Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation.
Executive summary: Synthetic biology is a nascent but highly important future trend, even if still deeply controversial. The falling costs of DNA sequencing and a series of improving technologies mean that new biological entities that do not exist in the natural world can now be created. This matters since the combination of population growth, rising incomes and changing diets imply that by 2050, the world will need to produce 70% more food globally. Synthetic biology provides one solution. Furthermore, its applicability into fields such as efficient energy and healthcare mean that the overall industry could grow to $30bn in value by the decade-end. There will be clear beneficiaries, many of whom are currently privately-owned. However, listed DNA sequencing businesses such as Illumina as well as early-movers in the food and flavour compound arena also look well-placed.
Imagine a world where you could rear salmon that could grow to maturity at double the normal rate, or produce apples that did not brown when they get bruised. We are not in the realms of science fiction. Both these products exist and are available today in the US and Canada. Expect many more innovations of a similar nature in the coming years. Welcome to the world of synthetic biology (or ‘synbio’), an interdisciplinary branch of biology, technology and engineering.
Synthetic biology can be thought of as the application of engineering principles to biology for the purpose of designing and constructing new biological systems, or redesigning and modifying existing ones. As with many other future trends about which we have written, falling costs and advancing technology have made the theoretical possible. While the sequencing of the first human genome took 13 years and cost $2.7bn, researchers can now perform a similar action on human, animal or plant DNA for little more than $1,000. Cheap cloud storage and data analytics also help. Combined, these innovations allow scientists to ‘read’ and ‘write’ DNA far faster and more cheaply than ever before, in turn enabling massive flexibility in the analysis and design of biological systems.
To be very clear, synthetic biology is not the same as genetic modification. Instead of inserting genes from one species into another (what can be considered ‘traditional’ genetic engineering), synthetic biology aims to create life from scratch, with computer-synthesised DNA or without the use of DNA entirely. Thought of another way, synthetic biology is to genetic modification what a car designer is to a mechanic. Whereas the mechanic can improve the performance of an automobile, only a designer can make a new vehicle from scratch. Synbio researchers effectively use online databases of genetic codes to put together genes and gene-parts via computer modelling.
French chemist Stéphane Ludac coined the term synthetic biology in 1912, but it was almost a century later that a private California-based company called Synthetic Genomics announced that it had made the first completely synthetic genome, a bacterium. Details were published in the May 2010 edition of “Science” magazine. This organism was the first self-replicating species on the planet whose entire biological make-up was computer-created; or, the initial creature since the beginning of life without an ancestor.
Since then, the pace of evolution has evolved rapidly and resulted in multiple commercial applications. What is available today, however, constitutes just the tip of the iceberg. Indeed, there are three very compelling arguments why synthetic biology will become increasingly visible and its products commonplace: it provides an ability to address population growth, manage sustainability and deliver better economic outcomes, making more efficient use of scarce resources.
The figures make sober reading. The world’s population is forecast to grow by more than 30% in the next 35 years, from 7.2bn to 9.6bn, according to the United Nations. On its estimates, by the end of the century, the global population could be over 11bn. Such growth implies an extra 220,000 people will require feeding every day. Against this background, the World Health Organisation believes that this expansion of the population implies a 70% required growth in food supply from current levels. The problem is also exacerbated by urbanisation and the corresponding growth in the middle class. By 2050, some two-thirds of the world’s population will reside in cities, according to the Economist Intelligence Unit.
Rising incomes mean changing diets. Annual meat production has risen six-fold since 1950 and by more than three times since 1970 (based on UN data). Meanwhile, a separate UN report shows that in 2014, the average person consumed 20.1kg of fish annually compared to 9.9kg 50 years prior. The problem is that animal protein production implies an accelerated drain on already-scarce resources. Consider that the production of a kilogram of beef requires around 7kg of grain and over 1,000 litres of water (data from Cornell University). At the same time, around 40% of the world’s crop production is lost annually due to weeds, pests and diseases, while around 70% of global potable water is used in agriculture (source: the UN). Moreover, the same report also observes that more than 80% of the world’s fish stocks are over-exploited, depleted or endangered. Add in the implications of climate change, and the gravity of the challenge is evident.
Synthetic biology can therefore be thought of as providing part of the solution to the problem of peak food. In 2013, the FDA (the US regulatory body responsible for food and drug safety) gave its approval to synthetic salmon, produced by a US-listed business called Intrexon. According to the company, it salmon grow to market size in half the time and on roughly 30% less food than typically farmed salmon. This offers around a 50% reduction in fixed costs and 25% lower variable costs for salmon farmers. Similarly, with around 50% of apple produce currently ending up as waste, owing to bruising/ browning, the commercialisation of non-browning apples (also FDA-approved) is highly logical. Other food products that are currently in development from a combination of synthetic yeasts are pork, beef and dairy produce. Elsewhere, many synthetic flavours have been/ are being developed, reproducing the likes of vanilla, saffron or rose petal at a fraction of their conventional price.
The market opportunity is sizable. The global food and agriculture sector is currently worth $3.2trillion, accounting for some 3% of global GDP, according to the World Bank. Within this, the meat, poultry and fish market is worth some $740bn and the dairy industry around $336bn. Meanwhile, the global market for flavours and fragrances is some $20bn in size, based on data from IFF, a leading player in the sector. If synbio players could capture just a fraction of this, then it would be significant.
Beyond food and flavouring, there is also clear potential applicability for synthetic biology in other fields. The energy industry, for example, has expressed an interest in the fact that modified microbes could enable the creation of more efficient conversion of sugar and other cellulosic materials into hydrocarbons for fuel. Within healthcare, scientists have already been able to engineer a mosquito to help combat mosquito-borne diseases by eradicating malaria-carrying species in non-native environments. NASA too has shown a clear interest. Synbio could help produce resources for astronauts from a restricted portfolio of compounds sent from Earth. On Mars, in particular, synbio could lead to production processes based on local resources, making it a powerful tool in the development of manned outposts with minimal dependence on Earth.
Synthetic biology is, of course, not without its critics, the issues inevitably complicated by the broad spectrum of stake-holders involved, which include governments, regulators, scientists, commercial food producers, farmers and consumers. The concerns are both ethical and practical. In the former camp, the debate centres on the risks attached to changing animal and plant (and in the future, maybe human too) biology in the face of incomplete knowledge about the consequences. Thought of another way, here is no way of knowing the extent of the damage until it has already been done. The fictional spectre of Mary Shelley’s Frankenstein looms large. Moreover, fears also arise relating to who will have control over and access to the products of synthetic biology as well as the dangers were they to be appropriated by terrorists, for example.
At a practical level, the consumer acceptance of engineered food products is not clear, particularly since the impact on human health is also not established. Over two-thirds of American consumers say they prefer groceries with fewer and simpler ingredients, while a similar percentage believe genetically-modified foods to be unsafe, despite being present in the market for over 20 years (figures from a recent survey by PwC). It is clear that regulation will need to play a defined role in how the market for synthetic products evolves as will (logically) many of the relevant stake-holders. The US and UK governments have taken a proactive stance in helping to develop the industry, with the Obama administration publishing a Blue Paper on the topic in 2012. Meanwhile, the UK recently committed to £60m of research funding into synbio.
With the industry still at a very nascent stage, it is hard to gauge accurately the market size, particularly since synbio has applicability into many fields. One consultant, Allied Markets, believes the industry to be worth around $4bn at present, but could be over $30bn in size by the end of the decade, equivalent to a compound annual growth rate of more than 40%. Even were such an assessment to prove optimistic, the expansion of the synthetic biology market will inevitably create a number of winners. Many of the leading businesses in the field today are privately-owned, such as Synthetic Genomics, Ginkgo Bioworks, Twist Biosciences, Gen9 and Modern Meadow, although Intrexon has been listed since 2003. It is currently capitalised at ~$3.5bn, but is still loss-making at the EBITDA level.
There are, however, a range of alternative approaches that offer some exposure to this emerging future trend. DNA-sequencing businesses such as Illumina and Thermo Fisher Scientific should naturally stand to benefit as demand for their services will only likely accelerate as the field of synbio becomes more established. Elsewhere, several leading fast-moving consumer-food groups and flavour/ fragrance businesses have also begun to embrace the potential of synbio. Kraft Heinz, for example, is an early-stage investor in Gen9, while IFF (a ~$9bn flavour and fragrances business) has partnered since 2014 with Swiss-listed small-cap Evolva to produce synthetic vanilla products. Other players who have also shown interest in the field include Colgate Palmolive, General Mills, Nestlé and L’Oréal (the latter for cosmetic products). Expect to hear a lot more about synthetic biology; once out of the bottle, it is hard to put the genie back.
Alexander Gunz, Fund Manager, Heptagon Capital
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