Gingko Bioworks, a synthetic biology company now valued at around $ 15 billion, begins trading on the New York Stock Exchange today.
Gingko’s market debut is one of the most important in the history of biotechnology. It is expected to raise around $ 1.6 billion for the company. It is also one of the largest SPAC deals made to date: Gingko will go public through a merger with Soaring Eagle Acquisition Corp, which was announced in May.
The exterior of the New York Stock Exchange is decorated with a Gingko decoration. The images clearly sport themes from Jurassic Park, like Antonio Regalado from MIT Tech Review. he pointed. It’s probably intentional: Jason Kelly, the CEO of Ginkgo Bioworks, has been rereading Jurassic Park this week, he tells TechCrunch.
The décor also sports a company motto: “Grow Everything.”
Ginkgo was founded in 2009 and is now considered a synthetic biology platform. That is essentially based on the idea that one day we will use cells to “grow everything,” and Gingko’s plan is to use that platform to do that growth.
Kelly, who often uses language borrowed from computer science to describe her business, compares DNA to code. Gingko, he says, aims to “program cells like you can program in computers.” Ultimately, those cells can be used to produce stuff: such as fragrances, flavors, materials, medicines or food products.
The biggest lingering question about Gingko, since the SPAC deal was announced, has centered on its enormously high valuation. When Moderna, now a household name thanks to its Covid-19 vaccines, went public in 2018, the company was valued at $ 7.5 billion. Gingko’s valuation is twice that number.
“To be honest, I think it surprises people,” says Kelly.
How is Gingko going to make money?
Ginkgo’s massive valuation seems even stronger when looking at its existing income. SEC documents show the company withdrew $ 77 million in revenue in 2020, which increased to approximately $ 88 million in the first 6 months of 2021 (by August Investor Call) The company also reported losses: including $ 126.6 million in December 2020 and $ 119.3 million in 2019.
Gingko is aiming to increase revenue by a significant amount in 2021. SEC documents initially noted that the company was aiming to make about $ 150 million in revenue in 2021, but the August earnings call updated that total to the year to more than $ 175 million.
Gingko aims to make money in two ways: First, it hires manufacturers during the research and development phase (that is, while the company figures out how to make a cell that spits out a certain fragrance, bio-based nylon, or a meatless hamburger. ). That process takes place in the Gingko “foundry”, a huge factory for bioengineering projects.
This source of money is already beginning to flow. Gingko reported $ 59 million in foundry revenue for 2020 and anticipates $ 100 million in 2021. according to the August investor call.
However, this revenue does not cover the full costs of Gingko’s operations according to information shared by the company in SEC documents. However, it is covering a growing share, and as Gingko expands its platform, costs will go down. Based on fees alone, Kelly projects that Gingko will break even by 2024 or 2025.
The second type of income comes from royalties, milestone payments, or, in some cases, equity stakes from companies that then sell products, such as fragrances or meatless burgers, made with Gingko’s facilities or know-how. It is this source of income that will make up the vast majority of the future value of the business according to your expectations.
Once the product is manufactured and marketed by another company, it requires little or no work from Gingko; all the company does is collect cash.
The company is often hesitant to incorporate these earnings into projections because it relies on other companies to bring its products to market. That means it is difficult to know for sure when these subsequent payments will arise. “In our models, we are very sensitive that, at the end of the day, they are not our products. I can’t predict when Roche might bring a drug to market and give me my milestones, ”says Kelly.
Kelly says there is evidence that this model will start working in the short term.
Gingko earned a “bolus” pay milestone of 1.5 million shares from The Cronos Group, a cannabis company, for developing a commercially viable, laboratory-grown rare cannabinoid called CBG for commercial use (there are seven more in strain development, Kelly says). These milestone payments (in cash or shares) are earned when a company achieves some predetermined goal using the Gingko platform.
Gingko has also worked with Aldevron to make an enzyme critical to mRNA vaccine production, and plans to collect royalty payments from that relationship, although no smelter fees were charged from this project.
Finally, Gingko has negotiated a shareholding in Motif Foodworks, a spin-off company based on its technology. So far that company has raised around $ 226 million and its goal will be to launch a lab-grown beef product developed at the Gingko smelter, paying Gingko the aforementioned smelting fees for this contribution.
Gingko’s “Biggest Value Driver” According to Kelly
This rich source of cash will depend largely on the ability of the outside contractor to manufacture and sell products made with the Gingko platform. This opens the company to risk that is beyond its control. Perhaps, for example, it turns out that people don’t want bio-manufactured meat as much as many anticipated, which means that some types of downstream payments may not materialize.
Kelly says that he is not particularly concerned about this. Even if a particular program fails, you plan to have so many programs running that one or two will surely succeed.
“I’m something like: some will work, some will not. Some will take a year, others three years. It doesn’t really matter, as long as everyone works with us, ”he says. “Apple doesn’t care about the apps that will be the next big app in the app store,” he continues.
A key metric to keep in mind for Gingko going forward will be the number of new cellular programs that are managing to shut down. So far, Gingko has added thirty shows this year, Kelly says. Last year, there were 50 shows.
Remember: some of the projects are Gingko spinouts, like Motif Foodworks, not clients coming to the platform on their own. And historically, the number of companies Gingko has partnered with has been a point of criticism. According to SEC documents, most of the revenue came from two large partners in 2020, although Kelly said Business Insider that it was a recession related to the pandemic.
The more programs Gingko has, the more it insulates itself from the success or failure of any one product. Plus, it’s a sign that people are at least using the “app store” for biology.
“Gingko’s biggest value driver is how quickly we add programs,” says Kelly.