Twist Bioscience: Revisiting Some Major Concerns

Synthetic biology is the single most exciting theme we cover, but it’s also been a big disappointment for investors. Harnessing the power of nature sounds easier than it looks. Just over a decade ago, Intrexon went public with their “channel” business model which smelled similar to Ginkgo Bioworks (DNA), another synbio disappointment that purchased Zymergen, another failure of a synbio company. These are just some examples of how exasperating it’s been to be a synthetic biology investor. That brings us to the topic of today’s article – Twist Bioscience (TWST).

A Path to Profitability

We cover around 460 disruptive tech stocks and have invested in over 35 which allows us to spot trends across companies and industries. For example, inventory issues are plaguing hardware companies as supply chain whiplash effects finally manifest themselves from The Rona. Additionally, both hardware and software companies are conserving cash as raising capital becomes more difficult. It’s almost expected that companies with dwindling cash positions should be addressing these constraints with some stated plan to achieve profitability. Here’s where Twist sits.

At the end of 2023, the company had cash and cash equivalents of $311 million and expects to burn through $66 million this year based on the below table taken from their latest earnings deck.

Table showing Twist's Latest Guidance - Credit: Twist Bioscience
Twist’s Latest Guidance – Credit: Twist Bioscience

Assuming the same burn rate going forward, Twist has a runway of 3.7 years ($245 million/$66 million burn per year). Given this company has now blown through more than $1 billion putting together their synbio platform, investors are understandably concerned when critics question gross margins that may not be what they seem.

The Short Report

Twist didn’t address last year’s short report by Scorpion Capital much except to say in a concise press release that it was “highly misleading, with many distortions and inaccuracies.” (Then Twist pointed to their ESG report which is a red flag in itself.) Our article on the matter titled Twist Bioscience Gets Stung by Short Report pointed to concerns we had long before Scorpion raised their pointy tail. “Twist is competing against some very established companies and spending a ton of money to do so, particularly on the sales side,” we wrote in early 2022, noting that our “biggest concern surrounds Twist’s services business model which we believe could be displaced by a hardware business model such as the one on offer from DNA Script.” While that concern is unique to their synthetic DNA business, the linear scalability problem is characteristic of every services business out there. We much prefer platforms that are sold to consumers along with high-margin consumables.

Twist provides a services platform in a highly competitive space which means they’re always feeling pricing pressures. It’s no surprise that their claim of being able to expand gross margins should come into question along with accusations that they’re stuffing cost of goods sold (COGS) into R&D expenses and capital expenditures (capex). We’ve taken both COGS and operating expenses and expressed these three items as a percentage of total revenues over time (along with 2024 estimates).

Table showing Twist Bioscience Cost Drivers - Credit: Nanalyze
Twist Bioscience Cost Drivers – Credit: Nanalyze

To achieve profitability, these three buckets will – in total – need to fall below 100%. While they’ve dropped some in 2023, and potentially more in 2024, they’re still a long way from seeing profitability, and we haven’t even considered capital expenditures. The old saying that “profits are an opinion, cash is a fact,” means we’re ultimately interested in seeing positive operating cash flows above all else.

Twist continues spending loads of money on developing DNA storage with $38 million slated for that purpose in 2024. We don’t believe that’s an economically viable path based on our research piece titled, DNA Data Storage: A Solution Looking for a Problem?, and that was another criticism by Scorpion Capital. In Spring of 2021, Twist talked about “industry leaders joining forces to advance DNA data storage,” then name dropped Microsoft, Illumina, and Western Digital. More recently the message has become more tame as they talk about debuting their Terabyte Century Archive solution in 2025. An article by GenomeWeb last year talks about how “Twist will slow its investment in DNA-based data storage due to a perceived lack of competition,” and take a services-based approach. Again with the services which are much less desirable than a consumables-based business model. Perhaps there’s no competition for a reason.

Investing in something that may not generate revenues for a while – if ever – might delay profitability, something Twist talked about in their most recent earnings call when stating, “several years ago, we established a plan to achieve profitability for the business.” So, let’s look at what Twist Bioscience said several years ago.

Predicting Profitability and Growth

Scorpion’s report made some very specific accusations as follows:

  • Twist is misclassifying COGS
    • as an R&D expense
    • as CAPEX via two vehicles:
      • a) its purported “Factory of the Future,”
      • b) its “DNA Storage Initiative”

Per the table we looked at earlier, R&D as a percentage of revenue decreased in 2023. As for capex, they’re guiding to $15 million in 2024. That’s all good, but let’s take a holistic look at the guidance Twist provided several years ago.

Twist Bioscience guidance for fiscal 2023 vs 2024
Credit: Twist Bioscience

Back then we were puzzled why they’d give two years of guidance in a row, and now it’s obvious why that’s not a good idea. They missed 2023 midpoint revenue guidance by 7.5% and their 2024 midpoint revenue guidance is missing their old 2024 guidance by 17%. They obsessively talked about gross margins back then estimating nearly 50% for 2024. That’s now expected to be 40%. So, when Scorpion attacked Twist’s claim of hitting 60% gross margins, they seem to be right so far.

In an August 2022 investor deck, Twist mentions twice that they’ll hit EBITDA breakeven when the core business (Synbio and NGS) hits $300 million, so we’re holding them to that. The midpoint for these two segments this year is $266.5 million. With 13% more growth in 2025, they’ll be at the $300 million target. Based on historical revenue growth, this should be attainable.

Bar graph showing Twist Bioscience revenue growth
Credit: Nanalyze

Buy or Sell Twist Stock

Everyone wants to be told what stocks to buy and when to sell them. That’s because taking accountability for your investment decisions isn’t a comfortable thing to do. If you’re right, that’s expected and nobody cares. If you’re wrong, people will crawl out of their graves to chastise you. Our investment in Twist Bioscience sits where it has for a while now – at half a position size – because we had (and currently still have) reservations about the company even prior to the short report. Sure, they’re consistently growing revenues over time. That’s great to see, but the profitability questions remains, especially since they’ve dramatically missed their 49% gross margin target for 2023. Investors might give them a pass because those forecasts were made so far back, but the apparent gross margin ceiling of 40% is cause for concern. Is that enough leeway to operate a profitable services business?

That brings us to the “EBITDA breakeven” target they’re working towards. When they say “several years ago, we established a plan to achieve profitability for the business,” that’s what we assume they’re talking about. (It would be nice if they explicitly stated these goals in their earnings deck instead of us having to tease them out from various pieces of past collateral.) On the plus side, Twist has cut back on operating expenses and hopefully – when they laid off 25% of their staff – kicked all those ESG / DEI time wasters to the curb where they belong. That event was said to move production from South San Francisco to the new facility in Portland – the “Factory of the Future” – and the announcement coincided with the 2023 guidance drop (and 2024 guidance withdrawal) that was attributed to “the risks of managing the workforce reduction.” Fair enough. Cash burn has been tamed, and they appear to have several years of runway remaining at least which should enable the firm to reach profitability without needing to raise capital and prove Scorpion Capital wrong once and for all.


Available plays on synthetic biology have all but dried up because most never realized their promise of harnessing the powers of nature. It’s a lot tougher than it looks. Gene editing – a tool of synbio – shows early promise, while Gingko Bioworks struggles to prove the concept of their platform while paying their leaders ludicrous amounts of money. There’s every reason to view Twist Bioscience with a great deal of suspicion, and that’s where we sit today. If 2024 sees guidance met or exceeded with no capital raises coming out of the blue, we’ll then see if 2025 brings us what the company has promised – a serious look at profitability which proves that Twist Bioscience has been right all along. Any more setbacks and they’ll likely exhaust what little patience investors have left.