In its Q3 financial results, DNA stock missed FactSet consensus estimates on EPS, returning -$0.41, while expectations were for -$0.26. However, it beat on revenues, delivering sales of $66.4m, up 10% on FactSet sales consensus of $60m.
What is Ginkgo Bioworks?
Ginkgo Bioworks Holdings, Inc. is a biotech company that focuses on developing technology for use in a variety of markets, including food and agriculture, industrial chemicals, and pharmaceuticals.
Ginkgo Bioworks was founded by Jason Kelly, Reshma Shetty, Bartholomew Canton, Austin Che, and Thomas F. Knight Jr. in 2008, and it's headquartered in Boston, Massachusetts.
DNA Stock
Biotech stock Ginkgo Bioworks (NYSE: DNA) is on a mission to make biology easier to engineer. The company takes customer ideas and designs, writes, and debugs the DNA code to engineer a cell that meets customer specifications.
Ginkgo has two main aspects to its business: the Foundry and Biosecurity.
Ginkgo's Foundry is an automated lab where software, hardware and automation engineer the cells. Another key asset is its Codebase which includes both its physical (engineered cells and genetic parts) and digital (genetic sequences and performance data) biological assets. These accumulate as the company executes more cell programs on the platform.
Ginkgo is expanding its Biosecurity segment with pending acquisitions. These include Zymergen Inc (NASDAQ: ZY) and Bayer's (OTCMKTS: BAYRY) agricultural biological assets. The company also acquired certain assets from Bitome, which is developing a real-time metabolite monitoring technology that could potentially accelerate product development timelines across Ginkgo's cell programs.
DNA Q3 Financial Results
Ginkgo Bioworks closed four acquisitions in October. The company continues to focus on attracting new programs to its platform and added 15 new programs in Q3. It is seeing strong momentum in the pharma and biotech vertical and closed a collaboration with Merck.
Ginkgo Bioworks' Q3 2022 financial results show solid execution in both its cell programming and Biosecurity businesses. Indeed, it is increasing its financial guidance for its Biosecurity business.
The company has long-term strategic initiatives that are gaining traction.
Total revenue for Q3 2022 was $66m, down 14% Y/Y due to a lump sum equity milestone in Foundry revenue in Q3 2021.
The company added 15 new programs in Q3 2022
DNA supported a total of 85 active programs in Q3 across 43 customers on its Foundry platform.
Foundry revenue was $25m in Q3 2022, down 29% Y/Y.
Biosecurity's Concentric offering generated $42m in Q3 2022, driven by K-12 testing and other COVID monitoring services.
Biosecurity gross margin was 41% in Q3 2022, up 5% Q/Q.
G&A and R&D expenses increased due to business development and new acquisitions.
Zymergen (Pending Acquisition)
In July, it was announced that Ginkgo would acquire Zymergen for $300m in an all-stock deal.
Zymergen applies genomics and machine learning to research and design chemical-producing genetically modified organisms. The company is developing better crop protection solutions for the environment, farming, and pest control. Its mature nitrogen fixation program could potentially replace nitrogen fertilizers.
This quarter, Ginkgo launched 13 diverse new cell programs, including Novo Nordisk (NYSE: NOVO) and Sumitomo Chemical. This means it should be on track to meet its target of 60 this year. But the company's more ambitious target is 500 in 2025.
The Zymergen acquisition may achieve that target as it comes with its own pipeline of potential projects. Plus, a knowledgeable team heavily invested in flexible automation. This includes robotics that serves a variety of lab processes, complete with a top-notch software system. In the future, Ginkgo could potentially leverage this to scale its facility and reduce its overall costs.
Ginkgo is continually driving the scale of its foundries to reduce the cost of lab work in cell engineering.
Bayer Asset
Ginkgo Bioworks is to become a multi-year microbial strategic partner with Bayer in their work to develop biologic solutions in fields like nitrogen optimization, carbon sequestration, and following-generation crop protection.
The transaction will enable Bayer to expand its leading biologics position, strengthen its access to critical enabling technology in synthetic biology, and maintain Bayer's role as the preferred research, development, and commercial partner in the biologics segment.
This could become a compelling story as it makes for a unique combination. Bayer will pay Ginkgo upfront R&D service fees from its upcoming contract.
What is Ginkgo Bioworks Concentric?
Concentric, powered by Ginkgo Bioworks, is a synthetic biology company based in Boston. Through Concentric, the company aims to make peace of mind about community and environmental health attainable by everyone.
Biology is all around us, and using it as technology can help create a harmonious and equitable future. In order to create a future where environmental and community health is within reach for everyone, Concentric studies how biology behaves around us and finds ways to catch and contain biological threats.
The company's best solutions come from working closely with communities to build new technologies around their specific challenges.
What began as a response operation to monitor the spread of COVID-19 in key community hubs – schools, senior living centers, corrections facilities, and airports – became a foundation for an adaptive infrastructure capable of informing communities of public health changes.
A people-first approach helps bring science and community together in a meaningful way. At all stages of its programs, Concentric prioritizes individual privacy and ensures that its products are used ethically, responsibly, and carefully.
Biology-powered, data-driven, and people-centric, Concentric's goal is to ensure that everyone's health is connected. When risks emerge, biosecurity empowers everyone to step up instead of shutting down.
Investor Warning
In its latest 10-Q filing, the company stated:
We may be unable to complete pending strategic acquisitions or successfully integrate strategic acquisitions which could adversely affect our business and financial condition.
This is a new risk factor relating to DNA stock. The company goes on to say its inability to complete any pending strategic acquisitions or to successfully integrate any new or previous strategic acquisitions could have a material adverse effect on the business.
For example, our announced and pending Zymergen merger and Bayer acquisition are subject to a number of closing conditions, as described in Note 15 to our consolidated financial statements.
Any strategic acquisition we may complete may be made at a substantial premium over the fair value of the net identifiable assets of the acquired company and thus our realization of this value relies on successful integration and continued operations.
How Does Ginkgo Bioworks Make Money?
Ginkgo Bioworks makes money by charging usage fees for its Foundry services. This is a similar setup to cloud computing. Additionally, the company negotiates a value share with its customers (typically in the form of royalties, milestones, and/or equity interests) to align Ginkgo's economics with the success of the programs enabled by its platform.
As Ginkgo adds new programs, the hope is that its portfolio of programs with this "downstream" value potential will grow.
The company also makes money from its Biosecurity segment. This covers COVID-19 monitoring services, an area the company was recently awarded a CDC contract worth a potential $61m.
Ginkgo's Biosecurity revenue consists primarily of product and service revenue from Ginkgo's end-to-end COVID testing offering, and the growth was mainly driven by testing in schools. Covid testing is cyclical because schools have no need for it when they are closed; therefore, Biosecurity revenues fluctuate, and the company is hesitant to be too ambitious in its forward guidance.
In Q2, Ginkgo achieved an $18m equity milestone in its partnership with cannabis stock Cronos Group Inc (TSE: CRON). Together they've already produced two cannabis products with more in the pipeline.
DNA Stock Financials
Over the past year, Ginkgo Bioworks Holdings Inc (DNA) has traded between $1.64 and $11.66. Today it trades at around $1.80.
Year-to-date, DNA stock is down by -79%, while the S&P 500 is down -17% over the same period.
DNA stock has a price-to-book-value (P/BV) of 1.8, which is close to the industry benchmark. Ginkgo Bioworks stock does not come with a shareholder dividend (what is a dividend?).
DNA Growth Potential
On the Q2 earnings call, management discussed its future vision, with many ideas in the pipeline.
For instance, its biosecurity diversification will give it the infrastructure to potentially monitor multiple pathogens in the future. It seems this would be something governments would like access to and is something Ginkgo will likely look to develop.
The company may also be looking to consolidate its real estate portfolio on the West Coast to streamline assets and raise funds.
Ginkgo management has high hopes for its synthetic biology capabilities in beating climate change, particularly with carbon capture.
DNA Stock Risks
Stock-based compensation expenses: The company paid out $563m in stock compensation expenses in Q3. This is less than the $607m in Q2, which relates to the ongoing wind-down of previously disclosed restricted stock units.
The company now expects significantly smaller amounts to be booked in the fourth quarter and in 2023 and beyond related to this wind-down.
Rising R&D costs: Research and Development costs soared above $289m in Q2, from $52m Y/Y. This fell to $73m in Q3.
Real Estate: If the company cannot sell its real estate, the cost of holding on to these assets could prove cumbersome.
Ginkgo Bioworks Stock Forecast - Analyst Ratings
Eight FactSet analysts have an Overweight consensus rating on DNA stock with a share price target of $5.29, which is below the August consensus of $7.98.
Analyst Matt Larew of William Blair reiterated his Buy rating on DNA stock, as did Stephen Mah of Cowen & Company, with a $12 target price.
Meanwhile, Rahul Sarugaser of Raymond James echoed his Overweight rating on DNA stock with a DNA share price target of $6. This is far lower than Sarugaser's August share price target of $14.50.
Ark Invest, operated by fund manager Cathie Wood is a big fan of Ginkgo. The fund added over six million DNA shares to its ARK Innovation ETF (ARKK) in November.
Should You Invest in Ginkgo Bioworks?
Ginkgo Bioworks is an exciting company with some impressive collaborations and acquisitions underway. The company is operating in several niches with significant potential for growth. Carbon capture, vaccine development, fertilizer replacement and crop improvement are all areas experiencing high demand.
Ginkgo Bioworks is expecting to see the impact of two large acquisitions it recently closed in Q4. It expects the new run rate OpEx related to the acquisitions to be offset by revenue from a new collaboration with Bayer. And for this to be largely a pull forward of the spend it would have incurred organically in 2023 and 2024.
The company also expects significant one-time transaction costs and near-term integration costs, particularly related to the Zymergen acquisition. The company closed the acquisition with a significant cash balance which mitigates the spend.
Ginkgo's rising expenses and acquisition costs pose a risk, but the company is confident its Bayer contract will significantly offset the expenses that it's taking on.
Nevertheless, DNA stock remains a speculative investment in the current economic climate.
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