Ginkgo Bioworks short explained (Scorpion Capital claiming fraud in review)

Part 1.

Ginkgo Bioworks: US biotech company founded in 2009. They genetically program and produce microorganisms such as bacteria (i.e. E. Coli) for industry applications (= "Synthetic Biology"). They went public by merging with a SPAC in 2021.

Scorpion Capital: Short seller with a relatively low profile except for sensationalist fraud/scam-reports led by Kir Kahlon (Chief Investment Officer).

Some Allegations by Scorpion against Ginkgo (NOT PROVEN - NOT MY OPINION):
1. Fake revenues or "related-party revenues": Create a new entity as a spin-off, invest in it and pay your company back with your investments from the spin-off while declaring them as revenues.
2. Interviews with customers hint at zero cash revenues and false accounting.
3. Employees were fired for not playing along with deceptive business practice.
4. Their technology does not deliver (i.e. some contacted customers said they "would never pay them").
5. They have no "magic" (i.e. their service is comparable to other CRO's and their software/hardware is commercially available).

Consequences: Stock went down by 24% but Ginkgo's lead investors bought the dip. Short sellers can be correct or can also manipulate the market (self-fulfilling prophecy). You be the judge.

Response: 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.”

Conclusion: If the allegations were to be correct then it would look bad for Ginkgo Bioworks. At this point, the short seller seems to be overly aggressive in their reporting and does not give any proof that can substantiate fraud claims (i.e. a whistleblower, a smoking gun) while Ginkgo Bioworks seems to have a highly skilled team, a promising technology and a great deal of support. In my opinion, Ginkgo Bioworks is legit. I am always a fan of highly technical founders and, even though they can still fail in such a risky industry, I am rooting for them.

Sources

Scorpion Capital Twitter Posts
https://twitter.com/scorpionfund/status/1445745813041266688?lang=en

Never Mind Ginkgo Bioworks' Drama -- This Synthetic Biology Stock Is Still a Buy
https://www.fool.com/investing/2021/10/13/never-mind-ginkgo-bioworks-drama-this-synthetic-bi/

Ginkgo Bioworks Called a Colossal Scam by Short Seller Scorpion Capital
https://www.swfinstitute.org/news/88777/ginkgo-bioworks-called-a-colossal-scam-by-short-seller-scorpion-capital

Ginkgo Bioworks 'a hoax for the ages,' says activist short seller firm
https://www.fiercebiotech.com/medtech/ginkgo-bioworks-suffers-short-attack-firm-calling-it-a-hoax-for-ages

Scorpion capital report on Ginkgo
https://scorpioncapital.s3.us-east-2.amazonaws.com/reports/DNA1.pdf

Interview with Tom Knight
https://www.fastcompany.com/3000760/tom-knight-godfather-synthetic-biology-how-learn-something-new

Tom Knight Biography from MIT literally says "Blah."
https://people.csail.mit.edu/tk/bio.html

Insulin production note
https://microbialcellfactories.biomedcentral.com/articles/10.1186/s12934-014-0141-0

Pitch Deck (May 2021)
https://www.ginkgobioworks.com/wp-content/uploads/2021/05/Ginkgo-Bioworks-Investor-Presentation-May-2021.pdf

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