According to SynBioBeta, synthetic biology startups raised $900 million dollars during the first nine months of 2016. It is clear that private markets have an increasing interest in synthetic biology companies. However, venture money raised is a poor proxy for showing how well synthetic biology technologies can be used to provide sustainable value. In order to determine how the value of the synthetic biology field will evolve over time, I will maintain an index of public synthetic biology companies: the Calvin Schmidt Synthetic Biology Index.
A few caveats before getting into information on the index:
- This is not a solicitation for investment. This is not an index fund, but a method for tracking the success of public synthetic biology companies.
- This is not an endorsement of any of the companies listed in the index, or of the index itself. Most companies in the index decreased in value over the course of 2016. All but two had negative earnings for fiscal year 2015. Annual reports for fiscal year 2016 are not out yet, but it is likely that no additional companies were profitable during that time. Only one company distributes cash dividends (Intrexon has distributed dividends as shares of subsidiary companies). Many of these companies will not be successful, and the index itself may be down over any given amount of time. I have not invested any money in any of these companies.
Criteria for inclusion in the index:
- The company must derive its value through the genetic engineering of biology or biological systems or through the direct support of these companies. There are no restrictions on the type of product being sold, which can range from compounds produced by the engineered organism to the organism itself. The one exception to this rule is that the company cannot be a therapeutics company, even if the mechanism of therapy is an engineered biological system. There are other indices that track the value of companies that use biology for improving human health.
- The company must be listed in a public market, though this does not necessarily have to be a US-based market, and there must be share price information available through Yahoo finance.
- The company can have any market cap, though because the index is weighted by market cap, companies with very small market caps will not have much of an effect on the index as a whole.
- The company can have any trading volume.
Starting the index:
- The index starts at a value of $100,000.00, allocated between the chosen synthetic biology companies in proportion to their market cap. To prevent the index from being dominated by larger companies, the largest fraction of the index that can be allocated to any given company is 0.25. The fraction of the index allocated to a given company is represented by including a number of shares (including fractional shares) of that company that are worth the amount of money allocated to that company, based on the December 30, 2016 closing price listed in Yahoo finance for that company. For example, if Company A is allocated 10% of the index ($10,000) and had a share price of $1000 dollars, the index would include 10 shares of Company A. Companies listed in other currencies have their share price adjusted to US dollars based on the exchange rate given by Google.
Updating the index:
- I will update the index allocation weekly after market close on Friday by reallocating based on how the market caps of the various companies have changed, using the same criteria as were used to initially assign the allocation. If the index as a whole has gained or lost value over the week, then that gain or loss will be retained and passed along to the next week (Simply put, there may be more or less than $100,000.00 available to be allocated in future weeks, based upon how the companies in the index have fared). I will announce the current value of the index from my Twitter account after updating stock prices for that week and reassigning the allocation The index can always be accessed here.
- I will change the companies included in the index on the last weekend of each month to include newly listed synthetic biology companies or companies that I may have overlooked and remove delisted and acquired companies or companies that no longer have a synthetic biology focus. I will be posting a monthly report on this blog to review how the index performed that month, focusing on what drove the changes in value and which companies are joining or leaving the index.
- I will issue a yearly report on this blog that sums up the performance for the year and comparing the performance of the index to related indices, which include energy and chemical indices, agricultural indices, biotechnology indices, and generic market indices.
Initial thoughts:
- The public synthetic biology market is dominated by a just a few companies: Novozymes, Genscript, and Intrexon. These companies make up two thirds of the the CSSBI, though in reality these companies are even more outsized in the market, as Novozymes alone would take up almost two thirds of the index if it weren’t capped at 25%.
- This index does not capture all of the value of synthetic biology in the public market. Many large companies (Monsanto, Bayer, Dow DuPont, etc.) have synthetic biology as part of their business, but these companies do not derive the majority of their value from synthetic biology technologies at this time.
- There are many exciting young synthetic biology companies (Ginkgo Bioworks, Zymergen, Synthetic Genomics, etc.). As these companies enter the public market, they will reshape the index and may have a significant impact on its performance and metrics.
- Breaking down the companies into sectors based on their area of business:
- Synthetic biology services: 46.98%
- Enzymes: 27.31%
- Chemicals: 20.88%
- Agriculture: 4.83%
Edit as of December 29, 2017
After much thought, I have decided to include therapeutics companies in the index, though the company must be delivering some sort of gene to qualify for inclusion. This limits the types of companies included to mostly CAR-T and gene therapy companies and excludes protein therapies, antibodies, and small molecules. Though I do believe all of these companies fit the overall goal of biological solutions to human problems, the included companies are much more in the specific vein of engineering biological systems. There are many other indices tracking the value of biotech companies in general, and it will be interesting to compare the performance of synthetic biology therapeutics companies over time.
Even with this limited definition of synthetic biology therapeutics, the high number and large valuation of the newly included companies would overwhelm the current companies in the index. If the weighting scheme was kept as before, medical companies would make up X% of the index, effectively turning it into another biotechnology index. To limit the influence of medical companies, the index will be evenly allocated to medical, industrial, and agricultural companies. For example, the percentage of the index that is allocated to agricultural companies will always equal 33% and within this category, the allocation will be split in proportion to market cap. To keep the different categories from being dominated by one company, the maximum percentage of the full index that can be allocated to any given company will be reduced to 15%.
For now this change will functionally underweight medical companies and overweight agricultural companies. This is unfortunate, but necessary to keeping the index from being dominated by medical companies.
The initial allocation:
Edit - 01/06/2017 5:38 p.m.: In the initial allocation, a typo in Novozymes's market cap caused a slight under-allocation for the first week. This was fixed upon updating the allocation for the next week.