Zymergen vs Gingko Bioworks, A Tale of Two Synthetic Biology companies
A little more than three months after pricing its IPO at the top of its expected range and soaring out of the gate, Zymergen is warning investors that revenue from its experimental products won’t be coming anytime soon. The company also said that Josh Hoffman, who co-founded Zymergen in 2013, is stepping down as CEO and will be replaced on an acting basis by Jay Flatley, former CEO of Illumina.
Meanwhile, on May 11, 2021, Ginkgo Bioworks and Soaring Eagle Acquisition Corp. (Nasdaq: SRNG), a special purpose acquisition company, has announced an agreement to merge into the newly listed Ginkgo. With the recent SEC approval, the merger is expected to close on September 16, 2021.
While both high-growth biotech companies have deep intellectual properties, Ginkgo certainly has a leg up against Zymergen. We believe it is Ginkgo’s portfolio-based business models -- versus Zymergen’s single product-based business models -- as well as its thoughtful execution that has led to Ginkgo’s success.
Thanks to the sharp cost decline in DNA sequencing/editing/screening in recent years, synthetic biology companies such as Zymergen and Ginkgo are able to leverage vast metagenomic databases, AI and machine learning, and robust automated laboratories run by low-latency robots to design microbes custom-suited to manufacture the desired good. Materials such as plastics or food products such as egg protein can now be manufactured in a much more sustainable manner.
Gingko’s broad portfolio
From lab-grown cannabis to plant-based meat to bringing back the perfume of an extinct flower, Ginkgo offers specialties in strain improvement, enzyme discovery, cultured ingredients development (often done through engineered yeast), and mammalian cell engineering for pharma/biotech, industrial/environmental, food/agriculture and consumer product applications. Ginkgo is also swiftly entering the biosecurity market assisting in the development of software, diagnostics, vaccines, and other therapeutics targeting emerging threats such as COVID-19.
Source: Gingko Bioworks’ investor presentation
Zymergen’s bet on Hyaline
In Zymergen’s case, it is engineering microbes that produce transparent polyimide films for electronic devices. Known as Hyaline, they are foldable films that deliver mechanical strength, optical clarity, and temperature resistance. Accordingly, Hyaline enables full-screen display touch sensors in foldable and rollable devices. While Zymergen has listed product opportunities in electronics, consumer care, agriculture, and even the reduction of plastics, Hyaline is the only product that is delivering revenue. As several of Zymergen’s customers encountered technical issues in implementing Hyaline into their manufacturing processes, the company no longer expects product revenue in 2021 and expects product revenue to be immaterial in 2022.
Ginkgo’s business model
Ginkgo uses a two-pronged model to generate revenues. When Ginkgo develops a program for a customer, it generates immediate revenues that are used to fund the program’s R&D. Upon reaching the milestones, Ginkgo receives "downstream" value from each developed program that comes either in the form of royalties, or a share of the equity. A key point to understand is that Ginkgo's costs are front-loaded because they occur almost exclusively in the development phase with the Foundry. The downstream royalties are virtually 100% profit because maintenance costs on a developed program are nil. With such a setup, an investment in Gingko represents an investment in its customers’ products. With 54 programs currently in place, Gingko has created a diverse portfolio of synthetic biology programs that is commanding a present equity value of $500M.
Source: Gingko Bioworks’ investor presentation
While Ginkgo’s Foundry is responsible for the majority of its current revenue stream, we believe the diversified portfolio programs are what deliver the company’s future value.
At Good AI, we place a high premium for startups that could establish a rich portfolio of pipelines. Whether they are building System-On-A-Chip (SoC) for precision gene/cell therapy or creating an AI Drug Discovery platform for microbiome-derived therapeutics, our portfolio would all need to demonstrate their aptitude in building a diversified assets pipeline, one that could enable risk-sharing with their customers.
As shown in Ginkgo’s success, the thoughtful and disciplined execution of its business strategies is what sets the company apart from its peers.
Congratulations to the team at Ginkgo. We look forward to all the great successes that are to come.