Zymergen's sudden implosion shocked biotech. A lingering loan could make things even worse

2021-08-04

并购IPO

As former synbio unicorn Zymergen picks up the pieces from its spectacular implosion Tuesday, an outstanding loan from Perceptive Advisors — the only blue-chip biotech crossover investor to touch Zymergen’s fundraising efforts — could make the situation worse, according to public documents. In December 2019, more than a year before Zymergen filed for what would eventually become a $500 million IPO , the “biofacturing” firm signed a $100 million credit facility with Perceptive to help supplement the nearly $700 million the company had raised across four VC rounds. That loan came with a series of covenants — including monthly revenue targets — against which Zymergen leveraged “substantially all of our assets, including our intellectual property,” the company said in its amended S-1. It was a big bet for Zymergen and one that didn’t immediately alleviate the company’s woes: By December 2020, with “substantial doubt about our ability to continue as a going concern,” Zymergen had already run afoul of the loan’s terms due to a March 2020 acquisition of microbial screening firm EnEvolv, which it said didn’t meet the agreement’s definition of a “permitted transaction.” Zymergen ran through a series of default waivers before settling the issue with Perceptive and believed as of May that it was in line with all the restrictive covenants on the deal. But now, with Zymergen facing an uncertain future and revenue streams not a guarantee, a deadline looms: January 2024. That’s when the loan matures and comes due, and the biotech is on the hook to pay regardless of whether it can meet its ends. In its S-1, Zymergen noted the looming deadline as potential risk for investors, saying if the company continues to accumulate debt without growing revenue, it could have a hard time meeting its payments. “We may be required to generate cash from operations or raise additional working capital through future financings to enable us to repay this indebtedness as it becomes due,” the company said at the time. “There can be no assurance that we will be able to do so. If we do not generate additional cash or working capital, we may be required to delay, limit, reduce or terminate our product development or operations or grant to others rights to develop and market products that we would otherwise prefer to develop and market ourselves, to enable us to repay this indebtedness as it becomes due.” The agreement also included language making “material adverse events” a potential catalyst for default, which could come into play now that Zymergen has significantly cut back its revenue forecasts across its portfolio and has no guidance for beyond 2022, as acting CEO Jay Flatley told analysts on a Tuesday afternoon call. A Zymergen spokesman declined to comment on the status of the credit facility and other questions on the company’s current position. On Tuesday, that spokesman told Endpoints News that members of Zymergen’s senior leadership team weren’t being made available for interviews. Perceptive declined to comment on the matter. So far, Zymergen has actually only seen $85 million of that loan with an additional $15 million due before Sept. 30, subject to two undisclosed milestones, Zymergen said in a filing. The cash would likely come in handy as Zymergen posted a $241 million loss in 2020 after a $237 million loss in 2019. Flatley said Tuesday the company planned to adjust its burn rate significantly to extend its runway as it conducts a pipeline-wide review of its target markets and revenue potential. As first reported by Forbes , Zymergen’s market potential has been a subject of close scrutiny since the biotech filed its first draft registration form back in January. In a series of correspondence, regulators asked for more detail on Zymergen’s market plans and potential competition, in one case asking Zymergen to stop comparing its internal product development to the example of Kevlar, which it did not deem a meaningful competitor. One key point of contention early on was Zymergen’s use of third-party advisors to outline key market opportunities, an area Flatley noted the company had little insight into its customers’ needs and thus overinflated potential revenue. In its response to that initial letter, Zymergen noted: “The data regarding the Company’s market opportunity are management’s estimates based on a bottom-up, industry-by-industry, application-by-application analysis. Management estimated the total opportunity for its platform using IHS Markit and similar market data. The Company also consulted industry experts to corroborate market analyses, especially where less granular market data were available.” Zymergen would then go on to amend its S-1 to include that language, assuaging the SEC’s concerns on that point. The earliest correspondence also pumped Zymergen for more details on its credit facility with Perceptive, including whether the company was still in violation of the restrictive covenants of the loan and whether it intended to pursue further default waivers. Zymergen indicated it had solved the earlier issues and did not plan to pursue other waivers pending the IPO. Zymergen’s downfall will likely cast a spotlight on Josh Hoffman’s tenure as CEO. In his remarks to analysts Tuesday, Flatley noted the launch of an internal “cultural assessment” at Zymergen to “ensure broad-based accountability,” an indication that prior management wasn’t on the same page in terms of executing the business plan. In an email, Jenny Rooke, the founder of Genoa Ventures and an early investor in Zymergen, said she “never heard anything but positive comments about Josh” during her time working with the company during its seed and Series A rounds. Despite being removed from the pipeline and management for years, Rooke said she still saw value in the company’s efforts outside of lead product Hyaline: Late Tuesday, shares in $ZY were trading down around 76% at $8.20 per share.

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