Teknova(TKNO) - 2023 Q4 - Annual Report

Cautionary Note Regarding Forward-Looking Statements This section warns that forward-looking statements are subject to substantial risks and uncertainties, and actual results may differ materially - Forward-looking statements involve substantial risks and uncertainties[10] - Statements cover financial condition, results of operations, plans, objectives, future performance, and business[10] - Actual results could differ materially from forward-looking statements[12] - Company undertakes no obligation to update forward-looking statements, except as required by law[14] Risk Factor Summary This section summarizes key speculative risks for common stock investment, covering operating losses, market fluctuations, competition, and IP challenges - Incurred operating losses in the past and may incur losses in the future[18] - Operating results may fluctuate significantly and be difficult to predict[18] - Significant capital invested in manufacturing facilities; scaling efforts could be disruptive[18] - Natural disasters, geopolitical unrest, war, public health issues, or other catastrophic events could disrupt operations[18] - Dependence on maintaining customer relationships and recurring revenue sources[18] - Faces intense competition from larger life science, pharmaceutical, and biotechnology companies[18] - Future capital needs are uncertain, and additional financing may not be secured on favorable terms[18] - Risks from recent workforce reductions include morale issues and ability to meet demand[18] - Reliance on trade secret laws for intellectual property protection, which may be vulnerable[18] - Credit Agreement terms may restrict operations; failure to comply could lead to accelerated debt[19] - Telegraph Hill Partners controls the company, and its interests may conflict with other stockholders[19] - Material weaknesses in internal control over financial reporting could lead to inaccurate financial results[19] PART I Item 1. Business Alpha Teknova is a leading producer of critical reagents for life sciences, known for its adaptable manufacturing processes and ability to deliver custom, high-quality products quickly - Leading producer of critical reagents for discovery, development, and commercialization of novel therapies, vaccines, and molecular diagnostics[21] - Proprietary processes enable manufacturing and delivery of high-quality, custom, made-to-order products with short turnaround times[21] - Achieved an annual customer retention rate of approximately 96% for customers purchasing more than $10,000 annually in 2023[25] - Participates in high-growth market segments including cell and gene therapy, mRNA vaccines, synthetic biology, and molecular diagnostics[26][27] - ISO 13485:2016 certified, enabling products for diagnostic and therapeutic applications[32] Overview Alpha Teknova is a key supplier of critical reagents for life sciences, known for its adaptable manufacturing processes and ability to deliver custom, high-quality products quickly - Over 2,500 customers across life sciences market[21] - 96% annual customer retention rate for customers purchasing over $10,000 annually in 2023[25] - New custom products moved into production in weeks from order receipt, compared to months from alternatives[22] - Products used in high-growth areas like cell and gene therapy, mRNA vaccines, synthetic biology, and molecular diagnostics[26][27] - FDA approvals for gene therapies: 5 (2017-2022), 7 (2023), estimated up to 17 (2024)[26] Our Portfolio Alpha Teknova's portfolio spans from common research applications to highly customized formulations for genomics and bioproduction, including GMP-grade products Revenue Contribution | Category | Revenue Contribution | | :--------------- | :------------------- | | Lab Essentials | ~79% of total revenue | | Clinical Solutions | ~18% of total revenue | - Product types include pre-poured media plates (Lab Essentials only), liquid cell culture media and supplements, and molecular biology reagents[33] - ISO 13485:2016 certified for diagnostic and therapeutic applications[32] Competitive Strengths Alpha Teknova's strengths include expertise in complex custom chemical formulation, rapid delivery, quality, regulatory compliance, and strong customer relationships - Proprietary production system designed for rapid manufacturing and quality control of complex, custom chemical formulations[39] - Typically moves new custom products into production in weeks from order receipt; ships approximately 70% of custom RUO products less than three weeks from order placement[41] - Customers frequently integrate Teknova's validated components into their production processes, leading to long-term relationships[40] - Leading provider of research and GMP-grade bacterial cell culture media and specialized chromatography solutions for cell and gene therapy[43] Supplier Concentration (2023) | Supplier Type | % of Total Inventory Purchases | | :-------------- | :----------------------------- | | Distributor supplier A | 40% | | Direct supplier C | 10% | Our Markets Alpha Teknova operates in diverse life sciences markets, benefiting from industry preferences for customized, high-quality products with short turnaround times - Key market growth drivers include expansion of cell and gene therapy, development of mRNA vaccines and therapies, and growth in molecular diagnostics and genomics[47] - Additional factors benefiting core markets: increased R&D funding, development of new therapeutic/diagnostic modalities, and favorable demographic trends[48] - Supplier to approximately 110 leading cell and gene therapy organizations[48] Average Customer Spend Increase in Cell & Gene Therapy (vs. Phase 1) | Clinical Trial Phase | Spend Increase | | :------------------- | :------------- | | Phase 2 | 1.4 times | | Phase 3 | 3.2 times | | Commercial Production | 29.8 times | - Global molecular diagnostics market estimated to reach $27.0 billion by 2030; global genomics market expected to grow to $94.9 billion by 2030[51] Our Strategy Alpha Teknova's strategy focuses on accelerating therapeutic and diagnostic development by increasing product integration and providing superior customer service - Goal is to provide products necessary to accelerate therapeutic and diagnostic development from basic research to commercialization[52] Customer Expenditure Increase (2023, vs. Catalog only) | Product Type | Average Spend Multiplier | | :-------------------------------- | :----------------------- | | Custom products | ~19 times more | | GMP-grade products | ~62 times more | - Investing in automation, facilities, and operating infrastructure to increase manufacturing capacity, improve efficiency, and reduce delivery time[53] Competition Alpha Teknova operates in a highly competitive life sciences market, differentiating itself through custom formulations, rapid turnaround, and technical expertise - Operates in a highly competitive environment with diverse competitors, including large established life science companies (e.g., Thermo Fisher, Millipore, Cytiva, Hardy Diagnostics, Lonza) and smaller niche competitors[55][56] - Competes with customers' established in-house production capabilities[55] - Differentiated by ability to offer customer-specified RUO and GMP formulations with short turnaround times, Teknova brand reputation (25+ years), and technical expertise[56] Government Regulation Alpha Teknova's products are marketed as ancillary reagents, exempt from direct FDA regulation, but comply with ISO 13485:2016 standards and customer requirements - Products are marketed as ancillary reagents for research or further manufacture, not subject to direct FDA regulation under the U.S. Federal Food, Drug and Cosmetic Act[57] - Voluntarily built quality system to comply with specific sections of ISO 13485:2016 standards to meet customer requirements[59] - Complies with 'Research Use Only' (RUO) labeling guidance, ensuring products are not intended for clinical, therapeutic, or diagnostic use[61] - Subject to federal, state, and local environmental, health, and safety laws and regulations[62] Intellectual Property Alpha Teknova relies on trade secrets and contractual protections for intellectual property, acknowledging challenges in protection and enforcement - Relies primarily on trade secrets, including know-how, confidential information, unpatented technologies, and other proprietary information[65] - Protects intellectual property through confidentiality and non-disclosure agreements with employees, consultants, and contractors[65] - Does not currently own any issued patents but may file patent applications or acquire/license IP rights in the future[173] - Maintains physical and electronic security of premises and IT systems to preserve trade