By Sam Nejame
Special to The Digest
This Wednesday, October 17th, is Canadian Marijuana Legalization Day. For the first time Canadians will be able to legally buy pot for recreational use countrywide. Edibles, which are harder to regulate, will come later. From a Synthetic Biology perspective, it’s the infused edibles and drinks that are most interesting and could represent the first products, to put SynBio in the black. With expected sales prices greater than $1000/kg, cannabinoids may represent the right balance between addressable market size and value. This represents a huge opportunity compared to where Synthetic Biology has been operating, i.e. commodity chemicals for industrial applications, where product values tend to be around $1500/tonne or in higher value but small volume ingredient applications. Furthermore, since the market size for these high value products will be smaller, large and costly manufacturing plants will not be needed.
Ginkgo’s Dope Deal
In September, Ginkgo Bioworks and Cronos Partners announced a $22MM deal to produce delta-nine THC precursor and seven other cannabinoids at modest scale. From a biotechnology point of view replacing secure agriculture followed by solvent extraction with fermentation is a no brainer. The smaller footprint, higher productivity and titer will present cost reductions especially for “rare” cannabinoids. Depending on what source you consult there are between 60 to 100 active molecules present in Cannabis.
Given today’s rampant speculation and the amount of money flying around pot stocks such as: Cronos, Aphira, Tilray, Supreme Cannabis, PharmaCan Capital, Aurora Cannabis, Island Garden, Canopy Growth, Organigram Holdings, it should be no surprise that there is plenty of competition to supply Synthetic Biology solutions. In addition to the Cronos-Ginkgo deal numerous others are actively pursuing cannabinoids. These include: Organigram’s $10MM investment in Hyacynth Biologicals; Renew Biopharma (Sapphire Algae reboot); CannTrust Holdings work in seed development, Intrexon, as well as work in Jay Keasling’s lab and other university laboratories. Not to mention the many players in stealth mode. Some of whom, I have worked with.
Coca’Cola’s Cannabidiol-infused drink talks
At a global scale, consumer, packaged goods, liquor, tobacco, food, nutrition and nutraceutical companies are also investing in marijuana. Currently, Coca-Cola is in discussions with Aurora Cannabis Inc. about Cannabidiol (CBD) infused drinks. Coke’s 2017 sales were down 15% from 2016. Think they’re not looking for ways to reinvigorate their stock price? Is Pepsico & Gatorade next? What about InBev and Nestle, what are they up to? Whatever it is get ready for a tidal wave of cannabinoid infused beverages, chocolate, salty snacks, inhalants and the like. Some will be psychoactive, others will not. A major question for the consumer product manufacturers will be how these products will be regulated. Will it be more like alcohol and tobacco or like supplements?
Deliverance and Synthetic Biology
At first blush it might seem odd to consider marijuana a savior for Synthetic Biology, but the industry doesn’t have many superheroes these days. The list of failures and marginal successes is a long one. Ginkgo and their west coast frenemy, Zymergen have raised a lot of money and bulked up. Ginkgo, with a current head count of 200, has raised more than $400MM in the last four years based on the concept of biocircuitry and silicon analogies. Zymergen is pushing 450 souls with approximately the same amount of money raised. Those are heavy burn rates. While the Moore’s Law metaphor with biology is a great story, I worry that delivering on the promise will take longer than expected… as it always does with biological systems.
It all comes back to the business model, which for most Synthetic Biology companies is essentially contract research. That means, projects fund a few FTEs, at cost plus, and there are milestone (and sometimes license) payments, with a backend royalty on a successful commercial product. This, my friends, is a pharma model, yet in most cases Synthetic Biology companies are not making blockbuster pharmaceutical drugs. This is not to say that I’m ignoring the Ginkgo-Synlogic deal (FDA approval of gut microbiome organisms will take a long, long time) or the Ginkgo-Bayer deal, which is about much more than N fixation.
No, despite its active deal-making and as much as you’ve got to love their hutzpah, Ginkgo doesn’t have a portfolio of potential multi-billion dollar molecules. Be it ingredients, flavors and fragrances, specialty chemicals, whatever. The reality is that those markets are small and they are tough (very technical sales with large sales forces interacting with multitudes of consumer product companies). Case in point, just because you can make a new rose oil for Robertet does not mean that consumers are going to like its aroma or pay money for it (at a premium no less).
A rose by any other name
In many ways Synthetic Biology is no different from previous iterations of biotechnology. The same components: transgenic genes, manipulation of metabolic flux and pathway engineering apply. Basically, you have two choices. You can design or modify an existing pathway to overproduce or you can use directed evolution. That’s it and it only matters if it results in a cheaper route to commercial solutions. Greg Stephanopoulos et al, published the first metabolic engineering text book 20 years ago. In-silico design, robotics, strain generation and high throughput screening, these are just tools and updates of standard microbiology practices that have been with us for 50 years. The only difference is that now, what was largely an exercise in wet chemistry has joined the 21st century worlds of software and information technology. In truth, most SynBio companies don’t have much in the way of patents. It is the know-how, machinery and software that make the difference.
This is not throwing stones. I, like most in our industry, want Ginkgo and Zymergen to be successful. I’m just putting in writing what a lot of people are talking about. The industry is worried. Will investors have the patience to wait for meaningful revenue generation or will they push for another early IPO? Let me be clear, I’m not writing this because I think SynBio is a sham, I’m writing this because we’re all better off if there are demonstrated revenues and profits, which support the kind of valuations these investments necessitate. Craters crimp academic research as well as corporate R&D and the reverberations last years.
The benefits of Synthetic Biology are substantial
Doubtless, the fermentation of ingredients has many benefits. It can improve quality and lessen batch variability, reduce agricultural processing and labor costs, and reduce supply chain problems such as arise from sourcing in volatile regions or through common seasonality problems. It can also address sustainability concerns, witness the recent desire for alternatives to palm oil due to palm plantations in native growth areas or the recent increase in demand for non-fish meal based sources of protein to address overfishing.
You may know that PETA has placed even commonly formulated animal products like lanolin and beeswax on its’ “bad” list. In the future we may see Synthetic Biology produce these seminal ingredients and possibly bring back valuable options long removed from chemists formularies even something as exotic as spermaceti. So far, Flavor & Fragrance and ingredient companies have led the way contracting for organisms and molecules, but plenty of fermentation powerhouses like Ajinomoto, ADM and Cargill are also heavily involved.
Which brings me back to marijuana and cannabinoids… These are essentially pharma drugs that have been used by humans for thousands of years. Lifting of prohibition in North America means this class of molecules will be sold with limited oversight (relative to pharmaceuticals). If that is wise is another question. There are a lot of Cannabis shamans out there now, but some claims and benefits will prove true and real markets will flourish.
Still, 100 years of prohibition in North America has left a void in clinical data and legalization represents a vast social experiment which will lead to benefits and unintended consequences we will be living with for a long time to come. Here in the US, despite the rhetoric, Attorney General Jeff Sessions, is unlikely to wrestle this genie back into the lamp. Something to consider, this Wednesday when the world will watch stoned Canadians dancing around open fires of burning hemp, sating the munchies with poutine.