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Synthetic biology is in its infancy, but it’s drawing comparisons to the internet of a generation ago.
Bill Gates, Cathie Wood, and venture capitalist John Doerr are among those who are investing in synthetic biology companies.
What excites investors is the promise of programming the DNA of microorganisms like yeast as if they were computers and getting them to produce products more cheaply and with
a lower carbon footprint than traditional manufacturing.
Synthetic biology could reduce the need for petroleum-based chemicals as well as for plant- and animal-based products, benefiting the environment. Proponents say that
the total addressable market is over $1 trillion.
“This is what it might have been like 25 years ago if some guy had walked up to you and said the internet was going to be an amazing investment and you had no idea what he was talking about,” says Rick Schottenfeld, the general partner of the Schottenfeld Opportunities fund, an investor in Amyris. “This is where we are with synthetic biology.”
Yet for all the bold claims and hopes for an industry once known as industrial biotech, revenue overall currently totals less than $1 billion. And no one is making a profit.
Synthetic biology has so far produced mostly niche products like squalane, a moisturizer formerly sourced from shark liver; vitamin E; a sugar substitute; and vanillin.
Amyris, which makes an estimated 70% of the world’s squalane using engineered yeast cells and sugar cane, says its efforts have saved as many as three million sharks a year.
The small scale of the industry at present hasn’t dimmed investor interest in the three main plays on synthetic biology:
Amyris(ticker: AMRS),
Zymergen(ZY), and
Ginkgo Bioworks. Ginkgo is due to go public in the current quarter through a merger with
Soaring Eagle Acquisition(SRNG), a special-purpose acquisition company, or SPAC. It will be renamed Ginkgo Bioworks Holdings.
Investors may want to take a basket approach to the stocks. The combined market value of the three is $25 billion.
Synthetic biology, which blends biotechnology and industrial chemistry, isn’t an easy concept to grasp. The “magic of biology,” Ginkgo CEO Jason Kelly has noted, is that cells run on something akin to a computer’s digital code. Instead of zeros and ones, the four DNA base pairs — adenine, cytosine, guanine, and thymine— guide cells.
“Think of synthetic biology as hijacking the natural biology of the cell and reprogramming it to produce something of interest,” says Doug Schenkel, a Cowen analyst who has Outperform ratings on Amyris and Zymergen. “Rather than have yeast make beer, you hijack it to make the scent of a flower.”
Programming DNA, of course, is harder than programming computers, but progress is coming quickly.
With impressive DNA coding capabilities, Ginkgo views itself as the industry’s Amazon Web Services, working with companies in consumer, pharmaceutical, and agricultural areas to design microorganisms and cells from mammals to make desired products or drugs.
It provided help to Moderna(MRNA) in its development of the Covid-19 vaccine.
“Ginkgo is looking to build a platform to make biology and cells as easy to program as computers,” says Kirsty Gibson, a portfolio manager at Baillie Gifford, which is buying stock in Ginkgo as part of the SPAC deal. “What’s really exciting is that it’s not limited by industry verticals—agricultural, flavor and fragrances, pharmaceuticals, food.”
Amyris’ controlling shareholder is one of the country’s most successful venture capitalists, John Doerr, who was an early investor in
Alphabet(GOOGL) and
Amazon.com(AMZN).
“I believe synthetic biology will continue to be a big part of making our planet healthier and our future more sustainable,” Doerr tells
Barron’s. “Amyris is delivering on the promise of synthetic biology.”
Doerr is chairman of Kleiner Perkins, the Silicon Valley venture-capital firm.
Synthetic-biology manufacturing often involves large fermentation tanks filled with genetically re-engineered microorganisms like yeast that are filtered out of the finished product. This manufacturing technique uses little energy,
but is unproven on a major scale.
Amyris is the furthest along, based on revenue and products. It projects $400 million in 2021 sales and break-even results based on earnings before interest, taxes, depreciation, and amortization, or Ebitda. Amyris, whose shares trade around $13.50, is valued at $4 billion and looks like the best bet. Its CEO, John Melo, sees a potential $2 billion in sales and $600 million of Ebitda in 2025.<--- VAN-!
With an all-star investor lineup including Gates’ Cascade Investment,
Ginkgo has generated the most buzz. Based on the SPAC transaction, it has the highest market value of the three—about $18 billion. Its projected 2021 revenue, however, is very modest,
about $100 million.
Perhaps reflecting its lofty valuation, Soaring Eagle Acquisition shares haven’t budged since the May SPAC deal. The result is that investors can buy the stock
for $9.95, a slight discount to the price of $10 at which several prominent investment firms including Cathie Wood’s Ark Investment Management and Baillie Gifford, an early backer of Tesla(TSLA), agreed to invest $775 million as part of the SPAC merger with Ginkgo.
Ginkgo calls its microorganism design fees “foundry revenues.” It has royalty deals or equity stakes in 54 partners, and is working with
Bayer(BAYRY),
Roche Holding(RHHBY),
Sumitomo Chemical(4005.Japan), and
Robertet(RBT.France), a maker of flavors and fragrances.
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