Last time I discussed Gingko Bioworks ($DNA) and how their absurd valuation over this past year was in part due to valuing them by their TAM (Total Addressable Market) on the assumption that they’d grow rapidly to meet it. Today I’d like to lay down exactly what Gingko does so that tomorrow I can discuss why I think they’ve been failing. Full disclosure: I’ll be writing this post assuming my audience is non-scientists, so if anything I write is obvious to you since you studied it yourself, feel free to skip ahead.

Gingko is in the industry of synthetic biology, which is just an application of genetic engineering. In synthetic biology, you manufacture biological things (proteins, cells, other molecules) in order to perform a specific job. The classic example of this is producing insulin for sale to diabetics. Prior to synthetic biology, insulin could only be procured from the living organisms that produced it, this was usually cows and pigs, who produce small amounts of it in their daily lives. Since the total amount of insulin you got from butchering a cow was tiny, the cost was astronomical. But insulin gets produced because it is coded for by a piece of DNA called a gene, and by cloning the gene for human insulin into a bacteria cell you can grow up huge colonies of those cells and extract the insulin from them instead. This revolutionized the development of insulin, and led to a steady reduction in prices to the point that today insulin can be purchased for just 25$ at Walmart. But how exactly does the cloning and gene editing work? And how does Ginkgo hope to make money off of it?

To start with we should understand the central dogma of Biology: DNA codes for RNA, RNA codes for proteins. If you give a cell a piece of DNA, it can make RNA based on that, and then make proteins based on that RNA. Since insulin is a small protein, producing it is relatively straight forward: insert a piece of DNA into the cell which codes for the RNA which codes for insulin, and in a relatively short amount of time the cell will use the DNA you gave it to produce the insulin you wanted. But of course first you have to get the DNA for insulin and put it into your cell, and these are no small problems!

So how do you put a piece of DNA into a cell and force the cell to make proteins off of it? Well to start with the DNA has to be readable and usable by the cell you’re going to put it into, for example if has to have the right kind of introns and exons or the cell won’t use it right. Most DNA contains both exons and introns, the exons are the parts that will actually code for a protein, the introns get removed through splicing and have their own special properties we’ll talk about some other day. The important part here is that bacteria do not participate in splicing and non-human eukaryotes (yeast cells, insect cells, non-human mammal cells) splice differently than humans do. If you want your DNA to actually code for insulin, you need to use only the exons and none of the introns and you also need to ensure the cell doesn’t try to splice away your exons anyway. Let’s also note that DNA won’t even be used by a cell if it doesn’t come with a promoter, a string of DNA at the beginning of a gene that tells the cell “please turn me into RNA.” Humans have different promoters in our genes than other organisms, so you’ll need to add a promoter that works for the cell type you’re using (bacteria, insect, yeast, mammalian). Then there’s the fact that DNA (really the RNA but let’s skip a step here) is read in 3-letter codes called codons. Each codon matches to a certain tRNA, and each tRNA comes with an amino acid attached. But not all tRNAs are created equal, some organism have more or less of a certain tRNA and so will create protein more or less efficiently if you give them certain codons. Codon optimization is another tool used for making sure your piece of DNA gets efficiently transcribed and translated into a protein by using the right codons in the right cells. All these factors (exons, promoters, codons) need to be altered so that your DNA can be used by the cell you are going to put it in.

OK, so you’ve altered your DNA a whole bunch so that it codes for insulin once it’s inside a cell. Now you just have to get it there. With bacteria the system is moderately simple, many bacteria have evolved mechanisms so that they will willingly pick up just about any piece of DNA they find when subjected to major stresses (heat, electrocution). So you zap some bacteria in a tube along with your DNA of interest and some of them will pick it up. Then if your DNA has a selection marker for antibiotic resistance and you grow them up on antibiotic plates, the ones that survive are the ones who picked up your DNA and can now be grown up to start making proteins. But that’s just bacteria, a lot of drugs would be better produced in higher-order eukaryotes because those organisms are more biochemically similar to us. Eukaryotes however have a nucleus that is a barrier to foreign DNA, so you have to be extra clever (sometimes using retroviruses or CRISPR) to get your DNA into a eukaryote and make them make your insulin. And that’s just for insulin, something we figured out decades ago! There’s always new proteins or modified versions of old proteins being tested as new drugs, and every single one of them goes through this process in order to be produced using synthetic biology.

Changing the sequence of DNA you’re using, removing the introns so it only has the exons, changing the promoter, optomizing the codons, getting the DNA into cells, all these are time consuming to do and validate. I won’t get into the specifics of how they’re done, but some low level researchers may work on just this in the lab for the entirety of their junior research career (before they get their own project). This is not a simple process, and is definitely an area where Ginkgo thinks they can make a splash. The problem is that they won’t be the first and only player, there are already a number of companies out there who will do this job for you. Academic labs generally don’t use those services because it’s too expensive, and private sector labs already have competitors to choose from besides Ginkgo Bioworks. There is definitely a market here, but it’s a competitive one.

But remember, this is still just about getting the cell to make a protein! We still then need to purify the protein out of those cells in order to sell it and use it! And this too is no small problem, the USA and other countries all have regulations requiring that drugs sold to consumers must meet certain standards of quality and purity, each batch must be identical so the drug will work the same way each time, and the drug must be at the highest possible purity so no contaminants can mask or alter its effect. So purifying the protein out of your cells is another problem that Ginkgo and other companies need to solve when they are doing synthetic biology. I’ll talk about purifying some other time but with how much I wrote above about just getting the right DNA into cells so that they can produce insulin, I hope you can appreciate that this is a long and involved process. This is the work that Ginkgo Bioworks wants to do, they want to do all this in exchange for money and take over the synthetic biology industry. But their business model is strange indeed, all this work (getting the right DNA, getting it into cells, producing protein, purifying protein) will be done in what they call the foundry and they want to run that part of the business at cost meaning it won’t run a profit and will sell its services for the lowest possible amount to remain breakeven. So how does Ginkgo expect to make a profit? Tune in next time where I explain the wonderful world of IP and revenue sharing, and how that is the part of their business that I think Ginkgo has failed at.