Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

3. Fair Value Measurements

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):

		As of September 30, 2022
	Classification	Total		Level 1		Level 2		Level 3
Assets:
Money market funds	Cash and cash equivalents	$	1,234,360	$	1,234,360	$	—	$	—
Synlogic, Inc. warrants (1)	Investments		2,421		—		2,421		—
Marketable equity securities (2)	Investments		22,461		16,804		5,657		—
Notes receivable	Prepaid expenses and other current assets		11,828		—		—		11,828
Total assets		$	1,271,070	$	1,251,164	$	8,078	$	11,828
Liabilities:
Public Warrants	Warrant liabilities	$	24,839	$	24,839	$	—	$	—
Private Placement Warrants	Warrant liabilities		14,900		—		—		14,900
Contingent consideration	Accrued expenses and other current liabilities		3,330		—		—		3,330
Contingent consideration	Other non-current liabilities		15,701		—		—		15,701
Total liabilities		$	58,770	$	24,839	$	—	$	33,931

		As of December 31, 2021
	Classification	Total		Level 1		Level 2		Level 3
Assets:
Money market funds	Cash and cash equivalents	$	1,482,063	$	1,482,063	$	—	$	—
Synlogic, Inc. warrants (1)	Investments		6,166		—		6,166		—
Marketable equity securities (2)	Investments		25,676		15,345		10,331		—
Notes receivable	Prepaid expenses and other current assets		11,559		—		—		11,559
Total assets		$	1,525,464	$	1,497,408	$	16,497	$	11,559
Liabilities:
Public Warrants	Warrant liabilities	$	77,280	$	77,280	$	—	$	—
Private Placement Warrants	Warrant liabilities		58,558		—		—		58,558
Contingent consideration	Other non-current liabilities		8,467		—		—		8,467
Total liabilities		$	144,305	$	77,280	$	—	$	67,025

(1) The fair value of Synlogic, Inc. warrants is calculated as the quoted price of the underlying common stock, less the unpaid exercise price of the warrants.

(2) Marketable equity securities classified as Level 2 reflect a discount for lack of marketability due to regulatory sales restrictions, which lapsed on a portion of the shares held during the nine months ended September 30, 2022 and were reclassified as Level 1.

There were no transfers into or out of Level 3 during the three and nine months ended September 30, 2022 and 2021.

Notes Receivable

Notes receivable measured at fair value on a recurring basis consists of a revolving promissory note with Glycosyn, LLC (“Glycosyn”, and such promissory note, the “Glycosyn Promissory Note”) and a series of convertible notes with Access Bio, Inc. (“Access Bio Convertible Notes”). The fair value of the Glycosyn Promissory Note and Access Bio Convertible Notes were determined based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. Significant changes in these unobservable inputs in isolation could have resulted in a significantly lower or higher fair value measurement. Changes in fair value of notes receivable are recorded as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

The Company estimated the fair value of the Glycosyn Promissory Note using a probability-weighted discounted cash flow model under a dissolution scenario with partial recovery and no recovery. The significant assumptions used in valuing the Glycosyn Promissory Note as of September 30, 2022 and December 31, 2021 were scenario probabilities of 50%, a recovery rate on first lien debt of 63% and a discount rate of 15%. As of September 30, 2022, the Glycosyn Promissory Note had an unpaid principal balance of $5.4 million and a fair value of $1.9 million. As of December 31, 2021, the Glycosyn Promissory Note had an unpaid principal balance of $5.4 million and a fair value of $1.8 million.

The Company estimated the fair value of the Access Bio Convertible Notes using a binomial lattice model. Key assumptions used as of September 30, 2022 included 62.3% equity volatility, 0.13 years to maturity, 2.9% risk-free rate, 35.1% risk-adjusted rate and 0% dividend yield. Key assumptions used as of December 31, 2021 included 85.5% equity volatility, 0.88 years to maturity, 0.3% risk-free rate, 30.9% risk-adjusted rate and 0% dividend yield. As of September 30, 2022, the Access Bio Convertible Notes had an unpaid principal balance and a fair value of $10.0 million. As of December 31, 2021, the Access Bio Convertible Notes had an unpaid principal balance of $10.0 million and a fair value of $9.8 million.

The following table provides a reconciliation of notes receivable measured at fair value using Level 3 significant unobservable inputs (in thousands):

	2022		2021
Balance at January 1	$	11,559	$	15,566
Proceeds from notes receivable		—		(304	)
Change in fair value		269		(1,196	)
Balance at September 30	$	11,828	$	14,066

Warrant Liabilities

Upon the closing of the Business Combination, the Company assumed 34,499,925 publicly-traded warrants (“Public Warrants”) and 17,325,000 private placement warrants (the "Private Placement Warrants") previously issued in connection with SRNG’s initial public offering. The fair value of the Public Warrants is based on the observable quoted price of such warrants on the New York Stock Exchange. The fair value of the Private Placement Warrants is estimated using the Black-Scholes option pricing model, which is considered to be a Level 3 fair value measurement. The primary unobservable input used in the valuation of the Private Placement Warrants is expected stock-price volatility. As of September 30, 2022, the Company estimated the volatility of its Private Placement Warrants using a Monte-Carlo simulation of the redeemable Public Warrants that assumes optimal exercise of the Company's redemption option at the earliest possible date. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend yield is based on the historical rate, which the Company anticipates remaining at zero.

The following table provides quantitative information regarding Level 3 inputs used in the recurring valuation of the Private Placement Warrants as of their measurement date:

	September 30, 2022			December 31, 2021
Exercise price	$	11.50		$	11.50
Stock price	$	3.12		$	8.31
Volatility		73.5	%		58.7	%
Term (in years)	3.96			4.71
Risk-free interest rate		4.01	%		1.25	%

The following table provides a reconciliation of the Private Placement Warrants measured at fair value using Level 3 significant unobservable inputs (in thousands):

	2022			2021
Balance at January 1	$	58,558		$	—
Additions pursuant to the Business Combination		—			90,263
Change in fair value		(43,658	)		5,717
Balance at September 30	$	14,900		$	95,980

Contingent Consideration

In connection with the acquisition of FGen (Note 2), the Company is required to make contingent earnout payments up to $20.0 million primarily related to the successful integration and deployment of the FGen technology across the Company's programs. The Company also issued restricted stock that is subject to vesting conditions and is classified as contingent consideration liability. A portion of the restricted shares vested during the nine months ended September 30, 2022 and $1.9 million of the liability was settled as discussed in Note 2.

In connection with the acquisition of Dutch DNA (Note 2), the Company is required to make contingent earnout payments up to a maximum of $20.0 million payable to the seller upon the achievement of certain technical and commercial milestones by Dutch DNA pursuant to a Technical Development Agreement executed between the Company and Dutch DNA prior to the close of the acquisition. In the second quarter of 2022, the Company made a payment of $0.7 million upon the achievement of a technical development milestone and recorded a corresponding $0.7 million decrease in the fair value of the contingent consideration liability.

The fair value of contingent consideration related to restricted stock issued for acquisitions was estimated using the quoted price of Ginkgo's Class A common stock, an estimate of the number of shares expected to vest, probability of vesting, and a discount rate. The fair value of contingent consideration related to earnout payments was estimated using unobservable (Level 3) inputs as illustrated in the table below. Material increases or decreases in these inputs could result in a higher or lower fair value measurement. Changes in the fair value of contingent consideration are recorded through operating expenses in the condensed consolidated statements of

operations and comprehensive loss. The recurring Level 3 fair value measurements of contingent consideration liabilities included the following significant unobservable inputs as of the periods presented:

			September 30, 2022			December 31, 2021
Contingent Consideration Liability	Valuation Technique	Unobservable Input	Range			Range
Earnout payments (FGen and Dutch DNA acquisitions)	Probability-weighted present value	Probability of payment	2%-95%			10% - 80%
		Discount rate	18.5%-20.6%			10.7% - 11.3%
Earnout payments (Dutch DNA acquisition)	Discounted cash flow	Projected years of payments	2022-2028			2022 - 2037
		Discount rate		12.5	%		9	%

The following table provides a reconciliation of the contingent consideration liability measured at fair value using Level 3 significant unobservable inputs (in thousands):

	2022			2021
Balance at January 1	$	8,467		$	—
Additions		13,150			8,760
Change in fair value		58			(23	)
Settlements and payments		(2,644	)		—
Balance at September 30	$	19,031		$	8,737

Nonrecurring Fair Value Measurements

The Company measures the fair value of certain assets, including investments in privately held companies without readily determinable fair values, on a nonrecurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In the second quarter of 2022, the Company recorded a $10.1 million impairment charge, included as a component of (loss) gain on investments in the condensed consolidated statements of operations and comprehensive loss, due to the decline in the fair value of the Company's investment in Genomatica preferred stock. The fair value estimates used to determine the impairment charge were determined using enterprise value analyses which include an equal weighing between discounted cash flow analyses and guideline public company and involve significant unobservable (Level 3) inputs. The significant unobservable inputs include the estimated annual net cash flows (including revenue and expense growth rates and capitalization rates), the weighted-average cost of capital used to discount the future cash flows, and the selection of guideline public company multiples for revenue and EBITDA. Material increases or decreases in these inputs could result in a higher or lower fair value measurement.