[U34] Ginkgo Bioworks: partnership with Bayer is a game changer
Transactions expand Ginkgo's cell programming platform even deeper into agricultural research & development
Dear Reader,
For this Update in Product | Strategy | Innovation I will explore a series of planned transactions by Boston-based Ginkgo Bioworks, Bayer and their joint-venture Joyn Bio to accelerate Ginkgo’s horizontal integration for synthetic biology within agricultural biologics from discovery to field trials. Key outcomes if the transactions are completed as planned in 2022 include:
Ginkgo Bioworks would acquire Bayer’s 175,000-square-foot ag biologics R&D facility, team and its discovery to lead generation platform in Sacramento, CA.
Joyn Bio, the JV created in 2017 between Ginkgo and Leaps by Bayer, will be integrated into both parent companies with the core technology assets joining Ginkgo’s cell programming platform.
Through a strategic partnership, Bayer will become an anchor customer for Ginkgo’s initiatives in the agriculture vertical, signing a multi-year agreement to accelerate development of Joyn Bio’s flagship nitrogen fixation program to commercialize more sustainable fertilizers using engineered microbes. New programs include next-generation crop protection and carbon sequestration.
Crop Science is a 100 billion euro global market within Bayer among 2 other verticals spanning pharmaceuticals and consumer health. Ag biologics are just one of the solution platforms within Bayer Crop Science alongside crop protection, seeds and traits, digital farming systems, fruits and vegetables, and environmental science. Ginkgo continues to advance its cell programming platform across multiple verticals including Agriculture.
Bayer is making a strategic decision to outsource innovation in ag biologics to Ginkgo with the transactions mentioned above. And Ginkgo gains key Bayer assets to accelerate ag biologics innovation from discovery to field trials for all agriculture customers from new ventures to global enterprises like Bayer. This is also a key step for Ginkgo to validate it can scale revenue using its cell programming platform with a corporate customer in a specific vertical.
Another reason to explore Ginkgo Bioworks is to contrast its horizontal platform strategy across many vertical end-markets to advance synthetic biology versus vertical integration by companies like Moderna (also synthetic biology with a focus on pharmaceutical industry), Tesla (sustainable energy and transportation) and Block (financial services).
What are the key attributes for Ginkgo’s Foundries and Codebase as a horizontal platform to program cells?
The unit economics of synthesizing a desired molecule with engineered microbes are one of the most important attributes for Ginkgo. This makes synthetic biology compelling when it is cost competitive to alternative means of production. The total cost to program cells from concept into finished design impacts what Ginkgo must charge customers to develop a cell program in a Foundry and the profitability of such a program. And the cost to scale production by customers impacts commercial viability of a cell program.
Maximizing the number of cell programs to drive down unit costs makes a horizontal platform for as many end-markets as possible almost an essential strategy for Ginkgo. Early adopters when unit costs are high would likely face significant challenges with conventional production methods. Examples are rare or low yielding end products, energy intensive production methods and complex supply chains for raw materials.
The Cronos Group in Canada partnered with Ginkgo to develop and commercialize specific cannabinoids using fermentation. Automation and bioreactors have helped to scale commercial production of rare cannabinoids that would otherwise be cost prohibitive to produce at scale. As a result of Ginkgo hitting a 1st productivity milestone for a rare CBGA (cannabigerolic acid), Cronos issued to Ginkgo 1.5 million in common shares.
Bayer partnered with Ginkgo to develop superior sustainable fertilizers. Nitrogen fertilizer uses an energy intensive process that combines ambient air and natural gas under high pressure and high heat to produce anhydrous ammonia (NH3). Other forms of nitrogen fertilizer derived from anhydrous ammonia include urea and ammonium nitrate. The U.S. produces about 14 million metric tons of nitrogen fertilizer a year for its own use and imports another 2 million metric tons.
Ginkgo Bioworks has decreased the unit costs to program cells by 50% per year since 2015.
Beyond early adopters, unit economics will continue to improve as more paid candidate programs are onboarded to use the Gingko’s platform to program cells. This expands the Codebase and continuously improves processes within the Foundries with each engineered microbe. The innovation includes both software and mechanical robotic automation improvements. Ginkgo Bioworks has decreased the unit costs to program cells by 50% per year since 2015. And Ginkgo estimates onboarding 60 new programs in 2022 and 508 in 2025 across the vertical end-markets it serves.
Another side effect of platform innovation with increasing throughput is improved efficiency. The time to complete an engineered microbe will shorten with smaller teams of less specialized workers. The work process to scale and optimize commercial production downstream from the Foundries will also become more efficient as more cell programs exit Ginkgo and transfer to customers.
And another important attribute to help increase the pipeline of candidate programs is multiple vertical end-markets for the horizontal platform to serve. Ginkgo currently serves 6 primary verticals. These include consumer & tech, industrials & environment, agriculture, food & nutrition, pharma & biotech, and government & defense. Corporate customers include: Cronos Group, Cargill, Bayer, Roche and Moderna.
The business model for Ginkgo programs includes revenue generated from fees by customers who pay to access the platform and downstream value created by 2 sources. These include a royalty stream generated by licensing IP created by the Codebase and cell program developed in the Foundry or equity in ventures built with IP through Foundry program(s).
Why strategic partnerships are critical to enhance horizontal integration of platform technology?
End-user customers of Ginkgo’s services like Cronos Group and Bayer are critical to define success within specific vertical end-markets. Strategic partnerships like the one with Bayer focused on ag biologics are even more important. This started with a joint venture in 2017 and evolved into Ginkgo potentially acquiring significant assets from Bayer Crop Science to enhance Ginkgo’s internal expertise and resources in ag biologics. Bayer will also advance a key cell program for sustainable fertilizers towards commercial production.
Acquiring key R&D expertise and resources in a sub-domain of Agriculture allows Ginkgo to add some vertical integration for innovation to its cell programming platform in the ag biologics sub-domain. This makes Ginkgo more strategic to customers of all sizes in this sub-domain with end-to-end resources to go from subject matter expertise to discovery to cell programming to field trials of a controlled product design. Success within this sub-domain could also lead to some incremental expansion into adjacent sub-domains like crop protection.
Roche is working with Ginkgo to discover a new class of antibiotics. Ginkgo is mining bacterial genomes to identify specific pathways to produce molecules to test antibacterial activity. The partnership allows Ginkgo to work with Roche to advance the most promising antibiotics through clinical trials towards approved commercial products.
Ginkgo also offers Entrepreneur-in-Residence to proven innovators in specific end-markets to learn Foundry while planning their next venture.
The primary objective with all strategic partnerships for Ginkgo is to accelerate onboarding new programs to engineer specific microbes. Besides customers in specific end-markets, strategic partners can include venture capital, academic and innovation programs to align capital, talent and new ventures towards areas of interest. Ginkgo collaborates with business accelerators Y Combinator and Petri to identify new ventures that could utilize Ginkgo’s cell programming platform and resources.
Ginkgo also offers Entrepreneur-in-Residence to proven innovators in specific end-markets to learn Foundry while planning their next venture. One example is Jasmina Aganovic who founded Arcaea to create sustainable ingredients for the beauty industry. Motif Foodworks is Ginkgo’s spin-out focused on the food industry. Motif’s first product called “hemami” is similar to the heme protein found in beef, but is produced from engineered yeast instead of animals and gives plant-based meat more of a meat taste during the production process.
Ginkgo’s pay-off for new ventures is much longer than corporate deals to onboard paid programs with defined upfront fees, but equity in new ventures and royalty from a block-buster product present “long tail” opportunities for future revenue. Thus, a mix of corporate and new venture programs are likely to generate better returns over time. If a new venture is built on top of your platform, the switching cost to move to another platform can be substantial.
What are some leading horizontal platforms used across multiple end-market verticals?
I think the best proxy for the Ginkgo Bioworks horizontal platform strategy is Palantir Technologies.
Both companies use a Foundry to onboard projects and develop solutions on a horizontal platform for customers in many end-market verticals.
Both companies partner with strategic global enterprise customers to build expertise and adoption within key end-market verticals.
Both companies partner with strategic new ventures to build solutions on top of the horizontal platform for specific vertical end-markets.
Both leverage AI/Machine Learning to continuously increase automation of routine tasks.
Both companies accelerate economies of scale by repurposing assets developed in one vertical across other verticals.
And even though Ginkgo Bioworks centralizes a lot of innovation on the platform today in their Boston-based facilities, over time this technology will radiate out in decentralized Foundries to co-locate innovation closer to subject matter experts and unique resources in specific sub-domains. And bioreactors to scale commercialized cell programs will also be located where it is strategic for customers in vertical end-markets.
Palantir also centralizes the development of core technologies, but then decentralizes the onboarding of the platform and often co-locates talent and data at customer sites. This disrupts centralized SaaS solutions from multiple vendors and the larger cloud providers like Amazon, Microsoft and Google. Customer’s data and Palantir’s software platform will create a data mesh to commoditize other vendors’ services as apps on top of a customer’s data.
Cloudflare is another company that offers a horizontal platform for edge computing, web services and cybersecurity closer to customer sites. Cloudflare is very popular with teams who start with a test deployment at no charge and then scale up within an organization from that easy starting point. Cloudflare uses a “land and expand” strategy. One specific use case is scaling website services with an exponential spike in demand. Shark Tank ventures would often crash their website once they were showcased on TV. Cloudflare solved this problem for these ventures on Shark Tank so they could scale exponentially with a surge in demand.
A number of horizontal platforms provide “thin” software services for a specific function across many vertical end-markets. Customers can deploy multiple combinations of these for specialized horizontal functions and then Microsoft for more vertical integration of other services from a core provider. I’m providing a limited list of these companies and the horizontal software-as-a-service (SaaS) application(s) they provide.
Adobe (Document & Creative software)
Atlassian (Agile Teams)
DocuSign (e-Signatures & Contract Life Cycle Management)
Dropbox (Data Storage & Document Management)
HubSpot (Inbound Marketing)
MailChimp (Email Marketing)
MathWorks (MATLAB Engineering and Scientific Computing Platform)
Okta (Identity Management)
Salesforce (CRM, Marketing Automation)
Slack (Collaboration)
Snowflake (Cybersecurity)
SurveyMonkey (Surveys)
uiPATH (Robotic Process Automation)
Unity Software (Software Development: Gaming, AR, VR)
Zoom (Collaboration)
Conclusion
Horizontal platforms maximize scaling their core technologies with access to multiple vertical markets. Ginkgo Bioworks has been able to decrease unit platform costs by 50% a year since 2015 by working across 6 vertical markets. Strategic partnerships with enterprise companies like Bayer and Roche build expertise in key sub-domains of vertical end-markets. Success partnering in these key sub-domains helps radiate improvements to the platform for all customers. And acquiring key assets from Bayer for ag biologics will help Ginkgo accelerate on-boarding other customers in the agriculture vertical end-market to use expanded subject matter expertise and resources beyond cell programming.
Disruptive innovation within a portfolio for venture capital, corporate innovation and investors will benefit from a mix of companies using different growth strategies. Some companies would use a horizontal platform strategy to scale growth across multiple vertical end-markets. Other companies would use vertical integration to scale growth within large, global vertical end-markets like financial services, energy/transportation, and healthcare. Technologies well-suited to benefit many vertical end-markets for horizontal platforms are AI/Machine Learning, Software-as-a-Service, Synthetic Biology (including cell programming), Robotics, and Additive Manufacturing (3D-Printing).
Best,
Stephen
Nothing in this post is intended to serve as financial advice. Do your own research. I’m long DNA, MRNA, PATH, PLTR, SQ, TSLA mentioned in this update.