The Zymerger: Ginkgo acquires Zymergen as the industrial biotech Carousel of Slower than Expected Progress takes another spin

July 25, 2022 | Jim Lane

The Iron Law of Sustainability reasserted itself this morning when Ginkgo BioWorks acquired Zymergen and along with it a vast sea of intellectual property and some tasty business opportunities, for the bargain price of $300 million. It’s just a fraction of the $3 billion valuation that Zymergen achieved at its all time high of $4.8 billion and is far less than the roughly $1.5 billion of capital that Forbes reported the company raising over its lifetime. The transaction is expected to be completed by the first quarter of 2023

What’s the Iron Law of Sustainability?

You can have advantaged materials that are sustainable, affordable or soon, pick two out of three.

Zymergen was in the business of creating sustainable, affordable materials that will appear eventually, but not soon enough for the markets. Their attempts to produce sustainable, immediate products foundered on the Iron Law and, given the lack of go-to big customers, presumably were unaffordable or not sufficiently functionally advantaged. Certainly the partnership with Sumitomo Chemical in 2019 to develop HYALINE electronic films did not deliver, we were told a few months after the IPO, the aimed-for functional advantages in polyimide film.

Ginkgo’s plans and recent advances

Ginkgo plans to integrate Zymergen’s core automation and software technologies for scaling strain engineering capacity into its Foundry, including Zymergen’s machine learning and data science tools for exploring known and unknown genetic design space. Ginkgo customers will also benefit from the expansion of Ginkgo’s library of biological assets (“Codebase”) following the transaction. Meanwhile, Ginkgo will support Zymergen’s plans to support for valuable product pipelines and rapid prototyping capabilities in advanced materials and drug discovery.

Clever Ginkgo meanwhile continues to use its larger balance sheet and cash reserves to acquire interesting technologies at good prices and develop a string of complex partnerships that you’d have to have access to all the data in the Ginkgo vault to assess the fiscal prudence of. But it’s sizzling stuff, and confirmation that agricultural biologicals are hot, hot, hot, once again.

Case in point, Ginkgo Bioworks and Bayer inked their deal to significantly expand its platform capabilities in agricultural biologicals, from discovery to field. Three elements here.

1. Ginkgo will acquire Bayer’s 175,000-square-foot West Sacramento Biologics Research & Development site, team, and internal discovery and lead optimization platform for $83.5 million.

2. Ginkgo will integrate the R&D platform assets from Joyn Bio, a joint-venture between Ginkgo and Leaps by Bayer formed in 2017.

3. As part of a three-year strategic partnership, Ginkgo will provide research services to Bayer in the field of agricultural biologicals with the potential to earn downstream value in the form of royalties on net sales from products developed under the partnership. As previously disclosed, it is expected that the cash proceeds from this collaboration with Bayer will significantly offset the operating expenses acquired through the transaction. In addition to this collaboration with Bayer, Ginkgo expects to engage with other customers in supporting the development of their agricultural biological programs.

The Ginkgo Sumitomo hook-up

Ironically, since it was the demise to the Sumitomo polyimdes gambit that sank Zymergen, it’s worth noting that Ginkgo last week launched a cell programming project as part of a broader collaboration with Sumitomo Chemical. Sumitomo will leverage Ginkgo’s codebase and expertise to produce molecules used in the personal. More here.

Do these newfangled organism technologies work?

Well, there’s evidence for a big yes. In June, Cronos Group and Ginkgo tipped that their cannabinoids project had crossed the third target productivity milestone. It’s an epic quest to produce eight cultured cannabinoids. Cronos hit its target for tetrahydrocannabivarin (THCV), a cannabinoid hypothesized to reduce the appetite-enhancing property of THC. The partnership has been underway since 2018. More on that here.

The Bottom Line

Stand by for the rush to judgment. Many observers who did not use the world “failure” around the time the Zymergen IPO will brand the company a failure — and that’s far too harsh. We were very unenthused about the Zymergen IPO not because of the technology or its applications, but because the whole company had started to feel like RUSHmergen, and NOPLANBmergen. The capital raises has been so substantial — $1.5 billion is a lot of capital — and there was almost no way that a company could raise that much money in industrials and take 10-15 years to develop itself. It was sent out onto the IPO markets — so eager for sustainables — before the technology and the commercial prospects were themselves sustainable.

But we sure like the technology, the targets, the long-term prospects, and Ginkgo we suspect will reap pleasing rewards from the modest investment in the form of a stock swap. I seem to recall that Zymergen dates back to around 2014 and it would have been terrific if the company had another 4-6 years to develop and deploy. The burn rate was too high for the market, and the valuations that Zymergen once commanded in the public markets were presumably unavailable to them in the PIPE market where companies go when they wish to raise gobs of fresh capital, and presumably diluting the shareholders with a series of share issues was not viable either.

So, the Iron Law of Sustainability has claimed another set of investors who mocked it. The acolytes sing Better With Biology but it would be more accurate if they had sung There’s a Great, Big, Beautiful Tomorrow, the Disney song from the Carousel of Progress. Sometimes we wish it was sung like this: “There’s a Great, Big, Beautiful 12 years from Tomorrow.” That would yield a lot more winners in industrial biotechnology investment.

Reaction from the stakeholders

“We have always had incredible respect for the Zymergen team and the strength of the technologies that they have built for cell programming,” said Jason Kelly, CEO and co-founder of Ginkgo Bioworks. “We are thrilled to integrate Zymergen’s capabilities into our Foundry, which we expect to accelerate the growth of our platform as we continue to deliver on our mission to make biology easier to engineer for our customers, helping us drive down the costs of cell programming as we invest in scale. We can’t wait to welcome Zymergen’s technical teams, who will support our scaling objectives.”

“At Zymergen, our team has built a world class and innovative technology platform which will complement Ginkgo’s cell programming capabilities,” said Jay Flatley, Chairman and Acting CEO of Zymergen. “We’re excited about the opportunities created by combining our technologies to accelerate Ginkgo’s platform development to better serve customers, promote Zymergen’s public benefit purpose, and achieve our shared vision of sustainability and a world built on biology. The transaction also represents a compelling opportunity for our stockholders to participate in the future growth and upside potential of the combined company.”