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 standard 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 can greater than double its capability. The top markets during which Twist operates are rising at 20+% yearly, and we imagine Twist shall be a key enabler for this progress for years to return.
Twist’s income is comprised of three segments: SynBio, which contains 37% of its income and is the muse of Twist; NGS, which leverages the core tech, is the fastest-growing section, and contains 49% of income; and Biopharma, which is a more moderen 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 interchange chemical compounds or restricted pure sources 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 continual 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 therapy.
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 standard 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 sometimes 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 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 subsequent 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 reduce down on sequencing prices, and might make customized instruments quicker.
The speedy progress of the NGS finish market has pushed Twist’s efficiency on this section (55% y/y progress in FY’21). We count on the market progress to speed up together with additional innovation in genomics, reminiscent of 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 can drive a rise in utilization. Twist could be very effectively positioned for this growth as its know-how is agnostic, and might 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 in opposition to a goal the accomplice 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 deliver 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 growth and commercialization.
Twist’s share value 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, notably 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 constructing issues with artificial biology, Twist is what we think about an enabler of the business, because it offers the items of DNA that different corporations use to make their merchandise. The corporate reported order progress of 32% in its FYQ2, which we imagine signifies continued power ultimately market demand.
Additional dividing it from this group, Twist isn’t new to public fairness markets. It has been publicly traded for almost 4 years and has delivered a income beat for not less than the final 10 consecutive quarters, which we imagine is a powerful indicator of administration’s skill 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 business 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 business pioneer and know-how 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 powerful urge for food for corporations dealing with near-term stress on profitability. Nevertheless, we imagine the stress shall be momentary as the brand new manufacturing unit scales up, and that ultimately, Twist will be capable to enhance margins by the high-value proposition it should 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 progress of those industries, we count on this to occur within the subsequent 2–3 years.
General, we view this as a high-quality firm with a protracted tailwind of progress, and a path towards profitability. The inventory has largely been de-risked by the latest market compression, and it’s simply one among many undervalued corporations within the HTEC portfolio that supply a compelling cause to be lengthy proper now.