David Stevenson: Why Baillie Gifford and ARK are all over ‘synthetic biology’

Gene editing is no longer the realm of science fiction and our columnist argues we are fast approaching a 'tipping point' for investors.

A few weeks ago a blockbuster $15bn Spac deal was announced for a fascinating company called Gingko Bioworks, which likes to style itself as ‘the organism company’.

Founded by a group of MIT alumni in 2008, Ginkgo Bioworks has developed a tech platform that uses synthetic biology, genetic engineering, robotics, data analytics and software to ‘program’ microbes for different purposes.

Backers for the special-purpose acquisition company, or Spac, likely to complete the merger in the third quarter, include a name well known to UK investors – Baillie Gifford – which is participating alongside Cathie Wood’s ARK Investment Management.

Gingko, already an unlisted holding in Baillie Gifford’s Scottish Mortgage (SMT ), matters because it’s at the forefront of a whole new area of technology called synthetic biology, or ‘synbio’ for short. While there have false dawns for investors in this space before, I sense that today it is fast approaching a tipping point.

Regular readers of this column will remember me discussing synbio a few months ago in relation to a big report on new thematic areas by Barclays. Here’s what the bank said at the time:

‘We define Synthetic Biology as the next generation of genetic engineering techniques, including the design and construction of new biological parts and the re-design of existing, natural biological systems. It is where the DNA of an existing organism is edited to produce a desired product. From cell therapy to “self-fertilising” plants and meatless burgers, the possibilities for synthetic biology could impact multiple sectors including food, healthcare, chemicals, consumer and agriculture.’

Beyond the jargon, synbio then is at the meeting point between biology, materials science and information technology. It’s built on the foundations of modern genomics which allow us to read DNA, while machine learning helps us understand that DNA. In combination, these enable gene editing to edit our DNA.

The name of the game here is a loose collection of techniques which target novel metabolic networks. These include:

  • CRISPR-Cas9 – a kind of molecular scissors that can find and edit almost any sequence in a cell’s DNA. Businesses active in this space include Crispr Therapeutics, Intellia Therapeutics and Editas Medicine.
  • Base editing – even more precise than Crispr and used by businesses such as Beam Therapeutics.
  • Biofacturing and bioinformatics – instead of using, say, petrochemicals for products, synbio firms might use industrial scale fermentation techniques to make new materials, from electronic displays to cultured (faux) meat!

These and other techniques have reduced the time it takes to get a synbio product to market from 10 years to 2 or 3 years and the cost from $100m to $10m.

No longer science fiction

Now I admit that it all sounds a bit sci-fi, but trust me when I say it’s not. A Baillie Gifford paper on the synbio space in 2018 identified a number of new uses. Citywire AAA-rated investment manager Kirsty Gibson, working today on the firm’s American fund and Baillie Gifford US Growth (USA ) investment trust, outlined how producing ‘leather using yeast enables increased flexibility of form (meaning it can be produced on a roll or as a liquid), increased design possibilities and a far lighter footprint on the planet’; or how these nature-mimicking techniques could be used to ‘produce wood on demand, rather than having to grow forests from scratch or deforesting’.

In simple terms, by altering the biology of something we can design new products and processes – even genetic circuits – which provide big potential benefits.  

The most popular area for investors is in CRISPR technology where Crispr Therapeutics, Editas and Intellia stand out as the stockmarket darlings, all boasting huge valuations and a legion of devoted investor fans. They all went public on the Nasdaq in 2016 and boast huge amounts of cash. Arguably, the market favourite is currently Crispr Therapeutics which is developing a treatment which infuses cancer patients with tumour-targeting immune cells alongside, another programme using edited cells to treat diabetes.

Beam looks a little different. It’s a late comer to the US market and uses a variant technique called base editing which is supposed to be even more precise in its gene editing technique. This can insert, delete or replace a sequence of several dozen base pairs at a precise location. As the boss of Beam told US publication Barrons: ‘The only thing the CRISPR-Cas editors can do well is to cut DNA…they can’t really control what happens to the cut after they’ve made it. With base editing, we change a single base and it’s as if the cells don’t notice they’ve been edited.’

The hitch with all these CRISPR-focused businesses is that their gene editing trials probably won’t get to the approval stage until 2023 or even later. In essence, you are taking the same risks as investing in more conventional biotech businesses. Valuations are stretched, losses substantial and you’re constantly checking on the progress of big therapy trials.

Which brings us back to Gingko and the wider bioinformatics and biofacturing space. Anotherfirm worth watching here is Recursion. Like virtually everything in this area it’s hugely loss making but revenues are rising fast, though from a tiny base. Zymergen is another name to watch. Its biofacturing techniques are focused on replacing petrochemicals with more environmentally friendly products. Its first product is an optical film that can be used in display-touch sensors for personal devices. Next up are novel products such as insect repellent compounds.

Another business in this space is Twist Bioscience, which listed in the US 2018. It’s using ideas first developed in the semiconductor space to create synthetic DNA at a low cost and at scale. It’s interesting to read Twist’s own statements on the pace of change. Here’s one:

‘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.’

Given these ambitious claims, it’s probably not surprising that money is flooding into this space, especially at the private business level. According to trade publication SynBioBeta, companies in this sector received $7.8bn in private and public financing in 2020 – nearly two-and-a-half times the amount of funding the industry received in 2019, and nearly double 2018.

The catch – third time lucky?

At this point it’s worth noting that we have been here before. In the earlier part of the last decade there was a rush around synthetic biology and alternative biofuels involving companies such as Solazyme, Gevo, and Amyris. Sadly, most of them then fizzled into nothing. There was another spike of interest between 2016 and 2018, when a bunch of synbio businesses emerged, such as Intrexon, which were also about to revolutionise this space. They didn’t and many of the leaders back then have seen their share prices drift lower.

This time, however, many fund managers as well as a host of venture capital firms are betting it could be third time lucky. Like many niches within the broad technology space – I’m thinking clean energy technology specifically – the initial investment wave fizzles out, as does the next one. The real money is made much later when the technology is proven and businesses start scaling in a third phase. My hunch is that synbio is fast approaching that tipping point.

Money is now clearly flooding in from big fund managers. Baillie Gifford for instance is all over this space. Another big investor is Jerry Yang, founding partner of AME Cloud Ventures and co-founder of Yahoo. He’s invested in Recursion, Zymergen and Twist Bioscience.

Cathie Wood’s ARK – a huge player in the US – has also aggressively invested through its Genomic Revolution ETF, which invests in virtually all the stocks mentioned above but especially the CRISPR businesses and Beam (where its substantially increased its holdings in the last few weeks). That last observation does prompt another note of caution. I have a sense that ARK is really pushing this sector forward and if the fund turns aggressive seller, we could see a big sell-off in this highly specialised space.

Back here in the UK if you want into the synbio space, I’m afraid you are probably going to have to buy individual stocks, which is why I have included the table below as an introduction to the leading quoted stocks in this space.

An American investor called Calvin Schmidt also has an excellent website with an accompanying index, which is a great starting point for a deeper dive. He rightly points out that one of the biggest players is Danish industrial enzymes business Novozymes, which is listed in Denmark and is highly profitable.

Some of the biotech and medical innovation funds (ETFs and actively managed) do have limited exposure to individual stocks on a case-by-case basis, but no one – to my knowledge – is systematically attacking this space.

They should. Cathie Wood and Baillie Gifford are shrewd observers of the next big thing and my sense is that this really is an impending revolution in biology that will impact us all. In the meantime, although the CRISPR-related businesses are hot, outfits such as Novozymes and AquaBounty (in fisheries technology) might be interesting for less excitable investors.

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Name TIDM 1-month change (%) 1-year change (%) 3-year change (%) Market Capitalisation (m)
Amyris Inc AMRS 29.6 238 186 $4,616.9
AquaBounty Technologies Inc AQB 9.12 121 93.5 $412.3
Beam Therapeutics Inc BEAM 18.7 227   $5,260.9
Berkeley Lights Inc BLI -9.08     $2,821.1
Bluebird Bio Inc BLUE 1.12 -56.6 -83.1 $2,078.7
Calyxt Inc CLXT 2.65 -8.71 -75.2 $165.7
Crispr Therapeutics AG CRSP 7.77 86.4 73.2 $8,794.5
Editas Medicine Inc EDIT -0.205 27.7 -9.97 $2,308.8
Evogene Ltd EVGN -5.29 191 12.9 $150.9
Evolva Holding SA EVEZ 0.878 -7.36 -26.2 CHF148.3
Intellia Therapeutics Inc NTLA 9.47 264 175 $5,053.9
Novozymes A/S NZYMBC 0.792 21.4 40.4 DKK251,825.3
Recursion Pharmaceuticals Inc RXRX 5.07     $4,904.0
Twist Bioscience Corp TWST -16.9 159   $4,743.9
Zymergen Inc ZY -17.3     $3,548.0

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