After raising about nearly $1 billion over several financing rounds since its founding in 2013, Zymergen added more than a half-billion dollars to that total when it launched its successful initial public offering (IPO) last Thursday.
The excitement of the IPO—which valued Zymergen at more than $3 billion—had Zach Serber, PhD, chief science officer and co-founder, tossing and turning the night before, he told GEN Edge. “I went to bed early trying to get a good night’s sleep, but my mind kept spinning. I didn’t sleep much!” he said.
While not the largest biotech IPO ever (Zoetis raised $2.2 billion when it spun out of Pfizer in 2013), or even the largest IPO this year (Sana Biotechnology raised $626.6 million in February), Zymergen’s initial offering is the largest among present-day synthetic biology (synbio) companies.
“It has been a very busy, exciting day. A wonderful day,” Serber added. (The stock trades on NASDAQ under the symbol ZY.)
Zymergen’s net proceeds from the $575 million IPO, which closed on Monday, are estimated to be $529.6 million since underwriters exercised in full their option to buy additional shares. It’s a reflection of investors’ growing attraction to the synbio field—and, Zymergen adds, to its innovative manufacturing approach, which the company calls “biofacturing.”
That approach integrates molecular biology, chemistry, materials science, lab automation systems, software applications, unique databases, and machine learning algorithms into a three-step process:
- Design Product—identifying and creating novel biomolecules that are the basis of new materials with engineered characteristics possessing improved performance compared to in-market products. Zymergen estimates this step can be accomplished in 1–2 years at a cost of approximately $5 million;
- Create Microbe—inserting genes into a host microbe that produces the desired biomolecules over about a year, at $5 million;
- Scale Production—developing and scaling up a production process including optimizing the microbe to produce biomolecules economically at scale while retaining product functionality, leading to commercialization at attractive margins—three years at about $40 million.
Headquartered in Emeryville, CA, Zymergen aims to launch its products in about half the time and a tenth of the cost incurred by traditional chemical and materials companies. The company derives its estimate from the reported 10 years and $500 million spent by DuPont to develop Kevlar®, the synthetic fiber used in ballistic body armor, PPE, and other applications.
“We feel that our platform is ready for prime time,” Serber said. “Our tech has been in development for a number of years and has proven itself chiefly through the launch of our first product. Our pipeline is currently very strong and growing. These were the ingredients for the IPO.”
“But then we also realized that both biotech and manufacturing enterprises are capital intensive. Going public gives us access to additional sources of capital and liquidity, also for our investors. And our management, together with our board, decided now was the right time.”
The timing of the IPO, Serber insisted, was not driven by industry chatter about other synbio companies racing to go public soon—especially Ginkgo Bioworks, which has raised a total $797.8 million in financing according to Crunchbase. Ginkgo and Zymergen “have embraced the power of computational biology to take the guesswork out of synthetic biology and drive this young industry into the mainstream,” GEN reported last year.
On April 9, Bloomberg News reported that Ginkgo was considering going public through a potentially $20 billion merger with a special purpose acquisition company (SPAC) called Soaring Eagle Acquisition Corp. Ginkgo and Soaring Eagle have declined to comment.
“People make a lot of the Zymergen-Ginkgo supposed rivalry, and I honestly think it’s an artifact of storytelling,” Serber said. “Zymergen and Ginkgo are in different businesses. We don’t run into Ginkgo in discussions with customers, or in the markets in products we intend to launch. We are a product company. We are developing breakthrough products, all the way from novel molecule identification, all the way through the later stages of product formulation and development and selling it to customers.”
Zymergen brought to market its first offering—the transparent polyimide film Hyaline—in December, beginning a product qualification process with customers that is expected to take 6 to 18 months. Hyaline was launched with a non-fermentation-produced biomolecule sourced outside the company, but Zymergen said it expects by next year to finish converting its production process to a fermentation-produced molecule.
Hyaline was created with development partner Sumitomo Chemical, which accounted for most of the $1.3 million increase in collaboration revenue recorded by Zymergen last year vs. 2019—$3.49 million compared with $2.18 million.
Zymergen won’t reveal how many customers have bought Hyaline or name any of them. However, the company disclosed that Hyaline generated its first product revenue late last year—$2,000 from sales of samples to prospective customers.
“We have product in many customers’ hands at this point, doing advanced-stage certification of our material, and we have high hopes to have much higher revenue by the end of 2021,” Serber said.
Some information on customers and projected product revenue may emerge when the company holds its first-quarter earnings call, the date of which has not been announced. “Our focus at the moment is arriving at market traction and showing revenue and its growth,” Serber added.
Zymergen’s total revenue shrunk 14% last year, to $13.28 million from $15.42 million in 2019, mostly from contracts ending or shrinking ($3.9 million), the absence of a $3-million contract strain delivery requirement fulfilled in 2019; an $800,000 reduction in requirements under its contract with the U.S. Defense Advanced Research Projects Agency (DARPA); and a temporary shutdown of its labs due to COVID-19 ($300,000).
The company generated $2.3 million from new contracts, a $1.2 million contract performance bonus, and $1 million from acquiring ultra-high throughput microbial screening platform developer EnEvolv for an undisclosed price. Approximately 46% of Zymergen’s total revenue came from the U.S., about 36% from Japan, and approximately 18% from Europe.
R&D and other expenses have continued rising, with the company recording a net loss of $262.19 million in 2020, up from $236.8 million the previous year. Zymergen’s accumulated deficit grew 51%, to $773.74 million from $511.55 million.
First in a franchise
Envisioned as the first in a franchise of optical films for electronics companies, Hyaline is designed for use in display touch sensors in personal devices and other uses, with applications that include foldable touchscreens and high density flexible printed circuits. Zymergen estimates that the display market alone for Hyaline was more than $1 billion in 2020.
In addition to rolling out Hyaline, Zymergen is developing a pipeline of 10 products in three segments—three products in electronics (the largest market opportunity at $59 billion), four with consumer-care applications ($44 billion), and three in agriculture ($47 billion).
The company’s most advanced agricultural effort involves developing a microbial alternative to synthetic nitrogen fertilizer (ZYM0301), in order to improve crop nutrient uptake for significant markets that include corn and wheat. Zymergen says it plans to develop that product with a development partner. Zymergen is also working with another partner on natural pesticides (ZYM0302) and working alone on a herbicide designed to help potato and tomato growers better manage weeds (ZYM0303).
Zymergen bolstered its agricultural R&D in August when it launched a partnership with FMC aimed at developing crop protection solutions. The companies agreed to use Zymergen’s proprietary library of more than 1 million gene clusters—the world’s largest metagenomic database, according to the company—and its fermentation capabilities and bioinformatics experience to discover and produce sustainable molecules by targeting biochemical processes specific to known pests, and scaling the production process for viable natural product gene clusters.
Of Zymergen’s 10 pipeline products, the next three planned to reach the market are:
- ZYM0107, the second optical films product and a high-performance optical film like Hyaline, set for launch in 2022.
- ZYM0201, a naturally derived non-DEET insect repellent consumer product expected to launch in 2023. Zymergen estimates that the global market for insect repellents is more than $1.5 billion across sprays and other traditional formats.
- ZYM0101, a third optical film, also expected to launch in 2023. ZYM0101 is designed for use in foldable and rollable phones and personal devices, as insulation for antennas to deliver 5G data speeds and as a coating for transparent monitors.
To develop ZYM0101, Zymergen biochemists searched approximately 75,000 biomolecules in the company’s database, finding scores of molecules with high potential, each honed through hundreds of millions of years of natural evolution. The company’s chemists synthesized small amounts of each candidate, testing more than 900 formulations over two years before engineers created a microbe to produce the biomolecule. Zymergen’s databases identified approximately 120,000 variations of decarboxylases, while its machine learning algorithms selected 863 of them that were built using robots, then tested in microbes.
In consumer care, Zymergen’s pipeline consists of ZYM0201 and three earlier-stage programs to develop a naturally derived UV protectant (ZYM0205), a bio-based sustainable film former (ZYM0206), and an undisclosed program (ZYM0207). And in electronics, Zymergen is developing a bio-based epoxy adhesive intended for components assembly in smartphones (ZYM0103).
“We expect our biofacturing platform to be an engine of innovation and revenue generation, as we seek to develop new products in the same or adjacent sectors,” Zymergen in its IPO prospectus. “We are also pursuing new markets for future growth.”
Exploring drug discovery
Among those new markets is drug discovery. Zymergen is in early stages to develop multiple therapeutics for indications that include oncology and infectious diseases—therapeutic areas where the company says its fermentation process has yielded better results compared to other indications.
“This is an area where we have dipped our toe, and we are exploring,” Serber said. “One of the pillars of our platform is a large collection of metagenomic DNA that we have extracted from handfuls of soil. All the microbes that live within the soil represent huge biodiversity, and much of it is hard to study, because you can’t cultivate it in a laboratory.”
“We simply extracted the DNA and sequenced it, and with that data and that DNA, we have access to huge enzymatic diversity that allows us to produce interesting molecules, including many antibiotics or drug-like molecules that have impact on both bacterial biology, but also potentially human biology.
Pharma is among 20 separate industries with a combined $1.2 trillion in market opportunity that Zymergen reasons can be disrupted by its biofacturing tech platform. The company says its goals are to dramatically reduce time to clinical trials, then increase the efficiency and speed of manufacturing.
“I’m challenged to think of a sector of our economy that will not be impacted by biofacturing. Frankly, any place that you employ atoms, where there’s actual material at stake, can be impacted by biofacturing,” Serber asserted.
“What we have done is simply look at those sectors that use materials as a guidance as to where biology could come to substitute for what we currently get out of the ground through petroleum synthesis. Pharma is no different,” Serber said. “We expect that we can make a big impact there, but it would be premature for me to say more.”
Other emerging areas where Zymergen has worked to develop products include food (alternative proteins and novel ingredients) and packaging (alternatives to plastic). “We expect to announce partnerships and new product development milestones across areas as diverse as food proteins, healthcare consumables, animal nutrition and health, natural resource extraction or remediation, packaging, and many more,” Zymergen stated in its prospectus.
Zymergen’s IPO raised $500 million in gross proceeds as the company sold 16.13 million shares on the Nasdaq at $31 per share—the top of its pricing range of $28–$31.
The share price peaked last Thursday at $41.15 before dipping to a first-day close of $37.65, then rising again to $39.88 at Friday’s close—about 29% above its IPO price.
Underwriters retain a 30-day option to purchase an additional 2,419,500 shares at the IPO price. J.P. Morgan and Goldman Sachs are lead book-running managers for the IPO. BofA Securities, Cowen, and UBS Investment Bank are book-running managers, while Lazard serves as co-manager
Zymergen went public seven months after raising $300 million in Series D financing. The Series D—which raised the company’s total financing to $874 million—was intended to accelerate development of Hyaline and other products. Zymergen previously raised a $400-million Series C financing in 2018, a $130 million Series B two years earlier, and a $42.1 million Series A in 2015, a year after attracting $2 million in seed funding.
“The next big thing”
Synbio companies raised an eye-popping $4.6 billion in venture capital during the first quarter of 2021—more than five times the $905 million raised in Q1 2020, according to SynBioBeta, a community of professionals within the fast-growing segment. The growth of investment last year helped make synbio one of “Seven Biopharma Trends to Watch in 2021,” GEN observed in January.
“It’s the next programmable matter and it’s Silicon Valley investing in the next big thing, and the next exciting thing, and paying it forward to the next generation of entrepreneurs,” John Cumbers, PhD, SynBioBeta’s founder and CEO, said April 19 on “GEN Live”, GEN’s monthly Zoom-cast. “You’ve got a lot of tech entrepreneurs, like the founders of Twitter and Google and Facebook investing in synthetic biology startups and having venture funds that are backing these things.”
Key shareholders of Zymergen following the IPO include entities affiliated with SVF Excalibur (Cayman) Ltd., a subsidiary of the $100-billion SoftBank Vision Fund (27.1%), entities affiliated with DCVC’s Data Collective II LP (7.5%), DCVC Managing Partner Matthew Ocko (7.5%), entities affiliated with True Ventures IV LP (7.1%), Zymergen CEO Josh Hoffman (3.1%), and Serber (2.7%).
Zymergen said it will use net IPO proceeds primarily for working capital and other general corporate purposes, expected to include continued investment in commercializing existing products, launching pipeline products, and further developing its biofacturing platform and technology. Some proceeds may also go toward acquisitions or strategic investments in businesses, assets, or technologies.
Zymergen also plans to expand its workforce of over 750 people. Serber said: “We are using the proceeds in part to continue to improve our platform and expand our pipeline, and that will require more people.”
“We have a healthy number of biologists of various stripes at the company, but, in addition, we have chemical engineers, chemists, material scientists, automation engineers, and then a large number of software engineers, and data scientists, and fermentation engineers,” Serber said.
“Part of the joy of being the chief science officer is orchestrating the efforts of these groups and getting them to collaborate well, because a lot of value is created at the interface of these historically somewhat disparate and distinct disciplines.”