Twist Biosciences is a pioneer and market chief in DNA writing, having developed a disruptive DNA synthesis platform that industrialized the engineering of biology. At its core, Twist makes use of this platform to “write” DNA on a silicon chip. This chip permits them to put in writing 10,000 occasions the quantity of DNA in contrast with standard strategies, at 1/10 of the price, whereas utilizing a fraction of the chemical substances. Twist combines this platform with proprietary software program, a scalable infrastructure, and an e-commerce platform to create an built-in providing. The corporate is rising so quick that it has reached capability at its manufacturing facility and is constructing a brand new facility, which is able to greater than double its capability. The tip markets during which Twist operates are rising at 20+% yearly, and we consider Twist might be a key enabler for this development for years to come back.
Twist’s income is comprised of three segments: SynBio, which contains 37% of its income and is the inspiration of Twist; NGS, which leverages the core tech, is the fastest-growing phase, and contains 49% of income; and Biopharma, which is a more recent phase that additionally leverages the tech to do drug discovery (15% of income).
The SynBio (artificial biology) phase sells instruments to corporations that genetically engineer compounds to exchange chemical substances or restricted pure sources for industrial, agricultural, or medical use. One of many fastest-growing functions for synbio is in biotech. For instance, Novo Nordisk, a Danish pharma firm, just lately partnered with genetic engineering Gingko Bioworks to “develop” medication to deal with persistent sicknesses. Synlogic, a Cambridge-based biotech firm, has engineered a micro organism to deal with PKU, a uncommon metabolic dysfunction. HTEC member Codexis is making a reputation for itself in biotech by numerous improvements, together with their just lately engineered enzyme that Pfizer is utilizing to provide Paxlovid, a world-leading COVID remedy.
Twist’s secret sauce, as famous above, is the DNA synthesis platform that it launched in 2016, which primarily industrialized the engineering of biology by “writing” items of DNA on a silicon chip roughly the scale of a smartphone. With this expertise, Twist can write 10,000 occasions the quantity of those DNA items as standard strategies, at 1/10 of the price. Twist additionally has a decrease environmental footprint, as its silicon chip makes use of a fraction of the chemical substances which can be usually wanted in DNA synthesis. Twist combines this platform with proprietary software program, a scalable infrastructure, and an e-commerce platform to create its built-in providing. Clients merely want to go surfing, add the DNA sequence that they need, select their configuration, and place their order.
The NGS enterprise, which now contains extra income than SynBio, sells prep kits utilized by pharma, researchers, and academia. The prep kits are used to organize a DNA pattern to be positioned on an NGS (next-generation sequencing) instrument. The NGS market has been rising quickly and is anticipated to develop by 20% CAGR for the subsequent 5 years. As such, it has attracted many entrants and has grow to be a extremely aggressive house. What makes Twist’s kits distinctive is their high quality, which reduce down on sequencing time. In different phrases, they assist the lab get a clearer image quicker than with different manufacturers
The speedy development of the NGS finish market has pushed Twist’s efficiency on this phase (55% y/y development in FY’21). We count on the market development to speed up together with additional innovation in genomics, akin to liquid biopsy and minimal residual illness testing. Moreover, as Illumina’s patents expire within the coming years, new entrants will deliver extra sequencers to market. The price of sequencing will decline, which is able to drive a rise in utilization. Twist could be very effectively positioned for this enlargement as its expertise is agnostic, and might work on any model of sequencer.
The third income phase, Biopharma, additional leverages Twist’s platform to find new medication. The corporate both companions with biotech corporations to co-develop antibodies, or it develops proprietary antibodies by itself that it seeks to license out to biotech corporations to develop and commercialize. This enterprise generates income within the type of up-front funds when contracts get signed with co-developers. Present companions embrace Takeda and Astellas Pharma. There are additionally potential “name possibility” revenues within the type of milestones and royalties as these antibodies progress by their lifecycles of growth and commercialization.
Twist’s share worth has been reduce by greater than half within the first half of 2022, for a number of causes. First, macro elements like inflation and rising rates of interest have shifted investor sentiment largely away from high-growth technology-forward corporations that aren’t but worthwhile, significantly people who have been beforehand buying and selling at nosebleed valuations. Second, an adjoining firm within the house, which went public in 2021, had a tough first few months out of the gate, driving destructive sentiment on the entire house. In our view, Twist is being inaccurately penalized by the market. Whereas most pure-play SynBio corporations are within the enterprise of creating issues with artificial biology, Twist is what we take into account an enabler of the business, because it supplies the items of DNA that different corporations use to make their merchandise. The corporate reported order development of 32% in its FYQ2, which we consider signifies continued power in the long run market demand.
Additional dividing it from this group, Twist shouldn’t be new to public fairness markets. It has been publicly traded for practically 4 years and has delivered a income beat for at the very least the final 10 consecutive quarters, which we consider is a robust indicator of administration’s means to set expectations and ship on its targets.
There have additionally been aggressive issues as extra corporations enter the DNA writing market—like DNA Script, an organization that sells a DIY DNA printer. That being stated, this whole business continues to be in its early phases, with loads of room for extra entrants. Additionally, Gingko Bioworks, a frontrunner in artificial biology and a long-standing consumer of Twist, just lately signed an settlement that tacked on one other 4 years to this relationship. This validates Twist’s aggressive benefit as an business pioneer and expertise chief.
Lastly, the corporate does count on some gross margin stress whereas it ramps up capability in its new manufacturing unit. Present market sentiment doesn’t have a robust urge for food for corporations dealing with near-term stress on profitability. Nevertheless, we consider the stress might be short-term as the brand new manufacturing unit scales up, and that ultimately, Twist will have the ability to improve margins by the high-value proposition it’s going to supply as soon as it provides new capability. The corporate expects to interrupt even on profitability with SynBio and NGS when their mixed revenues attain $300 million, and with Biopharma when its income reaches $80 million. Given the speedy development of those industries, we count on this to occur within the subsequent 2–3 years.
Total, we view this as a high-quality firm with a protracted tailwind of development, and a path towards profitability. The inventory has largely been de-risked by the latest market compression, and it’s simply considered one of many undervalued corporations within the HTEC portfolio that provide a compelling motive to be lengthy proper now.