Calling its business model “hocus-pocus” and “a colossal scam,” activist short seller firm Scorpion Capital has stung Ginkgo Bioworks. The synthetic biology company went public less than a month ago through a $1.6 billion special purpose acquisition company deal, which bestowed upon it a $23 billion market cap.
Though it has promised the ability to harness living organisms to produce a range of industrial and biopharmaceutical chemicals through genetic editing, Scorpion said Ginkgo’s methods differ little from decades-old practices used to engineer yeast strains to manufacture food flavorings, fragrances, drug ingredients and more.
In addition, the short seller said the majority of the company’s current income is based on “a dubious shell game” made up of customers that Ginkgo itself helped create and invested in, sending its money on a round-trip journey back into Ginkgo’s accounts.
In about an hour following the publication of Scorpion’s 175-page report, Ginkgo’s stock price dropped at least 20%, down to about $9.50 a share. The report includes statements from current and former Ginkgo employees as well as others at connected companies. Ginkgo is currently trading at about $10.
“Based on interviews with its related-party ‘customers,’ we believe that at least half of Ginkgo’s reported foundry revenue is phantom—that is, noncash and pure accounting hocus-pocus,” Scorpion wrote in its report, calling it a "hoax for the ages."
The firm said it spoke with a senior member of one of Ginkgo’s largest customers, linked to tens of millions of dollars in reported deferred revenue, who said it never paid Ginkgo cash for its R&D services and instead used “free credits” that were given following equity investments by Ginkgo and Viking Global Investors, one of Ginkgo’s largest backers.
In a statement to Fierce Medtech, Ginkgo CEO Jason Kelly said: "Our focus at Ginkgo is increasing the scale of our platform so we can deliver more cell programs to customers. We were doing that yesterday, we're doing it today, and we'll be doing it tomorrow. One thing the report today criticizes is that new startups are launching programs on Ginkgo’s platform and leveraging Ginkgo to secure capital, get resources, and launch their new company quickly. We don’t think that is a problem—starting a biotech company should be as easy as launching a website! We’re happy we make it easy for companies to start on Ginkgo’s platform and hopefully more entrepreneurs hear about our platform today.”
Ginkgo’s share price drop is another recent stumble for self-described synthetic biology companies: This past summer, Zymergen watched its stock drop by as much as 75% in one day after it disclosed severe setbacks in its commercial pipeline plus the departure of its CEO.
Like Ginkgo, Zymergen raised hundreds of millions with the promise of enlisting genetically engineered microbes to assemble materials from the molecule up for buyers in the electronics, agriculture and healthcare industries. That includes a thin, transparent film that the company hopes will serve as its lead product in electronic touchscreens and foldable smartphones—but one that has run into trouble as customers try to incorporate it into their tech products, erasing the company’s expectations of substantial revenue through next year.
The news came just months after Zymergen went public through a $500 million IPO. Co-founder Josh Hoffman stepped down as chief, while former Illumina CEO Jay Flatley was tapped to serve as acting CEO.
Ginkgo, meanwhile, claimed the surprisingly available NYSE ticker “DNA” through a SPAC deal announced this past May, backed by Soaring Eagle Acquisition Corp. and Bellco Capital, the venture firm led by ex-Kite Pharma CEO Arie Belldegrun, M.D., who also joined Ginkgo’s board of directors.
Editor's note: This story has been updated with a statement from Ginkgo Bioworks.