What happened

It wasn't only beachgoers who forgot to apply the sunscreen that were complaining about being burned last month. Investors in Zymergen (ZY), a synthetic-biology specialist, also felt scorched after the stock plummeted 62%, according to data provided by S&P Global Market Intelligence.

Early in August, management provided some disappointing business updates, and a wave of bearish sentiment from Wall Street throughout the month didn't help matters.

A concerned person with closed eyes in front of a laptop.

Image source: Getty Images.

So what

Beginning August on an inauspicious note, Zymergen announced on Aug. 3 that several major customers were encountering challenges with the implementation of Hyaline, a high-quality flexible film used on the screens of electronics, into their manufacturing systems. Zymergen said that it's working to remedy the problems. However, it also stated that it "no longer expects product revenue in 2021, and expects product revenue to be immaterial in 2022."

In the same announcement that addressed the production issues with Hyaline, Zymergen also reported that Jay Flatley would be stepping into the role of acting CEO, following the resignation of Josh Hoffman, the company's previous CEO.

ZY Chart

ZY data by YCharts.

Besides the concerning news from the company, Wall Street's repeated panning of the stock provided another catalyst for the share-price decline. The following are just some of the moves that analysts made on Aug. 4 regarding the stock, according to TheFly.com:

  • HSBC downgraded to reduce from hold with a $8 price target.
  • JPMorgan downgraded to neutral from overweight with a $12 price target.
  • Goldman Sachs downgraded to neutral from buy with a $12 price target.

Then, on Aug. 31, UBS downgraded the stock to neutral from buy, assigning a $13 price target.

Now what

I believe it was Shakespeare who said that revolutionizing manufacturing processes with the use of synthetic biology never did run smoothly. OK, he was talking about love, but it's still valid. Innovative growth companies like Zymergen are bound to encounter hiccups as they break new ground, so Zymergen's challenges with Hyaline shouldn't come as a shock. Therefore, those who are bullish on the company's prospects should sit pat. However, if Zymergen continues to report that technical issues are plaguing its customers, it may certainly raise a red flag.