 2020 as the onset of COVID-19 forced

 

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the closure of many research labs in the U.S., which resulted in a sequential revenue decline. Conversely, with the launch of our Sample Transport products used to aid in the fight against the pandemic, and demand from two large customers for COVID-19 related products, there were strong sequential increases in revenue in the three months ended September 30, 2020 and December 31, 2020. Additionally, our revenue declined sequentially in the three months ended March 31, 2021 because of reduced demand for our Sample Transport products attributable to a substantial decline in the volume of COVID-19 diagnostic testing. Historically, there has not been seasonality to our revenue.

Quarterly Gross Profit Trends

Our gross profit as a percentage of revenue declined sequentially in each period presented, with the exception of the three months ended March 31, 2021. During the time periods presented, the company increased its production workforce and capital expenditures to grow capacity and expand manufacturing capabilities, respectively, which resulted in higher fixed costs, including the impact of additional depreciation. During the three months ended March 31, 2021, the company experienced better absorption of production overhead relative to revenue growth, which led to slightly higher sequential gross profit as a percentage of revenue in the period.

Quarterly Operating Expense Trends

Our operating expenses have increased each quarter to support our growth, primarily driven by personnel related expenses.

Research and development expenses increased primarily driven by increased headcount in Process Engineering and Product Development to support business growth.

Sales and marketing expenses were primarily driven by increased headcount in functional areas, including Sales and Marketing as well as increased spend in marketing and advertising.

Increases in general and administrative expenses were driven by additions to headcount in a few functional areas, including Quality Assurance and Administration. Additionally, we spent more on professional fees, recruiting fees, and information technology as the company continued to grow and prepare itself for a potential public offering of its common stock.

Non-GAAP Financial Measures

We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use to determine how our business is performing are revenue and Adjusted EBITDA.

Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) adjusted for interest expense, provision for income taxes, depreciation, amortization and stock-based compensation expenses. Adjusted EBITDA reflects further adjustments to eliminate the impact of certain items, including certain non-cash and other items, that we do not consider representative of our ongoing operating performance.

We also present Adjusted Free Cash Flow, which is a non-GAAP measure that we define as Adjusted EBITDA less capital expenditures. Management uses Adjusted EBITDA to evaluate the financial performance of our business and the effectiveness of our business strategies. We present Adjusted EBITDA and Adjusted Free Cash Flow because we believe they are frequently used by analysts, investors and other interested parties to evaluate companies in our industry and they facilitate comparisons on a consistent basis across reporting periods. Further, we believe they are helpful in highlighting trends in our operating results because they exclude items that are not indicative of our core operating performance.

 

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Adjusted EBITDA and Adjusted Free Cash Flow have limitations as analytical tools and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. We may in the future incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. In particular, we expect to incur meaningful share-based compensation expense in the future. Other limitations include the following that Adjusted EBITDA and Adjusted Free Cash Flow do not reflect:

 

   

all expenditures or future requirements for capital expenditures or contractual commitments;

 

   

changes in our working capital needs;

 

   

provision for income taxes, which may be a necessary element of our costs and ability to operate;

 

   

the costs of replacing the assets being depreciated, which will often have to be replaced in the future;

 

   

the non-cash component of employee compensation expense; and

 

   

the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations.

In addition, Adjusted EBITDA and Adjusted Free Cash Flow may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

The following is a reconciliation of net income (loss) to EBITDA, Adjusted EBITDA, and Adjusted Free Cash Flow, which are non-GAAP financial measures (in thousands):

 

    Successor     Successor     Predecessor  
(in thousands)   For the Three
Months Ended
March 31,
2021
    For the Three
Months Ended
March 31,
2020
    For the Year
Ended
December 31,
2020
    For the Period
from January 14,
2019 through
December 31, 2019
    For the Period
from January 1,
2019 through
January 13, 2019
 

Net (loss) income – as reported

  $ (655   $ 948     $ 3,570     $ (1,305   $ (135

Add back:

             

Interest income, net

    (7     (32     (87     (66      

(Benefit from) provision for income taxes

    (165     75       1,156       (495     (2,601

Depreciation expense

    365       170       897       523       16  

Amortization of intangible assets

    287       287       1,147       1,100        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    (175     1,448       6,683       (243     (2,720
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other and one-time expenses:

             

Stock-based compensation expense

    183             300             75  

Acquisition transaction expenses

                            2,639  

Pushdown accounting adjustments

                      1,540        

Non-recurring bonus to founder

                      1,853        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

    8       1,448       6,983       3,150       (6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: capital expenditures

    (3,884     (359     (5,466     (2,649     (201
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Free Cash Flow

    (3,876     1,089       1,517       501       (207

Add back: capital expenditures

    3,884       359       5,466       2,649       201  

Less: total other and one time expenses

    183             300       3,393       2,714  

 

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    Successor     Successor     Predecessor  
(in thousands)   For the Three
Months Ended
March 31,
2021
    For the Three
Months Ended
March 31,
2020
    For the Year
Ended
December 31,
2020
    For the Period
from January 14,
2019 through
December 31, 2019
    For the Period
from January 1,
2019 through
January 13, 2019
 

Less: total interest, taxes, depreciation and amortization expenses

  $ 480     $ 500     $ 3,113     $ 1,062     $ (2,585
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income – as reported

    (655     948       3,570       (1,305     (135
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities, net(1)

    571       1,683       4,441       1,178       (2,422

Changes in operating assets and liabilities, net(1)

    2,485       (2,713     (5,506     2,299       2,795  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) operating activities

    2,401       (82   $ 2,505     $ 2,172     $ 238  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

See the Statements of cash flows to our audited financial statements appearing elsewhere in this prospectus for detailed balances used to calculate the net adjustments to reconcile net income (loss) to cash provided by operating activities and net changes in operating assets and liabilities.

Liquidity and Capital Resources

Since inception we have financed our operations primarily through sales of our products and, more recently, the sale of our Series A preferred stock. As of March 31, 2021, we had $20.3 million in working capital, which included $14.5 million in cash and cash equivalents. As of December 31, 2020, we had $12.5 million in working capital, which included $3.3 million in cash and cash equivalents and $1.8 million in marketable securities.

In January 2019, we entered into a stock purchase agreement with THP, pursuant to which THP acquired 9,342,092 shares of our Series A preferred stock, representing 80.6% of the then-outstanding voting power of the company, and we received an aggregate of $35.9 million, net from the issuance of such shares to THP. We used $26.5 million of the proceeds from the THP Transaction to repurchase shares of our common stock and options to acquire shares of our common stock with the remainder being used for general corporate purposes, including working capital, capital investment and continued development of our products.

In addition to our existing cash and cash equivalents balance, our principal source of liquidity is our new credit facility as described below in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—MidCap Credit Facility.” To facilitate our expected growth, we may also lease or purchase additional facilities. We expect to continue to make investments as we expand our operations.

MidCap Credit Facility

On March 26, 2021, we entered into a Credit Agreement with MidCap Financial Trust, as administrative agent, and the additional lenders from time to time party thereto (collectively, the “Lenders”). The Credit Agreement provides for a $27.0 million credit facility (the “Facility”) consisting of a $22.0 million senior, secured term loan (the “Term Loan”), and a $5.0 million working capital facility (the “Revolver”). The proceeds from the Credit Facility will be used for working capital and general corporate purposes. Borrowings on the Revolver are limited to a borrowing base calculation and initial borrowing is subject to completion of an initial field exam with respect to such borrowing base assets.

 

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The Term Loan is available in three tranches: Tranche 1 – $12.0 million funded at close; Tranche 2 – $5.0 million available from September 30, 2021 to December 31, 2021, and Tranche 3 – $5.0 million available from January 1, 2022 to September 30, 2022 based on us generating a trailing 12 month net revenue of at least $37.0 million if Tranche 3 amount is drawn between January 1, 2022 to June 30, 2022 and $38.5 million if drawn between July 1, 2022 and September 30, 2022, together with a positive trailing six month EBITDA. Interest on the outstanding balance of the Term Loan will be payable monthly in arrears at an annual rate of one-month LIBOR plus 6.45%, subject to a LIBOR floor of 1.50%. The term of the Term Loan will be 60 months, with us being liable to interest only for 36 months. Interest on the outstanding balance of the Revolver will be payable monthly in arrears at an annual rate of one-month LIBOR plus 3.75%, subject to a LIBOR floor of 1.50%. The term of the Revolver will be co-terminus with the Term Loan. If any advance under the Term Loan is prepaid at any time, the prepayment fee is based on the amount being prepaid and an applicable percentage amount, such as 3%, 2%, or 1%, based on the date the prepayment is made after the closing date of the Term Loan. At the end of the Term Loan, we will pay an exit fee of $0.6 million, which represents 5% of the $12.0 million in borrowings made available immediately on March 26, 2021. Such fee is being accreted to interest expense over the life of the Term Loan.

The maximum loan amount under the Revolver (the “Revolver Commitment Amount”) will be $5.0 million which we may request the Lenders to increase up to $15.0 million. The amount available to us under the Revolver at any one time shall be based upon an amount equal to: (i) 85% of the net collectable value of our domestic accounts receivable; plus (ii) 50% of domestic eligible finished goods inventory that does not exceed $1.0 million. Additionally, availability from finished goods inventory cannot exceed 25% of the total borrowing base availability. Interest on the outstanding balance of the Revolver will be payable monthly in arrears at an annual rate of one-month LIBOR plus 3.75%, subject to a LIBOR floor of 1.50%.

The Credit Agreement includes a financial covenant that requires us to maintain certain minimum revenue, tested monthly based on trailing 12 months net revenue. Calendar year-end net revenue covenants are a minimum of $32.0 million at December 31, 2021, $37.5 million at December 31, 2022, $42.0 million at December 31, 2023, $46.5 million at December 31, 2024 and $51.5 million at December 31, 2025. In connection with the Facility, the Lenders will receive a perfected first priority security interest in all existing and after-acquired assets of the company.

The outstanding balance on the Facility as of March 31, 2021 was $12.0 million ($11.7 million net of deferred fees) and is presented as long-term debt on the condensed balance sheets, included elsewhere in this prospectus.

We believe these sources of liquidity, in addition to the net proceeds of this offering, will be sufficient to fund our liquidity requirements for at least the next 24 months. Our principal liquidity requirements are to fund our operations, expand manufacturing operations which includes, but is not limited to, maintaining sufficient levels of inventory to meet the anticipated demand of our customers, and fund our capital expenditures. We may, however, require or elect to secure additional financing as we continue to execute our business strategy. If we require or elect to raise additional funds, we may do so through equity or debt financing, which may not be available on favorable terms and could require us to agree to covenants that limit our operating flexibility.

 

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The following table sets forth, for the periods indicated, net cash flows provided by operating activities, used in investing activities and (used in) provided by financing activities (in thousands):

 

    Successor          Successor          Predecessor  
    For the Three
Months Ended
March 31, 2021
    For the Three
Months Ended
March 31, 2020
         For the Year
Ended
December 31, 2020
    For the Period
from January 14,
2019 through
December 31, 2019
         For the Period
from January 1,
2019 through
January 13, 2019
 

Net cash provided by (used in) operating activities

  $ 2,401     $ (82       $ 2,505     $ 2,172         $ 238  

Net cash (used in) provided by investing activities

    (1,528     1,384           (1,735     (8,156         (201

Net cash provided by (used in) financing activities

    10,278       (45         (1,599     8,570           (18
 

 

 

   

 

 

       

 

 

   

 

 

       

 

 

 

Net increase (decrease) in cash and cash equivalents

  $ 11,151     $ 1,257         $ (829   $ 2,586         $ 19  
 

 

 

   

 

 

       

 

 

   

 

 

       

 

 

 

Operating Activities

Net cash provided by operating activities consists primarily of net income adjusted for certain non-cash items (including depreciation and amortization, amortization of premium on marketable securities, provision for doubtful accounts, deferred taxes, loss on disposal of property, plant and equipment, and stock-based compensation expense), and the effect of changes in working capital and other activities.

Net cash provided by operating activities was $2.4 million for the 2021 Interim Successor Period, which primarily consisted of net loss of $0.7 million, offset by net adjustments for non-cash charges of $0.6 million and net changes in operating assets and liabilities of $2.5 million. The primary non-cash adjustments to net loss included $0.7 million of depreciation and amortization, partially offset by $0.2 million of deferred taxes. Net cash provided by changes in operating assets and liabilities consisted primarily of a $2.1 million increase in accounts payable and accrued expenses and $0.4 million decrease in accounts receivable, partially offset by a $0.3 million increase in inventories.

Net cash used in operating activities was $0.1 million for the 2020 Interim Successor Period, which primarily consisted of net income of $0.9 million plus net adjustments for non-cash charges of $1.7 million, offset by net changes in operating assets and liabilities of $2.7 million. The primary non-cash adjustments to net income included $1.2 million of deferred taxes and $0.5 million of depreciation and amortization. Net cash used in changes in operating assets and liabilities consisted primarily of a $1.2 million increase in prepaid expenses and other assets, a $0.9 million increase in accounts receivable and a $0.4 million increase in inventories.

Net cash provided by operating activities was $2.5 million for the 2020 Successor Period, which primarily consisted of net income of $3.6 million plus net adjustments for non-cash charges of $4.4 million, partially offset by net changes in operating assets and liabilities of $5.5 million. The primary non-cash adjustments to net income are $2.0 million of depreciation and amortization and $2.1 million of deferred taxes. The significant impact from changes in net operating assets and liabilities was primarily driven by a $2.4 million increase in accounts receivable, a $2.2 million increase in prepaid expenses and other current assets, and a $1.0 million increase in inventories.

 

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Net cash provided by operating activities was $2.2 million for the 2019 Successor Period, which primarily consisted of net loss of $1.3 million plus net adjustments for non-cash charges of $1.2 million, partially offset by net changes in operating assets and liabilities of $2.3 million. The primary non-cash adjustments to net loss included $1.6 million of depreciation and amortization, partially offset by $0.5 million of deferred taxes. Net cash provided by changes in operating assets and liabilities consisted primarily of a $1.0 million decrease in inventories and a $1.2 million increase in accounts payable and accrued expenses.

Net cash provided by operating activities was $0.2 million for the 2019 Predecessor Period, which primarily consisted of net loss of $0.1 million plus net adjustments for non-cash charges of $2.4 million and net changes in operating assets and liabilities of $2.8 million. The primary non-cash adjustments to net loss included $2.5 million of deferred taxes. Net cash provided by changes in operating assets and liabilities consisted primarily of a $2.7 million increase in accounts payable and accrued expenses.

Investing Activities

Net cash used in investing activities relates primarily to purchases of marketable securities and capital expenditures, partially offset by proceeds from maturities and sales of marketable investments.

Net cash used in investing activities was $1.5 million for the 2021 Interim Successor Period, which primarily consisted of purchases of property, plant and equipment of $3.9 million. This was partially offset by receipt of proceeds from a loan to a related party of $0.5 million, and proceeds from sales and maturities of short-term marketable securities of $1.1 million and $0.7 million, respectively.

Net cash provided by investing activities was $1.4 million for the 2020 Interim Successor Period, which primarily consisted of proceeds from sales and maturities of short-term marketable securities of $1.7 million and $1.8 million, respectively. This was partially offset by purchases of short-term marketable securities of $1.8 million, and purchases of property, plant and equipment of $0.4 million.

Net cash used in investing activities was $1.7 million for the 2020 Successor Period, which primarily consisted of purchase of property, plant and equipment of $5.5 million and purchase of short-term marketable securities of $1.8 million. This was partially offset by proceeds from sales and maturities of short-term marketable securities of $1.7 million and $3.7 million, respectively.

Net cash used in investing activities was $8.2 million for the 2019 Successor Period, which primarily consisted of purchase of property, plant and equipment of $2.6 million and purchase of short-term marketable securities of $6.7 million. This was partially offset by proceeds from sales of short-term marketable securities of $1.1 million.

Net cash used in investing activities for the 2019 Predecessor Period was $0.2 million, which was attributable to the purchase of property, plant and equipment.

Financing Activities

Net cash (used in) provided by financing activities primarily relates to proceeds from the issuance of Series A preferred stock and proceeds from exercises of stock options and repurchases of common stock.

Net cash provided by financing activities was $10.3 million for the 2021 Interim Successor Period, which was primarily attributable to proceeds from long-term debt pursuant to the MidCap Credit Facility of $11.9 million, partially offset by payment of costs related to the company’s planned initial public offering of $1.5 million.

 

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Net cash used in financing activities was $0.1 million for the 2020 Interim Successor Period, which was primarily attributable to repayment of outstanding long-term debt.

Net cash used in financing activities was $1.6 million for the 2020 Successor Period, which was primarily attributable to pushdown accounting adjustments.

Net cash provided by financing activities was $8.6 million for the 2019 Successor Period, which consisted of $35.6 million in net proceeds from the issuance of our Series A preferred stock to THP in connection with the THP Transaction and $0.3 million in proceeds from the exercise of stock options, partially offset by payments of $19.5 million for the repurchase of shares of our common stock, $7.0 million for cancellation of stock options and $0.8 million for repayment of our long-term debt.

Net cash used in financing activities for the 2019 Predecessor Period was minimal and attributable to the repayment of long-term debt.

Contractual Obligations and Commitments

We have various non-cancelable operating leases for commercial, office, manufacturing, and warehouse space, as well as vacant land in Hollister, California. The leases have terms with varying expiration dates ranging from June 30, 2021 to December 31, 2025 and include options to extend such leases. As of March 31, 2021, these leases represented a remaining contractual obligation of $6.6 million. As of December 31, 2020, these leases represented a remaining contractual obligation of $7.0 million.

Additionally, we lease our warehouse in Mansfield, Massachusetts. This lease expires in August 2024, and, as of March 31, 2021 and December 31, 2020, represented a remaining contractual obligation of $0.9 million and $1.0 million, respectively.

On March 26, 2021, we entered into a Credit Agreement with MidCap Financial Trust. The Credit Agreement provides for a $27.0 million credit facility consisting of a $22.0 million senior, secured term loan, and a $5.0 million working capital facility. On March 26, 2021, $12.0 million of the Term Loan funded at close. We are obligated to pay interest on the outstanding balance of the Term Loan at an annual rate of one-month LIBOR plus 6.45%, subject to a LIBOR floor of 1.50%. The outstanding balance of the Term Loan is due in full on March 1, 2026. The Revolver will be available once we meet the borrowing conditions set forth in the Credit Agreement, which we expect to occur by June 30, 2021.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or holdings in variable interest entities.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that are believed 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. However, future events may cause us to change our assumptions and estimates, which may require adjustment. Actual results could differ from these estimates.

We believe the following critical accounting policies involve significant areas where management applies judgments and estimates in the preparation of our financial statements.

 

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Revenue Recognition

We adopted ASU 606 on January 1, 2019 and accordingly we recognize revenue to depict the transfer of promised goods to our customers in an amount that reflects the consideration we expect to be entitled to receive from our customers in exchange for those goods. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.

We recognize revenue from the sale of ready-to-use pre-poured media plates and broths for growth of bacterial, yeast and microbiological applications, and buffers and reagents for purification and analysis of proteins, DNA and mRNA. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. All of our contracts with customers contain a single performance obligation, delivery of consumable products (e.g., pre-poured media plates, broths, buffers, reagents, etc.). Accordingly, we recognize revenue at a point in time when control of the product has been transferred to the customers, which is at the time of shipment. Revenue is recognized in an amount that reflects the consideration we expect to be entitled to in exchange for the products.

ASU 606 requires an entity to estimate the amount of variable consideration included in the contract to which the entity will be entitled in exchange for transferring the promised goods to a customer.

Goodwill

Goodwill is the excess of the fair value of the company above the fair value accounting basis of the net assets and liabilities of the company under pushdown accounting. Goodwill is not amortized, but is tested for impairment annually as of October 1, or more frequently if events or circumstances indicate the carrying value may no longer be recoverable and that an impairment loss may have occurred. We operate as one segment and one reporting unit, and therefore goodwill is tested for impairment at the entity level.

We first consider qualitative factors that indicate impairment may have occurred. Such indicators may include macro-economic conditions such as adverse industry or market conditions; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel. If the qualitative assessment indicates a reduction in the carrying value is more likely than not to have occurred, we perform a quantitative assessment, comparing the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds the fair value, an impairment has occurred, and an impairment loss is recognized for the difference up to the carrying value of the reporting unit’s goodwill. The fair value of the reporting unit is primarily determined based on the income approach. The income approach is a valuation technique in which fair value is based on forecasted future cash flows, discounted at the appropriate rate of return commensurate with the risk as well as current rates of return for equity and debt capital as of the valuation date.

We completed our qualitative assessment in the fourth quarter of 2020 and determined that it is not more likely than not that the fair value of the entity is less than its carrying amount and concluded that a quantitative goodwill impairment test was not required.

Application of the goodwill impairment test requires judgments, including a qualitative assessment to determine whether there are any impairment indicators, and determining the fair value of the reporting unit. A number of significant assumptions and estimates are involved in the application of the income approach to forecast future cash flows, including revenue and operating income growth rates, discount rates and other factors. While we believe that our estimates of current value are reasonable, if actual results differ from the estimates and judgments used including such items as future cash flows

 

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and the volatility inherent in markets which we serve, impairment charges against the carrying value of those assets could be required in the future.

Intangible Assets and Other Long-Lived Assets

We review our definite-lived intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of our long-lived assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated. Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows. The key assumptions that we use in our discounted cash flow model are the amount and timing of estimated future cash flows to be generated by the asset over an extended period of time and a rate of return that considers the relative risk of achieving the cash flows, the time value of money, and other factors that a willing market participant would consider.

Indefinite-lived intangible assets are also subject to an impairment test at least annually, as of October 1, or more frequently if events or circumstances indicate that it is more likely than not that the asset is impaired. If the fair value of the asset is less than the carrying amount, an impairment loss would be recognized in an amount equal to the difference between the carrying amount and the fair value. We completed our qualitative assessment in the fourth quarter of 2020 and determined that it is not more likely than not that the fair value of our indefinite-lived intangible assets is less than the carrying amount and a quantitative impairment test was not required.

Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.

Income Taxes

The asset and liability method is used in accounting for deferred income taxes. Under this method, deferred income taxes are provided for differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Accordingly, our tax provision contemplates tax rates currently in effect to determine our current tax provision as well as enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled to determine our deferred tax provision. Any significant fluctuation in rates or changes in tax laws could lead to either increases or decreases in our effective tax rate.

Our provision for income taxes, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated future taxes to be paid. Significant judgments and estimates based on interpretations of existing tax laws or regulations are required in determining our provision for income taxes. Changes in tax laws, statutory tax rates, and estimates of our future taxable income could impact the deferred tax assets and liabilities provided for in the financial statements and would require an adjustment to the provision for income taxes.

Stock-Based Compensation

Stock-based compensation expense is recognized based on the fair value and is expensed on a straight-line basis over the requisite service periods of the award, which generally represents the scheduled vesting period. Forfeitures are recognized as they occur. The company accounts for stock-based compensation expense based on the estimated grant date fair value, using the Black-Scholes option-pricing model which requires the company to make a number of assumptions, including expected volatility, the expected risk-free interest rate, the expected term and the expected dividend.

 

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These inputs are subjective and generally require significant analysis and judgment to develop. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation is recognized.

 

   

Expected volatility. Since we are not a publicly traded entity and therefore have limited historical data on volatility of our stock, expected volatility is based on the volatility of the stock of similar publicly traded entities. In evaluating similarity, we considered factors such as industry, stage of life cycle, size, and financial leverage.

 

   

Expected risk-free interest rate. The risk-free interest rate is based on the implied yield currently available on US Treasury zero-coupon issues with remaining terms equivalent to the expected term of a stock award.

 

   

Expected term. As the company does not have sufficient historical exercise activity to estimate expected life, the expected life of options granted was determined using the simplified method. The simplified method is based on the vesting period and the contractual term for each grant or for each vesting tranche for awards with graded vesting. The midpoint of the vesting date and the maximum contractual expiration date is used as the expected term under this method.

 

   

Expected dividend. The company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future. Accordingly, the company estimated the dividend yield to be 0%.

Prior to our initial public offering, the fair value of our common stock was determined by the board of directors with assistance from management and, in part, on input from an independent third-party valuation firm. The board of directors determines the fair value of common stock by considering a number of objective and subjective factors, including valuations of comparable companies, operating and financial performance, the lack of liquidity our common stock and the general and industry-specific economic outlook.

Beginning September 30, 2020, in valuing our common stock, the fair value of our business, or enterprise value, was determined using the market approach. The market approach involves identifying and evaluating comparable public companies and acquisition targets that operate in the same industry or which have similar operating characteristics as the subject company. From the comparable companies, publicly available information is used to extrapolate market-based valuation multiples that are applied to historical or prospective financial information in order to derive an indication of value.

The resulting equity value was then allocated to each share class using an Option Pricing Model (“OPM”). The OPM allocates the overall company value to the various share classes based on differences in liquidation preferences, participation rights, dividend policy, and conversion rights, using a series of call options. After the common stock share value was determined, a discount for lack of marketability (“DLOM”) was applied to arrive at the fair value of the common stock shares on a non-marketable, minority basis. A DLOM is applied in order to reflect the lack of a recognized market for a closely held interest.

For valuations after the completion of our IPO, the fair value of each share of underlying common stock will be determined based on the closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.

JOBS Act

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period under the JOBS Act until the earlier

 

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of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

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 total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the closing of this offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; and (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act (i.e., the first day of the fiscal year after we have (a) more than $700.0 million in outstanding common equity held by our non-affiliates, measured each year on the last business day of our most recently completed second fiscal quarter, and (b) been public for at least 12 months).

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

During the audit of our financial statements, we identified a material weakness in our financial close and reporting process. Specifically, that process was not adequately designed, documented, and executed to support the accurate and timely reporting of the company’s financial results with respect to complex, non-routine transactions, such as business combinations. Consequently, we inappropriately accounted for the THP Transaction in 2019, including as to certain tax benefits and the allocation of transaction costs across periods. Our audited financial statements that are a part of this prospectus, now present the THP Transaction in accordance with GAAP.

Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. We are working to remediate the material weakness and are taking steps to strengthen our internal control over financial reporting by working to hire accounting employees and/or consultants with specific technical accounting experience necessary to assist with complex, non-routine transactions. However, we cannot assure you that these measures will significantly improve or remediate the material weakness identified. As of March 31, 2021, the material weakness had not been remediated.

The actions that we are taking are subject to ongoing executive management review and will also be subject to audit committee oversight. If we are unable to successfully remediate the material weakness, or if in the future, we identify further material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.

Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our financial statements included elsewhere in this prospectus.

Qualitative and Quantitative Disclosures About Market Risk

We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and therefore are not required to provide this information.

 

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BUSINESS

Overview

We are a leading provider of critical reagents that enable the discovery, development and production of biopharmaceutical products such as drug therapies, novel vaccines, and molecular diagnostics. Our 3,000 active customers span the continuum of the life sciences market, including leading pharmaceutical and biotechnology companies, contract development and manufacturing organizations, in vitro diagnostics franchises, and academic and government research institutions. Our company is built around proprietary development and manufacturing processes that are highly adaptable and versatile. These proprietary processes enable us to manufacture and deliver high quality, custom, made-to-order products on a short turnaround time and at scale, across all stages of our customers’ product development, including commercialization.

We have substantial expertise in manufacturing customer-specified formulations and have demonstrated the ability to manufacture and deliver our products to customers quickly. Due to our expertise in supply chain management, chemical formulation, and QC, developed over more than two decades, we are typically able to move a new custom product into production in less than one week from order receipt. This allows our customers to potentially receive their products in weeks as compared to months from alternative suppliers employing traditional production environments. Our processes are designed to handle a diverse array of customer-requested inputs, which vary by volume, chemical formulation, quality specifications, container types, and transportation requirements, enabling broad use of our products across the full scope of the life sciences market.

Our proprietary capabilities and products underpin the value we provide to customers across their product development and commercialization activities, allowing us to scale with our clients as they grow, supporting their need for materials in greater volume and increasingly stringent regulatory requirements. We offer three primary product types: pre-poured media plates for cell growth and cloning, liquid cell culture media and supplements for cellular expansion, and molecular biology reagents for sample manipulation, resuspension, and purification. Our products are typically introduced to customers in the discovery phase of development, where off-the-shelf (stock) formulations are used for initial experimentation. As customers’ product development progresses and they advance to requiring products with improved performance, increased volumes, and that are capable of meeting certain GMP regulatory requirements, they routinely go on to order high value, made-to-order and GMP-grade products. We believe the highly bespoke nature of our portfolio makes us a critical, trusted supplier to our customers.

 

LOGO

 

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Due to the extensive validation required for these custom products, our customers frequently integrate them as components into the lifecycle of their own products and, we believe, are therefore unlikely to substitute Teknova’s components with alternatives. As a result, our customer relationships typically span many years and help drive recurring business. Moreover, we are committed to delivering high levels of customer satisfaction through continued investment in our customer service, infrastructure, quality systems and manufacturing processes. Since 2018, we have achieved an annual customer retention rate of approximately 97% for customers purchasing more than $10,000 yearly, which customers account for just over 12% of our customer base and more than 88% of our average annual revenue during that period. We believe the Teknova brand is well established in the life sciences industry as a result of our track record of delivering high quality, custom products and providing superior customer service.

We participate in multiple market segments because customers use our products across the life sciences, including in high growth areas like cell and gene therapy research, development, and production. We believe our prospects for growth will also benefit from developments in other fields, including the validation of mRNA vaccines and their possible use in therapies, continued significant investment in synthetic biology, and growing interest in molecular diagnostics and genomics. Based on industry consultants and our internal estimates, we believe our TAM opportunity in 2020 was approximately $8.2 billion and expect that our addressable market to grow at a 9.7% CAGR to $11.9 billion by 2024. Our internal estimates reflect our judgments about, among other things, future economic, competitive, regulatory and market conditions, and our future business decisions, all of which are inherently subject to significant uncertainties and contingencies, including, among others, the risks and uncertainties described under the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

The investment capital raised by companies developing and commercializing cell and gene therapies increased from $9.8 billion in 2019 to $19.9 billion in 2020, according to the Alliance for Regenerative Medicine. Based on third party research, the global market for cell and gene therapies is expected to grow from $2.3 billion in 2020 to $45.4 billion by 2026. As a supplier to more than 65 leading cell and gene therapy organizations, we are well positioned to benefit from the rapid growth in this market through our high quality, custom, made-to-order products.

Unlike conventional small molecule or protein drugs such as antibodies, many cell and gene therapies require bacterially produced DNA plasmids for their production. Nucleic acid therapeutics, such as the mRNA vaccines recently introduced to prevent coronavirus infections, are another category of products requiring bacterial production. While sharing some similarities with mammalian bioproduction used for antibodies and other protein therapeutics, bacterial production relies on different processes, reagents and knowhow. Teknova is a leading provider of research and GMP-grade bacterial cell culture media and specialized chromatography solutions, which we believe positions us especially well to capture share in the high-growth cell and gene therapy markets.

We believe the key industry factors that will drive our growth include:

 

   

the central role that bacterial cell culture plays in producing plasmids, an essential ingredient in cell and gene therapy bioproduction;

 

   

the complexity of, rapidly evolving, and customer-proprietary methods for viral purification, which require new, customized research and GMP-grade chromatography formulations to increase viral production efficiency, yield and purity;

 

   

the growing demand for a single, adaptable, end-to-end provider that can offer both RUO as well as GMP-grade, custom, made-to-order products with short turnaround times;

 

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the importance of GMP-grade products in a highly scrutinized development and manufacturing process, with a variety of complex and stringent regulatory requirements; and

 

   

the need for suppliers capable of scaling the volume of product up and down, readily shifting with customers’ needs.

The nature of many of our products and their uses require that they be manufactured by highly trained personnel in contamination-controlled environments, following exacting procedures to ensure quality. We manufacture our products at our facilities in Hollister, California, which were purpose-built to address our customers’ needs for custom-made, research or GMP-grade input components.

We recorded net sales of $9.1 million, a net loss of $0.7 million, and Adjusted EBITDA of $0.0 million for the three months ended March 31, 2021. We generated revenue growth of approximately 49% for the three months ended March 31, 2021 as compared to the same period in the prior year. During the twelve months ended December 31, 2020 we recorded net sales of $31.3 million, net income of $3.6 million, and Adjusted EBITDA of $7.0 million. Also during that period, our revenue grew approximately 51% compared to the twelve months in the combined predecessor and successor periods of 2019. Revenue of approximately $0.9 million and $4.3 million in the quarter ended March 31, 2021 and the year ended December 31, 2020, respectively, from sales of our sample transport medium, a product used to aid in the transport of COVID-19 test samples, contributed to our growth in each such period and helped to offset decreased spending by some of our customers during the early stages of the pandemic. For the definitions of Adjusted EBITDA, and a reconciliation of Adjusted EBITDA to net income or loss, see the sections titled “—Summary Historical Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

Our Portfolio

Our products are used across all stages of biopharmaceutical and diagnostic development workflows from discovery to commercialization. Our products include essential formulations for common research applications and highly customized formulations for customer-specific applications in genomics and bioproduction. Our customers also use our GMP-grade products as components in diagnostic kits and in the production of therapeutics. In addition, in 2020, we developed and commercialized a suite of sample collection and transport reagents to aid in sample processing for COVID-19 testing.

Business Lines

We have three primary business lines: Lab Essentials, Clinical Solutions, and Sample Transport. Our products across all stages of development, from early research through commercialization.

Lab Essentials

We are a leader in providing highly complex chemical formulations for use in biological research and drug discovery. Our core research products consist of commonly used made-to-stock solutions and customer-specified formulations. During discovery, our products are used regularly in small, bench-scale experiments. As customers optimize their processes and begin to scale up in volume, they tend to order more custom products. The Lab Essentials portion of our business includes: pre-poured media plates for cell growth and cloning, liquid cell culture media and supplements for cellular expansion, and molecular biology reagents for sample manipulation, resuspension, and purification. Our research products include essential formulations for common research applications and highly customized formulations for customer-specific applications in genomics and bioproduction. For the year ended December 31, 2020, our Lab Essentials business contributed approximately 70% of our total revenue.

 

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GMP-Grade Products: Clinical Solutions and Sample Transport

We have two product lines manufactured under GMP: Clinical Solutions, which are custom clinical products for bioproduction and molecular diagnostics; and Sample Transport, which are products developed for sample collection and transport.

Clinical Solutions

In 2017, we achieved ISO 13485:2016 certification, enabling us to meet the QSR of products for use in diagnostic and therapeutic applications. We believe our Clinical Solutions products are used in the production of mRNA vaccines, protein therapies, gene therapies and diagnostic kits. Since offering GMP-grade products, we have achieved substantial growth in the number of customers seeking these products annually. For the year ended December 31, 2020, our Clinical Solutions business contributed approximately 15% of our total revenue.

Sample Transport

During 2020, due to the onset of the COVID-19 pandemic and the resulting increase in global demand for transport medium, we developed and commercialized sample transport medium for use in COVID-19 sample collection and transport. In 2020, over the course of four months, we designed and implemented custom automation to manufacture Sample Transport products in high throughput under GMP quality standards, producing more than 200,000 units of transport medium per week. Our end-to-end manufacturing automation developed in 2020 provides us with a new capability for high volume GMP-grade production, which we expect will be useful in molecular diagnostics and bioproduction in the future. For the year ended December 31, 2020, our Sample Transport business contributed approximately 14% of our total revenue.

Product Types

We have three primary product types: pre-poured media plates for cell growth and cloning, liquid cell culture media and supplements for cellular expansion, and molecular biology reagents for sample manipulation, resuspension, and purification.

 

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Pre-poured Media Plates

We have an extensive selection of standard and specialty pre-poured media plates for a wide variety of applications including bacteria, fungi, and nematode growth. Pre-poured media plates, also referred to as agar plates, are the industry standard for growing microorganisms. The agar contains nutrients for the microorganism to grow and often contains compounds, such as antibiotics, to identify and select for microorganisms of interest. Microbes are spread on agar media to produce colonies, which are identical sets or clones of the original microorganism. The use of media plates is essential in the drug development process as it enables scientists to perform discovery experiments, express proteins, or select cells for further expansion, and monitor the sterility of a bioproduction environment. Our ability to manufacture specialty pre-poured media plates across a wide range of formulations and plate formats makes them suitable for the most complex biological experiments and high throughput robotic applications. We manufacture and QC an average of approximately 8,000 standard and specialty plates per day through our proprietary automation dispensing technologies, processes for contamination control, and enhanced QC tests for measuring sterility and performance. As a result of our ability to produce high performance pre-poured media plates in a number of different formats and formulations, we believe we are a leading provider of pre-poured media plates for academic research and drug development.

 

 

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Cell Culture Medium and Supplements

Cell culture media and supplements are used to expand, or grow, a particular cell of interest under controlled conditions. Cell culture medium is composed of essential nutrients, such as amino acids and carbohydrates, growth factors, and hormones. To maintain the cells in culture, supplements (such as growth factors and sugars) are added to the culture over time. Expansion of cell lines is fundamental to production of enzymes, antibodies, vaccines, and protein therapeutics. Different cells, based on species of origin or cell type, differ in the nutrients required for efficient growth. The ability to customize cell culture media and supplements for a specific cell line is necessary to optimize bioproduction purity and yield. Given our customers’ desire to optimize cell culture processes early in development, combined with our ability to offer low production volumes for custom formulations and readily scale in production volume over time, we believe we are a critical supplier for cell culture development and optimization. In addition, we are a leader in providing bacterial cell culture media and supplements, which are a critical input into mRNA vaccine and gene therapy production processes.

 

 

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Molecular Biology Reagents

Molecular biology reagents are a cornerstone of biological research, molecular diagnostics, drug development, and bioproduction. Molecular biology reagents are used routinely for a wide variety of applications, including, but not limited to: washing samples; resuspending samples; purifying nucleic acids or proteins; analyzing samples, cell lysis, and sample management. We offer thousands of Stock Keeping Units (SKUs) in varying packaging sizes, simplifying widely used biological protocols for our customers. As customers begin to scale production volumes and require increased manufacturing precision, customers frequently seek to specify formulations and product packaging requirements—areas we specialize in providing—to achieve their goals of increasing product performance and realizing manufacturing efficiencies.

 

 

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Competitive Strengths

Expertise in Complex Custom Chemical Formulation Manufacturing

We work closely with our customers to provide highly customized formulations across a variety of workflows. Our customers routinely specify the raw material source, chemical composition, packaging, labeling, and QC specifications required for their desired product. Through two decades of capital investment and process optimization, we have created a production system designed to develop and manufacture customer-specified formulations, which we believe enables us to produce and QC custom products faster than our competitors. We utilize our proprietary chemical formulation and production knowhow, supported by a product database consisting of the formulations of thousands of previously made products. This database, along with our tenured staff, allows us to quickly determine the optimal production process and meet the associated complexity requirements for custom orders. We believe our ability to rapidly customize has led to significant adoption of our products.

 

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Quality and Regulatory Expertise Drives Deep Customer Relationships

The life sciences industry is subject to rigorous regulatory scrutiny in areas such as quality, reliability, and performance. Our customers rely on us to meet these high standards while also facilitating the development of novel, innovative products. During the early stages of product development, we manufacture formulations specified by our customers to aid in the optimization of therapeutic or diagnostic production processes. Our customers frequently validate these custom-made research and GMP-grade components into their production processes. Our extension of these processes through GMP production allows our customers to remain with us as a single supplier, as they scale up from research to commercial production. As a result of the extensive validation and regulatory requirements required for these therapeutic and diagnostic products, we believe these components are often used for the life of a product, as evidenced by our customer retention rates. We are focused on developing and fostering long-term relationships with our customers, which has resulted in increased purchasing volumes from our customers over time.

Industry Leading Delivery Time for Custom Products

Our operations, built upon our proprietary manufacturing processes developed over the past 20 years, enables adaptable, versatile, and rapid production of complex chemical formulations. Our production process is designed to handle diverse inputs in volume and product type, allowing us to deliver custom, made-to-order products for our clients broadly across the life sciences industry. We seek to collaborate with our customers to gain visibility into their product development and purchasing requirements and are positioned to react quickly to meet their needs. Due to our expertise in supply chain management, product creation, chemical formulation, and QC, developed over more than two decades, we are typically able to move a new custom product into production in less than one week from order receipt. In addition, we can provide custom solutions at low minimum volumes and increase in scale by 100-fold within the same production environment. This allows our customers to potentially receive their products in weeks rather than months compared to other suppliers employing traditional production environments. We ship 90% of our custom products less than three weeks from order placement.

 

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Well Positioned in Rapidly Evolving Cell and Gene Therapy Market

We work closely with our cell and gene therapy customers to provide customized, made-to-order formulations across a variety of workflows. Our products are critical components frequently used in the research and development of cell and gene therapy derived pharmaceuticals and vaccines. In particular, we are a leading provider of research and GMP-grade bacterial cell culture media and specialized chromatography solutions—reagents required for plasmid and therapeutic nucleic acid production—which we believe positions us especially well to capture share in these growing markets.

 

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A report commissioned by us predicts that, compared to their spending during phase 1 clinical trials, average spend by customers developing cell and gene therapies will increase by 1.4 times during phase 2 trials, 3.2 times during phase 3 trials and 29.8 times during commercial production, following FDA approval. Our data shows that in calendar year 2020, of the more than 65 of our customers who are active in cell and gene therapy development, 62% of them purchased solely catalog products from us, 29% purchased at least one custom product, and 9% purchased at least one GMP-grade product. We therefore believe that we are well-positioned to increase our average revenue per-customer attributable to organizations active in cell and gene therapy development as their therapies move through the FDA approval process and they purchase more GMP-grade products from suppliers such as Teknova. Combined with our existing strengths and planned investments in areas valued by developers of cell and gene therapies, which we discuss elsewhere in this prospectus, we will therefore aim to significantly increase our overall revenue from sales to customers active in cell and gene therapy in the years ahead.

 

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Source: Fletcher Spaght Growth Report, a report commissioned by us

Experienced Leadership and Talented Workforce

Our senior management team has deep experience across the life sciences, diagnostics and biopharmaceutical market segments and has more than 80 years of collective experience in these segments. Our senior management team has served in numerous leadership roles at both large, multinational organizations, and small growth companies. Our employees, a number of whom have been with us for over a decade, provide tailored support, guidance and service for our customers. We believe the quality of our personnel is critical to our ability to maintain collaborative, long-standing relationships with our customers.

Our Markets

We participate in multiple market segments, because customers use our products across the life sciences, including in high growth areas like cell and gene therapy research, development, and production. We believe our prospects for growth will also benefit from developments in other fields, including the validation of mRNA vaccines and their possible use in therapies, continued significant investment in

 

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synthetic biology, and growing interest in molecular diagnostics and genomics. Based on industry consultants and our internal estimates, we believe our TAM opportunity in 2020 was approximately $8.2 billion and expect that addressable market to grow at a 9.7% CAGR to $11.9 billion by 2024. While our primary addressable market is life sciences, our TAM opportunity does include some adjacencies, which we support, including food, agriculture, environmental sciences and synthetic biology. This market opportunity is split between pre-poured media plates, liquid cell culture media and supplements, and molecular biology reagents. Within these market segments, we benefit from favorable industry dynamics placing a premium on customized products, high quality and short turnaround times. The key factors driving the growth in our market opportunity include the rapid growth in cell and gene therapy, an increase in use of mRNA vaccines and therapies, and an increase in molecular diagnostics and genomics.

The following are some of the other factors benefiting our core markets:    

 

   

Favorable R&D Funding. Investment in R&D activities in the life sciences sector is rapidly increasing. Further, we expect pharmaceutical companies to continue to outsource R&D activities as they focus on process efficiency. As a supplier of critical reagents that enable the discovery, research, development and production of biopharmaceutical products such as drug therapies, novel vaccines, and molecular diagnostics, we expect to benefit from these favorable R&D dynamics.

 

   

Development of New Therapeutic Modalities. Increased innovation and R&D activity in our addressable markets is driving the development of a plethora of new therapeutic modalities. Further, we expect much of the R&D activity geared toward COVID-19 to shift more broadly over time to other vaccines and therapeutic areas.

 

   

Favorable Demographic Trends. We believe the global demand for healthcare is significantly increasing due to factors such as aging populations, better access to healthcare systems and care, and an increased occurrence of chronic illness.

 

   

Global Expansion Opportunities. We expect favorable R&D funding, the development of new therapeutic modalities, and favorable demographic trends to apply globally. We believe this presents attractive expansion opportunities in the global market. For example, according to industry consultants and management estimates, we believe our TAM opportunity in Europe will grow from $2.7 billion in 2020 to $3.7 billion by 2024.

Total Addressable Market Opportunity by Segment

 

    2020 Size ($B)      2024 Size ($B)      2020 –2024 CAGR  

Drug Discovery

  $ 1.3      $ 1.8        8.7

Bioprocessing

  $ 4.3      $ 6.6        11.2

Academic & Government Research

  $ 1.9      $ 2.6        8.0

Other

  $ 0.6      $ 0.8        6.7
 

 

 

    

 

 

    

 

 

 

Total

  $ 8.2      $ 11.9        9.7

Source: March 2020 SDI (“Strategic Directions International”) Research Report, a report commissioned by us.

In addition to our core markets, we believe there are additional factors driving our key growth markets, including:

Rapid Growth in Cell and Gene Therapy

As a supplier to more than 65 leading cell and gene therapy organizations, we are well positioned to benefit from the rapid growth in this market through our high quality, custom, and made-to-order products. The investment capital raised by companies developing and commercializing cell and gene therapies increased from $9.8 billion in 2019 to $19.9 billion in 2020, according to the Alliance for

 

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Regenerative Medicine. Further, based on third party research, the global cell and gene therapy market is expected to grow from $2.3 billion in 2020 to $45.4 billion by 2026. Factors driving this growth include an increasing incidence of cancer and other chronic diseases, a rising number of clinical trials, increased funding and investments in cell and gene therapy, a favorable regulatory environment and FDA approvals for cell and gene therapy products.

We support the development of these therapies by providing customer-specified chemical formulations for bioprocessing, scale-up, and commercialization. Bacterial cell culture and supplements are used early in the product development cycle. We believe our product portfolio and our expertise in custom formulations allows us to work closely with our customers at their early stages of development to optimize production processes for their particular therapy, and then readily scale as the customer’s needs evolve, allows us to play an integral role in therapeutic development and, ultimately, commercialization. We believe that because our products are often customized for a specific therapy and validated, it is unlikely these customers would switch suppliers once the therapy enters clinical trials.

Increasing Use of mRNA Vaccines and Therapies

According to third party research, the global mRNA vaccines and therapeutics market is expected to grow from $1.9 billion in 2019 to $6.2 billion by 2025. As a leader in bacterial cell culture media and supplements, we are a supplier to this market today and are well positioned to benefit from the increasing use of mRNA vaccines and therapies. We believe the demand for mRNA will continue to increase and therefore drive the need for more customized, research and GMP-grade bacterial cell culture media and associated formulations. The short development timeline and proven effectiveness of the COVID-19 mRNA vaccines have demonstrated the promise of mRNA therapies. The production process for mRNA requires the use of bacteria for plasmid production and a substantial number of chemical formulations for producing, purifying, and re-suspending nucleic acid sequences.

Further, the below graphic illustrates the momentum in key bioprocessing technology end markets that we believe will continue to remain robust. As a provider of customer-specified chemical formulations for bioprocessing, we expect to benefit from this momentum.

 

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Increase in Molecular Diagnostics and Genomics

According to third party research, the global molecular diagnostics market is estimated to grow from $14.1 billion in 2020 to $18.0 billion by 2024, while the global genomics market is expected to

 

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grow from $23.5 billion in 2021 to $62.9 billion by 2028. The size of the diagnostics market segment increased significantly in 2020 due in part to the demand for COVID-19 testing kits. This growth drove demand for our GMP-grade molecular biology reagents for inclusion as components in these testing kits. In addition, high growth diagnostics and genomic market leaders use our formulations as components in their kits and leading providers in market segments such as spatial transcriptomics, single cell sequencing, and liquid biopsy use our products routinely.

Our Strategy

Our goal is to provide our customers the products necessary to accelerate their therapeutic development efforts, from basic research to commercialization of drugs that improve human health. The key elements of our business strategy to achieve this goal include:

Increase Integration of Our Products into Our Customers’ Workflows

Building long-term partnerships and embedding our products within our customers’ key workflows are at the core of our strategy. During the early stages of product development, we manufacture formulations specified by our customers to aid in the optimization of therapeutic or diagnostic production processes. Our customers validate these custom-made research and GMP-grade components into their production processes, and because of the extensive validation required for these therapeutic and diagnostic products, we believe these components are often used for the life of a product, as evidenced by our customer retention rates. As customers move from stock to custom and, ultimately, to clinical production, their total expenditure increases. Based on our cumulative purchase data from 2018 to 2020, excluding purchase data relating to sample transport medium, our customers that purchased our custom products, which represented approximately 9% of our total customers over the period, spent approximately 19 times more on average per account with us than those that solely purchased catalog products, which represented approximately 90% of our total customers over the period. Over the same period, our customers that purchased our GMP-grade products, which represented fewer than 1% of our total customers over the period purchased 262 times more per account with us than those that solely purchased catalog products and approximately 14 times more than those that purchased catalog and custom research-grade products.

Provide Superior Customer Service Through Operational Excellence

We are committed to providing superior customer service and fulfilling the expectations of our customers by making the investments required to develop our existing operational excellence. For example, we designed and implemented a high throughput, flexible fill and finish line for transport medium and other diagnostics products in less than four months, with the ability to increase GMP production volume from 200,000 units per week to approximately one million units per week. We intend to extend our rapid custom production capability by further investing in automation, facilities and infrastructure to substantially increase the manufacturing capacity at our facilities, improve operating efficiency, and reduce delivery time for our custom research and GMP-grade products. We have recently expanded our footprint from 64,000 square feet to approximately 137,000 square feet and expect to expand our total production capacity by five-fold over the course of the next two years. We believe these investments will allow us to continue to exceed our customers’ expectations in quality and delivery time and enable us to maintain lasting relationships with our customers as they advance their products through key phases of product development.

Expand R&D and Commercial Scale to Establish Leadership in High Growth Market Segments

Over the past two decades, we focused almost entirely on developing and enhancing the operational and service aspects of our business, with limited investment in our commercial organization and R&D. Beginning in 2021, we implemented a long-term plan of substantial investment in our marketing, sales, R&D and technical support capabilities. We believe this investment will enable us to increase our brand awareness, develop new products and services, and attract new customers.

 

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Our initial focus is on the high growth gene therapy and nucleic acid therapeutic market segments, building upon our current cell and gene therapy customer base. These segments require delivery of custom-made formulations, on short turnaround times, that scale to production for clinical use. In addition, we intend to build viral and nucleic acid bioproduction expertise within the company, and a scientific field presence to provide new services and support models for our target customers. We are focused on bringing differentiated technologies to market that enable improved processes and efficiencies in gene therapy and nucleic acid bioproduction. Through these efforts, we aim to onboard new gene therapy and mRNA therapeutic customers and support existing customers when they migrate from research to GMP-grade products.

Selectively Expand in Geographies with Attractive Growth Potential

In 2020, more than 95% of our total revenue was generated within the United States. We believe a substantial opportunity exists to expand our geographic reach into markets outside of the U.S. that offer strong opportunities for growth, including Europe, which represents a $2.7 billion addressable market. Based on our knowledge of the industry, we believe the local supply base in Europe is not able to produce customer-specified formulations with the diversity and at the scale necessary to satisfy the corresponding demand, with the short turnaround times customers will expect. We also believe there is significant opportunity for our high quality, custom products in Europe, driven by increasingly stringent quality and regulatory scrutiny. Therefore, in the near and medium terms, we intend to expand our addressable market and customer base by pursuing opportunities to grow either by developing new relationships with entities that can help us establish manufacturing capabilities or by acquiring existing operating businesses in Europe. We may opportunistically explore licensing agreements, collaborations, partnerships or acquisitions of organizations that align with our core values, strategy, customer service levels, and quality expectations. Finally, we intend to pursue opportunistic acquisitions in our existing and adjacent market segments within the U.S. to add capabilities and workflow solutions, as well as accelerate our entry into new markets and geographies.

Competition

We operate in a highly competitive environment with a diverse base of competitors, many of whom focus on specific regions, customers, and/or segments. Many of the companies selling or developing competitive products, which in some cases are also large customers, have greater financial and human resources, R&D, manufacturing and marketing experience than we do. They may undertake their own development of products that are substantially similar to or compete with our products and they may succeed in developing products that are more effective or less costly than any that we may develop. These competitors may also prove to be more successful in their production, marketing and commercialization activities. We also compete with other smaller, niche competitors and specialized companies that focus on certain areas.

Our Lab Essentials and Clinical Solutions products compete on the basis of delivery time, performance, and quality across numerous established large life science manufacturers such as Thermo Fisher, Millipore, Cytiva, Hardy Diagnostics, and Lonza. We are differentiated by our ability to offer customer-specified RUO and GMP formulations with short turnaround times, our Teknova brand reputation established over more than 20 years, and our scientific and technical expertise.

Our Sample Transport products compete against large diagnostic manufacturers, such as Becton Dickinson, Thermo Fisher, and Copan Diagnostics. Many of the companies have greater marketing and sales channels to diagnostic customers, strong brand recognition, and sell FDA-approved transport solution products validated for use in diagnostics.

Government Regulation

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companies looking to develop novel vaccines and therapies, or who are engaged in preclinical studies and clinical trials, and for biopharmaceutical customers who use our products as input components or as part of their final device or product.

Biopharmaceutical and life sciences customers are subject to extensive regulation by the FDA, and by equivalent regulatory authorities in other countries, regarding the conduct of clinical trials and the commercialization of products for diagnostic and therapeutic purposes. The regulatory oversight of our customers necessitates that they impose rigorous quality requirements on us, as their supplier, through supplier qualification processes and customer contracts, including routine customer audits. We must maintain a compliant quality system, including records of our manufacturing, testing and control activities, and must be able to provide our customers with corresponding records on a periodic basis, upon their request. In addition, if any of our products were classified as “medical devices,” we would need to register them with FDA before they could be manufactured. Although we do not believe that any of our current products qualify as medical devices, we have voluntarily registered certain of them with the FDA; during such time as these products remain registered, we will comply with regulations applicable thereto. None of our other products are regulated by the FDA. We have not yet submitted any 510(k) authorization applications to the FDA, but we may submit an application in the second half of 2021 for an active transport medium product line.

Our facilities are subject to licensing and regulation, as appropriate, under federal, state and local laws relating to:

 

   

quality systems;

 

   

the surface and air transportation of chemicals, biological reagents and hazardous materials;

 

   

the handling, use, storage and disposal of chemicals (including toxic substances), biological reagents and hazardous waste;

 

   

the procurement, handling, use, storage and disposal of biological products for research purposes;

 

   

the safety and health of employees and visitors to our facilities; and

 

   

protection of the environment and general public.

A dedicated group responsible for quality, regulatory affairs and compliance, and safety manages our compliance and QC programs, including through the use of qualified outside consultants.

We have established a QMS to ensure that management has proper oversight of compliance and quality assurance. We perform periodic management reviews of our quality system to ensure that appropriate quality measures and controls are in place.

Research Products

We believe that our products that are marketed as RUO products are exempt from compliance with GMP regulations under the U.S. Federal Food, Drug and Cosmetic Act. RUO products cannot make any claims related to safety, effectiveness or diagnostic utility and they cannot be intended for human clinical diagnostic use.

In November 2013, the FDA issued Final Guidance for Industry and Food and Drug Administration Staff on “Distribution of In Vitro Diagnostic Products Labeled for Research Use Only or Investigational Use Only” (“the RUO/IUO Guidance”). The FDA guidance document provides the FDA’s current thinking on when in vitro diagnostic (“IVD”) products are properly labeled for RUO or for investigational use only (“IUO”). FDA guidance is issued by the FDA staff and does not establish legally enforceable responsibilities and should be viewed as recommendations unless specific regulatory or statutory requir