Q4 2022 Ginkgo Bioworks Holdings Inc Earnings Call

As a reminder, during the presentation today, we will be making forward looking statements, which involve risks and uncertainties. Please refer to our filings with the securities and Exchange Commission and to learn more about these risks and uncertainties.

We've got a packed agenda for today, but we'll follow our standard format, providing an update on our financial progress and guidance for the year. While also taking the time to dig deeper on our strategic priorities in particular as we alluded to in our last call. So they will be providing more information on the downstream value potential we see it can go well enter the Q&A session and then we'll take questions from analysts.

And the public you can submit those questions to us in advance via Twitter Ashok income results or email at investors that think of Eyeworks dot com.

Alright, but where do you take them. Thanks, Anna Murray, we always start with this slide because our mission drives much of our long term strategy and even many day to day decisions in the company very simply we want to make biology easier to engineer. It could go and we do that by scaling our platform for programming cells. So how does that work and easy way to think about kimco is that companies are outsourcing their reach.

Search to us in the Biopharma industry that would be called a CRO a contract research organization, but for traditional CRO biopharma companies aren't there normally outsourcing simple research work that they really just don't want to do things like running an animal study or synthesizing a chemical whereas when theyre coming to ginkgo, it's really to outsource work that.

They can't do themselves internally they want to access it goes automation scale, our data other IP assets again that aren't available in house you can see a comment here from one of our Biopharma partners Novo Nordisk CSO market Schindler, saying they are open to external partners, who bring new and complementary expertise and talking about our unique capabilities in <unk>.

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Similar refrain, we're hearing in discussions and mirrors, what we saw in our large deals with bare last year as well.

Most obvious example of an asset we have that our customers don't have internally is the scale of our automation. So we've invested hundreds of millions of dollars to date to build out both physical hardware here in Boston, where I'm sitting today as well as custom software to run a long run our lab like a factory as you can see a video on the right here of the newest technology that we're super excited.

Integrating the software and automation that's coming in by our acquisition of Zymogen that closed in October of 2022.

For the potential customers listening on this call. This infrastructure is all available quickly to you as a service I really like our no pipettes logo down here look I spent five years during my Phd at working at the lab bench, where the pipette in my hand, there are brilliant scientists at our customers who are instead spending their time designing experiments.

Our instead really running ultra low throughput experiments by hand with Typepad, It's clear to me that the future will be total automation of the lab work associated with cell engineering, and ginkgo was really hoping to lead in making that happen.

<unk> scientists should put down their pipettes and make use of it goes automated lab certain purposes to do their work.

The last point I'll make on the foundry is that it gets better with scale in other words unit costs fall as our output in the facility goes up. This is something you traditionally see in manufacturing of things like micro chips or cars, but you don't normally see this in R&D. So by using ginkgo services, we expect that year over year, the scientists that our customers will have more capacity.

Unlike those pipettes, they have that arent getting any better all of that automation generate something really important.

Data we call this data our code base and because we retain rights to reuse the data generated when we do projects for customers. This asset grows each year I'm sure you've been hearing a lot. This year about new AI algorithms. The big secret is that these algorithms are mostly come on commodities.

One has access to larger the same tools and what's really proprietary is the data used to train the model and ginkgo has built a very unique asset there in the biological space and is adding to it every day and again for our customers. These types of AI models are available to you as a service most companies in the Biopharma space would keep an asset like this to.

Themselves to develop their own drug pipeline, our ginkgo is a services company not a product company.

You won't you won't see a drug pipeline here, we wanted to make this available to our customers.

So mark will discuss our financial performance in a minute, but I want to emphasize how proud I am of the team for adding 20, new programs in Q4, which took us to 59 programs for the full year toward the high end of our guidance range on the right compare this to the first quarter of 2021, where we only added four programs. This is a huge deal each new program.

<unk> adds a combination of service revenue downstream value demand to drive the scale of our foundries and IP data assets like I just mentioned the <unk>.

Bulk of that program growth was driven by our penetration into the Biopharma and AG industries, which you can see on the left side. Yes. This is awesome to see these industries have large biotech R&D budgets and there is some of the most valuable products in biotechnology.

Overall in 2022, we demonstrated diversification in both the markets, we're signing up programs in and in the types of downstream value share. We're closing I think it is often underestimated how valuable that type of diversification is especially for our services platform. This allows us to shift to where the action is so theres a lot of demand in a in a certain.

Area in Pharmaceuticals, we can go there certain area industrial biotech or add we can go there if the market conditions favor certain types of deals, whether it's royalties or milestones or equity or whatnot. We can move so I really am excited about the range of diversification. We had in 2002 I think it was really an amazing year for us that sets us up well.

Bio security had another solid quarter and we're very excited about that business transitioning towards longer term recurring monitoring contracts like we've been doing at airports Mark will talk about some of the bio security financial highlights coming up and I'll dig into that business and my strategic section as well. Finally, we ended this year with over $1 $3 billion of cash.

On the balance sheet, which provides us with a multiyear runway and is an important source of competitive advantage in this market environment, Alright, I'll hand, it off to Mark now to go through the numbers and then we'll dig deeper into some of the things we're focused on.

Jason I'll begin with a discussion of our so engineering business before I dive in you may notice on this slide that we're referring to so engineering revenue instead of foundry revenue as we've done historically, we believe this is more reflective of the business and is the term we use internally and so even if it is a bit of a mouthful, we'll be updating our filings to referred to it in this way.

Going forward, though we did not make this decision in time to get it incorporated into this 10-K.

As Jason mentioned, we added 20, new cell programs to the cell engineering platform in the fourth quarter of 2022, which brought us to 59, you sonal programs for the full year of 2022.

This represents 90% growth compared to the full year 2021 and is a key outcome as we believe new programs are a critical driver of <unk> long term value.

We supported a total of 96 active programs in the fourth quarter of 2022 across 54 customers on our platform.

This represents substantial growth and diversification in programs relative to the 60 active programs across 30 customers in the fourth quarter of 2021.

Cell engineering revenue was $53 million in the quarter up 56% compared to the fourth quarter of 2021.

Engineering services revenue, which excludes the contribution from downstream value share was $36 million in the fourth quarter of 2022 compared to $21 million in the fourth quarter of 2021, an increase of 73% we.

We saw a meaningful sequential increase in sell engineering services revenue compared to the third quarter of 2022, which demonstrates solid execution and platform scaling, including a contribution from the new Bayer programs.

Cell engineering revenue was $144 million for the full year 2022, an increase of 27% compared to the full year 2021 sell engineering services revenue was $106 million, an increase of 23% compared to the full year 2021.

Now turning to bio security.

Our concentric offering continued to perform well in the fourth quarter of 2022 generating $45 million of revenue in the quarter by our security revenue for the full year 2022 was $334 million, an increase of 66% compared to the full year of 2021.

Full year 2022 bond security revenue exceeded our previously announced guidance and more than doubled the original guidance. We provided back in March of 2022, primarily due to the durability of Covid testing services through the year.

Bio security gross margin was 33% in the fourth quarter and approximately eight percentage point decrease from the prior quarter performance. The sequential decrease in gross margin percentage was driven in part by an inventory reserve for purchase products.

And now I will provide more commentary on the rest of the P&L, where noted these figures exclude stock based compensation expense, which is shown separately.

Starting with Opex R&D expense, excluding stock based comp increased from $55 million in the fourth quarter of 2000 $21 million to $113 million in the fourth quarter of 2022.

G&A expense, excluding stock based comp increased from $39 million in the fourth quarter of 2000 $21 million to $78 million in.

In the fourth quarter of 2022.

These operating expense items increased year over year as expected as we invested in our platform the various functions to support our growth layered in the four acquisitions, we closed in the fourth quarter and had relatively high and consulting expenses, the latter of which we do not expect to continue at the same rate.

For example included in these numbers is approximately $26 million of.

The one time M&A and integration related expenses.

R&D expense increased from $219 million in the full year 2000 $21 million to $314 million in the full year 2022, while G&A expense increased from $106 million and the full year 2000 $21 million to $228 million in the full year 2022.

Included in these numbers, we incurred approximately 46 million of one time M&A and integration expenses in the full year.

As you think about 2023, R&D and G&A expenses, the fourth quarter of 2022 levels.

Excluding onetime costs is a decent starting point.

By the end of 2023 will largely phases zymogen related transition costs for instance, certain G&A support functions and will also make some targeted investments in the core business, which could largely offsets.

Net loss it is important to note that our net loss includes a number of noncash income <unk> expenses as detailed more fully in our financial statements because of these noncash and other nonrecurring items, we look to adjusted EBITDA is a more indicative measure of our profitability.

Adjusted EBITDA in the quarter was negative $80 million compared to positive $1 million in the comparable prior year period.

Nearly half of this decline is attributable to the bio security segment as demand for Covid testing services declined.

Full year 2022, adjusted EBITDA was negative $173 million compared to negative $106 million in the full year 2021 does this decrease was driven by higher operating expenses year over year, partially offset by higher revenues.

A full reconciliation of EBITDA is provided in the appendix to this presentation and in our earnings release.

And finally capex in the fourth quarter of 2022 was $26 million, which was a sequential increase as expected as we invested in foundry capacity and capabilities.

Capex in full year, 2022 was $52 million significantly below our initial expectations at the beginning of the year as we sought to optimize our capital efficiency, we expect capex to remain at similar levels in 2023.

Regarding stock based compensation as a reminder, we provided extensive disclosure in our Q4 2021 earnings release, a year ago relating to the GAAP accounting for the modification of restricted stock units issued prior to becoming a public company our stock based comp in the fourth.

Quarter of 2022 was $111 million, a substantial step down sequentially as the GAAP impact of our pre public company restricted stock units declines and we expect a further normalization in 2023.

Before I move on to 2023 guidance I'd like to make two comments relating to the 2022 financials.

First we graduated from emerging emerging growth company status shortly after going public and so this is our first year filing on an accelerated timetable 30 days earlier than last year.

While we believe our numbers are finalized we and our auditors it <unk> need some extra time to complete procedures and documentation. We are submitting a notification of late filing and intend to file our 10-K as soon as possible, but in any event within the 15 day automatic extension period.

Second.

This is also our first year in which we are required to formally report on our internal control environment under Sarbanes Oxley section four or eight.

Be well.

While we did assess a material weakness in our Sox control environment. It has no bearing on the accuracy of our financial statements.

Weakness was principally due to one the fact that we rely extensively on external resources and specialists to supplement our internal team and.

Two the level of documentation, we need to produce in order to evidence the operation of certain controls.

This is something we believe can be remedied in 2023 by expanding the team further training and investing in more automation of our data flows.

I'd like to thank the team for the tremendous work done to date stocks was not an easy lift for a new public company and the progress we've made from where we were in Q1 to Q4 has been substantial all during a year in which we grew the business significantly and completed multiple acquisitions.

Okay.

Now I'd like to provide some commentary on our outlook for the full year of 2023.

We expect to add 100 programs in 2023. This guidance reflects another year of strong growth, 69% year over year. We remain excited about our new program pipeline. Despite the macro environment and in some cases that environment might even work to our advantage as customers look to outsource their R&D.

Our efforts.

We expect total revenue for the full year 2023 to be at least $275 million.

Our cell engineering revenue guidance is at least $175 million, which we expect to ramp meaningfully over the course of the year and excludes the impact of any downstream value share of revenue.

To pause here because our employees are listening our employees are listening to this call.

Although this represents 65% growth in services revenue from 2022.

No that we have even more aspirational goals and then our internal targets are higher than this however, maintaining credibility with the investment community is very important to us and.

And we want to commit to an outlook that reasonably reflects the business as we see it today.

And we will continue to remain nimble with operating expenses and cash preservation in this environment.

I also want to be clear that we're still working towards the achievement of downstream value share in 2023, including additional kronos milestones, but given the lumpiness of this potential revenue. We are only prepared to give services guidance at this time to that point, our guidance of at least 175 million.

So engineering services revenue represented 65% growth over the full year 2022, and our fourth quarter 2022 performance to supportive of our growth expectations for that business in 2023.

Our bio security guidance range is at least $100 million importantly, we expect nearly half of this revenue to come from emerging product lines that are expected to be more recurring in nature, such as federal and international partnerships supporting pathogen monitoring and bio security infrastructure development beyond just <unk>.

19.

The remaining half of the revenue that primarily comprises our K to 12 Covid testing businesses.

We are approaching guidance similar to how we have during the past couple of years.

Our guidance includes business that we have visibility into specifically testing commitments. So we expect to last through the remainder of the school year.

We have included only a marginal contribution from the K to 12 Covid testing business in the second half of the year, Although we do have opportunities to continue working with state governments on testing services and.

And other bio security projects.

We reiterate the usual caveat that even where we have known contracts our cadence while COVID-19 testing business is inherently uncertain.

In summary, we are pleased with our overall progress and outlook, we had a solid quarter of sell engineering execution and expect strong program growth in services revenue growth in 2023.

Security continues to perform well and evolve as we expect a meaningful contribution from more recurring revenue streams in the coming years and the Companys total cash position of over $1 3 billion.

Remains strong.

Thanks, Mark before I move on to our strategic section I want to comment on our guidance approach for the year. So last year, we got a fair bit of feedback that people didn't like us combining services and downstream value share together as part of the cell engineering revenue, we guided to in 2022 and as you've seen with Kronos over the past year, the timing of downstream value share for example.

Those milestone achievements, we receive can be unpredictable. So in 2023, we're going to guide only to services revenue it could take some of the quarter to quarter noise out of the story also I want to reiterate something marks out about what we're aiming to do this year in the <unk> business, although a target of at least $175 million and sell engineering services revenue does.

Represent a 65% increase over 2022, the ginkgo team listening in today knows they are expected to deliver an even higher numbers than that.

The reason, we're pushing higher there is that improving efficiency and converting our platform output into sell engineering services progress is the number one internal focus for ginkgo in 2023 to.

To give you context that wasn't our primary focus in 'twenty, two and 'twenty. Two we're really focused on shoring up our demand for our services.

And I wanted to make sure we're able to build the sales infrastructure and Onboarding program Onboarding systems.

To handle many more program launches per quarter, I think we did see that and I wanted us to expand into the larger biotech R&D budgets of both the Biopharma and AG industries and I'm Super happy with how that went in 'twenty, two and we're going to keep pushing there.

Demand is now coming in nicely. So in 'twenty three the big challenge for US is all about driving efficiency in the platform to deliver on that demand, while we keep costs down on running ginkgo.

How will we drive that efficiency.

First via standardization.

Seem to talk about ginkgo enzyme services. This is it.

A good example of this we are trying to offer a more standard offering to the customer so that the work we get it's actually easier for us to drive internally more efficiently and that's good for the customer to make the projects more reliable. However in the market today. The majority of customers are still looking for really customization in their cell engineering and so most important for us.

<unk> is to drive improved operational efficiency across all our projects and to drive up our utilization of the facility across all our projects and included a few snapshots. So you can get a little in the weeds here off of our most recent weekly business review meeting to give you a sense of how we approach this rises or three out of.

66 slides in that deck, but on the top you can see variance versus plan.

Something we measure internally against our what we call our rate card output. So this is basically a measure of billable work in each of those columns as one of the teams at the company and so we spend a lot of time talking about the teams on the right side of the chart where.

Where are they getting stock is at a planning problem isn't a demand problem on the Middle chart you can see.

A similar calculation broken out by program. So each one of those dots is a program we're running.

Size is sort of how I work on an absolute basis how.

How much is going through it and ideally the programs are on the 45 degree line, where the performance of the program matches the plan and so we spend a lot of time on the ones that have the largest deviation and down on the bottom you can see a snapshot.

Of what we might do to look ahead and try to address bottlenecks on the foundry and so the Roes. There are individual foundry teams you can see in red areas, where we are overcapacity that might be a bottleneck. If we relieve that bottleneck it might allow us to tap into some of the spare capacity in the Greens.

The most important point here, though overall as we treat our our labs and infrastructure like a factory, we look at overall equipment effectiveness and people utilization and to solve bottlenecks, we leverage tools like staggered shifting an <unk> implementation performance boarding all supported by proprietary software and automation running at a unique scale approach.

<unk> biotech R&D like running a factory is really the secret sauce with ginkgo I don't know anyone else doing anything like that our scale and we will be leveraging the heck out of that as we try to hit our goals in 2023, alright, moving on to the strategic topics. So first downstream value share is a critical.

Driver for Ginkgo and has significant financial potential for us So I want to spend some time digging in on that topic.

Youll see that through 2022, we grew a ton and Biopharma Super excited about that that we will continue that so when we talk about our strategy. There and then finally, we're projecting bio security revenue to decline in 2003, given the end of the Covid public health emergency in the U S. In May. However, you will also see a significant increase in what we would describe as more.

Infrastructure like programs and we expect this to translate to more recurring fee based revenue mix in 'twenty three and beyond we don't look at bio security as a COVID-19 business. We never have its not something we plan to stop doing so we're going to talk about it.

Let's dive in.

So this page is just a quick snapshot of our business programs are really the core unit economic kinko's business, they dry bulk upfront fees and downstream value as youll see on the left side of this slide our program mix has changed quite a bit over the past year driven entirely by third party customers.

And as I mentioned, we're penetrating more traditional biotech end markets like Biopharma and AG and I'm really happy how our program mix is diversified and last year those programs each come with upstream services revenue, including cash and noncash consideration.

But you can see on the top right is expected to accelerate this year, but programs also come with downstream value share.

It's not as visible in the financial statements today, but it is a large portfolio of potential future value that we're building so let's dig deeper on that downstream value share. Okay. So there are three categories of downstream value share royalties milestones and equity royalties are the most common and they cut across all of our verticals in other words all of the different market.

Royalty rates will often reflect the margin structure of that industry. So in other words, we will see higher royalty rates in higher margin industries and lower ones in lower rates also vary by the program stage. They vary by our leverage in that industry and our role in the full value chain. So we'll show some.

The numbers on the next slide but it does vary program to program and you'll notice on the right hand side significant growth in the last year in programs that have milestones in other words, we're signing up more deals of milestones. We're increasingly pushing for these types of deals in order to be compensated for technical success and to pull forward value when a customer's product has a law.

Longer time to market and Youll see that particularly in the Biopharma space.

And in AG finally.

Equity has been a useful tool for us historically, but it's becoming a less common form of downstream value share for ginkgo. It does give us some diversification benefit we gain exposure to the whole company versus single product. However, as our growth has been driven by third party customers and traditional biotech customers royalties and milestones have just become.

A much greater part of our portfolio and Thats really the big takeaway on this slide you'll see about 60% of our 22, New 2022, new programs have some combination of those two structures and that compares to last on a quarter of our programs two years ago.

Okay.

Downstream value is hard to model, even when you have perfect information, but.

It does have some we think it has significant financial value and we wanted to share more data on this than we have previously so you all have better tools to model. It so with royalty as Youll see a chart here showing how our royalty rates vary by industry and type of project in that industry, ranging from low single digits to double digits on product revenues.

Stones on the other hand or actually much easier to quantify for you because we can just add up the dollar potential in all our contracts and so we've now done enough any that we're not kind of giving away individual contracts that don't want us to so we were able to aggregate. This we added $2 billion of aggregate cash revenue potential from milestones in 2022 compared to about <unk>.

$200 million in 2021, I don't want to be clear just over $1 billion of that comes from our partnership with selector, which we shared previously in our press release.

Listen we're not trying to convince you that we're going to get the full amounts that $2 billion or even a significant percentage of it you can think of this as a bit like modeling of drug pipeline, where you have to factor in discounts for technical and commercial success for us to get those commercial milestones in particular, the dark dark green ones, though what I lie.

About <unk> is that those 2022 milestones are across 23 program. So again, we are diversifying our portfolio in ways. I think are healthy for the business. Finally, we are going to attempt to provide valuations for our equity stakes in private companies, but we have received equity for downstream value from 14 companies. In addition to others that.

Where we've been paid with equity for cell engineering service fees.

So that's all potential value and we're excited about that because of the rate of new program growth, we're adding a lot of new potential value every quarter. However, eventually that potential value needs to turn into realized value I can't go and that happens when programs complete.

Technical work has to finish and importantly, it needs to be commercially relevant to customers.

To really get big checks and while we'd love to show you really flashy blockbuster examples of that and we do believe those will come in time, we don't have them yet, but we do have in some singles and doubles already we've been able to stack up about $1 million of royalties and a couple of million dollars.

Product revenue streams that are more recurring revenue that you can see on the left and then we've achieved tens of millions of sort of one time milestones.

Through our Kronos partnership, which we've been discussing over the past several quarters finally, although we havent monetize our equity positions to date, we do expect in the next year or two there will be liquidity opportunities in that portfolio. We're sometimes asked about our philosophy.

Beyond this.

And it ends up basically varying depending on how these programs play out okay. So I want to bring it all together by laying out an illustrative Biopharma discovery program you can see the timing difference between fees milestones and royalties and also the potential embedded in even a single digit royalty rate in this market our bottom line is.

I'm really excited about the downstream value share potential that resides in our current program portfolio. The 100 programs. We plan to add in 2023 should significantly strengthen our potential downstream value. So I look forward to updating you on our progress over time here.

Okay, Alright, so let's talk about Biopharma, which is one of the areas I'm excited to add a lot of downstream value share so I'm going to.

To remind you about biopharma because it is the most valuable and fastest growing market for us in terms of new programs, but it's also the newest market for ginkgo. So the thing to understand about the biopharma industry is that therapeutics come in many different flavors. These are referred to in the industry as modalities, okay. So small molecules.

One modality and Thats drugs like aspirin or statin right biologics is another modality and that drugs like insulin or antibody therapies for cancer and you have RNA therapeutics like the Covid vaccine and newer modalities like gene and cell therapies.

So ginkgo is very unique in that in the industry and that our platform can support both discovery.

At the top and manufacturing programs and a wide variety of these modalities how.

How do we know that because we have signed deals with very scientifically skeptical R&D leaders at companies across all these modalities. So I'm really proud of all the logos you can see on the slide there. These are very sophisticated customers, who typically have their own highly capable internal R&D teams that they can use for these projects. So it means a lot.

Got to us when they used to choose to work with ginkgo and stat. So why would a customer work with us. It's a question I frequently get asked if they could just hire their own scientists and do it in their own labs and as I said at the very started the call today. It is because ginkgo is offering things automation scale or data or IP that the.

The customer simply can't access in housing it is as simple as that we have to have something differentiated or these customers won't sign up.

Importantly, biopharma customers often want to see scientific data that shows the application of our platform in their specific area of interest for example, their modality or whatnot.

Don't have time to review it all today, but I would recommend you watch my talk from the JP Morgan Health Care Conference.

Back in January .

<unk> as it was largely focused on biopharma.

A lot of potential customers in the room, there and you can see data I shared on the right here in gene editing and cell therapy and in fact, we had over 80 customer meetings at Jpmorgan. This year, So really a night and day difference from a couple of years ago for ginkgo in our ability to sell in the Biopharma market and Thats. Thanks to having all this new data demonstrated in these different modalities.

Okay.

So.

The question I also get asked a lot is if biopharma had such big R&D budgets to support near term sounds legendary service revenue and bigger downstream value share opportunity given the value of therapeutics.

Why didn't giggle just starts in the Biopharma market why do we started in the industrials market and the reason for that comes back to our business model. So I'll remind you. We are a services business. So that means that in order to move into a market customers have to choose to work with us they have to sign up for a deal say, we cannot enter a market like a product.

Company can just because the board or management thinks they would be great at drug developments or whatever the product is a customer has to tell us that our platform is good enough by signing up a deal and.

Simply not five years ago, our platform wasn't differentiated enough to overcome the internal scale of Biopharma R&D groups. I mean, these groups are very scientifically excellent and very well resource.

We could on the other hand overhead overcome the scale of the smaller less resource industrial biotech R&D groups. So that's why we started in that market. It was for sales reasons right and if you compare it to today in industrial biotech most companies haven't have as a result, either considered ginkgo or know who we are right like we've been operating there for a while.

But in Biopharma, we are meeting potential customers that have literally never heard of us or who had a minimum don't have any idea of what our capabilities are that's very exciting from a sales potential perspective, and once we get our first deal with a Biopharma company, we can often expand within that organization and we're seeing this we can cross sell from our manufacturing.

Deal and then go and sell a deal into the research groups or from our research group in one modality in the same company to a group with a different modality focus and so on.

I personally really like doing enterprise sales and this is the sort of thing that that gets you really excited.

If you like doing these deals it's really they're really great tools.

In industrial biotech and the other hand, we believe the market potential is enormous so the application of biotechnology and things like chemicals and materials and so on energy, but it is much more nascent biotech hasnt penetrated into that market like it has in pharma or add so as that biotech market.

<unk> I think we're selling embedded with those companies in that space, we will grow alongside that industry, just as fast as it goes.

Finally in some ways, we actually have a lower hurdle to sell into biopharma customers because they are actually used to outsourcing some of their R&D like I mentioned earlier it tends to be more of the run of the mill stuff. They outsource today to that contract research CRO industry and industrial biotech we had to educate those companies on this sort of Cri model is.

So our services model and Biopharma they already know they just haven't been using it for thing as much for things like discovery.

Huge tailwind for us makes the deals a lot easier to do.

Okay. So I want to finish on bio security. This business continues to develop nicely and I want to dive into that a bit today.

I think.

We're probably not getting enough credit from this today from investors and I think thats a bit shortsighted, so I want to spend a little more time on it. Okay. So I want to start with a reminder, that Covid response efforts were not simply a nice public service.

I did during the pandemic are transitory source of cash flow for ginkgo. Our intent has always been to established lasting bio security infrastructure and the reason for this is that our mission I can go is to make biology easier to engineer.

And it is essential that we do that responsibly and with care and so just like if you think of like as a comparison the expansion of kind of power and access to computers over decades, ultimately required robust cyber security to make sure. We're using those tools safely the expansion of capacity and access to <unk>.

Synthetic biology is going to require robust biosecurity tools to make sure. We are approaching that safely and importantly, this is not just conceptual as mark discussed in his guidance almost half of our 2023 revenue is expected to come from more recurring revenue contracts with federal and international entities that represents a significant share.

Compared to this past year. So we're now seeing our long term intent like our interest in long term usage of Biosecurity filter into our financial results and outlook. Okay. So what does this evolution look like for our business. So our COVID-19 monitoring programs. The programs that have comprised the vast majority of our bio security revenue today.

Date, primarily consist of our collection platform going out and sampling folks and then analysis and reporting to U S. State Department of public Health and school systems. Those activities have been primarily volume based in other words, our revenue correlates with a number of tests, we collect and much of those have been in K 12 schools now.

So theres still a path to sustainable revenue and domestic COVID-19 monitoring, but it is not likely in K 12 schools at the end of the emergency order I mentioned earlier in the U S. This may will dry up the fund states have been using to do that monitoring. However, we've been working on new testing modality, such as wastewater and we'll continue work on adding new nodes in our network domestic.

Outside of schools.

Our longer term bio security infrastructure business looks a bit different.

No. It does make use of a lot of the muscles. We built in both data analysis and logistics over the last two years, we wouldn't be able to move as quickly as we have been here frankly without the work we've been doing domestically. The canonical example of this is our airports programs. So you can see in our program, we're collecting wastewater complains and also anonymous samples from passenger.

Yours, and then where when we get a positive we sequence we look at the DNA and we look for new variants of Covid as well as other infectious diseases and this has been a really successful program.

Cases of one micron and so on we can talk more about it but we.

We will have collection platforms and sample analysis, but also additional assays and add on analytics services that we have that we applied through that platform. So for example in partnership with <unk> in the U S. We developed a tool called <unk>, which can detect engineered DNA sequences. So in other words, okay to sequence. This.

Iris from an airplane was it intentionally manipulated in a lab. Okay. That's a that's a true real bio security sort of application built on top of our platform. The net of all that is a business that has significantly more service and subscription fees rather than volume based revenue the.

The growth drivers in this business today, our new nodes. So for example, new international contracts in airports as well as new analytics modules that can drive incremental service fees.

So if we say this a lot, but bio security here in the U S requires global bio security because viruses do not respect borders. Okay. We saw this with Covid and you can see we've already begun operating our bio security services on multiple continents and plan to continue to expand our goal here is to have the equivalent of what radar.

Our systems and satellites gave us for monitoring the weather, but instead, we want to be monitoring the movement and the evolution of the DNA of infectious diseases. It is simply irresponsible that the world didn't have kind of by a radar network like this in place before Covid you might notice we are still having tds debates on work.

But even originated bond that would not happen. If we had had a robust file radar system like this in place.

It is time to build this radar network now and ginkgo plans to be the leading provider of technology and services to build it as.

A final note just the other day CDC released a favorable report on our aircraft aircraft wastewater pilot as part of their public reporting and they found that 81% of international flights into New York City that we tested this fall had Sars cov, two genetics and their ways. The CDC sponsorship of this work helped set us up as a real leader in this space around the world.

And then our international work provides real value back to the U S government as a nice feedback loop. There we are honored to be supporting the CDC efforts here, it's really important program and it has a lot of utility in the long run I am really proud of the work. The team has done in bio security of the last couple of years anyone who was directly involved in a very fast moving Covid response knows it.

It is a unique experience and provides credibility.

Frankly can't get any other way than living through it the biosecurity team and ginkgo as a whole had that experience keeping schools open across many states during the omicron surge at the end of 'twenty one in early 'twenty two.

That is a real lasting brand value and credibility for ginkgo as we now expand internationally with our bio security offerings and the team should really be proud of it.

Okay. So 2023 is shaping up to be an important year for ginkgo. There are plenty of challenges and building a scaled cell engineering platform and our team is committed to pushing through the next level of operational efficiency to drive our mission. We hope this has been a useful update and deep dive for you all and I hope to see many of you in person at <unk> our annual.

Prince in April and if you'd like to join please just reach out to US all are welcome.

I am very excited about <unk> position and outlook and look forward to updating you on our progress in the coming quarters.

Before I hand, it to Ann Marie to do our formal Q&A I do want to just take a minute here and talk upfront about some topics that I know are top of mind for investors and ginkgo right now.

And actually a Warren Buffett has a great quote about how if you were transparent about what sort of company you're building and the investors who are aligned with that we will find you actually gives us great analogy like you can throw a dinner party or a rave.

There's nothing wrong with either of those but just make sure you put what it is on the invitation.

So as a reminder, this is what we put on our invitation for ginkgo. So from the from the founder letter in our S. Four filing when we took it public we said to our stockholders. We are seeking to build a company with enduring long term value, we will not make decisions based on short term market. Our accounting considerations, we will make decisions to ensure it didn't go as the long term.

Market leader advancing our mission is resource intensive we expect to continue to reinvest cash back into the business to scale, our platform and expand into new markets with a focus on long term value for the company and its stockholders market leadership will enable us to scale, which is critical for our platform's growth growth increases our future free cash.

Flows and ultimately stockholder value so to be clear, we're not here to make a quick buck or to manage the quarterly earnings. We are here to build a company of lasting value that doesn't align with the timelines that some investors operate under frankly and theres nothing wrong with that they're just not they're not going to like our dinner party. However, we are fortunate to have some terrific.

Terrific long term minded investors on our cap table for many years that I've been very happy and have we've been very happy to see their continued growth alongside US. We're also excited to see some new names at our party who have been able to take advantage of the current market environment to open new positions and go.

However, the other group that I see our invitation speaking to is individual investors that are interested in <unk>, Michigan and in seeing ginkgo accomplish our goals and cell programming and bio security for the impact it will have on the world. So I personally spend time, keeping an eye on what these folks are concerned about a lot of it on social media I wanted to chime in on a few topics I saw it coming.

Up repeatedly from individual investors, so I'll read and respond to a couple of here to give you a just so this is one that came in from our.

E Mail right. So I feel that your stock price is still undervalued based on the business opportunity that I believe exists and yet I see leadership selling shares in large amounts on a near daily basis. This is a concern for me since insider ownership doesn't appear very large to begin with and yet even when the stock is at near all time lows management doesn't appear to have the confidence to keep their shares why isn't it.

Okay. So I'm very happy to speak to that so so <unk> Austin, Barry Tom and I founded the company. We started this company 15 years ago, and we bootstrap it for about six years with no venture venture funded by equipment on ebay the whole thing.

Such that we know today, we still own over 400 million shares and over 20% of the company. So this is something I'm very proud of so the first point to make is as a group. The founders are large larger shareholders than any single institutional shareholder in the company and so I hope, it's very clear I don't want to clear up that discrepancy that we make in <unk>.

Lose money right alongside our investors.

Okay, So why to folks selling now okay. So first.

Some of our issues from before we went public that bested and whenever an employee's RF user distributed the company automatically executes a sell to cover transaction for the tax obligations that are owed when those shares are distributed to the employee those sale sale to cover tax application sorry, those sales to cover tax obligations are now.

Over <unk>.

Second about six months ago, and we've been public for about a year, we put in place <unk>, one plans, which are now effective as background <unk>. One plan is set well in advance and can't be changed without a waiting period. This is a way to ensure executives of companies aren't trading based on any near term information that they have about business and you can see the <unk>.

From those plans and form fours that are filed publicly so through the end of last week. My personal plan had sold one 6 million shares so to give you a context. This represents less than 2% of my total shareholdings of approximately 95 million shares. So you don't get to this level of ownership in our company by selling out over the years and so.

The reality is we really havent had that much liquidity to date and have continued to pay ourselves under market salaries as well. So in fact, if you look I have the lowest salary I think got I do out of the three folks on this call.

But in any case I do remain one of the largest shareholders in the company.

And so hopefully thats now clear to folks.

The other thing I have seen that we don't is that we don't care about the share price right. So.

But even still confidence.

And investors when the CEO is don't value the stock rises from biodiesel 11 on Twitter. So so as I mentioned the founders as a block are the largest shareholders in the company and I promise you. We are not happy with how the stock performed in 2022. However, I also recognize that 2022 was a painful year for our investors.

We felt that like I said by our employees, who are another large group of shareholders. They have felt it in what I can assure you is that we're also showing up to work every day because we believe in this mission in this company and each other here at Kimco and as founders and leaders of the company we need to lead by example, so we have requested the board not grant.

Me and <unk> Barry in Austin, any new equity this year in our compensation. So the idea is we will only make more money. This year. If you do by growing the value of our existing shareholdings and ginkgo. Okay. So I want to just cover that up Brian and with that I'm going to hand, it off to Anna Murray for the formal Q&A. Thanks, Alright.

Alright, Thanks, Jason I appreciate that.

This is a final Q&A in a few moments.

Sorry, Matt.

No questions from the public and then just reminding the analysts who are on the line that you'd like to ask a question. Please raise your hand and I'll call on you and open up your line.

Thanks, everyone, we'll open Q&A.

Okay.

Alright, I think we're all back here and there.

And one more question Fran at retail that we start there and that adds <unk>, Ryan and there's a lot of numbers that I'm not going to be able to get through.

They are more or less appetite from larger clients. The foundry service given the current economic climate.

Yes, I can take that.

So that so I think companies in this environment are basically focused on efficiency.

And yes that affect small companies and large companies in two different ways. So the the smaller companies. It does drive more interest for our services I think theyre looking to cut cut fixed cost spending moved to more efficient outsource providers.

Do see that.

Larger companies I think it's more neutral it goes one of two ways either similar to the small company. They are looking to drive efficiency open their eyes to an external provider that that is a variable cost option on the services side and so on.

Or are they say actually we're going to cut back on R&D budgets, and just maintain our internal staff and cut our external spending.

The bigger companies that didn't come out in the wash a little bit but the smaller companies. It is driving more interest.

Thanks, Jason.

Analysts now.

Well I'll take the first question from Mac Sykes from Goldman Sachs.

Your line is needed.

Great can you hear me.

Alright, good afternoon, everyone and thanks for taking my questions.

When we really appreciate the rationale for not including on downstream in the forecast.

I guess I just wanted to ask in terms of.

Behind that rationale the inherent unpredictability of that downstream values I'm sure a key part of that because I know we deal with that too on our end.

Has there been any change in terms of.

The cadence or pacing of potential downstream value like a <unk>.

<unk> has been extended and things like that that makes it sort of elongate that process or is it really just about the inherent unpredictability of that of those milestones and royalties.

Yeah. So I can take part of this and Marc over to Ed.

So the reason we don't want a guy is the unpredictability right in other words I think two things happened last year. One we we have been saying we thought this would happen.

In general the milestones are more unpredictable than that actually did happen.

That's bad news for our interaction with all of you.

But then second internally.

The whole team got focused on like one external milestone whatever right at the end of the year when at the end of the day like a lot of.

Make those milestones happen or not is not actually in our hands in our customers' hands. So so we're doing gymnastics that I think are not particularly.

Mission critical for us compared to driving the efficiency and the effectiveness of the platform that will just yield more things ending and yes, you will still be dependent on our customer to do various things, but that'll again will come out in the wash in terms of stuff, finishing so I didnt like what was happening internally I didnt like what it was doing for our relationship with.

Investors and analysts and so that's why.

Thank you very much for that detail.

Just a follow up question.

As we focus on just sort of the foundry service revenue and the fees.

And you've talked in the past about sort of toggling contracts to depending on the type of program. It is.

Given the focus on just foundry service and Thats whats kind of be modeled is there a view to maybe try to increase those R&D fees upfront to boost the growth in that business and then secondarily I noticed in one of the slides you talked about trying to drive milestones earlier.

Based on technical completion of our clinical progress.

That also a part of kind of nothing to say.

Frontloading, but just creating a little bit more certainty around the revenue stream that you're generating.

Yeah, and you can think of it like Frontloading, because I think like that.

Yes look this is one of the things I like I mentioned this during during the talk around <unk>.

Diversity diversity of options like allows you to play the game differently, depending on what's happening in the environment. So if we're concerned about.

The larger macro environment, and we want to have a bigger margin of safety absolutely. We can drive deals towards more fees and more milestones now as opposed to say royalties, which you could argue you pay more but later I had to simplify it so or equity I think the.

The challenge is the fees can have a counter action counter effect with sales in other words like the customers got more concerned about the BS then switching from like royalties the milestones. So it's a little easier for me, it's a toggle from royalties milestones without affecting sales, it's a little harder to drive.

<unk> and not get worried about sales and so we have to just watch that really closely I think obviously, we would love to do that if you had to say move toward profitability faster and all the things, but it is something I also.

We're making a big mistake with the margin of safety, we have we slowed down our growth like growth is hugely valuable for genco. It adds code base and add foundry scale and add future downstream value like we want it we don't want to slow down sales because we're trying to be greedy about fees.

Got it alright, thank you very much.

Alright.

From Raymond James.

Your line is go ahead.

Great can you hear me alright.

Terrific. Good evening folks. Thanks, so much for taking our questions. So it's good to see reiterate it's good to see the decoupling.

The milestones from on the farm.

On the revenue so as we now look at that essentially MTV of milestones.

Give us a case study on slide 22, which is terrific and good guidance.

Should we be thinking of that as sort of the average case study.

Given your previous guidance of around $15 million of NPV per project.

When you apply the same variables to that average case study is it still around $15 million or is it higher that lower can you give us just sort of.

Directionality on that.

Yeah, I might jump in and then let mark and Jason Sakhalin that and one of the things. We are trying to do with best apps data and start package of information is to give you that who all share look at look these are what average royalty rates look like by industry and this is what that timeline looks like and.

There is plenty of data out there around okay. One fed drag makes that clinic, what is the probability of that I've got to customers and so based on kind of your assumptions around probability of success across the portfolio and then looking at the data that we're able to provide on a quarterly basis around program next between industry.

And between different type of downstream value, we're hopeful that that will give you and quite a few more tools.

Make it make a judgment there and its a hard exercise even with perfect information as Jason mentioned that for China to share the information that we have.

Okay.

Helpful. And then just a very quick follow on question, perhaps CE Mark.

There are there was $17 million of milestones on this quarter.

Could you give us a sense for any milestones that you were expecting this quarter and then in Q4 potentially leaking over into Q1 again with this decoupling we need to start has been making some more accurate assessments as to what those estimates as to what those numbers would be in the next quarter yes.

Yeah. So as we had mentioned during the JP Morgan updates.

We did see some slippage to milestones and effects discrete milestones that we had targeted to hit in Q4 engines.

We are still actively working those.

We do believe that we've largely completed the technical work there.

There is some dependency.

On.

Parties outside of Ginkgo in manufacturing facilities that are not ours to conduct successful pilots, who are demonstrating milestone achievements and so those are still very much.

Milestones that we are working on achieving budge.

But there's more work to do there.

Okay, great. Thanks, again for taking our questions.

Alright.

Okay.

Opening up your line is not on mute.

Hey, guys. Thank you thanks for the time here.

Maybe I'll start with a quick follow up on.

The milestone exclusion aspect of it again.

Jason do you think youll disclose the aggregate potential milestone number on a quarterly basis, even if you sort of leave the timeline around the achievement of those milestones lag or is that something you anticipate doing perhaps only annually.

I think I don't think we'll do it quarterly because part of the challenges.

This year was the first year, where like it was big enough that by not like I wouldn't have just told you what our customer who didn't want to publicly announce the milestones had done with US right. So thats sort of the game, we're playing with sharing.

I'm happy to have been able to share more of this with you all today and that's why we see it but.

But we also have to keep maintain confidentiality with our customers.

I think maybe it depends on what.

Now the numbers eventually got on new programs and so on in the quarter, but I think it will be tough.

To do it.

A little bit.

Got it okay.

And then any color you can share on the mix of standardized versus custom programs today.

We hope to be by year end and could this have a near term impact on customer demand for foundry services, specifically one of the joys of working with earlier stage companies is that you've got a lot of attention from from your vendor.

So as you look to sort of the more cookie cutter offering to the extent possible how is that dynamic something you hope to navigate.

Yeah, So I'm Super excited about this to be honest.

There is an experiment were running in the market right. So to date. If you look at ginkgo. The history of NGO is basically all custom deals alright, and what I mean by customers like.

What do you want to sell engineered to do customer in the pharma industry or fragrance industry, our AG industry.

Okay, you Wanna protein you on a small molecule right.

Your challenges you want to optimize the manufacturing you have something over here on discovery, it's all over the place.

Are the team again has had a very hard job of receiving all of these custom things and somehow running it through a common lab infrastructure and Thats a lot of our secret sauce is our flexible automation and software logistics all of this stuff, where I say, we run a lab like a factory we have the extra challenge that we're not like.

Extra lab, where that's running the exact same diagnostic test 1 million times like a factory no no. It is variable R&D being run through a factory that is very hard so.

We're still going to offer that people need that customization no problem, but we are seeing is like as we've talked to customers, sometimes either a whole project or a portion of our project, we keep seeing over and over again. So a good example of this is find me a better enzyme.

Okay, and you might want to ask if you were say an enzyme therapeutics company right like so company like some logic in those bug that they have is a probiotic is a little enzyme that enzyme needs to be optimized okay. So they care about enzyme optimization.

It could be you're in industrial biotech and you want a new enzyme for laundry detergent or it could be as part of our four enzyme pathway to make a small molecule chemical the third enzyme in that pathway needs to be optimized well all of those kind of feel like the same project.

So that's where we're running this experiment to see could we make that that essentially more cookie cutter offering it would let the deals close faster it would make that work happened faster the customer.

Is what I'm Super excited about over time starts to have more certainty of success right. Because my my underlying belief is like the thing that really makes the biotech industry not the tech industry not software is its unpredictability.

Doug will have to spend money out of research budgets. They spend money, hoping they will get something like that is not like what a software company they spend money on it but the software engineers. They know theyre going to get software you spend money on building a bridge or a building and youre going to get a bridge or a building and we in biotech are still living in the pre engineering confidence error part of the idea with the standard offerings.

Pieces out that we think are more predictable and hopefully there's a nice feedback loop, where even though the customer is getting something a little more standard. They can they can have higher confidence theyre going to get it.

Got it and one quick one for Mark Mark any color on cash burn you can share for 'twenty three and is it fair to assume a pretty material dip in 'twenty four essentially sort of underpins your confidence in not needing to tap the capital markets again.

So yes, so let's start with 2022, just to kind of frame it for you.

The cash the operating cash burn, including Capex in 2022 was roughly $300 million.

In a few.

Consider that there was a big contribution from Biosecurity in 2022 is roughly $70 million of EBITDA.

Then you can sort of start to I think that's a good starting point or a framework for thinking about 2023 would look like.

Though we don't guide to the cash burn number what you can do is assume of course, youre not going to get that big contribution from bio security.

And also assume.

We are expanding the business and so there is some opex expansion.

And so that should sort of get you to a place where you can think about what burn will be in 2023.

2024, that's we're not commenting that far out, but as Jason mentioned in the sort of core discussion huge focus for the company. This year is on driving.

Operating efficiency within the boundaries and we do think that is one of the absolute sort of key.

Levers.

This is Doug.

Will ultimately lead us.

The cash burn.

Thanks, guys appreciate the color.

Yes.

After a little bit to that.

If we do our job and drive efficiency. This year in other words, more and more and more programs without really ballooning spending.

We have a more efficient system to scale up in the future right. So it's a very healthy time right now I would say for us to be having this focus on sort of efficiency and effectiveness on the platform side in terms of delivering against programs. If we werent workout and a lot of people in our company are working on those right now looks like.

We solve this problem.

Scaling in the future is going to have dreams. So I think this is really what it's about this year and that's why I'm excited about is kind of there is an alignment between our commercial targets, while we're trying to.

<unk> and the global strategy of the company, it's really exciting and it's one of those things Thats, particularly right down the middle for making biology easier to engineer that's up from like emission standpoint, like I like getting better at selling it just doesn't feel as good as like when we really tune up the foundry that feels like delivering on the mission of very very practical way. So I'm excited about joining right.

Thanks, Jason.

And Steve My from Cowen. Your line is open if you're on mute.

Okay, great. Thanks for taking the questions.

Two parter here on the Biopharma business, so on the industry mix of active programs look like.

Pharma and biotech is about 35%. So do you expect that percentage mix to continue going forward and then second part.

We've heard from peers.

And their partnership discussions.

A lot of partners that don't want to pay a lot of money upfront because of.

Cash conservation concerns whoever youre, 65% growth in sell engineering services in 2023 suggestion arent seeing that could you maybe help us reconcile that and maybe give us a bit more color on the trends youre seeing on the weighting of upfront versus downturn value.

Yeah, I can comment on that so in terms of like where we would like to go I think we will.

We wanted to I think it will drive more in the direction of Biopharma. That's why I wanted to highlight it at today and the main reason like I said in the talk is it is just.

Substantially more untapped market for us that industrials like again customer companies don't know us.

They haven't seen our capabilities we have to have these first meetings and then show some data and there's a lot of excitement.

If there was that similar excitement for one of the large industrial companies. They want to set it two years ago right I'm more waiting for them to have more breakthroughs on the product side and want to do more biotech not.

That they just didn't know about us being being better than doing it themselves. So like I do think you will see that that increase for us if we're doing our job right.

In terms of people paying upfront and so on and this is the kind of the point I made on that first question coming in from Twitter.

Thank for the smaller companies what Youre hearing from peers is right.

There's just not as much appetite to pay out Brian all of that.

For the larger company is.

I mean.

Biotech companies how budgets right.

And so I don't we don't see that as much with the large biopharma I would say.

Okay got it.

65% growth you're guiding to that's driven more by just Newport, New program Anson or.

Versus mix.

Mark do you want comment a little bit above.

New programs new customers.

Keep in mind that in some cases, we will take equity.

As a form of consideration for the upfront service fee on a program as well and so thats in some cases, that's how we've handled.

The situation that you are kind of referencing with companies that are either good point conserving cash.

So that's all in the 65% growth.

Yes that could help but so far the smaller companies.

Taking equity in lieu of cash can actually help quite a lot. So we do do some of that for the smaller guys. The one thing I might add Steve and I know we've talked about this in the past.

There is an interesting dynamic where when R&D budgets are getting pressured the idea.

Playing people off or closing a facility or something like that it's a really hard thing in their R&D leads don't Wanna be face class until the idea of working with a vendor that you can scale up and down and treat as variable cost is more appealing npls a lot face here in an environment like that than building, a new plant or hiring.

When you're not sure how much budget, you're going to have next year and so I think as we think about what are the factors that could increase penetration in biopharma in particular out of our time. This type of the macro environment could actually be a nice catalyst for that Chad.

Okay, yes, thanks for the color and let me just sneak one more in.

So yes, I appreciate why you removed the milestones guidance because of the unpredictability and whatnot, but.

At a later date when you have more mature programs would you be providing guidance at that point and when do you think that would happen.

Thanks.

It's a good question.

I think it will be like a law of large numbers thing right. So at some point theres enough things happening that youre, just starting to move west.

I don't know like more obvious trends.

So I think it will be until then.

<unk> for us to do it I would say right.

Like I'm sure apples somehow predicts our app store revenue, even though they don't know exactly language apps are going to fire next quarter, because theres, just so many of them and it sort of just like moving with the internet or something.

Yes, we're very far from that I think that's the extreme form of it but lag somewhere along the way there is enough.

In there.

We're just enough of a utility that.

It comes out in the wash and then maybe we start to do it but I just don't want to get back in this game of lives.

Individual events prediction, particularly outside of our controls I think it's extremely distracting internally okay, great. Thanks, Jason.

And I know im friendly and Larry. Thank you. Your line if you want it Youre welcome next question.

Hi, This is not a lin on for Matt Larew on just wanted to go back to something you said earlier I think that you mentioned that youre going to be making some investments in the business in 2023 that might offset some of the phase out of the same margin impact could you talk a little bit more about that specifically, where you are going to be investing yes.

Yes, so some of them are well, Jason do you want to talk about some of the biopharma capabilities.

Well I don't know Theres severe lockdown zimerman, so do you want to explain that.

So what we're really just talking about Maryland is opex and so if you look at Q4 youre going to have.

Zymogen costs layered into our Q4 numbers some of which will be gone by the end of 2023, because they are related to certain support functions.

We would think of as sort of transitional in nature and so once the integration is done so so youre going to have some of the costs coming out, but also sort of a counter acting sort of.

That would be on the core ginkgo sort of R&D size youre going to have some continued expansion right.

We don't know.

<unk> hired some people we still have targeted investments in our mammalian capabilities for example.

And so that's all I meant by that and I'm not sure Jason to join a lever that's right, yes, I would say in general the.

20, <unk> focus is on efficiency and effectiveness of the platform in other words trying not to.

But a lot of expansion, but you will see us do some targeted moves as mark, saying, particularly in Biopharma and we could do we could use more mammalian capacity and again the nice thing about our platform is it's not really organized that way, it's not exactly add like just purely dedicated.

He worked for mammalian by like there are certain functions in the foundry that are more heavily weighted that way and so we would want to invest more there, but other functions DNA synthesis and so on construction and a lot of our assays in analytics thats not really specific.

Any particular markets. So they are we getting adjust without having to build new stuff.

Great. Thank you.

Right.

Alright, Mark from DTI.

I have opened your line. If you went on you you are welcome to ask a question.

Terrific. Thank you for taking the question.

Maybe just a question on zymogen.

You completed that acquisition last year.

Do you believe to be the core capabilities that you're reporting over as we think about 2023 and 2024.

Just curious if you are planning to deploy the Reconfigurable automation cards for the <unk> and then any status on the real estate in California.

So I'll speak to the racks and someone else can chime in on the latest on the real estate.

Yes is the answer I am extremely excited you can ask people I can't go because I put it in our flat channels. All the time when will the rack show up in here in Boston, Yes. So.

We're extremely excited about that flexible automation also the software infrastructure and team.

Zymogen.

As a real a real guests in terms of speeding up our ability to drive that efficiency and effectiveness of the platform next year bulk like just a literal assets and the ability and the quick integration of the teams to develop new things, but they also just ran into many of the same challenges we have run into over the last five to 10 years and we.

David.

Being able to put them together now as one team as a real estate.

So it is.

Hi integration on the platform side.

As we mentioned during the whole acquisition on the products I think it is not a product company. So we're still looking for homes for various of the products and so on there is on that in the future but the.

The platform integration is aggressive and working well and Mark I don't know if you want to speak to that on the real estate. We did sublease one facility in the fourth quarter and we are of course evaluating all the options with respect to the real estate there.

It's pretty much it's sort of what I would call on a very active exploratory phase right now.

Okay. That's helpful.

For you Jason.

Kind of a bigger picture question on code base.

I think you leverage over $2 billion proprietary protein sequences.

You've called out there as one of the folks that that's evaluating this I believe.

How should we think about this asset.

Balding and perhaps turning into a commercial engine. When do you think we might here of when and how much you can monetize cookies. Okay. Yes. So this is a great. Great question. So first off like think about what we do for a customer right customers coming in they want to sell a program to do something that means they don't have it working right now maybe even a new thing alright, and so there.

Going to need to be some lab work done and in particular, we need to change the genome of that cell and test whether that changed into the thing the customer wanted alright. So wanted to answer is try a lot of designs informed by our design software and so on I think that can save you a lot of work is if we are.

Have done something similar to what you are asking for and so we have a lot of intuition about what the best designs will be.

And we see this we have like a really nice case study out on the website, but like where we start with like a big like make like three or 4000 synthesize enzymes from all over like our big like you were mentioning that big $2 billion or whatever genome.

Like gene sequence collection, we go find all of these potential genes from our proprietary database print them, we're going to bring it out to west put them and test them and we do that and then we train our own machine learning model just for that enzyme. Okay like that data goes into a model just for this particular enzyme and then we do it again, we tell the model now to say Hey give me.

3000, new ones to make we make them.

We do it again and then the last improvement which is the one that gives the most improvement we only try 100 because at that point, we generated data in trade our model well enough that the model is now becoming increasingly predictive and it's saving you the lab work.

And what's really cool is now for future customer wants that particular class of enzymes, we're not starting all the way back at the beginning we now have this like trained up model. So that is we're selling that today now what is the right business model I think it's partially what you are asking like maybe actually just offer that as a service maybe you should access that that code base.

You do the lab work.

At your lab customer actually today, we don't think Thats, great. We think theres, a real nice alignment between that throughput that we can run our lab work and the data asset because there's just a lot of high throughput like an adult analysis and lab that fits better together, but maybe you could imagine that in the future. We are not today actually operating that data.

Asset as a standalone product, but it is only offered integrated as part of a larger sell program does that make sense.

Yes, it does.

Thank you for that and if I could ask one last quick one.

Your guidance for 100, new programs beat our estimate of <unk> 80 for 2023.

I'm just curious.

If you've seen any changes in lead time.

To like close a deal like what is your typical lead time from identifying a program and then closing it and maybe I'd be curious if you.

If youre seeing any.

Any changes to the components of your funnel as we.

Enter 2023 here.

Yeah, So two things one.

I'd say, it's the healthiest I've seen really.

Since we started ginkgo and Thats one of the point I was trying to make earlier is I feel generally good like our ability to and by the way. This is going to vary quarter to quarter right. It's a similar thing like it's not it's online total metronome here, but like as I look across the year, we have a big set of potential both new.

Customers that have new programs attached to them, but also increasingly inside sales into our current customers right. So I'm talking about that in Biopharma. Like you have you do a manufacturing deal and then next thing you know youre doing an R&D deal.

That is that type of thing is starting to shorten our deal cycle, we have a very different maybe to state the obvious time to close a deal. If it's one of our current customers as an app like hotel deal I mean, adding a new program versus a brand new customer.

The brand new customers. They will just take time right like we're looking at I don't know what it is exactly but three to six months right. So there is just a process.

To convince people and so on but if you have a relationship with someone and you have a joint steering committee in your meeting every quarter and you can.

Kind of boot up a new deal under your existing legal agreement. It's just a decision to spend money right. When we do a new deal by gosh right at the hall, there's all the negotiations right. So we'd like to get wed like to get that kind of umbrella deal in place and then it makes things on average faster, but you kind of see a bimodal depending on whether it's occurring.

New customer on timing.

Great I look forward to <unk>.

Excellent Yeah. Please do come out, yes, it's going to be going on.

Think back Alright, I am sorry go.

Go ahead.

Al has it gone hopped on a little late so apologies. If these recovered just two quick ones from me.

First it looks like bulk of the new 2022 programs, where AG bio and pharma seems like this will remain the case in the near term in terms of those two end markets really comprising the most of the new programs.

Are there any attractive relatively untapped and markets to look forward that can creep in more materially and contribute to new cell programs in the midterm.

Great question.

<unk>.

I don't know I mean.

This is one of these things where I think we benefit from being a platform that we don't have to be too.

Certain of where that's going to be ill give uruguayan the clock three or four years ago. When we when we actually did that kronos the alike.

I remember organic cannabis got ones made legal in Canada, and suddenly like biotech broken Avenue was on fire.

And there was a lot of interest startup companies 18 things happening and we could just flex into that even back then right and now were substantially more flexible.

And then we were three or four years ago to move to where the action is.

So I have like my personal thoughts probably about like.

So its underrated the matter right like what I'd, rather making go able to do is go wherever it is and then we just watch right. We don't we don't have to try to predict it.

But I do think youre seeing at least on the.

As.

As a consequence of Covid you are seeing country is wanting to shore up critical infrastructure like onshore or leg I think it's called like I don't know whatever friendly country sure.

It basically and it's changing where certain activities like for example, API manufacturing is done so you might see opportunities in API manufacturing that just werent. There a couple of years ago, not because of like particularly on the economics, but because countries are putting their foot on the scale to make sure. They have access to critical drugs in the event of a more.

<unk> World is I think is the one example, I can think of.

Got it thank you.

And then just a last one just a quick one from me. It seems like I think it was on slide 20 rate of that $200 million of milestones.

Potential milestones between 221, and 2020 that you guys.

Racked up in terms of the pipeline you'll have any of that been realized or is it still early days.

Yes, correct and maybe just to give you a little bit of additional contact and the milestones that are in that would represent that and not intermediate technical just like longer longer term you got it at the early as kind of completion of a technical program milestones and quite often a lot of them are further down.

Are you, saying that the products and so given that our average product as their average program in a couple of years.

We wouldn't expect it to be mapped on traffic from those sources yet got it. Thanks guys. Appreciate it congrats.

And alright, a last question here, it's Brian John .

Bank of America, China opened up your lines.

Okay.

And John you might need to and we.

We can't hear you.

Yes.

Can you hear me yes.

Hey, Thanks for thanks for letting me on.

And I would like to go back to the financial guide here.

Given that you guys just discuss the recent milestones being pushed out and you expect to capture that soon is it fair to assume that the fourth quarter foundry revenues were just purely fee for service.

And again, if there's any sort of quantifiable range in terms of the milestone revenues that you might be able to recognize in 'twenty three.

Provide that that would be great.

Yes, so fourth quarter revenue did have milestone revenue.

Got that.

And.

Slide 10 in the deck it breaks out and so youll see it was about $17 million of the.

Of the 50 plus million dollars of revenue in the quarter was in fact.

Sure.

Downstream value share milestone revenue.

And then sorry.

The second part of the question was 2023 expectations.

I guess I'll, just sort of reiterate the comment I made before there is there were some discrete milestones that we were hoping to LNG for that we didn't we're still very much actively working on those we think the technical work is largely done there are some factors outside of our control there, but we are still very much working.

Gotcha. Thank you.

That's all for me. Thank you all right. Thanks, Dan.

That was our last question.

And if anyone's got any closing remarks, we are we can take a night.

Thanks, everybody.

Okay.

Thanks.