DNA

Ginkgo Bioworks Holdings, Inc.

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Ginkgo Bioworks Holdings, Inc. (DNA) CEO Jason Kelly on Q2 2022 Results - Earnings Call Transcript

Company Participants Anna Marie Wagner – Senior Vice President-Corporate Development Jason Kelly – Co-Founder and Chief Executive Officer Conference Call Participants Matt Sykes – Goldman Sachs Anna Marie Wagner Good afternoon. This is Anna Marie Wagner, SVP of Corporate Development at Ginkgo Bioworks. As usual, I'm joined by Jason Kelly, our Co-Founder and CEO; and Mark Dmytruk, our CFO. We thank you for joining us, and we look forward to providing you with an updating on our 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. 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. As usual you can submit those questions to us in advance via 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 day-to-day decisions here at Ginkgo. Very simply we want to make biology easier to engineer and we do that by scaling our platform for programming cells. I like this slide here as a summary of sort of the way our business works at Ginkgo. So our customers bring us ideas for what they want our cell to do. And we use our platform to engineer a cell that meets the customer specification. Our platform consists of two pieces, our Foundry and our Codebase. Our Foundry is an automated lab. I'm sitting here in Boston in a lab today and we believe the key value proposition for our customers is that we're able to turn what's typically an underutilized fixed cost investment for most companies, in other words, sort of a physical R&D lab in their facility, we can turn that into a highly efficient variable cost for them. And we can invest at Ginkgo in large scale infrastructure so that our customers can benefit from the scale economics we generate by having sort of one set of infrastructure serving many customers, instead of just scaled for one. We'll spend some time today talking about our pending acquisition of Zymergen, which we believe will drive our Foundry capabilities. The other asset is our Codebase, it's a learning asset that accumulates as we run more experiments includes physical strains, data, various tools for programming cells. These learnings can help us avoid having to reinvent the wheel on every new program. In other words, it can help keep us out of the lab in many cases from having to do that lab work. If we have something, we can put to work from a previous project that's relevant to a new one. That can also increase the probability of program success and reduce, like I said, the total amount of work and therefore cost of these programs. And for the potential customers tuning in today, our whole model is to make this platform available to you as fast as we can. So if you see a project we've done, that's similar to what you are interested in or a technology we've acquired or highlighted, please do reach out, you can get access to these technologies and have them applied to your products in a matter of weeks. So I want to give a quick preview into some of our recent highlights before turning it over to Mark to walk through our detailed quarterly financials. So as we've described before, one of the most important metrics for our success is seeing new customers choose to work with Ginkgo for their R&D efforts. In the second quarter, we added 13 diverse new cell programs including with Novo Nordisk and Sumitomo Chemical. We're grateful for these customers' trust and believe these additions are further validations of the value of our cell programming platform. As a small aside, you will note we're only disclosing here three customer names on this page compared to the 13 new cell program additions I mentioned. We often get asked whether we put out a press release for every new program, people want us to be doing that. The short answer is we don't do that. We end up following our customers lead here. And sometimes our customers choose not to announce when they may want to keep a program confidential because it's a new area they're moving into, or it might be a new program that's part of one of our ongoing collaborations and they might not consider it enough of a big deal to announce it. The big utility of announcements is that they serve to help educate our potential customers on the kinds of work we do at Ginkgo. And it helps them realize that Ginkgo's platform is relevant in their market. So basically it's sort of – it’s good marketing material. We do push for them when we can these announcements, but it's not always possible with the customer. In biosecurity, we executed very well through the remainder of the school year and have achieved $247 million of year-to-date revenue while our K-12 testing business has been quieter over the summer, just because many schools are closed as expected, we're very excited to be seeing traction across longer term biosecurity opportunities including being awarded a contract from the CDC to expand our traveler-based COVID-19 monitoring services with an overall potential to exceed $61 million to Ginkgo and its partners based on CDC program options and public health priorities. So, really proud to see that coming in. It's really exciting. We'll talk more about it coming up. But biosecurity has been a core focus for us over many years and has a deep relationship with our cell programming business. And I'm becoming even more excited about our positioning in biosecurity, well beyond what's happening in K-12. We've had several other significant updates since our last call. We received our third equity milestone payment from Cronos based on work we delivered to them. We're proud of our partnership with Cronos and ability to realize meaningful downstream value share from those programs. Of course, in July we announced the pending acquisition of Zymergen and the Bayer Agricultural Biological’s assets. We'll talk a lot more about those transactions in just a moment. We also acquired certain assets from Bitome, which is developing a real-time metabolite monitoring that we hope will help accelerate product development timelines across our cell programs. Finally, we are thrilled to have added Dr. Kathy Hopinkah Hannan to our board. She brings a wealth of experience and compliments our other board members quite nicely. So, welcome, Kathy. So that's a quick overview of our recent highlights. And with that, I'll hand it off to Mark to walk through our second quarter financial performance. Mark Dmytruk Thanks Jason. Our second quarter financial results reflects strong growth driven by solid execution in both our cell programming and biosecurity businesses. Total revenue in the second quarter of 2022 increased to $145 million representing growth of over three times the second quarter of 2021. I'll start by discussing our cell programming business, which we describe as our Foundry. We added 13 new cell programs to the Foundry platform in the second quarter of 2022. As a reminder, our new cell program count is a KPI that we're particularly focused on adding more programs, benefits us strategically by driving our scale economics, diversifying customers and programs, accumulating Codebase, and accumulating potential sources of downstream value share. We supported a total of 73 active programs in the second quarter of 2022, across 36 customers on our Foundry platform. This represents substantial growth and diversification in programs relative to the 46 active programs in the second quarter of 2021 with strong growth coming from the pharma and biotech industry, as well as the food and ag industry segments. Foundry revenue was $44 million in the quarter, more than double the second quarter of 2021. Foundry revenue benefited from downstream value share revenue related to the previously announced achievement of an equity milestone for Cronos. We recognize $18 million of revenue in connection with this milestone in the second quarter. As we have previously discussed, at our stage of business we continue to expect this type of revenue lumpiness as milestones relating to various customer collaborations may be earned in certain quarters. Now turning to biosecurity. Our concentric offering continue to perform extremely well in the second quarter of 2022, generating $100 million of revenue in the quarter. Biosecurity revenue consists primarily of product and service revenue from our end-to-end COVID testing offering, and the growth was driven primarily by K-12 pool testing, which was elevated in Q1 but continued to deliver strong volumes through the remainder of the school year. As expected, we have seen revenue for our K-12 programs decreased substantially through the summer vacation months starting in June. Biosecurity gross margin was 36% in the second quarter, an approximately six percentage point decline from the prior quarter performance. As volumes fell from Q1, the infrastructure we maintain to serve our clients, for example, nursing contracts that have minimum hour requirements was less efficient and resulted in this lower gross margin. We continue to be very pleased with our performance in biosecurity and while we will continue to be conservative in our guidance given the inherent uncertainty in this area, we are encouraged to see government investments being made in longer-term biosecurity infrastructure. And now I'll provide more commentary on the rest of the P&L. Where noted, these figures exclude stock-based compensation expense, which is shown separately. R&D expense, excluding stock-based comp, increased from $52 million in the second quarter of 2021 to $72 million in the second 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 $48 million in the second quarter of 2022 compared to $20 million in the second quarter of 2021 as we invested in business development and all other G&A functions to support the growth of new customers and programs, higher level of foundry activity and our biosecurity offering, along with our expenses incurred and becoming a public company. We also incurred significant legal and other professional fees relating to M&A, largely due to the two very significant transactions we announced in July. Net loss, it is important to note that our net loss includes a number of noncash income and/or expenses as detailed more fully in our financial statements. Because of these noncash and other nonrecurring items, we look to adjusted EBITDA as a more indicative measure of our profitability. Adjusted EBITDA in the quarter was negative $23 million compared to negative $38 million in the comparable prior year period. A full reconciliation of EBITDA is provided in the appendix to this presentation and in our earnings release. Adjusted EBITDA was favorably impacted by the growth in our biosecurity business in the quarter. And finally, CapEx in the second quarter of 2022 was $10 million, reflecting foundry capacity and capability investments. CapEx has continued to be impacted by timing of equipment purchases and projects and so we would expect to see significantly higher CapEx in the second half of this year. One final comment on stock-based compensation expense. As a reminder, we provided extensive disclosure in our Q4 earnings release relating to GAAP accounting for the modification of restricted stock units that had been issued prior to us becoming a public company. Our Q4 disclosures indicated that as of December 31, 2021, we expected a further $2.2 billion of stock comp expense to be booked in 2022 and beyond relating to this adjustment. The calculation of which was based on the stock price of $13.59 on November 17, 2021. Substantially all of the $607 million stock compensation expense in the second quarter relates to this ongoing wind down, and we continue to expect most of the remainder to be booked in the rest of 2022 with a small tail that extends into 2023 and beyond. Now I'd like to provide some commentary on our revenue outlook for 2022. We continue to expect to add an incremental 60 new cell programs with diversity in end markets as well as between new and existing customers in full year 2022. We are increasing our full year guidance for total revenue by $50 million over our prior outlook to a range of $425 million to $440 million. We are reiterating our foundry revenue outlook to be in a range of $165 million to $180 million for full year 2022. We continue to have line of sight to material downstream value share in the second half of the year. I do want to remind folks again that just as we saw in both our first and second quarter results, based on the specific technical progress achieved, stage of maturity of our programs and timing of any milestone payments, we can see lumpy foundry revenue on a quarterly basis, and our annual guidance represents our current forecast of that timing for the remainder of the year. Based on our strong performance in biosecurity in the second quarter, we now expect biosecurity revenue to be at least $260 million for full year 2022, an increase of $50 million from our prior outlook. As was the case throughout 2021 and the first quarter of 2022, there still remains significant uncertainty in the biosecurity market in general, although several state and government programs have elected to extend K-12 and community testing programs, there is uncertainty about the actual level of testing in the next fiscal school year. Ginkgo is actively working on new opportunities in biosecurity, including internationally. However, the timing and amount of revenue from these opportunities is uncertain. In summary, we are pleased with our overall progress. We are executing on a diverse range of existing programs and new program growth on the foundry platform. Another strong quarter from biosecurity is contributing positively to cash flow and the company's total cash position of approximately $1.4 billion remains strong. And now, Jason, back to you. Jason Kelly Thanks Mark. This is another strong quarter for Ginkgo. We executed well in both our cell programming and biosecurity business. And I'm really pleased we were able to revise our 2022 guidance higher for two quarters in a row now. Okay. So we spoke with you all recently about the pending Zymergen and Bayer transactions. And I encourage you to go watch that call on YouTube if you want the full details. But I do want to spend a bit of time on these transactions today as we expect that they will meaningfully benefit our platform and our customers. I also want to address a key focus area, both for the market and for us here at Ginkgo, which is cash runway and our path to profitability. Finally, we recently released our inaugural sustainability report, and I want to spend some real time there because ESG is not a box-checking exercise for us here at Ginkgo. It is fundamental to our strategy. So rather than sort of publishing that report and calling it today, I did want to spend some time walking you through our approach. So okay, let's dive in. So I'm super excited about both the planned acquisitions of Zymergen and the ag biologicals assets from Bayer. We've had a long history of successfully acquiring and integrating technologies into Ginkgo's platform, and we're excited about the capabilities that we expect these two new acquisitions will provide for our customers. I’ll dig into the strategic rationale for these two transactions in just a minute. But I want to remind you of the basics. So the Zymergen acquisition is really focused on bringing on strong foundry capabilities and accelerating our technical roadmap at the Ginkgo. The deal is structured as an all-stock transaction with a fixed exchange ratio, representing approximately 5.25% pro forma ownership of Ginkgo following the transaction. And as you’ve heard me say many times previously, we have long respect to the Zymergen team and the technology approach that they use, which is very complementary to ours at Ginkgo. And we’re super excited to welcome them into the company. The Bayer acquisition is quite different, and we expect it will result in the development of an entirely new capability and offering at Ginkgo in the agricultural biological space and the launch of a new collaboration with Bayer, which builds significantly on our partnership over the past five years. We’ll be acquiring from Bayer their fully owned R&D facility in West Sacramento, along with its strain collection team and expertise for $83 million, which we can pay in cash or stock at our choosing. As I mentioned, we’re also entering into a new multiyear collaboration with Bayer, under standard terms, including upfront R&D service fees and with the potential for downstream value in the form of royalties. We’re excited to grow our relationship with Bayer, and we celebrate their leadership in embracing outsourced R&D to automated lab platforms like Ginkgo, which we believe is an inevitable trend across the biotech industry. Actually, yes, I do think it’s worth giving a bit more color on this. So we see things sort of kind of like the beginnings of the cloud compute industry. So you had companies that had large in-house IT departments with big fixed cost, in-house server infrastructure and all these things. And they had to go through a transition process where they move that to external cloud service providers. So Bayer is making a decision to do a similar thing here from microbial engineering work in ag biologicals. They’re basically divesting their in-house by hand microbial team and their in-house labs. That’s what we’re buying, right, similar to kind of divesting your IT department and moving into the cloud, okay? And it certainly helps this transition for Bayer to do this that we’re bringing on members of their own team, their current team and putting their expertise on top of our robotics at Ginkgo. But in my view, company should start to plan for this transition. I think many of the companies out there doing microbial engineering today are likely overdue in making this shift to highly automated lab platforms instead of trying to do this R&D slowly by hand in their in-house labs. So I’m super kind of excited to see that signal coming from Bayer, and I hope to see more of it in the industry. Okay. So to put these transactions in context a bit more, it’s kind of helpful to frame them in terms of the vertical and sort of horizontal impact of these two transactions. So Bayer is about expanding our capabilities in the ag biologicals vertical, right? So I spent some time last quarter describing the scope of the agriculture opportunity. It’s a massive market. It’s central to our lives. We desperately need more sustainable and efficacious solutions in ag right now. The West Sacramento assets are expected to bring important capabilities outside of strain engineering. This is why – I think this is quite complementary to what we currently have strengths in at Ginkgo, including translational research capabilities such as in planta assays to be able to test in the plant, pilot scale fermentation. They have a great facility there to be able to produce microbes at scale to go into trials. Formulation expertise, like how – what are the different chemicals you put with the microbes to have them do a seed treatment or foliar treatment and finally, greenhouse facilities. So we believe having a world-class end-to-end development platform is going to significantly improve our ability to serve customers in the ag space. And not only will we be working deeply with Bayer across nitrogen fixation, crop protection in areas like carbon sequestration, we’re also excited to work with new customers on the platform. In addition, we expect this transaction to relieve some of the limitations we’ve had working in ag biologicals due to the structure of our original relationship with Bayer and our joint venture Joyn. This allows us to work much more easily with new customers on our platform at Ginkgo in the ag space, which we believe will represent a real compelling revenue opportunity for us. By contrast, Zymergen acquisition is really about improving our horizontal capability. So Zymergen did pursue a very different business model to Ginkgo. And as such, the market is focused much more really on their product portfolio. But at Ginkgo, we’ve long admired what their team built in lab automation and technology. In particular, they developed automation architecture that was designed to optimize for flexibility. As you understand, if you understand the automation, flexibility is sort of the enemy of scale when it comes to automation. And so some of the technologies they built, we believe, can drive significant efficiencies here at Ginkgo, and we’re excited to develop those and pass that value on to our customers. Additionally, Zymergen’s team fits well into Ginkgo existing hiring plans, and we expect that adding them will accelerate our growth plans. Ultimately, the Zymergen transaction will significantly improve our platform and benefit our customers in the form of lower program costs and increased probability of program success. Okay. So we’ll keep you all updated as these transactions progress. But I want to cover that background quickly in case you missed our conference call on July 25. For more details on those transactions, do watch the YouTube video on our IR page. I think it’s worth seeing. Okay. So for our next topic, it sort of goes out saying that there’s a lot of market focus on cash runway and profitability right now. So I want to spend a little bit of time on those topics. We get asked about it a fair bit. Okay. So first, I want to be clear that we expect to maintain our runway with Zymergen and Bayer in the fold. And indeed, we underwrote and structured the transactions with that priority in mind. So for Zymergen we expect the pro forma cost structure to be well below that of the combined stand-alone companies. So Zymergen is continuing its cost and program rationalization and expect its burn rate to decrease significantly in the near-term. More importantly, while we’re excited that the Zymergen team joining Ginkgo will accelerate our hiring plans, these additions should meaningfully offset expenses that we would have otherwise budgeted. In other words, our sort of our other – our hiring plans, independent of Zymergen. So for Bayer, while this is a brand-new capability and incremental expense, we expect the R&D service fees from this upcoming contract with Bayer alone to significantly offset the expenses that we’re taking on. The multiyear Bayer anchor contract is expected to provide a strong base of demand and then any fees associated with new ag customers on the platform, which we hope to get, would present upside to that outlook. So taken together, we feel we’re in a very strong financial position. We have nearly $1.4 billion of cash on the balance sheet. We’re able to minimize the incremental recurring expenses associated with the two transactions described here. And most importantly, these deals enhance our growth opportunities. In the ag vertical, we can grow revenue at Bayer and other potential customers. With Zymergen improvements in our platform, increase efficiency and probability of success, which gives us better unit economics, NPV per program and the positive feedback of bringing new programs to the platform. In other words, the most important thing is we continue to invest in Ginkgo to make it better for our customers and drive growth. And that’s what we’re doing here. Okay. So as an aside, I did want to be clear that in our modeling, we made pretty conservative assumptions about certain specific items in the transaction. So first, Zymergen plans to explore strategic alternatives for its advanced materials and drug discovery businesses preclose. So this is Zymergen’s process, they’re running this. But we’re very supportive of it and think we can – given our history at Ginkgo of launching and forming companies, you’ve seen us do this a number of times, and we can think we can help. An outright sale of a business unit could create additional cash proceeds and reduce operating expenses. The spinout could reduce costs, create a new customer for Ginkgo, could provide opportunity for additional upside through appreciation of equity holding we would have. So, we didn't assume these outcomes in our base case, but believe Zymergen’s product portfolio is strong, and they've already received serious inbound interest since the announcement. Second, Zymergen has a deferred lease liability largely in connection with its new headquarters in Emeryville. We've assumed that liability stays with Ginkgo. But we'll be actively evaluating real estate portfolio rationalization, and any successful effort to consolidate the real estate could represent meaningful upside to the base case and further reduce incremental cash burn. I'm outlining these examples, not to promise that they're going to happen. But just to highlight that while we're not counting on these items occurring, there are ways that we can improve the Zymergen deals financial case, or these things that come about. Okay. So, cash runway is critical, and keeping that margin of safety, by the way, like, while we built Ginkgo over the years, this has always been a very big part of my job is not lost on me. But the market is also focused on profitability, right? And that's also a topic that's very important to me, especially now as Ginkgo continues to mature as a business. So, you'll see us talk about our paths to reaching operational profitability more in future earnings calls. And this is something I'm spending increasing time on the team with internally to focus on. But today I just wanted to highlight some of the structural levers we have to help us, based on how our business model works at Ginkgo. Like in other words, how this place is organized, I think actually gives us some advantages here. So, I've talked about some of these before, but this level of optionality is quite useful. There are a lot of ways to tackle our mission of making biology easier to engineer, and depending on what we run into, I want to be able to adjust our approach on the fly. Okay. So the first of these levers I'll talk about is platform scale, which we've emphasized in our prior earnings calls. Platform scaling is not just growth for growth's sake. Like every company wants to get bigger, I get it. But in our case, a bigger platform is actually better for our customers, and better for us, right? So it improves our unit economics, right? Very similar to how a larger manufacturing plant would help a semiconductor or automotive company as we build bigger foundries, our costs fall and that will ultimately drive company level profitability. And it also allows us to offer lower cost to customers while we're improving our program margins. Right? So that's one of our big levers. Additionally, the learnings we get as we execute these programs, drive efficiencies. In other words, if we do one project and there's another one that comes along similar, it requires a lot less work for us. Okay. And it importantly has a higher probability of technical success, which our customers absolutely love. Right? So, if you're thinking of this doing a biotech project, your number one concern really is, is this thing going to work at all? And so better outcomes like this for customers, drive downstream value share for Ginkgo, which again flows through at very high incremental margins, which I'll talk about in a minute. But scale is just one part of the equation. We also can adjust the types and structures of the programs we choose to take on. So we can, for example, adjust the risk sharing between us and our customers on program success, right? So, we can choose to prioritize upfront fees rather than downstream value share when we negotiate our deals, and these deals tend to be relatively custom. In that case, we'd give up some long-term upside, but generate more cash and margin in the near term. Right? So there are a number of variables that can go into this decision, which way we just swing this, the type of customer, and program our view on the likelihood of the program's success, market conditions, our cash needs at the company, right? And so the macro environment today, more challenging on capital raise than say nine months ago. So it's nice to have the option in our deal structuring to lean into upfront payments, to preserve our margin of safety and accelerate our push to profitability. Another lever we have is, program choice, right? So, we can direct our sales team or sales efforts towards programs with a higher probability of success or lower expected effort. Right? So within our code base, we could, like I said, pick projects that are kind of similar to ones we've done before, right? And we've had promising traction with our customers by introducing cell development kits. These – CDKs it's our analog to SDKs, software development kits, which are used by programmers to more easily develop new software apps. And the great thing about CDKs is sort of distinct from the physical scale where we're getting lower costs by building bigger facilities. Right? We can lean into these more standardized programs that have, and have more consistent program cost coverage. Okay? So by encouraging customers to go in the direction of these CDKs, it makes our business a little more standardized. Now, look, this is a balance, okay, I'll be honest about this. Right? So, more standardization means, we might not be able to take on a certain customer project. Like, oh, if it doesn't fit into our standard rubric, we can't do it. So, we have to weigh this against the value of a particular customer and that program they're asking for. So maybe a really important customer with a very valuable program is coming in, but it's a total custom job. We probably – we still want to do that program, right? So, you won't see this as like a light switch kind of lever, but it is a knob we can tune. And I think you will see us getting a lot of value coming up from driving in the direction of more standardized programs. I will note that one area where we don't have a great lever is the timing of downstream value share. That's often out of our control in many ways due to customers needing to bring products to market, to get – give us royalties or run a manufacturing run to give us a milestone payment. This is a key component of our business in both the short and long-term. And I do know it is frustrating to folks that are sort of trying to model our revenues. So, you can see the short-term impact just this quarter, as Mark mentioned, we had a mile Cronos milestone and we have increased foundry revenue, right. We have also have additional customer milestones expected in the second half of this year. And while we're confident we'll hit those sort of downstream value share milestones, any slipping on timing would lead to lumpiness in our revenues. So, I think this trade is worth it, in general, having downstream value share being a big part of our business at Ginkgo, we'll do our best to predict DVS, when we know it's coming soon. But I do ask that you bear with us on it in the short-term. Eventually I expect this lumpiness will smooth out, right? As we get – as many programs are coming to maturity, we can take advantage of a portfolio effect. Right? In other words, when we have enough programs that if one downstream value event happens later than we expect, another could finish early to make up for it. And last thing on this topic, we're aligned with the market in emphasizing profitability. We will have more specific updates for you in the coming quarters on this topic. But we think our business model's flexibility, these levers I'm talking about will enable us to achieve our long-term profitability goals. And we do have the runway to figure it out. So I'm happy about that. Okay. So, I wanted to wrap up on something that's really important to me and to our team, which is ESG, environmental, social, and governance. So for Ginkgo, ESG is not like I mentioned a box checking exercise, like just getting a report out the door to make somebody happy. It is core to our business strategy, right? And so we just now released our inaugural sustainability report, carrying at Ginkgo last month, I really encourage you to give it a read. It's a first step for us, but we wanted to show people how we think about ESG? And for us, it's about care, right? We care about people and the planet. And we care about how our platform is used. This shapes our decision making at Ginkgo, and we believe it will become even more important as our platform grows more impactful over time. So, we've been really fortunate throughout our history as a private company to have really great investors in Ginkgo. And one of the reasons I wanted to be so vocal about our mission and priorities is to ensure that the people who choose to allocate capital towards Ginkgo today are aligned with those priorities. And I've been really heartened by some of the amazing investors who's come on board as we went – as we go went public, and since we've been public, and I wanted to share this letter that I got a couple months ago from a very large fund manager who's done really an incredible job integrating sustainability into their investment thesis, right? So, I'll highlight a few bits, right? So they're talking about their process. It avoids reliance on external scoring systems, which I think is great. In favor of integrating sustainability analysis with long-term fundamental analysis, to try to get superior performance for their investors with this context in mind, we'd like to thank you. Again, go for the example you setting as a company that understands the intertwined nature of sustainability and strategy. We also note your proactive approach to employee ownership and voting structure, and your far ranging work to develop an ethos of care throughout the company and the broader field. Though, for some investors, this type of letters and administrative process for our team, it’s a core investment process with the attention of highlighting the potential for long-term value creation for all stakeholders. So, I did want to share this, we’ve gotten things like this is not a niche investor. In my view, sustainability is becoming absolutely mission critical to business strategy coming up. And we’re proud that we’ve always had a focus in this area at Ginkgo. So the sustainability report outlines our approach to ESG. First we focus on the impact of cell programming. In other words, how our programs and platform can have a positive environmental impact. Then we also recognize that technology is not neutral and we seek to play a positive role in society with our tech and our governance model contends that ownership is the first step to caring. And we highlight our commitment to employee ownership at Ginkgo, which I believe is critical to building a, both a valuable company that also cares about its impact in the world. Okay. So, I’m going to go through each of those three. All right. So first, on impact. ESG can often get caught up in reporting basically about all the bad things that companies are going to start doing less of, right? So, we’re going to do less pollution, less ESG. Here’s how we’re doing waste reduction. And we do cover that in our sustainability report, encourage you to read it. We’ve done a lot of work on waste recycling, laboratories generate a lot of waste. But and we’ve had companies actually reach out to ask us about this program. But for us, the real point of this is the direct impact of what we do with our platform. Okay? And this distinction is very important to me. So, look limiting the negative externalities of companies, while they deliver other products and services is important, right? We should keep pressuring companies to reduce waste. Right. But what about the companies, whose products and services actually deliver ESG positives directly, right? Things like vaccines, things like carbon capture, right. Corporations are some of our most powerful tools in society to develop new technologies that could help address these sort of ESG challenges. We should be encouraging that, right. That’s more impactful than just cutting out the negative. We have to also be building the positive, right. And so my view bioengineering in particular is a key technology that will be capable of solving some of our biggest challenges on this front. And a couple recent pieces of U.S. legislation, I think very nicely highlight this. So just last week, President Biden signed the CHIPS and Science Act. As I mentioned in our July call about the Zymergen acquisition, I strongly believe on a personal level that we should be investing in critical technologies in the U.S. and our acquisition of Zymergen helps keep bio foundries growing in the U.S., right? Like we’re having this issue with chips, we’re trying to bring chip foundries back. We should just not lose the bio foundries to begin with. And that, that’s one of the reasons I think this acquisition so important that we’re doing. This new bill is great on this front, right? It explicitly calls out synthetic biology as a key technology focus area, for example National Science Foundation Funding. Further chips directs agencies across the federal government to support research and engineering biology and directs the White House, OSTP, Office of Science and Technology Policy to establish a national genomic sequencing strategy to ensure that engineering, biology research fully leverages plant animal and micro biodiversity. Right. Super exciting to me. So taken together chips is a strong indication that synthetic biology is viewed as critical infrastructure and a likely source of future investment by the U.S. government. Also last week, Congress passed the Inflation Reduction Act again on a personal level. I was thrilled to see Congress take action on climate change, especially around carbon capture. The bill increases values for 45Q tax credits, which could catalyze the emergence of a sustainable carbon capture industry in the U.S. This is essential if we hope to meet a mission reduction targets. We believe synthetic biology will be among the central solutions here. It’s already playing a role in industrial capture and direct air capture is also a significant future opportunity. In other words, pulling carbon out of the atmosphere. And as you heard in our recent announcement of the Bayer transaction, they’re specifically focused on carbon sequestration as an area for future programs in Ag Biologicals. And I’ll be a bio nerd for a minute, biology is really good at making carbon-carbon bonds. Like I was a chemical engineer, it’s much better than we can do with synthetic chemistry. So, you look out the window right now and it’s happening on a plant you see, biology is the only scalable direct air capture tech up, from my standpoint that we have today and we should lean into it. Okay. Another area of impact for us at Ginkgo is in biosecurity. And look, if we’re going to achieve our mission of making biology easier to engineer, while caring about the impact of our platform in the world, we need to build robust biosecurity infrastructure. So, by analogy, right, Google would invest in cybersecurity, Ginkgo needs to invest in biosecurity. And while we’re proud of the business, we built over the last two years during COVID, it’s important to recognize that it was only possible because of the years of investment, we’ve been making in this space, this Bloomberg story from 2018 covers some of our previous government programs to identify DNA sequences that may have been engineered, or that are a pathological concern. We’ve participated in a number of key government studies. You can see them there on the right on biosecurity and biodefense and have been honored to sit on a number of government panels and committees. Our testing efforts in K12 and other congregate settings allowed us to build the infrastructure to serve more than 5,000 organizations and process more than 10 million samples via our lab network and logistics operations. We’ve been expanding on this foundation. We worked with the CDC, an express check to pilot, a traveler based COVID-19 genomic surveillance program at certain U.S. airports. You may remember we caught the first sequences for BA.2 and BA.3 in the U.S. earlier this year from the program. And we are very excited that just this morning we were able to announce that we were awarded a new contract with the CDC to expand this program. The contract could exceed $61 million overall pending CDC priorities and we believe represents just a first step in the U.S. government’s investments in robust, ongoing biosecurity via proactive monitoring for infectious disease. We’ve also diversified our biosecurity business globally and across different pathogens with recently announced partnerships in Qatar and Rwanda and novel assays for pathogens like monkeypox along with multiplex assays that can assess multiple pathogen targets at once, it’s early days here. But, so was airport monitoring a year ago, we started to pilot it. And so I’m excited to see where all these new initiatives will go in the coming year. Okay. We’re focused on the impact of our platform, both in the opportunities it can create as well as our responsibility to handle our platform with care. Those who build technology have significant power and therefore have a responsibility to share that power for the benefit of society and their communities. We focus on internal and external diversity equity and inclusion and partner with diverse suppliers in our supply chain. In other words, we use our leverage as a buyer to drive diversity, upstream and downstream of us and engage in a number of partnerships and initiatives to continue – contribute to our communities. And you can see some of them here. Finally I’m personally really excited about our governance model at Ginkgo. Our view is that a workforce with strong equity ownership will make the wise decisions needed to build long-term value for our company. And importantly, to build a company whose impacts they are actually proud of, right? The analogy I like is that homeowners tend to care for their homes in sort of a more careful, richer way than a landlord would, right? Both are owners of a house, but it’s a different, it’s a different mental model, right? We want a bunch of homeowners here at Ginkgo, and that’s why we lean heavily into equity compensation and have also implemented a multi-class stock structure that permits our employees current and future, not just founders of the company to hold high vote Class B common stock. We believe our multi-class stock structure will help maintain the long-term mentality. We have benefited from over the years as a founder-led company here at Ginkgo and that a team full of equity holders helps align our team with the long-term interests of our outside investors as well. In other words, they own equity just like you do. We paired this ownership structure with a very strong board comprising experience and diverse individuals. I mentioned earlier, we’re excited to add Dr. Kathy Hopinkah Hannan to our board. And I’m pleased to extend again, a warm public welcome to Kathy on board, really honored to have you joining us on the board, Kathy. Okay. So once again, I would like to end on this slide. People forget that when they invest, it influences how the world develops. If we want to see impactful technology platforms come into the world with care, we need to look for companies that are structured to vest the control of those platforms in real people that care. All right. And if we want to see solutions to societal challenges and ESG like climate change and pandemic diseases, we need to invest in companies attacking those challenges directly. The world is facing challenges that are big. And then, and as a result, quite valuable coming up I’m hopeful. We’re in a moment when capital can really align behind companies that are doing meaningful things and do very – well financially doing that. We should invest in the world. We all want to see exist. I’m happy to take your questions. Thanks. Question-and-Answer Session A - Anna Marie Wagner Great. Thanks, Jason. We’ll switch to Q&A in a few moments. As usual, I’ll start with a question from the public. [Operator Instructions] Thanks everyone. Great. Thanks everyone again for joining us. As always, I’ll be starting with a question from the public and then again, I see lots of folks with hands raised. So, I’ll unmute your line in a second. So the first question comes from [indiscernible]. There’s sort of two questions here. I’ll throw them together. So how does the concentric outlook look beyond 2022, both within the U.S. and around the world? And how are we scaling the concentric infrastructure to move beyond COVID-19? What goals and timeline are we looking at to achieve that? Jason Kelly Yes, I can take that one. So yes, first off, I’ll say I’ve been hearing sort of like beyond COVID-19 for a couple of years now. So, I think the reality is that, COVID is going to remain something that for a lot of people, folks that are immunocompromised folks with obesity, folks that are elderly these are people that are just not, they’re not going to want to get COVID, this year or several years from now. And that’s before you get to the wild card of new variants, right. So, I do think that’s been a moving bar. And so again, I know it’s political in the whole thing, but it’s something to keep an eye on. It’s not quite as simple as like a big black and white shift. In terms of where I think things are going. I think there are two things. One, I think we’re going to see a move from active to passive monitoring. So the place where Ginkgo is playing, primarily, in the space of biosecurity today is in essentially regular monitoring of infectious disease, right? This is what we’re doing in schools. This is what we’re doing now, in the CDC program in the airports as well. And eventually that should start to look like, a smoke detector basically would be the analogy, right? Something that is kind of monitoring, but not requiring you to do a lot today. It’s like putting a Q-tip in your nose and dropping it into a tube and walking away. So it’s not the most annoying thing, but it’s still doing something. So that’s one direction. I think, kind of passive monitoring, particularly in places like ports of entry, congregate settings, like schools it’s ultimately going to feel like a no brainer, but those technologies do need to get built up. The other second area is international expansion. And so you’ve seen this, with our announcements in Qatar and Rwanda, we would love to do more internationally. I think you’ll can see us continue to do that if you’re tuning in today, from international public health. We’d love to talk to you. So, I think, that’s the second area where I think you’ll see us continue to grow. Anna Marie Wagner Great. Thanks, Jason. All right. Matt Sykes from Goldman Sachs. I’m un-muting your line. Please go ahead. Matt Sykes Hi, can you hear me? Anna Marie Wagner Yep. Matt Sykes Great. Thanks for taking my questions. Jason, maybe the first big picture one for you. You talked about sort of the secular growth trend of externalization of R&D in manufacturing, and you’ve talked in the past about going after larger companies competing against internal R&D segments and people in that area. I guess, I’m wondering in terms of one concern, those customers might have a lot of IP is generated, intended or unintended in those R&D and manufacturing process by those customers. How do you get comfort with those potential customers that they might lose that IP and how can you transfer that? Or how can you make them comfortable with that? Because I would think that would, might be with have some barrier towards externalization of R&D we going forward. Jason Kelly Yes. So this is a super good topic. And so the first thing, I do want to point out is, I think there are trends both in externalization of R&D and externalization of manufacturing and Ginkgo’s focus is really around that externalization of R&D. Okay. Right. So and we’re excited to see the externalization of manufacturing. We love to work with contract manufacturers and so on, but our focus is really on the R&D side. You bring up a great point. I mean, this is a conversation we have around every partnership we do frankly, around how the intellectual property should work. Particularly and I think there’s two pieces to it. One is, do I even trust work happening outside of my four walls? If it’s on something sensitive, like a new project. And, I think this would’ve been a similar concern in the early days of cloud computing. Like, do I want to put my data and someone else’s server it’s totally insecurity, [indiscernible], so that, there is a cycle there of just creating comfort around that security of the asset. Okay. So that, that I think we can get to just with time. The second one is Ginkgo has an approach, which is we want to retain the reuse rights to the intellectual property that is developed on top of our platform, not for your products, customer that we’re working with, but for other things that aren’t competing with that product. And, at the end of the day, we actually think that that is a net good for the customer and their sector, because in biotech, we believe as we look across the industry, we see a lot of IP, which is siloed in many companies that could be helpful to the others, but the transaction costs associated with that or bananas, right. And so what we are able to do is use the leverage of our platform to force an IP regime where they’re sharing amongst customers, again, not for their product, but for other products. And it's a different way to look at things. Honestly, I think, it's how software basically played out. You see an enormous amount of kind of low level code reused across software. It's one of the reasons that that industry developed so quickly. And frankly, I think biotech needs to kind of grow up and move into a scheme like that. But that remains a fight. And the main way we do it is by showing the value of all the existing Codebase we have plus the scale of our platform to convince a customer to kind of adopt that IP regime. And so, again, we're excited to see that with large customers like Bayer and others, but it is still a fight. Matt Sykes Got it. And just one quick follow-up maybe Mark help us maybe understand sort of mark-to-market on end market exposure by industry. It is kind of combing through some of the press release seems like there has been maybe not intentional, but it pivot towards pharma and ag bio. And I'm just wondering one, what does the end market mix look like today? And two, how does the end market approach you have inform your program risk sharing decisions that you make in terms of when you toggle up front versus downstream? I would think in areas like biopharma ag bio where there has been more success traditionally with synthetic biology, maybe it might change your decision in terms of how you toggle that program risk sharing decision. Jason Kelly I can do the second part Mark first. Mark Dmytruk You want to start? Jason Kelly Go ahead give the mix today. Yes. Mark Dmytruk Yes. So in terms of mix today when you look at the existing programs, the current active programs it's pretty well balanced with growth as you've noticed, and as we've discussed growth coming from the pharma and biotech sector, and then we saw a pretty good growth year-over-year in the food and ag. But we do see – we have a pretty balanced customer mix across end markets. When you look at our pipeline and sort of expectation going forward, likewise, we still see that as being kind of pretty balanced. The way that we contract Jason – the way that we contract in terms of answering value share and upfront absolutely varies by industry and even depending on the particular customer. Jason Kelly Yes, I mean, that second point, I think, is the real material one Mark. Right. So, a lot of it is dependent on the customers’ interest more even than the industry. And so I'd say though, the sort of filters on it our priority one is what is the – is the customer sensitive one way or the other. Okay. And you will find some customers sensitive one way maybe they are really sensitive to royalties, they want us to do a bunch of upfront payments or vice versa, start-up might be more interested in backend, less upfront if they are cash sensitive, you sort of have that. Then you have some companies that really don't care. Right, and so there is sort of that's question number one. And then question number two is what's Ginkgo's current interest, right? Are we in a situation where we would be based on market conditions or otherwise we would be more interested in cash in the near term? Are we feeling sort of well protected with a big margin of safety and we're more interested in optimizing for bigger, high margin downstream value share in the future that comes after the customer one, right. Customer is the priority because it's still the number one priority is getting new customers on our platform every day. So, does that does that make sense? I wouldn't say it's so much like this industry or that industry, certainly, although I'd say there is general leans probably more to do with customer size than industry with the bigger ones more willing to pay more upfront and smaller ones preferring a little bit more on the backside. Matt Sykes Got it. Thank you. Jason Kelly Yes. Anna Marie Wagner Great. Thanks Matt. Matt Larew from William Blair I’m opening up your line now. Matt Larew Hey, good afternoon. So 13 programs added in the quarter and sticking with 60 for the year, could you maybe just describe sort of what the line of sight is to that number and as you are having conversations with folks contemplating coming on board, are there any customer categories by sector that are proving perhaps more or less sensitive to the macro uncertainty right now? Jason Kelly Yes. So, I can speak to the second part. You answer to both, but in terms of I'd say how the macro uncertainty is affecting things, I think, one, I do think just like generally you are seeing less R&D dollars spent, right? Like a lot of small biotechs say in the pharma industry would be cutting programs two and three in their pipeline right now and sort of like doubling down on program number one. Well, that ends up hurting kind of the service providers that would be providing any sort of research services into those programs two and three and that kind effect Ginkgo, I would say. The flip side of that is stuff like we saw with the Bayer where, market pressures can also encourage companies to make that transition to move to from having an in-house capability to really pushing that external. That's a very – to me, that's the more important trend long-term for us even if we see some headwinds on kind of individual R&D budgets in the near term. I'd probably take that trade. I think by and large, the much bigger issue for us is that 99% of cell engineering is still just done in house, right. And so that's really what the battle I'm fighting, I would say. And then sort of path to [indiscernible], no update to that. We're yes, continuing to scale on sales and I think you might see us focus a little bit around, well, I don't know, it's a good question. I mean, I think, we've seen good progress with startups, we're seeing good progress in pharma. I kind of agree with Mark. It's pretty spread around markets. It's not like one certain area is on fire relative to others. So yes. Mark Dmytruk I can give a little bit more color, Matt, just in terms of like, how we think about the path to 60. So there is really kind of three tiers almost when you look at our pipeline. So first of all, we've got existing customers that have already in effect earmarked money for Ginkgo programs, but we haven't yet defined that program nor have we launched that program. And so that's money, that's committed to Ginkgo, but we still haven't launched a program. And so that's a source of new program growth in the future. The second would be an existing customer where they haven't yet earmarked money for a program. But we're in a conversation with them about what the next program could look like. And so, all of that sort of broadly speaking falls into the category of really just expanding our presence within an existing customer. And those are in sort of order of ease with which, or confidence with which we can land a program in a quarter. And then the third tier would be a new customer that has never done a program with us before. And so we have a pretty significant pipeline of conversations like that, but that's the hardest to land and the least predictable to land in a particular quarter, because first of all, we have to establish the beginning of a relationship and then we have to define a program and then launch that program in a quarter. So that that's sort of how we think about it. And it's less about kind of industry. I would say. I would say we have a significant amount of effort across sort of all the industries that we play in, but we may devote sort of more effort to one or to a particular sort of tier just based on sort of how quickly we can get a program launched. Matt Larew Okay. And then Jason has a follow-up, you walk through the Zymergen and Bayer transaction. Well, both are – they are obviously different, both involve harnessing capabilities that were formally internally focused at each company and leveraging them with your assets and turn them external. So I was kind of curious, neither are closed. But you referenced outside interest in the Zymergen sale or spin assets potentially, what kind of outside interest or kind of industry chatter or customer chatter, have you heard about those assets under your hood and how customers might view working with you differently than perhaps they did before? Jason Kelly Yes. Anna Marie, do you want to speak to this? I know you... Anna Marie Wagner Sure. Yes. I mean obviously, deals haven't closed yet, and so we don't want to get – we don't want to speak for Zymergen. But certainly, we've been speaking with our customers about both transactions and a lot of excitement, obviously, about both the expansion of capabilities as well as the strengthening of our platform. In terms of the impact of interest you referenced relative to the product portfolio, that's about as much as we can and should stay at this point. But certainly, real interest and an opportunity to see additional value there. Matt Larew Jason Kelly I want to say on the – with the Bayer asset, I think what's really exciting about that is they had an in-house team that was – this is a group that was originally acquired as a company called AgraQuest. These are folks that have been doing this for 10, 15 years in the ag biologic space, real domain experts. And they have a lot of assets, things like again, I mentioned manufacturing and formulation, all that sort of stuff, but they also just know where the things that have worked and not worked in ag biologicals over the years. And so their domain expertise than with our leverage of our automation, robotics to sort of speed that up, I think that becomes a really compelling story. So that's one of the things that's pretty exciting about – it's not just facing it out, that is part of it. It's also speeding it up by putting it on top of Ginkgo's platform. So I think together, it's pretty cool. And there's nothing like it in my view on the market. Matt Larew Anna Marie Wagner All right. Tejas from Morgan Stanley. I’ve opened your line. Tejas Savant Hi, guys, can you hear me okay? Anna Marie Wagner Yes. Tejas Savant Perfect. So maybe one on biosecurity, Jason or perhaps even Mark. Have you given a samples per week sort of run rate exiting the quarter? I know you've given that in the past, just so that we can get a better sense of how things are trending through the year. You did about $250 million year-to-date in revenue. Your guide is sort of at least $260 million. So just curious as to what the exit rate was. And perhaps Jason, on your point on Concentric and the $60 million plus that it could accrue over time. Any sense of – from the new CDC contract that is, just curious as to any sense of the time frame for that revenue to come in. Mark Dmytruk Yes, I'd be happy to take the first part of the question, the exit rate. So I think the best way to think about it is Q1 was very strong in the business, to a large extent, was really hitting on all cylinders across the states that we are contracted in. Both April and May were strong. And then the first half of June, in effect, performed as we would have expected it to. But then you see a very significant fall off as the school season finished. And so you end the quarter or the latter half of June at really sort of a de minimis level of testing in the K-12 market. Now we have some testing that happens outside of the K-12 market. It's relatively small. That was more kind of steady. We're expecting the same really in terms of July and August and then September is more of an unknown for us. But the exit rate in the quarter, just to answer your question, I mean, we saw, as we expected, a very significant follow-up because the schools just don't have need for testing through the summer months. Tejas Savant Jason Kelly And as a reminder, what we've been doing, I think we'll at least continue this for a bit on the biosecurity side is just given it's political. We all understand this. And so we've been conservative in our guidance and say, tell you all what we kind of know we have a sense or we have a good shot at hitting but it let everything else be to the upside. And so we've done that for a few quarters now. I think that served us well just to be realistic about the kind of situation on the ground with the schools and COVID. Tejas Savant Got it. That's helpful. And then one related to foundry and it's sort of a phasing question, but there's a near-term component and a long-term component, right? So in the near-term, Mark, I mean, you are calling for foundry revenue to – I think you did about, I don't know, it was mid-60s or so in the first half. You're looking to do more than 100 in the back half of the year per your guide. So just looking at sort of any color on the cadence of that ramp? Is it going to be sort of roughly equal across quarters? Or is it sort of heavily back-end loaded at this point of the year? And then, Jason, on that point you made earlier around program choice and that being an important lever for you to pull, especially in the current market context and the focus on cash and breakeven, et cetera. Curious as to if that has any implications for the foundry revenue ramp over the next 12 to 18 months or so? Mark Dmytruk So yes. So Tejas, in terms of second half of the year, foundry revenue, I would look at the – so first of all, there is a very meaningful contribution that we expect from downstream value share in the second half of the year. So that's sort of the first important point. And what that really means is, I can't tell you today what the sort of Q3 versus Q4 will look like because that, as you know, just by definition, can be very lumpy. And so – and there is uncertainty as to sort of when that lands. And so I think I would just look at it as a second half as opposed to really trying to kind of parse the two quarters because of that. With respect to foundry service revenue, I would expect that more or less to be executing the rest of the year sort of in line with how we did in Q2. Tejas Savant And Jason, do you want to chime in on... Jason Kelly Yes. On the program choice, yes. So yes, I mean, I think the point I was trying to get out there, I think there's an opportunity to offer like sort of more standardized services that then lead to, I would say, like smoother ramping into foundry service revenue. It comes with the challenge of like trying to sell a more standard service to a customer versus more of a custom service. Like the standard service could have the pricing be more standard, right. So instead of pay if the customer wants more downstream value share, that's not an option, right? It's just more upfront, it's more fixed, right? That would make it sort of easier to more smoothly ramp foundry service revenue, but it would come at the cost of two things, one, probably some less downstream value share. And then two, which is more significant that we want to make sure we don't screw up is making it harder to sell, right? You don't want to make it where people say, Well, I really want this can't go, but you're offering me this and you're telling me it's my way or the highway, and they say, then I'll take the highway. So we do want to be careful that we're not getting too standardized. But that's what I'm getting at with that lever. And we are seeing it. I mean we've been doing a bunch of these sort of protein CDK deals. Those are really great. It's in this vein. So I'm pretty bullish about where that could go, but I want to just be a little careful. I don't want to overdo it. Tejas Savant Got it, thanks guys, very helpful. Anna Marie Wagner Thanks Tejas. Steve Mah, you'll be up next. But first, I'm going to take a question that came in during the call in to our investor inbox. Question is around Zymergen. A question from Sean, how do you plan on managing Zymergen's debt if the acquisition is successful? I’ll go right into that question. So we had a slide on that. And so the company actually repaid its piece of debt in the second quarter as planned. And the only other sort of long-term liability of size is around their real estate, their long-term leases, which we addressed in the presentation today. And we will be looking to consolidate our real estate portfolio on the West Coast now that we’ll have both our facilities as well as Zymergen’s. So we hope to manage that over time. Again, we haven’t assumed that we can, but it’s certainly something that we’ll look to do. Anything you would add, Jason or Mark? Jason Kelly Anna Marie Wagner All right. Steve. I’m going to open up your line. Steve Mah Can you hear me? Anna Marie Wagner Yes. Steve Mah Perfect. So right. So a lot of ground already been covered, but I got a couple on biosecurity and then one on Bayer. But first on biosecurity. I know, Jason, you said that you’re being conservative on the biosecurity guide. But what’s your take on the anticipated return of flu – this coming flu season? And can you confirm if you have a combination COVID-flu test offering available? Jason Kelly Yes. So I think if you look, early signs that we’re headed for a pretty bad flu season. And I think the challenge there is that’s going to create sort of confusion around what is COVID, what’s not, what’s flu and so on. And then I do think, like I said earlier, I think we will eventually look back at our current sort of approach to monitoring of infectious disease, kind of like we were all living in buildings without smoke detectors, like and – that seems crazy today because we don’t really have the technology for like simple passive monitoring like your phone just telling you if something new is in the room. But there’s no reason that technology can’t get there eventually like the physics should allow for it. So yes, so I would say that like I think that sort of thing will come at some point. I don’t think we’ve commented publicly on what we’re doing yet in flu, so I don’t want to say anything there. But I would say that eventually, I do think that sort of thing should be present, and I think it should help distinguish between flu and COVID. So that ultimately, you can keep congregate settings open in the event you have these sort of waves of infectious disease. Steve Mah Okay. Got it. That’s helpful. Maybe just a follow-up to that. What’s your read on the level of commitment by the U.S. and other governments because I don’t want to look – I’m using like COVID testing as an example, in 2020 and 2021. Arguably, the ball was dropped there in terms of deploying the COVID testing dollars and also tests which are bought. Just what’s your sense on the commitment of the U.S. government to biosurveillance going forward? Jason Kelly Well, I think they announced today with the CDC is a great start. So I think ports of entry seem, again, like another no-brainer thing, right? Like the idea that we wouldn’t monitor infectious disease at these nodes where people are coming in from all over the world seems crazy. I think the monitoring you’re seeing around wastewater that’s more at the state and municipality level. I think that sort of thing is going to stick around, right? And then I do think you’re also seeing dawning awareness just around – unlike kind of the defense side of the house, right? Like these are national security threats. And so you also need from a defense footing to be monitoring just like we would have – we’d be monitoring for missile defense, right? So we have satellites, we want to look out for weather, natural events that could be bad, we want to look out for missiles, right, human intent events that could be bad. So I do think you’ll see a sort of a mix where it’s not just going to be public health, you also see DoD from a readiness and sort of monitoring standpoint, getting into this as well. Steve Mah Okay. Got it. And then if I can sneak in a quick one on Bayer. So given the fermentation capabilities of the Bayer facility, will Ginkgo be performing manufacturing for other customers? And is that getting away from the core business of Ginkgo? Could there be any conflicts of interest with other partners from IP or competitive fronts? Jason Kelly Yes. So just for clarity, so it’s sort of like a pilot – it’s a pilot scale manufacturing because I think the – I don’t want to get it wrong. But I would say 300-liter tanks and sort of where we’re at there. So it’s great for doing production of biologics to go into trials. It’s good for very small volume things. But if you ultimately we’re going to go to a large-scale production, you would go to a different place. So no, I don’t think it would be conflicting with our customers or any of our contract manufacturing partners. Steve Mah Okay. Got it. Thank you. Anna Marie Wagner Thanks, Steve. All right. Rahul from Raymond James. I’m going to open your line. And just so everyone knows, we’ll be ending at 5:45 p.m. Eastern. So we’ll try to get everyone in before about it possible. Rahul Sarugaser Great. Can you hear me? Anna Marie Wagner Yes. Rahul Sarugaser Good afternoon, Jason, Anna and Mark thanks for taking our question. So I want to start with a two-part question about Zymergen. First, are there any specific new capabilities that the acquisition brought into Ginkgo? And second, with the 13 new programs this quarter, Ginkgo’s clearly on track to meet its target of 60 this year. So given that Zymergen had its own pipeline of potential projects, could you please talk about whether how Ginkgo could leverage its own relationships to go out and find partners for those programs that in turn would potentially accelerate Ginkgo’s own existing pipeline so as to achieve the very large goal of 500 new projects in 2021. Jason Kelly Yes, I can speak to those. So on the new capabilities front, so I spoke to this a little bit, and if we want to really do more of a deep dive. I do encourage folks to look at our go to our IR page, look at our video specifically on the Zymergen acquisition when we announced it. But one of the things that we have to do here at Ginkgo is continue to drive the scale of our foundries and thus reduce the cost of doing the lab work of cell engineering. The Zymergen team has invested in really flexible automation. In other words, sort of robotics that can serve many different types of lab processes and have a really great software system on top of it. I think it’s one of the things that can help us keep up with nice long here at Ginkgo to continue to scale our facility and reduce our costs, right? I also think it’s really exciting to have the team that designed that and built that coming on board to help further push that along. That – giving them – them thinking about the next generation of that and having the resources of Ginkgo behind them to do it, I’m also hopeful helps us get to get the next stage of what we need. So those are the two things. I do think that, that is sort of – that automation is something that we would have had ultimately develop at Ginkgo but there’s sort of a speed up here by bringing in the team in tech at Zymergen. When it comes to their internal programs, as Anna Marie mentioned there’s interest in that externally. Well, the only thing I’ll say is Ginkgo has a history of doing a lot of spin-outs, and basically taking product focused assets and getting them partnered up or in the hands of other people or into their own companies. So, hopefully we can be helpful there. We would, of course, love to then serve that spun-out entity as a customer on our platform where it makes sense. So yes, so I do think that’s something where hopefully we can lend a helping hand. Anna Marie Wagner Cool. All right, Michael from BFA [ph] I’m going to unmute your line, although you just disappeared. There you go. And then we’ll do one more question at the end before wrapping up. Unidentified Analyst Great. Can you can you hear me? Anna Marie Wagner Unidentified Analyst Okay, great. Mark, I want to go back to a comment you made earlier discussing the Foundry outlook for the rest of the year, and how much is for milestones versus core Foundry. I want to make sure I heard you correctly; you said something along the lines of executing core Foundry in line with 2Q. One, I want to make sure I heard that, right. And then if I did, and we kind of look at 1Q core Foundry about $22 million, 2Q about $26 million, that implies something like $100 million to $110 million core Foundry for the year. So that’s a pretty sizable milestone in the second half, about $40 million to $50 million. So one, if you can confirm the bridge there, and then is that a single milestone event? Is that multiple events? Just given it’s in the guide pretty critical that we kind of get a better sense of how that’s going through? Thanks. Mark Dmytruk Yes. So, it’s not a single milestone event. It would be more than one. As you know, and we’ve been very careful about not guiding to specific downstream value share versus Foundry service revenue. I mean, generally speaking, I would say directionally, your sort of math is correct. Fundamentally, we’re not doing anything too different in Q3 and Q4, in terms of Foundry services program execution than we did in the first part of the year. We are adding more programs. So keep that in mind. So, we will be adding programs. We had a nice contribution in Q2 from programs that were added in Q1 in terms of Foundry services. And so you can sort of extrapolate that thinking a bit to the kind of general math that you were doing. But yeah, it is, there is a significant contribution that we are anticipating from downstream value from sort of multiple potential sources of downstream values here in the second half of the year. Unidentified Analyst Okay. And then that Foundry service I mean, I think, we calculate, we call it, revenue proactive programs, but I think we’re kind of getting at that same point, is that, you’re in the – that run rate you had in 4Q, 1Q and 2Q now has been pretty consistent, is that sort of settling in at a level we should expect going forward, just, not looking for 2023 guidance, but we’re always looking sort of looking for KPIs. We’ve got your KPI on new programs, active programs, but that revenue per program is that zoning in, on a region that you’re comfortable with? Mark Dmytruk Yeah, it’s, I think so. I think if you take the like just the quarterly, the sort of top level math that you’re doing, and annualize that, that is a reasonable average in terms of like, how we think about it for the annual amount you might expect from a program. And then as, you know, our programs might be two to three years in duration. And so it sort of gives you a general sense of the size of the program, but yeah, I would say there’s nothing that I’m seeing. Michael, that’s sort of surprising in that number. It could trend differently in the future, but right now it’s sort of where I think we’d expect it to be. Unidentified Analyst Anna Marie Wagner The only thing I might remind you of Michael is, as we discussed a bit in the last quarter, as well, depending on this stage of a program and therefore like the mix of earlier stage programs versus later stage programs and the structure of those programs, the revenue per program activity particular quarter could vary. And that’s not exact – that’s not really what we’re managing towards, we’re managing per program execution. So, I did just want to make sure that that’s clear. Unidentified Analyst No, of course, recognize that. And yes, it’s just that over the last couple quarters, that number has started to normalize a little bit. So, we’re always trying to get a sense of is this a more appropriate point, but yes, totally get that Anne Marie. Thanks. Anna Marie Wagner Thanks, Michael. All right. We’re going to sneak one more in, because I always like to get everybody in if we can. So, Vivian from BTIG. You’ll close this out. Vivian Bais Perfect. Hey guys, can you hear me okay? Anna Marie Wagner Yes. Vivian Bais Okay. Hi. Thanks for taking the question. So just one really quick one. You mentioned international expansion and the biosecurity front. Could you just elaborate on how those conversations are progressing in the pipeline there? You also mentioned expansion to new pathogens as well. So just wanted your long-term outlook on durability beyond COVID? Thanks. Jason Kelly Sure. And before I do that, I will mention, I said 300 liter, it’s actually 3000 liter tanks in West Sacramento facility, nicely connected, corrected by Emily Greenhagen who has that up for us. So yes, on the international front, we, our general view is this type of kind of airport monitoring, things like that, that should be happening all over the world. I think, our model at Ginkgo is to do this through lab networks, right. So, we’ve done that in the U.S. We think we can expand that internationally. So, I think you’ll just see us follow our same playbook to sort of build the same infrastructure out as much as we can internationally. So, not a lot more to it than that. I think we’re going to learn as we go as to what different – again, highly political, right. So it really varies based on different countries, but we have the experience of doing many states in the U.S. and each one of those as you may notice runs almost like a little country here in the U.S. And so we have a little bit of sense of that. And then I think the other thing you asked was about the – what was it, the new… Anna Marie Wagner Jason Kelly Emerging pathogens. Thank you. Yes. I mean, look again, the idea is once you have this infrastructure in place, you could use it for monitoring for multiple pathogens. I think that’s exactly the future vision here. Yes. So, I think you would expect us to do that over time and hopefully that’s something that governments would be interested in and it seems again to me like a no brainer. So, but yes, that would be the direction we’d like to take it. Anna Marie Wagner Thanks so much, Vivian. And thank you to everyone for joining us for our Q2 earnings. And we’ll see you next quarter. Jason Kelly Comment

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