It’s an unforgettable day for Ginkgo Bioworks (NYSE:DNA) as the company just disclosed a deal with pharmaceutical giant Merck (NYSE:MRK). Together, the two companies hope to innovate pharmaceutical manufacturing processes through the use of enzyme technology. There are financial implications here, as well. Ginkgo will receive a research and development fee up-front and can earn multiple milestone payments. Even with this major development, however, DNA stock struggled to move into the green this morning.
So, here’s a small dose of science for you. Merck and Ginkgo Bioworks plan to “engineer up to four enzymes for use as biocatalysts in Merck’s active pharmaceutical ingredient (API) manufacturing efforts.” In other words, Merck is tapping Ginkgo to provide its cell engineering and enzyme design capabilities to potentially improve the way modern medicines are manufactured.
What does each company bring to the table? To oversimplify it a bit, Merck’s bringing the capital and the laboratories, while Ginkgo’s bringing the fungal strains. This could certainly be a medical-market game-changer, but what has been Wall Street’s initial response?
DNA Stock Dropped but Then Popped
By 11:00 a.m. Eastern, DNA stock fell into the red but then moved higher. To a certain extent, it followed the ups and downs of the major stock market indices this morning.
Perhaps it will take some time for investors to absorb all of the scientific terminologies in the press release. Or maybe, they’re still mulling over the fiscal implications of the Merck-Ginkgo deal.
Those implications are certainly worth noting, especially if you’re holding DNA stock. The arrangement specifies that Ginkgo Bioworks will, at the very least, receive an up-front research and development fee. However, Ginkgo will also be eligible to earn success-based research and development milestone payments.
On top of all that, Ginkgo Bioworks can also earn commercial milestone payments for achieving a number of “biocatalysis targets.” All told, these milestones could add up to $144 million for Gingko.
Thus, this is potentially good news for the pharmaceutical market and terrific news for Ginkgo Bioworks. In time, all of this could have a profoundly positive impact on DNA stock.
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On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.