Ginkgo Bioworks Holdings, Inc. (DNA) Earnings Call Transcript & Summary

All right. Good afternoon. I'm Steven Mah in TD Cowen's Life Science Tools and Diagnostics team. Our next panel today will be focused on sustainable API manufacturing using synthetic biology. So similar to other transformational technologies like the Internet and mobile computing, we believe synthetic biology may become one of the most important technologies of our time. With technology advancements, such as precise gene editing, new R&D tools capable of generating huge amounts of data, continuing lowering of R&D and computing costs and emergence of long-term secular trends such as sustainability. We believe we're at the precipice of a new revolution. Synthetic biology can address many of the global -- many global needs, including food supply security, human health and our panel topic, more sustainable and environmentally friendly manufacturing of active pharmaceutical ingredients. So today, I'm pleased to welcome Christina Smolke, Ph.D., Co-Founder and CEO of Antheia and from Codexis, Stephen Dilly, CEO, and Bob Sato, Senior Vice President of Technical Operations. And then finally from Ginkgo Bioworks, Ryan Morhard, Senior Director for Policy and Partnerships. So I appreciate everyone joining us today. Let's keep it an interactive discussion as much as possible. Audience members that want to participate can e-mail me questions at steven.mah@tdsecurities.com. And before I let the companies do a quick introduction of themselves and their companies. Maybe let's level set the audience on the current API manufacturing landscape, what are some of the critical APIs being made? Where are they being made? Are there any areas of high concentration? And what are some of the downsides to current API manufacturing processes. And again, let's keep it interactive, people can jump in as they see fit.

Great. So Steven, maybe I'll start off the panel. But APIs are basically active pharmaceutical ingredients. They're the key active ingredients that comprise our medicines. When we think about classes or categories of active pharmaceutical ingredients, we can have small molecule ingredients. Like the active ingredient in aspirin, acetaminophen, we can have large molecule APIs, many of our biologics antibodies. Beyond that, when we think about categories, we can also think about sort of the criticality, the role in public health across APIs, this -- and we can also think about how cost will play into this. And so APIs can also be categorized in terms of innovator APIs. These would be molecules that would still be under patent. And then you can have generic APIs, basically molecules that have been in the health care system for a long time or off-patent and can be made and offered by many different players in the pharma space. I think the key challenge then that we're seeing is that the manufacturing methods that we rely on for API production are not agile, they're not resilient, and they're increasingly susceptible to disruption. All APIs are basically produced in 1 of 2 ways, either leveraging chemical processing, chemical synthesis, or biological synthesis but oftentimes reliant on harvesting them from natural biological sources, whether this be a medicinal plant or even an animal or it can actually be a combination of both of those. But ultimately, the problems that we're beginning to see is that these supply chains have evolved globally to optimize on volume, cost and capacity. And so what that means is that the production of these compounds are geographically concentrated to particular regions of the world. In particular, most of our APIs are being produced in China or India. And what that means is that when we look at these supply chains, they lack transparency, they lack end-to-end control. And so when we have disruptions in the supply of a critical pharmaceutical ingredient, we do not have the capacity in our global supply chains with our manufacturing methods to quickly turn on production in another area to have that resiliency and then these disruptions in these supply chains can actually result in years long shortages of a drug that have impact to the patients that need that medicine. So I'll just pause there and also let my colleagues on the panel jump in if they'd like to supplement what I said.

That was a fabulous overview. I don't think I could improve on that. So thank you, Christina.

Thanks, Professor Smolke. No, that's great. And I guess the problem was even exacerbated even during the pandemic, right, because the supply channels were closed. So yes, there -- and we'll discuss this later as you get into kind of geopolitics and bioeconomy, executive order from President Biden, I mean kind of onshoring or reshoring, biomanufacturing to secure supply chain. But yes, that was a great introduction. So let's go on to, maybe can you provide kind of a brief background on each of your respective companies and how you are kind of fitting within that framework that Christina outlined?

So should I go for Codexis first then? So Codexis, we've been around for 20 years. We're an enzyme engineering company by background. What we do is we use machine learning, artificial intelligence and a lot of human intelligence based around a platform called CodeEvolver to optimize enzymes to drive specific chemical reactions. And I think we are sort of the OG in terms of biocatalysis and small molecule manufacturing. We've been doing it for about 15 years. We've lost all our hair in the process. And we've had some recently significant impacts on the field. But in that, we've learned some fairly hard lessons around -- we are competing on cost against chemical manufacturing in parts of the world where these things are done cheaply. And so the opportunity right now for biocatalysis is somewhat restricted. It's not the whole field. If you look at the global small molecule API manufacturing market, you come up with a number like $200 billion worth of manufacturing spend, about 50% of that is API. If you look at the cost of intermediates, they're about 50% of the API cost, and you then take it down to about 1/3 of those, we believe, are amenable to a biocatalytic impact. So you're looking at something like a $20 billion total addressable market, which is great until you then think about penetrating that market, how much of it actually gets adopted. So what I can say is 15 years into this effort, we're doing about $40 million of revenue in biocatalysis, small molecule APIs. And it's not because we're bad. It's because it's really hard slating in this market. So I admire others joining us in this endeavor.

Maybe Ryan?

Yes, I will go and go, Steven. Yes. And thanks, Stephen, it's good to be on the panel. So again, I'm Ryan Morhard and I'm with Ginkgo Bioworks, and so I lead Ginkgo's public policy and government affairs work. I came to Ginkgo about 4 years ago from a background in biosecurity and health diplomacy. So about Ginkgo Bioworks, Ginkgo is a R&D solutions company. So we deploy flexible automation at scale to help our partners accelerate their discovery and development and production, and we do that across all industries in biopharma, in agriculture and also in industrial biotech. So we're a 15-year-old company as well, and we have 1,200 or so employees. We're headquartered in Boston, where I am today and in Boston is where we operate our 300,000 square foot sort of highly automated labs in support of our partners. And partners -- companies partner with Ginkgo when they want to bend their R&D cost curve down and improve their speed and probability of success. And so in pharma manufacturing, specifically, we partnered with Moderna, for example, on the COVID vaccine manufacturing and also with Novo Nordisk and with Merck on biocatalysis of APIs. And so to answer your question, in terms of how we are contributing to some of the issues that Christina wonderfully laid out, partners are coming to us to leverage these large automated labs and massive biological data sets and AI tools for better strains, better enzymes and better bioprocesses which altogether stand to contribute to either better bio-based production or replacing those methods that Christina outlined, where we're facing those traditional or extracted methods with bio-based approaches that would meet their goals about Ginkgo Bioworks.

Great. And then maybe I'll close out introductions. I'm Christina Smolke, I'm Co-Founder and also CEO of Antheia. I have a technical background trained in chemical engineering and biochemistry. And before my role at Antheia, I was a professor at Caltech and also Stanford Universities and I spent about 2 decades of my career in that role, really pushing on the frontiers of what was capable of synthetic biology in terms of synthesis of complex small molecules. And so at Antheia, we've sort of been built upon the foundation of that R&D work, and we're taking it to be able to really transform how we produce pharmaceutical ingredients. Our focus coming back to the API categories I laid out, is on small molecule active pharmaceutical ingredients. And in particular, looking at the drug ingredients that play a critical role in our public health care systems, the ones that are on essential medicine list and really critical for public health. And then also targeting the ones that have these challenges in their supply chain, where they are reliant on a very long processes, inefficient processes of extraction from medicinal plants and animals. And it is actually a very significant fraction of medicines that we rely on. So it's not a very small fraction, upwards of 40% of our medicines do actually rely on these, especially ones that are on these essential medicine list. What we do is we take a microorganism like [indiscernible] and we transform it into a miniature drug factory. We basically engineer enzymatic processes into that [indiscernible] that allow it to go through a very standard fermentation process of growing on sugar. But then internal within the cell, it will transform the sugar to that drug ingredient. And really, our focus then is being able to bring all of the enzymes for this process into that single cell. So that from a production standpoint, we are able to produce the drug ingredient in a single-step fermentation process that might take place over 4 days. And this is in contrast to the conventional processes that we currently rely on that take 2 or more years. So this increase in efficiency, this increase in yield ultimately allows us to then offer to the industry, to the market, to the patients, a much more agile, much more efficient process that also has advantages of sustainability, which we can talk about, but also has advantages of addressing the long-standing pain points in the industry of time, cost and also surety of supply. And I think those things will be really important as we continue on in the panel discussion.

Yes. So yes, maybe let's go move into that area. Maybe discuss some of the case studies and maybe since you're talking about, Christina, time, cost and surety. Some of the issues we've heard with synthetic biology techniques is it's obviously going to be more expensive than using chemical based or, to your point, plant-based extracts or maybe extract it with low cost or illegal labor type practices. Maybe talk about case studies at Antheia about lowering costs.

Yes, absolutely. So one of the case studies I can just offer up, as an example, is our first product [indiscernible], so this is a key starting material. It is used to produce about half a dozen different drug ingredients right now that are on essential medicine list. One of the more notable examples that we recently highlighted was it's used to produce the active ingredient in Narcan, which is, of course, used to -- as an opioid overdose rescue medication. So when you look at the way the current supply chains are organized, again, this compound relies on basically a 2-year manufacturing cycle, starts with growing medicinal plants in the field, then you have to harvest that plant material. You have to take the plant material to a separate extractor, which is going to basically go through a very low-yielding process of being able to extract in very low yields that drug ingredient from the plant material. Then that material has to get -- the extracted compound has to get further processed, ultimately shipped to a different location where it will go further purification and further processing and then used to produce the active pharmaceutical ingredient. Antheia's process that we have developed can produce metric ton quantities of this material in basically a 2-week process. So again, changing a cycle that takes 2 years to something that can produce the same amount of material, same quality, in a 2-week cycle. We've actually demonstrated the process now operating at commercial scale in tank sizes that are over 100,000 liters, producing material of quality that is required for it to be actually used in humans. And so we demonstrated the quality meets all of the existing specifications and it can be done consistently. And actually have DMFs approved on the process, right? So this is a variable process, a transformation ultimately. And it is, again, from a perspective of the time, giving us basically a 50x or more sort of reduction of the time required from a manufacturing cycle. From the perspective of cost, right? As it scales, it will actually lead to a very substantial cost savings, right, in the overall process. And then surety of supply. Again, you can imagine there's is tremendous advantages because right now, you can have variations in yield. As the plant is growing, if you have a climate event that can really disrupt, right, the quality and yield in any particular growing season, and this is happening more and more. You don't have the same issues of worrying about climate events, worrying about pest or just worrying about other things that are going to disrupt that. And so you have a much more consistent process that gives you all of these advantages, as well as addressing issues of sustainability. It greatly reduces the amount of land that's required, right? If you look at the sugar that you're feeding the cells as opposed to the land for farming, it can get -- it can be reduced by about 1,000 to 10,000 fold in terms of the arable land that's required. And again, no harsh chemicals, no harsh solvents, right? This is being done in an aqueous environment. So I think it's a really good example in terms of checking all the boxes but also offering then something that's really important to public health, right, in terms of addressing the criticality of these medicines and bringing that resilience in.

Yes. No, that's a great example. And maybe let's pivot over to Codexis. Christina, you're mentioning doing metric tons, let's talk about an example. Codexis did was engineering and enzyme used in API production for Pfizer's PAXLOVID. I think you guys are making like hundreds of tons of that, of how I'm remembering right? Maybe just give us a snapshot under kind of highlights from that case study.

So we got super lucky as a global population during the pandemic in a lot of ways. When it happened was really important because we were advanced enough in understanding mRNA that we could actually build vaccines. Another sort of story that people don't know is that the reason that we had PAXLOVID was completely fortuitous, that Codexis happened to have in its back pocket, an enzyme, we've been working on a decade before for a completely different drug that happened to work on a critical step in the synthesis of PAXLOVID. Our colleagues at Pfizer were aware of that. And soon after lockdown had started said how much of this enzyme can you make us. And one of the things that I want to call on Bob for and the reason I wanted him here was the [indiscernible] experience of responding to the crisis and scaling the enzyme and getting it out of the door. And I think you said 30 metric tons?

Yes, 30 metric tons and over 220 batches were manufactured. And this required knowledge of our supply chain that we've built over almost 2 decades of business. But it's not just the manufacturing side of things. We build infrastructure for quality control, quality assurance. And our bioprocess development team was responsible for transferring that manufacturing process to another CMO in order to meet Pfizer's demand. So it was quite an experience. Everybody stepped up, it was all hands on deck to produce 30 metric tons of enzyme. And I think just over 1.5 years.

And so 30 metric tons of enzyme, that's a lot of enzyme, right? Now everyone can read the public disclosures. And just to tell you how hard this is, Pfizer probably made $20 billion or $30 billion of clear profit on PAXLOVID. We probably made $20 million or $30 million, right? We got 1,000th, 1,000th of the value of that drug by that heroic effort you heard. And the problem is with a lot of biocatalysis and I'm not talking about what Christina's has talked about, traditional biocatalysis with single enzymes in multistep cascades you get a tiny bit of the value. So the way forward in this industry of using synthetic biology and making medicines is when you do the whole thing, right? When you do the whole thing enzymatically, biologically. And that's why Codexis is now ruthlessly focused on a new class of medicines, which is RNA medicines. So we can make as we showed at the TIDES meeting in Boston last week, we can now make full length, short interfering RNA real molecules using enzymatic synthesis. And the numbers we are looking at in terms of impact on the environment, impact on cost, impact on infrastructure are very similar to the kind of numbers that Christina is getting very excited about. So -- this is not -- this has moved from being a small molecule story to a much broader application of the real technology because like these drugs have been growing in plants for hundreds of millions of years. Well, enzymes have been making oligonucleotides for billions of years since the start of the evolution, we just got a little better at engineering them to make the ones we want to now. So you were dead right, Steven, saying we are at the precipice of a major change driven by synthetic biology.

Okay. Great. Thanks for that. And that's a great case study there. And maybe just finishing up with Ryan at Ginkgo. I know in a couple of recent partnerships in API manufacturing, you mentioned Merck. I think you also have a partnership with Centrient, and also Prozomix. Maybe just give us an overview of what you guys are trying to accomplish with these partnerships?

Yes, very happy to. I just -- I think it's really, Steven, your comment about how the Codexis response is happening kind of just the right time, just why capabilities were sort of coming online to do for such a breakthrough and saved so many lives. And it's the same is true with the kind of the challenge that Christina outlined, this is a -- it's been an enduring challenge and what we're seeing technologies coming online now that actually give us a shot for the first time, and I would argue a long time to actually -- actually make progress against them. And so I think just to your point, Steven, about when will the bio become competitive with traditional approaches. I just think we need to be pretty careful about sort of extrapolating from the -- drawing conclusions from the way things have always been for things the way things are always going to be because I think there's a lot in the new approaches to biotech R&D that to make us really pretty excited. I'll give 2 examples to your questions, Steven. I'll give 2 examples around what we're doing at Ginkgo and where our enzyme improvement capabilities, which are built on sort of large-scale data generation and AI models are allowing us to train and deploy machine learning tools for enzyme engineering. So these are ML-guided enzyme improvement capabilities, and they're showing impressive results. I'll give 2 examples. One, we have one large pharma partner where we deployed this AI ML metagenomic search, protein engineering followed by this the closed loop, lab and the loop reinforcement learning method and it improves enzyme activity for our partner by 110 fold. So that's a breakthrough for our partner. And it's hard to imagine seeing traditional approaches delivering 110-fold improvement to enzymes. And so it's new -- there's new approaches as we're deploying here. Another example, we had a partner that's choosing enzyme producing APIs using biocatalysis and the enzyme is working. But a more specific enzyme would be better, it would produce less byproducts and engage in less side reactions and would be less costly. And so again, we have our protein engineering team go forward, and we designed using AI guided design, we designed 1,100 variants of the enzyme. Best designed, but then we built them and we tested them all in our automated foundry and the top performers from that run had about twice the rate of product formation and half the byproduct. So that's five or sixfold improvement in overall performance, and again, to our conversation now that was for API production. So those are the types of projects that I think should give us all a lot of reason for optimism, particularly when there is so many good reasons to change the way we produce APIs and then now we have technologies driven by AI coming online to actually give us a shot to do that.

Okay. Great. So perfect. That's a great example as well. Let's pivot over to supply chain and biosecurity. That's -- it's been getting a lot of press lately, even though you really started with Present Biden's executive order on the bioeconomy, which he signed in, I believe, late 2022. Maybe just your comments on how you think that's going to play out? I know there is a playbook out there already with the CHIPS Act and they're just now beginning to deploy, I believe, about $55 billion to essentially onshore chips manufacturing, which is mostly done in Taiwan today. Maybe just talk about how each of your companies are kind of fitting in with hoping to secure this global supply chain? Do you guys enable decentralized manufacturing? Your thoughts on how it plays out, your thoughts on how -- what's needed from the government in terms of -- is it building out precision fermentation plans? Or is it putting more money into R&D. Just your thoughts more on kind of this higher level of political landscape we're in right now? Go ahead, Ryan.

Yes. And I think you're right to highlight President Biden's executive order, I think it's also the case that frankly, the last 3 presidents have been leading in on -- had executive orders and pretty interesting policies on bioeconomy and growing the bioeconomy. And I think what it represents is we are seeing, in part because of some of the technologies in each of our 3 companies, but we are seeing biotechnology emerge as one of these strategic technologies of geopolitical competition. And you're right, Steven, to highlight semiconductors because we have these lists. And on those lists, we have semiconductors and quantum and 5G, and we see biotechnology. And so countries are competing. President Biden announced executive order. And not long after, we saw similar policies around the world, we see similar policies in the European Commission. We see them in Japan. We certainly see them in China. And so countries are racing to compete in biotechnology. And the reason they're doing that is take this API conversation we're having now. Well, that basically is a conversation around changing how things are made, right? And how things are made is what really underpins the interdependencies that drive our geopolitics and our economic and national security. And just the way synthetic biology stands to revolutionize the way we make APIs, well, it stands to revolutionize they way we make a whole bunch of things, right? And so that's why the race is on. And the way Ginkgo is contributing there, as you know, we believe the big challenge in terms of manufacturing in biotechnology has been one around basically approach. A traditional approach has been one where -- every company is out there building their own labs and hiring their own scientists and doing their own expensive researches that might not work. And that's frankly an approach that doesn't work in large swaths of the economy. And so what we're bringing to bear is this kind of large biological data factory and in terms of our foundry and automated labs and AI tools that we're aiming to make available the same way that cloud computing infrastructure really accelerated the digital economy too. So a company start-up and cloud-native companies could go on and build fast and bring products to market. And we believe that's what it takes to, again, bend R&D cost curves down, but that's where we're going to see competition. We believe around that sort of early R&D approach and also then to your point around precision fermentation and manufacturing where the manufacturing is actually being done and what are the feedstocks and what's the go-to market? And this is -- BIOSECURE is a great example of kind of congressional action in that regard, but I think it's the beginning of many steps that we're going to see where governments are just trying to compete and fortify their position in a new bioeconomy.

Ryan, you made a really important point there that I want to emphasize, which is about kind of seeding the economy with multiple players. One of the things that Codexis has done over the years is actually collaborate, license our technology to other companies. So biocatalysis became more of a thing. And it's actually helpful to us that you guys and Merck and others are also talking about biocatalysis because when we started out on this journey, we were kind of out in the wilderness as a lone voice saying it could be done this way. And that's super helpful because one of the things we find in the real conversations with the Associate Director of Procurement in a name -- a big pharmaceutical company is they want to know that the process they're signing up for is secure, robust, is going to meet the rate requirements, is going to be reliable, that we can guarantee that they can get their 5 tonnes of enzyme when they need. And that's where guys like Bob come right into it. So it's not just going to be about money either. We need the right rate landscape in terms of adoption of the biotechnology and Synbio approach. But we also have to be competitive on cost because it often comes down to that consideration when people are making the decision whether to commit to this new route.

And maybe I can just add a couple of points from Antheia's perspective and what we've seen. Coming back to one of the themes of this panel around API production. I mean the U.S. government and many national governments have recognized that our pharmaceutical supply chains are 1 of the 4 critical supply chains that we rely on. So it impacts not just public health security, it impacts national security, and it impacts economic security. And Steven, you had sort of brought up how COVID brought to sort of the forefront drug shortages and the limitation within our supply chains. But what we are seeing, and I think this is a really important point to make is that it is not only related to COVID. Drug shortages are continuing now beyond COVID, and they are increasing both in frequency and duration. I mean one of the things that was sort of eye-opening for me is that when you look at the 1,200 sort of most prescribed drugs in the U.S., over 300 of them are active on drug shortage list right now. So you have about 25% to 30% of the drugs that we rely on are actively on drug shortage list and many have been on there for 5, 10 years, right? And now coming back to synthetic biology, biomanufacturing, what -- why the U.S. government is interested in this, why other governments are interested in this? Is that one of the core things that have come out of a lot of these studies is we need to rely and support advanced manufacturing technology. Fermentation, biomanufacturing is an advanced manufacturing technology. It has agility, it has on-demand response, and it is one that can be distributed, right? One of the challenges we have with our conventional technologies is when you have a chemical manufacturing plant, it's very tailored to produce 1 to, maybe, 3 different drug ingredients, it is not easily repurposed, right? And so what that means, again, in order to sort of fit within optimizing for cost is you might have 1 or maybe 2 plants globally that are making that drug ingredient because that's how it can be supported. So if you have something happen to one of those plants, if there's a regulatory issue citation, if something a climate disaster happens that takes it off-line. You basically have about half or even more of the supply of that ingredient go offline. Fermentation is entirely different because the infrastructure can actually be used to make many different drug ingredients, right? What you change in the example of Antheia's technology is that cell that goes into the tank. But whether you're making the active ingredient for aspirin, a chemotherapeutic, right, or the active ingredient for a sedative drug, it's all the same infrastructure. So you can have now facilities distributed across different nations, where you're not just making 1 to 3 drug ingredients, you can have hundreds of drug ingredients approved and ready to be made in that infrastructure and do it on that very rapid time frame, right? Again, we talked about this 2-week manufacturing cycle, you can actually shift the drug that you're making in a matter of 1 to 2 days, right? So these are the types of solutions that biotechnology, biomanufacturing is bringing to the industry. And this is why I think the U.S. government and other governments are so excited about really trying to support this and build a new kind of economy and supply chain around this technology.