2020 was the year of COVID, but it was also the year of DNA. Thousands of DNA companies and researchers got in on the pandemic since there was a sudden surge in demand for COVID testing, contact tracing, and virus studying. Now, COVID is an RNA virus, but RNA and DNA work so similarly that most organizations that do one can do both. Even the Universities got into it, I know the Genomics Research Core Facility at the university I used to work for got money from city, state, and federal governments to process COVID tests, which was way more profitable for them than sequencing my plasmids once a month.
So 10x Genomics was a DNA sequencing company that, like so many others, skyrocketed in valuation during 2020. It hit its absolute peak in early 2021 and then fell precipitously through 2022. That describes a lot of companies but it especially seems to describe DNA companies. Still, I wanted to know if 10x Genomics was a buy, and considering my LinkedIn account got spammed all last year with recruiters and ads for the company, I figured they were at least worth a look. The result? A resounding “eh.”
One of 10x Genomics’ big claims to fame is their ability to perform reads of long segments of DNA as opposed to the shorter segments read by rival Illumina. Sequencing DNA gets less accurate the longer the DNA is, so Illumina and others use a technique of chopping the DNA into pieces, sequencing each piece, and putting them all back together. This usually works fine because there are enough overlapping pieces to make the puzzle fit, if you know read 3 different pieces with letters “AATT”, “TTGG” and “GGCC” then you can hazard a guess that the full sequence reads “AATTGGCC” and that the 3 pieces simply overlapped each other. This doesn’t work with long sequences of a single letter or repeating patters. If you simply have “AAAA” “AAAA” “AAAA” then you actually don’t know how long that string of As is. Those 3 reads could overlap on 2 letter and the result could be “AAAAAAAA” or they could overlap completely and the result is simply “AAAA.” About 8% of the human genome is these sorts of repeating patterns that Illumina and others are ill-equipped to read, which gives 10x an exploitable niche.
Now this is a genuinely interesting piece of equipment and their barcoding of DNA segments to read them in the correct order is a nice bit of chemistry, but was this a company that was ever worth 21 billion dollars? In my opinion *no*. The COVID era was a bubble in a number of ways, the easy-money policies of the post Financial Crisis era led to the super-duper-easy-money policies of the COVID era. Operation Warp Speed and other pandemic-focused funding sources meant that money was flowing into the biotech sector, and with most of the world still coming out of lockdown investors were desperate to park their money in companies that were still able to operate. It seemed like the moment for Biotech had come, and companies like 10x Genomics rode the wave to the very top. But from where I’m standing this was always an obvious bubble, and people were making claims about DNA companies that were woefully unfounded.
I’ve just written a lot about 10x Genomics, but all this could apply to most any DNA/RNA startup around. They all had neat ideas, got woefully overvalued during the pandemic, and have since crashed to earth taking shareholder value along with them. My question today then is why, why does it seem like Wall Street Investors saw something in DNA/RNA companies that I, a biology researcher, never did? Now part of that is that I’m just curmudgeony by nature, but part of that is that I think a lot of investors have this Sci-Fi idea of genetics in their head that isn’t really reflected in the field. I could just point to Cathie Wood and say “she doesn’t know Jack” but I want to dig a little deeper into some of the strange narratives that surround nucleic acids.
First, “DNA as a coding language.” I wonder if computer scientists just latch onto the word “code” or something, because the genetic code is no where near to being something that we can manipulate like computer code, and probably won’t be for decades. We’ve been inserting novel DNA into organisms since the 70s, but recently there’s been a spate of investors and analysts who believe that we’re on the cusp of truly programming cells, being able to manipulate them into doing everything we want as cleanly and as easily as a computer. This would definitely unlock a whole host of industries, it’s also not going to happen for a long while yet. DNA codes for proteins, and proteins are the functional units of most biological processes. Nothing you change in the DNA matters until it shows up in the proteins, and we are far, FAR from being able to understand how to manipulate proteins as easily as we do computers. You cannot simply say “let’s add a gene to make this wheat crop use less water,” you have to find a protein from another plant that causes it to use less water, insert that gene into wheat, do tests to make sure the wheat crop tolerates the new protein, alter the protein to account for unexpected cross reactions, and then finally test your finished wheat product out to make sure it works as designed. Any one of these steps could require an entire company to do, and each step could prove impossible and bankrupt the company working on it. We can’t just make de novo proteins to do our bidding because we don’t even know yet how to predict what a protein will look like when we code for it. Folding at home and other machine learning projects have helped us get partway there, but it will still take many Nobel Prizes before we can make de novo proteins as easily as we make de novo programs. So while there is a genomics revolution going on, it’s still an expensive and time consuming one, it’s not going to solve all our problems in a single go.
Second, “DNA as a storage medium.” I’ve said before that while DNA does store and transmit information, that information cannot be well integrated with our modern technology. The readout of DNA information is in RNA and proteins, while the readout of the circuits in your computer is photons on a screen or electrons in a modem. RNA and proteins do not easily produce or absorb electrons and photons, so having DNA communicate with our current technology is not currently doable. In addition, the time lag between reading DNA and making RNA/proteins is astronomical compared to the speed of information retrieval in semiconductors. I sometimes get an annoyed by the seconds-long delay it takes to load a webpage, but I’d be tearing my hair out if I had to wait on the minutes-long delay for DNA to be transcribed into RNA! At this time I really don’t see any reason to use DNA as a storage medium and I certainly don’t see a path to profit for any company trying to use it as such.
Third, curing genetic diseases. There is definitely a market for curing genetic diseases, let me just say that first, but many of the hyped-up corporate solutions are not feasible and rely more on sci-fi than actual science. I’ve discussed how even though CRISPR can change a cell’s DNA, bringing the CRISPR and cell together is much more challenging. The human body has a lot of defenses to protect itself from exogenous DNA and proteins, and getting around those defenses is a challenge. But in addition I don’t think investors realize that DNA is not the end-all be-all of genetic diseases, and so they tack things on to the Total Addressable Market (TAM) of DNA companies that shouldn’t really be there. Then they get flummoxed when the company has no path to addressing its TAM. Valuing companies based on what they can’t do is a bad investment strategy that I see over and over again with DNA companies. As to genetic disease themselves: there’s a truism in biology that “you are what your proteins are”. Although DNA codes for those proteins, once they’re coded they act all on their own, and some of their actions cannot readily be undone. When a body is growing and developing, its proteins can act up in ways that cause permanent alterations, and after they’ve done so changing the DNA won’t change things back. There are a number of genetic-linked diseases which are not amenable to CRISPR treatment because by the time the disease is discovered the damage has been done and changing the DNA won’t undo the damage.
Finally, “move fast and break things” doesn’t work with DNA the way it does with computers. I’ve worked on both coding projects and wet-lab projects. When something goes wrong in my computer code, fixing it is a long and arduous process but I have tools available that let me know what exactly the code is doing every step of the way. I can step through the code line by line and find out exactly what went wrong, and use that knowledge to fix things. Nothing is so straightforward when working with DNA, your ability to bugfix is only as good as your ability to read the code and reading DNA is a difficult and time-consuming process. Not only that, remember how I said above that we don’t know the exact relation between the DNA we put in and the DNA product we get out? If I’m trying to make a novel protein using novel DNA and it doesn’t get made, what went wrong? I can’t step through the code on this one because there’s no way to read out the activity of every RNA polymerase, every ribosome, or every post-transcriptional enzyme in the cell. I can make hypotheses and do experiments to try to guess at what is going on, but I can’t bugfix by stepping through the code, even using Green Fluorescent Protein as a print(“here”) crutch is difficult and time consuming. Even if I try to bugfix, the time lag between making a change and seeing the results can be weeks, months, or years depending on what system I’m working in, a far cry from how long it takes to compile code! A DNA-based R&D pipeline just doesn’t have the speed necessary to scale the way a coding house does, once you’ve got a program working the cost of sharing it is basically zero and the cost of starting a new project isn’t that great. That speed isn’t’ available to DNA companies yet.
This was a lot of words not just on 10x Genomics but on DNA-based companies in general. The pandemic-era highs may never be seen again for many of these companies, much like how some companies never again saw the highs of the Dotcom bubble. I think it’s important for investors to take a level-headed approach to DNA-based companies and not get caught up in the sci-fi hype. Anyone can sell you an idea, it takes a lot more work to make a product.