Ginkgo Bioworks Holdings, Inc. (NYSE:DNA) Q4 2021 Earnings Conference Call March 28, 2022 4:30 PM ET
CompanyParticipants
Anna Marie Wagner – Senior Vice President of Corporate Development
Jason Kelly – Co-Founder & Chief Executive Officer
Mark Dmytruk – Chief Financial Officer
Conference Call Participants
Matt Larew – William Blair
Tejas Savant – Morgan Stanley
Rahul Sarugaser – Raymond James
Mark Massaro – BTIG
Steve Mah – Cowen
Derik De Bruin – Bank of America
Matt Sykes – Goldman Sachs
Anna Marie Wagner
Good afternoon. This is Anna Marie Wagner, SVP of Corporate Development at Ginkgo Bioworks. As usual, I’m joined by Jason Kelly, our Co-Founder and CEO; and Mark Dmytruk, our CFO. We thank you for joining us and look forward to updating you on our tremendous progress in the past year.
Now as a reminder, during the presentation today, we’ll be making forward-looking statements which involve risks and uncertainties. Please refer to our filings with the Securities and Exchange Commission to learn more about these risks and uncertainties. As we’ve shared before, during our quarterly earnings calls, we will, of course, be updating you on our financial progress but we’ll also use these opportunities to continue to build a deeper understanding of how Ginkgo works. And so after our financial updates, we’ll spend time talking to you about our strategic positioning in the current environment. If there are topics you’d like to see in a future deep dive, please let us know. We’ll end with a Q&A session and I’ll take questions from analysts, investors and the public.
You can submit those questions to us in advance via Twitter, GinkgoResults or by e-mail at investors@ginkgobioworks.com. And now without further ado, I’ll hand it over to Jason to kick things off.
Jason Kelly
Thanks, Anna Marie. I’m going to hand it off to Mark in a second to walk through the numbers but I want to start us off by acknowledging that the world today looks very different than the one we were in just over six months ago when we took the company public. Equity markets, especially for growth companies, have been hit hard from inflation and changes in interest rates. Ginkgo stock is down over 60% from when we went public and even more from our highs. As one of Ginkgo’s largest shareholders, I can assure you, it is not fun for me either. But when I step back, Ginkgo is in a stronger position by almost any measure than it has ever been. We continue to grow and diversify our cell programming platform and several of our customers have achieved important milestones with products that we have helped them develop.
The platform is scaling well. We have deployed exciting new foundry technologies and packaged some of our key code-based assets into what we’re calling cell development kits. Our Biosecurity initiative has scaled tremendously, growing from almost nothing in 2020 to over $200 million in revenue last year. And all that has led to strong financial performance, Ginkgo quadrupling our revenue last year. And perhaps more importantly, from a strategic perspective, we are extremely well capitalized in a market environment that is making capital scarce. This will give us opportunities coming up that many other growth stage companies simply won’t have. Later in this session, I’m going to spend more time talking about the importance of scale and of our capital position as we drive that scale in the market.
But just to ensure everyone is up to speed on the basics about Ginkgo, a quick reminder. So Ginkgo operates as a horizontal cell programming platform. With that model, scale drives everything we do. From the unit economics we can drive in our foundry which are automated labs that I’m in here in Boston, to the breadth and value of our code base which is really our intellectual property assets that I’ll talk about later.
Importantly, scale allows us to not be tied to the success of any single cell program. This diversification is critical in biotechnology and it’s one of the ways that we differentiate as a platform from product-based companies. Scaling is not easy. I’m going to spend most of my time today telling you how hard it is to achieve breakaway scale as a cell programming platform. But we have a solid shot at Ginkgo and if we’re successful, I believe it will have a global impact.
And with that, I’m going to turn it over to Mark to share our numbers with you.
Mark Dmytruk
Thanks, Jason. Our fourth quarter financial results reflect the continued progress we’ve been demonstrating in our business model over the past year with strong year-over-year growth in the foundry platform and an outsized contribution from our Biosecurity offering.
Total revenue in the fourth quarter of 2021 increased to $148 million, representing growth of over 4x the fourth quarter of 2020. For the full year 2021, total revenue grew to $314 million, also 4x the prior year.
Now, moving to cell programming highlights. We added 10 new cell programs to the foundry platform in the fourth quarter of 2021, bringing the total number of new programs to 31 for the full year, well ahead of our original target of 23 programs for the year. As a reminder, our new cell program count is a KPI that we’re particularly focused on as this metric drives both near-term foundry revenue and potential future downstream value share. And we only count a program that has a certain expectation of scale and are often, in addition, doing several proof-of-concept programs as well which can ultimately lead to larger paid programs.
The 31 new programs we added in the full year 2021 period compares to 18 new programs added in full year 2020, representing 72% growth. We supported a total of 71 active programs in the full year 2021 period across 33 customers on our foundry platform. As you saw earlier, these programs are running across a remarkably diverse side of end markets with strong growth in the past year coming from pharma and biotech which is particularly encouraging given these are some of our most discerning customers, often with their own strong internal R&D teams.
As a result of progress across our broad portfolio of customer programs, foundry revenue increased to $34 million in the fourth quarter of 2021 from $16 million in the fourth quarter of 2020, representing 108% growth. Similarly, foundry revenue for full year 2021 increased to $113 million, exceeding our outlook of $100 million and representing growth of 91% over full year 2020.
As a reminder, foundry revenue included equity-based payments of approximately $12 million in each of the third and fourth quarter of 2021 that we received for achieving commercial milestones with Cronos. We have a number of related parties by virtue of our business model, where for some customers, we take equity in lieu of royalties as compensation for downstream value and, in some cases, for upfront fees. While we disclose related party revenues as required, we do not manage the business around this fact and as such, do not make judgment or set targets around increasing or decreasing the proportion of our revenue that is categorized as related party.
That said, related party revenue represented a meaningfully smaller portion of our total revenue in 2021 as compared to 2020. Related parties represented 30% of foundry revenue in the fourth quarter of 2021 and 42% of full year 2021 foundry revenue. This compares to 78% of foundry revenue in the fourth quarter of 2020 and 72% of foundry revenue in the full year 2020. This shift toward more third-party revenue is due to both the downstream value share received from Cronos which is not a related party, as well as continued diversification in the business.
Now turning to Biosecurity. Our Concentric offering had an extremely strong fourth quarter, generating $114 million of revenue in the quarter and bringing the full year 2021 revenue to $201 million. This result significantly exceeded our most recent expanded outlook of $110 million for the year from our Q3 earnings call. Biosecurity revenue consists primarily of product and service revenue from our end-to-end COVID testing offering and the growth was driven primarily by K-12 pool testing which ramped significantly in Q4 following the many state contracts we had been awarded earlier in the year. Biosecurity gross margin was 42% in the fourth quarter. Biosecurity gross margin in the second half of 2021 was significantly higher than in the first half of the year due to maturation of the business and the benefits of larger scale. When comparing the fourth quarter gross margin in the third — to the third quarter gross margin, the decline is primarily due to mix shift in the composition of revenue as K-12 pool testing scaled significantly.
As we’ve stated in the past, we will maintain a healthy level of conservatism as we navigate the constantly changing world of biosecurity. Many COVID testing operations shut down last summer because everyone assumed COVID was over. We have a long-term thesis on the importance of biosecurity which has allowed us to continue to lean in when others lean out. But we also recognize that this market is shifting rapidly and it is difficult to forecast more than a few months out. As the biosecurity industry matures, we will be able to forecast this business with more precision. But for now, we will provide regular updates as our positioning evolves.
And now, I’ll provide a little more commentary on the rest of the P&L. All figures discussed here exclude stock-based compensation expense which I’ll provide more details on in a moment. R&D expense, excluding stock-based compensation, grew to $219 million in the full year 2021, driven by expansion of foundry capacity and increased breadth of capabilities to support both current and future collaborations, along with further development of our Biosecurity offering. The slight decrease that you see in R&D expense when comparing the fourth quarter of 2021 with the prior year is due to a significant amount of R&D we incurred in late 2020 relating to our Biosecurity offering. G&A expense grew to $106 million in the full year 2021 as we invested in business development and all other G&A functions to support the growth of new customers and programs, higher level of foundry activity and our Biosecurity offering, along with our extensive public company readiness efforts.
Net loss; it is important to note that our net loss includes a number of noncash expenses as detailed more fully in our financial statements, including, one, mark-to-market adjustments on equity investments where we have elected the fair value option; two, reductions in the carrying value of those platform ventures accounted for as equity method investments which we typically record in the quarter that is — that equity is issued to us; and three, mark-to-market adjustments on public and private placement warrants inherited as part of the destack that are now classified as a liability on our balance sheet. Because of these noncash items, we look to adjusted EBITDA as a more indicative measure of our profitability. Adjusted EBITDA in the quarter was positive $1 million and for the full year 2021 was negative $106 million. A full reconciliation of EBITDA is provided in the appendix to this presentation and in our earnings release. Adjusted EBITDA was favorably impacted by the large increase in gross profit from Biosecurity in the fourth quarter and by downstream value share which typically drops straight to the bottom line.
And finally, CapEx in the full year 2021 was $57 million, reflecting foundry capacity and capability investments. Examples of this include; the completion of our new broad use foundry, Bioworks6, located in our Boston headquarters, as well as foundry space build-out in Cambridge, Mass. We have an ambitious CapEx plan in 2022 and have already begun work on Bioworks7.
I’d like to provide some additional information relating to stock-based compensation expense. This is a topic disclosed at length in our prior SEC filings. As a reminder, we have historically not booked any stock comp expense relating to our restricted stock unit grants dating back to 2015. As prior to going public, the RSUs contained a performance condition that required a change in control or an IPO in order to vest and the destack event did not satisfy the performance condition as defined in the RSU plan.
In the fourth quarter, the Board of Directors modified the vesting terms of the RSUs such that Ginkgo’s business combination with Soaring Eagle was deemed to have met the performance condition for vesting. As is typical of new companies going public, this was accounted for as a modification and resulted in a onetime catch-up adjustment of approximately $1.5 billion of incremental stock-based compensation expense in the fourth quarter of 2021 which was calculated based on the total number of RSUs impacted — again, dating back to 2015 — at the share price of $13.59 on November 17, 2021.
Stock-based compensation expense also increased by another $174 million related to RSU earnout shares which were also subject to the same performance conditions as the underlying RSUs.
In total — or in addition to the total catch-up entry in Q4 of over $1.7 billion, as part of the same calculation, we would expect to see approximately $2.2 billion of stock comp expense in 2022 and beyond relating to the service-based vesting of these legacy RSU awards and earn-out RSUs. The substantial majority of this amount will be booked in 2022. Also, just for further clarification, the underlying shares relating to all of these RSUs have been accounted for in the pro forma financials that were included with all of our pre-destack SEC filings.
And now, I’d like to provide some commentary on our revenue outlook for 2022. We expect to add an incremental 60 new cell programs in full year 2022. Based on our current pipeline, we would expect a reasonably balanced mix of these new cell programs to come from existing customers and new customers. We expect total revenue of $325 million to $340 million in 2022. Of that, we are targeting foundry revenue to be in a range of $165 million to $180 million. We expect this growth to be driven both by increased usage fees from a growing number of programs on the platform as well as increasing downstream value from completed programs.
And we expect Biosecurity revenue to be at least $160 million for full year 2022. We are incredibly pleased with the performance of our Biosecurity offering in 2021 and thus far in 2022. However, as was the case throughout 2021, there still remains significant uncertainty in this market in general. Many of the state K-12 testing contracts we are supporting are funded through the end of the school year and there is uncertainty about the funding available and level of testing in the next fiscal school year. In addition, Ginkgo is actively working on new opportunities in Biosecurity, including internationally. However, the timing and amount of revenue from these opportunities is uncertain.
And before I hand it back to Jason, one final comment on 2022 outlook. While we don’t provide guidance on adjusted EBITDA or cash flows, we would like to provide some color on how we think about operating cash burn and managing our cash resources, particularly in these market conditions and prior to us achieving consistent profitability. We view our cash balance as a critical resource to be managed with careful consideration given to several objectives, such as the pace at which we’re adding new programs and customers, advancing customer programs technically, improving the efficiency of our operations, investing in the right new tech and internal R&D to fuel future Knight’s Law gains and investing ahead in foundry capacity.
When we think about the range of adjusted EBITDA and potential operating cash burn, it will vary depending on how Biosecurity plays out during the year. In addition, we may vary the level of planned foundry R&D expense and foundry CapEx depending on both near-term opportunities available to drive platform adoption and technical success and then the longer-term considerations of the many objectives I mentioned above. With respect to M&A transactions, we generally expect that we would not use existing cash resources to fund those transactions. So to sum up, when we think about our $1.5 billion cash balance at year-end, our general approach in managing cash flow will be to advance company objectives as rapidly as we can while maintaining multiple years of cash runway.
In summary then, 2021 finished very strong financially across all dimensions. We have an ambitious growth plan in front of us and are very focused on continued execution as a new public company.
And now, Jason, back to you.
Jason Kelly
Thanks, Mark. It’s great to see all the numbers lined up like that and it was a super exciting 2021 for us. So there are three topics I want to dive into today with you all. First, our stock price has declined substantially since we went public as the market has gotten really tough for growth companies and I want to share how I’m thinking about positioning Ginkgo in this kind of an environment, in particular relative to smaller scale platforms. Second, I want to talk — take a moment to help investors build a deeper understanding of what we’re doing here at Ginkgo in terms of building a horizontal platform and how hard that is. If we don’t pull it off, these may be some of the reasons why. And hopefully, what you see here will serve as a guide for what to watch as we build the business. Finally, I want to make it clear that we’ve never been more excited about the potential here at Ginkgo. Biology is messy and it’s hard but it’s one of the most powerful forces on the planet and it can be used to do a lot of good right now.
Okay, so let’s dive in. All right. So at Ginkgo, we’ve taken business model lessons really from the horizontal tech platforms and we’re trying to bring that horizontal platform mindset into the biotech industry which has historically really been very vertically organized. And as part of doing that, I actually read, several years ago now, all the old Amazon shareholder letters and which I recommend people to do, actually, they’re incredible. But I was reminded of one from 2000. And Amazon was down about 80% for the year when Bezos wrote this letter. And he quotes Ben Graham, who is sort of Warren Buffett’s mentor in kind of the value investing world. And the quote says, so if Amazon– this is talking about Amazon — was better positioned today than it was a year ago, why is the stock price so much lower than it was a year ago? And he quotes Ben Graham and he says, “In the short term, the stock market is a voting machine. And in the long term, it’s a weighing machine.” And what he means by that is sort of week to week, you’re going to see fluctuations in the stock price that can be influenced by many things out in the world outside of sort of the fundamental intrinsic value of the company. Okay?
And that intrinsic value, Ben Graham would say, is really tied to the future free cash flows of the company. And so even if day-to-day that moves a lot, in the long run, what gets weighed is that intrinsic value. And I think one of the things people get confused about is they think — this sort of value investor crowd is sort of at odds with kind of growth company crowd and investors. And I don’t think that’s true. If you go back and read Bezos’ early letters, from the beginning, the recognition is there that fundamentally, what Amazon and any company will be valued on is those future cash flows. What’s different with a growth company is how you’re going to get to them, right? It just looks different when you’re a mature company with existing revenue streams and everything else versus a company that’s trying to build a new industry, build a new market. You have a different strategy. But at the end of the day, you’re going to get weighed on those free cash flows. That’s worth not losing the thread, right? I think that view on things is correct. And we agree with Ben Graham and Bezos on this. That is how, ultimately, a company will be valued. And what Ginkgo is going to try to do is, is build a heavier and heavier company. And 2022 is a very opportune year for us to do that.
Okay. So how are we going to do that? So I think the first thing and one of the things that Mark talked about is make sure you have the war chest, the cash war chest in an environment like this, to give you a long enough runway to pull off your strategies. And then second is sort of to keep testing that horizontal business model and make sure it’s working the way we hope it is. So as Mark mentioned, we’re in a great place with that war chest. We ended the year with $1.5 billion in cash. This is several years of runway for us. On the business model front, I’m very happy with our performance in 2021. We exceeded our metrics on every dimension last year, even after raising them midway through the year. We recognize we’re in the early stage of trust building with public market investment community and we will work hard to keep earning that trust and we shared our numbers for 2022 today.
Second, diversification is one of the most powerful levers you can use to manage risk. So I love these charts that you see up here, right? So you can see our sort of customer size across our programs nicely split between early-stage companies, mid-stage and more mature companies, the types of partnerships we do. And if you’re interested in these, I encourage you to watch the video from our last earnings call, where we went through platform ventures, structured partnerships and third-party partnerships. Again, we’re seeing a nice mix of those. And then on the industry side, I think this is something that’s really pretty unique in the biotech sector. Again, this is an industry that’s very vertically organized. And so to see us doing a range of programs split between pharma, food and ag, industrials, consumer tech, government projects. This is — this is a very nice feature for us in terms of being able to make sure we can survive if any one of these sectors has a hiccup.
Third, we’ve shown we can move aggressively when new opportunities arise — to say the least, the growth of our Biosecurity offering from almost nothing to just over $200 million — in 2020 to just over $200 million in revenue last year speaks to this aspect of our culture at Ginkgo to move quickly when there’s opportunities for our platform. I’m proud of that and the positive impact it’s been having, especially in K-12 schools.
Finally, I’ll just state the obvious that this kind of market environment favors two groups, those that are — of companies, those that are cash flow positive which we are not yet and those that are well capitalized. And we are well capitalized. That gives us a powerful strategic advantage over the coming months which we plan to use to our advantage.
Okay. So there’s one other point in that Amazon letter I’ll touch on in this section that struck me. So Bezos says, online selling relative to traditional retailing is a scale business, characterized by high fixed costs and relatively low variable costs. This makes it difficult to be a medium-sized e-commerce company. And then he goes on to talk about sort of Pets.com and living.com which were like platforms focused in particular verticals and that when the capital markets closed the door on financing Internet companies, these companies had no choice but to close their doors.
And — at various points, I think Ginkgo and horizontal platforms in synthetic biology share this feature of sort of high fixed cost and low variable costs and I’ll talk about that in a minute in the next section. And I’ve shared this fear of, hey, there’s a narrow platform in a certain area. Might it be snapped up by a company, a competitor of Ginkgo and — but all of these businesses are, I think, like retail in the late 90s, capital intensive. And so as the capital markets close their doors, we expect to see many of these platform companies lean into products which if they’re successful, will pay off at scale more quickly. I think it’s a good decision for many of these companies. And we will also see, I think some of these companies close their doors. So through this backdrop, Ginkgo is able to remain committed and focused on our platform, horizontal business model and I want to take the next section here of the talk to talk about what makes it hard to be a medium-scale platform. And these are some of the exact same barriers that Ginkgo needs to overcome if we’re going to be successful at becoming really a durably profitable large-scale platform that sort of weighs a lot in intrinsic value.
So, if we go to — okay. So — all right. So I want to go through a set of things that make it hard to achieve scale as platforms. Again, these are barriers. I think the other thing you should look for as you’re watching this is this should give you a set of items to watch Ginkgo on as we build the business, right? I want to leave you with that today, too to say, hey, if I’m worried about this particular aspect — as often investors are going to have different views on what part of the risk associated with Ginkgo they’re most worried about. This is the one that I want to keep an eye on. And so I want to go through them with you to give you some of that background.
Okay. So I want to start with what I think is really the root challenge across, frankly, the entire biotech industry. And I’ll quote a bit from our Ginkgo founder’s letter in the S-4. We said this is the unique moment in our relationship with biology. We talked about how the COVID pandemic demonstrates that a small bit of RNA code can sort of upend the whole world. And it is a reminder that while biology is programmable like a computer, it is not predictable like a computer, okay? And I think we love this — we use the computer analogy all the time, right? We’re going to talk in a minute about — I’ll give you some examples from the semiconductor industry. We talk obviously about Amazon Web Services’ hosted data platform, software development, infrastructure, things like software development kits we’ve learned from. So all of these things make sense because fundamentally, DNA is digital code, right? A, T, Cs and Gs, not 0s and 1s like a computer but it’s digital, you can read and write it, you can program it. But the difference with a computer is computers are things humans invented.
In other words, we understand them from the bottom up and that means it makes the programming of them very predictable. Biology, we did not invent, we inherited it. And so as a result, our programs are less predictable. It’s harder for us to get it right the first time like you might be able to in a computer program. And so we’ll talk in a minute now on the technology side of some of the implications. But also on the business model side, this has real implications, for example, like I mentioned earlier, around the value of diversification of projects.
Okay. So on the technology side, we don’t understand cells from the bottom up. So then the best strategy in that environment is to be able to test many, many, many genetic designs, okay? And this means having a large enough scale of automation to drive down the cost per strain test, in other words, per strain that we’re going to test in the lab to see the performance of a genetic design. And this goes back to the comment I was making about those e-commerce companies. This has a big fixed cost. We’ve spent hundreds of millions of dollars over the years here at Ginkgo on our infrastructure and low variable costs. And that’s really demonstrated in what we call Knight’s Law, named after my co-founder here at Ginkgo, Tom Knight, where we’ve been roughly tripling the output of our automated labs and reducing costs by 50% annually.
So to state the obvious, maintaining exponential growth like that over long periods of time and you can see this dating back to January 15 in this case and we had to shut labs down at various points for COVID but I think relatively smoothly over that period, that has some surprising effects, right? So if you look, we’ve done more lab work in the last year of Ginkgo than the first 10 years of Ginkgo combined, right? So these are big numbers. Maintaining this scaling is the number one focus of Ginkgo’s senior technical leadership. It’s very important. And there are three key drivers to like let you go under the hood a little bit on how we do that. So the first is the development of new technologies. So for example, ultra-high-throughput screening techniques such as multiplex assays. You’ll see a few dots on the chart here — this is the daily strain test volumes where we get to 1 million or even more than 10 million strain tests in one day. Those are driven by some of these newer technologies. So what’s the challenge? Why isn’t every day like that?
Well, the — as you develop these new technologies, they’re not immediately applicable to every project. And in fact, how you do a cell programming project will shift based on what technologies are available to you. And so there’s a process where you have to sort of onboard and adopt these into more of your programs to keep the numbers pushed up. And then additionally, you have kind of a little game of whack-a-mole whereas throughput in one part of the infrastructure goes up, you can get a bottleneck in the next one and then the foundry team needs to work on driving that up, right? And so these are some of the challenges you face with those new technologies.
The other area and we spent a lot of time talking about this, is improvements just in fundamentally the automation of work that traditionally was done by folks with my sort of training, PhD in bioengineering which is working by hand at the lab bench. We moved that on to robotic automation and we drive scale by investing more and more in more sophisticated automation. And then finally, miniaturization and in particular, miniaturization of the volume of liquid that can be managed in the lab. And we recently acquired a company called FGen, it’s a technology in this category. It also helps with some of the multiplex assays that I talked about at the beginning. But really where you’re using very small droplets in order to do your testing. And so that’s very valuable in the area of miniaturization. It reduces cost per reaction in that droplet.
Okay. I’ll just note all this is very hard to do, deploy all that foundry tech. It is a lot easier than trying to do it by hand. And like I said, I’ve lived this. It took us a while just to get — about eight years to get to parity with a scientist at the lab bench versus using our automation and infrastructure. And so if you are a smaller scale platform in automation, one of the challenges you face is you may not be better than the status quo of doing the work by hand. And that’s one of the challenges to get through. We moved through that challenge. But I think continuing to drive the scale is still very important.
Last point I’ll make on the sort of Knight’s Law. I wanted to show a couple of really interesting things from the semiconductor industry. So this is from the International Technology Roadmap for Semiconductors and I’ll talk about the chart on the left, in particular which is from 2003, right? So it’s pretty interesting to see it. And you see here basically design technology requirements. So where do they want the industry to get to in terms of power reduction as an example or — and you can — what I like about this chart is you can see in white, manufacturing solutions exist and are being optimized. In yellow, manufacturing solutions are known. And then in red, manufacturable solutions are not known. So here is the semiconductor industry saying, by — we have a set of design requirements that in 2009, we have no idea how we’re going to do them, right? But we know we need to hit these types of targets if we want to keep Moore’s Law going.
And so that sets in motion years in advance technology programs ranging all the way back to academic scientists discovering new advances in photonics to various technology suppliers across a whole ecosystem developing those technologies. And on the lower right, you can see very interesting patterns — this goes all the way back to the ’70s, of different things coming online, like higher numbers of logical cores, for example, in recent years to try to keep this transistor count going. So, I think one thing to remember is you’re going to see at a top level, Moore’s Law. But beneath the surface, new technologies blossoming all the time and a whole ecosystem, hundreds of companies, academic labs and so on that are needed to maintain that. We expect that will be similar for Knight’s Law and we think Ginkgo is well positioned to play sort of a catalyst role across industry and academia to keep it going.
Okay. All right. The other thing that I’ll mention, if we’re successful at driving that scale and we — and Mark talked about, we want to hit, for example, 60 programs this year, double last year. Other things adjacent to where we are in the infrastructure might start to break. So for example, in the area of animal proteins, you’ve had a lot of companies developing new programs in this space and there’s a bottleneck in the industry today around sort of pilot scale fermentation, right? And so when those types of bottlenecks happen, we don’t want to limit the amount of cell engineering going on. So in some cases, Ginkgo could step in to try to help alleviate key bottlenecks across a lot of customers. But one of the things I’m very hopeful for and some good advice I got from sort of a tech venture community in the early days of Ginkgo is hey, an exponential improvement is hard to maintain. That’s your job, keep that going. And if it starts to create opportunity like suddenly a big market for pilot scale fermentation, the market will grow in to fill that opportunity, right? And so I think we’re also balancing watching what’s out in the marketplace, trying to see new entrants show up to do that on — whether it’s on the manufacturing side or upstream in the areas of things like reagents and consumables, where we may break some things as well as our numbers go up. Okay.
Final challenge on the technology side is intellectual property. So we have an asset at Ginkgo that we call our code base and it’s really the genetic assets, the data, the learning that we have across all our projects that we make available to new customers for their cell programs. So I’ll just state this is very different from the traditional IP regime in biotechnology. So in traditional IP regime, each company has their own relatively small IP portfolio that they own across all use and there’s very little cross-licensing among companies. And when there is, there’s an enormous amount of friction, right? A big licensing deal takes forever and so on. It’s not as if it’s like readily available on the shelf to drop into your project. From our perspective, if you had that big pool of intellectual property, it would be a net benefit across the entire industry because you would start to get more products to market which would ultimately grow biotech as a sector. And — but getting people to adopt a new scheme that is not the status quo is hard. It has been getting easier for us at Ginkgo as we were able to offer access to more in our code base to customers to incentivize them to adopt sort of our mode of thinking for the IP ecosystem.
And as an example of this, we acquired Dutch DNA and we quickly made that asset. This is a protein production asset, you can see some of our charts, both the — you can see Dutch and then we also developed a Pichia pastoris strain internally at Ginkgo that we made part of one of our cell development kits, that, in this case, is showing sort of 5x to 20x stronger production than what we consider best-in-class. We made that immediately available to any customer on Ginkgo’s platform, right? And so this sort of — this is our mental model for how you’ll see us either develop our own IP or acquire another IP and then quickly make it available across the ecosystem. Okay.
The other thing from a business model perspective, the unpredictability of biology, in other words, the fact that we didn’t design cells, we inherited them, is that you have these longer development cycles and product times to market just take a long time in biotech. This is true for any company in our space, including Ginkgo. One of the implications is that in a market like this, equity market like this, where you have rising rates, future cash flows are heavily discounted, whether reflected today in our equity stakes in our customers or simply from more aggressive discounting or expected future royalties. This drives a lower NPV for these future expected payments to Ginkgo. Now with our balance sheet, that doesn’t bother us too much over the long term but we recognize that this delayed aspect of our cash flows is going to pressure our valuation in the near term.
So now one interesting feature that I’d like to remind you about is our deals are actually — with our customers are reasonably tunable, right? So just like an investor would in a market like this, we can sort of tune — and the specific trade-off is typically between upfront fees, like cash we’re getting in from customers as part of doing the development of a cell versus the downstream value share. How big of a royalty do we take or how much equity do we take in a partner company; just to state the obvious, those can trade off against each other. Some of that we’ll do based on what the customer wants but then Ginkgo’s interest could also affect the types of deals we want to do.
And so I like this flexibility as like a general feature of being a platform biotech company versus a pure product company, right? We’re able to push a little more into the fees if that felt like the right thing to do from like a cash reserve standpoint and so on, okay? So something — again, I think it’s a tool for us to use in the future. I like that we have it. And so I just wanted to highlight it but I like our position today, again, because I think our war chest is good.
Okay. Next, yes, many things can be tough for platform companies. So I just want to outline them all. So another is we’re dependent on our customers to bring products to market. So we would argue at Ginkgo that our customers are actually better at bringing products to market than we would ever be, right?
So to state the obvious. It would be hard to imagine me being good at getting a drug through an FDA clinical trial and also developing the next great fragrance product and also putting a tasty chicken nugget on your plate, right? Like the range of those end market applications are so broad that for Ginkgo to be in all of them is a real stretch. And so we’ve adopted a model where, ultimately, our customers are the ones that bring those products to market. And if you’re concerned about this aspect of our business, what you should be watching for are updates on the chart like we showed here in our last earnings call in terms of customers bringing products to scale, okay? And so last year, we had — we doubled the number of products that we had brought to scale with customers. This is an important thing for you to keep an eye on if you want to know if our platform strategy of having our customers do this is working and that our view is the right one.
Okay. So the upshot of that strategy, though, is that it allows for diversification. And I touched on this earlier but I will reiterate in this slide. This — here, look at consumer tech, this is a cumulative program. You see us increasing programs across all these different verticals, consumer & technology, industrials & environment, food & ag, pharma & biotechnology. I think overexposure in a single market and we’ve been down this road before with synthetic biology with things like biofuels is a real risk to a company. I think Ginkgo is in a position in synthetic biology, importantly, as a technology period across the whole industry is also, I think, diversified out of that situation. So I don’t think any single market is going to trip the whole industry at this point which is, from my standpoint, as a bioengineering nerd, very exciting because I think we’re on a nice long road from here as an industry.
Okay. The last thing I wanted to mention was Biosecurity. Hopefully, it’s obvious by now that Biosecurity is a key technology and Ginkgo should be foundational in it. But it’s not clear how it will be maintained long term. And there’s even a history, in Biosecurity, of funding falling off as an epidemic threat abates. You heard a lot about MERS or SARS and then it falls off. It’s interesting, like just to be fair, COVID, it was a dramatically bigger global impact than any of the — I mean the epidemics any of us have lived through in our lives, really since 1918, you haven’t seen anything like it. So I think there’s opportunity for it to be different here but we should be careful and keep an eye on it. And we care deeply about this topic because as we try to make biology easier to engineer, we want to ensure we do that with care.
And developing the technologies that make sure that bio is not misused is an important part of that care. I was recently asked to serve on the National Security Commission on Emerging Biotechnology alongside U.S. Senators Padilla and Young, Congresswoman Stephanie Bice and Congressman Ro Khanna, along with a total of 12 people. This commission is similar to one a couple of years back that was created for cybersecurity, okay, to ask about the implications for cybersecurity for national security. This is a good indication that the U.S. government has a growing awareness of biosecurity as a key issue for public health and national defense. We’ve been running our Biosecurity business at scale. But as Mark mentioned, many of our contracts expire for — at least the K-12 ones at the end of the school year. It’s hard to predict how the business will evolve going forward. What we do know is that we’re committed to this segment and to being a part of the long-term solution which will likely include a mix of sort of active testing, putting a swab in a nose but also always-on monitoring technologies, right, measuring what’s happening in wastewater, the air and so on to stay one step ahead of growing public health threats.
In the meantime, as the market evolves, we’ll continue to be conservative in our guidance just like we were last year. Here’s what we know, what we think. And if we do better than that, that’s great. But we want to make sure we’re being conservative with you all.
Okay, all right. So building biotech platforms is hard. But as I said at the beginning, I’ve never been more excited about what we can do here at Ginkgo. It’s a reflection of the market environment we’ve been living in the last 10 to 15 years that Elon said that he was able to scale one company, he was talking about Tesla, that he described as idiocy squared and another in SpaceX that is — was one of the dumbest and hardest ways to make money in the past decade. And you also saw just last year, two nuclear fusion companies able to raise a combined $4 billion, okay? This is a technology that won’t even know if it will work at all. Okay? And in my opinion, investments in these sort of breakthrough technologies are critical for U.S. competitiveness and for attacking the big global problems of our time.
Building a horizontal biotech platform is a similar sort of large investment needed, long time to profitability challenge. In a higher interest rate environment which I think we’re moving into here, you will see investors naturally turn to companies that are producing cash today and away from areas like electric vehicle, space, nuclear fusion and biotech that have a longer time to profitability. But what is exciting about companies like a Tesla, SpaceX or a Helion is that if they’re successful, they become incredibly valuable and they make a big impact in the world. Synthetic biology as an industry deserves to be in that same category.
McKinsey’s report on the bio revolution estimated that 60% of the world’s materials could be made by biotechnology, you don’t grow at all, right? And 45% of the world’s disease burden could be addressed. Biology is programmable but it is hard to program. If we can make it easy to program, I think we can change the world. So all of that is going to take time but there are a few things I’m particularly excited about in the relatively near term, over the next year in particular. The first is that we’re seeing stronger demand than ever at Ginkgo. Now that’s important because we’re planning to double the number of new programs. Mark just said we want to hit 60 programs this year. That’s not an easy task but we’re starting to get inbound interest from potential customers who frankly wouldn’t give us the time of day three years ago. But as our platform scale has increased and code base is available, they now realize the difference in our capabilities versus what they might be able to do in their in-house R&D.
I think you’ll see a healthy mix of both young companies and large established companies come on the platform in the coming months. We talked about M&A as a key driver for us going forward. We’ve done two small M&A deals so far this year and we have a deep pipeline of opportunities at both smaller tuck-ins as well as larger opportunities that could create exciting areas of growth.
Finally, I’d like to stay humble about what the world could throw at us in any given year. We’ve developed some confidence in our ability to react quickly. I think we did prove ourselves quite well last year. But we will see how Biosecurity evolves and as that opportunity and others emerge, I think culturally Ginkgo is well positioned to grow into them.
And so I’d like to end on this slide. People forget that when they invest, it influences how the world develops. And so I mentioned those of us that want to see breakthrough technologies come into the world, we’ll need to be careful and look for companies that have the runway to make it to scale. In other words, I think capital markets aren’t going to be there as much for these types of breakthrough technologies coming up. But with rising rates, I think investors are going to have an opportunity to access the type of breakthrough technology companies and long-dated growth companies at a discount in the near term. And so while I think we should be thoughtful, we should invest in the world we want to see exist.
And I’m happy to take your questions and I’m really excited for the sort of long-term minded investors we’ll see on our cap table at Ginkgo coming up. Thanks so much.
Question-and-Answer Session
A – Anna Marie Wagner
Great. Thanks, Jason. We’ll switch to Q&A in a few moments. [Operator Instructions] So as I promised, I’m going to take the first question from one of our public investors who sent an e-mail into our inbox. They write, how can Ginkgo Bioworks rapidly scale up its cell programming operations over the next 10 years when considerable human involvement is needed to bring each project to completion?
Jason Kelly
Sure. I can take that. So there’s sort of two pieces to Ginkgo’s platform to understand how we do these projects for customers, right? So there’s the foundry which is a highly automated set of infrastructure you heard me talk about, how that’s exponentially improving with Knight’s Law. And then sitting on top of the foundry are what we call program teams. These are teams of scientists. They are, as it says here, human beings doing this work, who are engaging against the customer’s targets, so trying to engineer a cell to do a certain thing using scientific discretion, leveraging all that automated infrastructure. And I think that will — as we’re trying to — as Mark mentioned, try to get to 60 programs this year, I think we can hit that by basically improving our sort of like operational excellence across how we run programs. In other words, we can become more efficient in how we launch programs, how we build those program teams and so on. As we get to hundreds of programs per year, I think you need to start to actually make the way we do the work more standardized which I expect will be pretty natural, right?
If you look at sort of the history of software development, you’ve been able to program more and more sophisticated programs over the years because more of that process becomes standardized into, say, an existing software library as an example. So, I think you’ll see that. You’ll see the code base kind of come to the fore and make it easier to do a more complicated project or to have a single person maybe do multiple projects by leveraging sort of existing work that’s been done before in the code base. So that’s one of the things I’m excited about. But I think you’ll see that play out over the next few years.
For now, I feel quite good about scaling our program teams.
Anna Marie Wagner
Thanks, Jason. All right. The next question is going to come from Matt Larew. [Operator Instructions] Matt Larew from William Blair.
Matt Larew
Okay. So Jason, the scale examples you gave make a lot of sense and you have tangible data, whether that’s strain test per day, cost, that really points to your improved efficiency. But all those really speak to your ability to create more shots on goal more quickly. I’m curious about the other side of that which is the quality of the shots on goal that we end up taking. Maybe that’s where code-based comes in. But I’m just curious, has your success rate improved? Has the time to result shortened over the same time frame? And maybe help us understand maybe the other side of the equation which is how the outputs are coming more quickly and more efficiently.
Jason Kelly
Yes. So I think it’s a critical question, Matt. So again, to restate it, hey, it’s great to have all this horsepower on the lab infrastructure but does it improve the likelihood of success and the probability of success for a given project? And by the way, this is the exact question we get from every potential customer we talk to, to move them on to the platform, because they’re asking themselves the same thing. If I move from my own scientific R&D team onto Ginkgo’s infrastructure, I see they’ll be able to do more lab work per dollar but is that going to give me a better odds of success, right? And so the short answer is you can see this — I think the number one way to see this is new programs on the platform. Because we are going through a filter of customers doing that diligence, coming through, talking to our scientific teams, understanding it and then deciding to engage us on these projects. That’s the first fill. So, do I keep hitting my program numbers? It’s a great indication that, that is true, that you get better output from our infrastructure, not just more work. Obviously, on a longer time scale, what you want to see is just program succeeding, right? That’s the ultimate proof in the pudding. I think the general challenge there, like I mentioned, is just the time it takes for these programs to finish. And so that will always lag, right, the number of programs we have on the platform.
And we will accumulate more data over time. Right now, the challenge like to ask questions like, what’s the probability of success, right? The issue is for any given program, it varies dramatically also depending on how hard a thing we’re being asked to do, right? So certain types of genetic engineering projects are substantially more difficult than others. And so that affects it. So it does make that a little bit tough to like throw a specific number at you. But we do sit down with customers and talk through what we think are success and they know that going into the projects.
Anna Marie Wagner
Thanks, Matt. The next question will be from Tejas Savant at Morgan Stanley.
Tejas Savant
Two parter for you, Jason. So first, I mean, on the comment you made about sort of tunable deal structures, right. Particularly in the context of existing start-ups and newcos, walk us through whether you’re thinking — should we see you be a little bit more resistant in terms of the kinds of customers you’ll pursue in the near term here? Perhaps a little bit more towards larger companies with well-capitalized balance sheets? Or is it more that you’ll pursue the same customer constituencies as aggressively as before but you’re just going to try and figure out new deal structures — because the concern that we hear from investors is some of these newcos or start-ups might have difficulty, to your point, raising funding in this environment. And then my second question is related to FGen. Can you just help us sort of over the long term, quantify the impact that the platform could have on your efficiency and reducing the cost per program for your customers?
Jason Kelly
Sure. And I’ll kick that second question to Anna Marie since she heads up our corp dev and M&A. Okay. So to the first one, on the tunable deal structure. So the key point I wanted to make there was — look, as far as I’m concerned, because Ginkgo is a platform, we do have this whole benefit of diversification. And it means that the leadership at the company has knobs available to us that I don’t think you have when you’re focused on a single product, right? When you’re focused on a product, a lot of it is just a game of estimating that particular success criteria. Like is that drug going to go to market? Is that food going to go to market? As a platform, we could say, well, right now, we have $1.5 billion and markets look like this, I’ll do deals that are more downstream value share driven and less fees. But oh, markets have stayed the way they are for three years, my cash balance is lower and I want to do deals that have more fees in them than downstream value. I can take that trade and it gives me a lot more certainty about our ability to succeed in the future that I have a knob like that to turn, right? I’m not locked into a particular strategy. That was the main point I was making. I think in the near term, given our balance sheet and we’re — like you’re mentioning like start-up companies, I think right now is actually a great time for us to get startups on the platform. And I talked about this in the last earnings call, in my opinion, these are some of our best customers because if they start on Ginkgo’s platform early, they never build in-house R&D, right?
When I go do a deal with Biogen, when I go do a deal with Bayer, I have to go and they have to decide that using our infrastructure would be better than using their own internal R&D infrastructure. If you built on me from the first day, you’re on, right? I’m going to grow with your business. And this has been a thing, for example, that companies like Stripe, in the software tech platform industry, have been hugely successful doing, getting early-stage start-ups and then growing with them. So I love that. And so I’m not going to stop doing it. I’m going to keep doing that and we have the kind of cash balance today to keep that going. We are, at the same time, seeing great interest from large companies. That’s mostly — I’ve always lived this like enterprise selling was sort of the part of the company that I had focused on personally with big companies. And it’s changed tremendously. I mean, I think it’s a mix of us being public which makes us just more credible as a counterparty and then also just the scale of the infrastructure. Like we bring R&D leaders through now from large companies and they see infrastructure that they don’t have back at their own R&D labs.
And so, I think you’ll still see the same mix. We won’t shy away from startups even though I think it is a tougher funding environment for them right now. But that could change in the future, like I said, we would have the knob, if we needed it but not this year.
Anna Marie Wagner
And then to the question on FGen, FGen is a deal we’re really excited about. We’ve worked with the company before on some specific programs so have a lot of experience with their team and their capabilities. I think one of the things that’s really unique about them and why we were so excited about them is the flexibility of the platform, combined with the ability to dramatically increase throughput for certain types of experiments. So this is a pooled approach for screening. So rather than doing arrays where every sample is its own little well, you can effectively encapsulate the these strengths. These designs and their own — they’re called nanoliter reactors, these little beads effectively.
And then you can measure different types of production processes through there, whether it’s a secreted molecule or an intracellular molecule, et cetera. So there’s a lot of flexibility with the platform which is important to us because we have such a wide variety of work. So we’re really excited about FGen in particular. And also, I’d say just more broadly about the ability for Ginkgo to leverage these relatively narrowly applied to technologies much more broadly where we can see that potential for broad applicability of — to date, relatively small, small technologies.
Jason Kelly
Now for potential customers listening in, this is now a technology that we’re going to make available at scale for anybody on the Ginkgo platform. So if it’s of interest to you, give us a call.
Anna Marie Wagner
All right. Next question will be from Rahul Sarugaser from Raymond James.
Rahul Sarugaser
So just wanted to see if we can get an update on the NPV of each of the projects. Is that something that you’ve been able to mark-to-market and get a sense of is that changing? Or will that be reported at a later time? And then just as a part B to that, of the 60 projects that you’re anticipating signing up this year, do you have a sense on the distribution of the different sectors that those will be in? And in particular, are you seeing kind of a reemergence of interest in biofuels given the shock in hydrocarbon fuels we’re seeing recently?
Jason Kelly
So, I can take the second part. Mark, do you want to take the first part?
Mark Dmytruk
Yes. Yes. Why don’t I just start with the first part. So yes, so Rahul, like as Jason mentioned earlier, just given kind of market volatility and interest rates, we don’t think it makes sense to put a specific number on the NPV per program right now. But certainly, directionally, it is lower relative to where we were a year ago. Over time, as we do complete more programs and as we see some of them commercializing, we’ll get a better sense as to sort of that portfolio and how to value it but that’s kind of where we are right now. Yes. And Rahul, if you remembered during the stack, we wanted to share what we knew sort of historically based on what we’ve seen, what we had seen at the time so people had a number to wrap their arms around. I think as Mark’s saying is right, like more of these things getting out the door will ultimately give us a lot more data on it. And so I think that’s the right way to think about it.
For the second point, in terms of what sort of the set of programs for the 60 that we’re aiming for this year, the new ones. Yes, it’s a good question. I mean like one of our attitudes at Ginkgo is not to be — to sort of have some opinions about like what markets to go sell into but ultimately to be very flexible to where we see demand. That’s been a big success for us. Three or four years ago in the cannabis industry as an example, I know you know this well, sort of got hot. That led to our project with Cronos. That wasn’t an area that we would have known ahead of time that we would be in. This is one of the advantages of being a platform. So you mentioned biofuels, I do think so. Yes. I think particularly in the area of things like aviation fuels where you’re seeing mandates in Europe and things like that driving renewables in that area. This is the thing that you’re not going to really get going electric anytime soon. So we do need to have renewable fuels in that area, unlike say cars. So, I think that’s — you will see more demand there.
And also in the large-scale petrochemical replacements as well, partners of ours like Genomatica for example, are I think in a great position coming up with what’s going on with oil.
Anna Marie Wagner
Thanks, Rahul. Mark Massaro at BTIG. You’re next. Mark, I think you’ll need to unmute.
Mark Massaro
Sorry about that. Can you hear me now?
Anna Marie Wagner
Yes, we can.
Mark Massaro
Great. I wanted to give you guys an opportunity. You did have a preliminary and informal inquiry from the DOJ. I haven’t seen the Form 10-K but I was just curious if you could maybe get in front of that 10-K and give us any type of update if possible. And then, if I can ask a second part. Obviously, there is a lot of opportunity to consolidate the space. You have done some tuck-in acquisitions. One of them was really COVID related. But can you just give us a sense for how you think this decline in multiples could impact your strategy to do some M&A this year? And how much of that would likely be using your existing cash versus exploring alternate ways to do the deals?
Anna Marie Wagner
Sure.
Jason Kelly
Go ahead.
Anna Marie Wagner
Yes. Allow me to take over this, Mark. So there hasn’t been any material update since we provided the public update on the informal inquiry and the conclusion of our internal investigation in November. So nothing much more to say there. On M&A, I’m very excited about that, as you can imagine. I think the big change that we’ve seen over the last six months or so is really an openness to considering M&A as an exit opportunity for some of these companies. So certainly, valuations have compressed. But what that’s really created is an opportunity for smaller companies to think about alternative ways to kind of capitalize for their growth.
And I think Ginkgo, one of our real goals in our M&A strategy is to establish ourselves as a preferred acquirer for these companies where really strong technical teams can find the resources and the support to develop and deploy this technology at scale. I think one of the best-selling points, not only for customers but for potential acquisition targets is just walking them around the foundry and showing them the breadth of what we’re able to do and the scale at which we attempt to do it. And so we definitely see this market environment as being one that is ripe for M&A and where we have an opportunity to use that to build our platform.
You asked about deal structuring and I think Mark highlighted this earlier in the comments that we do in this kind of a market environment, want to be thoughtful about maintaining multiple years of runway to ensure that we are able to continue to build the platform appropriately and continue to invest in the platform. And so we still view our equity as a useful tool to acquire companies and to keep those teams really motivated to drive value with us rather than just cashing out during a transaction. So we would intend to use equity for M&A in the coming year or two.
All right. The next question will be from Steve Mah at Cowen. Steve, I think you’ll need to go ahead and unmute.
Steve Mah
Sorry about that. Can you give us a sense if your recent successes have translated into being able to push new partners on higher downstream economic value? And then a second part, I think you mentioned the rate of new program adds in pharma biotech in the second half of 2021 was about 35%. Can you confirm that’s your fastest-growing new program ad segment? And is 35% a sustainable rate for pharma and biotech going forward for new program ads?
Jason Kelly
Yes. So Steve, I’ll answer your first one, I’ll ask Anna Marie or someone to check up on the second one. So yes, it’s a good question, right? So as we become more successful on the platform, I think you’re — a good intuition could be that obviously we can demand better deals from customers. I don’t think that’s wrong. But what I would say is we’re also trying to add huge numbers of new customers, right? And one of my lessons from looking at other horizontal technology platforms all the way back to things like operating systems, is the more value you can give back to the app developers, the easier it is to get them on your platform. And so I think my mental model is, it’s your application. I want you to have the lion’s share of the value and us, as the app developer, to take a small piece of what ultimately is going to be — or sorry, as a platform, to ultimately take a small piece of what’s going to be a huge pie. In other words, I would like to be like a utility across the whole industry, providing what is ultimately a backbone service of cell engineering. And so in that world, I don’t need to take a ton of everybody’s applications, right? I can take a small amount and still do great and they’ll do great.
And so I just want you to know like the philosophy that we’re pushing. That’s very different than the intuition a lot of people have in the biotechnology industry where frequently they have kind of like a rifle shot technology that sort of got developed in an academic lab and it’s very precious. And when they license it, they want to get all the value from whoever is taking it because it only really works for one thing. We don’t really see cell programming platform like that. Ultimately, we see it applying just with wild breadth. And so that the model we favor is to take a rather small piece of a big pie.
Anna Marie can follow up. Or Mark, thanks.
Mark Dmytruk
I’d be happy to take this — yes. So I’m just looking, Steve, at the new program adds. And so yes, so pharma biotech was the biggest contributor to new programs last year. But the industrials & environmental and the food & ag were sort of very close behind. And in fact, those latter two categories also saw pretty good growth relative to the first half of the year. So I wouldn’t really — I don’t think there’s anything to read into kind of like the quarterly trending on new programs. I think our ends are still small enough that even just adding a couple of programs in a category in a quarter is going to drive a high growth rate. So I don’t think that like on a percent basis, whether it’s 35% or higher or lower, I don’t think we’re constrained in any way. We still see the size of our pipeline and the opportunity in front of us is still very significant relative to these numbers.
Anna Marie Wagner
Next question will be from Derik De Bruin at Bank of America.
Derik De Bruin
So a few questions. So what do you think your related party revenues will be even ’22? I mean it’s going down which is nice to see but any sort of sense on where that could be?
Jason Kelly
So Mark, did you want to — you can speak to sort of — I don’t think we gave any guidance on ’22. I can add a little bit of extra color.
Mark Dmytruk
Yes. I guess, Derik, so the related parties were not a significant source of revenue growth in 2021. So while we don’t sort of carve out — or we’re not provide any guidance on sort of like subcategories within 2022, I would feel comfortable saying that the growth that we’re guiding to in 2022 is not going to be driven in some substantial way by related party growth.
Jason Kelly
Yes, maybe one other just small point on that, though. So I don’t want to people to lose the thread and I mentioned this at the last earnings call but I think sort of start-ups and new companies that launch on Ginkgo’s platform are often some of the best — any of those companies that can, depending on the details, end up as related parties on our platform. And the — these are some of our best potential future customers. As I said before, they can be born foundry native. And really, we get to grow with them in terms of as their R&D budget grows, as they grow as companies, it’s coming back to Ginkgo because they’re really built on top of our platform. So you will still see us engaging with start-ups. And if the details of the transaction are such that it makes it a related party that could happen. I just wanted to flag that. But — sorry, go ahead, Derik.
Derik De Bruin
Got it. That’s helpful. We’re three days from the end of the quarter. Any sort of like commentary on Q1 and quarterly pacing? I mean, your core foundry revenues were essentially flattish Q3, Q4. Is that a Q1 trend? Just some color since we do have to — I know it’s a long tail story but we’ve got — we analysts have to be focused on the short-term models.
Mark Dmytruk
Yes. So let me take that, Derik. So in terms of — let’s talk first about foundry revenue. So in terms of kind of the — when you back out the Cronos, the flattish trend that you saw last year. So first of all, we are guiding to a 2022 overall foundry revenue number which does represent significant growth. Yes, you will see that more — it does ramp during the course of the year. And so there’s that sort of factor to consider. And again, we’re very actively managing the trade-offs in our contracts between downstream value share and those upfront foundry usage fees. That’s something that we’re thinking about all the time. And then some of the downstream value share, that can be in terms of where that lands in a particular quarter, we are anticipating downstream value share in our guidance for 2022. But in terms of which quarter it lands, that can be, again, a bit lumpy, that can be a function of a whole bunch of factors that either do line up for a particular quarter or otherwise. So we’re focused on hitting this number for the year and we’re very comfortable that we’ll be able to do that just based on kind of current trends.
On the Biosecurity side, we guided to a number that we’re comfortable with in light of the momentum that we have seen in Q1. And also cognizant that, that is a business that kind of 60 days out, we don’t necessarily have great visibility on. And because the — a lot of the state contracts are funded only through the end of the school semester, we don’t have great visibility in the second half of the year. So you should assume that we considered all of that when we put forth the guidance on Biosecurity.
Derik De Bruin
Great. So you sort of segued into my next question. It’s like do you have any downstream value baked into your ’22 guide? And basically, would we start to see royalties coming through on products such as this Aldevron, for example, anything coming through?
Mark Dmytruk
So yes, we do have downstream value share baked into the 2022 guide and that is a component of the growth over 2021. The service revenue is also a component of growth. So both of those are expected to grow. And for reasons that we had discussed before, we’re not breaking them out, partly because of customer confidentiality issues with the relatively small number of products where we would be getting kind of near-term downstream value share. So I think that’s sort of where we’re still at in terms of getting more specific on that.
Derik De Bruin
Got it. And then just one final one. Just the overall fully diluted all-in share count is basically still the same, right, the 2.01 billion of that. Just nothing changes with all the — that’s a big number, the stock comp number, by the way. So just making sure that there’s nothing — the shares don’t go up, there’s no big change we have to sort of like further factor in.
Mark Dmytruk
Yes. No, that is correct. The stock comp expense number is entirely consistent with that two billion fully diluted share count number. And so — yes, yes, so there’s nothing different. The only sort of quick footnote, Derik, of course, in 2022, we will issue new RSUs to employees or to new employees or to existing employees. So obviously, that wouldn’t have been in the two billion. Also, you’ll have like forfeitures, things like that. So there’s some puts and takes that happened during the course of the year but you’re right that the two billion is — that’s still the relevant number.
Anna Marie Wagner
And as a reminder, about 150 million of those shares are earn-out shares with price targets above $15 and another 50 million of those shares are underlying warrants with a price target of $11.50, just to make sure it’s clear that all of that is in the two billion number. All right. Last question, looks like it’s coming from Matt Sykes from Goldman Sachs.
Matt Sykes
Great. Can you hear me?
Anna Marie Wagner
We can.
Matt Sykes
I’ll just ask a quick one. Just on Biosecurity, as you think about the difficulty in predicting the testing environment which we completely appreciate. But then also the long-term opportunity of surveillance. If testing were to fall off, what’s the level of kind of internal funds that you would commit to that longer-term Biosecurity revenue opportunity? Meaning, would it require a level of funding over a certain period of time if there was no testing revenue coming through? And what is your level of commitment to that sort of long-term vision of Biosecurity in terms of dollar amount?
Jason Kelly
So I don’t think we’ve shared a specific dollar amount, correct me if I’m wrong, Mark, or Anna Marie. But the — but I will say we are committed to Biosecurity over the long term. And I do think it’s — basically, it’s a volatile environment around what’s happening with K012. There’s political questions, it’s how the funding is going to work, is it going to be extended, a lot of these things. And so that’s why we want to do just what we did last year which is sort of tell you what we know right now, right? Ultimately, last year, we ended up beating that at various points throughout the year but I just wanted to — we’re going to keep with that policy. It worked well for us last year. And then in terms of the long term, yes, I mean, look, we need to monitor biology like we monitor the weather or like we monitor intelligent signals, right? Like it is both important for public health and for national security. We believe that strongly, we will invest to make sure we are a clear leader in providing that sort of technology.
Anna Marie Wagner
Thanks, Matt. All right. That wraps up the questions that we got from the analysts community. And so thank you all for joining. I know that we ran a little bit over time today, so I appreciate you sticking with us this afternoon and sharing the results presentation with us. We’ll see you next quarter.
Jason Kelly
Thank you, everyone.
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