Ginkgo Bioworks IPO: Understanding the $15B Biotech

Ginkgo Bioworks Begins Trading on NYSE

Ginkgo Bioworks, a company specializing in synthetic biology and currently assessed at approximately $15 billion, commenced trading on the New York Stock Exchange today.

This initial public offering represents one of the most substantial in the history of the biotechnology sector. The company anticipates generating around $1.6 billion through this market debut.

A Significant SPAC Deal

The offering is also among the largest SPAC (Special Purpose Acquisition Company) transactions completed to date. Ginkgo Bioworks is becoming a publicly traded entity via a merger with Soaring Eagle Acquisition Corp., an agreement initially announced in May.

Trading began this morning with shares priced at $11.15 apiece, utilizing the ticker symbol DNA. Notably, this was the previous ticker assigned to Genentech, a fact recognized by many within the biotechnology community.

Jurassic Park Inspired Launch

The New York Stock Exchange building’s exterior has been adorned with Ginkgo-themed decorations. These visuals prominently feature motifs reminiscent of the film Jurassic Park, as highlighted by Antonio Regalado of MIT Technology Review.

This aesthetic choice appears deliberate. Jason Kelly, CEO of Ginkgo Bioworks, revealed to TechCrunch that he has been revisiting Michael Crichton’s Jurassic Park this week.

Accompanying the imagery is the company’s core philosophy, expressed as a motto: “Grow everything.”

The Synthetic Biology Platform

Established in 2009, Ginkgo Bioworks now positions itself as a comprehensive synthetic biology platform. This concept is founded on the premise that cells will eventually be utilized to produce a vast array of goods, and Ginkgo intends to be the foundational platform enabling this production.

Kelly frequently employs terminology from the field of computer science to articulate his company’s objectives. He describes DNA as a form of code, stating that Ginkgo aims to “program cells in a manner analogous to programming computers.”

Applications of Programmed Cells

The resulting programmed cells can then be employed in the creation of diverse products, including fragrances, flavors, novel materials, pharmaceutical drugs, and various food items.

Valuation Considerations

Since the announcement of the SPAC deal, a central point of discussion surrounding Ginkgo has been its substantial valuation. For context, when Moderna, now widely known for its COVID-19 vaccines, went public in 2018, its valuation stood at $7.5 billion.

Ginkgo’s current valuation is more than double that figure.

“The magnitude of this valuation does often come as a surprise,” Kelly acknowledged.

Ginkgo Bioworks: Revenue Generation Strategies

The substantial valuation of Ginkgo Bioworks is particularly noteworthy when considering its current revenue streams. Financial disclosures to the SEC reveal that the company generated $77 million in revenue during 2020. This figure saw an increase to approximately $88 million within the first half of 2021, as detailed in an August investor conference call.

Despite revenue growth, the company has consistently experienced financial losses, reporting deficits of $126.6 million in December 2020 and $119.3 million in 2019.

Ginkgo is forecasting a considerable increase in revenue for 2021. Initial SEC filings indicated a target of $150 million in revenue for the year. However, the August earnings call revised this projection upwards to exceed $175 million.

The company intends to generate income through two primary avenues. Firstly, it secures contracts with manufacturers during the research and development stages – specifically, while optimizing the production of cells for applications like fragrances, bio-based nylon, or plant-based meat alternatives. This work is conducted within Ginkgo’s “foundry,” a large-scale facility dedicated to bioengineering projects.

Revenue from this source is already being realized. Ginkgo reported $59 million in foundry revenue for 2020, with expectations of reaching $100 million in 2021, according to the August investor call.

Currently, this revenue does not fully offset the company’s operational expenses, as indicated in SEC documents. However, it is covering a growing proportion of costs, and scaling the platform is expected to drive down expenses. Projections suggest Ginkgo could achieve profitability by 2024 or 2025, based solely on these service fees.

The second revenue stream consists of royalties, milestone payments, and, in certain instances, equity holdings in companies that subsequently market products – such as fragrances or meatless burgers – created utilizing Ginkgo’s facilities or expertise. The company anticipates that this income source will ultimately constitute the majority of its overall value.

After a product is manufactured and commercialized by another entity, Ginkgo’s involvement is minimal, primarily involving the receipt of payments.

The company is often cautious about including these potential earnings in its forecasts, as they are contingent upon other companies successfully launching products. This inherent uncertainty makes it challenging to accurately predict the timing of these downstream payments. As Kelly explains, “We are very sensitive in our models to the fact that, ultimately, these are not our products. I cannot predict when Roche might bring a drug to market and trigger my milestones.”

Kelly asserts that there is growing evidence to support the viability of this business model in the short term.

Ginkgo received a milestone payment of 1.5 million shares of The Cronos Group, a cannabis firm, for the development of a commercially viable, lab-grown rare cannabinoid known as CBG. Further strains are currently in development, as noted by Kelly. These milestone payments, whether in cash or equity, are earned when a partner company achieves specific objectives using Ginkgo’s platform.

Ginkgo collaborated with Aldevron in the manufacture of an enzyme essential for the production of mRNA vaccines, and anticipates receiving royalty payments from this partnership, although no foundry fees were charged for this project.

Furthermore, Ginkgo has secured an equity stake in Motif Foodworks, a spin-off company founded on its technology. This company has raised approximately $226 million to date and intends to launch a lab-grown beef product developed at Ginkgo’s foundry, for which Ginkgo will receive the previously agreed-upon foundry fees.

Ginkgo’s Primary Value Proposition, as Highlighted by Kelly

A substantial influx of capital will largely hinge on the capacity of external partners to produce and market goods utilizing Ginkgo’s technological platform. This reliance introduces a degree of risk that falls outside of the company’s direct influence. For example, consumer demand for cultivated meat may not reach projected levels, potentially impacting anticipated downstream revenue streams. 

Kelly expresses a relatively unconcerned outlook regarding this possibility. He anticipates that even with potential setbacks in specific initiatives, the breadth of ongoing programs will ensure overall success. 

“My approach is simply that some ventures will succeed, while others won’t. Timelines will vary, with some projects taking a year and others three. The critical factor is consistent collaboration,” he explains. “Apple doesn’t concern itself with predicting the next breakout app in its app store,” he adds. 

A crucial indicator of Ginkgo’s future performance will be the rate at which they secure new cell program agreements. According to Kelly, the company has onboarded 30 new programs this year. This figure compares to 50 programs added in the previous year. 

It’s important to note that a portion of these projects are Ginkgo spin-offs, such as Motif Foodworks, rather than independent clients utilizing the platform. Historically, the concentration of revenue from a limited number of partners has been a subject of scrutiny. SEC filings reveal that the majority of revenue in 2020 originated from just two major partners, although Kelly clarified to Business Insider that this was a temporary effect of the pandemic. 

An increasing number of programs diversifies Ginkgo’s risk profile, reducing its vulnerability to the outcome of any single product. Furthermore, it demonstrates active utilization of the platform as a biological “app store.” 

“The most significant driver of Ginkgo’s value is the speed at which we expand our program portfolio,” Kelly states.