Ginkgo Bioworks Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 7 speakers on the call.

Operator

Afternoon. I'm Anna Marie Wagner, SVP of Corporate Development at Ginkgo Bioworks. I'm joined by Jason Kelly, our Co Founder and CEO, and Mark Dimitryk, our CFO. Thanks as always for joining us. We're looking forward to updating you on our progress.

Operator

As a reminder, during the presentation today, we'll be making Forward looking statements, which involve risks and uncertainties. Please refer to our filings with the Securities and Exchange Commission to learn more about these risks and uncertainties. So we just hosted our annual conference for Mint. And while that's geared towards our customers, understanding why customers are choosing Ginkgo is important to our investors. And so we're going to spend some time today recapping some of the themes from that event.

Operator

As usual, we'll end with a Q and A session, and I'll take questions from analysts, investors, and the public. You can submit those questions to us in advance via Twitter, ginkgo results or email at investorsginkobioWorks.com. Alright. Over to you, Jason.

Speaker 1

Thanks, Anna Marie. I'm super excited to be chatting with all of you today. We just hosted Ginkgo Ferment, our big meeting. We had about Thousand people there in person, plus folks on the livestream as well. In my keynote, I reminded, you know, the audience that at Ginkgo, We're not spending our cash just on clinical trials or field trials or cosmetic launches.

Speaker 1

These are sort of End product activities that our customers are doing. At Gingko, we're spending all our capital on improving our platform for our customers. So a big goal of the day was learning from our customers about what they want us to build. And I firmly believe that if we deliver on those requests, Then we ultimately deliver for all of our investors. We do right by our customers.

Speaker 1

We do right by all of you. And so you're going to hear a lot more from me today about Why customers are choosing to sign up for Ginkgo's platform and what I heard it from Matt. When we launched Ginkgo, one of the big criticisms of our whole model was that a General purpose platform would not work in biotech, right? It might work in the tech industry, but in biology, you know, the Lab work you do to engineer a mammalian cell is just too different from the lab work you do to engineer a bacterial cell to get that working on a common robotics platform and automated, for Example, or the data machine learning models that would be relevant in the biopharma industry would never port over to work in agriculture. So, I'm happy to say we are proving these people wrong.

Speaker 1

This is a sampling of our customers at Ginkgo. We have some of the largest biopharma companies in the world now, Novo Nordisk, Merck, we just announced a deal a large deal with BI. Chemical majors like Sumitomo, just announced Last quarter, Solvay, longtime customers like Givaudam, one of the largest flavor and fragrance companies in the world, ad majors, Corteva, Syngenta just I joined the platform this last quarter and our large long term customer, Bayer, in agriculture. Importantly, that's the top of this chart. If you look down at the bottom, You'll see all the startups in these same range of industries, right?

Speaker 1

And these are the companies that are working to make the new disruptive innovations in these markets. This breadth of our platform and business model, being able to work across such a wide range of industries and customer scales, it is a real strength for Ginkgo, and we'll talk about That later. One of the best things about this year's Verint was that the majority of the folks that went up on stage were our customers, Right. And so you had amazing customers joining us on panels. We heard 12 lightning talks from customers about what they were building by leveraging Ginkgo's And that's really important, right?

Speaker 1

People in the audience and on the live stream that are thinking about joining Ginkgo's platform, they might like to hear from Ginkgo folks, but they really want to hear from People like them that are getting value out of using our platform. And so I think we did a nice job of doing that. I really encourage you to watch. All those videos are up on YouTube, and you should check that out. And I think the diversity of what our customers are building with the platform Gets folks really excited and it also gets people thinking about outsourcing from our platform as they hear those different applications.

Speaker 1

I've shown this flywheel to you all But it's important to highlight that our customers help make our platform better. So we improve with scale and this is a scale economic thing like Auto manufacturing plant or a chip fab or things like that, right? As we add new customers, we can invest more in our platform and our platform improves. We get larger facilities and that which drops our costs, and we learn from the data from one project to make another project faster and less risky. And so even though all of you, our investors, should be excited when we add a new customer to the platform, I think our customers should also be excited every time they see a new announcement Of a customer joining GECO's platform because they are getting better infrastructure out of that.

Speaker 1

And so that's why it's so exciting that in 2022, we increased our active programs by 60% and the rate of new program additions by 90%. That's why I talk about these numbers. It shows that the flywheel It's spinning for our customers, and we expect it to keep driving improvements that pay off for decades to come for our customers. Okay. I'm going to hand it over to Mark.

Speaker 1

He's going to walk you through our Q1 financials and then we're going to dive in on some of the key themes coming out of Ferment. Over to you, Mark.

Speaker 2

Thanks, Jason. I'll start by discussing our cell engineering business. As a reminder, we now refer to cell engineering revenue rather than foundry revenue As it is more reflective of the business, you'll see that updated throughout our 10 Q. We added 13 new cell programs And supported a total of 97 active programs across 60 customers on the cell engineering platform in the Q1 of 2023. This represents substantial growth and diversification in programs relative to the 64 active programs in the Q1 of 2022, With strong growth coming from the Pharma and Biotech and the Food and Agriculture segments, we added several large New customers to the platform, including Boehringer Ingelheim, Syngenta, Solvay, and a new program with Sumitomo In addition to a good mix of programs with earlier Sage customers across industries.

Speaker 2

As Jason mentioned, we think both of these customer segments are important. It's an important validation of our capabilities when we add large multinational customers like BI and Syngenta who have strong internal R and D capabilities, But we're also very proud of our ability to enable the next generation of leaders. Cell engineering revenue was $34,000,000 in the quarter, up 59% compared to the Q1 of 2022. As you can see in the charts at the bottom of the page, this growth was driven entirely Our services revenue with 3rd party customers and is reflective of diversification in the customer base. Now turning to biosecurity.

Speaker 2

Our biosecurity business generated $47,000,000 of revenue in the Q1 of 2022, a solid result as this business transitions Away from K-twelve COVID testing services. Importantly, over 20% of this revenue came from what we believe will become more recurring sources Such as federal and international contracts, while that proportion was well under 10% in Q4 of last year. Biosecurity gross margin was 52% in the Q1 of 2023, which benefited from some one time items. You can see on the right that we're really thinking about this business globally now and not just domestically. We believe there will be strong network effects in this business As biology does not respect borders, we have now collected samples from flights originating in 72 countries Through our airport program, we believe this type of infrastructure can provide an early warning system for future biological threats.

Speaker 2

And now I'll provide more commentary on the rest of the P and L. Ware noted, these figures exclude stock based compensation expense, which is shown separately. Starting with OpEx. R and D expense, excluding stock based comp, increased from $57,000,000 in the Q1 of 2022 To $115,000,000 in the Q1 of 2023. G and A expense, excluding stock based comp, increased From $42,000,000 in the Q1 of 2022 to $84,000,000 in the Q1 of 2023.

Speaker 2

These operating expense items increased year over year as expected as we invested in our platform and various functions to support our growth during the past year And layered in the 4 acquisitions we closed in the Q4 of last year. Included in these numbers in the Q1 of 2023 It is approximately $19,000,000 of one time M and A and integration related expenses. Stock based comp. You'll notice the significant step down in stock based comp year over year. As a reminder, this is because the catch up Accounting adjustment related to the modification of restricted stock units when we went public is rolling off.

Speaker 2

Over 60% of the total $75,000,000 stock comp expense in the quarter related to RSUs issued prior to us going public. To help folks model this more precisely, we have provided a new appendix slide in this deck for your reference. Net loss. It is important to note that our net loss includes a number of noncash income and or expenses as detailed more fully in our financial statements. Because of these non cash and other non recurring items, we believe adjusted EBITDA is a more indicative measure of our profitability.

Speaker 2

We've also included a reconciliation of adjusted EBITDA to net loss in the appendix. Adjusted EBITDA in the quarter was negative $100,000,000 Compared to negative $1,000,000 in the comparable prior year period, the decline in adjusted EBITDA was attributable to both the higher run rate of expenses in cell engineering and the as expected decline in biosecurity revenue. And finally, CapEx In the Q1 of 2023 was $19,000,000 reflecting foundry capacity and capability investments As well as leasehold improvements. CapEx was impacted by timing of equipment purchases and projects, and we would therefore expect lower levels of CapEx On average in subsequent quarters this year. In terms of our outlook for the full year, we are reaffirming our guidance for 2023, Including 100 new cell programs, at least $175,000,000 of cell engineering revenue, Driven by services revenue with additional revenue potential from downstream value share and at least $100,000,000 Of Biosecurity Revenue.

Speaker 2

As we shared in our last quarterly update call, we expect our new program additions and revenue To ramp during the year and believe we have a solid backlog and pipeline to support our outlook. In conclusion, we're pleased with our overall progress In the business while navigating a challenging macroeconomic environment, we're adding new programs to the platform in a way that improves the platform And balances both near term and long term economics. We are focused on our cost structure with new investments and spend generally targeted To discrete areas such as our mammalian capabilities and we continue to manage our balance sheet and cash flows to maintain a long runway While retaining flexibility to capitalize on near term strategic opportunities with $1,200,000,000 of liquidity at quarter end. And now, Jason, back to you.

Speaker 1

Thanks, Mark. It's always exciting to me to see new customers signing up for the platform. And I want to highlight We actually spend a lot of time talking to our current customers, including running an annual customer survey to learn how they're using the platform and, importantly, how Vingyo can make the platform better. And so, I want to share a little bit about what we've learned on why our customers are choosing to To outsource to our platform in the first section. Now, our customers are specialized in their vertical markets, right?

Speaker 1

They're a pharma company, Industrial Biotech or an Ag company, we are not, right? Ginkgo is a general platform. So I want to talk about these service offerings that Ginkgo is launching so that we can It's better speaking the language of our customers, when we're offering our general platform. And then finally, I'm also really excited about the progress our biosecurity business is making around the world, and So I'm going to end there with a few comments. Okay, let's dive in.

Speaker 1

All right, so I showed this slide before, but I do want I want to pause on it just again for a minute to highlight how unique it is to have this range and breadth of customers On the platform, both in terms of size and range of industries. And so one of the things we wanted to ask is why are these folks Getting on the platform, okay? And we did this by, again, surveying and talking with folks and things like that. I think this is a really nice Welcome one of our larger customers. This is Brian Bendall at Novo Nordisk.

Speaker 1

And he said, science is currently undergoing a revolution. Large scale datasets Coupled with AI is opening up a greater opportunity space within biology. We no longer have to limit ourselves to the questions that can be addressed Traditional research methods and we heard more from Brian on a panel and Ferment, which I encourage you to watch. I think this is a key idea, right? Pretty much every business right now, regardless of market, is asking, is there some large dataset that I can train a generative AI model on that's going to have an impact on my business?

Speaker 1

That That's true if you're a car company, finance, media, whatever it might be. And it's also true if you are running a biotech R and D department Right now, in biopharma, bio ag, right? And so, I think this does represent and highlights one of the what I want to show is the first example of what we're Feedback from customers. So that we get more data per R and D dollar at Ginkgo using our infrastructure. And this is important to generate those large datasets.

Speaker 1

Secondly, we access not just our that Single customers' data, but because of the way Ginkgo's platform works and our IP works, we're actually able to give a customer access to The data and learning across all the projects that have been happening on Ginkgo's platform. And then they're not just left on their own to figure out how to navigate that. Many of these companies Are new to doing these sort of large scale data science efforts. They have access to Ginkgo's data scientists in order to navigate that data. 3rd, companies want to launch work quickly on the platform, all right?

Speaker 1

And this is endemic in biotech. The rate and speed that biotech works is too slow. 4th, if you're a smaller company, there's an enormous upfront cost to building out a laboratory. We want to just cut that out in terms of Cost and spending for new companies trying to do cell engineering. They should be able to use our services rather than build their own lab.

Speaker 1

And then finally, Often, you have a big R and D department that's a big fixed cost sort of using space and using equipment in a facility. We want to replace that with a variable cost service, and we'll talk about why that's particularly important in pharma. So, I love this video. This is a the new technology that's coming Out of our from our acquisition from Zymrgen, these racks, these are basically I would consider this to be the best sort of flexible Automation platform out there. And the reason I highlighted this at Vermaat was if you are a customer developing a therapeutic Drug or you are working on a new agricultural product.

Speaker 1

You should not have to be a world's expert in laboratory automation, Right. If you wanted to use, say, cloud compute, you do not need to be a world expert in data center architecture, Sure. Right? You leave it up to the cloud computing companies to do that. Well, our argument at Ginkgo is these are the sort of technologies we are going to focus on so that our customers don't need to and that they have access to the Absolute latest in technology for getting more data per R and D dollar.

Speaker 1

That's on us. And you see this when you look at From, for example, it's Marcus Schindler, CSO at Novo Nordisk. He said, you know, they work with Ginkgo because of our ability to rewrite genomes to engineer new bespoke biological systems. So being able to make You know, engineer at the scale of a whole genome, that wasn't something they could do in house, right? You know, Alphonse at Biogen was there when we did the deal.

Speaker 1

You know, a large number of design ideas That Ginkgo could work through, and this was to help them with sort of A and B manufacturing. So it's again that sort of scale of activity, data per R and D dollar being so much bigger at Ginkgo. Importantly, that's the data from your project. You do want to get more data out of that. But, boy, a lot of other biotech work is going on in the world.

Speaker 1

And it would be really nice if you're trying to train up a model, for example, of your particular system that you were able to draw on data from other people's work. And this is something that the tech industry is benefiting from dramatically. If you look at how these new models are being built, they're being built on huge datasets across lots of different assets around the Internet and so on. In biology, a lot of that data today, frankly, is being stovepiped across thousands of different companies. And so one of the things Ginkgo has been is accumulating that all in one place so that you can train models on much bigger data assets.

Speaker 1

And we have many different examples of this. I'm just going to give one. This is some of the proprietary genomic data we have. So sequence genomes largely from microbes and metagenomic sequencing from Companies like Radian Genomics and LoDo and Warp Drive Bio and work we've done at Ginkgo. And it just in this chart, you can see the size comparison Our proprietary data to what's out there in some public databases, right?

Speaker 1

And this means that our customers can go and get access to this and find a new protein or a new enzyme or a new natural Product. And, you know, here's a quote from Sumitomo. The great transparency and sophisticated dataset was Ginkgo's strengths, right? So that transparency, having access to this, I think it's critical and unique to Ginkgo to be able to get that range of data. Also at Merck, they talk about the Professionalism and experience of Ginkgo's employees, right?

Speaker 1

So, again, having these experts who can help you navigate all this and similarly similar comments from Givaudan. Great quote up here. So Nicholas Oler from Lagos, Chief Technology Officer there. He said, Giga's entire team was quite talented, but the early results on one of our projects are stunning And supports LIGO's mission of accelerating the world's transition to high performing sustainable products. Okay.

Speaker 1

What's interesting about this is this project, if you look at when we announced it, it was like 6 or 9 months ago, right, like recently. And so how do you get stunning results in that short period of time in biotech? And the answer is you're not starting from scratch. So you're building on both existing hydro, but infrastructure that you can turn on immediately and also large code base, what we would call it, like IP and genetic assets that you can make use of to go faster, right? Trent, assets that you can make use of to go faster, right?

Speaker 1

Trent from Mike Groba, SVP of Therapeutics. Gigger's expertise Resources have moved our drug discovery project along at a pace that just would not be possible either using internal resources or via a traditional CRO approach. Okay. And so, again, this is access to a scale and speed that you wouldn't otherwise get and Bob Ryder at Bayer and PropScience talking about the Open innovation approach, in other words, accessing external service providers instead of doing it in house, will us bring higher quality biological solutions and innovative technologies to the market faster. Okay.

Speaker 1

And so I think these types this type of speed is one of the key advantages that our customers are seeing on the platform. Next, I wanted to talk about One of those that gets me really excited for small companies. So if you have a chance, I would encourage you to go watch Jasmina's talk from Verment. And so what's What's cool about Jasmina is she's the CEO of Arkea. She gave a talk at Permant last Permant was about a year and a half ago.

Speaker 1

And at her talk this time, she said, a year and a half ago, I was up here announcing that we had launched the company. I raised money and we're launching Arkea. And then here I am a year and a half later and I'm showing you my first product. And so, that type of speed in biotech, even in this cosmetics biotech, I don't really care, that type of speed is really unheard of. And the reason it was possible is normally when you raise a venture round as a startup biotech company, The first thing you do is you call Alexandria Real Estate and start being showed very expensive, overpriced real estate in Kendall Square and go look for a lab and then you start go off and Buy a bunch of expensive equipment and stock that lab, then you start hiring scientists and 9 months or a year later, you're doing serious work.

Speaker 1

Here, within weeks, able to deploy high throughput automation at Ginkgo to work on these projects, and that is why We're able to go so much quickly. And also, what saved that mean that the cost of needing to build out that lab in the first place, hugely valuable to small startups In the biotech place. And by the way, this is something that was absolutely seen with Internet companies and cloud computing in the mid-2000s, Right. That was the birth of AWS and these companies that could start cloud native and allowed them to save on building out server founders. And so I think that's a real Similar opportunity here in the biotech sector.

Speaker 1

Okay. So this is an important point, I think, from a standpoint of the industry's efficiency. So if you look at an average Small biotech company. At the beginning, you and that dotted line in the middle there is sort of like their R and D teams. They hire an R and D team.

Speaker 1

They do all that work. They get the lab. They get it going, and here it Okay. Prior to having your drug going into clinical trials and animal studies and so on, like locking your candidate, you wish you had more R and D, Right. If you had more R and D, you'd get to a better candidate.

Speaker 1

If you had more R and D capacity, you'd go faster, right? But you're like, you know, you don't want to hire too many people and so on. So, you kind of keep it at this And you get to the best candidate you can get and then off you go. You go into animal studies and clinical trials. Well, now suddenly you wish you had less R and D Because you're trying to conserve cash, get that clinical trial result and show that your new application in pharma works.

Speaker 1

And once you get a good result, well, now you want more R and D again because you want to build out a really robust, bigger pipeline in that area. Okay. So that's that sort of sine wave there. Not efficient how we're doing it now, we're either overshooting or undershooting. And then importantly, in a tight capital market, that middle dip Turns into R and D team layoffs, which is what we're seeing across the industry today for small biopharma companies.

Speaker 1

So our suggestion would be, wouldn't it be better to be having your scientists Accessing that type of capability, a smaller team, accessing that capability as a service so that when you need a lot at the beginning, you got it. When you need less in the middle, you turn it off and then you turn it back on later. We have some groups that are doing that. You can see Kristen at Proparium, Davidson, Logic, talking about how Proparium is now dedicated to driving our lead program into clinical trials this year While leveraging our partnership here with Ginkgo to accelerate our discovery work, right? And so I really like that.

Speaker 1

I think that's a good way to make the whole industry more efficient. So, that's all I want to say. And I think that's a message that I gave at Permit, and I think it was like well received by folks in terms of Why you might want to use the platform, right? So let's say you want to you hear all that and you're like, I really want to use Ginkgo's platform. Okay.

Speaker 1

So what do you do about it? Well, the first thing you could do just go to our website and click on a link that says work with us, and you'll get an email from our scientists and folks on the commercial team, And they will ask you how you use what are you trying to accomplish and how could Ginkgo's platform be relevant. But some people look at that and say, I I don't have time for that conversation. I really want to know is Ginkgo's technology relevant to my application. I want to know that ahead of time.

Speaker 1

And so in order to solve that problem, we launched Services. And the first service we offered was Ginkgo Enzyme Services. And I'm gonna talk more about that in in just a minute. But that was to basically say, If you're doing enzyme work, this is the full suite of things we have at Ginkgo that can help you out and come here from our scientists. We've got webinars and things to show you how it all works.

Speaker 1

That was Really well received over the last half year or so and is driving a lot of like funnel for us in terms of new customers getting on the platform. So, at Fermat, we're happy to announce 4 new services, Gingko Microbe Services, Gingko Cell Therapy Services, Gingko AAV Services, And Ginkgo RNA Therapeutic Services. And you can see here I highlighted a few recent acquisitions, the Ag Biologicals R and D group from Bayer that we acquired in, Stride Bio acquisition, which I'll spend a minute on in a second, and circularis in circular RNA. Those assets are also available to our customers as part of these services. And You know, there are virtual events and things coming up that I encourage you to take a look at if you're interested in these things.

Speaker 1

I do want to dive in just for a minute on the Stride BioLine. This is super exciting to me. A, the technology is very cool. I won't belabor it, but these are folks who are really just leaders in doing the protein structure around these AAV capsids and identifying key regions of the structure that would be worth modulating to work on some of the key challenges in gene therapy. And in fact, a lot of people knew this about STRIDE, right?

Speaker 1

And so, when we announced the acquisition, we had just an enormous amount of inbound interest from folks who were saying, hey, can I get access To these capsids, can I incorporate this into my gene therapy products? Since we have 30 active conversations going on right now, there are folks that called us or folks that we reached out to That we knew would be interested in this sort of thing. And so I do think this idea of behind this, it's not just Stride's assets, Since it's all Ginkgo's automation, you can see that on the left there and all of being able to build many large designs, it is the combination of unique assets Plus, Ginkgo's platform, plus our ability to go out and sell and do commercial work and be good alliance Managed partners and we just have experience now, more than 100 R and D projects on the platform where we're working with all these different customers in our history. That's a real skill set. It allows us to harvest value from these platform assets where other people wouldn't find it.

Speaker 1

And then importantly, we also structure these deals In order to best take advantage of that for Ginkgo, so you'll see us aligning most of the cost of the deal being put into things like Downstream value share milestones and things like that for the partner. We would love to do more and more of those types of acquisitions. It's something we're actively looking to do. I think the STRIDE Bio 1 is a real case study of what works well for both sides. This asset just does it's a lot more valuable On top of Ginkgo's platform and the folks the previous owners of STRIDE will really benefit from that.

Speaker 1

Okay. So, I want to talk about a really exciting update to how We're doing some of our services. So the number one request we get from customers is to improve to better technically derisk cell engineering. So like the 3 thing customers care about, they want it to be less risky, they want it to cost less, and they want it to be faster. But the one they really want the most is to be less risky, All right.

Speaker 1

And you see this some folks like Nick at Lycos, hey, as a CTO of a growing company, what can I possibly do better than work with Ginkgo to derisk my plans, That's right? And Keith, that Optimvia, the likelihood of success for our project specifically was seen to be improved with the technical capabilities at Gingko. So we love that we can some people get that we can make things more technically successful, but a lot of people don't, right? Like, we'll go to folks And say, listen, in our experience doing a project like this, we have like a 90% success rate here. It's really going to work.

Speaker 1

And they'll be like, I don't believe you. And it's not a problem about Ginkgo. It's a problem about biological engineering, right? Like, this is considered to be R and D. Like, it's just You know, it might work and it might not, right?

Speaker 1

So, one of the things that I'm going to I'm doing to combat that is for our most mature So this is in our enzyme services, Ginkgo, enzyme discovery service, enzyme optimization service, protein expression service, We are moving to a success only payment. In other words, again, these are for shorter duration, high probability projects, and we bet them. If we succeed, you pay us. If we don't, you don't, right? And this is to move away from the model today, where if you work with A CRO or someone else in the research space.

Speaker 1

It's sort of like if you ask someone to build a house for you and on the date you were going to move in, The house fell down and they said, well, yeah, write me the check anyway, like, at least I tried, right? And that is that's what research work looks like. And so we think, With our platform, we can start to, again, by treating biology like an engineering discipline and driving scale, move this to more an engineering discipline and then Price like an engineering discipline, like we get paid when it works. And so, we think this is really exciting. I think it's been a week and a half since we announced this.

Speaker 1

A lot of excitement about this. It is a new way to it's a new type of offering on the market, really. And we think it's one that Ginkgo can really do well with that our customers are going to love. So Okay. Last thing I want to talk about is our progress in biosecurity.

Speaker 1

I think we are you see this with AI. You see it With just sort of COVID and bio in general, I think, like, there's a lot of disruption happening in the world right now. It is important for the folks building these types Technologies to approach them with care, right? And I think if you look at the history in computer science alongside increasingly Powerable Computers and Network Computers and so on. You add the birth of the field of cybersecurity, whose job it was basically to ensure that we could do all that Type of computing activity with a level of safety, both economic and national security.

Speaker 1

As the tools for engineering biology get more Sophisticated, more widely distributed. Alongside that, we should be building up the tools of biosecurity. It's very analogous. And and and we we have an interesting thing where, Fortunately, those tools today are still like mostly centralized and relatively weak. It's not like everybody is able to be engineering cells in their basement or whatever, in their garage.

Speaker 1

But that I do see that day coming in the future. So we want to be building out biosecurity tools in advance of that. Separately, nature, as we saw with COVID nineteen, throws off malicious biological code already. Right. He's doing a lot more of this than we are as humans.

Speaker 1

And so these tools are also amazing tools of public health In the interim period, while the tools of bioengineering are falling in cost and becoming more widely distributed. So, we can kind of work on a public health problem also getting ready for sort of the DNA age, just like we had to get ready for the computer age. I'm really excited by the range of expansion of our Biosecurity platform. This really originated many of you are familiar with the work we were doing in sort of school testing in prisons and things like that. A lot of that work obviously is drawing down with the end of the COVID emergency order here in the US.

Speaker 1

But alongside that, we are fortunate to be working with the CDC, For example, in airports in the U. S. Doing things like collecting wastewater, anonymous sampling from passengers, and sequencing to look for new variants. And many of you remember this, but like First sequence, BA. 2 and BA.

Speaker 1

3 coming out of this program to detect in airports. We think of it like a radar system, right? We've been working to expand that internationally. You can see Some of the folks that were either already deployed in or have MOUs with or expanding into some of the flags up there. This is not the only place that you would like to have persistent monitoring.

Speaker 1

Right. You'd also like to be doing this in places where we're congregating a lot of animals. Right? So animal agriculture. Honestly, you'd also like to look after it for Plant agricultural pests as well in the future, as well as doing things like, you know, hospitals and nursing homes and in crisis Like we're doing work in Ukraine, for example.

Speaker 1

I do see a shift that we're trying to pull off. You can see it on the right hand side of this slide where we are increasing the amount of sort of federal and international work we're doing, but with folks like the CDC, sort of federal and international work we're doing with folks like the CDC and other countries. That's really the thing to watch In the second half of this year is we're going to be working to make that shift from our programs domestically to these international programs where we see Good interest and we see a real opportunity for like a network effect where one country is going to be very interested in the data happening at other airports. And interestingly, what the magic of international airports is flights are coming in from all over the world. So, through these international airport programs, We've now tested samples and done the sequencing and so on from, I think, more than 60 countries coming into these airports.

Speaker 1

So Having these nodes out there, having that data globally, it's sort of of interest to every country, not just the country that we're testing in. And so really excited to see that develop, but it is an early and new market. All right. So, I'd like to end on this slide. I am super excited.

Speaker 1

Permit always gets to be fired up, but this year was just amazing. Like to see All of our customers talking about the platform to hear direct feedback about what it is we can do to make it better. That feedback loop is really working. I think, and it gets me excited. And I think as we're doing all that and making it better by implementing biosecurity globally, we get to do all that with care.

Speaker 1

So thanks for the time today and pass it to Ann Marie for Q and A. Thanks.

Operator

Great. Thanks, Jason. We'll switch to Q and A in a few moments. Before we do, I wanted to get through a couple of housekeeping items. In my role, I respond to a lot of investor emails, and I'd like to make it easier for all our investors to benefit from the questions that are being asked.

Operator

And there have been a couple of recurring themes, so I've added 2 new slides into the appendix materials that I'm hoping will be helpful. The first, which Mark alluded to, provides more clarity around Stock based comp. And in summary, the vast majority of the stock based comp we've recorded since going public is related to shares granted prior to going public. That's been a common source of confusion, so hopefully that'll help clarify that as well as provide some modeling tools around what's left. The second slide provides some additional details on stock Sales by our founders.

Operator

This data is all publicly available, but some of the market data providers don't accurately pull our share counts, because they sometimes exclude different classes of shares. As you'll see on the appendix slide, our founders still own over 400,000,000 shares. That represents over 20% of the company. They did have some mandatory sell to cover transactions when their RSUs were settled and have put in place small 10b5-1 plans. But both of those are dwarfed by their core holdings, most of which sit in illiquid class b shares.

Operator

So I'm hopeful that those slides are helpful. Now we'll move on to Q and A. As usual, I'll start with a question from the public and remind analysts on the line that if they'd like Ask a question to please raise their hands on Zoom, and I'll call on you and open up your line. Thanks, all. All right.

Operator

It looks like everyone has managed to reconnect, so we'll go ahead and get started. The first question, as I mentioned, always comes from retail. This comes from Mark D. On Twitter. Since the number of Projects is the best leading indicator for future platform revenues.

Operator

How do you feel about your original forecast of adding 100 projects for 2023? When looking at the pipeline of projects, Are you on track? Thanks. Yeah.

Speaker 1

I can take that. I can also talk about the scene change, since I'm now in Qatar, just getting back from a dinner. So I mentioned this at the end of the the recorded talk there. We, we've been expanding our biosecurity business Pretty dramatically on the on the international side. And one of our best sites is actually, Ahmad International Airport here in Doha, which is just a great Regional airport for the area.

Speaker 1

You you know, we have this program with the CDC where we're collecting wastewater, and testing for new variants. I'll I'll just say that the flights into into Doha are not overlapping very much with the flights into Atlanta. So it it really is a really nice way to get a set of data for our, our biosecurity programs. We're lucky to have the partners here. So to get to that to get the answer to your question, on the programs, Yeah.

Speaker 1

So I think one of the key things, I mean, a, you know, our operating half was 13 this quarter. That's down from last quarter. So that's something we're keeping an eye on. I would say We have the, you know, one disadvantage, you know, we're doing large enterprise sales, which can be a little bit lumpy and unpredictable. Like, There's just an enterprise sales element to it.

Speaker 1

The advantage of enterprise sales is you have decent pipeline visibility. So we have a good sense, you know, deals don't close in a week, You know, they close over over months, and so we have a good sense of what's in the pipeline. So that's the one reason we have a lot of confidence, in that program count for the year. I will say if I, like, look across the last year and and try to find, like, actual trends and what's either making it easier or harder To close programs, probably the one thing that's making it harder, I would say, is for startup companies in kind of non biopharma Biotech. So things like industrial biotechnology.

Speaker 1

Those companies are having a harder time accessing capital in in the sort of tighter Up on market, you know, it's one of the areas that venture capitals are putting less money into and that is making it tougher, it's at least extending deal close time and things like that, With our with programs in that area. On the other hand, again, we it cooperates as a as a as a general platform, like I mentioned, in in my remarks there. That allows us to be able to move into other areas that are doing better, like biopharma, for example. So biopharma, you are still seeing a ton of activity, both, with with Startups and large companies. We mentioned how much energy we've been getting out of the Stride Bio acquisition, but we also have, you know, healthy pipeline in cell therapy applications, mRNA, therapeutics applications, things like that.

Speaker 1

So I think you'll see us shift a little more, towards biopharma, but we do have a robust sales pipeline coming up, so feel good

Operator

about Thanks, Jason. All right. We'll take a question from analysts now. The first question I'll take comes from, Raul Saragasar and, Raymond James. So let me try to open your line here, although we're actually having a bit of Trouble.

Operator

I may need to ask for a little IT support to give me permission to open the lines. And while we're doing that, I'll go ahead and ask another Question, this one actually coming from an employee. So for folks that don't know, anytime we do an earnings call, the first A sort of investor call that we take after our earnings call is with all of our employees. Our employees as a group are our largest shareholder, and we thought we might share some of their Jen's with you all as well. So this one came from an employee that chose to remain anonymous.

Operator

We're increasingly talking about AI, at Ginkgo. And so can you provide an overview of our AI and code based strategy and how we're staffing those efforts?

Speaker 1

Yeah. So I think I think this is actually a big deal. So, I I touched on this a little bit at Ferment, but One of the things that's happening is because of the impact of sort of Chat GPT in the sense that, like, large data Plus generative AI models equals change, in industries. You now have pretty much like every large corporation Looking at what the impact of this is gonna be on them. And that, you know, that's auto companies, that's, you know, chip companies, that's media companies, and it's also Biotech, biopharma companies, you know, ag companies and so on.

Speaker 1

And in order for a customer to use Ginkgo's platform, they have to choose to make a change, Right. So today, they have an internal r and d department doing work and they're making products and everything else. And I'm saying change some of that, spend some of those r and d dollars Our platform, as sort of like a sales motion, they need to have a reason to want to change. And sometimes it's they're greedy to try to add a new product, sometimes that things aren't going well, and they're not going to be able to do that. And so, we're with generative AI.

Speaker 1

So you have people saying, hey, I think I I should be looking at what happens if there's big data, and And ML models in my space. And the beauty of Ginkgo is we are a great place to generate huge data assets. And so I think AI is a core strategy, it is it is a very positive wind in our sales here at Ginkgo. In terms of how we're making use of it, well, we have this advantage that we have been, over the last, You know, 10 years as we've done all these deals and so on, accumulating a huge data asset, we've talked about this publicly many times, our code base, that is beautiful, beautiful data, to train these types of models. So we're super excited about that.

Speaker 1

We're already seeing good results. You can see some of this in our Webinars about how we do our protein engineering, but expect that to expand to a wider set of activities at the company. And I expect customers to come to to get access to it.

Operator

Thanks, Jason. All right. Rahul, I think we're all set. So I've just opened your line. Please go ahead.

Speaker 3

Alright. Can you guys hear me?

Speaker 1

Yeah.

Speaker 3

Excellent. This is Michael Friedman on for Rahul today. Okay. Thanks very much for taking our questions. And congratulations on such a successful Ferment event.

Speaker 3

That was a really spectacular display with some glowing Reviews from your customers. So thanks for throwing that, you guys.

Speaker 1

Yeah. Thanks for coming.

Speaker 3

It was a pleasure to be there. Okay. First question is on is on the overall IP strategy. I'm wondering what can you tell us about how How, you know, this year versus perhaps last year, Ginkgo's been leveraging its its existing code base for new cell programs, versus doing de novo engineering, and how much perhaps how much more it's drawing upon that code base now and and the attitude among Customers. Like, I trust in early days, there are some serious pushback among customers saying, when with Ginkgo's attitude toward Holding on to the IP that you developed.

Speaker 3

So I wonder if you could shed shed some light on all that.

Speaker 1

Yeah. Yeah. I can I can touch on this one? Yeah. One of the biggest challenges we've had with customers over the years was sort of, hey, it seems, Ginkgo, like you're doing a project in area for the first time with me, I'm going to fund a a chunk of it and you're going to keep the rights to reuse it and go off and build a business On the back of my investment, right?

Speaker 1

And and, you know, short answer was yes, we were doing that, in a number of cases, but what what's happened over time is we're accumulating Assets in all these areas, is we now, you know, and you can see this with with those four services I announced at Permian, each one of those services has Specific code base in that area. So when we go and talk to a customer, it isn't saying, hey, I I I don't have anything in AAVs, but I think my robotics could be useful for you. Hey. That that would have been true, and I did do sales like that a year and a half, 2 years ago. They're brutal sales.

Speaker 1

Now I get to say all my infrastructure and high throughput automation is useful for AAVs. By the way, here's the data to show you. By the way, here's a bunch of, you know, great captions from Stride Bio that you can get access to. And by the way, here's some, You know, other data, you know, capsid work we've done to discover some new stuff and and so on. That that that really, really helps on the sales side.

Speaker 1

So I would say probably the biggest impact is in selling, because a lot of customers, particularly in the biopharma side, want to see data that you've done something like what they're interested in. And then the second order is, like I mentioned, that Lygos project We're able to just totally draw on some work we did before, to speed a project up, you know, I don't know, in some cases by So I think there's a real there's going to be more and more examples of that, but probably the first place we're seeing it is just having a more complete product to offer on these services.

Speaker 3

All right. Thank you very much. I think as I follow-up, this one will probably be for Mark. Around at the end of Last year, we were waiting on some some lumpy milestones. We're one curious about the timing on that.

Speaker 3

You know, I'm looking at the cell engineering Revenue where 1 here, 1,000,000 of the total 34 was downstream revenue. Also looking at the appendix of the presentation today, where 13,000,000 is non cash consideration of the total 34. I wonder if you could just help us sort through those, at least the definitions and shed light On these things then and then perhaps talk about those lumpy milestones.

Speaker 2

Okay. So I'll take the two points in turn. 1st on the lumpy milestones. So really, it's the same comment I think that we made on our last earnings call, which is, yes, there were the 2 milestones that At one point, we had been expecting to hit in Q4, which spilled into 2023. And yes, we are still going after Those two milestones, we believe the technical work on that is substantially complete.

Speaker 2

But I think as we had mentioned on the last call, and this is still true, there are Aspects of validating the completion of that work that is out of our control, it's Dependent on both customer and some third party manufacturing. And so those are still in play, but timing is just uncertain On that. With respect to the second point that you made on noncash consideration, so So so, yes, 1st of all, the the the conclusion that, substantially all of the revenue in the Q1 related to services revenue. That's Correct. The supplement in the appendix shows you, like you said, the component of services or total revenue that is Non cash.

Speaker 2

So we do, in some cases, as you know, and we started doing this last year, we do sometimes take equity from a customer as part of the upfront Consideration on a project, so not just for downstream value share, but also for, the upfront or the service fee consideration. And so that's why we're giving you the additional sort of data point. Does that answer the question?

Speaker 3

It sure does. I appreciate that. I'll jump back in the queue.

Operator

All right. Thanks, Mike. All right. Edmond Tu from Morgan Stanley. I've just gone ahead and opened your lines.

Speaker 4

Hi, guys. Thanks for taking my questions. Just to circle back on that point, Jason, How do you strike the right balance between leveraging the collective learning sort of code base for the benefit of an individual client versus making sure clients don't feel threatened that their secret sauce is Being farmed out for the benefits of other customers, what safeguards do you have in place to make customers feel comfortable?

Speaker 1

Yeah. This is a key question, and and something we talk a lot about with customers, so happy to share about it. So, the the number one thing is New IP developed in a project for a customer for their application is exclusively licensed to them for that application. So if if you're developing, you know, gene therapy and against disease target, whatever it is, you're gonna get the rights to the IP developed With the work done for you, for your drug, and no one else can use it for that. So they're not gonna get to take what you did and compete with you directly.

Speaker 1

Now where we differ a little bit is we would say, well, if that capsid had used, for example, in some other, you know, disease area, some totally different thing than What you're really working on are just in pharmaceuticals generally. You know? We'd like to be able to reuse that asset. And that and that's where we end up arguing with customers And and kind of and and figuring out what's right. You know?

Speaker 1

I I would say the general rule is we're most interested in, things that have Kind of broad reusability across lots of projects. Right? So, you know, captains are a good example. Certain internal sequences on cars are a good example. Bull, like, there's just certain things that, we think are don't make up the whole drug, but, boy, if they worked better, they would make it a lot easier to get a lot of drugs Market.

Speaker 1

Right? And so that that tends to be the kind of thing that we fight hard to make sure we do have broad rights to. If it's something ultra specific to the customer, then that's Kinda less relevant. But but that's that's that's how we do it. And I think over time, as we accumulate more and more assets, this conversation becomes easier.

Speaker 1

Right. Because you're sort of coming in and and I'm saying, listen, I've got 90% of what's necessary for this project, but I, you know, you're gonna have to agree to this for the other 10% that you're gonna add to it or else we just Work together and you're going to want the 90. Does that make sense?

Speaker 4

Yes, got it. That's very helpful. And then Jason, on a separate note, It sounds like you still feel like that the funding pressures are actually driving a push towards greater outsourcing. I mean, clearly, we've seen the weakness get worse even with some of CRO is now acknowledging weaker spend at midcap biotechs. So I just wanted to understand what insulates you more versus the traditional CROs?

Speaker 1

Yeah. And just to be clear, like I said, for industrial biotech, my experience is I think it is, like, causing pushback on us, right. So I don't I don't think we're we're seeing more outsourcing necessarily in industrial biotech. We're just seeing less spend big in industrial biotech. So, there there, I think we see more sensitivity.

Speaker 1

When it comes to, like, these other areas, I mean, the honest truth is we're not that penetrated into these areas, right? So if I was off already serving every company and they cut their r and d spending 30%, I'd be back 30%. But, you know, the reality is I'm in, you know, an integer number of The biopharma company is out of 1,000, you know, right? And so, we we just have so much room to run through, And so we don't we're just not I think we're just not as sensitive to it yet. It doesn't matter if that sector just stops spending on R and D, which is a little bit of what we're seeing some of the industrial biotech spaces.

Speaker 1

But but, but in in biopharma, that's not the case. So there there there's plenty of opportunity for us.

Speaker 4

Got it. Thank you for the color and the time.

Operator

All right. Thanks, Edmond. All right, Gaurav, I've just opened your line. Feel free to go ahead.

Speaker 5

Awesome. Thanks guys for taking my question. I know it's about midnight over there, Jason, so I'll keep it quick. On the On the new, 13 programs, right, this quarter, you know, are you guys able to break out that end market split or even the downstream potential? Or is that something that, you know, we should expect only on an annual basis.

Speaker 1

Mark, you want to take that?

Speaker 2

Yeah. Generally speaking, We would only be updating the downstream value share sort of metrics that we had talked about on the last call, We think once, sort of annually. Now we did announce just recently a large program with BI, and so you've got Around $400,000,000 of, downstream milestone potential from that particular contract. And I would just say the 13 programs are spread, like, pretty broadly across the types of downstream value share That we got. I mean, there's a good chunk of royalty bearing programs in there.

Speaker 2

There's a few that are milestone based, a few that are equity based. So It's I think it's just representative or of the normal sort of mix.

Speaker 5

Yep. That makes sense. Thanks, Mark. And then just one quick follow-up for me. You know, On the, you know, the new four service offerings.

Speaker 5

So just to make sure I understand it correctly, right, so are are these, you know, 4 new service offering capabilities Ginkgo previously couldn't address on the platform, or are they just, you know, a more structured and focused program version of what they were prior?

Speaker 1

Yeah. That's an awesome question. Okay. So so The here's a like, how Ginkgo runs basically is to have a large general platform. It's a mix of Software and automation and a variety of genetic and IP and data assets that are all available to a Scientist who works at Ginkgo on a customer project to order things from.

Speaker 1

Like, that's what's happening internally. Alright. Now I can walk up to a customer and say, like, Look at this 300,000 square foot facility and all these robotics. Could it be useful to you? Right?

Speaker 1

And they don't know how to translate that. You know? Like, they're used to seeing scientists is working by hand, like, we do R and D in a very different way. And and and so the so the point of the services is to speak in the language of the customer. Okay.

Speaker 1

So so it is a it is a it is a sales object. Right? It is a way for us to say, let me just be very clear. This is what we can do in this Category. Let me name it for you.

Speaker 1

You know, Ginkgo does AAV. Like like, for example, us acquiring StrideBio, in part, great assets. People are calling us about the assets. It's also just people like, hey, Jason, why didn't you guys were working in AAVs? Working in AAVs for 2 years, you know, right?

Speaker 1

Like, you know, we we have, you know, an announced deal with Selecta. Right. But and we did the deal with Biogen. Right? Still.

Speaker 1

You know? But but the acquisition of Stride was all was also in part just a marketing activity in the biopharma space so that people knew. Right. And that's kind of the goal of the services. Like, as a general platform, it's great because our TAM is huge.

Speaker 1

The downside is people don't understand what we can do for them. And so the idea and so expect more services. Right? I'll do as many of these as make any dang sense to customers, frankly. And so it's it's see us expect to see us experiment there and see Where we're landing and and and having, you know, something to help help customers better understand how to leverage the Ginkgo platform.

Speaker 5

Awesome. That cleared it up. Thanks, Jason. Thanks, everyone, and, cheers. Talk soon.

Operator

Thanks, Greg. Thanks. All right. Next question will come from Matt Sykes at Goldman Sachs. And then just a reminder to the other analysts on the call that if you'd like to ask And please do raise your hand so that I know to call on you.

Operator

Thanks so much. All right, Matt, your line should be open.

Speaker 6

Hi. Can you hear me? This is Evie Koslowski on for Matt. I understand this is early on, but could you provide any color on how the Success Only payments Has impacted your win rate at this point with customers?

Speaker 1

Yeah. So this is a cool idea, I think. I mean, so again, just to restate what we're trying to accomplish here, like, the the larger mission of GECO, just to be clear, is to make it easier to engineer biology. Alright. And and by engineer, engineer means something, right?

Speaker 1

Like when you engineer something, there there is a predictable set of equations that let you know how to A bridge or a microchip or whatever, right? When you do research on a cell, like engineering, exactly engineering a cell, people don't think of it really like engineering. You're kind of you're doing Right. And you're exploring the space and you don't know if it's gonna work and all these things. And so we're trying to generally move into engineering.

Speaker 1

And one of the things we noticed was for certain types of projects, Doing these certain protein discovery projects and enzymes and optimization projects, certain protein production. It was starting to feel like engineering, Right? Like we were just seeing extremely high success rates. We knew which projects were gonna be hard a priority and which ones were gonna be easy. And we would tell customers we didn't show data And they'd still be like, I'm not going to spend that much on a research project.

Speaker 1

And so what we're saying now is, fine, it's not a research project anymore. It's an engineering project, And you will pay and we'll and you'll pay on delivery. And that absolutely is working. We restart we there's probably 7 or 8 projects, in the sales pipe right now that were previous Those, since we announced it. So and that's, you know, just stuff we had been talking to people about before.

Speaker 1

So so, yeah, I think it's I think it's a really exciting idea and we'll see how it plays out over the Couple of quarters, but early looks good. And it is good. I mean, look, if we're wrong, we're taking risk, right? Customers are getting a real value It's not like we're not offering them something here, but I like our odds and I like our technical success rate in these categories.

Speaker 6

Yeah. That's super helpful. Thank you.

Speaker 1

And then Oh, one last point. Sorry. Yeah. We also are aiming for the shorter projects. Right?

Speaker 1

So so I'm not, You know, expect these projects to be more like 6 to 12 month projects, not like 2 or 3 year projects where we would be, you know, if it's a longer project, we break it up into smaller Success based pieces. So I don't want to go too far out on a limb, on a project where where we're waiting to see if we're technically successful to get paid, if that makes sense.

Speaker 6

Right. Yeah, that definitely makes sense. And then on biosecurity revenue, came in much higher than our expectations. I know you talked a little bit about it, but Can you talk through your updated strategy as it relates to biosecurity potentially becoming a more durable part of revenue than we might Previously expected, I think you said 20% is recurring, but how should we think about the work down of the nonrecurring part and then also a long term growth rate of the recurring part?

Speaker 2

So why don't I start with the just to get the numbers kind of straight here. So first of all, so in the quarter, 20%, roughly speaking, Of the biosecurity revenue came from those, what we believe, will be more recurring sources. And so that would not be The state kind of k to 12 school COVID testing programs, for example. You'll also note that we didn't change the guidance on biosecurity. And so what what you are going to see is Really one more sort of partial corridor where we do still have some k to 12 school testing revenues coming Into the numbers, and then that is expected to drop off pretty dramatically after the Q2.

Speaker 2

And so we have, sort of little very little to nothing in the guide for the second half of the year relating to that legacy K to 12 business. So, the Q1, it was solid, like you mentioned, but that is because we were still getting a good chunk of K to 12 revenue, will get a little bit more in the Q2, and then it's going to fall off. And sort of thereafter, The bulk of the biosecurity business is the sort of the new sources of revenue. And so you can kind of work, You know, what what that sort of will will tell you, I guess, is that, a good portion of the 100,000,000 will be realized in the first half of the year. And then thereafter, we're it's almost like a reset on a lower revenue base that we expect to increase over time that will be largely the new sources of revenue.

Speaker 6

Okay. Great. Thanks for holding.

Speaker 1

And just to comment on what those will be, that that that's around things like these airport programs, these these what we consider to be, like, persistent monitoring. And I think there's a few different places that could happen, but we're we're probably most excited about what we're seeing in the airports.

Speaker 6

Great. Thank you.

Operator

All right. Thanks so much. So final call, if there are any other questions, to raise your hand. But we are just about at Time. And so for 1, Skinco has hosted a call that didn't run over.

Operator

It's a new KPI for me. And we'll let Jason go catch his next flight.

Speaker 1

I was gonna say, It's good, but I can make my plans.

Operator

Appreciate everyone joining us this quarter, and we'll see you next time.

Speaker 1

Thanks,

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Earnings Conference Call
Ginkgo Bioworks Q1 2023
00:00 / 00:00