Ginkgo Bioworks Holdings, Inc. (NYSE:DNA) Q3 2022 Earnings Conference Call November 14, 2022 4:30 PM ET
Company Participants
Anna Marie Wagner – Senior Vice President-Corporate Development
Jason Kelly – Co-Founder and Chief Executive Officer
Mark Dmytruk – Chief Financial Officer
Conference Call Participants
Tejas Savant – Morgan Stanley
Rahul Sarugaser – Raymond James
Matt Sykes – Goldman Sachs
Steve Mah – Cowen
Mark Massaro – BTIG
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 providing you with an update on the last quarter.
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 usual we’ll follow our standard agenda for these calls, providing an update on our financial progress, while also taking time to dig deeper on our strategic priorities. We’ll end with a Q&A session and I’ll take questions from analysts, investors, and the public. You can submit those questions as usual to us in advance on Twitter, #GinkgoResults or e-mail at investors@ginkgobioworks.com.
All right, over to you Jason.
Jason Kelly
Thanks, Anna Marie. So, we always start with this slide because our mission drives much of our long-term strategy and even many of the day-to-day decisions in the company. So, very simply we want to make biology easier to engineer at Ginkgo and we do that by scaling our platform for programming cells. So, what does that look like, right. So, we work with our customers to define what they want to develop. In other words, the spec for the cell they want to engineer. And this is a key idea.
We are operating our platform as a B2B service to enable our customers to develop end-products for consumers, right. And so our platform consists of two assets, our foundry and our code base. Our foundry is an automated lab. The key idea here is, we’re able to turn what is typically an underutilized fixed cost investment for most companies, in other words, the sort of physical R&D labs that our customers might have in their facilities into what’s now for the customer a variable cost available to them as a service. And that attribute is particularly attractive to our customers in a more challenging economic backdrop, especially small companies might not even need to build these facilities in the first place. And so, being able to turn that on and off R&D spending is a benefit.
Our customers also benefit from the scale economics that we can generate as we invest in our platform. Our code base is a learning asset. It accumulates as we run more experiments and includes physical strains, data, and various tools for programming cells. We can reuse these learnings in incremental programs, which in turn increases the probability of program success and reduces program cost for customers.
I know some potential customers may be listening right now as well as you follow our new program announcements and the new capabilities that we’re building both organically and through acquisitions. And we do have four acquisitions that closed just this quarter. Please do reach out. We’d love to work with you. And, again, we do operate as a service business. It’s very easy to get on the platform. We’d love to get you on the platform.
Okay. Before I turn over the call to Mark to discuss our financials, I do want to highlight a few recent highlights at the company. So, we continue to focus on attracting new programs to the platform. And I’ll talk more about why that metric is so important to us a bit later. We are pleased to add 15 new programs in the third quarter. And I specifically want to highlight our Merck collaboration announcement because we continue to see really strong momentum in the pharma and biotech vertical.
So, here we were able to leverage our fungal strains and other expertise to win an enzyme development project with a blue chip pharma customer with up to $144 million in milestone payments. In biosecurity, we executed well as the school year started. And as you’ll see, we are once again increasing our financial guidance for this business. More importantly, we continue to see real traction across our long-term strategic initiatives. I’ll have more to say on that topic later in the call as well.
Finally, you’ll see at the bottom of the slide that we closed four acquisitions in the month of October, I’d like to give a special call out to the Ginkgo team and also to the new team members that worked with us closely at the acquired companies. This is an enormous lift for a company Ginkgo size, and the process went amazingly well. Importantly, we were able to close the Zymergen transaction more quickly than we initially anticipated, and I’ll discuss why I think that presents a real strategic advantage for us.
We completed the Bayer acquisition, strengthening our capabilities in the [Ag Biologics] [ph] vertical and also announced two smaller transactions; Circularis, which has a circular RNA and promoter screening platform that will help drive our work in cell and gene therapy and Altar, a longtime partner of ours that has a screening platform that will drive adaptive laboratory evolution.
These technologies build deep in and broaden our capabilities, and we’re excited to welcome these teams to Ginkgo. I’ll note that I think our recent M&A activity demonstrates our ability to play offense in the current market environment, while still thoughtfully managing our cash balance and multi-year runway. That’s something you’ve heard me talk about before, and I consider it strategically important to the company to maintain that.
Okay. So, we won’t be able to do a deep dive on our biopharma work this quarter, but I do want to call out some recent results we shared at the society for immunotherapy of cancer conference SITC last week, just here in Boston, as we got a great reception from biopharma companies there about the data. So, the ability of a CAR-T, and this is, you know, that you are familiar with this, but this is a type of immunotherapy for cancer to be able to persist post administration in a patient and continue to kill tumor cells is in part driven by the signaling domains of the car.
So, what we did here was we built a 10,000 member car library, and you can see the library design on the left side of the poster here. And we introduced that library into primary human T cells to look for combinations of signaling domains that would improve on this challenge of T cell exhaustion, which is from a big challenge, just generally in the field.
And we tested these by serially challenging the CAR-T cells both with hematological and solid tumors and saw some nice results, including a number of designs that outperform canonical car signaling domain designs such as BBz and 28z in head-to-head comparisons in our assays. And you can see that data in the center panel.
So, we’re very happy to dive in on this more deeply with folks that are interested. This is an internal work we’ve been doing at Ginkgo that was really meant to showcase the muscles we’ve been building over the last four years as we expanded our foundry capabilities into mammalian cell engineering.
So again, not us developing a new therapeutic of our own, but really a chance to show to customers what the [platform is] [ph] capable of. And I found that when we announced this, it showed at SITC, we encountered [few bunch] [ph] of folks were just sort of surprised, they thought Ginkgo only engineered microbes and fungi, which is not the case.
Again, we’ve been sort of building this infrastructure out the last four years. So, expect me to be a bit of [broken record] [ph] coming up on the applications of the platform and cell and gene therapy. As I want to get the word out to customers, I think there’s a lot of great business for us there.
So, it’s a great time to talk to us if you’re a biopharma company. Everything you see here is all available as a service today to accelerate your drug development efforts and also be sharing more detail on all our biopharma platform capabilities at the JPMorgan conference later this year or early next year. So okay, that’s a quick overview of our recent highlights.
And with that, I want to hand it off to Mark to walk through our third quarter financial performance.
Mark Dmytruk
Thanks, Jason. Our third quarter financial results reflect solid execution in both our self-programming and biosecurity businesses. Total revenue in the third quarter of 2022 was $66 million, representing a decline of 14%, compared to the third quarter of 2021, primarily because we had a lump sum equity milestone in foundry revenue in Q3 last year. We’ve discussed in the past that quarterly lumpiness is inherent in foundry revenue and you’ll see that when you look at the past six quarters sequentially. That said, we’re very pleased with how total revenue is landing on a year to date basis.
I’ll begin with the discussion of our cell programming business. We added 15 new cell programs to the foundry plant form in the third quarter of 2022. As a reminder, our new cell program count is an important long-term value driver and Jason will talk more about why that is a bit later in this call.
We supported a total of 85 active programs in the third quarter of 2022 across 43 customers on our foundry platform. This represents substantial growth in diversification and programs relative to the 54 active programs [across] [ph] 27 customers in the third quarter of 2021. We continue to see strong growth coming from the pharma and biotech industry and the food and ag industry segments in particular.
Foundry revenue was $25 million in the quarter, down 29%, compared to the third quarter of 2021. As mentioned, the third quarter of 2022 did not include any large milestone payments while third quarter of 221, Foundry revenue benefited from downstream value share revenue related to the achievement of an equity milestone for Cronos.
Now, turning to biosecurity. Our Concentric offering continued to perform well in the third quarter of 2022 generating $42 million in revenue in the quarter. Biosecurity revenue consists primarily of product and service revenue from our end-to-end COVID monitoring services with the largest current driver being K-12 testing.
Biosecurity is performing ahead of our expectations as COVID monitoring services are proving to have some level of durability as schools reopened and resumed testing in late Q3 and other entities such as the CDC are extending contracts. We are also encouraged to see government investments being made in longer-term biosecurity infrastructure.
Biosecurity gross margin was 41% in the third quarter and approximately 5 percentage point increase from the prior quarter performance. The sequential increase in gross margin percentage was driven in part by favorable revenue mix. And now, I’ll provide more commentary on the rest of the P&L. [Were noted] [ph], these figures exclude stock based compensation expense, which is shown separately.
R&D expense, excluding stock-based comp, increased from $53 million in the third quarter of 2021 to $73 million in the third quarter of 2022. R&D expense related to the Foundry increased as expected year-over-year driven by expansion of Foundry capacity and increased breadth of capabilities to support both current and future collaborations.
G&A expense, excluding stock-based comp grew to $59 million in the third quarter of 2022, compared to $29 million in the third quarter of 2021. As we invested in business development and all other G&A functions to support the growth of new customers and programs, as well as a higher level of foundry activity, our biosecurity offering and public company requirements.
We also incurred approximately $12 million in transaction and integration costs, related primarily to the four transactions we closed in October. In this environment, we are very focused on containing operating expense increases to areas that are customer facing and that drive growth such as business development and initiatives that will drive Foundry productivity.
In Q4, you will also see the OpEx impact of the two large acquisitions we just closed. We will of course report out on that inorganic impact in detail when we report our Q4 results, but as a [high-level outline] [ph], you will see firstly, new run rate OpEx related to the Bayer transaction, which we expect would be largely offset by the revenue from our new collaboration with Bayer.
Secondly, new run rate OpEx related to the Zymergen transaction, which is largely just a [pull-forward of spend] [ph]. We would have incurred organically in 2023 and 2024 to build these capabilities. And thirdly, significant one-time transaction costs and near-term integration costs, particularly related to the Zymergen acquisition. As Jason will discuss later, we closed Zymergen with a significant cash balance, which significantly mitigates the above spend.
Net loss, it is important to note that our net loss includes a number of non-cash income and/or expenses as detailed more fully in our financial statements. Because of these non-cash and other non-recurring items, we look to adjusted EBITDA as a more indicative measure of our profitability. Adjusted EBITDA in the quarter was negative $70 million, compared to negative $18 million in the comparable prior year period.
A full reconciliation of adjusted EBITDA provided in the appendix to this presentation and in our earnings release. Adjusted EBITDA declined year-over-year, due to the decline in revenue and increase in operating expenses.
And finally, CapEx in the third quarter of 2022 was $13 million, reflecting Foundry capacity and capability investments. We do expect an increase in CapEx in Q4 relative to prior quarters as we complete certain projects, including our [Bioworks seven facility] [ph]. But in general, we are applying the same discipline to CapEx investments as we are to OpEx increases.
One final comment on stock-based comp expense. As a reminder, we provide an extensive disclosure in our Q4 2021 earnings release relating to the GAAP accounting for the modification of restricted stock units issued prior to becoming a public company, substantially all of the 563 million in dollar stock comp expense in the third quarter relates to this ongoing wind down and we now expect significantly smaller amounts to be booked in the fourth quarter and in 2023 and beyond related to this wind down.
Now, I’d like to provide some commentary on our refined outlook for the full-year 2022. We expect to add an incremental 16 to 21 new Cell Programs in the fourth quarter for a total of 55 to 60 for a full-year 2022. This guidance reflects very robust growth as we are almost doubling our new program additions year-over-year, despite a challenging economic climate. Jason will further discuss our thinking and providing a range on new programs later in the call, but we are encouraged by both the depth and quality of our sales pipeline.
We are increasing our full-year guidance for total revenue by $35 million to $40 million over our prior outlook to a new range of $460 million to $480 million. We are revising our foundry revenue outlook to be in a range of $150 million to $170 million for full-year 2022. When we provided our initial full-year 2022 guidance in March, we explained that the range was in-part dependent on the timing of the downstream value share and that we would update you all as we learn more.
Now that we are closer to year-end, we have a better sense of the potential timing of certain specific events. Our previous guidance included revenue in 2022 from several discrete milestone payments, three of which we have not yet earned. The low-end of our new guidance range assumes that we received one of those remaining milestone payments in 2022 with the remainder anticipated in 2023.
The upper-end of the new guidance range assumes that we receive all three remaining milestone payments in 2022, while this reflects our best estimate at this time, there is still some risk with respect to the achievement of any one or all three milestones. However, based on our significant technical progress to date, we remain highly confident that we will achieve them in the relatively near-term. The guidance revision exemplifies the lumpiness that can arise from down to value share timing at a company of our size.
Now on biosecurity, based on our strong performance in the quarter, we now expect biosecurity revenue to be at least $310 million for full-year 2022, an increase of $50 million from our prior outlook. As was the case throughout 2021 and the first half of 2022, there still remain significant uncertainty in the biosecurity market in general. Although we saw an increase in testing volumes at the beginning of the fiscal school year relative to summer levels, visibility into near-term volumes remains quite limited.
More importantly, we are seeing traction in our broader biosecurity efforts, including passive monitoring and international programs, though this remains a nascent business and is not yet a meaningful contributor to our guidance.
In summary then, we are pleased with our overall progress. We are executing on what is now a diverse portfolio 85 programs on the Foundry platform. Biosecurity continues to perform very well, and the company’s total cash position of over $1.3 billion remains strong. And now, Jason, back to you.
Jason Kelly
Thanks, Mark. I wanted to follow-up with a quick comment on our revised guidance. As we get towards the end of the year, we have a much better idea of the timing on binary events like program launches and milestone payments, compared to when we guide in March and try to predict the whole year in front of us.
So, just as we’ve been updating on the biosecurity side, if we’ve had solid reasons to update you all, we want to pass along that information on the cell engineering side as well. And as I’ve said before, this is part of establishing our trust with you all as we, you know, launch as a public company. All that said, the team at Ginkgo is aggressive, and we’re motivated to hit the high-end of the range as we provided, and I do think we have some space to pull that off.
Okay. So, you know, we’ve spoken to you a couple times about why we’re so excited to be acquiring Zymergen, as well as the Bayer Biologics Group, but the Bayer deal closed around when we expected, while the Zymergen deal closed much earlier than expected. And I want to explain why I think that early close is such a big deal strategically.
I also want to talk about program additions, both to highlight the impact on scaling our platform, but also as a reminder of the significant value potential from downstream economics on those programs. I think sometimes that gets lost, so I want to highlight it. Finally, I want to update you on our progress in biosecurity as it expands beyond K-12 COVID monitoring as we’re seeing really encouraging signs there.
Okay. Let’s dive in. Alright. So, as you might remember, we had expected Zymergen to close in Q1 2023, but instead, we closed last month. So, the faster timeline here means that Zymergen brought in more cash, and we can get to work right away on the potential upside opportunities.
So, at close, you know, Zymergen is coming in with over a $100 million in cash, even after paying all of the transaction related expenses, including severance, bonus acceleration, advisory fees and insurance premium. So, you can think of that as a truly net cash number. As we previously discussed, there are a couple discrete items that represent potential upside to our base case.
While we aren’t going to continue Zymergen products independently, in other words, we’re not going to invest really to try to commercialize those ourselves. And we don’t expect revenue from this portfolio. Certain more advanced products such as the functional barriers and 3D printing programs are attracting in-bound interest now and we will continue to explore strategic alternatives to sell or partner those assets.
Additionally, we’ve talked about Zymergen real estate footprint, which was a significant area of due diligence for us as we evaluated the transaction. We do have more real estate [indiscernible] than we need right now, and we’re working to consolidate our footprint down substantially. Positive outcome in these efforts could drive material upside to our cash flow forecast. And I’ll note, we’re already in advanced negotiations to sublease one of these properties starting next year, which is really great to see.
I want to spend a minute here on this topic of, sort of team fit because I was really excited about how amazing a fit this Zymergen team was for our near-term goals at Ginkgo when I gave a kickoff presentation to that team, [indiscernible] a few weeks back. As a quick reminder, the biggest difference between, sort of the two companies between Zymergen and Ginkgo were approaching the world was Zymergen was going out with a product business model. And Ginkgo, as I mentioned, had a B2B services business model. But underneath, we’re really both building strong horizontal technology platforms. And this is a huge deal for how valuable this team and technology can be to enabling Ginkgo’s 2023 goals.
It can happen very quickly because there is a ton of cultural overlap between the teams. And I was feeling that energy when I was out [indiscernible] and interacting with the teams there, it was really exciting. So, it’s already been amazing to see how proactive the former Zymergen folks have been in finding ways to support the programs and technical plans that are ongoing at Ginkgo.
I’ve seen material contributions from those teams already, and this is just barely getting started versus last month. It’s really a huge win to have them onboard so quickly, and now oriented against our services business model at Ginkgo and bringing, you know, the Zymergen team and technology expertise to our customers, rather than just being applied to internal projects. It’s a really big deal to have this happening now instead of next year, and I’m thrilled about it.
So, it’s also important to point out that Zymergen undertook significant standalone restructuring efforts prior to the closing. So, to put these changes into context, Zymergen had over 750 folks in spring of 2021, ended last year with over 500 employees. So, as you think about the OpEx we’re taking on and compare it to Zymergen’s historical OpEx. I do think it’s important to understand just how much the Zymergen cost structure has changed since then.
You can categorize the folks who ultimately joined the Ginkgo team in three main buckets. The first is the automation and software team, which will become deeply integrated with Ginkgo, helping drive our core platform development. You know, that sort of, you know, Foundry and code-based both that we mentioned earlier.
The second bucket comprises Zymergen’s remaining product teams, right. So, there are folks that were leveraging that platform to pursue products at Zymergen. We’ll focus these teams towards the type of R&D partnerships with customers that you typically see Ginkgo enter into, and we’re already seeing traction there. The ultimate size of this team will depend on the outcome of some strategic alternatives for some of the assets, and ultimately will fit into Ginkgo’s program objectives for next year.
Finally, a number of G&A folks joined with the acquisition and will help us ensure a smooth transition as we integrate the companies, but ultimately, we expect over a time that our combined G&A team will scale down as the level of the integration of the company’s increases. So, the bottom line is, this is a really transformational acquisition for us at Ginkgo. And we’re thrilled to have the talented former Zymergen team on board so quickly. It’s really exciting, and it’s a gift to be working with that team.
Okay. So, next, I want to talk about the importance of program additions as a metric, because I think sometimes folks can, sort of solely focus on near-term Foundry fees for programs and miss the bigger value we hope to see from downstream value share in our customers products. Alright?
So, we’ll have this in, sort of three parts. So first, I want to talk a little bit about how we sell these new programs. Okay. So, program additions is a critical performance measure for Ginkgo, and our management team, internally here, is very, very focused on it. We’re expecting to grow new programs by almost 80% year-over-year in 2023. So, from the 31, you know Mark mentioned we had last year, to this range of 55 to 60 this year. This is an awesome accomplishment by the team, I want to say that. But as I mentioned earlier, I’d like to see us get to the high side of that range.
You have the Ginkgo folks listening. In other words, to get to 60 sixty programs as that is a real value driver for the company. I know folks are closely watching, you know, on the analyst side, kind of the biotech R&D spend outlook. In other words, how much are biotech companies spending on their R&D efforts in this market and what that could mean for 2023 during its earnings seasons. While we don’t plan to provide any guidance today on 2023, I do want to make a couple comments on our program outlook.
So, the first is, we are in the very, very early innings of tapping our addressable customer base at Ginkgo. Right. So, many customers in, for example, biopharma are really hearing about us for the first time in our meetings with them over the last six months. For example, the SITC meeting I mentioned earlier, you have folks who are, again, just learning that Ginkgo is even working in mammalian cells.
So, in my opinion, we’re sort of more insulated from total R&D budgets because it’s not like we’ve penetrated heavily. And so, as that market moves, we move with it. Really, what’s more important is how does Ginkgo’s sales pipeline [look] [ph]? Right. And what is and from my perspective, the customer demand there remains very strong. And I feel really good about our pipeline heading into 2023. We’re not seeing any deceleration there as we exit the year.
Second, we are continuing to evolve how we sell our services. So, as an example, one of the things we’re hoping to do is to have a segment of our offerings be increasingly standardized from the customer perspective. In other words, more standard milestones and cost structures, standard IP terms, and time lines. And the hope is this can start to speed our sales cycle. So, in other words, reduce these cycles in sort of months of negotiating around some of these details. And then importantly, on the backside, also lead to more efficient utilization of our platform.
In other words, you know, certain programs are, we can get higher leverage from our automation and our Foundry. It’s great to do more of these. So, a good example of this is in the enzyme space. And earlier in the call, I highlighted our new Merck collaboration. That’s exactly the sort of more standardized offering. I wanted to do more of this year and next year.
Okay. So, that’s how we’re selling programs. Okay. Now, every time we add a new program, I want to talk about how it adds both near-term and then on the next slide, long-term value for Ginkgo. So, first, in the near-term, we got, you know, this virtuous cycle where each new program adds learnings to our code base, right, which is that sort of data and intellectual property and so on that we get reuse rights for as we do these projects with our customers, and that can help make future programs easier, okay, because of what we’ve learned from our past ones. And importantly, it could also drive operational improvement in our foundry, right.
Again, this is very similar. I think like a chip fab or a chemical plant as the place gets bigger, the unit economics improve. And so, physical scaling lowers our unit cost, and increases as we increase our output. So, as we add new programs, as a whole, the Foundry Codebase, the platform gets better, which makes it easier to attract future customers. So, that’s one of the reasons we’re sort of maniacal on driving the team to add new programs as we think it’s fundamentally what makes the platform improve, which makes our lives easier in the future.
And then lastly, we generate upfront R&D fees from new programs. And that cash helps to de-risk the resources we devote to serve our customers, while we’re building that Codebase and Foundry scale. And so, we spoke last quarter about our flexibility in structuring program.
So, we can sort of adjust if it’s a tight market. Maybe we would want to have more upfront cost coverage in the new programs. It’s a nice knob we can turn. I just want to highlight, even from a near-term perspective, it’s only one of the sources of value we get when we sign up a new program.
Finally, I want to mention that when a new program is also tied to a new customer, like for example, Merck or [Lagos] [ph] or recent new customer deals where we haven’t been working with them before, that’s extra value, right. Because we have an approach where we can expand via inside sales with these customers in the future. It’s not often not a one and done here. And so, good examples of this is our expansion over the years with Givaudan and Bayer, and this land and expand activity is an easier sales cycle than onboarding a customer in the first place, right, because we have a chance to build that relationship and that’s part of how we plan to build bigger program growth numbers in the future years.
Okay. Finally and most importantly, I want to remind folks of the significant downstream optionality created by the increase in our new program additions again from 31 last year to over 55 that we’re aiming for this year. And then the robust growth we anticipate again next year. Each new program brings an opportunity to share in the value of our customers’ products in the form of royalties or equity or milestone payments.
So, we get asked all the time, you know, why doesn’t Ginkgo vertically integrate into final products, you know, the TAM for end products and biotechs is huge, and we would [keep more] [ph] of the economics, obviously for sharing them with our partners. And our view is that we do still get a piece of that downstream exposure by sharing in this value with our customers while diversifying away from individual product risk. Okay?
And importantly, it also means we get to build a much, much bigger platform than you could if you were just pursuing your own products. And the rapid growth in new programs creates many more shots on goal and increasingly diversified exposure to end markets and products. I mean, at this point, we are in a pretty broad range of different end product markets from fragrances to gene therapy, right. And so, I think that type of [indiscernible], it does help diversify our risk.
Importantly, downstream value share carries essentially a 100% incremental margins, and we believe it has the opportunity to be ultimately the most valuable part of our business. It is on a much longer-time scale to realization than near-term or foundry fees. This is one of the reasons I think people, you know, forget about it or, sort of push it to the side. And I’m sympathetic to the challenge of modeling the exact timing and amounts of downstream value share, especially because these aren’t our products. And so, you know, at Ginkgo we are often constrained by our customers and how much information we can share publicly with you all, even about what targets we’re going after, right?
Remember, this is essentially the R&D and product development pipeline at our customers, that’s something that folks are rightly very protective of as they’re taking competitively with their competitors and their markets. So, however, we’re very confident in the upside generated by having this many shots on goal and the TAM across the data biology products will ultimately be large. So, now that we’re getting to a larger number of programs at Ginkgo, however, what I’d like to do is a better job of quantifying downstream value potential publicly.
So, for example, when we sign up, you know, if there’s 15 deals this quarter, how much value put a yield for Ginkgo in the long run, right? If we were successful technically and our customers were successful commercially, what could it be worth, right. And you’ll still need to discount that for technical and commercial success. Like think like you would for a therapeutic drug pipeline as an example, but do think it will help folks to better understand the long-term value of program. And if you in some cases, you can see the specific numbers already, right.
So, for example, on the slide here, we highlighted a few recent deals where we have been able to, you know, publicly announce specific potential milestones like the $144 million in the Merck deal or $115 million in Biogen, or the $200 million per product for Selecta, right? But customers don’t want to share those specifics, which is often, I do think we can still work to share more aggregated information with you now that the number of programs is getting large enough at Ginkgo that it wouldn’t disclose anything specific about a single customer’s project. So, we’ll work to do more of that in the future.
Okay. So, I want to wrap up with some thoughts on biosecurity. There’s palpable momentum in this space. You know, this fall alone, we saw several important White House initiatives prioritizing biosecurity. The U.S. government is clearly focused on it, and Ginkgo is very aligned with these priorities, and is ready to help lead the future of this industry. So, how do you get in your head? What would be the components of a long-term biosecurity infrastructure globally?
So, our first formal offering spurred by COVID was building a collection platform. So, this is the infrastructure layer between specific collection activities and local labs that will run the lab analytics on the samples that are collected. Okay. So, COVID monitoring remains an important part of our business, but we’re focused on helping drive more widespread surveillance and monitoring a biological risk in general.
So, even our collection platform alone is now much broader than our pooled COVID-testing offering. That was largely what was deployed in schools, but now includes all supportive entry testing, wastewater testing, and other both passive or proactive measures for monitoring. To that end, we’ve recently added several important modules to our platform, including our acquisition of the epidemiological data assets [have backed up] [ph].
The CDC recently started, including data from our airports program, in their [variant tracker] [ph], and we recently hosted the Director of IARPA at Ginkgo for a press conference to announce the success of Ginkgo’s ENDAR program. And I wanted to just give a little more detail on this one because I think it’s, sort of indicative of what I think the direction biosecurity has headed in.
So IARPA, if you don’t know it, is sort of the intelligence community’s version of DARPA, right. So, they launch a program – they launched this program with sort of 6 or 7 performers, started several years ago before the pandemic. And as I mentioned actually before, you know, Ginkgo has been involved in biosecurity free pandemic. It just was not at near our current scale. And that’s, again, because we think it’s an important complement to the technologies being built out here around programming cells.
It’s one of the ways we develop our platform with care is to sort of work to reduce the malicious uses of this technology. So, the goal of the program is to detect this IARPA program is to detect if a sequence of DNA was genetically engineered. So, imagine, you know, if some white [indiscernible] shows up at the [capital building] [ph], or new viral variant shows up at, you know, JFK Airport in a screening program. And the question is, you know, was this something that was deliberately engineered or is it naturally occurring?
You know, come up from nature? Or was it, you know, deliberately engineered in a lab? So, in the program, we were given challenged samples of either engineered non-engineered organisms. We were blinded to which ones they were, and our technology had to make a call on which it was. And I’m happy to report that we were one of the top performers and we’re seeing a lot of interest in this, sort of technology in both the U.S. and internationally.
You know, Dr. David Markowitz, is IARPA’s program manager for this program noted on our recent press conference that they have had robust demand for all of the platforms from partners, not just in the United States, but in the usual partner countries that the U.S. intelligence community works with. So, this is the vision we’ve had that biosecurity is really distinct from diagnostics or therapeutics. So, products like ENDAR, as we call this sort of think of like a radar, or for engineered biology, are a great example of a pure play biosecurity product. Okay.
It’s not a diagnostic tool, right. Diagnostic tool don’t need to know if the piece of DNA has been engineered or not. It’s a pure play biosecurity product and expect to see more of those. Okay. You know, in the U.S., the government is increasingly prioritizing biosecurity and bio defense. Last quarter, we announced a new contract with the CDC to expand our traveler based COVID-19 genomic surveillance program at certain U.S. airports and since then, the Biden administration has issued an executive order on the bioeconomy and a national [biodefence plan, both] [ph].
I was fortunate to be asked to speak at the summit about the E.O. at the White House in September in, you know, in the last ten years of engaging with the U.S. government on both biosecurity [indiscernible] biology. This is by far the most progress I’ve seen for the field. It is a really exciting time, not just for Gingko, but for everyone in synthetic biology and biosecurity.
While biosecurity is clearly important in the U.S., the reality is that biology does not respect borders. What is ultimately needed is global biosecurity infrastructure. And we are beginning to see that traction in the second half of the year. So far Ginkgo has publicly announced that we signed MOUs with the government in Saudi Arabia and Rwanda. We’re able to draw on our experience in helping collect and analyze data at ports of entry for the CDC in the U.S., and hope to expand this activity internationally.
So, you know, biosecurity was a nice place to end, I think, because our strategy and activities there really illustrate how we think about caring at Ginkgo. So, biology affects all of us and specifically related to biosecurity, infectious diseases, as I said, do not respect borders. We think individuals deserve the most sophisticated surveillance and monitoring tools available to protect themselves and their families from pathogens. And we think that can happen by working with public health institutions around the world in every country.
We should invest in the world we all want to see exist. You know, I’ve said this many times. And that is one from my perspective that would have a heck of a lot less infectious disease. And so, I hope we’re working towards that, and I’m happy to take your questions. Thank you.
Anna Marie Wagner
Great. Thanks, Jason. We’ll switch over to Q&A in a few moments. And as usual, I’ll start with a question from the public. And just reminding the analysts on the line that if you’d like to the question to please raise your hand on Zoom, and I’ll call on you and open up your line. Thanks, all, and we’ll be back in a moment.
Question-and-Answer Session
A – Anna Marie Wagner
Great. Welcome back everybody. So, as usual, I’ll start with a question from the public. So, this one is from Twitter, [Kirak Kirser] [ph]. So, Jason, going into Q4 and 2023, how is mixture of new programs looking, which sector are you seeing the most interest in? And also any update on how the agriculture pipeline is looking with the Bayer deal completed?
Jason Kelly
Yeah. So I talked about this a little earlier, but I’m really excited about the momentum we’re seeing in biopharma in particular. And again, just to highlight it, we’ve been building on infrastructure now for several years, and the fruits of that are starting to pay off in mammalian cell engineering in particular. So, I was able to show some nice results around building large [indiscernible] libraries. We also have very interesting results on, you know, [AAV vectors] [ph] for gene therapy capsid work and so on and so we are finally kind of getting those engagements.
And I think the fact that we did these deals with large biopharma’s with Merck and with Novo Nordisk in the last year also helped to, kind of validate, you know, we’ve been around the block with folks with that sort of high bar for working with an R&D partner in past. And so, that helps us with new customers there too. So, I’m really, really excited to push more in that direction in 2023. In ag, I mean, the [bear asset] [ph] and team is just a unique asset in the space, frankly.
So, I think we’re – what’s you know, we just haven’t had it like literally integrated with us until last month. And so, I’m excited to get out in the market, have that team that’s really been working in ag biologicals, you know, for some folks there for, you know, pushing 20 years out in the market, talking to folks, coming up with new ideas, engagement big ag and small ag companies, So, I’m optimistic about it, but it’s an asset we’ve just brought in. So, we’ll see how it goes in 2023.
Anna Marie Wagner
Great. Thanks, Jason. [Tejas] [ph], I’ll call on you next, but I know that to give you time to prepare, Laurence Alexander from Jefferies, wasn’t able to join the call, but sent one into our inbox asking about biosecurity. And specifically, what kind of revenue run rate would it take to kind of step-up our level of investment and kind of staffing in to support biosecurity more broadly?
Jason Kelly
Yeah. So, I think one of the things that’s nice about how we built out and I talked a little bit about the different parts of the biosecurity, kind of infrastructure, but on that collection and sort of like group monitoring testing that we built out for schools and where we leveraged some of which at the airports is that that is done with local laboratories doing the, sort of COVID or other now disease screening and running those tests. And so, we have the ability to kind of ramp that, both down, and if things were to grow substantially up quite easily without having to make major investments, it’s a little different, if we’re looking at some of the international work.
So, a, we’re going to build out similar infrastructure. We want to work with labs locally in those countries, but I do think we would, if we had a big program develop one of those countries, we’re going to likely need to have some investment of folks on the ground there to complement those local labs, but we should need to build out, sort of big capital investment infrastructure in those other sites. We really are counting on laboratories in country to do that.
Anna Marie Wagner
Great. Thanks. Alright. Tejas, I’ve just opened your line. Go ahead and Rahul, you’ll be next.
Tejas Savant
Hey, guys. Thank you, and Anne Marie, thanks for the heads up here. As I tried to do some mental math. Alright. So, you know, it looks like you’re calling for about, you know, 70 million in Foundry revenues in the fourth quarter, Jason, you noted that, you know, the pharma budget flush is not really a major dynamic for you at this stage. Can you just sort of like talk to what’s driving your confidence in that number? And then, Mark, if you can help us quantify the size of that first milestone that you’ve baked into the low-end of the guide? I think that’ll help get us a better sense of that quarter-over- quarter increase in the base relative to the 25 million here in the third quarter? And what exactly are we expecting for Bayer in the fourth quarter as well?
Jason Kelly
Yeah. And so, maybe – I think you just reminded on the general R&D topic, and I will hand to Mark a little bit to speak to the specific numbers for this quarter or the upcoming quarters. So, when it comes to the larger R&D spend, again, the point I was just making is, we’re so early in terms of penetration that, like, something like the remainder of the year is not really dependent on like macro effects and R&D. It’s very much dependent on the specifics of the current programs we have in our pipeline. And then even if I look to next year and I think about how many programs can we bring in and so on, you know, that’s also very specific to what our sales pipeline looks like, right.
And right now, both of those, hey, we have a good amount of visibility into what will happen just because we’re getting near the end of the year. And then for next year that, you know, I have good visibility into our sales pipeline. You know, you never know over time, obviously, if things tightened up dramatically, but I still think we’re really far from moving kind of with those macro trends in the R&D spending, but Mark, do you want to speak a bit how we came to the numbers?
Mark Dmytruk
Yes. So Tejas, I’ll bring you to the low-end of the guidance range of 150, which would imply Q4 revenue of 60 million just to make it a little bit easier. So, roughly speaking about half of that 60 million, we would expect to come from downstream value share and most of that downstream value share is coming from the discrete event that we mentioned. In the portion of the 60, the other half of the 60 would then be Foundry services. And there is a component of Bayer revenue in that. It’s not a massive component, but there is a component of Bayer revenue in that. And the way to think about it is, you could look at the Q3 number of 25, right, and just sort of assume that we’ll get about that same amount of money out of foundry services, give or take, and then you’ve got the Bayer acquisition on top of that soon.
Tejas Savant
Got it. That’s actually super helpful. Thank you. And then, Jason back to you on your comments on the pipeline, is there any color you can provide in terms of the new versus existing customer mix? What percent of those do you, sort of like consider our, you know, ‘locked in for 2023’? And as we think about, sort of, you know, we’re hearing from, you know, other life science peers comments around folks being increasingly selective about where to place their bets or perhaps taking longer in terms of the sales cycle? Now, I know you mentioned standardizing your contract structures as, sort of, you know, compressing that your own sales cycle, but any color you can share on that dynamic would be helpful.
Jason Kelly
Yeah. Happy to. Yeah. So, just in terms of, sort of inside outside sales, we don’t have any, sort of specific numbers to disclose there for next year, but I would say, I’ll just point out. We have more customers, you know, on the platform that we did at this at the start 2022. So, you know, our ability to do inside sales has improved, right? And so that’s something I’m very excited about because, you know, part of what we’re negotiating is the IP terms, and, you know, there’s just a lot to how we engage with customers that we’ve already gotten through once somebody is on the platform.
And then it’s really more of a discussion with their R&D, right? Are they interested, you know, in a new area and so on, but a lot of the commercial, you know, got some negotiation that’s been done. And so, inside sales is just faster, right. There it’s a little more of, like, a customer appetite thing. When it comes to selling externally, yeah, I mean, I’m, you know, cautiously optimistic that we can, you know, like I mentioned, the Merck deal and, like, the kind of work we’re doing in enzymes, we can make that more standardized.
That will also help just by the way, in terms of the capacity out of the Foundry as well, right? If we can make our – the work we’re doing more standard allows us also to do more of that work. And so, because you got to solve, you know, of both sides, we need to both. We want to increase our demand next year, be able to bring in more programs. Obviously, we’ve grown our sales team, but, like, just generally making that have less friction, but then we also want to make sure as we’re scaling our infrastructure, it can support all those additional programs. And so, the standardization helps on both sides of that.
Tejas Savant
Got it. Very helpful. Thank you, guys. Appreciate the time.
Anna Marie Wagner
Thanks, Tejas. Raul, I’ve just opened your line. Go ahead. And then Matt Sykes, you’ll be next.
Rahul Sarugaser
Can you hear me okay?
Anna Marie Wagner
We do.
Rahul Sarugaser
Yeah. Terrific. Good afternoon, guys. Thanks so much for taking our questions. So, Jason, it’s terrific to hear that your plan to report and add good value on the collective set of new projects onboarded. And so, [what I asked] [ph], so now that the Zymergen and Bayer acquisitions have closed and balancing the fact that you’ve really specifically highlighted biopharma a lot this quarter, can you give us a sense for the balance or stratification of projects, so ag buy over consumer versus pharma going into 2023? And again, because you’ve spent so much time commenting on biopharma, is this specifically a space that you see providing the highest present value for project onboarded within the aggregate number you plan [for both] [ph]?
Jason Kelly
Yeah. Okay. So let me unpack a bit of that. So, one point is, I think we should have, like, that split of like, ongoing programs and things is in the slides. So, I don’t want to get the numbers wrong, but, you know, you should be able to find that there in terms of what we’re currently working on. And then the second part of your question was around the, remind me, it was the…
Rahul Sarugaser
Okay. So the balance of project stratification and also the relative value of where [indiscernible]?
Jason Kelly
Right. Right. Okay. So, the challenge with – alright. So, what would we like to do on downstream value share? So, the first point is we would like people to know that it exists. Okay. Right. So, that’s part of what we’re doing here because we’re signing up lots and lots of programs. These programs have, you know, they could have between a six-month and a two-year timeline, right. So, the time for us to harvest back that [indiscernible] balance share is always – we’re always going to have more of it in front of us, right?
Just as is kind of the nature of the business. And so one of the reasons we want to talk about it is just for, like, awareness. Right? So, the next question is, how do you value it? Right. And so I think the trick when it comes to looking at different markets is, if you were to look at the expected value, you have – you then get to factor in, you know, the likelihood of success, the time to market, [da da da] [ph]. And so, if you look at something like a food or like say a fragrance or a materials, product, the regulatory, for example, dramatically less risky compared to a therapeutic product. Right.
Now, but then the value also different. Right. And so, we’re not going to try to do that. You know, again, we’re not able to break out individual products. I’m not going to be able to say, well, you know, this one we think has an expected value of this based on, you know, what we think is the likelihood of success on regulatory or anything like that. What I would like to get to, and again, you know, we haven’t done this yet, but we’ll just be able to communicate, what’s the potential, right. Just so people have a sense of a ballpark of that, I would like to get there.
And I think, part of the reason we couldn’t do it before was the number of programs was smaller and it was a little bit dicey, what we’d be kind of sharing. But now as we’re getting more, I think aggregate numbers are more doable. But I won’t be able to give you hey, here’s my, you know, expected value on this. Hey, I don’t often – I don’t have the information from – even at a customer level it is tough. It’d be a swing, but certainly it’s hard for me to communicate it to you.
Rahul Sarugaser
Terrific. That’s really helpful. And even just the aggregate numbers certainly will be helpful going forward. So…
Jason Kelly
We’ll do our best.
Rahul Sarugaser
That’s all from us today. Thanks.
Anna Marie Wagner
Thanks Rahul. Alright. Matt Sykes, I’ve opened your line, and Steven Mah , you’ll be next.
Matt Sykes
Great. Can you guys hear me?
Anna Marie Wagner
Yes.
Matt Sykes
Great. Good afternoon. Thanks for taking my questions. Maybe just, first part and I have a follow-up. Mark, just want to confirm, based on your comments, it sounds like there wasn’t any bear revenue recognized in the third quarter, given your comments about the base to base from Q3 to Q4. So, I just want to confirm that. And…
Jason Kelly
Yes.
Matt Sykes
Okay. Great. And then Secondly, I don’t know, maybe for you, Anna Marie or others on, just the M&A, just given the volume of M&A that you’ve done, what has been the sort of the strategy and, sort of institutionalizing the integration of those companies, because it’s obviously a lot to do at one time, but just would love to hear how you’re thinking about that integration to make sure that it goes fairly smoothly?
Anna Marie Wagner
Yeah. This is definitely where I’m spending most of my time right now, so I can speak to it. Yeah. I think overall integrations are going really well, and as Jason mentioned, really excited to be able to get an earlier start with Zymergen. One thing that’s important to understand is that most of the transactions that we’ve done are really quite small companies that do fit nicely within our existing team.
So, it’s actually much less of a whole company integration effort and much more, you know, a team that’s kind of getting integrated into the Foundry, into even a portion of our Foundry. And so those tend to go pretty quickly. Bayer and Zymergen closing the same week was obviously a big lift for the team. And so, I will reiterate what I’ve told the team a lot, which is thank you to all of our [bio-workers] [ph] who are listening, but they’re also quite different businesses, and we’re very grateful to have the Zymergen team and a full, you know, a full support team there that is helping us integrate those assets.
Bayer in some ways, is much harder because it was a carve out. And so, we had to rebuild much of the support infrastructure, you know, everything from procurement to HR in that organization. But the good news there is that we’ve been working on that transaction for a much longer time and the close process there took longer given, candidly, the complexity. And so, we went into that with a lot of groundwork already covered. So, certainly a lot of work, but integrations are going well. And I would say, it’ll probably be a while before we do something of that size so that the team does have the opportunity to get those kind of up and running more sustainably going forward.
Matt Sykes
Thanks for the color.
Jason Kelly
I think I’d add. I don’t want to sell – I do think we now have built a muscle that’s going to – would enable us to do integrations much more easily in the future. And so, you know, we won’t be afraid to flex that if an opportunity comes along.
Matt Sykes
Got it. And then, Jason, one for you kind of high level, but just, you know, you talked about learnings in the platform, but I’m just curious, you know, have you learned when you’re signing on new customers, have you learned what helps achieve success in realizing that downstream value? Meaning, can you help accelerate the realization of downstream value by applying what you’ve learned from past programs, whether they’d be successes or failures. I mean, you want to have a lot of shots on goal, but you want to improve the accuracy of those shots. And does that inform how you toggle the upfront fees from maybe programs that you might not feel as great of a downstream value success as others, and how have you kind of modified that over time from the course of this year?
Jason Kelly
Great. Yeah. So, short answer is, yes, the code base makes it more feasible for us to succeed at downstream value share. No, we don’t try to be overly clever about how to structure the deals and so let me un unpack each them. So, you know, we break our platform into two pieces: The foundry, physical infrastructure automation, reduce cost of lab work with scale, and then the code base, which is what you’re talking about. All data and learnings from previous projects that essentially save you work in the lab, right.
Like, the perfect project is, you come in, you ask for something. that I have so much learning about that I design one cell and I hand it to you. Right. And it is very fast. It requires no cost, you know, and what you’re really banking on is all my previous knowledge. That’s an extremely high margin project for me. You’re thrilled about it. You get results quickly. So, absolutely. So that is the direction you want to take things.
Now, in terms of how we price to customers, much more about what is of interest to the customer today, right. Because my prime driver and I’m broken record about this program counts, right. I want more programs on the platform. I think it’s what validates our entire business model of being a platform company, doing services across all these different markets that is shown in new customers, in particular, signing up, but really new programs on the platform broadly. And so, I don’t – I want to make that as easy as possible.
So, if I have a certain customer who’s got a lot of sensitivity to royalty and less sensitivity to fees, fine, right. If it’s the reverse, also fine, right. And I want to make sure we have the margin of safety as a company to allow me to have that flexibility. And then I watch, you know, we report out our cash balance. It’s important to us. We’re careful with it. But that – I want to have that so that I can ultimately make it as easy as possible for customers to come on the platform. Does that make sense? I could imagine maybe someday if we really had better models, but I’m not trying to handicap that risk. I’m really focused on just getting customers on platform.
Matt Sykes
Got it. Thanks for the color. I appreciate it.
Anna Marie Wagner
Thank you, Matt. Alright, Steve. I’ve opened your line, and Madelyn, you’ll be next. Steve, I think you might need to unmute. We may have lost Steve. We’ll come back to you, Steve. Madelyn …there you are.. Yeah. Go for it.
Steve Mah
Sorry about that. Just one follow-up question on Matt’s question about deal structuring.
Anna Marie Wagner
That was entirely my fault. Hang on. I’m going to open you back up. [Multiple Speakers]
Steve Mah
Can you hear me now?
Jason Kelly
Yeah.
Steve Mah
Okay. Just a follow-up question on Matt’s question about the deal structuring. I know you guys, you know, there are different levers for you to pull, but given the macro environment, are you seeing or are you expecting a slowing of up front R&D licensing or foundry fees, you know, going forward and having them – having the deal structure to be more back-end weighted, and did that impact the Q3 foundry revenues or was that year-over-year decline primarily due to the Cronos milestone realized in third quarter 2021?
Jason Kelly
Yes. The year-over-year decline is definitely a Cronos milestone. And then I’d say generally a lot of foundry fee ramping has to do with kind of getting programs started and as a less spend at the beginning as part of it. Remind me the beginning of your question one more time, I lost you.
Steve Mah
No, the lever of being more back-end weighted versus upfront weighted given the macro environment?
Jason Kelly
Yeah. So far, it’s not been like that. It tends a lot more to do it like the type of company we’re dealing with more than anything, right. Like, bigger pharma companies prefer to pay more upfront and less on the backend, smaller startups that are more cash sensitive prefer the reverse, you know, right. I think that’s still probably the dominant thing we see rather than some bigger macro issue. And I could even see in a more flush environment that trend more or less staying the same.
So, and again, like I said, for now, I’m mostly focused on getting people on the platform. We end up with a decent mix. You know, I do want to bring in, you know, I think it’s been, like, I said earlier, like, getting these, kind of blue chip biopharma’s on the platform in the last year is helping us then sell into that category.
Same goes for the startups, by the way, right. If we don’t bring in, you know, it’s been great in the, sort of industrial biotech sector, you know, folks like [indiscernible] coming on the platform, that – you know people look at – earlier companies look at them, you know, they’re sort of leaders who’ve been around the block on the startup side. You know, that helps us bring other new earlier stage companies on.
So, I need these folks as, you know, I want to have a spread, but it’s more for kind of sales purposes rather than some sort of macro driver.
Steve Mah
Okay. Got it. Thanks for that color. And one on Zymergen. Now that that’s closed, and I’m not sure if you finalize your strategy, but know, Zymergen had a rack automation offering that they were selling into third party labs. Is that going to be Ginkgo is going to continue to sell or is it Zymergen’s automation capabilities just going to be integrated into the Foundry?
Jason Kelly
So, a lot will be integrated into the Foundry. That’s really the big strategic reason that we’re excited about bringing that on. I talked about during the call earlier, then I think that getting the Zymergen team and infrastructure pointed at 2023 Ginkgo R&D service targets. So, you know, is what I’m most excited about, particularly given how quickly this all happened. That said, you know, they had a, you know, a good pipeline of folks they were talking to. And so, I do think there’s some interesting things there, and we’re going to be exploring that, you know, in the coming quarters.
Steve Mah
Okay. Got it. And then last one for me on biosecurity, you know, given the risk of other respiratory viruses, coming back this upcoming flu season, on biosecurity, are you guys currently doing combination tests such as, you know, [COVID versus RSV, COVID versus flu a and b] [ph], etcetera?
Jason Kelly
Don’t know what we’ve announced publicly. Do you, Anna Marie?
Anna Marie Wagner
I think we might have to get back to you.
Jason Kelly
Yeah. Let’s make sure we get back to on that.
Steve Mah
Okay. Understood. Alright. Thanks for the questions.
Jason Kelly
Sure.
Anna Marie Wagner
Okay. Thanks. Alright. Hopefully, I’ll do this right this time, [Madelyn] [ph]. I’m opening your line. Should be able to signal.
Jason Kelly
I would say that that is absolutely what we want to have happened, right. Like from our standpoint, like, all these things we’re building out in that infrastructure like collections at airports. Why isn’t that a great place to look for flu variants. Every year, we have to figure out what the new flu variant is going to be. Where do you think it shows up first, right. Not at hospitals, it shows up at airports first, right. So, if you want to add a few weeks to being able to predict flu variants, collect where people are. Collect in international airport.
You know, right, like, this is – anyway, you know, I’m a broken record on this, but having visibility into infectious disease post-COVID globally feels like a no brainer. It’s just, we are collectively too exposed and certainly in the U.S., it would be crazy not to do it in my opinion. And I think you’re seeing that with the executive order and things like that. There’s awareness of this. So, I’m hopeful that we will end up having that, sort of monitoring way more pervasive than we did pre-COVID.
Sorry. Didn’t mean to interrupt.
Anna Marie Wagner
Thanks, Jason. Go ahead, [Madelyn] [ph].
Unidentified Analyst
Yeah. Thanks. This is Madelyn on for Matt Larew for William Blair. Just a quick one for me. As you integrate the Zymergen deal in particular, but also the Bayer deal, can you give us any color on what your cash burn profile is going to look like going forward? I know you mentioned that the Zymergen capital structure is very different than it was a year ago, but any information you can give on that would be great?
Jason Kelly
Yeah. Mark, do you want [to help] [ph]?
Mark Dmytruk
Yeah. Yeah. So, in Q4, what you’ll see with the, sort of combined effect of Zymergen and Bayer is, like, just directionally speaking, just a round number, call it, 50 million of additional OpEx that includes [DNA] [ph]. So, that’s non-cash obviously. That also includes a bunch of transition costs like the [G&A support] [ph], for example, that will eventually phase out during the course of 2023. So that cash burn decreases. That number does not include one-time costs related to the acquisition. Some of that was paid at closing. Some of that will be paid during the course of Q4 or even a little bit beyond that.
The cash that we inherit at closing through Zymergen in effect is able to very significantly mitigate all of this. And on the Bayer side, the cash that we get from the revenue collaboration also very significantly mitigates the burn that we inherit on the Bayer side of things. So, that’s sort of the profile that you’re looking at.
Unidentified Analyst
Great. Thank you.
Anna Marie Wagner
Great. Thanks, Madelyn. And I think closing us out, we’ve got Mark Massaro from BTIG.
Mark Massaro
Greg, can you hear me?
Anna Marie Wagner
Yeah.
Mark Massaro
Alright. Terrific. So, I do want to ask about the Foundry services revenue, I think you were operating at around 21 million to 26 million per quarter. This quarter came in a lot lower. So, how should we think about revenue per program and maybe walk through some of the drivers there? And recognizing that the macro certainly is pretty tough, I’m not sure we heard why the services revenue was down in the quarter?
Mark Dmytruk
So, Mark, let me clarify. Why are you saying services revenue was down? It was 25, which is consistent with what you’ve been seeing over the past few quarters?
Mark Massaro
The Foundry revenue ex-milestones.
Mark Dmytruk
Yeah, which was approximately 25 million this quarter because we didn’t have any material milestones land in this particular quarter.
Mark Massaro
Okay. Understood.
Jason Kelly
Your question is still good about revenue per program. I can speak to that, but Mark?
Mark Dmytruk
Yes. The revenue – so yes, so the revenue per program – so the Foundry services revenue this quarter is approximately 25 million and that does not include any major milestones. And so, it is about in-line with what we’ve seen in the prior quarters. The revenue per program number is down as you pointed out and that’s largely because we added 15 new programs in the quarter, but we see almost no revenue contribution from those 15 programs in the current quarter.
So, it’ll take some time for those programs to ramp up. So, you’re just seeing the math, they will work out in a way that the revenue per program looks lower. That’s just because it was our largest ever new program add for a quarter and almost no top line contribution in the quarter from that. So, does that, so yeah. So, Mark, does that answer the core of your question?
Mark Massaro
Yes. Yes. That’s helpful. And then, I know you’ve received this question a few times tonight. Questions about the uncertainties related to life sciences funding, can you just give us a sense for obviously, you do have some larger pharma companies in your portfolio as customers, but just give us a sense for some of the more emerging companies, what you’re seeing in terms of funding dynamics? And how should that factor into how we think about new program wins in 2023?
Jason Kelly
Yeah. So, what I would say there is I think we are, again, little bit broken record, but I think we’re early penetration on that, right. Like, we don’t have that, all that many small biopharmas on the platform today, right. We have a few, you know, that we’ve talked [indiscernible] and others, but so I think in large part, it’s still more of a – does Ginkgo have relevant infrastructure for you? You know, yes, we can do deals versus, like a total, like a macro slowdown if we already had relationships with many small biopharma’s, right. It’s just an area that’s one of the later markets for Ginkgo to move into.
So, we had a little more insulation there. You know, it’s just kind of a nature of it from my standpoint. So, I don’t again, I would say, based on our sales pipeline, I don’t feel like a big – like a big threat from that shift for Ginkgo in particular. And that doesn’t mean that is not happening in in the wider market. And I do want to add one extra piece of color to just what Mark said about the program revenue. Keep in mind, you know, with, like, like I said earlier, with the code base, a perfect deal for Gingko would be, I do almost no work, you know, and I and I give you what you want, right. Because I’ve learned enough that I’m actually saving lab work for a given project.
You might then come to me and ask for a more sophisticated project. That’s what I’m expecting. As I get better at doing what was hard two years ago, becomes easy, you’re suddenly going to ask me for something more valuable to you that’s harder. And that, you know, that follows the same trend you would have seen with, like, compute. Like, when compute, was expensive, you know, like, this was a hard project, but then it gets cheaper and it’s easy, but people come up with new things to do with compute.
We expect, kind of a similar drive for people to keep asking us difficult things, but easy programs should actually start to take less effort. And for the fees part of it, means less fees, right. Now, it means I’ll get the downstream value share with higher probability and do the programs faster, and so I’ll make more on the downstream, but there’ll be an interesting dynamic as we try to actually standardize and make programs simpler for customers where it could drive fee revenue down, but hopefully expect the value of downstream value share up or certainly at least over a window of time drive it up.
So, we will aggressively try to make that happen. So, I do want to just highlight that that’s an interesting dynamic that makes the program, you know, the fees per program, kind of you just provide some extra thought, but does that make sense?
Mark Massaro
It does. It does. Thank you. And then just last one for me. On Zymergen, Obviously, you’re looking to rationalize real estate and exploring strategic alternatives on the product side, what other sort of key strategic initiatives or milestones should we think about that business through the next 12 months? And how can we think about that as a, maybe a transition year or do you think there are opportunities that are significant?
Jason Kelly
You know, it’s such a great fit. Like and then, you know, I was [indiscernible] call listening today. I think the team there can plug right back into what we’re trying to pull off at Ginkgo in 2023 for our targets, right. Like that, you know, it’s just, you know, they think like we do, you know, the team historically at Ginkgo has thought and it’s a cultural fit. So, actually, I’m actually pretty bullish that a lot of the contributions will come quite quick on the Zymergen.
There are again, there are these sort of longer cycle things. You know, maybe we can they have certain product assets we’d like to partner, sell, or things like that, that’s fine, but well, you know, my expectation is they help us hit our numbers, program numbers, and scaling targets. So, yeah. I think it’s great. It’s really nice, and we’re thrilled to have that team coming on.
Mark Massaro
Alright. That’s it from me. Thank you.
Anna Marie Wagner
Great. Thank you all. I don’t see any other questions on the line. So, maybe Jason, I don’t know if you have any closing thoughts just to wrap up the night, but then we’ll let folks get on with their evening.
Jason Kelly
Nope. I think we – I guess, a good coverage to everything. I appreciate all the good questions, and thanks everyone for spending the time with us.
Anna Marie Wagner
Alright. Thanks all.
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