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Twist Bioscience (NASDAQ:TWST) is a leading synthetic biology company, providing manufacturing services to biotechnology companies. Revenue currently comes largely from their SynBio and Next-Generation Sequencing (NGS) product lines, but drug discovery and data storage could produce significant growth in the future. Twist’s stock is currently relatively expensive, but the company is well positioned in a growth industry with a technological advantage. The sustainability of this technological advantage is the big question for Twist as the synthetic biology market continues to evolve rapidly.
Market
Biotechnology is an increasingly powerful tool that can contribute to fixing problems like the COVID pandemic, an ageing population and rising healthcare costs. It also has the potential to make the production of food, materials and chemicals less expensive and more sustainable.
Recombinant DNA (combining DNA from different sources) and DNA synthesis have given biologists the tools to alter the code underlying biological systems. Over time new tools (CRISPR, ASOs, RNA-editing, mRNA medicines, protein degraders, molecular glues, cell therapies, etc.) have been developed so that every level of the system can be engineered (DNA, RNA, protein, cells and tissues). The value of advancing biotechnology has been recognized by venture capital firms, with funding increasing nearly five-fold between 2012 and 2020.
Figure 1: Biotech Venture Capital Funding
(source: pillar)
Barriers to entry in biology remain relatively high though and the typical business model remains, with venture capital commercializing technology by licensing promising science from academic labs and hiring an experienced management team. Founders are now the scarcest resource, rather than ideas and capital, making the provision of low-cost tools which lowers barriers to entry important for the industry. This will enable more founder led companies to pursue a wider-range of opportunities, similar to the tech industry. Twist Bioscience is a potentially important enabler of this future, by developing low-cost inputs and tools for the industry, in a manner analogous to how cloud service providers lowered barriers to entry in tech.
Synthetic DNA is the fundamental building block of synthetic biology and has applications across a broad range of industries, including:
- Healthcare - therapeutics and diagnostics
- Industrial Chemicals - production of specialty chemicals and materials (spider silk, nylon, rubber, fragrances, food flavors, and food additives)
- Agriculture - boosting crop production
- Academic Research
- IT - long-term data storage
SynBio
The SynBio market consists of a number of large-scale commercial users and a long tail of small users. Twist Bioscience believes this market can be expanded significantly by converting companies who currently make their own synthesis supplies (enzymes, primers, cells, plates) to customers.
NGS
The NGS sample preparation market currently consists of targeted sequencing, but should expand significantly as applications like liquid biopsies are commercialized. Minimal Residual Disease (MRD) monitoring represents another significant opportunity. There are 15 million cancer patients in the US and if they were tested once a year at an average price of 1,000 USD, this would be a 15 billion USD market, although Twist would only be able to penetrate the DNA library-prep portion of it. There is also an opportunity to expand the market by capturing some of the SNP market.
Drug Discovery
Twist is leveraging their platform to discover monoclonal antibodies which are effective against high value targets. Drug discovery is a high risk activity with uncertain outcomes, but Twist's ability to generate large libraries gives them a potential advantage which could be immensely valuable. For example, Twist is developing immuno-oncology therapies and within this market, checkpoint inhibitors alone are expected to be worth 40 billion USD by 2025.
Data Storage
DNA can be used to encode and store digital data for extremely long periods at a relatively constant cost. While writing digital data is slow and expensive, it is a potentially viable commercial option for archiving data. Twist estimates that data storage is a 35 billion USD opportunity, with cold storage representing 60% of the market.
Figure 2: Data Storage TCO
(source: Twist Bioscience)
Twist believes that the synthetic biology market is still nascent and has a long growth runway ahead. The global synthetic biology market is expected to grow from 5.3 billion USD in 2019 to 18.9 billion USD in 2024, a growth rate of 28.8% annually. Twist estimates that their current total addressable market is 3 billion USD with significant potential upside from market growth and expansion into data storage and drug discovery.
Table 1: Twist Bioscience Total Addressable Market
(source: Created by author using data from Twist Bioscience)
There is uncertainty over how Twist’s addressable market will develop as the cost of synthesis continues to decline though. This will depend on the price elasticity of demand for synthetic DNA and what applications become commercially viable as costs decline. The concern for Twist will be if technology improvements that lower costs do not sufficiently expand volumes, causing market growth to stagnate. Demand for synthetic DNA may not necessarily expand rapidly, even with declining costs. This is because once a sequence is finalized and embedded within a production organism, the sequence can be copied by the organism, eliminating the need for further synthetic DNA.
Figure 3: Cost of DNA Synthesis
(source: synthesis)
Twist Bioscience
Twist Bioscience has a DNA synthesis platform which they are using to industrialize the engineering of biology. The core of this platform is their proprietary technology that allows synthetic DNA to be manufactured with high quality and throughput at a significantly lower cost and faster turnaround than competitors. Twist aims to leverage their technology advantage to be the leading supplier of synthetic DNA globally.
The legacy method of manufacturing DNA involves synthesizing oligonucleotides and then combining these into longer strands of DNA. The two primary methods of achieving this are the 96-well plate method and the microarray method, which Twist believes have limited scalability. Because the synthesis of oligos can introduce errors in the sequence order, cloning is used to produce many identical copies of a strand of DNA.
Twist utilizes a silicon plate with 10,000 wells, manufactured using the same photolithography techniques as the semiconductor industry. This increases DNA production by a factor of 9,600 on a footprint similar to that of traditional DNA synthesis methods. It also significantly lowers the volume of reagents required, specifically the most expensive reagent by a factor of one million, and improves the precision of the synthesis process.
Figure 4: DNA Synthesis and Assembly Comparison
(source: Twist Bioscience)
Twist Bioscience is able to manufacture a broad range of synthetic DNA based products like synthetic genes, tools for NGS sample preparation and antibody libraries for drug discovery and development. Their platform also provides the opportunity for additional opportunities like digital data storage and partnerships for drug discovery.
Figure 5: Twist Bioscience Product Pipeline
(source: Twist Bioscience)
Twist is currently in the process of building their "Factory of the Future" in Oregon which will serve as a second manufacturing site and double their capacity. This factory will also enable a faster turnaround time and allow Twist to target customers who currently manufacture their own DNA for timing reasons, like some Biopharma customers. Twist is currently unable to target the ultra-fast DNA synthesis segment as their turnaround time is 11 to 15 days. Twist believes that this facility will help them gain market share and scale their revenue to 500 million USD annually, beginning in 2022.
Twist has a multi-channel sales strategy which utilizes a direct sales force and increasingly an ecommerce platform. This platform allows customers to design, validate and order customized DNA online. Twist acquired Genome Compiler Corporation for their software design capabilities as part of the development of their ecommerce ordering system. Twist has a large focus on ecommerce to reduce friction in the purchasing process and enable them to reach a large and diverse customer base. This extends to Twist integrating themselves into customer purchase systems as an approved vendor to expedite orders, which should drive loyalty. The combination of Twist’s highly automated Factory of the Future and self-serve ecommerce platform will likely be a key differentiator for Twist and drive productivity.
Products & Services
SynBio
Twist provides customers with a range of synthetic biology products, including synthetic genes and oglionucleotides. Oligonucleotides are short DNA or RNA molecules that can be synthesized for use in gene synthesis, Polymerase Chain Reaction (PCR), DNA sequencing, molecular cloning and as molecular probes. More recently Twist has introduced DNA preps, IgGs and clonal-ready gene fragments. SynBio was Twist’s original market and in the past dominated their revenue, but over time is becoming secondary to NGS. Twist's SynBio customer base is relatively concentrated, with Gingko Bioworks contributing the a large portion of revenue.
Synthetic Controls - provide control measures for applications like diagnostic assay development and day-to-day testing, including NGS and Reverse Transcription PCR (RT-PCR) assays. Synthetic controls broaden access and mitigate risk compared to the use of controls based on viral nucleic acids extracted from either an infected patient or from live virus propagated in cell culture.
Genes - Twist’s platform allows it to produce higher quality genes with significantly increased throughput and scalability. Twist manufactures clonal and non-clonal gene fragments. Clonal genes are synthesized DNA cloned into a plasmid vector and NGS sequence verified. Gene fragments are linear synthesized DNA sequences for direct cloning or larger gene assembly. Twist also launched clonal-ready gene fragments in December 2020 and revenue for this product is building. Clonal-ready gene fragments should appeal to the long tail of the market who need a few genes at a time, often academic institutions who currently make their own genes.
Oligo Pools - Twist’s platform is capable of producing over a million unique Single Stranded DNA (ssDNA) oligos in a single run. They can produce oligo lengths up to 300 nucleotides with unmatched pool uniformity and without bias, providing more unique targets per screen. This means customers can achieve their required data coverage with less time and money. More customers are ordering oligo pools for gene editing and this segment could continue to expand as gene editing becomes more common. Twist synthesize Single Guide RNA (sgRNA), which are specific RNA sequence that recognizes that target section of DNA and guides the Cas nuclease there for editing.
Figure 6: Twist NGS Sample Prep
(source: Synthego)
DNA Libraries - A DNA library is a collection of DNA fragments that have been cloned into vectors so that researchers can identify and isolate fragments of interest. DNA libraries are used in areas like molecular biology and genetic and protein engineering, with the application dependent on the source of the original DNA fragment. Genomic DNA libraries contain large fragments of DNA in either bacteriophages or bacterial derived artificial chromosomes. cDNA libraries are made with cloned, reverse-transcribed mRNA, and therefore lack DNA sequences corresponding to genomic regions that are not expressed. cDNA libraries generally contain much smaller fragments than genomic DNA libraries and are usually cloned into plasmid vectors.
Twist's platform allows the creation of a large number of customized variants from oligo pools. Twist's variant libraries include site saturation libraries, combinatorial libraries and spread-out low diversity libraries.
Figure 7: Combinatorial Variant Library
(source: Twist Bioscience)
Figure 8: Site Saturation Variant Library
(source: Twist Bioscience)
Figure 9: Spread-Out Low Diversity Library
(source: Twist Bioscience)
DNA Preps - DNA Preps are targeted at pharma and biotech customers and are used in drug discovery.
IgG - Immunoglobin G (IgG) is the most common antibody found in blood circulation in humans. Twist launched their IgG product relatively recently and have been ramping up revenue in 2021. This product is targeted at customers involved in drug discovery and development.
NGS
Twist provides sample preparation kits for NGS that include precisely synthesized oligo pools that uniformly amplify the desired target DNA segments, improving the accuracy of sequencing. Applications include liquid biopsy, rare disease, oncology, population genetics and infectious diseases. Twist’s success in NGS is based on low costs, rapid customization and fast throughput.
Twist’s NGS products include:
- Human core exome
- Fixed panels
- Custom panels
- Library preparation
- Reagents and kits
- Synthetic viral controls
- Targeted methylation
Figure 10: Twist NGS Sample Prep
(source: Twist Bioscience)
To support the development of their NGS business, Twist acquired iGenomX in June 2021 for 35 million USD. The deal consisted of 0.5 million USD cash and 29.5 million USD stock with a five million USD stock contingent consideration. It would be preferable to see Twist make this acquisition primarily with cash, but given their large losses, which are likely to continue for the foreseeable future, the use of stock may have been to preserve cash. iGenomX is an NGS library prep tools developer that should help Twist to support multiplex sequencing preparations and accelerate the conversion of customers from SNP microarray platforms to NGS. iGenomX built a PCR-like workflow for ultra-high throughput library construction which should drive adoption of Twist’s solutions into fields that run large volumes of samples with shallow sequencing. Twist is aiming to drive lower costs, customizable content and less complex library prep. Twist expects to realize revenues of approximately 4-6 million USD from the acquisition in 2023, which potentially makes this an inexpensive acquisition.
Twist launched synthetic control and infectious disease product lines in 2020 to capitalize on the COVID pandemic. These products can be used to help identify variants and track the evolution of the virus. There are two methods of full virus sequencing:
- Hybridization – superior approach which gives better coverage of the entire genome (this is the method Twist utilize).
- PCR and then sequencing – easier to implement but the results are not as good.
Twist has also introduced a methylation solution for epigenetic analysis, which should see strong adoption in the liquid biopsy space. The workflow employs an enzymatic process that is less damaging to DNA, alongside Twist‘s Custom Methylation Panel design. Liquid biopsies make use of deep sequencing which benefits from the uniformity of Twist’s products. Uniformity describes the read distribution along target regions of the genome. Uniform coverage reduces the amount of sequencing required to reach a sufficient depth of coverage for all regions of interest.
Figure 11: Twist Bioscience Sequencing Coverage
(source: Twist Bioscience)
Liquid biopsy should provide significant potential upside once clinical trials are completed and early detection solutions are broadly commercialized. Some customers are also pursuing liquid biopsy for Minimal Residual Disease (MRD) detection in cancer, which is another area with potentially high growth. Twist is also focused on converting customers from SNP microarray technology to NGS in areas like agriculture, which is another potential source of growth.
Biopharma
Twist Bioscience has commercialized a custom DNA library solution which can be leveraged to improve the efficiency of biologic drug discovery and development by screening against almost any form of antigen, including proteins, cells and peptides. Twist is able to develop large libraries of variants due to their high throughput synthesis capabilities. Twist’s platform can generate millions of oligonucleotides in a single run which can then be combined into longer gene fragments. This results in diverse antibody libraries which do not have biases or errors (insertions, deletions, mutations) that can affect screen efficiency. Each library contains over 10 billion human antibody sequences utilizing different antibody fragment scaffolds, as well as different sources of human antibody repertoires. This means that the Library of Libraries has a far greater likelihood of finding high-affinity binding antibodies compared to traditional methods.
Figure 12: Twist Bioscience Drug Discovery
(source: Twist Bioscience)
Twist’s library of libraries is a collection of DNA variant libraries that can be used for rapid and effective antibody discovery. It is also allowing researchers to focus on difficult-to-drug targets, like GPCR’s and Ion Channels. G Protein Coupled Receptors are proteins that act as cell surface receptors, detecting molecules outside of the cell and activating a cellular response. They are involved in many diseases. Ion channels are membrane proteins that are present in the membranes of all cells and control the flow of ions.
Figure 13: Twist Bioscience Biopharma Libraries
(source: Twist Bioscience)
To validate their technology Twist has developed a number of antibodies for specific therapeutic targets. For example, they screened the Library of Libraries against human ACE2 and SARS-CoV-2 spike protein to find potently neutralizing candidate antibodies against the SARS-CoV-2 strain of coronavirus in under 4 weeks.
Customers license the library or partner directly with Twist Biopharma to outsource lead discovery fully. If Twist leads discovery they prefer to license antibodies to partners but there is also the potential to spinout a new company to try and commercialize the antibody. Twist’s proven ability to develop effective antibody data for targets has helped them to build a robust pipeline of potential partners in the biopharma vertical. Twist Bioscience now has 31 partnerships and 26 with milestones and / or royalties.
Figure 14: Example Twist Bioscience Biopharma Partnerships
(source: Twist Bioscience)
Data Storage
Twist is in the process of developing the technology to make DNA data storage commercially viable. DNA is likely to remain a relatively expensive storage medium in the short-term with slow read and write speeds. Costs are relatively constant over time though, making DNA potentially attractive for archival storage of digital information. For example, DNA could be an attractive storage medium for cultural preservation (TVs, movies, music, etc.) as well as industrial applications where storage is required for regulatory reasons. The cost of tape or cloud storage increases with time because of data migration requirements due to media failure and hardware obsoletion. The DNA capsule that Twist utilizes for storage is estimated to be stable for the equivalent of over 100,000 years. Additionally, copies of tape or cloud storage directly multiply costs whereas additional DNA copies are inexpensive due to the PCR distribution focus.
Figure 15: Process for Storing Data in DNA
(source: Twist Bioscience)
Twist is targeting a storage cost of 100 USD / TB to make their product competitive with current storage solutions, which is ultimately dependent on developing a chip with smaller features. Twist was producing synthetic DNA for data storage on five micron devices, spaced 10 microns apart (pitch). They now have a 300-nanometer device with a one micron pitch that they have used to synthesize 200 base oligonucleotides. Twist plans on having a 150-nanometer chip in 2022, which is their target for commercial viability. They are also developing an integrated chip that includes both the CMOS and MEMS components needed to commercialize the product for data storage.
Table 2: DNA Data Storage Commercial Pathway
(source: Created by author using data from Twist Bioscience)
Figure 16: Data Storage Costs
(source: researchgate)
To support the development of DNA data storage, Twist has formed a 34 member alliance with organizations like Microsoft (MSFT), Western Digital (WDC) and Illumina (ILMN) to drive awareness and advance an industry roadmap.
Clients
Twist Bioscience sells their products to a growing base of customers across a broad range of industries, including biotechnology, pharmaceuticals, agriculture and academic institutions. Twist also counts a number of competitors as customers due to their ability to deliver large quantities of synthetic DNA at a low-cost.
Table 3: Twist Bioscience Customer Count
(source: Created by author using data from Twist Bioscience)
Ginkgo Bioworks (DNA) is currently Twist’s largest customer (Twist believes they are the largest global purchaser of synthetic DNA). Ginkgo Bioworks designs custom organisms for customers across multiple markets using software and hardware automation with engineers using nature as a template to develop new organisms that replace technology with biology. Ginkgo has created a horizontal platform that customers can use to program cells for applications in agriculture, healthcare, cosmetics, materials, etc.
Ginkgo requires sequences that must be synthesized because they do not exist in any strain collection. As their engineering becomes more sophisticated, more nucleotides become design targets, making DNA synthesis even more important. Ginkgo outsources synthesis as they believe specialist manufacturers can provide lower costs and increased capabilities.
Ginkgo emphasizes the importance of cost, turn time and what sequences can be synthesized when selecting vendors. Twist is the lowest cost supplier and has been at the forefront of driving synthesis costs lower. Process times for DNA synthesis typically range from 8-20 business days, which is competitive with an expert researcher at the bench. Delays are common though and are indicative of synthesis errors which must subsequently be corrected.
Figure 17: Ginkgo Bioworks Delivery Delays
(source: Ginkgo Bioworks)
Another issue for Ginkgo is the fact that as sequence length and design complexity increase, confidence in the design decreases, meaning that more variants need to be tested. But, as the cost of each variant increases with length, this rapidly becomes uneconomical. While decreased synthesis costs alleviates this problem somewhat, Ginkgo believes that combinatorial assembly (common sequences used as building blocks) is a better solution.
Financial Analysis
Twist believes their market is growing at approximately 20%-25% a year and that they are well positioned to be the market leader. Twist’s revenue growth rate has generally been greater than 50% but is relatively lumpy as it is influenced by the timing of orders by large customers. For example, Twist had a large order that was initially expected to occur over Q4 2020 and Q1 2021, but ended up being entirely pulled into Q4. This boosted 2020 growth but has setup up headwinds for 2021. Twist is diversifying their customer base though and no single customer now accounts for a significant percentage of revenue.
While Twist has received a revenue boost from infectious disease products (synthetic RNA control for SARS-CoV-2 and an NGS panel to sequence the virus) as a result of the COVID pandemic, it has not been a significant contributor and has probably been more than offset by weaknesses in other areas. In addition, Twist has faced supply constraints in recent months which they have alleviated to some extent by moving customers to a new kit which doesn’t face the same constraints.
Figure 18: Twist Bioscience Revenue Growth
(source: Created by author using data from company reports)
Revenue is still dominated by SynBio and NGS, but Biopharma is likely to become a significant contributor in coming years as an increasing number of antibodies are commercialized. As companies like Guardant Health (GH) and GRAIL begin to scale their liquid biopsy solutions, NGS is also likely to provide a strong source of growth.
While Twist was hiring aggressively in the first half of 2021, this has moderated in recent months and the number of job openings is now relatively modest. It is not clear to what extent this is a negative indicator for Twist’s revenue growth prospects though. Their business model is largely dependent on increasing productivity, meaning revenue should be expected to scale much faster than the number of employees.
Figure 19: Twist Bioscience Hiring Trend
(source: Revealera.com)
Twist’s gross profit margins are currently modest, but are increasing as the business scales. This is due to Twist leveraging fixed costs and the benefits of an increasing contribution from higher margin NGS products. Twist is targeting gross margins of 55%-60% in the long-run and this appears feasible due to the likely impact of higher margin products like drug discovery and data storage. When Twist introduces their Factory of the Future there will also be the potential for premium pricing on products with high-speed delivery.
Figure 20: Twist Bioscience Gross Profit Margins
(source: Created by author using data from company reports)
Twist’s operating losses are decreasing rapidly, reflecting improving gross margins and the impact of operating leverage as the business scales. Operating losses are likely to continue for the foreseeable future, but Twist has a viable path to profitability.
Figure 21: Twist Bioscience Operating Profit Margins
(source: Created by author using data from company reports)
Given Twist’s current trend in operating expenses relative to revenue they are unlikely to breakeven before achieving annual revenue of approximately 400 million USD. While Twist currently has over 500 million USD cash on their balance sheet it is possible they will need to raise capital before they achieve profitability.
Figure 22: Twist Bioscience Operating Expenses
(source: Created by author using data from company reports)
Competitors
Twist faces competition from traditional chemical synthesis companies across their product portfolio and from competitors leveraging semiconductors, informatics and a decentralized bench top approach. There are also competitors trying to develop enzymatic synthesis, rather than the traditional chemical approach.
Core Synthetic Biology Products
Competitors in Twist’s core SynBio market include:
- GenScript Biotech
- GENEWIZ
- Integrated DNA Technologies
- DNA 2.0
- GeneArt (owned by Thermo Fisher (TMO))
- Eurofins Genomics
- Sigma-Aldrich Corporation (owned by Merck (MRK))
- Promega Corporation
- OriGene Technologies
- Blue Heron Biotech
These companies are generally at a significant cost, quality, scale and turnaround time disadvantage to Twist.
Sample Generation for Next Generation Sequencing
Sample prep for NGS competitors include:
- Thermo Fisher Scientific
- Illumina
- Integrated DNA Technologies
- Agilent (A)
- Roche NimbleGen
It should be noted that Twist’s CEO (Emily LeProust) was an Agilent employee prior to founding Twist.
Antibody Discovery
Competitors in antibody discovery include:
- Clinical research organizations like LakePharma (mouse hybridoma, llama immune libraries, XOMA phage display library) and Aldevron (genetic mouse immunization coupled with hybridoma).
- Biotechnology companies like Iontas (human phage display libraries, human phage display library focused on ion channels), Adimab (human synthetic yeast display libraries) and Distributed Bio (human synthetic phage display library, lead optimization libraries).
DNA Digital Storage
Competitors in the development of DNA data storage technology include:
- Catalog Technologies
- ETH Zurich
- Helixworks
- Iridia
- North Shore Bio
- Roswell
Catalog - Catalog's computing platform enables data storage, computation and automation. Catalog relies on an encoding scheme that requires limited new DNA synthesis to store large amounts of data. This is important because DNA synthesis is slow and expensive. Catalog’s DNA writer, Shannon, is designed to write at over 10 MB/sec and store up to 1.63 TB of compressed data in a single run. Catalog is planning on commercializing their technology around 2025. Catalog has received total funding of approximately 60 million USD so far, although their valuation is unknown.
Rather than pursue a centralized manufacturing as a service approach like Twist, a number of competitors are pursuing a decentralized approach by selling bench top machines to customers so they can manufacture their own DNA. The distributed approach is likely to appeal to customers who are focused on turnaround times, whereas the centralized model should appeal to cost sensitive customers. Twist has stated that customers can buy their oligos for 0.03 USD per base pair compared to approximately 50 USD per base pair for the distributed model.
DNA production using enzymatic synthesis represents another potential threat to Twist. Enzymatic synthesis could be a faster and more efficient method of synthesizing longer DNA sequences that is also more environmentally friendly. It is currently more expensive and error prone, but is improving. Twist’s platform is chemistry agnostic though, meaning they could transition to enzymatic synthesis when they feel it is the better option. They do not appear to be pursuing development of enzymatic synthesis at this stage which is a potential risk. When the time comes they may struggle to develop enzymatic synthesis capabilities and need to license the technology from another company or get left behind.
Phosphoramidite synthesis is currently the dominant method of DNA synthesis (this is the method that Twist utilizes). The efficiency of this process declines beyond 200-mers though and beyond 120 bases the product yield is only approximately 50%. This means that large scale assemblies must be constructed piece-wise from smaller strands. The demands of biotechnology are therefore likely to go beyond the capabilities of phosphoramidite synthesis. This process also involves the use of chemicals listed as hazardous by the EPA.
Enzymatic synthesis typically utilizes terminal deoxynucleotidyl transferase (TdT), a DNA polymerase that requires no template. The polymerase is engineered to attach whatever nucleotide it is supplied with but can be sensitive about which modifications it accepts, and may require potentially extensive engineering in some instances. The enzyme also exhibits some notable biases which can impact the reliability and efficiency of the process. As a result, further protein engineering may be needed to improve the enzyme’s performance. Molecular Assemblies have been working on protein engineering since the company was first founded and this need was behind their decision to partner with the protein engineering company Codexis (CDXS). Codexis has invested one million USD in Molecular Assemblies to accelerate their development of enzymatic synthesis.
Companies developing enzymatic synthesis capabilities include:
- DNA Script
- Ansa Biotechnology
- Nuclera
- Camena Bioscience
- Evonetix
- Integrated DNA Technologies
- Kern Systems
DNA Script has achieved coupling efficiency (a measure of the proportion of strands that successfully incorporate the desired nucleotide at each step) comparable to phosphoramidite chemistry and have reported successful synthesis of a 280-base sequence. Camena Bioscience is using a proprietary combination of enzymes to achieve template-free DNA synthesis from trinucleotide building blocks and has also achieved high coupling efficiency and can produce 300-mers. While improvements are being made, longer sequences remain challenging. As a result, many enzymatic synthesis companies are prioritizing reliability and speed, relying on higher-level assembly processes for longer sequences. This potentially undermines one of the key value propositions of the process though.
Nuclera and DNA Script are both developing benchtop instruments, with DNA Script the closest to commercialization. Their machine utilizes a 96-well plate to synthesize 60-mers in 6-7 hours. The resulting oligos are subject to QC within the instrument so that they are ready for immediate use. Ansa and Camena are instead looking to act as centralized service providers so they can focus on quality control and provide oversight from a biosecurity perspective. Molecular Assemblies is pursuing a licensing business model, with the CEO envisioning the company providing “the ink in all of the printers”. Twist may be choosing to license the technology from Molecular Assemblies if and when it becomes commercially viable rather than diverting resources to try and develop the technology themselves.
Competitive Advantages
Experience Curve
Twist is the market leader in a rapidly growing market, which is a particularly attractive position to be in. Productivity improvements / cost declines tend to scale with cumulative production volume, which means that Twist should extend their cost leadership position over time, unless a competitor successfully launches a product based on a differentiated technology that improves at a faster rate.
Figure 23: Experience Curve
(source: Created by author)
Economies of Scale
Economies of scale are closely related to the experience curve but are a competitive advantage in their own right. Twist is already leveraging their fixed costs to drive lower production costs and as they continue to increase their production footprint this advantage will increase. Twist competes against a number of significantly larger companies who could feasibly invest in capacity comparable to Twist but would still be at process technology disadvantage.
Economies of Scope
Rather than just manufacturing DNA for customers, Twist is diversifying into drug discovery and data storage. This helps to maximize the value of their manufacturing technology and makes Twist their own customer, helping to scale the business and provide internal feedback on their products.
Valuation
Genetics has become a hot area in the stock market over the past 18 months with the prices of many stocks across areas like DNA sequencing, DNA synthesis, CRISPR, single cell genomics and RNA therapeutics increasing significantly. While I believe this is a deserved recognition of the potential of these types of technologies, it also makes for a potentially unattractive entry point as a change in sentiment could result in large losses. Based on a discounted cash flow analysis I estimate the intrinsic value of Twist Bioscience's stock to be approximately 145 USD per share, although I believe the stock could offer significant further upside if the company can continue to make progress in their drug discovery and data storage businesses.
Figure 24: Twist Bioscience Relative Valuation
(source: Created by author using data from Yahoo Finance)
