Twist and Short
- Written by Sander Gusinow
- Published in Tech
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Twist Bioscience says it’s making a ‘lab on a chip’ to synthesize DNA at its Wilsonville facility. Critics say the company’s technology isn’t all it’s cracked up to be.
At the beginning of 2021, Twist Bioscience announced Wilsonville would be the site of its “factory of the future,” a state-of-the-art facility that would employ 400 people and revolutionize the way DNA is synthesized for research.
Two years later, the Bay Area-based company has seen a drop in stock prices and a swirl of questions about just what’s happening at the Wilsonville site. Multiple law firms have put out press releases announcing they intend to file a class-action suit against Twist for securities fraud, and they have asked investors to reach out.
All of this was prompted by a report that decried Twist as a “Ponzi-like scheme” and repeatedly compared Twist to the defunct health technology company Theranos. Twist’s co-founder and CEO denies those claims. Some local leaders are still cautiously optimistic about the company’s future, while others are withholding comment.
The Scorpion’s Sting
On Nov. 15, Scorpion Capital — a company that self-describes as an activist short seller focused on uncovering fraud — released a blistering 236-page report on Twist with the headline: “A Cash-Burning Inferno That Is Not a Going Concern, Operating a Ponzi-Like Scheme That Will End In Bankruptcy. Just Another ‘Synthetic Biology’ Swindle, This Time With an Absurd ‘Silicon DNA Chip’ and Financials So Phony It May Be Criminal. Target Price: $0.”
The ensuing pages are no gentler, comparing CEO Emily Leproust to convicted fraudster Elizabeth Holmes, saying the company’s signature technology has never worked as described — and that it’s nothing new to begin with.
“Twist claims that its ‘chip’ enables it to manufacture DNA at a 1,000X higher throughput and ‘at a significantly lower cost than our competitors,’” the report says. “Former employees stated the claims are false and described a fatally flawed, manual, labor-intensive process plagued by errors, delays, and horrific losses. Far from being automated and efficient, an ex-senior employee started [sic] that ‘what they do is very low margin and labor-intensive’; ‘takes manual labor’; and ‘has a very low value.’”
The report also accused the company of misleading investors about its profitability and the usefulness of its proprietary silicon-chip technology. It says Twist’s strategy has not been to create truly new technology but to flood the market with underpriced product and create a price war and the illusion of profit.
The report is compiled from 20 anonymous interviews with ex-executives, manufacturing employees, customers, competitors and industry experts.
After the report was released, Twist’s stock dropped 20% to $27 a share, Fierce Biotech reported. That’s nearly double the company’s initial public offering of $14 per share in October 2018. But right before the Scorpion report came out, the company’s stock was surging, reaching $39 per share on Nov. 11, 2022. (As this issue went to press, TWST shares were valued at $27.54.)
Twist was the third bioscience company targeted by Scorpion in a one-year period, after Boston-based Gingko Bioworks and Emeryville, Calif.-based Berkeley Lights. Berkeley Lights and Gingko Bioworks’ stocks have declined 92% and 86%, respectively, since the short seller published reports on them in the fall of 2021.
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A Revolution, or Race to the Bottom?
The price tumble prompted Twist to issue a press release describing Scorpion’s report as “highly misleading, with many distortions and inaccuracies,” though the release does not say what, precisely, Scorpion got wrong.
In an interview with Oregon Business, Leproust held that line but did shed some light on the specific problems she found with the report.
“There were a lot of fantastical claims in that report,” Leproust tells OB, referring to the Scorpion report. “When the goal is to make a quick buck, the goal is to manipulate the market. And in that respect, they have been successful. Our goal is to create long-term value based on truth and facts. And I’m bonded by the truth and they are not. I think the characterization is a wild misunderstanding of what we do.”
Leproust holds a master’s degree in industrial chemistry from France’s Lyon School of Industrial Chemistry, and a Ph.D. in organic chemistry and nucleic acids chemistry. She co-founded Twist in 2013 with co-founders Bill Banyai, who remains with the company, and Bill Peck, who left the company in 2020 to start a motorcycle company.
In 2016 Leproust was sued by her former employer turned competitor Agilent, which claimed Leproust had stolen proprietary technology. The Twist CEO described the lawsuit as an “old middle-school fight” between her and her former employer. In February 2020, Agilent issued a press release confirming Twist paid the company $22.5 million to settle the lawsuit with no admission of liability or wrongdoing.
Leproust says the Scorpion report relied on a gross misunderstanding of the company’s proprietary technology — a silicon chip, which attempts to solve an old problem in synthetic DNA production.
Twist and other synthetic DNA manufacturers grow synthetic DNA strands for research and development use called oligonucleotides. These synthetic DNA strands must often be custom designed to meet researchers’ needs. In gene therapy, for example, researchers able to have exact copies of a particular cancer cell can potentially create identical “Trojan horse” cells that combine with the cancer cell and render it benign.
Emily Leproust from a TEDx talk.
But offshoot DNA strands — called “replication infidelities” — can form on the plate during the growing process, diminishing and potentially corrupting the end product. The appearance of these strands has posed persistent challenges for DNA growers since the process began in 1981.
Twist says its proprietary silicon chip can stop replication infidelities from occurring. That means the DNA synthesis process can be automated, allowing the company to produce more DNA at a lower price point than its competitors.
“For the price of one gene from our competition, people can get three with us. And so when researchers are trying to discover a new life-changing therapy, they can try three drugs for the price of one,” says Leproust. “That’s why our gene business grew 50% last year, because our cost structure is so much lower.”
Silicon is flat at microscopic scale, meaning the fluids required for the chemical reaction flow uniformly across its surface. It’s also hard, so materials can be added or removed during the synthesis process without changing the surface. Silicon can also be aligned, patterned and imaged, and it conducts heat well, enabling researchers to change the temperature more quickly.
According to Scorpion, Twist’s proprietary chips don’t fix the replication infidelities and, in fact, create more problems on the production line than they solve. Far from making DNA synthesis automated and more streamlined, the report says the chip requires a human team working 12-hour shifts around the clock, creating the strands with conventional methods.
“The labor-intensive nature of Twist’s manufacturing process — a stark contrast to its claims of ‘silicon-powered DNA synthesis’ — came up repeatedly in interviews with ex-employees, who detailed a workflow no more efficient than legacy DNA synthesis with plastic well plates,” the report reads.
The report says Twist’s profits and growth are also illusory, depending upon unsustainable pricing strategies to outsell competitors by as much as 70% to 85% and creating a “race to the bottom” price war within the industry.
Leproust does not deny the company was selling synthetic DNA well below market prices, but she says Twist’s ability to compete on price is evidence Twist’s silicon chip is a success.
“I’m a strong believer that you have the best technology, then you get the most aggressive market strategy,” says Leproust. “It is true that we compete on price, but that’s not the only place we compete. In the biopharma field, we position ourselves as the drug discovery of last resort. You have to make a billion antibodies to find the one that works against a targeted disease. Since we can make more DNA at a higher quality and lower cost than anybody else, we can do that more effectively than others.”
Although the report’s release caused a drop in Twist’s share prices, Leproust is confident the company will rebound once the economy picks up.
“Our main investors understand we are a growth company, and in this microenvironment, growth companies are not really popular. As the tide turns, we will go back to being the most favored by investors,” says Leproust. “At the end of the day, you’re only as good as the numbers, and we grew 54% last year. Our fiscal year [ended] on September 1, where our revenue was $203.6 million. Soon our core business will break even and then be profitable.”
She also says the investors suing Twist do not represent a majority, and that the company will be vindicated once its proprietary technology upends the market.
‘A Viable, Healthy Company’
While the Scorpion report on Twist is extensive, it’s also explosive, using language one might associate with tabloid headlines. And while the report uses quotes it presents as being from nearly two dozen company insiders, almost everyone is quoted anonymously. That doesn’t mean the quotes are false, but it does make many of the report’s claims difficult to verify independently.
And the fact that Twist’s stock fell after the report came out was not an accident: As Leproust notes, it was Scorpion’s intent. Activist short sellers like Scorpion Capital make money by betting stocks in a specific company will decline, then releasing damning information about the company in question with the intent of making that happen.
It’s a form of policing markets that’s come under the magnifying glass of the Securities and Exchange Commission. Some observers say these sellers are manipulating the market; some say they police it.
“Short sellers have long been told by their lawyers that as long as their reports contain no material inaccuracies and are not based on inside information, they have done nothing illegal,” notes a February 2022 The New York Times story on the phenomenon.
Liisa Bozinovic, executive director of the Oregon Bioscience Association, of which Twist is a member, is skeptical of the Scorpion report.
“It’s definitely possible to play games with the market. But I really wouldn’t have any way to assess that, but everything that I have seen indicates that Twist is a viable, healthy company,” says Bozinovic. “They’ve been great partners to us. I’ve been in this industry since 1999, and I haven’t heard of anything like this happening in the startup space, besides Theranos.”
She says Twist frequently participates in the organization’s job fairs and posts on its job boards, and that the company already has 175 employees in Oregon.
Scorpion has claimed that an independent investigation found the facility nearly deserted and that no lab work was taking place.
“We sent a private investigator to the Oregon facility, who encountered a deserted parking lot, a quiet loading dock/construction area , and about a dozen office employees sitting in an open and mostly empty floorplan — no evidence of manufacturing activity or an impending production scale-up,” the report reads.
In December Leproust told the Portland Business Journal the company was “on track to begin commercial production in January.” (OB asked to tour the Wilsonville site, a request Twist said it could not grant until late January, making it too late for our production deadline.)
In 2020, Oregon’s bioscience sector produced $15.6 billion in economic output statewide, $5 billion in income and approximately 66,000 jobs across the state, according to a report from OBA.
The report also notes that Oregon’s bioscience industry generated $1.7 billion in local, state and federal taxes and fees in 2020 — an all-time high since the group started taking a measure of the industry 20 years ago.
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Monique Claiborne, president and CEO of Greater Portland Inc., which helped Twist zero in on Wilsonville for its factory site, says her first reaction to the Scorpion report was shock.
She says her organization was introduced to Twist by the OBA, of which Twist is a member. The company began looking to expand outside of the Bay Area, where it is based, in October of 2020. She says her organization presented 10 different locations in the greater Portland area for Twist to build its factory.
Claiborne says her organization brings bioscience companies to the region regularly, and when her organization evaluated Twist, the company had all the hallmarks of a successful biotech startup.
“We qualify projects depending on the industry, and so we ask different types of questions in terms of where money’s coming from, the acreage and square footage for facility projects, utilities, workforce, accessibility, wages, labor — all of these are parameters we use to qualify projects and companies coming to us, and we share that information with other economic-development practitioners,” says Claiborne.
“That’s on the business-development side, but a lot of what we do is marketing, making sure we’re touting the competitiveness of the region. Sometimes you get into incentives; that can be a factor both at a state or regional level, depending on the company. That’s how we zero in and we move them.”
Claiborne declined to comment on the allegations against Twist, but says Twist chose Wilsonville in large part due to the city’s tax-rebate program, designed to bring companies to the area.
Matt Lorenzen, economic development manager for the City of Wilsonville, says the city created the Wilsonville Investment Now program to incentivize businesses to develop projects outside of the city’s existing urban-renewal areas, and bring family-wage jobs to Wilsonville. The program provides compliant businesses with property-tax rebates, and was developed out of an existing rebate program meant to address the city’s high level of industrial vacancies in the wake of the 2008 subprime mortgage crisis.
Lorenzen says that based on what he has seen, he is confident Twist will likely far exceed the employment and $50,000 minimum-capital requirement to qualify for the program.
“As I understand it, their capital expenditure and the number of jobs has far exceeded the minimum requirements of the program. The diversity, equity and inclusion piece might come later as they build the programming around their workforce in Wilsonville,” says Lorenzen. “The wages, I’m not familiar with, because they haven’t reported on it yet.”
The city’s agreement with Twist happened a year before Lorenzen took his current position, but he says it was the city’s rebate program that was the deciding factor that brought Twist to Wilsonville. In August of 2021, the Wilsonville City Council approved a development agreement with Twist for a 4.4-acre site in the ParkWorks Industry Center, the very first development agreement under WIN program rules.
“[Twist] had shortlisted a property north of the river in Vancouver, and then the Wilsonville property, and ultimately it was the economic-development incentive in combination with one of their C-suite executives living in Happy Valley that sealed the deal for Wilsonville,” says Lorenzen.
Lorenzen is aware of the Scorpion report. He says Twist will have to show it meets the city’s workforce development and diversity, equity and inclusion requirements before the company receives any tax rebates from the city.
Lorenzen says he and several other officials took a guided tour of the facility on Oct. 12 — a month before Scorpion published its report claiming the Wilsonville facility was deserted. He said he saw fixed machinery installed and that it appeared to be in service, but that he did not remember exactly what the equipment looked like and declined to describe it, citing respect for Twist’s proprietary technology. He also says he saw employees working in the designated lab areas but did not know the nature of their roles or duties.
‘Staged Kabuki Theater’
Kir Kahlon, founder and chief investment officer of Scorpion Capital, says Twist shows multiple signals of a company headed for bankruptcy, and that the factory tours Twist conducted for its supporters in Oregon were staged.
“The factory tours are simply staged Kabuki theater,” Kahlon told OB over email.
“A sell-side analyst from Cowen apparently stated that he made a surprise due-diligence visit to the factory in July 2022 but was prevented from entering, so we take staged tours many months later with a grain of salt,” Kahlon wrote.
A building permit issued to Twist by the City of Wilsonville in August gives permission to install labware washers and an autoclave. The company’s building permit history also includes a permit for a walk-in cooler.
Scorpion has been vocal since the short report’s release, posting new information on Twist that it calls “red flags.”
Twist’s chief financial officer said the company had spent $46 million on tenant improvements to the Wilsonville facility during a Nov. 18 fourth-quarter-earnings call, which Kahlon says strains credulity, even for a facility with a $3 million rent. Twist also fired its auditor in March of 2022, which Kahlon says lends even more conviction to his company’s investigative research.
Angela Bitting, senior vice president of corporate affairs at Twist, says the massive amounts of tenant-improvement spending is because of the large size of the Wilsonville facility. She also says Twist’s decision to find a new auditor was a cost-saving method, and that Twist is now audited by Ernst & Young.
As for the surprise visit in July of 2020, Bitting admitted the Cowen analyst was denied access but says it was because there was no one available to give them a tour.
“I know it sounds nefarious but it’s not,” says Bitting. “Our CEO wasn’t on-site and it was somebody that didn’t have a badge. We received a temporary certificate of occupancy for the building in late June, so only then could we start to fill the building with people and do the construction.”
Leproust hosted an investor meeting at the Wilsonville factory on Nov. 29, and on Jan. 9 she presented at the 41st Annual J.P. Morgan Healthcare Conference in San Fransisco.
Next year, Bozinovic says, Twist will help develop and take part in an apprenticeship program alongside the Oregon Bioscience Association using funds from the state’s Bureau of Labor and Industry as part of the state’s Future Ready Oregon fund, a $200 million job-development initiative approved by the Oregon Legislature last spring.
Bozinovic says Scorpion’s allegations haven’t shaken her support for the biotech company.
“What employers like Twist are doing is helping us understand the occupations that are most difficult to fill. They are the jobs that are in highest demand,” says Bozinovic. “Companies like Twist and including Twist are helping us develop the standards for those occupations, which will be approved by the state.”
“We have technology where we can make more DNA than anybody else at a lower price than anybody else. That means when you do drug discovery, because our DNA is cheaper, you can try more. It really all goes back to the silicon chip and the investments we’re making,” says Leproust.
“We want to be good citizens of the ecosystem, to generate employment and taxes so that the state of Oregon and the country benefits from the innovation of Twist.”
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