Tuesday, April 16, 2024
Saturday, April 06, 2024
Ginkgo Aquires Seattle Biotech Modulus
A big fish eats a small fish to sustain life. With that in mind let's look at the latest acquisition of Modulus Therapeutics by Ginkgo Bioworks.
A common standard among publicly traded companies is that they must maintain a stock price above one dollar per share. If they drop below one dollar per share for 30 days they receive deficiency notice. From there they have a certain period of time to get their finances back up to compliance. Atossa Therapeutics, another Seattle based biotech (Cargo Cult), recently went through what Ginkgo may soon be facing. On September 26, 2023, Atossa was notified by Nasdaq that it was not in compliance because they failed to maintain a minimum closing bid price of $1.00 per share for 30 consecutive trading days. They were required to go 10 consecutive trading days over the $1.00 per share price, which they accomplished on March 14, 2024, almost 6 months later.
Ginkgo Bioworks is currently at $1.08 per share. Year-to-date they are down over 36% in spite of their acquisitions and new contracts. They recently announced a new contract award of up to $6M from the Defense Advanced Research Projects Agency (DARPA) to develop materials that control the physical properties of ice crystals. They also announced the acquisition of a Seattle based company Modulus Therapeutics which specializes in cell therapies for autoimmunity. What value did they add to the company? More than an "up to" $6M addition?
Modulus lists funding at $3.5M seed money. They were founded in 2020. They have 2 to 10 employees with 11 associated members. Is there an office and a laboratory? Do they lease space? How much of the $3.5M is left and what did Ginkgo pay for the acquisition?
In value investing one has to piece together a picture of a company and it's future earnings. With biotech start ups it is virtually impossible to crunch the numbers because start ups don't make money. They spend it. In order to assess the value, as Ginkgo did, you have to understand the science. We will assume that Ginkgo leadership can at least justify the acquisition by touting the science and it's potential. What we cannot do is assess how much the company was worth monetarily and what Ginkgo paid for it.
The CEO of Modulus said this about the acquisition:
"I'm excited to announce that Modulus Therapeutics has completed a transaction with Ginkgo Bioworks, Inc. that will further strengthen Ginkgo's presence in the cell therapy engineering arena."
Jason Kelly of Ginko Bioworks said this about the acquisition:
"Modulus Therapeutics has built an array of incredible cell therapy assets that we are excited to add into the significant cell therapy capabilities Ginkgo has developed to date."
Combined: Ginkgo and Modulus completed a transaction that added Modulus's cell therapy assets to Ginkgo's cell therapy assets. If you want to buy what Modulus used to sell, you have to pay Ginkgo. The question is, how well was Modulus doing? Was anybody buying and how will Ginkgo increase the value of the assets?
Ginkgo is nearing the $1.00 per share cutoff. They must add value to their company to add value to their share price. While Ginkgo has been acquiring small fish into their system they have not become a bigger fish. The share value has continued to go down. The acquisitions have not led to significant projects or sales to bolster their value. With one block buster partnership they could easily fight off the delisting threat. But for now they must continue throwing spaghetti at the wall and hope it will stick.
We can't write off scientific efforts. Somewhere within the walls of Atossa and Ginkgo lies science. Yet they do not make money. They will probably fail and no one will remember they we're here. How can it be with all of the PhDs/MDs and VCs? Something is missing. The science that exists is not being put to work properly.
We call these companies Cargo Cults because they operate in that space. Atossa has long struggled to remain listed on the Nasdaq. They have had FDA warnings. They have yet to summon the big metal birds onto their runway. But they still go to work and do things, important things like dealing with the FDA, SEC and NASDAQ. Ginkgo Bioworks do important and difficult things like acquiring companies and adding assets to their portfolio. They too have yet to demonstrate a cargo operation. When you spend more than you make, you are not in business for long. Unlike Atossa, Ginkgo may be too big to survive. In other words, they are unaware that they are in the Cargo Cult zone. Atossa seems to have a special skill in staying alive in spite of their dubious products and/or services. Ginkgo has spent too much on their CCS Airport.
Now it behooves me, of course to tell you what they're missing. But it would be just about as difficult to explain to the South Sea Islanders how they have to arrange things so that they get some wealth in their system. It is not something simple like telling them how to improve the shapes of the earphones...