[U20] Bioworks: niche or game changer?
Programming organisms into specialized, scalable factories
Dear Reader,
I’m writing this update in Product | Strategy | Innovation regarding what appears to be an emerging horizontal biotech platform. Companies like Amazon, Apple, Netflix and Tesla have drawn attention to the vertical integration of their supply chains. For example, Netflix produces award-winning video content as a movie or series, builds and maintains the technology to stream video that content and sells subscription plans direct-to-consumers to view the video content on-demand. Similarly, Apple and Tesla design application-specific microprocessors to improve the performance of their products used for these specific applications. Tesla announced last week the design of a new microprocessor to build the #1 supercomputer in the world for the specific task of training neural networks.
Nvidia makes similar specialized microprocessors like GPUs as a horizontal platform for many customers. Tesla uses Nvidia GPUs in its current neural network training supercomputer. What if Nvidia had partnered with Apple or Tesla to design and co-develop a customer-specific microprocessor? Apple did approach Intel before the iPhone to partner on that microprocessor, but Intel thought the smart phone market was too small (oops!). Nvidia could negotiate to design and develop prototype microprocessor for a fee to verify and validate the product design meets performance requirements and then earn a royalty on sales of future products that use the specific microprocessor. However, the challenge with microprocessors is the high upfront development cost to design and produce high quality wafers. The latest semiconductor designs using a 3 nm process can cost nearly $600 million to design through validation with an additional cost to set up a 3 nm production line requiring a $20 billion investment. This forces Nvidia to make microprocessors that can be used across many applications for many customers. The business model I proposed is not really viable.
The Ginkgo Bioworks platform consists of Foundries and a growing Codebase to design, build and test organisms at scale
Microbiology is different! Brewers routinely use yeast cost-effectively to produce new beer. Yeast and other cells can be programmed to produce target molecules. You just need the “code” to program the cells and ramp production to industrial scale. But this is a much greater challenge to take on than brewing beer. Ginkgo Bioworks in Boston, Massachusetts brands itself as The Organism Company. The Bioworks model has similarities to the conventional wet-lab with benches for molecular bioengineers and scientists to do routine tasks in what Ginkgo calls Foundries. These are where living organisms are the factories to build new products. Foundries require the best tools in automation, robotics, analytics and software to prototype and test thousands of biological designs for a specific application.
The other key asset making up Ginkgo’s platform is its growing Codebase or biological portfolio. The Codebase is the library that Ginkgo teams can leverage to develop new programs or start new projects in new industries. The Codebase grows as the Foundries design, build and test organisms at scale. If the Ginkgo Foundries are compared to Tesla’s Gigafactories, then the Ginkgo Codebase is similar to the miles driven by the Tesla fleet to train the neural network for Tesla Vision to realize autonomous navigation.
As these Foundry processes and Codebase scale, they become key barriers to entry because of the requirements and costs required to replicate the learning. Amazon, Apple, Netflix and Tesla are hard to out innovate in their core vertical markets because of the gap they can maintain and widen to the nearest competitor. But these companies dominate vertical markets. Ginkgo Bioworks is pursuing a horizontal platform market across many industry verticals. Cronos has also purchased an 84,000 square foot fermentation facility in Winnipeg, Canada to scale manufacturing of products from the partnership with Ginkgo Bioworks.
Ginkgo Bioworks is partnering with companies like Cronos Group, Roche Group and Motif FoodWorks to produce new pharmaceuticals, antibiotics and foods
Through a landmark partnership with Cronos Group, Ginkgo Bioworks is designing organisms to produce pure cultured cannabinoids at industrial scale with a wide range of pharmaceutical and other potential applications. Rare cannabinoid variants also offer an opportunity to expand and scale beyond the plant-based approach to harvest and synthesize these as end products for uses ranging from antioxidants to therapeutics. The Ginkgo model is more scalable and sustainable than the highly-regulated and rapidly growing farming industry for cannabis plants that is expected to reach $57 billion worldwide by 2027.
The Cronos Group is headquartered in Toronto, Canada. Earlier this week, Cronos and Ginkgo Bioworks announced the partnership had reached its first target production milestone with 8 cultured cannabinoid molecules. One is cannabigerolic acid (CBGA) and will support a commercial CBG product launch by Cronos this fall. Plants like cannabis hold many unique compounds. Ginkgo Bioworks has run 8 million on more than 10,000 engineered strains, leveraging 30,000 different gene constructs for cannabinoid compounds in just 2 years. For the achievement of the CBG production milestone, Cronos announced it is awarding Ginkgo Bioworks with 1.5 million common shares of Cronos stock.
Together with Swiss pharmaceutical conglomerate Roche Group, Ginkgo Bioworks is pursuing a new class of antibiotics to address the growing worldwide problem of antibiotic-resistant infections. The United Nations estimates antibiotic-resistant infection related deaths could increase from about 700,000 now to 10 million deaths annually by 2050. [For comparison, cumulative COVID-19 deaths worldwide are about 4.5 million to-date.]
The Ginkgo Bioworks strategy is to mine bacterial genomes for novel pathways, and then engineer these pathways to produce molecules they can test for antibacterial activity. The genomic database includes more than 135,000 bacterial strains. These strains have the potential to encode more than four million biosynthetic gene clusters, which can be used not only for the discovery of novel antibiotics and other therapeutics, but also for applications across food, agriculture and fragrances. The partnership will allow Roche to advance the most successful of the investigational molecules.
Ginkgo Bioworks has also spun out two ventures to pursue different vertical markets. Motif FoodWorks is designing new meat, dairy and plant-based proteins made by fermentation, not animal agriculture. An example of synthetic biology in food production is the dark reddish-brown heme protein associated with animal meat that can be produced in a lab to give plant-based meat alternatives a more authentic look and taste. Joyn Bio is a joint venture with Leaps by Bayer to create sustainable and cost effective solutions for growers using microbes. Joyn leverages the diversity of the plant microbiome to improve strains for applications such as pest control to resistance to crop disease. A key application Joyn is pursuing are nitrogen-fixing microbes to reduce the dependence on natural gas for the industrial production and application synthetic nitrogen fertilizer.
These ventures offer Ginkgo Bioworks another business model to monetize their Foundry infrastructure and Codebase in target vertical markets. In the case of Joyn Bio, Ginko Bioworks joined forces with the crop science team at Bayer. This could also be an outcome of the Greater Boston ecosystem with Harvard, MIT, Kendall Square, Longwood Medical Area and Seaport District and the growing ecosystem focused on corporate and startup innovation. Bayer AG operates a research & innovation center in the Kendall Square area of Cambridge. Although this center has a primary focus on healthcare, crop science is a business group at Bayer and is represented. Ginko Bioworks is headquartered in the nearby Seaport district of Boston with deep roots at MIT. Ginkgo Bioworks has also collaborated with Moderna to improve the supply chain for the mRNA vaccines.
Business model innovation coupled with a horizontal platform for cell programming offers Ginkgo Bioworks a lot of flexibility to monetize its core technology and intellectual property
The early success and ongoing opportunity to leverage business model innovation as the Foundry infrastructure, robotics, automation and Codebase scale make Ginkgo Bioworks different than most suppliers and a potential game changer. Breakthrough drugs, therapeutics and food products with revenue sharing through corporate partners, fee-based development programs and equity-based monetization through successful ventures could fuel substantial long-term growth for Ginkgo Bioworks to advance their platform.
Horizontal platforms also offer interesting opportunities to further strengthen capabilities through the acquisition of proprietary technology, services and teams. Ginkgo Bioworks acquired Dutch DNA based in Utrecht, Netherlands to integrate their proprietary platform focused on the development of fungal strains and fermentation processes into Ginkgo Bioworks for the production of proteins and organic acids. Direct competitors to Ginkgo Bioworks include Amyris based in Emeryville, CA and some other companies mostly focused on biofuels.
Best,
Stephen
Nothing in this post is intended to serve as financial advice. Do your own research. I’m long AMZN, TSLA and MRNA mentioned in this update.