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 write 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 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 can greater than double its capability. The top markets by which Twist operates are rising at 20+% yearly, and we consider Twist will probably be a key enabler for this development for years to come back.
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 phase, and includes 49% of income; and Biopharma, which is a more moderen phase that additionally leverages the tech to do drug discovery (15% of income).
The SynBio (artificial biology) phase sells instruments to firms that genetically engineer compounds to switch chemical substances 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, just lately partnered with genetic engineering Gingko Bioworks to “develop” drugs 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 way of varied improvements, together with their just 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 basically 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 substances 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 subsequent 5 years. As such, it has attracted many entrants and has grow to be a extremely aggressive area. What makes Twist’s kits distinctive is that they minimize down on sequencing prices, and may make customized instruments sooner.
The speedy development of the NGS finish market has pushed Twist’s efficiency on this phase (55% y/y development in FY’21). We anticipate the market development to speed up together with additional innovation in genomics, corresponding to liquid biopsy and minimal residual illness testing. Moreover, as Illumina’s patents expire within the coming years, new entrants will convey extra sequencers to market. The price of sequencing will decline, which can drive a rise in utilization. Twist could be very nicely positioned for this growth as its know-how is agnostic, and may work on any model of sequencer.
The third income phase, Biopharma, additional leverages Twist’s platform to find new medicine. The corporate both companions with biotech firms 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 firms to develop and commercialize. This enterprise generates income within the type of up-front funds when contracts get signed with companions who convey targets. Present companions embrace 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 way of their lifecycles of growth and commercialization.
Twist’s share worth has been minimize by greater than half within the first half of 2022, for a number of causes. First, macro components like inflation and rising rates of interest have shifted investor sentiment largely away from high-growth technology-forward firms that aren’t but worthwhile, notably people who had been beforehand buying and selling at nosebleed valuations. Second, an adjoining firm within the area, which went public in 2021, had a tough first few months out of the gate, driving detrimental sentiment on the entire area. In our view, Twist is being inaccurately penalized by the market. Whereas most pure-play SynBio firms are within the enterprise of creating issues with artificial biology, Twist is what we think about an enabler of the trade, because it offers the items of DNA that different firms use to make their merchandise. The corporate reported order development of 32% in its FYQ2, which we consider signifies continued power ultimately market demand.
Additional dividing it from this group, Twist is just not 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 consider is a powerful indicator of administration’s capacity to set expectations and ship on its targets.
There have additionally been aggressive issues as extra firms enter the DNA writing market—like DNA Script, an organization that sells a DIY DNA printer. That being mentioned, this complete trade 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 trade pioneer and know-how chief.
Lastly, the corporate does anticipate 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 firms dealing with near-term stress on profitability. Nevertheless, we consider the stress will probably be non permanent as the brand new manufacturing unit scales up, and that finally, Twist will be capable to enhance margins by way of the high-value proposition it’ll provide 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 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 all many undervalued firms within the HTEC portfolio that supply a compelling motive to be lengthy proper now.