Goldman Sachs Upgrades Twist Bioscience, Says Express Genes Launch Will Drive Margin Expansion

Goldman Sachs has upgraded Twist Bioscience Corp TWST looking forward to 2024 and beyond, and the analyst sees the critical new product launch of Express Genes directly addressing their gross margin issues within their SynBio division. 

Historically, well-funded larger biopharma companies were challenging for TWST to penetrate due to extended gene delivery timelines. 

However, with the introduction of Express Genes for new customers in 2024, TWST can now cater to these companies by delivering genes within 5-7 days, positioning Twist to tap into a previously inaccessible market and offering a unique growth opportunity to enhance revenue and profit margins.

Goldman analyst has upgraded the stock from Neutral to Buy.

The expedited delivery of Express Genes mitigates the risk associated with recovery timing for smaller biotech funding, providing a strategic advantage for TWST.

The market views the next-generation sequencing Tools business favorably, appreciating its consistent growth in recent years, competitive standing against peers such as Agilent Technologies Inc A and Qiagen NV QGEN, and favorable gross margin performance. 

However, there is significant debate surrounding the SynBio division, primarily due to its struggle to achieve satisfactory gross margins. 

This challenge is attributed to a low-priced strategy and difficulty tapping into the lucrative gene makers market, estimated at $1.4 billion Total Addressable Market, according to Twist.

Due to the adverse impact of high interest rates and inflated valuations in 2020-2021, there was a significant decrease in venture capital funding for the biotech sector in the past year. 

This led to a re-evaluation of project priorities and a lower demand for synthetic biology (SynBio) products in the biotech market in 2023. Despite challenges in predicting the exact timing of a recovery in small-cap biotech funding, there are early indications of a positive trend in biotech funding. 

While it’s uncertain if this marks the bottom, Twist is expected to benefit significantly if a turnaround becomes evident.

Price Action: TWST shares are down 1.62% at $34.70 on the last check Wednesday.