As Biology Manufacturing Company Zymergen Implodes, Correspondence With SEC Showed Early Doubts
On Tuesday afternoon, synthetic biology manufacturing company Zymergen said its cofounder and CEO would be stepping down immediately and that the company, which just went public in April, would no longer expect product revenue for 2021 and also forecast “product revenue to be immaterial in 2022.” Zymergen’s stock dropped 69% in after-hours trading, shaving nearly $2.5 billion from its market value. Josh Hoffman, who co-founded Zymergen in 2013, will be replaced by Jay Flatley, the chairman of Zymergen’s board, as its interim CEO.
“We are disappointed by these developments, and the Board and management team are focused on resolving the underlying issues to ensure Zymergen moves forward as a stronger company with a compelling operating plan,” said Flatley in a press release. Flatley is well-equipped for the task: he led biotech giant Illumina as its CEO for seventeen years before stepping down in 2016. “The underlying promise of our business and technology is sound, and I am proud of the work our teams are doing across the organization. We are confident in Zymergen’s opportunities and prospects, although it will take longer to accomplish our goals than previously expected.” The company had attracted more than $1 billion from investors prior to its IPO from the likes of SoftBank, True Ventures and DCVC. At its initial public offering, the company raised $500 million, valuing the company at more than $3 billion.
Correspondence in February with the Securities and Exchange Commission showed that regulators had questions about the Emeryville, California-based biology company from the start, including its plans for growing revenue and profitability, its current financial condition and its outstanding debt. In 2020, the company reported a net loss of $262 million and revenue of only $13 million, the majority of which came from research and development service contracts and collaboration agreements, according to its prospectus.
The company has only one product out on the market. Called Hyaline, it is a bio-based polymer film that is transparent but durable and bendable, meant to be used in products such as wearable sensors or foldable touch screen smartphones, like Samsung’s new Galaxy Fold or Apple’s rumored iPhone Flip. In response to the comments from the SEC in February, the company added an additional three pages to its prospectus summary in an amended draft registration statement in March, detailing its business challenges, which discussed Hyaline at length.
“We do not have our own commercial scale manufacturing capability,” the amended prospectus from March read, regarding Hyaline. “Currently we manufacture Hyaline and our other electronic films primarily in Japan but have established a (Contract Manufacturing Organizations) site for Hyaline in the United States. However, our U.S. CMO has informed us that we only have committed supply through the end of 2021. If we do not find and qualify an alternate source of manufacturing, are unable to increase capacity at our existing manufacturer in Japan, or do not invest in our U.S. CMO to support and increase production, acquire our U.S. CMO or otherwise manufacture Hyaline and our other films products on our own, we may not have the manufacturing capacity required to meet our commercial needs after the end of this year.”
The company reported in its August announcement that some of its customers “encountered technical issues in implementing Hyaline into their manufacturing processes,” which has delayed the revenue-generating rollout of the product.
In addition, the company also realized that the market for its one product was not as fruitful as they had initially calculated. “The company is also evaluating emerging data on the total addressable market for foldable display applications, which indicate a smaller near-term market opportunity that is growing less rapidly than anticipated, as well as its impact on Zymergen’s sales forecast.”
The company could not be reached for comment
Additional reporting by Antoine Gara.