All About the Berkeley Lights Stock IPO

For some reason, IPOs are coming out of the woodwork these days. Seems strange when you consider that just three months ago, all hell was breaking loose, and everyone seems to have forgotten about that. In fact, since the first-ever mention of the Woohoo Flu, the Nasdaq has gone up by +13%. Maybe everyone’s rushing to IPO before the door slams shut again?

It was only several months ago that we wrote about “How Berkeley Lights Enables Synthetic Biology,” and now they’ve filed for an IPO, which means we get to take a look under the hood. We’ll assume you’re already familiar with the company from our previous piece and jump right into their S-1 filing to look for juicy insights.

Berkeley Lights Stock Offered to Public

The value proposition on offer from Berkeley Lights is that researchers can do a lot more, with a lot less, and do it much quicker. An entire roomful of equipment can be replaced with a single platform called The Beacon Optofluidic System where wells are replaced with chips. (Remember organs-on-a-chip? Well this is lab-on-a-chip.) The core technology behind the Beacon platform are OptoSelect chips that contain thousands of NanoPen chambers which are like wells on a microplate.

OptoSelect chips are single-use consumables and replaced after each workflow – Credit: Berkeley Lights

The chips you see above are capable of not only sorting cells, but measuring their characteristics. All of this takes place rapidly, at scale. The platform is operated through an easy-to-use software interface which guides the entire laboratory workflow which – thanks to automation – can operate at lightning speeds. For example, discovering an antibody is a process that would typically take about three months. Using the Beacon platform, that same process takes just a single day.

The TAM and Business Models

“Cells are microscopic factories that make minute amounts of a variety of valuable proteins, such as antibodies, and therefore require a high degree of precision when analyzed individually,” Berkeley Lights correctly points out. Now, just imagine taking thousands of cells and measuring the individual characteristics of each cell to only select a chosen few. These capabilities can be configured as customized workflows which are unique to a customer’s particular requirements, something that translates into a total addressable market of approximately $23 billion:

  • $6 billion in antibody therapeutics
  • $15 billion in cell therapy
  • $2 billion in synthetic biology

It all works out to about 1,600 companies, academic institutions, and governmental and other organizations which Berkeley can sell their Beacon platform to using three different revenue models:

  • Direct purchase: Customer acquires the platform through a one-time purchase. In addition, the customer must acquire an annually renewable workflow license for any applicable workflow the customer plans to deploy. Required consumables and reagents are purchased as needed.
  • Subscription: Recently launched subscription program lets a customer subscribe to a specific workflow and pay a quarterly fee over a fixed period of time which covers the annual workflow license, the advanced automation system, as well as warranty and service. Required consumables and reagents are purchased as needed.
  • Strategic partnership: This option combines the direct purchase or subscription access option along with milestone payments for joint workflow development programs. Could include shared revenue arrangements in the form of royalties.

The company also talks about the “Berkeley Lights BioFoundry” which may develop “proprietary valuable biological assets” they could sell or license to customers, such as “functionally validated antibodies or new organisms applicable to synthetic biology.”

Where Revenues Are Coming From

Since the first commercial sale of Beacon in the United States in December 2016, Berkeley Lights has just dipped their toes in the water with 45 customers and an install base of 54 Beacon machines. The customer list includes eight of the ten largest biopharmaceutical companies in the world who comprised 18% of their total revenues in 2019 which came in at $56.7 million, a growth of +81% over 2018 revenues of $31.3 million.

Credit: Berkeley Lights S-1 Filing

About 70% of their 2019 revenues came from direct sales while the other 30% came from strategic partnerships like the one with Ginkgo Bioworks we discussed in our previous article. A breakdown of revenues by addressable markets shows that most of the money in 2019 came from the antibody therapeutics segment:

  • Antibody therapeutics – $49.4 million or 87%
  • Cell therapy – $2.6 million or 4.7%
  • Synthetic biology $4.7 million or 8.3%

We also see heavy spending on R&D at around $38 million in 2019, a number that’s equivalent to 67% of revenues at the moment (nearly 42% of all 210 employees work in R&D). That spending is to ensure their intellectual property moat is strong and to stay well ahead of any competitors, or in the case of Berkeley Lights, “potential competitors.”

Berkeley Lights’ Potential Competitors

One valuable piece of information presented in the S-1 filing is a list of names that Berkeley Lights describes as “potential competitors.” The use of the word “potential” implies that the Beacon platform is so advanced that their nearest competitors can only accomplish parts of what they do. Being able to discover an antibody in a single day vs. three months is an exponential leap forward, and represents an entirely new way of doing things, as opposed to incremental improvements over existing methods. Let’s quickly look at the names Berkeley Lights listed as “potential competitors.”

  • Danaher (DHR) – They’re probably referring to Molecular Devices, a company that developed “platforms for high-throughput screening, genomic and cellular analysis, colony selection and microplate detection,” with over 130,000 placements in laboratories around the world. In 2010, they were acquired by Danaher, a $122 billion German diagnostics and research firm with a Life Sciences segment that provides cellular analysis among other things. 
  • Menarini Silicon Biosystems – Founded in 1999, Silicon Biosystems was a startup developing “lab-on-a-chip technologies for miniaturized cell-biology testing.” Acquired by Menarini Group in 2013, and self-described as “the industry standard for delivering 100% pure cells, our DEPArray™ image-based cell-sorting and isolation technology en­ables clinical researchers to conduct molecular analyses with single-cell precision.”
  • Miltenyi Biotec – More competition from zee Germans, this time from a company that’s named after the man who invented magnetic-activated cell sorting, a process which labels cells and then sorts them. This 3,000-person company develops products for researchers that have been cited in more than 20,000 publications. 
  • Sphere Fluidics – Spun out from the University of Cambridge in 2010, Sphere Fluidics has taken in almost $20 million in funding from a long list of investors that happens to include Twist Bioscience (TWST). The Cyto-Mine® Single Cell Analysis System is their flagship product – “the first integrated, benchtop system to automatically analyze, sort and dispense millions of individual cells in just a single day.”

Maybe we’re overthinking Berkeley Lights’ use of the term “potential competitors,” but we’re inclined to think that at least some of that lab equipment being replaced by a single Beacon platform comes from the first three companies listed above that all seem to be more mature, with each claiming high levels of industry adoption. The fourth company is a relatively new startup that seems to be making similar claims as Berkeley Lights regarding their ability to sort cells at scale:

Credit: Sphere Fluidics

Conclusion

Investors must love how the core technology developed by Berkeley Lights, the OptoSelect chips, also happen to be consumables. In some business models, companies will simply give away a platform because high-margin consumables will more than pay for it over a short period of time. Investors will want to watch how the new subscription service evolves, and use “number of customers” and “machines deployed” as key metrics.

In the company’s words, “a key factor to our future success will be, our ability to increase the adoption of our platform.” They have eight of the largest biopharma companies as reference clients. Now, their 37 salespeople need to go out and get these machines in the hands of the remaining 1,555 possible customers they’ve identified.

If the IPO proceeds as planned, shares of Berkeley Lights will trade under the ticker BLI.

Here at Nanalyze, we hold the lion's share of our investing dollars in a portfolio of 30 dividend growth stocks. Find out which ones in the Quantigence Dividend Growth Investing report freely available to Nanalyze Premium subscribers.

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