Ginkgo Bioworks Holdings Inc (DNA) 2022 Q3 法說會逐字稿

Good afternoon. This is Anna Marie Wagner, SVP of Corporate Development at Ginkgo Bioworks. As usual, I'm joined by Jason Kelly, our Co-Founder and CEO; and Mark Dmytruk, our CFO. We thank you for joining us and look forward to providing you with an update on the last quarter.

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

We'll follow our standard agenda for these calls, providing an update on our financial progress while also taking time to dig deeper on our strategic priorities. We'll end with a Q&A session, and I'll take questions from analysts, investors and the public. You can submit those questions as usual to us in advance on Twitter with #GinkgoResults, or by e-mail at investors@ginkgobioworks.com.

All right, over to you, Jason.

Thanks, Anna Marie. So we always start with this slide because our mission drives much of our long-term strategy at Ginkgo, and even many of the day-to-day decisions in the company. So very simply, we want to make biology easier to engineer at Ginkgo, and we do that by scaling our platform for programming cells.

So what does that look like, right? So we work with our customers to define what they want to develop. In other words, the spec for the cell they want to engineer. And this is a key idea. We are operating our platform as a B2B service to enable our customers to develop end products for consumers, right? And so our platform consists of 2 assets: our foundry and our code base.

Our foundry is the automated lab. The key idea here is we're able to turn what is typically an underutilized fixed cost investment for most companies, in other words, the sort of physical R&D labs that our customers might have in their facilities, into what's now, for the customer, a variable cost available to them as a service. And that attribute is particularly attractive to our customers in a more challenging economic backdrop, especially small companies might not even need to build these facilities in the first place. And so being able to turn that on and off R&D spending is a benefit.

Our customers also benefit from the scale economics that we can generate as we invest in our platform. Our code base is a learning asset. It accumulates as we run more experiments and includes physical strains, data and various tools for programming cells. We can reuse these learnings in incremental programs, which in turn increases the probability of program success and reduces program costs for customers.

I know some potential customers may be listening right now as well, as you follow our new program announcements and the new capabilities that we're building both organically and through acquisitions, and we do have 4 acquisitions that closed just this quarter, please do reach out. We'd love to work with you. And again, we do operate as a service business. It's very easy to get on the platform. We'd love to get you on the platform.

Okay. Before I turn over the call to Mark to discuss our financials, I do want to highlight a few recent highlights of the company. So we continue to focus on attracting new programs to the platform. And I'll talk more about why that metric is so important to us a bit later. We are pleased to add 15 new programs in the third quarter.

And I specifically want to highlight our Merck collaboration announcement because we continue to see really strong momentum in the pharma and biotech vertical. So here, we were able to leverage our fungal strains and other expertise to win an enzyme development project with a blue-chip pharma customer with up to $144 million in milestone payments.

In biosecurity, we executed well as the school year started. And as you'll see, we, once again, are increasing our financial guidance for this business. More importantly, we continue to see real traction across our long-term strategic initiatives. I'll have more to say on that topic later in the call as well.

Finally, you'll see at the bottom of the slide that we closed 4 acquisitions in the month of October. I'd like to give a special call-out to the Ginkgo team and also to the new team members that work with us closely at the acquired companies. This is an enormous lift for a company Ginkgo's size, and the process went amazingly well.

Importantly, we were able to close the Zymergen transaction more quickly than we initially anticipated, and I'll discuss why I think that presents a real strategic advantage for us. We completed the Bayer acquisition, strengthening our capabilities in the ag biologics vertical and also announced 2 smaller transactions: Circularis, which has a circular RNA and promoter screening platform that will help drive our work in cell and gene therapy; and Altar, a longtime partner of ours that has screening platform that will drive adaptive laboratory evolution.

These technologies both deepen and broaden our capabilities, and we're excited to welcome these teams to Ginkgo. I'll note that I think our recent M&A activity demonstrates our ability to play offense in the current market environment while still thoughtfully managing our cash balance and multiyear runway. That's something you've heard me talk about before, and I consider it strategically important to the company to maintain that.

Okay. So we won't be able to do a deep dive on our biopharma work this quarter, but I do want to call out some recent results we shared at the Society for Immunotherapy of Cancer Conference, SITC, last week, just here in Boston as we got a great reception from biopharma companies there about the data. So the ability of a CAR T cell, and this is -- I know you are familiar with this, but this is a type of immunotherapy for cancer to be able to persist post administration in the patient and continue to kill tumor cells is in part driven by the signaling domains of the CAR.

And so what we did here was we built a 10,000-member CAR library, and you can see the library design on the left side of the poster here. And we introduced that library into primary human T cells to look for combinations of signaling domains that would improve on this challenge of T cell exhaustion, which is sort of a big challenge just generally in the field. And we tested these by serially challenging the CAR T cells both with hematological and solid tumors and saw some nice results, including a number of designs that outperform canonical CAR-signaling domain designs, such as BBZ and 28Z in head-to-head comparisons in our assays. And you can see that data in the center panel.

So we're very happy to dive in on this more deeply with folks that are interested. This is an internal work we've been doing at Ginkgo that is really meant to showcase the muscles we've been building over the last 4 years as we expanded our foundry capabilities into mammalian cell engineering. So again, it's not us developing a new therapeutic of our own, but really a chance to show to customers what the platform is capable of.

And I found -- we announced this, and we showed it at SITC, we encountered a bunch of folks who were just sort of surprised. They thought that Ginkgo only engineered microbes and fungi, which is not the case. Again, we've been sort of building this infrastructure out the last 4 years. So expect me to be a bit of a broken record coming up on the applications of the platform in cell and gene therapy as I want to get the word out to customers. I think there's a lot of great business for us there.

So it's a great time to talk to us if you're a biopharma company. Everything you see here is all available as a service today to accelerate your drug development efforts, and I'll also be sharing more detail on all our biopharma platform capabilities at the JPMorgan conference later this year -- or early next year.

So okay, that's a quick overview of our recent highlights. And with that, I want to hand it off to Mark to walk through our third quarter financial performance.

Thanks, Jason. Our third quarter financial results reflect solid execution in both our cell programming and biosecurity businesses. Total revenue in the third quarter of 2022 was $66 million, representing a decline of 14% compared to the third quarter of 2021, primarily because we had a lump sum equity milestone in foundry revenue in Q3 last year. We've discussed in the past that quarterly lumpiness is inherent in foundry revenue, and you'll see that when you look at the past 6 quarters sequentially. That said, we're very pleased with how total revenue is landing on a year-to-date basis.

I'll begin with a discussion of our cell programming business. We added 15 new cell programs to the foundry platform in the third quarter of 2022. As a reminder, our new cell program count is an important long-term value driver, and Jason will talk more about why that is a bit later in this call.

We supported a total of 85 active programs in the third quarter of 2022 across 43 customers on our foundry platform. This represents substantial growth in diversification in programs relative to the 54 active programs across 27 customers in the third quarter of 2021. We continue to see strong growth coming from the pharma and biotech industry and the food and ag industry segments in particular.

Foundry revenue was $25 million in the quarter, down 29% compared to the third quarter of 2021. As mentioned, the third quarter of 2022 did not include any large milestone payments. While third quarter of 2021, foundry revenue benefited from downstream value share revenue related to the achievement of an equity milestone for Cronos.

Now turning to biosecurity. Our Concentric offering continued to perform well in the third quarter of 2022, generating $42 million of revenue in the quarter. Biosecurity revenue consists primarily of product and service revenue from our end-to-end COVID monitoring services, with the largest current driver being K-12 testing.

Biosecurity is performing ahead of our expectations as COVID monitoring services are proving to have some level of durability as schools reopen and resume testing in late Q3 and other entities such as the CDC are extending contracts. We are also encouraged to see government investments being made in longer-term biosecurity infrastructure.

Biosecurity gross margin was 41% in the third quarter, an approximately 5 percentage point increase from the prior quarter performance. The sequential increase in gross margin percentage was driven in part by favorable revenue mix.

And now I'll provide more commentary on the rest of the P&L. Where noted, these figures exclude stock-based compensation expense, which is shown separately. R&D expense, excluding stock-based comp, increased from $53 million in the third quarter of 2021 to $73 million in the third quarter of 2022. R&D expense related to the foundry increased as expected year-over-year driven by expansion of foundry capacity and increased breadth of capabilities to support both current and future collaborations.

G&A expense, excluding stock-based comp, grew to $59 million in the third quarter of 2022 compared to $29 million in the third quarter of 2021 as we invested in business development and all other G&A functions to support the growth of new customers and programs as well as a higher level of foundry activity, our biosecurity offering and public company requirements. We also incurred approximately $12 million in transaction and integration costs related primarily to the 4 transactions we closed in October.

In this environment, we are very focused on containing operating expense increases to areas that are customer-facing and that drive growth, such as business development and initiatives that will drive foundry productivity. In Q4, you will also see the OpEx impact of the 2 large acquisitions we just closed. We will, of course, report out on that inorganic impact in detail when we report our Q4 results.

But as a high-level outline, you will see, firstly, new run rate OpEx related to the Bayer transaction, which we expect would be largely offset by the revenue from our new collaboration with Bayer; secondly, new run rate OpEx related to the Zymergen transaction, which is largely just a pull forward of spend we would have incurred organically in 2023 and 2024 to build these capabilities; and thirdly, significant onetime transaction costs and near-term integration costs, particularly related to the Zymergen acquisition. As Jason will discuss later, we closed Zymergen with a significant cash balance, which significantly mitigates the above spend.

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

Adjusted EBITDA in the quarter was negative $70 million compared to negative $18 million in the comparable prior year period. A full reconciliation of adjusted EBITDA is provided in the appendix to this presentation and in our earnings release. Adjusted EBITDA declined year-over-year due to the decline in revenue and increase in operating expenses.

And finally, CapEx in the third quarter of 2022 was $13 million, reflecting foundry capacity and capability investments. We do expect an increase in CapEx in Q4 relative to prior quarters as we complete certain projects, including our Bioworks7 facility. But in general, we are applying the same discipline to CapEx investments as we are to OpEx increases.

One final comment on stock-based comp expense. As a reminder, we provided an extensive disclosure in our Q4 2021 earnings release relating to the GAAP accounting for the modification of restricted stock units issued prior to becoming a public company. Substantially, all of the $563 million stock comp expense in the third quarter relates to this ongoing wind down, and we now expect significantly smaller amounts to be booked in the fourth quarter and in 2023 and beyond related to this wind down.

Now I'd like to provide some commentary on our refined outlook for the full year 2022. We expect to add an incremental 16 to 21 new cell programs in the fourth quarter for a total of 55 to 60 for full year 2022. This guidance reflects very robust growth as we are almost doubling our new program additions year-over-year, despite a challenging economic climate. Jason will further discuss our thinking in providing a range on new programs later in the call, but we are encouraged by both the depth and quality of our sales pipeline.

We are increasing our full year guidance for total revenue by $35 million to $40 million over our prior outlook to a new range of $460 million to $480 million. We are revising our foundry revenue outlook to be in a range of $150 million to $170 million for full year 2022.

When we provided our initial full year 2022 guidance in March, we explained that the range was in part dependent on the timing of downstream value share and that we would update you all as we learn more. Now that we are closer to year-end, we have a better sense of the potential timing of certain specific events. Our previous guidance included revenue in 2022 from several discrete milestone payments, 3 of which we have not yet earned.

The low end of our new guidance range assumes that we receive one of those remaining milestone payments in 2022, with the remainder anticipated in 2023. The upper end of the new guidance range assumes that we receive all 3 remaining milestone payments in 2022. While this reflects our best estimate at this time, there is still some risk with respect to the achievement of any 1 or all 3 milestones. However, based on our significant technical progress to date, we remain highly confident that we will achieve them in the relatively near term. The guidance revision exemplifies the lumpiness that can arise from downstream value share timing at a company of our size.

Now on biosecurity. Based on our strong performance in the quarter, we now expect biosecurity revenue to be at least $310 million for full year 2022, an increase of $50 million from our prior year outlook. As was the case throughout 2021 and the first half of 2022, there still remains significant uncertainty in the biosecurity market in general. Although we saw an increase in testing volumes at the beginning of the fiscal school year relative to summer levels, visibility into near-term volumes remains quite limited.

More importantly, we are seeing traction in our broader biosecurity efforts, including passive monitoring and international programs, though this remains a nascent business and is not yet a meaningful contributor to our guidance.

In summary then, we are pleased with our overall progress. We are executing on what is now a diverse portfolio of 85 programs on the foundry platform. Biosecurity continues to perform very well, and the company's total cash position of over $1.3 billion remains strong.

And now, Jason, back to you.

Thanks, Mark. I wanted to follow up with a quick comment on our revised guidance. As we get towards the end of the year, we have a much better idea of the timing on binary events like program launches and milestone payments compared to when we guided in March and try to predict the whole year in front of us. So just as we've been updating on the biosecurity side, if we've had solid reasons to update you all, we want to pass on that information on the cell engineering side as well.

And as I've said before, this is part of establishing our trust with you all as we launch as a public company. All that said, the team at Ginkgo is aggressive, and we're motivated to hit the high end of the ranges we provided. And I do think we have some space to pull that off.

Okay. So we've spoken to you a couple of times about why we're so excited to be acquiring Zymergen as well as the Bayer Biologics Group. But the Bayer deal closed around when we expected, while the Zymergen deal closed much earlier than expected. And I want to explain why I think that early close is such a big deal strategically.

I also want to talk about program additions, both to highlight the impact on scaling our platform, but also as a reminder of the significant value potential from downstream economics on those programs. I think sometimes that gets lost so I want to highlight it. Finally, I want to update you on our progress in biosecurity as it expands beyond K-12 COVID monitoring as we're seeing really encouraging signs there.

Okay. Let's dive in. All right's. So as you might remember, we had expected Zymergen to close in Q1 2023. But instead, we closed last month. So the faster time line here means that Zymergen brought in more cash, and we can get to work right away on the potential upside opportunities. So at close, Zymergen is coming in with over $100 million in cash even after paying all the transaction-related expenses, including severance, bonus acceleration, adviser fees and insurance premia. So you can think of that as a truly net cash number.

As we previously discussed, there are a couple of discrete items that represent potential upside to our base case. While we aren't going to continue Zymergen's products independently, in other words, we're not going to invest really to try to commercialize those ourselves and we don't expect revenue from this portfolio, certain more advanced products, such as their -- the functional barriers and 3D printing programs, are attracting inbound interest now. And we will continue to explore strategic alternatives to sell or partner those assets.

Additionally, we've talked about Zymergen's real estate footprint, which was a significant area of due diligence for us as we evaluated the transaction. We do have more real estate in Emeryville than we need right now, and we're working to consolidate our footprint down substantially. A positive outcome in these efforts could drive material upside to our cash flow forecast. And I'll note, we are already in advanced negotiations to sublease one of these properties starting next year, which is really great to see.

I want to spend a minute here on this topic of sort of team fit because I was really excited about how amazing a fit the Zymergen team was for our near-term goals at Ginkgo when I gave my kickoff presentation to that team out in Emeryville a few weeks back.

As a quick reminder, the biggest difference between sort of the 2 companies, between Zymergen and Ginkgo, where we're approaching the world was Zymergen was going out with a product business model. And Ginkgo, as I mentioned, had a B2B services business model. But underneath, we're really both building strong horizontal technology platforms. And this is a huge deal for how valuable this team and technology can be to enabling Ginkgo's 2023 goals.

It can happen very quickly because there is a ton of cultural overlap between the teams. And I was feeling that energy when I was out in Emeryville and interacting with the teams there. It was really exciting. So it's already been amazing to see how proactive the former Zymergen folks have been in finding ways to support the programs and technical plans that are ongoing at Ginkgo. I've seen material contributions from those teams already.

And this is just barely getting started, right? This was last month. It's really a huge win to have them onboard so quickly and now, oriented against our services business model at Ginkgo, and bringing the Zymergen team and technology expertise to our customers rather than just being applied to internal projects. It's a really big deal to have this happening now instead of next year, and I'm thrilled about it.

So it's also important to point out that Zymergen undertook significant stand-alone restructuring efforts prior to the closing. So to put these changes into context, Zymergen had over 750 folks in spring of 2021, ended last year with over 500 employees. So as you think about the OpEx we're taking on and compare it to Zymergen's historical OpEx, I do think it's important to understand just how much the Zymergen cost structure has changed since then.

You can categorize the folks who ultimately joined the Ginkgo team in 3 main buckets. The first is the automation and software team, which will become deeply integrated with Ginkgo, helping drive our core platform development. That sort of foundry and code base that we mentioned earlier.

The second bucket comprises Zymergen's remaining product teams, right? So those folks that were leveraging that platform to pursue products at Zymergen. We'll focus these teams towards the type of R&D partnerships with customers that you'd typically see Ginkgo enter into, and we're already seeing traction there. The ultimate size of this team will depend on the outcome of some strategic alternatives for some of the assets and ultimately, will fit into Ginkgo's program objectives for next year.

Finally, a number of G&A folks joined with the acquisition and will help us ensure a smooth transition as we integrate the companies. But ultimately, we expect over time that our combined G&A team will scale down as the level of integration of the companies increases. So the bottom line is this is a really transformational acquisition for us at Ginkgo, and we're thrilled to have the talented former Zymergen team on board so quickly. It's really exciting, and it's a gift to be working with that team.

Okay. So next, I want to talk about the importance of program additions as a metric. Because I think sometimes folks can sort of solely focus on near-term foundry fees, for programs and miss the bigger value we hope to see from downstream value share in our customers' products. All right?

So we'll have this in sort of 3 parts. So first, I want to talk a little bit about how we sell these new programs, okay? So program additions is a critical performance metric for Ginkgo. And our management team internally here is very, very focused on it. We're expecting to grow new programs by almost 80% year-over-year in 2022. So from the 31 Mark mentioned we had last year to this range of 55 to 60 this year, this is an awesome accomplishment by the team. I want to say that.

But as I mentioned earlier, I'd like to see us get to the high side of that range for the Ginkgo folks listening. In other words, to get to the 60 programs as that is a real value driver for the company. I know folks are closely watching on the analyst side kind of the biotech R&D spend outlook, in other words, how much are biotech companies spending on their R&D efforts in this market and what that could mean for 2023 during this earning seasons.

While we don't plan to provide any guidance today on 2023, I do want to make a couple of comments on our program outlook. So the first is we are in the very, very early innings of tapping our addressable customer base at Ginkgo, right? So many customers in, for example, biopharma are really hearing about us for the first time in our meetings with them over the last 6 months. For example, at the SITC meeting I mentioned earlier, you have folks who are, again, just learning that Ginkgo is even working in mammalian cells.

So in my opinion, we're sort of more insulated from total R&D budget because it's not like we've penetrated heavily. And so as that market moves, we move with it. Really, what's more important is how does our -- how does Ginkgo sales pipeline look, right? And what is -- and from my perspective, the customer demand there remains very strong. And I feel really good about our pipeline heading into 2023. We're not seeing any deceleration there as we exit the year.

Second, we are continuing to evolve how we sell our services. So as an example, one of the things we're hoping to do is to have some segment of our offerings be increasingly standardized from the customer perspective, in other words, more standard milestones and cost structure, standard IP terms and time lines. And the hope is this can start to speed our sales cycle. So in other words, reduce these cycles and sort of months of negotiating around some of these details.

And then importantly, on the backside, also lead to more efficient utilization of our platform. In other words, certain programs are we can get higher leverage from our automation and our foundry. It's great to do more of these. So a good example of this is in the enzyme space. And earlier in the call, I highlighted our new Merck collaboration. That's exactly the sort of more standardized offering I want to do more of this year and next year.

Okay. So that's how we're selling programs. Okay. Now every time we add a new program, I want to talk about how it adds both near term and then on the next slide, long-term value for Ginkgo. So first, in the near term, we got this virtuous cycle where each new program adds learnings to our code base, right, which is that sort of data and intellectual property and so on that we get reuse rights for as we do these projects with our customers. And that can help make future programs easier, okay, because of what we've learned from our past ones.

And importantly, it could also drive operational improvement in our foundry, right? Again, this is very similar. Think like a chip fab or a chemical plant, as the place gets bigger, the unit economics improve. And so physical scaling lowers our unit cost and increases as we increase our output. So as we add new programs, as a whole the foundry and code base, the platform gets better, which makes it easier to attract future customers. So that's one of the reasons we're sort of maniacal on driving the team to add new programs as we think it's fundamentally what makes the platform improve, which makes our lives easier in the future.

And then lastly, we generate upfront R&D fees from new programs. And that cash helps to derisk the resources we devote to serve our customers while we are building that code base and foundry scale. And so we spoke last quarter about our flexibility in structuring programs. So we can sort of adjust. It's a tight market. Maybe we want to have more upfront cost coverage in the new programs. It's a nice knob that we can turn. But I just want to highlight, even from a near-term perspective, it's only one of the sources of value we get when we sign up a new program.

Finally, I want to mention that when a new program is also tied to a new customer, like, for example, Merck or Lygos or recent new customer deals where we haven't been working with them before, that's extra value, right, because we have an approach where we can expand via inside sales with these customers in the future. It's not -- often not a one-and-done here. And so a good example of this is our expansion over the years with Givaudan and Bayer. And this land-and-expand activity is an easier sales cycle than onboarding a customer in the first place, right, because we have a have to build that relationship. And that's part of how we plan to build bigger program growth numbers in future years.

Okay. Finally and most importantly, I want to remind folks of the significant downstream optionality created by the increase in our new program additions, again, from 31 last year to over 55 that we're aiming for this year, and then the robust growth we anticipate again next year. Each new program brings an opportunity to share in the value of our customers' products in the form of royalties or equity or milestone payments.

So we get asked all the time, why isn't Ginkgo vertically integrate into final products? The TAM for end products in biotech is huge, and we would keep more of the economics, obviously, before sharing them with our partners. And our view is that we do still get a piece of that downstream exposure by sharing in this value with our customers while diversifying away from individual product risk, okay?

And importantly, it also means we get to build a much, much bigger platform than you could if you were just pursuing your own products. And the rapid growth in new programs creates many more shots on goal and increasingly diversify the exposure to end markets and products. I mean, at this point, we are in a pretty broad range of different end product markets from fragrances to gene therapy, right? And so I think that type of breadth, it does help diversify our risk.

Importantly, downstream value share carries essentially 100% incremental margins, and we believe it has the opportunity to be ultimately the most valuable part of our business. It is on a much longer time scale to realization than near-term foundry fees. This is one of the reasons I think people forget about it or sort of push it to the side. And I'm sympathetic to the challenge of modeling the exact timing and amounts of downstream value share, especially because these aren't our products.

And so at Ginkgo, we are often constrained by our customers in how much information we can share publicly with you all, even about what targets we're going after, right? Remember, this is essentially the R&D and product development pipeline at our customers. That's something that folks are rightly very protective of as they're picking competitively with their competitors in their market. So -- however, we're very confident in the upside generated by having this many shots on goal, and the TAM across that the biology products will ultimately be large.

So now that we're getting to a larger number of programs at Ginkgo, however, what I'd like to do is a better job of quantifying downstream value potential publicly. So for example, when we sign up like the 15 deals this quarter, how much value could it yield for Ginkgo in the long run, right? If we were successful technically and our customers were successful commercially, what could it be worth, right? And you'll still need to discount that for technical and commercial success, right, like think like you would for a therapeutic drug pipeline as an example. But I do think it will help folks to better understand the long-term value of program.

And if you -- in some cases, you can see the specific numbers already, right? So for example, on the slide here, we highlighted a few recent deals where we have been able to publicly announce specific potential milestones like the $144 million in the Merck deal or $115 million in Biogen or the $200 million per product for Selecta, right? But when customers don't want to share those specifics, which is often, I do think we can still work to share more aggregated information with you now that the number of programs is getting large enough at Ginkgo that it wouldn't disclose anything specific about a single customer's project. So we'll work to do more of that in the future.

Okay. So I want to wrap up with some thoughts on biosecurity. There's palpable momentum in this space. This fall alone, we saw several important White House initiatives prioritizing biosecurity. The U.S. government is clearly focused on it, and Ginkgo is very aligned with these priorities and is ready to help lead the future of this industry.

So how do you get it in your head? What would be the components of a long-term biosecurity infrastructure globally? So our first formal offering spurred by COVID was building a collection platform. So this is the infrastructure layer between specific collection activities and local labs that will run the lab analytics on the samples that are collected, okay? So COVID monitoring remains an important part of our business, but we're focused on helping drive more widespread surveillance and monitoring of biological risk in general.

So even our collection platform alone is now much broader than our pool COVID testing offering that was largely what was deployed in schools, but now includes all supportive entry testing, wastewater testing and other, both passive or proactive measures for monitoring. To that end, we've recently added several important modules to our platform, including our acquisition of the epidemiological data assets of Baktus.

The CDC recently started, including data from our airports program, in their variant tracker, and we recently hosted the Director of IARPA at Ginkgo for a press conference to announce the success of Ginkgo's NDAR program.

I want to just give a little more detail on this one because I think it's sort of indicative of what I think the direction biosecurity is headed in. So IARPA, if you don't know it, is sort of the intelligence communities' version of DARPA, right? So they launched a program -- they launched this program with sort of 6 or 7 performers, started several years ago before the pandemic. And as I mentioned actually before, Ginkgo has been involved in biosecurity pre-pandemic. It just was not at near our current scale. And that's, again, because we think it's an important complement so the technology is being built out here around programming cells. It's one of the ways we develop our platform with care is to sort of work to reduce the malicious uses of this technology.

So the goal of the program is to detect -- of this IARPA program is to detect if a sequence of DNA was genetically engineered. So imagine some white powder shows up at the Capitol building or a new viral variant shows up at JFK Airport in a screening program. And the question is, was this something that was deliberately engineered? Or is it naturally occurring? Did it come up from nature? Or was it deliberately engineered in the lab?

So in the program, we were given challenge samples of either engineered or non-engineered organisms. We were blinded to which ones they were. And our technology had to make a call on which it was. And I'm happy to report that we were one of the top performers, and we're seeing a lot of interest in this sort of technology in both the U.S. and internationally.

Dr. David Markowitz, IARPA's Program Manager for this program, noted on our recent press conference that they have had robust demand for all of the platforms from partners, not just in the United States, but in the usual partner countries that the U.S. intelligence community works with.

So this is the vision we've had that biosecurity is really distinct from diagnostics or therapeutics. So products like NDAR, so we call this sort of thing like a radar for engineered biology, are a great example of a pure-play biosecurity product, okay? It's not a diagnostic tool, right? Diagnostic tools don't need to know if a piece of DNA has been engineered or not. It's a pure-play biosecurity product, and expect to see more of those.

Okay. In the U.S., the government is increasingly prioritizing biosecurity and biodefense. Last quarter, we announced the new contract with the CDC to expand our traveler-based COVID-19 genomic surveillance program at certain U.S. airports. And since then, the Biden Administration has issued an executive order on the Bioeconomy and National Biodefense Plan, both. I was fortunate to be asked to speak at the summit about the EO at the White House in September. In the last 10 years of engaging with the U.S. government on both biosecurity and synthetic biology, this is by far the most progress I've seen for the field. It is a really exciting time not just for Ginkgo, but for everyone in synthetic biology and biosecurity.

While biosecurity is clearly important in the U.S., the reality is that biology does not respect borders. What is ultimately needed is global biosecurity infrastructure. And we are beginning to see that traction. In the second half of the year, so far Ginkgo has publicly announced that we signed MOUs with the government in Saudi Arabia and Rwanda. We're able to draw on our experience in helping collect and analyze data at ports of entry for the CDC in the U.S. and hope to expand this activity internationally.

So biosecurity was a nice place to end, I think, because our strategy and activities there really illustrate how we think about carrying at Ginkgo. So biology affects all of us, and specifically related to biosecurity, infectious diseases, as I said, do not respect borders. We think individuals deserve the most sophisticated surveillance and monitoring tools available to protect themselves and their families from pathogens, and we think that can happen by working with public health institutions around the world in every country.

We should invest in the world we all want to see exist. I've said this many times. And that is one from my perspective that would have a heck of a lot less infectious disease. And so I hope we're working towards that, and I'm happy to take your questions. Thank you.

Great. Thanks, Jason. We'll switch over to Q&A in a few moments. And as usual, I'll start with a question from the public. (Operator Instructions) Thanks all, and we'll be back in a moment.

Great. Welcome back, everybody. So as usual, I'll start with a question from the public. So this one is from Twitter, [Kira Kerser]. So Jason, going into Q4 and 2023, how is the mixture of new programs looking? Which sector are you seeing the most interest in? And also any update on how the agriculture pipeline is looking with the Bayer deal completed?

Yes. So I talked about this a little earlier, but I'm really excited about the momentum we're seeing in biopharma in particular. And again, just to highlight it, we've been building out infrastructure now for several years, and the fruits of that are starting to pay off in mammalian cell engineering in particular. So I was able to show some nice results around building large CAR libraries. We also have very interesting results on AAV vectors or gene therapy, capsid work and so on.

And so we are finally kind of getting those engagements. And I think the fact that we did these deals with large biopharmas, with Merck and with Novo Nordisk, in the last year also help to kind of validate -- we've been around the block with folks with that sort of high bar for working with an R&D partner in past. And so that helps us with new customers there, too. So I'm really, really excited to push more in that direction in 2023.

In ag, I mean the Bayer asset and team is just a unique asset in the space, frankly. So I think we're -- what's -- we just haven't had it like literally integrated with us until last month. And so I'm excited to get out in the market, have that team that's really been working in ag biologicals for -- some folks there pushing 20 years, out in the market talking to folks, coming up with new ideas, engaging with big ag and small ag companies. So I'm optimistic about it, but it's an asset we've just brought in, so we'll see how it goes in '23.

Okay. Thanks, Jason. Tejas, I'll call on you next, but I know that -- to give you time to prepare. Laurence Alexander, from Jefferies, wasn't able to join the call that sent one into our inbox asking about biosecurity. And specifically, what kind of revenue run rate would it take to kind of step up our level of investment and kind of staffing to support biosecurity more broadly?

Yes. So I think one of the things that's nice about how we built out -- and I talked a little bit about the different parts of the biosecurity kind of infrastructure, but on that collection and sort of like group monitoring testing that we built out for schools and we leverage some of which at the airports, is that, that is done with local laboratories doing the sort of COVID or other now disease screening and running those tests. And so we have the ability to kind of ramp that, both down and if things were to grow substantially up, quite easily without having major investments.

It's a little different if we're looking at some of the international work. So, a, we're going to build out similar infrastructure. We want to work with labs locally in those countries. But I do think we would -- if we had a big program developed in one of those countries, we're going to likely need to have some investment of folks on the ground there to complement those local labs. So we should need to build out sort of big capital investment infrastructure in those other sites. We really are counting on laboratories in-country to do that.

Great. Thanks. All right. Tejas, I've just opened your line. Go ahead. And Rahul, you'll be next.

Anna Marie, thanks for the heads up here as I tried to do some mental math. All right. So it looks like you're calling for about $70 million in foundry revenues in the fourth quarter, Jason. You noted that the pharma budget flush is not really a major dynamic for you at this stage. Can you just sort of like talk to what's driving your confidence in that number?

And then, Mark, if you can help us quantify the size of that first milestone that you've baked into the low end of the guide, I think that will help get us sort of a better sense of that quarter-over-quarter increase in the base relative to the $25 million here in the third quarter. And what exactly are we expecting for Bayer here in the fourth quarter as well?

Yes. And so I'll say just for a minute on the general R&D topic, and then I'll hand to Mark a little bit to speak to the specific numbers for this quarter -- or the upcoming quarters. So when it comes to the larger R&D spend. Again, the point I was just making is we're so early in terms of penetration like -- something like the remainder of the year is not really dependent on like macro effects in R&D. It's very much dependent on the specifics of the current programs we have in our pipeline.

And then even if I look to next year and I think about how many programs can we bring in and so on, that's also very specific to what our sales pipeline looks like, right? And right now, both of those, a, we have a good amount of visibility into what will happen just because we're getting near the end of the year; and then for next year, that I have good visibility into our sales pipeline. You never know over time, obviously, if things tightened up dramatically, but I still think we're really far from moving kind of with those macro trends in the R&D spending.

But Mark, do you want to speak a bit how we came to the numbers?

Yes. So Tejas, I'll bridge you to the low end of the guidance range of $150 million, which would imply Q4 revenue of $60 million just to make it a little bit easier. So roughly speaking, about half of that $60 million would -- we would expect to come from downstream value share. And most of that downstream value share is coming from the discrete event that we mentioned.

In the portion of the $60 million, the other half of the $60 million would then be foundry services, and there is a component of Bayer revenue in that. It's not a massive component, but there is a component of Bayer revenue in that. And the way to think about it is you could look at the Q3 number of $25 million, right, and just sort of assume that we'll get about that same amount of money kind of foundry services, give or take. And then you've got the Bayer acquisition on top of that. So...

Got it. That's actually super helpful. And then, Jason, back to you on your comments on the pipeline. Is there any color you can provide in terms of the new versus existing customer mix? What percent of those do you sort of like consider are "locked in" for '23?

And as we think about sort of hearing from other life science peers comments around folks being increasingly selective about where to place their bets or perhaps taking longer in terms of the sales cycle -- now I know you mentioned standardizing your contract structures as sort of compressing that -- your own sales cycle. But any color you can share on that dynamic would be helpful.

Yes. Happy to, yes. So just in terms of sort of inside-outside sales. We don't have any sort of specific numbers to disclose there for next year. But I would say, I'll just point out, we have more customers on the platform than we did at the start of '22. So our ability to do inside sales has improved, right? So that's something I'm very excited about.

Because part of what we're negotiating is the IP terms, and there's just a lot to how we engage with customers that we've already gotten through once somebody is on the platform. And then it's really more of a discussion with their R&D team, right? Are they interested in a new area and so on. But a lot of the commercial guts of negotiation has been done.

And so inside sales is just faster, right? There, it's a little more of like a customer appetite thing. When it comes to selling externally, yes, I mean, I'm cautiously optimistic that we can -- like I mentioned the Merck deal and like is kind of work we're doing in enzymes, we can make that more standardized. That will also help, just by the way, in terms of the capacity out of the foundry as well, right?

If we can make our -- the work we're doing more standard, it allows us also to do more of that work. And so -- because we got to solve both sides. We need to both -- we want to increase our demand next year, be able to bring in more programs. Obviously, we've grown our sales team, but like just generally making that have less friction. But then we also want to make sure as we're scaling our infrastructure, it can support all those additional programs. And so the standardization helps on both sides of that.

Thanks, Tejas. Rahul, I've just opened your line. And Matt Sykes, you'll be next.

Can you hear me okay?

Yes.

Yes.

So Jason, it's terrific to hear that you plan to report an aggregate value on the collective set of new projects onboarded. And so I wanted to ask then, now that the Zymergen and Bayer acquisitions have closed and balancing the fact that you've really specifically highlighted biopharma a lot this quarter, can you give us a sense for the balance or stratification of projects, so ag bio versus consumer versus pharma, going into 2023?

And again, because you've spent so much time commenting on biopharma, is this specifically a space that you see providing the highest present value per project onboarded within the aggregate number you plan to report?

Yes. Okay. So let me unpack a bit of that. So one point I think we should have that split of like ongoing programs, I think, is in the slides. So I don't want to get the numbers wrong, but you should be able to find that there in terms of what we're currently working on.

The -- and then the second part of your question was around the -- remind me, it was the...

So the balance of project stratification and also the relative value of win and its prospectus.

Right. Right. Okay. So the challenge with -- so what would we like to do on the downstream value share? So the first point is we would like people to know that it exists, okay, right? So that's part of what we're doing here because we're signing up lots and lots of programs. These programs have -- they could have between a 6-month and a 2-year time line, right? So the time for us to harvest back that down to value share is always -- we're always going to have more of it in front of us, right? It's just kind of the nature of the business. And so one of the reasons we want to talk about it is just for like awareness, right?

So the next question is, how do you value it, right? And so I think the trick when it comes to looking at different markets is if you were to look at the expected value, you have -- you then get to factor in the likelihood of success, the time to market, blah, blah, blah. And so if you look at something like a food or like, say, a fragrance or a materials product or regulatory, for example, dramatically less risky compared to a therapeutic product, right?

Now -- but then the value, also different, right? And so we're not going to try to do that. Again, we're not able to break out individual products. I'm not going to be able to say, "Well, this one, we think, has an expected value of this based on what we think is the likelihood of success on regulatory or anything like that."

What I would like to get to -- and again, we haven't done this yet, but would just be able to communicate what's the potential, right, just so people have a sense of a ballpark of that. I would like to get there. And I think part of the reason we couldn't do it before was the number of programs was smaller, and it was a little bit dicey what we'd be kind of sharing. But now as we're getting more, I think aggregate numbers are more doable.

But I won't be able to give you, hey, here's my expected value on this. A, often, I don't have the information from even at a customer level. It's tough. It would be a swing, but certainly, it's hard for me to communicate it to you.

Terrific. That's really helpful. And even just the aggregate numbers certainly will be helpful going forward.

We'll do our best. Yes.

Thanks, Rahul. All right. Matt Sykes, I've opened your line. And Steve Mah, you'll be next.

Can you guys hear me?

Yes.

Yes.

Maybe just first part, and then I have a follow-up. Just, Mark, just want to confirm it, based on your comments, it sounds like there wasn't any Bayer revenue recognized in the third quarter, given your comments about the base-to-base from Q3 to Q4. So I just want to confirm that. And...

Yes. Correct.

Okay. Great. And then secondly, I don't know, maybe for you, Anna Marie, or others on just the M&A. Just given the volume of M&A that you've done, what has been the sort of the strategy in sort of institutionalizing the integration of those companies because it's obviously a lot to do at one time, but just would love to hear how you're thinking about that integration to make sure that it goes fairly smoothly.

Yes. This is definitely where I'm spending most of my time right now, so I can speak to it. I think overall, integrations are going really well. And as Jason mentioned, really excited to be able to get an earlier start with Zymergen.

One thing that's important to understand is that most of the transactions that we've done are really quite small companies that do fit nicely within our existing teams. So it's actually much less of a whole company integration effort and much more a team that's kind of getting integrated into the foundry, into even a portion of our foundry. And so those tend to go pretty quickly.

Bayer and Zymergen closing the same week was obviously a big lift for the team. And so I will reiterate what I've told the team internally a lot, which is thank you to all of our Bioworkers who are listening. But they're also quite different businesses, and we're very grateful to have the Zymergen team and a full support team there that is helping us integrate those assets.

Bayer in some ways is much harder because it was a carve-out. And so we had to rebuild much of the support infrastructure, everything from procurement to HR in that organization. But the good news there is that we've been working on that transaction for a much longer time, and the close process there took longer given, candidly, the complexity. And so we went into that with a lot of groundwork already covered.

So certainly a lot of work, but integrations are going well. And I would say it'll probably be a while before we do something of that size so that the team does have the opportunity to get those kind of up and running more sustainably going forward.

The only thing I'd add, I don't sell a team -- I do think we now have built the muscle that's going to enable it -- enable us to do integrations much more easily in the future. And so we won't be afraid to flex that if an opportunity comes along.

Got it. And then, Jason, one for you kind of high level, but just you talked about learnings in the platform. But I'm just curious, how have you learned -- when you're signing on new customers, how have you learned what helps achieve success in realizing that downstream value? Meaning can you help accelerate the realization of downstream value by applying what you've learned from past programs, whether they be successes or failures?

I mean you want to have a lot of shots on goal, but you want to improve the accuracy of those shots. And does that inform how you toggle the upfront fees for maybe programs that you might not feel has as great of a downstream value success as others? And how have you kind of modified that over time, over the course of this year?

Great. Yes. So short answer is, yes, the code base makes it more feasible for us to succeed at downstream value share. No, we don't try to be overly clever about how to structure the deals. And so let me unpack each of them.

So we break our platform into 2 pieces: the foundry, physical infrastructure, automation, reduced cost of lab work with scale and then the code base, which is sort of what you're talking about the data and learnings from previous projects that essentially save you work in the lab, right? Like the perfect project, as you come in, you ask for something that I have so much learning about that I design one cell and I hand it to you, right? It is very fast. It requires no cost. And what you're really banking on is all my previous knowledge. That's an extremely high-margin project for me. You're thrilled about it. You get results quickly. So absolutely. So that is the direction we want to take things.

Now in terms of how we price to customers, much more about what is of interest to the customer today, right? Because my prime driver, and I'm a broken record about this, program counts, right? I want more programs on the platform. I think it's what validates our entire business model of being a platform company, doing services across all these different markets. That is shown in new customers, in particular signing up, but really on new programs on the platform broadly.

And so I don't -- I want to make that as easy as possible. So if I have a certain customer who's got a lot of sensitivity to royalty and less sensitivity of fees, fine, right? If it's the reverse, also fine, right? And I want to make sure we have the margin of safety as a company to allow me to have that flexibility.

And then I watch it. We report on our cash balance. It's important to us. We're careful with it. But I want to have that so that I can ultimately make it as easy as possible for customers to come on the platform. Does that make sense? I could imagine maybe someday we really had better miles, but I'm not trying to handicap that risk. I'm really focused on just getting customers on platform.

All right. Thank you, Matt. All right, Steve, I've opened your line. And Madelyn, you'll be next. All right. You may need to unmute. We have lost Steve. We'll come back to you, Steve. Madelyn...

Can you hear me?

There you are. Okay. Yes, go for it.

Sorry about that. Just one follow-up question on Matt's question about deal structuring...

That was entirely my fault. I'm going to open you back up. After 2 years of doing...

Too much power now.

I have too much power.

Can you hear me now?

Yes.

Okay. Just a follow-up question on Matt's question about the deal structuring. I know you guys -- there are different levers for you to pull. But given the macro environment, are you seeing or are you expecting a slowing of upfront R&D licensing or foundry fees going forward and having them -- having the deal structures be more back-end weighted? And did that impact the Q3 foundry revenues? Or was that year-over-year decline primarily due to the Cronos milestone realized in third quarter 2021?

Yes. The year-over-year decline is definitely the Cronos milestone. The -- and then I'd say, generally, a lot of foundry fee ramping has to do with kind of getting programs started and sort of less spend at the beginning as part of it. Remind me the beginning of your question one more time. I lost it.

No. No, the lever of being more back-end weighted versus upfront weighted given the macro environment?

Yes. It -- so far, it's not been like that. It tends a lot more to do with like the type of company we're dealing with more than anything, right? Like bigger pharma companies prefer to pay more upfront and less on the back end. Smaller start-ups that are more cash-sensitive prefer the reverse, right? I think that's still probably the dominant thing we see, rather than some bigger macro issue.

And I could even see in a more flushed environment that trend more or less staying the same. So -- and again, like I said, for now, I'm mostly focused on getting people on the platform. We end up with a decent mix. I do want to bring in -- I think it's been, like I said earlier, like getting these kind of blue-chip biopharmas on the platform in the last year is helping us then sell into that category.

Same goes for the start-ups, by the way, right? If we don't bring in -- it's been great in the sort of industrial biotech sector, folks like Lygos and Bolt coming on the platform. That's -- people look at -- earlier companies look at them. They're sort of leaders, have been around the block on the start-up side. That helps us bring other new earlier-stage companies on. So I need these folks -- I want to have a spread, but it's more for kind of sales purposes rather than some sort of macro driver.

Okay. Got it. And one on Zymergen. Now that that's closed, I'm not sure if you finalized your strategy, but Zymergen had a RAC automation offering that they were selling into third-party labs. Is it going to be something Ginkgo's going to continue to sell? Or is it Zymergen's automation capabilities just going to be integrated into the foundry?

So a lot will be integrated into the foundry. That's really the big strategic reason that we're excited about bringing that on. I talked about during the call earlier that I think the -- getting the Zymergen team and infrastructure pointed at 2023 Ginkgo R&D service targets is what I'm most excited about, particularly given how quickly this all happened. That said, they had a good pipeline of folks that we're talking to. So I do think there's some interesting things there, and we're going to be exploring that in the coming quarters.

Okay. Got it. And then last one for me on biosecurity. Given the risk of other respiratory viruses coming back this upcoming flu season, on biosecurity, are you guys currently doing combination tests such as COVID with RSV, COVID with flu A&B, et cetera?

I don't know what we've announced publicly. Do you Anna Marie?

I think we might have to get back to you on that.

Yes. Let's get back to you of that. Yes.

All right. Hopefully, I'll do this right this time, Madeline. I'm opening your line. You should be able to state now.

I would say that is absolutely what we want to have happened right? Like from our standpoint, like all these things we're building out in that infrastructure like collections at airports, why isn't that a great place to look for flu variants? Every year, we have to figure out what the new flu variant is going to be. Where do you think it shows up first, right? Not at hospitals. It shows up at airports first, right?

So if you want to add a few weeks to being able to predict flu variants, collect where people are, collect at international airport, yes, right? Like this is -- anyway, I'm a broken record on this, but having visibility into infectious disease post COVID globally feels like a no-brainer. It's just we are collectively too exposed.

And certainly in the U.S., it would be crazy not to do it in my opinion. And I think you're seeing that with the executive order and things like that. You're -- there's awareness of this. So I'm hopeful that we will end up having that sort of monitoring way more pervasive than we did pre-COVID. Sorry, didn't mean to interrupt.

Thanks, Jason. Go ahead, Madelyn.

This is Madeline on for Matt Larew from William Blair. Just a quick one for me. As you integrate the Zymergen deal in particular, but also the Bayer deal, can you give us any color on what your cash burn profile is going to look like going forward? I know you mentioned that the Zymergen capital structure is very different than it was a year ago, but any information you can give on that would be great.

Yes. Mark, do you want to...

Yes. Yes. So in Q4, what you'll see with the sort of combined effect of Zymergen and Bayer is, like just directionally speaking, just a round number of, call it, $50 million of additional OpEx. That includes D&A, so that's noncash, obviously. That also includes a bunch of transition costs like the G&A support, for example, that will eventually phase out during the course of 2023. So that cash burn decreases.

That number does not include onetime costs related to the acquisition. Some of that was paid at closing. Some of that will be paid during the course of Q4 or even a little bit beyond that. The cash that we inherit at closing for Zymergen in effect is able to very significantly mitigate all of this. And on the Bayer side, the cash that we get from the revenue collaboration also very significantly mitigates the burn that we inherit on the Bayer side of things. So that's sort of the profile that you're looking at.

Great. Thanks, Madelyn. And I think closing us out, we've got Mark Massaro from BTIG.

Can you hear me?

Yes.

Yes.

All right. Terrific. So I do want to ask about the foundry services revenue. I think you were operating at around $21 million to $26 million per quarter. This quarter came in a lot lower. So how should we think about revenue per program? And maybe walk through some of the drivers there. And recognizing that the macro certainly is pretty tough, I'm not sure we heard why the services revenue was down in the quarter.

So -- yes. So Mark, let me clarify. Why are you saying services revenue was down? It was $25 million, which is consistent with what you've been seeing over the past few quarters.

The foundry revenue ex milestones.

Yes. Which was approximately $25 million this quarter because we didn't have any material milestones land in this particular quarter.

Okay. Understood.

Your question is still good about revenue per program. I can speak to that, but Mark go ahead.

Yes. Yes, the revenue -- yes, so the revenue per program -- so the foundry services revenue this quarter is approximately $25 million, and that does not include any major milestones. So it is about in line with what we've seen in the prior quarters.

The revenue per program number is down, as you pointed out, and that's largely because we added 15 new programs in the quarter. But we see almost no revenue contribution from those 15 programs in the current quarter. So it will take some time for those programs to ramp up. So you're just seeing the math there work out in a way that the revenue per program looks lower. And that's just because it was our largest-ever new program add for a quarter and almost no top line contribution in the quarter from that. So does that -- yes, so Mark, does that answer the core of your question?

Yes. Yes, that's helpful. And then I know you've received this question a few times tonight, questions about the uncertainties related to life sciences funding. Can you just give us a sense for -- obviously, you do have some larger pharma companies in your portfolio as customers. But just give us a sense for some of the more emerging companies, what you're seeing in terms of funding dynamics. And how should that factor into how we think about new program wins in 2023?

Yes. So yes, what I would say there is I think we are, again, a little bit a broken record, but I think we're early penetration on that, right? We don't have that all that many small biopharmas on the platform today, right? We have a few. We've talked about like Selecta and others.

But -- so I think in large part, it's still more of a -- does Ginkgo have relevant infrastructure for you? Yes, we can do deals versus like a like a macro slowdown if we already had relationships with many small biopharmas, right? It's just an area that's one of the later markets for Ginkgo to move into. So we have a little more insulation there, just kind of the nature of it from my standpoint.

So I don't -- again, I would say, based on our sales pipeline, I don't feel like a big threat from that shift for Ginkgo in particular. And that doesn't mean that, that is not happening in the wider market.

And I do want to add one extra piece of color to just what Mark said about the program revenue. Keep in mind, with -- like I said earlier, with the code base, a perfect deal for Ginkgo would be, I do almost no work and I give you what you want, right, because I've learned enough that I'm actually saving lab work for a given project.

Now you might then come to me and ask for a more sophisticated project. That's what I'm expecting. As I get better at doing what was hard 2 years ago becomes easy, you're suddenly going to ask me for something more valuable to you that's harder, right? And that follows the same trend you would have seen with like compute, right? Like when compute was expensive, like this was a hard project, but then it gets cheaper and it's easy. But people come up with new things to do with compute. We expect kind of a similar drive for people to keep asking us difficult things. But easy programs should actually start to take less effort. And if we're -- and for the fees part of it, it means less fees, right?

Now it means I'll get the downstream value share with higher probability and do the programs faster, and so I'll make more on the downstream. But there'll be an interesting dynamic as we try to actually standardize and make programs simpler for customers where it could drive fee revenue down, but hopefully, expected value of downstream value share up or certainly at least over a window of time drive it up. So we will aggressively try to make that happen.

So I do want to just highlight that that's an interesting dynamic that makes the program -- the fees per program kind of -- just provide some extra thought. But does that make sense?

It does. It does. And then just last one for me on Zymergen. Obviously, you're looking to rationalize real estate and exploring strategic alternatives on the product side. What other sort of key strategic initiatives or milestones should we think about that business through the next 12 months? And how can we think about that as maybe a transition year? Or do you think there are opportunities that are significant?

It's such a great fit. Like -- and I spoke to a Zymergen call listening today, right? Like I think the team there can plug right the heck into what we're trying to pull off at Ginkgo in 2023 for our targets, right? Like that -- it's just they think like we do or the team that historically at Ginkgo has thought, and it's a cultural fit. So actually -- I'm actually pretty bullish that a lot of that contributions will come quite quick on the Zymergen side.

Again, there are these sort of longer-cycle things, where we can -- they have certain product assets we'd like to partner or sell or things like that. That's fine. But my expectation is they help us hit our numbers, program numbers and scaling targets. So yes, I think it's great. It's really nice. And we're thrilled to have that team coming on.

All right. Thank you all. I don't see any other questions on the line. So maybe, Jason, I don't know if you have any closing thoughts, just to wrap up the night so then we'll let folks get on with their evening.

No. I think we -- a good coverage of everything. I appreciate all the good questions, and thanks, everyone, for spending the time with us.

All right. Thanks all.