Biomanufacturing — the engine that will drive the future of food

October 16, 2023

There is nothing more pivotal, or more potentially impactful, than the new era of (bio)manufacturing.

In the past 50 years, biomanufacturing has been used widely in the fields of science, medicine, agriculture, and industry, harnessing cell cultures, microorganisms, and fermentation to produce biological molecules at a commercial scale. However, it is this decade that we will see biomanufacturing truly revolutionise the production of food, chemicals, and other essential commodities.

Recombinant engineering, a term which is probably diminutive to most — is a revolutionary technology established in the 1970s, describing the joining of pieces of DNA from different species. This DNA is subsequently inserted into a host organism, which can display altered phenotypic characteristics, in simplistic terms.

Recently coined ‘Precision Fermentation’ or (PF) — is harnessing the powers of microbial cell factories optimised to efficiently generate valuable compounds.

We have witnessed the evolving use cases of PF — insulin was the first commercial drug developed by Genentech and licensed to Eli Lilly in 1982, to treat Type II diabetes. Since then, this technology has been used to produce a plethora of biopharmaceuticals — erythropoietin, coagulation modulators, antibodies, hormones, and enzymes amongst others.

PF was first used for food applications in the 1980s, in the cheesemaking process, by harnessing E. coli to express fermentation-derived chymosin (FPC), as an alternative source to serving from the stomach lining of slaughtered calves. Chymosin is used to coagulate milk to cheese, hence PF already supports a 40yr+ $100bn global food market.

Biomanufactured products are found in pharmaceuticals, textiles, food ingredients, fuel enzymes, and cosmeceuticals but its applications continue to be identified and pursued. In food, the following ingredients are produced recombinantly (with PF), developed by multibillion-dollar businesses:

• Enzymes — food processing to improve texture, flavour, and shelf life including amylase, protease, and lipase. Recombinant amylase, for example, remains a leading enzyme market share contender, that catalyses the hydrolysis of starch to sugars

Category leaders: — Novozymes, (CPSE: NZYME B) ~ $9bn market capitalisation, DSM ~$21bn, DuPont ~ $49bn, Amano Enzyme, Roquette, Chr Hansen — acquired by Novozymes for $12.3bn March-23, AB Enzymes)

• Vitamins, including vitamin C (ascorbic acid) and vitamin B12 (cobalamin)

Leaders: DSM, Northeast Pharmaceutical Group Co. Ltd. (NEPG), CSPC Pharmaceutical Group Limited and Shandong Luwei Pharmaceutical Co. Ltd. (Chinese companies), Lonza Group (LONN: SWX) $35bn, Merck KGaA $21bn, BASF $44bn market capitalisation

• Amino acids as flavour enhancers, nutritional supplements, food additives

Leaders: Ajinomoto (TYO: 2802) ~ $20bn, ADM, Cargill, Evonik, Novus International

• Sweeteners — natural sweeteners including stevia

Leaders: Ajinomoto, NutraSweet, Meriant, Tate & Lyle, JK Sucralose

But why shift to biomanufacturing? Why not use chemical synthesis or natural sources?

• to minimise environmental impact, in line with achieving sustainability targets, and improve animal welfare (replaces an inefficient machine i.e. the animal, with a microbe factory)
• Cost-effective method
• Customisation through genetic engineering — allowing for enhanced nutritional quality

But what is key, is the product (and pricing) consistency and stability of supply to address global food security.

In recent times, there has been an emergence of start-ups funded to apply PF to drive a shift towards more sustainable and simplified methods of producing everyday products and ingredients, with a heightened focus on food. This first wave of venture-backed companies was led by Impossible Foods (PF heme), Perfect Day (PF whey), The EVERY Company (PF pepsin, egg albumin) and Geltor (PF platform — collagen, keratin) have each raised $100m+ (and more), and have US FDA GRAS regulatory approvals for their lead products.

At Agronomics, we have funded companies where we see the strongest application of PF, and companies with the best ability to scale to achieve venture returns in realistic timeframes- noting that real paths to profitability for companies in this sector will only be possible if the product focus makes sense. It is significantly harder to reach price parity with a conventional whey protein’s market price (<$10/kg), vs. lactoferrin (~$1000/kg). No company will be able to offer a sustainability premium in the long run (and limited in the short run), and the more commoditised the ingredient that one is trying to produce, the more limited the pricing power, and the harder it will be to create healthy profit margins. For proteins priced at around $10/kg or less i.e. true commodities, government support will be required, or significant propagation from incumbents.

Whether it is possible for these start-ups to successfully achieve high titres, warrant healthy margins, and essentially unlock commercial supply agreements for revenue, comes down to one key metric — productivity. Of course, these companies also need to have world-class executives, access to capital, strategic thinking, etc.. but the basic demand of replacing animal-derived ingredients and proteins with PF will not be met unless the productivity is maximised — the amount of protein expressed per volume per unit time (g/L/day for instance). As highlighted by portfolio company Liberation Labs’ recent Linkedin article — the ability to produce more from the same amount of assets — combines fermentation length with titre (and recovery yield) to give the best estimate of the total manufacturing cost, which provides the cost competitive advantage for companies.

Productivity can be augmented through appropriate strain choices — with the key workhorses remaining P. pastoris, A. niger, T. reesei, E. coli, and S. cerevisiae — strain engineering expertise (to drive up titres, encourage post-translational modifications (PTMs), input media usage optimisation), and the aforementioned recovery yield — the amount of product that can be recovered from the fermentation broth.

There are several enabling tech plays working on optimising each specific lever for improving overall productivity:

• Strain library — Wild Microbes, Gingko Bioworks (NYSE: DNA)
• AI and bioinformatics — Melonfrost, Bioraptor, Eden Bio, Shiru
• Alternative feedstocks — Hyfé, Clean Food Group
• Continuous fermentation — POW.Bio, Cauldron
• Dedicated facilities — Liberation Labs, Synonym, Planetary

For the end ingredient (PF food) company, the most plausible business model is a B2B approach. The fickle consumer ultimately needs to not even know the ingredient is there (or where it came from) and market demand exists from the incumbents. We expect to see many licensing and offtake deals with incumbents and start-ups in the next 24 months, allowing each entity to leverage expertise across the supply chain to simplify scale-up. Vertical integration is hard and not necessary, especially in a risk-off environment. Major existing corporations are seeking diversification from complex supply chains, intensive animal agriculture, and the need to expand their product portfolios away from unhealthy ingredients. Note that FrieslandCampina and Triplebar have entered an arrangement to develop high-quality dairy proteins via PF. DSM and Fonterra have established Vicici — a joint venture (JV) to develop fermentation-derived beta-lactoglobulin (BLG) protein. Novozymes and Arla Foods are working together to utilise PF for the production of functional dairy ingredients.

Incumbent demand is critical to the success of the PF sector, and despite large corporations having their internal projects, there is unique IP around strain selection and engineering within the start-ups that gives them a competitive advantage.

Alleviation of the systemic risks from unhealthy foods is imperative for incumbents and a wider macro trend that supports PF for food applications. Investors of Nestle have urged for healthier food targets to be set — Nestle intends to “Invest significantly to renovate existing products, and to drive innovation”. PF can assist in the renovation as they intend to grow sales of their nutritious products by CHF 20–25 billion by 2030 — a ~50% growth over 2022 sales.

Whilst we are aware of the idle capacity for aerobic fermentation present at entities such as ADM, FrieslandCampina, and Cargill, these facilities are not custom-built for the newly forming industry, hence the urgency for a bespoke network of PF commercialisation facilities. The initiative of our CMO Liberation Labs. Site selection is driven largely by minimising input costs — sugar, power, and labour, as well as opting for jurisdictions with favourable regulatory pathways for novel food ingredients, such as the US, Singapore, and Australia. 60 million litres of installed capacity exists worldwide at present for PF companies. 10 billion litres of capacity is required by 2030, according to BCG — that is approximately 2500 commercial-scale plants to build — a strong ~$750bn spend. Companies such as Izote Biosciences, and BlueStem Biosciences are attempting to unlock legacy bioethanol plant capacity as an alternative path to scale, with anaerobic fermentation processes.

Addressing food security is a central pillar that PF can be leveraged for to build resiliency. Countries such as UAE, KSA, Oman, and Singapore recognise this technology as a viable solution for reducing food imports and allowing for self-sufficiency — alongside the trend towards deglobalisation and decentralisation of production. However, we are still yet to see the Middle East approve a novel food ingredient for commercialisation. With COP28 imminent in Dubai, and the National Strategy for Food Security strategy aiming to make UAE the world’s best in the Global Food Security Index by 2051, it would be timely for additional investment into PF technologies to encourage companies to focus on the region as a commercialisation avenue. The US is driven by its initiative to ‘bring biomanufacturing back to the US’ to assist with establishing US leadership in biotech and biomanufacturing

What is next

Watch this next decade, (and forget about what you know about food tech to date — this has nothing to do with plant-based meat patties, this is about producing exactly what you are used to consuming, in a significantly more efficient manner) and expect to see biomanufacturing revolutionise key industries by improving the reliability, sustainability, nutritional quality, and availability of beneficial and innovative ingredients. (think cheese with no input from the cow, egg whites in cookies with no egg), and maybe, this will all happen, without you even realising (?!).

“It is inevitable”