Twist Bioscience 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 jot down 10,000 occasions the quantity of DNA in contrast with typical strategies, at 1/10 of the associated fee, whereas utilizing a fraction of the chemical compounds. 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 through which Twist operates are rising at 20+% yearly, and we imagine Twist shall be a key enabler for this development for years to return.
Twist’s income is comprised of three segments: SynBio, which includes 37% of its income and is the muse of Twist; NGS, which leverages the core tech, is the fastest-growing section, and includes 49% of income; and Biopharma, which is a more recent section that additionally leverages the tech to do drug discovery (15% of income).
The SynBio (artificial biology) section sells instruments to corporations that genetically engineer compounds to exchange chemical compounds or restricted pure assets for industrial, agricultural, or medical use. One of many fastest-growing purposes for synbio is in biotech. For instance, Novo Nordisk, a Danish pharma firm, 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 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 dimensions of a smartphone. With this know-how, Twist can write 10,000 occasions the quantity of those DNA items as typical strategies, at 1/10 of the associated fee. Twist additionally has a decrease environmental footprint, as its silicon chip makes use of a fraction of the chemical compounds which might 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. Prospects merely want to go surfing, add the DNA sequence that they need, select their configuration, and place their order.
The NGS enterprise, which now includes extra income than SynBio, sells prep kits utilized by pharma, researchers, and academia. The prep kits are used to arrange 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 following 5 years. As such, it has attracted many entrants and has develop into a extremely aggressive house. What makes Twist’s kits distinctive is that they lower down on sequencing prices, and may make customized instruments sooner.
The fast development of the NGS finish market has pushed Twist’s efficiency on this section (55% y/y development in FY’21). We anticipate the market development to speed up together with additional innovation in genomics, comparable to liquid biopsy and minimal residual illness testing. Moreover, as Illumina’s patents expire within the coming years, new entrants will carry extra sequencers to market. The price of sequencing will decline, which is able to drive a rise in utilization. Twist could be very properly positioned for this growth as its know-how is agnostic, and may work on any model of sequencer.
The third income section, Biopharma, additional leverages Twist’s platform to find new medicine. The corporate both companions with biotech corporations to develop antibodies towards a goal the associate offers, 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 companions who carry targets. Present companions embody Takeda and Boehringer Ingelheim, whereas Astellas Pharma has an unique choice to license a compound Twist developed internally. There are additionally potential “name choice” revenues within the type of milestones and royalties as these antibodies progress by their lifecycles of improvement and commercialization.
Twist’s share worth has been lower 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 unfavorable 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 contemplate an enabler of the trade, because it offers the items of DNA that different corporations use to make their merchandise. The corporate reported order development of 32% in its FYQ2, which we imagine signifies continued energy in the long run market demand.
Additional dividing it from this group, Twist will not be new to public fairness markets. It has been publicly traded for practically 4 years and has delivered a income beat for at the least the final 10 consecutive quarters, which we imagine is a powerful indicator of administration’s potential 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 mentioned, this complete trade remains to be in its early levels, with loads of room for extra entrants. Additionally, Gingko Bioworks, a pacesetter in artificial biology and a long-standing consumer of Twist, lately signed an settlement that tacked on one other 4 years to this relationship. This validates Twist’s aggressive benefit as an trade pioneer and know-how chief.
Lastly, the corporate does anticipate some gross margin strain whereas it ramps up capability in its new manufacturing unit. Present market sentiment doesn’t have a powerful urge for food for corporations dealing with near-term strain on profitability. Nevertheless, we imagine the strain shall be momentary as the brand new manufacturing unit scales up, and that finally, Twist will be capable 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 fast development of those industries, we anticipate this to occur within the subsequent 2–3 years.
General, 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 current market compression, and it’s simply one in every of many undervalued corporations within the HTEC portfolio that provide a compelling motive to be lengthy proper now.