A few years ago, McKinsey did a study and concluded that synthetic biology ("syn-bio") will have a massive impact on the world economy over the next decade or two, affecting $4 trillion in plastics, fuels, medicines, and many other verticals. Those are some eye-opening estimates, particularly since the leader in synthetic biomanufacturing, Ginkgo Bioworks (DNA 3.29%), currently has a market cap of $6 billion and trades for a little over $3 a share.
Should you invest in Ginkgo Bioworks now? Or is it too early?
Image source: Getty Images.
Syn-bio is taking computer programming into biology
Ginkgo was founded by four MIT students (and one of their professors) in 2009. The professor, Tom Knight, has worked at MIT for decades and was an early computer enthusiast. His master's thesis at MIT involved the creation of a "mini-computer" in 1972.
In Professor Knight's opinion, we are reaching the end of Moore's Law. Back in 1965, the co-founder of Intel, Gordon Moore, predicted that processing speeds for computers will double every 18 months. And Moore was right. Integrated circuits got smaller and smaller, and more of them could be packed on every chip. As a result, computers got faster, smaller, and more powerful, over and over again.
Now chipmaking is in the realm of nanotechnology -- moving atoms around. To take the next step requires a new focus. As Knight put it in an interview with Forbes magazine:
If you really want to put atoms precisely where you want them (which is what we're going to have to do in order to reach the next level of technology) the people who are good at that are not the physicists. The people who are good are the chemists. And the chemists get to make molecules where every molecule is the same, where every atom in that molecule is precisely located. They are the people who are going to be able to control the placement and function of atoms in this new realm.
So Knight went back to school, learning all he could about molecular biology. With the unlocking of human DNA, it became possible for biologists to not only read DNA but to start programming it like we do with computers. And that's when Ginkgo Bioworks was born.
Here's how co-founder and CEO Jason Kelly describes the technology:
It's kind of like a little machine that runs on digital code, very similar to a computer, except in this case the code -- instead of zeros and ones, it's A's, T's, C's, and G's. The cell reads that code, and it does all the things that a cell does in our body -- or a bird's body or bacteria in a river. They're all running on that digital code. We can read that code with DNA sequencing and can write that code with DNA synthesis or DNA printing. If you can read and write that code and you have a machine that'll run it, that's programming. So synthetic biology is programming cells like we program computers, by changing the DNA codes inside them.
DNA manufacturing
Ginkgo's TAM (total addressable market) is so ginormous because DNA is the code for the physical world. So the company sees markets in healthcare ($500 billion to $1.2 trillion), food and agriculture ($800 billion to $1.2 trillion), consumer goods ($200 billion to $700 billion), and energy ($200 billion to $300 billion) opening up to the company over the next couple of decades.
Ginkgo has a DNA foundry where it engineers cells to perform certain tasks. It's a manufacturing platform that allows any company to manufacture new and improved cell lines. In healthcare, you might use Ginkgo's platform to create antibodies or gene therapies. In industrials, Ginkgo can help by creating renewable chemicals, or sustainable building materials. The possibilities are almost endless, from haircare and skin products to making veggie burgers taste like meat.
Of course, companies could opt to do this development in-house. But Ginkgo's platform automates this manufacturing, making it five to 10 times cheaper than the status quo (doing it by hand). So if creating a cell now costs you $100, Ginkgo can get it done for $10 to $20.
And the company estimates that its automated platform will produce cell lines even more cheaply in the future. By 2025, what would cost you $100, Ginkgo will produce for $1.
The numbers suggest the future might be amazing. Ginkgo reported $438 million in revenues over the last year. And its revenue growth in the most recent quarter was 281% over the year-ago quarter.
What makes Ginkgo's model particularly attractive is that the company doesn't just get paid for its manufacturing -- it also gets future royalties from any new cell line. In the case of a syn-bio start-up, Ginkgo might take equity instead of royalties. Ultimately Ginkgo will have its fingers in a lot of pies across the syn-bio value chain.
Is it too early?
Right now, of course, Ginkgo is unprofitable, and the stock market has no appetite for risky high-growth names. So while there was a lot of excitement when Ginkgo shares hit the market, the stock has been crushed, down more than 60%.
There's been no bad news to precipitate the drop -- it's just the market we are currently in. And while it's definitely early in Ginkgo's story, the company's technology is actually pretty far along. Unlike a lot of biotech companies, Ginkgo has huge revenue numbers. And its sales growth is outstanding.
In my opinion, the cheaper price makes Ginkgo shares more interesting, not less. This is a fast-growing biotech stock with a huge potential upside. Risk-tolerant investors might want to open a small position now and take advantage of this market sell-off.
