Since the biotech bonanza of the pandemic era, many biotech stocks have rocketed up and then down in price. Ginkgo Bioworks (NYSE:DNA), Twist Bioscience (NASDAQ:TWST), and Amyris (NASDAQ:AMRS) all fell more than 75% from peak to trough, and may still have farther to fall. Still, improving monetary outlook and bold new ideas means these are great synthetic biology stocks to watch. Furthermore, their recent high volatility both up and down give a savvy investor plenty of opportunities to make money.
These three companies operate in the field of synthetic biology (synbio), the science of producing drugs and chemicals using lab-grown cells instead of extracting them from our environment. With an aging population comes a greater demand for drugs, and a growing economy on a finite earth reminds us of the need for alternative sources of chemicals. These and other factors mean the synbio industry is poised for incredible growth, and monumental returns are possible if one can sort the wheat from the chaff.
In the short term, these stocks will likely have wild swings based partly on their own merits and partly on macroeconomic trends. In the long term, any one of them could grow to become a colossus of the biotech industry if they can prove themselves profitable. For both short- and long-term investors, all three of these biotech stocks should be on your radar.
Ginkgo Bioworks (DNA)
Last year was not a good one for Ginkgo Bioworks’ stock price, which dropped 80%. Ginkgo’s business model is that it wants to be the Apple (NASDAQ:AAPL) App Store of biotech, the one-stop-shop that takes a cut of everyone else’s proceeds by using its Foundry to produce novel organisms to perform specific functions that a client wants.
Contract Development and Manufacturing Organizations (CDMOs) can already do this, but CDMOs will sell their work for a profit while Ginkgo wants to sell its Foundry products at cost. Gingko instead demands that its customers give Ginkgo royalties from any revenue made using its product.
This is a system weighted heavily in Ginkgo’s favor, but it’s exactly what Apple and other app store owners do. The problem is that to have Apple’s market power, you need Apple’s market share.
Ginkgo’s Revenue Is Not on Track
According to its Q3 2022 earnings report, Ginkgo made just $24.7 million in Foundry revenue and had an operating loss of $80.3 million. This does not appear to justify their current valuation. The company has pivoted to biosecurity to make up for the lack of Foundry revenue, providing testing and services for Covid-19 and other diseases. In Q3 of 2022, biosecurity brought in $42 million in revenue and an operating loss of just $0.3 million.
Biosecurity revenue may be winding down though, as Covid-19 fades and the flu season ends. Therefore Ginkgo’s Foundry needs new partnerships for new revenue. Its announcement of a collaboration with privately held NAMUH is a good start and if Ginkgo gets enough of those partnerships going, then the Foundry will really start to pull its weight.
Bottom line, Ginkgo has huge upside potential with its revenue model but huge downside potential with its lack of revenue. Investors should look for news of new partnerships and revenue streams, and improving monetary policy would give Ginkgo and other speculative biotech stocks more room to run. If rates get cut as some think they will, speculative startups will be the first to fly. But if the monetary outlook goes bad, then Ginkgo and other unprofitable biotechs will fall harder than most.
Twist Bioscience (TWST)
Twist Bioscience makes and sells DNA, a necessary ingredient of the synbio revolution. It currently offers a price per base pair lower than its competitors. The question is if it can make a profit off of that.
According to Twist Bioscience’s Q4 2022 earnings report released Feb. 2, it had $54 million in revenue and $29 million in cost of revenue which gives it a positive gross margin. However, it had a total operating loss of $41 million due to R&D and administrative expenses. It expects a gross margin of 40% for FY 2023 and 49% for FY 2024. If it is telling the truth, then its margins combined with an expanding revenue stream should allow it to grow into a profitable business.
Scorpion Capital, a private equity firm, has accused Twist of selling its products for less than the cost to make them. That would mean its gross margin is a mirage and it is burning investors’ cash to maintain it.
It’s true that Twist is offering rock-bottom prices. Competitors like Genscript (OTCMKTS:GNNSF) and Azenta (NASDAQ: AZTA) have starting prices of 19 cents per base pair and 10 cents per base pair, respectively. So Twist’s starting price of 7 cents is certainly remarkable, but that neither proves nor disproves Scorpion’s claims.
Nonetheless, Twist has already proven Scorpion wrong on one count, their “Factory of the Future” which Scorpion called “deserted” and “a ruse” is up and running as of December 2022.
If Twist further proves Scorpion wrong, it could shake off the doubters and rocket back up to its 2022 highs. But having fallen 18% on the day of its most recent earnings report, it has clearly got a long way to go.
Amyris (AMRS)
While the previous two companies are selling products for use by other companies in the biotech industry, Amyris makes money through its own line of consumer products instead. Many beauty products are still made using animal products or chemicals from endangered plants. However, Amyris’ product use chemicals produced in bioreactors. This provides both ethical benefits to the consumers and economic benefits for Amyris. It has also branched into artificial sweeteners with its Purecane product.
Amyris’ most recent earnings statement for Q3 2022 showed it with just $18.5 million in cash and cash equivalents, total revenue of $71 million and a total operating loss of $148 million. Amyris is burning money and doesn’t have much left, which is why it diluted shareholders by selling $50 million in new stock so they can keep the lights on.
Of all the companies on this list, Amyris may be the closest to bankruptcy, but it can likely continue on a while longer especially if overall market conditions improve. However, there is plenty of potential volatility to the upside as well based on Amyris’ 2022 trends.
An investor who wants to gamble should look toward Amyris’ next earnings report as an estimate beat could send shares flying. More sober investors should be on the lookout for further shareholder dilution, and ask themselves just how much they believe in the synbio revolution before parking their money with Amyris.