Is DNA a SPAC?

The stock market has seen major shifts over the past decade or so, as changing patterns of investment – combined with a constantly shifting world economy – drive money into new areas. This has given members of the general public – and holders of private equity – the chance to invest in new mechanisms and new industries.

 

Perhaps nowhere has the change been as rapid as the rise of the area of science and technology, and perhaps no company better epitomizes this change than the rapid rise of Ginkgo Biokworks, a made-to-order microbe company.

 

In September, Ginkgo Bioworks began trading on the NYSE as a SPAC. However, since that time, it has seen a major decline in its share price: As of this writing, its share price has fallen 47.54% since its IPO.

 

Here’s a look at Ginkgo Bioworks, its history as a SPAC, and what the future may hold for the stock. 

Ginkgo Bioworks bills itself as “the organism company.” The company was founded in 2009 with the goal of producing bacteria. That bacteria could be produced and customized on a made-to-order basis and had purposes that were ideal for commercial businesses, industry, and medical applications.

 

Ginkgo Bioworks saw immediate success, and prior to its SPAC merger, was regarded as one of the largest privately-held biological companies in the entire world.

 

On its webpage, Ginkgo Bioworks provocatively asks, “What if we could grow everything?” It is engaged in a slew of DNA-related activities, including “stain improvement,” “enzyme discovery,” “cell engineering,” and more. This is cutting-edge technology, and Ginkgo was able to position itself early as experts in this field. 

 

A SPAC is a Special Purpose Acquisition Company – also known as a “blank check company.” As the name implies, SPAC’s are formed for the explicit purpose of purchasing other companies or merging with existing companies. They have no operations beyond buying or merging with other businesses and essentially exist only as legal entities to facilitate these purposes. SPAC’s used to be relatively rare but exploded in popularity over the past few years. 

 

SPACs raise money in order to buy or merge with another company. They do this via offering private equity and an IPO. However, SPAC’s are not a literal blank check, and they don’t have an unlimited amount of time to operate: A SPAC has two years to make a purchase, or it must refund all of the money. 

 

Ginkgo Bioworks’ SPAC journey began with Soaring Eagle Acquisition Group, a fund created by Harry Sloan, the former CEO of MGM Studios.

 

Sloan is a regular in the SPAC world, and Soaring Eagle was his 7th such venture. The SPAC agreed to purchase Ginkgo Bioworks in September 2021, and the company had its IPO on the New York Stock Exchange on September 17, 2021.

 

It operated under the ticker “DNA” and its initial shares were quickly offered for a price of $11.15. 

 

DNA rose in the immediate aftermath of its IPO. On November 5, it hit its all-time high of $13.95 – but it’s been all downhill from there. While the stock is not quite at its all-time low, it’s reasonably close, and it stands closer to $5 per share at the time of research.

 

What happened? Well, a variety of pieces of bad news. A report by Scorpion Capital sparked a decline in October, attacking the company for being “heavily reliant on related parties” as part of their revenue-generating operations.

 

In other words, the report noted that the company’s future was essentially in the hands of others, and this report resulted in a 12% drop in value. 

 

Many of the issues with DNA are also tied directly to issues with SPAC’s in general. There have been a slew of lawsuits against SPAC organizations, with many objecting to the mergers that power SPAC’s to begin with.

 

Of course, that’s not all. There are also allegations that some SPAC’s have violated federal law by lying or omitting information on important documents. Other lawsuits allege that there are illegal conflicts of interest, that false statements were made that fraudulently misled investors or voting procedure laws.

 

A variety of law firms are actively soliciting Soaring Eagle Acquisition Group investors for the purpose of filing such a lawsuit, and it seems clear that the challenges which have impacted SPAC’s, in general, are affecting all related company’s – including DNA.

 

Despite these challenges, analysts that cover DNA have a good opinion of it: Four mark it as a Buy, one as Overweight, and one as a Hold, giving it an Overweight consensus.

 

Its 12-month price target is also strong, with a consensus of a $9.83 target price emerging. This would represent a solid gain for the biotech stock over the next twelve months.

 

The company remains strongly positioned to take advantage of the ongoing COVID-19 pandemic; it is actively engaged in PCR testing and has used this area to grow. Its 4th quarter revenues grew significantly in terms of year-over-year and quarter-over-quarter growth, and its 2021 revenues were 367% higher than its 2021 revenues.

The company also noted that the continued mitigation of the COVID-19 pandemic is helping to expand its industrial lines of revenue, creating demand for its products that had been previously suppressed thanks to the ongoing pandemic.

 

Real risks remain with DNA, as they do for virtually any stock – but particularly one in an industry as volatile as biotech. However, it does seem clear that DNA has a diverse array of operations that have positioned it well for future success – despite the issues that are haunting SPACs as a whole. 

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