Hi, good morning, everyone. My name is Michael Sontag. I am the life science tools and diagnostics associate working under Puneet Souda at Leerink Partners. It's my pleasure to be hosting Ena Cratsenburg today, the Chief Business Officer at Ginkgo Bioworks, glad to have you here. Thank you. Great to be here. To start the conversation, I was hoping we could begin with the Q1. Okay. Ginkgo has seen some continued momentum- Yeah in their program add, but that didn't necessarily translate into revenue growth in the top line. So I was wondering if you could work through with investors, like, what is driving that disconnect- Yeah How is Ginkgo working to make sure that program growth is translating to revenue growth? Yep. You're right. In the latest quarter, we saw an increase in active programs year over year, but a decrease in cell programming revenue. And it's been frustrating, frankly, for all of us, because we actually have a large amount of fees bookings across many deals. But part of the problem is we're just not converting those bookings to revenues fast enough. And the core challenge to that is the rate by which we're bringing these programs onto the platform to full automation at Ginkgo. Generally speaking, the faster we can get programs to full automation, we can generate a large amount of data. That's when the revenue really starts to flow in. Because of the time lag associated with bringing these programs on, that's what's been translating to the lower than expected revenues. Now we are fixing that through using RACs, and I'll talk more about it later in the discussion. But the acquisition of Zymergen is really kind of a key asset for us right now to be able to use the automation system that they have developed, called RACs, that would help us to automate a lot more of our processes and be able to reduce the cycle time from when deal is signed to when we can actually recognize the revenues. Okay. Yeah, and then you, you've also talked about maybe a bit of a switch in the types of programs- Yeah you're working to do. Mm-hmm. So not getting bogged down in licensing deals, but more, more doing fee for service- Yep -type work. And I think Lab Data as a Service is kind of one of the key elements of that. Yep. I was wondering if you talk about how this change affect the sales cycle, and what does your expectations for program growth and revenue growth in the year ahead? Yeah. So traditionally, Ginkgo's business model have been to sell essentially a solution to our customers, and that solution is where Ginkgo scientists are exercising scientific control to provide sort of an end-to-end solution to a customer. They have a problem, technical problem to solve, and we use our scientists to figure out how to use our platform to generate the solution that they want. And typically, in those models, we own the IP that's generated, and we also take downstream value share. Now, Lab Data as a Service is a different type of offering, where it is putting the scientific control with the customer. They have a scientific problem to solve, they have a path towards solving that solution, and they need specific data that's generated to help them understand and validate their hypotheses. These Lab Data as a Service programs tend to be smaller modules of services. Mm-hmm. In those deals, we're essentially giving our customers ownership of the data that is generated, so there's no, like, IP discussion. They own that IP, which is essentially the data set, and there's no downstream value share. So it's a very simple, typical CRO-type arrangement. We're offering both, and we're seeing a lot of traction in the market for Lab Data as a Service, as a complement to the existing solutions, services that we've been offering. Mm-hmm. Okay, that's interesting. And then for Lab Data as a Service, how is Ginkgo really differentiating compared to maybe some of the other CROs offering their lab space? And is there any way... I know obviously, it's, there's no downstream economics associated with it, but is there ways for Ginkgo to get some sort of long-term value from that work? I don't know if it's either informing your models or stuff like that. Yeah, absolutely. So, Lab Data as a Service is—I'm sorry, can you repeat the first part of your question? I want to make sure I- Oh, I'm curious, like, what differentiates Lab Data as a Service at Ginkgo versus- Got it ... you know, other CROs? Got it. Yeah, so I think one of the key things about Ginkgo that's unique relative to other CROs is CROs generally do work that is in a similar manner as, you know, what the company's contracting them to do. They're very FTE intensive. The business model tends to be, "I scale by people," not, "I scale with automation." That's the unique aspect that Ginkgo brings. Just because we're doing more work doesn't mean we have to add a lot more people. We add more robots. We are optimizing our automation processes to be able to provide those services. So the key difference between Ginkgo and a typical CRO is the extensive automation and high throughput capabilities that we offer. Customers cannot do what we do versus for many CROs, customers can probably do what typical CROs do. Mm-hmm. And that's also an ability for us to achieve economies of scale. As we bring more and more of these customers on board, we don't have to make additional significant investments in people to be able to take on more customers. We actually have the ability to do that with much lower variable costs. Okay, yeah. I think expanding on that point about automation, I know the Q1 really featured these RACs systems that I guess you acquired via the Zymergen acquisition. Yeah. I'm curious, you know, what does RACs do for, I guess, Ginkgo's P&L, and how do these systems differentiate from some of the other lab automation system people might be familiar with? Yeah. That's a great question. So let me answer the second part first. Mm-hmm. So with respect to automation, there's automation happening across the board in many different companies, right? So what makes Ginkgo unique? I tend to think about automation in sort of different levels. First level is by hand, so no automation. Mm-hmm. Second level is walk-up automation, which is what you see in most labs today. You see that in a lot of academic labs, where there is a high-throughput instrument that can do a lot of different experiments, and the scientists have a plate that they're walking up to a machine, to an instrument for, you know, the number of designs for it to be tested or constructed. The third level of automation is work cells, where there are a number of these instruments tied together- Mm-hmm ... in a way that performs a certain set of activities in a more, you know, more efficient fashion. Mm-hmm. But level four automation is really what we're looking at- Mm-hmm developing, which is RACs. And the way to think about it is flexible automation. So it's not just about developing these work cells that, you know, once you put it in place, you're doing a lot of the same thing over and over again. Mm-hmm. If you want to do something else, you have to spend a lot of time reconfiguring- Mm-hmm -the level three automation. And level four, what it offers you is essentially instruments on carts. So think of it like Lego blocks- Mm-hmm ... connected through like, a magnetic sort of, you know, transportation system- Mm-hmm that would allow you to move things from one system to another, and you can change out the carts in a very simple manner. Mm-hmm. So it gives you the ability to do the automation like you would with a work cell, but the flexibility to handle a lot of different types of projects or experiments. Yeah, best of both worlds. Yep. I'm hoping to talk a bit more about the profitability outlook for Ginkgo. Yeah. At the Q1 call, you talked about reaching EBITDA profitability by 2026. Yep. I was wondering if you could walk us through how you get from -- how do you get to there from here? First- Yeah ... on, like, a top-line perspective, but also, thinking about, you know, maybe the investments in automation and managing the OpEx. Yeah. So there are essentially three key levers that we're looking at on the growth side to get to the EBITDA breakeven by the end of 2026. The first is, we already touched on it, is using RACs automation to help improve the rate at which we can bring customer programs on board, and for us to improve efficiencies in how we can deliver on those programs. The second is, and you mentioned a little bit about this earlier, is changing our commercial terms. So even with the solution selling today, by moving our IP terms to customers own the foreground IP and no downstream value share, it removes a lot of friction in the deal negotiation process. Mm-hmm. So it speeds up the rate at which we can get some of these deals done, and it improves our conversion rate. We have gone back to some of our customers, where in the past they have said: "Hey, Ginkgo, you own foreground IP, I don't want to work with you anymore. There's, you know—this is a non-starter for us. Mm-hmm. We've gone back to them and have been able to get them back to the negotiating table, because now we have this new IP schema. So that the new terms that we're offering is both increasing the rate of conversion, as well as the speed at which deals get done. And third is, you touched on earlier, is LDaaS, Lab Data as a Service, which is another service offering that will allow us to access new customer types. For example, with some of the AI companies- Mm-hmm ... they are interested in large datasets for their model training. We can offer the generation of large datasets to these AI companies that typically would not have been the type of customers that Ginkgo go after. Mm-hmm. Okay, that's interesting. Yeah, and then I guess speaking further about program, I think Ginkgo talked about looking to get, you know, a little over 100 services contract in 2024. I'm kind of curious if you have any views on what type of customers you think will be driving that growth, and how much will be, you know, LDaaS or- Yeah ... some of the more typical programs you've been doing in the past? I think it's going to be a combination of both. I mean, looking at the pipeline today, it's still, you know, a lot of our typical solutions-type customers- Mm-hmm ... simply because LDaaS was just introduced in April. Mm-hmm. So we're letting some- Very ... of that work through the system. But from our early read of, you know, customer interest, we think it's offering us a lot more opportunities to go to the market with something that people are interested in buying. Okay. Now, I think going, I guess, a little deeper, so starting with pharma, I think that-- and as of the last quarter update, it was 41 of the 100 programs you have. I was kind of curious if you could speak to which parts of the platform are driving interest from pharma, and if you have any ideas about what's the mix between large pharma and maybe some of the smaller biotechs? Yeah. So when you think of the Ginkgo platform, you can think of it in terms of the microbial platform and the mammalian platform, and we also have an ag platform. But for the purposes of this pharma question, the ag platform doesn't apply. We really have deals that cover both the microbial platform and the mammalian platform. In the microbial platform, for pharma customers, we're doing work like small molecule, natural products discovery. We're doing microbial expression systems that helps to drive down costs of manufacturing. Mm-hmm. We're doing work like enzyme discovery and optimization for biocatalysis. So there are a number of programs that fit within our microbial platform offerings. We also have a number of programs in the mammalian platform offerings. Stuff like, you know, the deal we signed with Pfizer, that's on RNA therapeutics. Mm-hmm. The work we've done with Biogen on gene therapy, the work that we're doing with Arbor on gene editing, those are mammalian platform-type projects. Mm. So we really do have projects covering both of those platforms, and I'd say there's, you know, probably an equal amount to both right now. Mm-hmm. In terms of small biotechs versus large pharmas, it really does cover both as well. I think what's interesting with, you know, LDaaS, is that it actually provides an ability for us to access, even for large pharmas, some of what we're calling the R&D budget. So, a lot of the solution selling, because they tend to be higher budget projects, are not within the R&D heads' budgets right now. Mm-hmm. So those solutions type projects tend to go through a much longer deal cycle and would require a lot more approvals from different parts of the organization to access a strategic budget. But when you're talking about LDaaS, it is a smaller module of work. Mm-hmm. It is in support of perhaps some R&D efforts that's ongoing with, a customer's R&D department today. So it fits very naturally within the R&D budget- Mm-hmm ... for large pharma. Certainly because small biotechs have smaller budgets, LDaaS is also a very attractive offering for them, too. So we're really seeing a lot of pipeline activities across both. Okay, that's interesting. Yeah, and a big topic in the sector overall has been, biotech funding. Yeah. Seems like 2024 has seen a pretty healthy start. Yeah. I was wondering if Ginkgo sees potential, kind of like how you outlined, this extra money going to LDaaS, maybe some other programs? Yeah. If you have any particular, I guess, recovery baked in, in the second half? I know that's something that's pretty common across many peer. Yeah. I mean, we're definitely seeing, you know, more interest in the smaller biotechs because the funding has picked up. It's still in early stages, though, so many of our smaller biotech discussions are still fairly in the early stage. But even then, I think there's still a lot of conservatism- Mm-hmm ... over, you know, over how much cash people want to spend. Mm-hmm. So these deals are definitely, you know, not in discussions, but, but are, you know, more cautious. People look to spend less money, and they want to take maybe smaller increments of work and space them out over time. So that's kind of a trend that we're seeing in general, and that, by the way, covers both small biotechs as well as large pharmas. They're also impacted by the broader macroeconomics. Yeah. So everybody's being a lot more cash conservative. We are seeing more leads coming in, though. So I think we are seeing LDaaS being a very viable platform for companies that are developing an asset. Mm-hmm. So, it's a good platform for us to move forward. Yeah, any directionality on, I guess, the lag time between maybe more funding and, when deals might get struck, or maybe the sentiment might turn, or they're really difficult to say? It's hard to say. I think some of the-- it really depends on the small biotech itself. Mm-hmm. I mean, some of these companies, if they've started with an asset they want to optimize, and they know scientifically how to solve that problem, those deals tend to move pretty quickly because there's a pretty concrete path towards how to resolve the technical challenges that these companies are looking for. For small biotechs that are still trying to figure out how to address a problem- Mm-hmm ... you tend to go through a longer lead time just because technical discussions can take a while. Oh, interesting. Okay. And then moving on to, like, the food and agriculture market- Yeah ... I think it's one that maybe investors don't think about as much. I'm really curious to understand, given it's, like, a pretty large chunk of your program, what are the areas driving use on the Ginkgo platform, and how do the food and ag partnerships differ or look similar to some of the pharma ones that people may be able to look at a little bit more? The partnerships themselves are pretty similar. Mm-hmm. We perform work for the customer. They have a specific scientific problem they want to solve, and we create a technical work plan to help them solve a problem. So the approach is similar across the board, regardless of what market you serve. Mm-hmm. What's interesting is how we actually serve those markets and what are the solutions they're interested in. In Ag, what we're seeing is essentially two different categories of projects that people are interested in. One is on Ag biologicals, and the other is in plant traits. We're seeing more interest in Ag biologicals, because that's the type, that's a category of products that people are used to collaborating with third parties to develop. Most of those projects involve stuff like strain optimization. They are work that, you know, we can leverage the microbial platform to do. It is the similar type of work that we would perform for some of the microbial expression stuff that I mentioned earlier for pharma, as well as, you know, some of the food protein expression projects. They're all about engineering a microbe to be able to hit a certain cost target, and the work is pretty similar. So, from that perspective, the deal itself, and the process by which we go and sell the customer is pretty similar. The economics are different. Mm-hmm. When you think about the cost targets that the bioag industry needs to hit, or industrial biotech needs to hit, or, you know, alternative proteins need to hit, they are significantly lower- Yeah ... than what you would see for pharma. But the volumes are also a lot higher. Mm-hmm. The economics of what is the investment that our customers are willing to make to invest in a program to optimize that microbe is a different analysis than what you would expect in pharma. Okay. And then I think now moving a bit to some of the capital investments Ginkgo is doing. Yeah. I know BioFab1 is a new facility that you're putting up. Yeah. I think the latest timeline I've seen is mid-2025 opening. I was wondering what new capability this facility offers relative to your existing foundry location, and how you're thinking about, I guess, allocating utilization of foundry and biolab, given the ongoing restructuring. Yeah. So, we mentioned, you know, the different levels of automation. So when we move to BioFab1 our expectation is that we can essentially put a lot of the work that we're doing now on RACs. So, now we understand that not everything can be rackified, Mm-hmm, mm-hmm. That's sort of the term we're using. But by and large, what we would expect is in BioFab1, we'll be heavy automation, and that's where we expect to have a bunch of RACs running in BioFab1. Mm-hmm. So that's the kind of investment that we're making, and we think essentially what allows us to do is to improve the efficiency by which we can run our operations today, and to you know generate a lot more data with a lot more efficiency. Okay. And then when it comes to thinking about OpEx growth and, you know, what does having more programs- Yeah ... mean for OpEx? Is it right for investors to think, you know, you're investing a lot in automation, which, you know, would be a fixed cost, so theoretically, each incremental program should be kind of a greater incremental margin- Yeah ... flow through? Is that the right way to think about it, and what are Ginkgo's like priorities for your investments on the OpEx front as you're trying to get to EBITDA profitability? Yeah. Yeah, certainly. When we have RACs in place, and even now, a large part of how we think about our fixed and variable cost is that with automation, we're not scaling with people. So the more projects we do, you know, the more utilization we get, and the variable cost for every additional program is a small portion- Mm-hmm ... of what we will incur. Getting to your question about OpEx, we have currently an annualized run rate of about $500 million of OpEx. And we're targeting to reduce that by $200 million. Wow! We're doing that through a couple of levers. The first is reducing our footprint- Mm-hmm ... so facilities cost, and by moving to BioFab1, we can do a lot more with a much smaller footprint. Mm-hmm. The second is by reducing headcount. So we have announced in the last earnings call that we will reduce headcount by at least 25%. And we, we are in the process of implementing both of those things right now. Mm-hmm. So that's part of the path towards getting to breakeven EBITDA by the end of 2026. I see. And then do you have any details about for the headcount reduction, how much of that is, in the R&D lab operation versus maybe some of the BD type people? We're still working through that right now. Mm-hmm. No, no details to share yet. Okay. And then throughout the years, Ginkgo has done a number of acquisition, you know, adding to their- Yeah ... you know, broad portfolio of capabilities. I'm curious, if you could highlight maybe some of the recent ones that have been particularly enabling, and where does integration currently stand for Ginkgo? Yeah, happy to. So Zymergen is one of the recent ones that we did. Mm-hmm. I'd like to highlight that as a you know, a success for us, and a very important aspect of Ginkgo and how we're planning to grow. The whole concept of RAC automation and RAC technology is something that we acquired from Zymergen. We have known Zymergen for a very long time. They have been in the synthetic biology space, about as long as Ginkgo has been. Mm-hmm. So we know, we know the team well, we know their philosophy well, and right now, their automation team is very much a part of our automation team. Mm-hmm. And so, there's a lot of synergistic aspects of how we think about automation, that I think we were able to achieve by bringing the Zymergen team to Ginkgo. So, the integration is essentially done. Mm-hmm. and they are very much a part of figuring out how we can rackify a bunch of our operations today. The other M&A deal that we did that I think is also an important one that added to our capabilities is the acquisition of the Bayer BioAg division- Mm-hmm. -and the West Sac facility. We use that facility extensively. They are the primary provider of services for a lot of our ag deals in the pipeline today. Mm-hmm. That team is also fully integrated into Ginkgo. On the technical side, there's a bunch of work that's being done at the Foundry that is, you know, in connection, in conjunction with the technical team at West Sac. So there's a lot of good, you know, synergistic collaboration that's going on between the Boston team and the West Sacramento team. We also have, through that acquisition, a scale-up facility that we're using now for some of the non-ag programs. Mm. So this is where, even though the facility was built for ag, we are now using the 3,000-liter facility, fermentation facility, as well as the downstream processing equipment, for us to scale up some of the microbial, industrial biotech programs that we have. Okay. And then I guess, you know, in the couple minutes we have left, I was hoping to touch a little bit on biosecurity. Yeah. I think we've seen revenue start to normalize now that COVID is behind us, hopefully, in an endemic state. Seems to be normalizing at a roughly $10 million per quarter cadence. I was wondering what you see as really the growth drivers from here in an endemic environment, and what steps is Ginkgo taking to maybe rightsize the business now that the volume isn't necessarily as high as it was during the pandemic? You know, biosecurity continues to be an important aspect of the growth of biotech in general. Mm-hmm. Right? I mean, we've seen the effects of COVID. When there is a pandemic, it can cause very significant disruptions, economic... have significant economic implications. So, there are a lot of interest by governments- Mm-hmm ... not just U.S., but internationally as well, on building monitoring systems to help address, you know, potential viruses and pathogens and bio threats that can come up. So we are seeing a lot of interest internationally, globally- Mm-hmm ... on biosecurity, so that will continue to be an important part of our business. I think we're right-sized to capture the opportunities today. Mm-hmm. So there isn't any immediate plans to change, you know, the biosecurity team at this point. We're continuing to watch the demand signals- Mm-hmm ... for biosecurity, and governments are really kind of the big customers at that point. Okay, that makes sense. I mean, that covers all the questions I had, so I wanted to open the floor for you in the last couple minutes in case there's anything you feel like we missed in our conversation or just really want to highlight. Yeah, any comments before? I think we covered, you know, the important part, points that are relevant for today. But if anyone has questions, yeah, feel free to ping me. Sounds great. All right. Thank you so much, Ena Cratsenburg. Thanks, Michael.