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Twist Bioscience Corp.’s stock slid 20% Tuesday, after a blistering short-seller report compared the company to the failed blood-testing startup Theranos, calling it a “cash-burning inferno” and a ” ‘synthetic biology’ swindle.”
Scorpion Capital, an activist short seller, said the report was based on 20 research interviews with former executives and manufacturing employees, customers and competitors, as well as a private-investigator field visit to the company’s “factory of the future” in Oregon.
That facility, which Twist
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says it’s ramping up with $100 million of capital spending, appears to be deserted, based on photographic and other evidence, said Scorpion.
“Twist is a ticking time bomb, a commodity synthetic DNA manufacturer and glorified [contract manufacturing operation], operating an unsustainable Ponzi-like scheme based on price dumping and customer subsidies to buy revenue and create the illusion of ‘growth,’ ” the authors wrote.
“We believe the short report issued by Scorpion Capital is highly misleading, with many distortions and inaccuracies,” said Angela Bitting, Twist senior vice president for corporate affairs in emailed comments.
“Unlike the author of the short report, as a public company, we are committed to communicating truthfully, creating value for all shareholders, and being good stewards of capital. We remain focused on our mission to improve health and sustainability by manufacturing DNA at scale and on growing our business, including shipping product from the Factory of the Future in January 2023.”
The San Francisco–based company makes synthetic DNA products that it says can be used in the fields of medicine, agriculture, industrial chemicals and data storage.
“We have created a revolutionary silicon platform that offers precision at a scale unavailable anywhere else,” the company says on its website.
But Scorpion says the “lab on a chip” is a scam, like Theranos, and that its claim that its DNA chip has 10,000 times higher throughput and lower cost is fraudulent, “covering up a manual, labor-intensive, and fatally flawed manufacturing process crippled by errors, bottlenecks, and pitiful yields — thereby driving gross margins we estimate to be negative, not unlike Theranos which claimed to run blood tests on its ‘chip’ but wasn’t.”
The company has used a “race to the bottom” pricing strategy to attract customers, said Scorpion. The silicon DNA chip is actually a “fatally flawed, decades-old technology that the CEO lifted from her previous employer,” said the report. The CEO is Emily M. Leproust, a company co-founder who previously worked at Agilent
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according to the company’s October 2018 initial public offering documents.
To conceal the losses from its manufacturing, the company is using “WorldCom-esque accounting” to cover its tracks, says the report.
Twist said in its second-quarter earnings release that its gross margin stood at 40% and is expected to rise to 60%. But Scorpion believes that it’s actually negative and that the company is misclassifying the cost of goods sold, or COGS, as a research-and-development expense and is misclassifying COGS as capital expenditures via two vehicles: its “factory of the future,” where it’s claiming to have spent $90 million and its DNA Storage Initiative, where it claims to be spending $40 million on a program with barely any staff.
“Twist’s gross margin ‘progress’ is central to the narrative and its ability to raise capital,” said the report.
The short seller has set a price target of zero and said overall short interest in the stock is equal to 11% of the float.
The stock has fallen 61% to date in 2022, compared with the 17% decline of the S&P 500
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