It was a big day at Ginkgo Bioworks: a new espresso machine was installed in the break room.

I had purchased several pieces of lab equipment in an auction and decided to skip graduate studies, drive from Pittsburgh to Boston, and save a fortune on shipping costs. My friend tagged along and was interested in this futuristic thing called synthetic biology, so I texted co-founder and CEO Jason Kelly to arrange a nerdy tour of the foundries. This was in February 2016, weeks before the opening of another foundry segment and months before Ginkgo Bioworks and Amyris collided in an expansive partnership. The latter is a crucially important but easily overlooked event in the history of synthetic biology.

You're probably wondering why a partnership from six years ago is relevant today – and that's exactly the right question to ask.

Solt DB made a Freedom of Information Act (FOIA) request with the U.S. Securities and Exchange Commission (SEC) for the partnership agreement between Ginkgo Bioworks and Amyris, which was previously given confidential treatment. To my knowledge, the details have never been publicized.

The events leading up to the partnership and the events that have unfolded since it collapsed are important for understanding how we've arrived at the present moment in the trajectory of synthetic biology. The context surrounding the collaboration including the details of the partnership itself  – ingredients, customers, and financial incentives – sheds light on what's working, what pain points remain, and what lessons entrepreneurs and investors keep stubbornly failing to learn.

Importantly, the ingredients listed in the partnership agreement reveal both Amyris and Ginkgo Bioworks have struggled to commercialize ingredients for customers, even six years later. Documents further reveal Ginkgo Bioworks may have published misleading information for cumulative major programs, including in SEC filings leading up to the SPAC merger and in investor presentations as recently as November 2022.

For disclosure, I received monetary compensation advising Ginkgo Bioworks and/or an affiliate on an aspect of the partnership before the deal was finalized. I have no financial relationship with or investment positions, long or short, in Ginkgo Bioworks or Amyris.

A Win-Win Collaboration That Quickly Unraveled

The two synthetic biology pioneers announced a specialty chemicals partnership in June 2016 to combine the strain optimization capabilities of Ginkgo Bioworks with the manufacturing footprint of Amyris. The former had no intention of building manufacturing infrastructure, while the latter could immediately tap into the personnel and robots at the foundries. The partners pooled together over 70 ingredients from customers primarily concentrated in flavors and fragrances (F&F), but also included food ingredients such as zero-calorie sweeteners.

It was heralded as a win-win that addressed important pain points experienced by each company's technology platform and approach. It also promised to test the latest iteration of business models in the emerging field of synthetic biology – something companies were struggling with at the time (and today).

How could a company make money in industrial biotech while using synthetic biology approaches? There were some examples of successful monetization of living tech from leaders such as DSM and DuPont (now Covation Biomaterials), although these sometimes imperfectly stitched together the product commercialization strategy of the petrochemical industry with the binary risk outcomes of the pharmaceutical industry.

Ginkgo Bioworks CEO Jason Kelly summarized the context of the time with comments on the conference call to discuss the partnership on June 30, 2016, saying:

Biotechnology is typically associated with pharmaceuticals where you often see high sensitivity to a single therapeutic product -- huge value but also binary risk, 0 or 1. The early era of industrial biotechnology was similar. Whole companies were founded to pursue a single $1 billion commodity chemical. Again, with a binary outcome. If the technology works there is tremendous value created, and if it doesn't, it's worth almost nothing. Most times, it didn't work.

The beauty of the specialty ingredients market is that there are many smaller opportunities that allow for the inherent risk present in biotechnology to be mitigated by a portfolio approach.

This was the idea behind combining portfolios to create a pipeline of over 70 ingredients in specialty chemicals.

Some ingredients in the tie-up had market volumes of less than 20 metric tons (MT) per year, but with average selling prices of $700 per kilogram. Others could be manufactured at 1,000 MT per year with price points near $20 per kilogram. These are small volumes, but the thinking at the time was that the economics might still be worth it.

The challenge was that creating manufacturing facilities or finding toll manufacturers for individual molecules would have been strategically and economically risky. Therefore, joining forces to utilize Amyris' manufacturing facility in Brazil had the potential to de-risk and accelerate commercialization timelines.

The partnership structure comprised the following core components as outlined in the heavily redacted Exhibit 10.04 of Amyris' quarterly filing dated August 9, 2016:

• Pooled Customer Programs: Amyris and Gingko Bioworks each contributed their existing customer programs to the partnership. These included ingredients under contract prior to the collaboration and any new contracts signed after the agreement was finalized. Each company excluded certain programs from the combined portfolio.
• Value Sharing: Amyris and Ginkgo Bioworks agreed to split fees, cost-sharing payments, and milestone payments from customers equally across all included programs.
• Strain Optimization and Scale-Up: Amyris and Ginkgo Bioworks agreed to leverage each other's strain optimization platforms and the former's manufacturing footprint for the pooled customer programs.
• Strain Optimization of Amyris' Commercial Portfolio: The deal also allowed Ginkgo Bioworks to further optimize production strains for existing Amyris products and receive a percentage of the reduced cost of goods sold (COGS).

Amyris CEO John Melo promised the collaboration would bring at least 20 ingredients to market by the end of 2020, which he estimated would generate $156 million in total annual revenue to be split equally between the companies. He also confidently told Wall Street analysts the partnership and company's broader business plan provided "clear visibility to a positive cash flow second half of 2016."

This is an important piece of context. Amyris ended June 2016 with only $2.5 million in cash. It desperately needed the $15 million upfront payment provided by Ginkgo Bioworks, to offload a high-interest loan to a Ginkgo Bioworks subsidiary called Stegodon (one aspect of the partnership), and to convince Wall Street that operating improvements were around the corner. That might sound familiar, but that's the topic of the third article in Solt DB's business model series.

Did this new business model combining technical specialization and royalty streams succeed? We never really got to find out. The partnership agreement was terminated in October 2017. This article is not about the drama leading to that event, but rather understanding commercial success rates for both companies through late 2022.

Where Are All the Products?

It was unwise to promise in June 2016 that the combined efforts of the partnership would commercialize 20 ingredients by the end of 2020. But the lack of execution almost six years later offers a sobering perspective.

The unredacted partnership agreement granted from the FOIA request reveals individual ingredients and the customer for each program. It includes ingredients that were included in and excluded from the collaboration, which provides a detailed view of both portfolios in June 2016 that can be compared to products commercialized to date.

Important details from the partnership agreement:

• Program Count: Ginkgo Bioworks listed over 21 ingredients total, including six excluded from the collaboration. Amyris listed over 19 ingredients total, including at least two excluded from the collaboration. Several ingredients listed were classes of molecules or groups of molecules under contract for specific customers, which means exact success rates cannot be calculated. Remember that the combined portfolio spanned over 70 ingredients, but only 40 ingredients and classes were listed.
• Customer Count: Ginkgo Bioworks listed programs from nine customers including Symrise, Robertet, Clarke, International Flavors & Fragrances, Amjal, Firmenich, Givaudan, Bedoukian, and SGF (nutrition). Amyris listed programs from seven customers including DARPA, Biogen, Natura, Givaudan, Firmenich, International Flavors & Fragrances, and PureCircle (nutrition).
• Overlap: The companies had to navigate overlap with customers and ingredients. Ginkgo Bioworks was developing a zero-calorie sweetener rebD/rebM blend, while Amyris was developing a rebM blend. There was additional overlap in certain F&F ingredients and customers.
• Strain Optimization of Amyris' Commercial Portfolio: Ginkgo Bioworks could have delivered improved production strains for Amyris products including farnesene and the three F&F ingredients commercialized for its customer Firmenich. Ginkgo Bioworks would have received 10% of reduced COGS for farnesene and 50% for every other ingredient.
• Direct Competition: Ginkgo Bioworks and Amyris agreed not to collaborate with Zymergen, potentially stifling the competitor's rise.

As of the end of November 2022, Ginkgo Bioworks has individually commercialized only three new ingredients that were in development at the time of the collaboration (<14% success rate using listed ingredients). Amyris has individually commercialized only five new ingredients that were in development at the time of the collaboration (<26% rate using listed ingredients). The company sold its seven-ingredient F&F portfolio to DSM in March 2021.

The combined commercial success rate based on the combined specialty chemical portfolio of over 70 ingredients is less than 11%.

For comparison, from 2011 to 2020, the drug development industry earned regulatory approval for 7.9% of drug candidates across all indications that began a phase 1 clinical trial. A single drug product can generate hundreds of millions of dollars in annual revenue – more than the combined $156 million in annual revenue expected from the 20 specialty ingredients promised to be commercialized by the end of 2020.

Low commercial success rates for Ginkgo Bioworks and Amyris in relatively low-value markets raise questions about the valuation and valuation multiples enjoyed by each business.

Those aren't the only questions raised by the partnership agreement.

How Does Ginkgo Bioworks Count Programs?

The details of the partnership agreement don't add up with public disclosures from Ginkgo Bioworks related to cumulative major cell program counts, defined as the number of major programs run in the foundry since the company's inception. It's listed as one of the company's "key business metrics" for measuring operational success in financial disclosures.

In SEC filings before the company completed its SPAC merger, Ginkgo Bioworks provided a graph showing cumulative major cell programs by industry vertical and year. A version of this graphic has been published in investor presentations as recently as the third quarter of 2022.

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The graphic shows Ginkgo Bioworks counted 10 major programs in the Consumer & Technology vertical from inception through the end of 2016. This category includes F&F programs.

However, the partnership agreement from June 2016 lists at least 12 ingredients in the F&F vertical that were categorized as "program under development" and "excluded products," which include the most mature programs in development at the time according to the description given in the document. For example, the two ingredients commercialized for Robertet as of November 2022, gamma-decalactone and massoia lactone, are listed in these categories.

Ginkgo Bioworks explains in each version of these graphics and in SEC filings that cumulative major program counts exclude proof of concept work, but that doesn't match the details from the unredacted partnership agreement.

As an independent data point, I interviewed the fermentation lead at Ginkgo Bioworks on September 25, 2017. It was communicated to me the foundries had "roughly 50 projects" underway at any given time. The graphics shared with investors don't reach this level on a cumulative program basis until 2019.

These data points could suggest the company has experienced more program and customer churn than has been publicly acknowledged, at least as far as proof-of-concept and exploratory work is concerned. In November 2022, Ginkgo Bioworks reduced full-year guidance for both foundry revenue and programs added.

A Natural Time for Sobering Discussions

The stock market correction has started to deflate some of the hype that bubbled up for synthetic biology companies in 2020 and 2021. It creates a window for all stakeholders – academics, entrepreneurs, institutional investors, individual investors, and everyone in between – to reflect on how we measure success, whether hype has become too far detached from reality, and what, exactly, we're trying to accomplish with living technologies.

We can build a better, more resilient field – one with profitable products and companies – but focusing on the vanity metrics of startup success won't get us very far.

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