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Twist Bioscience Stock Offered in IPO

Just a few weeks ago, we published a piece on 9 DNA Data Storage Companies to Watch, one of which was a startup called Twist Bioscience. After taking in just over $253 million from 24 different investors including Illumina (third largest shareholder with 7.7%) and asset manager Fidelity, Twist Bioscience has filed for an Initial Public Offering (IPO) which one might argue is the most exciting synthetic biology IPO we’ve seen to date. Let’s dig into the IPO filing and see what retail investors will be getting themselves into if they decide to purchase Twist Bioscience stock.

Twist Bioscience – Synthetic DNA at Scale

Twist Bioscience Stock: Twist Bioscience company logo. Click here for websiteSimply put, Twist Bioscience leverages technology found in the semiconductor industry to create synthetic DNA at a much cheaper cost than anyone else at scale. Here’s an excerpt from the filing which describes just how much better their methods are (our emphasis in bold).

Our 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. This enables us to produce high-quality synthetic DNA on a much larger scale and at lower cost than competitors.

That’s the company in a nutshell. With synthetic biology in the beginning stages of commercialization, Twist Bioscience provides the picks-and-shovels that the industry needs to grow. When it comes to competitors, Twist Bioscience actually supplies their technology to four of their competitors who also create synthetic DNA:

We are also an original equipment manufacturer, or OEM, of synthetic DNA to four synthetic DNA manufacturers that also compete with us, which we believe is a strong demonstration of the superiority of our platform.

As you would expect, those competitors also charge more for synthetic DNA than Twist Bioscience does. According to the filing, “publicly available pricing of our competitors for clonal DNA ranged from $0.15—$2.00 per base pair” while comparable prices at Twist Bioscience are $0.09 per base pair.

Synthetic DNA and Future Product Plans

In the nine months ended June 30, 2018, Twist Bioscience served 539 customers as follows: 50% to industrial chemicals, 47% to academic research, 2% to agriculture and 1% to healthcare sectors. Here is a look at the growth of orders over time:

Twist Bioscience Stock: Orders Growth Trend

Source: Twist Bioscience IPO Filing

Notice how the above chart covers “customers other than Ginkgo Bioworks.” The reason why they make that distinction is because as we’ve discussed before, Ginkgo Bioworks has a contract to purchase massive amounts of synthetic DNA from Twist Bioscience. According to the filing:

Our largest customer Ginkgo Bioworks accounted for 30% and 40% of our revenue for the years ended September 30, 2016 and 2017. Ginkgo Bioworks also accounted for 40% and 32% of our revenue for the nine months ended June 30, 2017 and 2018, respectively.

It’s a huge risk to have a single customer make up a majority of your revenues. Twist Bioscience identifies this risk and also notes (as we did in an article last year) that Ginkgo’s purchase of Gen9 could result in a reduction in the amounts of product they purchase from Twist Bioscience as a result. Still, in March 2018, Twist Bioscience signed a new agreement with Ginkgo Bioworks to supply to Ginkgo Bioworks up to approximately 1.3 billion base pairs over a period of four years, in what they believe is the largest volume supply commitment in the industry.

Outside of creating synthetic DNA, Twist Bioscience plans to diversify their product offering into areas such as Next Generation Sequencing kits and DNA for data storage. The below pipeline shows the progress being made towards commercialization for each product area:

Twist Bioscience Stock: Twist Bioscience Product Pipeline

Source: Twist Bioscience IPO Filing

There is plenty of room for growth as Twist Bioscience estimates there are more than 100,000 synthetic DNA users. They also plan to open up a production facility in China in 2019.

Twist Bioscience Financials

As with many early-stage companies, it’s the future growth potential that investors look at more than where revenues are today. The basic financials seen below show that Twist Bioscience is burning through some serious cash but also growing revenues quickly:

Twist Bioscience Stock: Twist Bioscience Financials

Source: Twist Bioscience IPO Filing

Following the IPO, Twist Bioscience will have around a $178 million runway to cover their losses until the company can turn a profit. In 2017, they lost around $59 million dollars. Assuming nothing else changes, they would have enough cash to last about three years following a successful IPO. Of course, that money could be eroded very quickly if they engage in a drawn-out legal battle – like the one they’re currently engaged in with a much bigger company.

The Agilent Lawsuit

The CEO and Co-founder of Twist Bioscience is a woman by the name of Emily Leproust who previously held the title of “Director Applications and Chemistry R&D – Genomics” at Agilent (A). She worked at Agilent for 13 years before moving over to co-found and lead the charge at Twist Bioscience. In February 2016, Agilent filed a lawsuit against Twist Bioscience and Ms. Leproust alleging “breach of contract” and “misappropriation of trade secrets”.

The lawsuit is a risk because regardless of who is right or wrong, Agilent is in a much better position to fight a legal battle. They’re a company that employs more than 14,000 employees and holds $2.6 billion in cash on their books. Twist Bioscience has 88 employees at the moment and about $178 million in cash, should the IPO go through successfully (they’re looking to raise about $86 million.) And it looks like Twist Biosciences is ready to fight, at least according to a statement they made a few weeks ago regarding the lawsuit:

Agilent’s most recent allegations are gamesmanship, not substance. They omit that more than four months before it sought to change its complaint, Twist informed – and provided to Agilent – the irrelevant, passively retained documents referenced by Agilent in its proposed amendment.  Discovery also afforded Agilent access to thousands of Twist’s technical documents, yet they have been unable to tie any Agilent document or information to Twist’s game-changing silicon technology.  The fact remains that no Agilent information was used in or affected any aspect of Twist’s independently-developed technology.

Even if there are no merits to the lawsuit, it may make sense to settle as quickly as possible so that Twist Bioscience can avoid the distraction of a drawn-out legal battle with a much bigger opponent.

Conclusions

The window to IPO is open at the moment, and it’s exciting to see a synthetic biology company like Twist Bioscience giving retail investors more options than some of the mediocre synthetic biology stocks that exist today. When Intrexon (XON), previously thought of as a synthetic biology darling stock, decides to hop on the cannabis bandwagon, it just shows that their plan to sell little packages of apple slices must not be panning out. Perhaps now we’ll see more synthetic biology companies like Gingko Bioworks look to IPO.

If the Twist Bioscience IPO goes through successfully, shares will trade on the Nasdaq Global Market under the symbol “TWST.”

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