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A Primer on Synthetic Biology
Synthetic biology is the method of redesigning organisms to give them new useful properties. This is a step further compared to genome editing, which mostly consists of repairing or changing just one or two genes.
Synthetic biology is instead adding very long sequences of genetic materials or is even able to create from scratch entirely new genes. You can read more about this technology in this paper.
It can go as far as artificially generating the entire genome of an organism, as it has already been done with viruses, bacteria, and even the more complex yeast, starting from an artificial bacterium created by the J. Craig Venter Institute. The emerging field of creating fully new cell structures, for example, adding organites or adding new DNA bases in its genetic code, will also be considered synthetic biology.
Because of its more ambitious methods, synthetic biology has the potential to solve problems that “simple” gene editing simply cannot. If you are interested in learning more about this field and keeping up with recent developments, the Synbiobeta news page is for you.
Top 5 Synthetic Biology Companies Selection
This top 5 has been created to highlight companies following the criteria below.
(This is not investment advice. Order is by valuation and might not reflect the relative quality of the companies.)
- Publicly traded.
- Actively exclusively or mostly in the field of synthetic biology, which excludes large companies active in the field but without a central focus on synthetic biology.
- Have a good track record of innovation in the field.
- Good track record of successful product development, either already commercialized/licensed or supported by reputable partners.
- Reasonable expectations are that it could commercialize a product from its current R&D efforts.
The company focuses on a very specific class of proteins: enzymes. These proteins can “make happen” (catalyzed) chemical reactions that otherwise would not be possible or very slow.
The goal of Codexis is to replace chemical processes with enzyme-driven biochemical processes instead. It uses machine learning to create thousands of variants of enzymes to optimize their performance, which can be productivity, specificity, stability, or concentration in the host organism. It can then offer custom enzymes to industrial manufacturers.
It focuses on 3 applications:
- Biotherapeutics to treat genetic diseases, with 24 candidates in the research pipeline
- Life sciences research, especially genomics and DNA & RNA synthesis.
- Pharmaceutical manufacturing, for example, optimizing existing production facilities.
The company made $34M in revenues in Q3 22, for a net loss of $10M, with no debt and $109M in cash. This gives it enough of a cash runway until the end of 2024.
For now, 90% of revenues come from enzymes and not biotherapeutics. The focus is to grow with mid-sized pharmaceutical companies while maintaining relations with the existing large pharmaceutical companies.
Some biotherapeutics will be in phase I and II clinical trials by the end of 2023-2024, in partnership with Nestle and Takeda.
The company is active in human gene editing, developing modified cells to treat patients. For example, modified white cells to treat as quickly as possible tumors (UltraCAR-T cell therapy) or modified bacteria aiming to reverse the cause of type-1 diabetes (Actobiotics).
The research portfolio is mostly focused on oncology but also celiac disease, diabetes, hepatitis, and respiratory diseases.
The company made $16M in revenues in Q3 22, for a net loss of $87M. It has no debt, $71M in cash, and short-term investments.
The company is focused on producing high-value compounds like fragrances, specialty chemicals, and ingredients for cosmetics, branding it “clean chemistry.” It also sells directly its own consumers brands of cosmetics and health products.
Most of the production is done through proprietary fermentation processes using modified microorganisms and using sugarcane waste as a feedstock. The ecological argument is a strong selling point, for example, producing 1 kg of squalane with 0.01 hectare of sugar cane, which otherwise would have needed to kill 3 sharks.
The company specializes in DNA synthesis, leveraging miniaturization methods from the semiconductor industry, saving time and money for researchers.
It is also working on creating DNA-based data storage that could be used to safeguard data independent from electronic systems.
This miniaturization allows us to reduce the reaction volumes by a factor of 1,000,000 while increasing throughput by a factor of 1,000, enabling the synthesis of 9,600 genes on a single silicon chip at full scale.
In January, the company started shipping products from its recently launched second manufacturing installation. The new factory should double Twist production capacities.
Revenues have been growing quickly, quadrupling since 2019, with a rising gross margin of 41%. The new company is not yet profitable but aims to be by the 2026 horizon.
It has been a favorite of ARK ETFs, with 6.97% of the company owned by ARKK and 4.14 by ARKG.
The company is producing on-demand organisms for specific applications. It has diversified its applications widely with many research programs and partnerships:
- mRNA vaccine production and nucleic acid medicine
- Food proteins
- Biological fertilizer production in partnership with Bayer
- Programmable microbes for gut diseases
- Microplastics bioremediation
- Biosecurity and pathogens detection
- Recycling waste and contaminants
It generates money by being first paid upfront for the development process and then through royalties on the finished product.
Revenues grew 129% from Q2 2022 to Q3 2022, mostly from the biosecurity segment monitoring pathogens passively in air and water in the USA. It also recently acquired Zymergen for $300M, a manufacturer of biopolymer film.
Building a Synthetic Biology Portfolio
As previously mentioned, this is not investment advice. However, some extra information might help you incorporate synthetic biology into an investment portfolio.
First, each company is extremely innovative in a quickly changing field. This means you should be cautious about any future projections. What is now a promising field or technology might be obsolete just a few years later. It also means new unforeseen opportunities can radically change the investment case for the better.
Anyway, this implies that investing in this sector will require close monitoring of scientific development, clinical trials (when relevant), and commercial trends. Overall, it is best to pick companies that strongly focus on just a few markets or master technology in particular. In a field of extreme technical complexity, focus is key.
Conservative investors might want to focus more on “supplier ” companies like Amyris, which are more manufacturing type of companies than pure research and development. The relation with industrial clients is likely to be lasting and provide predictability to future cash flow. Solid, already present operating cash flow or a large cash cushion will help reduce risk as well.
Aggressive investors might be more interested in companies venturing into many different sectors like Ginkgo Bioworks. Or inventing new ones from scratch, like Twist Biosciences and DNA data storage. Or developing drugs for orphan diseases like Codexis and Precigen. In this case, getting close to profitability or a large cash runaway will be a source of safety. Close attention to catalysts like clinical studies or partnership and licensing contracts will be important to anticipate stock price fluctuations.
As usual in investing, diversification and careful risk management are a must to reduce the danger of losing your capital. Investing after a slump in prices can also be a good way to avoid overpaying, granted that the price decline does not reflect a change in the company's fundamentals.