TWIST Bioscience Corp (symbol: TWST) is a leading and rapidly growing synthetic biology company that has developed a DNA synthesis platform to industrialize the engineering of biology.
Twist is an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, and also because of its short operating history, the company is risky and should be considered a speculative investment.
The core of its platform is a proprietary technology that pioneers a new method of manufacturing synthetic DNA by “writing” DNA on a silicon chip. The company combines this technology with proprietary software, scalable commercial infrastructure and an e-commerce platform to create an integrated technology platform.
The company leverages its technology to manufacture a broad range of synthetic DNA-based products, including synthetic genes, tools for next generation sample preparation, and antibody libraries for drug discovery and development. Additionally, its platform platform will enable new value-add opportunities, such as discovery partnerships for biologic drugs, and will enable new applications for synthetic DNA, such as digital data storage, which will drive growth in the market for our products. The company sells synthetic DNA and synthetic DNA-based products to a customer base of over 600 customers across a broad range of industries.
Applications for its DNA synthesis platform are broad. The company’s mission is to be the leading provider of synthetic genes, which are comprised of strands of synthetic DNA, and to leverage the versatility of its platform to expand its portfolio to include other synthetic DNA-based products and address additional market opportunities, including next generation sequencing sample preparation, biological drug discovery and development and digital data storage.
In April 2016, Twist launched the first applications of its platform, synthetic genes and high diversity collections of oligonucleotides, or oligo pools, to disrupt the gene synthesis market and make legacy DNA synthesis methods obsolete. The idea is that traditional DNA synthesis methods used by its competitors are inherently limited in scalability and are not optimized to satisfy the rapidly growing demand for high-quality, low-cost synthetic DNA. Its silicon-based chip technology is able to increase DNA production by a factor of 9,600 on a footprint similar to that of traditional DNA synthesis methods. Also, it significantly lowers the volume of required reagents, specifically the most expensive reagent by a factor of 1,000,000, and improves the precision of the synthesis process relative to legacy methods. The result is high-quality synthetic DNA on a much larger scale and at lower cost than competitors.
Customers and sales as of June 30, 2018
The company has become a leading synthetic DNA provider. In the nine months ended June 30, 2018, the company served 539 customers as follows: 56% to industrial chemicals, 25% to academic research, 2% to agriculture and 17% to healthcare sectors. Sales to industrial chemicals, academic research, agriculture and healthcare sectors accounted for 56%, 25%, 2% and 17% of the total $17.0 million revenues for the nine months ended June 30, 2018. In fiscal 2017, it served 286 customers including $0.3 million in sales to seven of the top 20 pharmaceutical companies by revenue, $4.3 million in sales to Ginkgo Bioworks, Inc., or Ginkgo Bioworks (which it believe is the largest global purchaser of synthetic DNA), $0.3 million in sales to three of the largest agricultural biotechnology companies, $2.7 million in sales to over 100 academic research institutions worldwide, and $7.3 million in sales to innovative customers using synthetic DNA for new and emerging applications, such as Microsoft Corporation and the University of Washington for use of DNA as a digital data storage medium. Twist is also an original equipment manufacturer, or OEM, of synthetic DNA to four synthetic DNA manufacturers that also compete with the company, which is a strong demonstration of the superiority of its platform.
The company leverages the versatility of its platform to expand its product portfolio into other markets in which it believes it has a competitive advantage. In February 2018, it launched an innovative and comprehensive sample preparation kit for next generation sequencing at the “Advances in Genome Biology and Technology” conference. The kit uses Twist’s platform to synthesize oligo pools and uniformly amplify the desired target DNA segments, considerably improving the accuracy of the downstream sequencing analysis.
Twist has also commercialized a custom DNA library solution which enables more effective biologic drug discovery and development. The company believes it can further leverage its platform to develop other proprietary tools, such as our G-protein coupled receptor, or GPCR, library and antibody optimization solution, to provide an end-to-end solution in biologics drug discovery and early development, from target to investigational new drug, or IND, application, adding value as a partner to biotechnology and pharmaceutical companies. It also aims to explore development of DNA as a digital data storage medium via internal research and industry partnerships.
Twist’s view of the synthetic biology industry
Twist operates in the field of synthetic biology, which is undergoing an era of rapid innovation and transformation. Synthetic biology is the engineering of biology to build new biological systems or re-design existing biological systems. The ability to design DNA and engineer biology is creating advances and benefits for a broad and growing range of applications for synthetic DNA and synthetic DNA-based products across multiple industries, including:
- healthcare for the discovery and production of new therapeutics and molecular diagnostics;
- industrial chemicals for cost-effective and sustainable production of new and existing specialty chemicals and materials, such as spider silk, nylon, rubber, fragrances food flavors and food additives;
- agriculture for more effective and sustainable crop production;
- academic research for a broad range of applications; and
- technology for potential use as an alternative long-term data storage medium.
According to BCC Research, the overall market for synthetic biology products was approximately $4.4 billion in calendar year 2017 and is expected to grow to over $13.9 billion by calendar year 2022. This industry momentum creates a significant opportunity for us to grow within our existing markets as well as expand our product offering.
Synthetic DNA is the fundamental building block of synthetic biology. Users of synthetic biology can design synthetic DNA to regulate the production of these proteins and molecules to achieve a specific functional purpose. While synthetic DNA has been produced for more than 40 years, the complexities of biology and the production constraints inherent in legacy processes have historically limited the applications and market opportunities for DNA synthesis.
Implications of being an emerging growth company
Twist qualifies as an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, the company is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:
- an exemption from complying with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act of 2002, as amended, or Section 404;
- a requirement to have only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure;
- reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and
- an exemption from the requirement to seek non-binding advisory votes on executive compensation.
Twist has not made a decision regarding whether to take advantage of these exemptions. If it does take advantage of any of these exemptions, the result may be a less active trading market for its common stock and its stock price may be more volatile.
In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
The company could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter and (c) the date on which is has issued more than $1 billion in non-convertible debt during the preceding three-year period.
Image source: Twist Bioscience Corp
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