By Vonnie Estes, Special to The Digest
Around the world, manufacturers make everyday products, from food to containers to fabrics, using processes and ingredients developed decades to centuries ago. These manufacturing systems have enabled impressive economic growth and raised the global standard of living. But as the land, water, and fossil fuel resources those systems rely on become scarcer, biology is offering new ways to engineer solutions.
Synthetic biology redesigns existing organisms for specific purposes to produce safe products that are more efficient, reliable, and predictable. Engineered microorganisms can make many of the same ingredients used in traditional industrialization processes with less energy and waste and without relying on petroleum derivatives.
Synthetic biology’s breakthroughs will speed the development of biologically engineered solutions to global problems related to health, materials, energy, and environment. Its approach is multidisciplinary, bringing together biologists, engineers, software developers, chemists, and bioinformatics specialists to understand how genes work together and combine to produce useful applications. SynBio tools make the programming of biology more predictable, more like software.
This article examines the exciting new tools being developed to solve issues I’ve spent my career tackling. It will give an historic perspective on the use of SynBio to produce advanced biofuels and chemicals; look at new bio-based materials, platforms, and food; and examine what is catching investors’ interest now in industrial biotechnology and agriculture.
My experience with SynBio (before it was called that) began at the start of the advanced biofuels industry around 2005. We were trying to get enzymes to cheaply break down cellulose and hemicellulose and to develop microorganisms to process C5 and C6 sugars for the development of advanced biofuels.
By 2007 government exuberance was pushing technologies and companies too fast. The DOE backed the funding of six commercial-scale projects for $385M when the biology was barely off the lab bench and no one had drafted engineering plans. Venture capitalists got excited and put too much money into very early stage companies. This is what VCs do – but in this case they expected the companies to scale and commercialize as quickly as software.
The companies scaled their technology too quickly, skipping important developmental steps. We realized that after investors put $200M into a company, the company then needed an additional $200M to build its first plant. Then, as if high capital costs and scale-up risk were not harmful enough, when the bottom fell out of the energy market during the recession, it took much of the nascent SynBio biofuel industry with it. Followed by new energy sources and tanking oil prices. Competing with $140/barrel oil was one thing, but $50 was impossible.
Then along came the blend wall and the stalling of the Renewable Fuels Standard. The problem here was not in the biology – it was a systemic failure that no one saw coming soon enough. Many companies went bankrupt and investors closed their doors.
Today, advanced biofuels technology sits mostly with large, deep-pocketed companies. They have had some successes in building large advanced biofuels plants: Abengoa, DuPont, Poet, Beta Renewables, GranBio. Big, patient companies with other revenue streams can hold and improve the technology until such time as we have policies to support innovation. Energy markets are not free markets and don’t properly reward or support innovation. Advanced biofuel investors need policy made and maintained by a diverse set of governments. We hope to see such policy agreements come out of Paris this week.
PIVOT TO CHEMICALS
Challenged by cheap oil, investor fatigue, and technical hurdles, many biofuel companies pivoted to produce alternative chemical products through fermentation. We looked for products with lower costs, lower volume, and higher value, that used biomass and bioprocesses to replace petroleum as the important building block in a number of end products including plastics, lubricants, waxes, and cosmetics.
Bio-based platform chemicals are now being produced at small scale mostly above the cost of the petroleum-based products they are trying to replace. These chemicals will be at price parity when we get to large-scale production. During product development and certification, products must be tested and approved throughout the supply chain by chemical producers, product manufacturers, brand owners, retailers, and end consumers. Each stakeholder in the supply chain needs to believe the product shows equal to superior performance. Powerful end users like Coca-Cola with their 20% bio-based bottle are a huge help in pulling product through the chain. They are often willing to a pay premium price at the start and can adapt their packaging lines. Each new application of a new or drop-in chemical requires testing and approval that takes time and can’t be rushed by impatient investors.
Many companies like Amyris and Solazyme are developing ingredients that go into other products, such as flavors and fragrances. As in most biochemical production, the microorganism is removed after fermentation, and at a molecular level, the product is identical non-fermentation product it is made to replace.
Three companies (Solazyme, Amyris, BioAmber) have gone public and are having to deal with being in the public markets. For the most part, the companies are moving ahead, producing products and making good partnership announcements. Their share price does not reflect their advances. A sample of the companies moving forward:
- Solazyme – produces oils for healthier foods; better home, personal care, and industrial products; and more sustainable fuels. Raised $146M + $200M IPO
- Amyris – high-performance renewable products across a range of consumer and industry segments. Raised $417M + $85M IPO
- BioAmber – biosuccinic acid. Raised $135M + $80M IPO
- Verdezyne – adipic acid and other bio-based chemicals. Raised $67M
- Genomatica – butanediol bio-based chemicals. Raised $113M
- Myriant – biosuccinic acid. Raised $110M
- Evolva – ingredients for health, wellness, and nutrition such as stevia and vanillin. Raised $28 million. Went public through reverse merger with Arpida.
Many other companies went into bankruptcy or were purchased (Cobalt, LS9, OPX).
The collision of digital and biotech has given us tools for faster, cheaper, and better product development. We now have a transformative skill set that allows for quick “design, not discovery” of new products in a predictable fashion. Biology is becoming more software driven using cloud resources, robots, machine learning, and automation. Development can be done in silico.
Costs for doing work continue to go down – for example, the costs and time requirement for gene editing are falling rapidly. Zinc-finger nucleases cost about $3,000 per gene and take up to a year. Now, using CRISPR/Cas9, the cost is below $500 per gene for a more accurate process that takes only a week. A genome can now be sequenced for under $10,000. These new technologies allow product companies to stay smaller longer without burning as much cash.
These tools are opening up new company and product possibilities. Three areas of interest (outside of pharma) are platform technology companies, industrial biotech, and agriculture.
I got a front row seat to the early stages of a platform technology company as a pre-Series A board member of Zymergen. These fast-emerging companies are developing technology to support and enable product companies. In the previous generation of biofuel/biochemical companies, R&D had to staff their own microbiologists, buy their own robots, and develop their own bioinformatics systems. They had to engineer and optimize their own microorganisms to make desired products.
Now product companies can get superior microbes engineered to order. With more than $100M raised among them this year, Zymergen, Ginkgo Bioworks, Synthace, and Biosynia are relying on a mix of robotic automation, machine learning, novel software, and high-throughput screening to rapidly develop and optimize new strains to produce industrial chemicals and other bio-based products.
Tool-based companies have caught the eye of investors this year:
- Zymergen – brings scale and efficiency to the process of strain optimization. Raised $44M
- Gingko Bioworks – built organism-engineering foundry to bring new organisms to customers. Raised $54M
- Caribou Biosciences – provides solutions for cellular engineering and analysis based on the CRISPR-Cas9. Raised $14.6M
- Intrexon – enables products in the health, food, energy, consumer, and environmental industries using platform technology. Primarily in pharma but active in industrial bio and ag. Raised $344M + $160M IPO ($35/share)
Many start-ups are focusing on smaller scale, higher value products that do not compete with petroleum or low-margin commodities. These products require less cap-ex and have lower feedstock exposure due to smaller volumes. New products are more likely to help incumbents, not try to replace them. Here are a few examples of these new companies, their products, and money raised to date:
- Bolt – high-performance fashion fibers. Raised $40M
- Gingko – flavors / fragrances. Raised $54M
- Modern Meadow – cultured leather and meat products. Raised $11M
- Mango Materials – biodegradable plastics from waste biogas
An area that has gotten much Silicon Valley investor attention is plant- and fermentation-derived meat, eggs, and dairy replacements. Demand for animal protein is increasing in the developing world, devouring resources and creating waste. The total carbon footprint of beef is 4 pounds of greenhouse gases per quarter pound of meat, including all the greenhouse gases released during its production.
Although taste and consumer acceptance are going to be challenges, animal protein substitutes are a great way to reduce the carbon footprint. Some companies are developing plant-based products, while others are fermentation-based:
- Beyond Meat – animal protein from plant protein. Raised $17M
- Impossible Foods – meats and cheeses made from plants. Raised $183M
- Clara Foods – synthetic egg whites from fermentation. Raised $1.75M
- Muufri – synthetic milk from fermentation. Raised $60K
As a mentor at IndieBio, an accelerator for synthetic biology start-ups, I’ve seen a number of exciting new companies. Many start-ups are focused on the post-animal bio-economy. Groups are developing organisms to make different kinds of meat, egg and milk proteins, shark fin, and gelatin. These companies have a ways to go and their exits are far from certain. But the new products and technologies will have a positive impact on the environment.
I’ve worked for decades to commercialize advanced biotechnology tools for the development of genetically modified crops using Agrobacterium and similar methods. The new focus is on technologies considered non-transgenic in plants, biocontrol products, and plant nutrition to reduce carbon emissions and toxic inputs, use less land and water, combat pests, and increase soil fertility.
Feedstock for 2nd gen fuels/chemicals and power
As we continue to expand from hydrocarbon-based products to carbohydrates, we will need better plant sugars using less water, less land, and fewer inputs. As soon as there is a market pull for $20/ton biomass, there will be companies to provide it, likely using new non-GMO tools to produce better crops faster.
Gene editing, breeding tools
The big six ag companies – BASF, Bayer CropScience, Dupont, Dow Chemical Company, and Syngenta – have invested millions of dollars in internal R&D for the commercialization of genetically modified crops. They are unlikely to invest equivalent resources in building new gene editing tools to produce improved non-GMO crops. A number of companies are developing platform technologies to make gene editing faster, quicker, and better. Large seed companies will likely license, partner, and acquire these companies. Two in the forefront are Caribou, with CRISPR technology (raised $14.46M), and Cibus, using gene-editing tools to produce herbicide-resistant crops with other traits and crops on the horizon.
To date three US companies are selling crop products that were engineered using gene editing techniques: Cibus – herbicide-resistant canola; Okanagan Specialty Fruits (acquired by Intrexon) – Arctic apples that resist turning brown when sliced or bruised; J. R. Simplot Company – Innate potatoes that resist bruising and produce less potentially cancer-causing chemical when fried. Consumer acceptance of the apples and potatoes remains to be seen.
Regulation of gene editing techniques in crops is still ambiguous, causing some investors to be cautious. The European Commission is debating regulations of the latest techniques, and they may classify plants as GMOs even if they lack foreign DNA. In the United States, modifying plants with Agrobacterium requires regulation by the Animal and Plant Health Inspection Service, but plants modified by gene editing (ZFN, TALEN, and CRISPR/Cas based methods) are not currently regulated. In July, the White House launched a multiyear initiative to review federal regulations on agricultural biotechnology so the rules could change.
Microbial Solutions: Inoculants, biocontrol, stimulants
In the beginning of my career, I worked on commercialization of natural biocontrol products produced from sources such as the Neem tree and naturally occurring fungi. We just couldn’t make them financially viable.
Now scientists can develop new products to improve crop health by discovering, developing, and altering what naturally occurs in the microbiome of plants and soils. Microbial products are made from microbes that work alone or complement traditional methods of plant production and protection. Products can protect crops from pests and disease, combat resistance, and enhance plant productivity and fertility. Inoculant and biocontrol products can be applied on broad acre crops such as corn and soy, and on fruits and vegetables to help plants take up nutrients and defend against pests, disease, and weeds. Novozymes and Monsanto have formed the BioAg Alliance to catalyze the development of new microbial solutions to address this market. In November, Syngenta and DSM announced a collaboration that will focus on creating bio-controls, bio-pesticides, and bio-stimulants. A number of smaller companies are developing technologies as well:
- AgBiome – researching plant-associated microbiome to discover new biological and trait genes. Raised $34.5M
- Symbiota – improve plant health and growth by promoting a healthy microbiome. Raised $7.5M
- Agrimetis – natural product-derived compounds to protect crops from weeds, fungal diseases, and insect pests. Raised $7.3M
A number of IPOs and acquisitions occurred in the first group of biofuels and biochemical companies with varying degrees of shareholder benefit. I was at Codexis, the first of the group to go public, when we IPOed. Codexis and other early IPO companies have remade themselves a number of times and their value is mostly unrecognized in the public markets. Amyris, Solazyme, Codexis, Gevo, and Metabolix are all trading below $3 a share. REG and Bioamber are trading around $8. Without knowing the financial details, it is unlikely the acquisitions of LS9, OPX, Cobalt, and Verenium were major windfalls for investors. Investment and attitudes will shift for this sector as we develop a price scheme for carbon to drive the use of non-petroleum-based products and advanced biofuels.
With all of the seed round and Series A money going into platform, ag, and early-stage biomaterials companies, there is a concern about valuations getting too high and successful routes to exit. Middle-stage capital is missing in this space; medium-size companies have trouble making it to revenues. Raising C or D rounds has been tough. As happens with new asset classes and sectors, most investment firms tracking the industry have yet to build a substantial track record and a route to exit. Private equity firms have played a relatively limited role in the agriculture technology and biomaterials space so far. One of the main reasons is that few of them have been focused on the sector due mostly to the early stage of the companies.
Two examples of acquisitions include Bayer’s $425M acquisition of AgraQuest, the biologicals company, in June 2012 from Otter Capital and Generation Investment Management. In November 2012, BASF acquired Becker Underwood, a biological seed treatment, from Norwest Equity Partners for $1.02B. A few IPOs have occurred in the ag space including Marrone Bio Innovations, the biopesticide company, and Arcadia Biosciences, the agriculture traits producer. Marrone is currently trading 80% below its IPO price and Arcadia is 65% below IPO price. Both deals were downsized on low demand and priced below initial share price target range.
Strategic investors like the Big 6 in ag have played a role in building excitement around the sector and its exit potential. Investors outside the industry – giants like Microsoft and Google – could soon become participants and buyers in ag and biomaterials/products. They will make for interesting competitors for incumbents.
We are in the golden age of biology. With the development of exciting new tools, we can engineer plants and microorganisms to make better, cheaper, and unique products. Many of the solutions I have worked on over my career were not financially viable at the time. We now are able to iterate faster and get to market and revenues more quickly with lower costs. It’s why I never say, “I’ve tried that, it didn’t work.” We just didn’t have the right tools yet. We may never get all segments of the population to say the words “climate change,” but society is looking for technologies that make us more resilient and adaptable. This change will help lead us to a price scheme on carbon, stimulating investment back into advanced biofuels and chemicals.
We will adopt new bio-based materials that reduce the demand for protein sources like beef and eggs for a world with more people and fewer resources. Technologies that allow us to produce more food, fuel, and fiber with fewer inputs will make it to market and create shareholder, consumer, and environmental returns.
In Paris this week the top global leaders announced the launch of “Mission Innovation,” a 20-country initiative to accelerate public and private global clean energy innovation to address global climate change, provide affordable clean energy to consumers, and create additional commercial opportunities in clean energy. Large-scale penetration of clean energy technologies requires investment by governments followed by private-sector investments.
The Breakthrough Energy Coalition has been formed to focus on early-stage innovations alongside the public policy commitments. This parallel initiative – spearheaded by Bill Gates – includes a coalition of more than 28 significant private capital investors from 10 countries pledging to invest extraordinary levels of private capital in clean energy.
Policy, innovation, amazing technologies and scientists/engineers will bring synthetic biology to the forefront in solving the world’s greatest issues – climate change and feeding a growing population.