The “Coming Apocalypse:” Will Industrial Biotech Flourish or Flounder?

April 19, 2021 |

By Christopher J. Guske, Ph.D. and Mark Warner, PE

Special to The Digest

There are storm clouds on the horizon and those of us actively entrenched in scale-up and manufacturing for Industrial Biotech see the coming apocalypse…and it will likely not be pretty.  We make this assertion knowing we are in a superlative-saturated society, where getting even an eyebrow raise over another pending apocalypse is wishful thinking. That does not make the assertion any less likely.

Over the last couple of decades, VCs have been showering money on start-ups, which seem to be multiplying like rabbits; technology advances are staggering; and strain development times have been reduced – all of which signal a flourishing industry. Entrepreneurs can hold up flasks, proudly showcasing their products, declaring commercial readiness. But there is a problem….

Over the same couple of decades, “capital light” has been the scaleup/commercialization mantra: why build when one can use someone else’s facility? Well, the problem is this: Riffing off of Margaret Thatcher’s assessment of socialism, “Capital Light is great until you run out of someone else’s capital.” As multi-decade Industrial Biotech veterans, we are seeing more start-up companies “dressed up with nowhere to go.”

How dire it this situation? It is definitely getting worse at the wrong time. North America contract research and manufacturing organization (CRO/CMO) capacity is tightening. In 2020, one CRO/CMO completely shut down its facility to all fermentation work and laid off staff. A second quit conducting outside work as internal demand filled capacity. A third was rumored to be considering shutting down or selling.

The situation in Europe is less dire but even that market is tightening. Additionally, EU regulations (e.g., REACH) make things more challenging. Producing in the EU and then transporting back to the US can be challenging, driving a reluctance to use European facilties, where the bulk of available capacity currently exists. On a positive note, the EU has done a far superior job of promoting and supporting its capabilities through programs like Pilots4U, something the US should consider.

Does un-utilized industrial biotechnology capacity in the US exist? Well, yes, sort of. Tate & Lyle’s Decatur, IL, refinery has large fermentation capacity, once used for producing xanthan gum and Amyris’ farnesene. But the facility has remained idle for several years with no evidence of interest to recommission it despite numerous inquiries. ADM’s Clinton, IA, facility (built to support the defunct ADM-Metabolix JV) operates at fractional capacity with the majority of commercial-scale fermentors still not commissioned. Fermic’s Hannibal, MO, facility remains idle. The issues in bringing sites back into operation are common stumbling blocks: (1) these fermentors are rather large for most early-stage companies, and (2) there needs to be a sustained commitment to bring these up to/back to operational status.

There is some pharma capacity available for CRO/CMO work in the US, but if one has to displace another internal product (which would be the common scenario) and/or operate in a pharma cGMP environment, this is not an economically attractive option unless one has a high-value product, i.e., $100/kg or more.

The other subtle nuance is equipment-related: Fermentors, if properly designed, are fairly flexible pieces of equipment and adaptable to many different fermentation scenarios. DSP (downstream processing) is often process specific and a controlling factor, except in the case of limited DSP processes (whole cell or cell-free). While pilot plants can often maintain a high level of flexibility, this needs to be sacrificed with increasing scale because of the cost of larger equipment. Hence, while a CMO may be able to handle the fermentation requirements, it may be inadequately equipped to provide the requisite DSP, often requiring significant capital investment to complete the process or requiring the use of another third party.

Back in late 2018 at an ABLC event, one author had an impromptu conversation with a well-known VC Managing Partner: When asked about the “coming apocalypse” (and a subsequent explanation of what that phrase meant), the MP indicated that his firm had been thinking about this issue for a while and were tailoring their investment strategy away from technologies which would require large-scale fermentation capacity.

What are the solutions to this problem? Well, none of these are easy.

Greenfield facilities are not cheap to build. Most VCs are more focused on developing technology…and then exiting at high multipliers. Fortunately, the authors have begun to see a rise in investors more interested in developing infrastructure and manufacturing capabilities, but these remain in the minority. Time is required for design, permitting, construction, and commissioning…and then the facility is not initially operated at full capacity as sales have to ramp up. This all requires deep pockets and patience. Fermentum has tried for years to generate interest in investment: still no steel in the ground.

Running a CRO/CMO is not an easy business, particularly when there is a high turnover in clients. Much “unproductive” time is spent on legal agreements, tech transfer, set up, clean up, scale up/validation steps, equipment procurement and modifications, analytical methods transfer and validation, etc., all before a demonstration trial or actual production can even take place. Hence why CMOs much prefer long-term commitments or extended campaigns. And pricing can be high as CMOs need to recover capital depreciation and labor costs during unproductive/unscheduled times.

Purchasing a brownfield site is not without challenges: As one author’s Dad used to say, “When you buy a used car, you are buying someone else’s problems.” If the facility has been left idle and unmaintained for an extended period of time, this is like a misery multiplier. However, there have been some companies who have gone this route – and this will likely benefit them in the long run against their competitors: Manus Bio purchased the old NutraSweet plant in Augusta, GA. Danimer Scientific purchased the former Martek/DSM/Alltech facility in Lexington, KY. (DS is rumored to be at full capacity and looking to expand: this will be greatly facilitated by DS’s acquisition by a SPAC [Special Purpose Acquisition Corporation], allowing immediate access to capital for expansion activities.) Corbion snapped up the Solazyme/TerraVia facility in Peoria, IL. But brownfields are few and far between.

Raising awareness seems to be growing. In November 2019, MIT and Manus Bio hosted a workshop entitled Reinventing Chemical Manufacturing: Transitioning to Industrial Biomanufacturing. A key thrust was how to grow biomanufacturing: facilities, training, etc. A white paper will be published and is currently under review. Some federal monies have been earmarked as evidenced by the recently announced BioMADE project. (Unfortunately, while intended to support biomanufacturing, this will not address the existing capacity shortage.)

Going it alone can be prohibitive for numerous reasons; partnering with other companies to share resources and capital spend has a certain attractiveness, but then there are logistical issues and challenges associated with this route.

At the end of the day, it boils down to capital: you can’t operate what has not been built. While the federal government seems like an obvious choice, this is probably not the most efficient, least bureaucratic approach. There are strategics out there with deep pockets, but you might end up selling your soul. Perhaps it would be better to be acquired, though acquisition values are higher for demonstrated technology. Hence, a Catch-22.

Circling back to comments made at the outset of this article, startups are multiplying like rabbits. Clearly not all will be successful and many will disappear. However, statistically, considering the diversity of the Industrial Biotech space, there will be more and more winners. But if there is no place to produce, many could “wither on the vine”…and be snapped up deep-pocket strategics for pennies on the dollar.

About the authors:

Chris Guske is founder of D2 Biotech Consulting, LLC, providing early-stage technical development through CMO/plant startup support. Additionally, D2 assists in technical/capabilities and due diligence evaluations. Chris can be reached at [email protected]

Mark Warner is the founder of Warner Advisors LLC and is focused on assisting companies in commercializing their novel biotechnonogies.  Mark can be reached at [email protected]

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