Breakingviews: Ginkgo’s $17.5 bln SPAC deal presupposes success

Ginkgo Bioworks is promising a future that’s grown rather than built. That is the story underlying the company’s $17.5 billion valuation in a deal with special purpose acquisition company Soaring Eagle Acquisition. Ginkgo engineers cells that help do tasks and has enormous potential in industries from plastics to cannabis. Bets on such innovative platforms can pay off, as pharmaceutical company Moderna’s success shows. But there are also plenty of duds, and the deal bakes little room for error.

Using biological products to make things like clothes detergent more effective isn’t new. But the company co-founded and run by Jason Kelly is improving rapidly through automation. Ginkgo says that annually the cost of designing a cell falls 50% and production capacity triples. Ginkgo also gets companies to pay for upfront research and development costs, and it estimates this revenue could exceed $1 billion by 2025. But royalties from commercial success are the real attraction for investors. Ginkgo says the potential market for bioengineered products could be as high as $4 trillion, a chunk of which Ginkgo could retain if its designs succeed.

It isn’t the only company that has gone public with a promise. Moderna listed shares in 2018, years before any projected profit from its mRNA technology. Investors valued it at a $7 billion valuation at the time. Backers talked about quickly creating scores of potential drugs, while skeptics pointed out its technology was unproven. Pandemic success has sent the shares about seven times higher.

Hyped platforms often hit snags though. Gene therapy where DNA changes fix inherited disease was promised for decades, but it hasn’t yet delivered. Bluebird bio’s stock, for example, has lost about 90% of its value since 2018. Other platforms, like those developing stem cells, have gone bust.

Success and valuation are different things as well. At the current price, Ginkgo is worth 100 times revenue. Moderna shows what is possible, but even so, Ginkgo is already valued 2.5 times higher than that company’s float price, and the pharmaceutical company helped solve a global pandemic.

The SPAC market has absorbed many speculative companies, making it an opportunity for Ginkgo. Still, its deal presupposes success.