Spill the TEA

Making economically viable bioproducts

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Our economy runs on the decay of this planet’s first life forms. Fossil fuels. We use one third of the planet’s available land to raise more life forms, and then slaughter them for their meat and biomaterials. Animal farming.

None of this is great.

Imagine explaining our fuel and food sources to intelligent alien visitors. It would be pretty embarrassing.

Industrial biotechnology has a simple thesis. We should transition our economy onto a more sustainable foundation: biomanufacturing. Instead of ripping ancestral biological matter out of the ground or raising sprawling farms of sickly livestock, we should grow the fuels, chemicals, materials, medicines, and food that we need using the tools of biotechnology. We already have a Bioeconomy—this would make it more rational and sustainable.

From first principles, the argument is sound. It’s just expanding Genentech’s founding vision to include the rest of the sectors of the economy that biotech could impact—which turns out to be a lot.

While the logic checks out, the initial economic performance has been underwhelming.

Many companies have lost considerable value over time in the public markets. Others have spiked before crashing and being sold for a fraction of their peak valuation.

Some of the earliest companies have now gone bankrupt.

Yikes!

Why is this the case? One could argue that it’s a matter of technological readiness levels. Synthetic biology—the modern descendant of genetic engineering—was simply too nascent a technology to reach industrial scale when these companies launched.

There is a kernel of truth to this. Each year, progress in organismal engineering compounds. Over time, the R&D costs for making new bioproducts will continue to decline.

But there’s another layer to this problem. Culturally, synthetic biology has focused primarily on engineering, with a secondary emphasis on product obsession. Economic considerations have come after that.

This needs to change. If we want to build a biotech-powered Bioeconomy, it will require as much economic ingenuity as technical ingenuity. We will need to design businesses capable of being financially competitive—even against incumbent giants who possess the advantages of regulatory capture and Scale Economies.

There is good news: there are tools for achieving this.

One of these tools is called Techno-Economic Analysis (TEA). TEA is a modeling framework that aims to help forecast a new technology’s ability to compete in an industrial market. This grab bag of financial tools will be as essential as any genetic circuit in jumpstarting the Bioeconomy.

Tracking inputs and outputs

As a species, accurate financial record keeping is a brand new technology. At the beginning of the 20th century, not a single city in the United States kept a budget. This dramatically hampered the effective allocation of resources.

Since then, things have gotten much better. More standardized accounting practices spread across the business sector and into the government. Now, in the Information Age, we can barely keep up with the amount of data being stored each day.

But there is a lesson from history. The creation of new systems—including cities, government, and industries—often precedes the measurement systems that emerge to help them run more smoothly.

This was also true for synthetic biology. As the story goes, Pat Brown sold Vinod Khosla on the vision for Impossible Foods with an incredibly simple market analysis: “It’s a trillion-and-a-half-dollar global market being served by prehistoric technology.”

But would Impossible burgers truly outcompete meat products in a trillion dollar market, or would they primarily be competing with veggie burgers? What is that market size? And what would the cost of goods sold (COGS) be compared to other meat and veggie burgers? What about the margins—especially accounting for the use of biomanufactured ingredients?¹

These are the types of questions that TEA aims to answer.

Most TEA begins with a process flow diagram that describes each step of the production process in as much detail as possible.

An example of a process flow diagram for fermentation. Source: Synonym

Next, the process needs to be overlayed with a careful accounting of what goes in and out of each step. This is the mass and energy balance of the technology.

A mass and energy balance for a fermentation process. Source: Synonym

From here, we transition into the world of economics. The goal is to quantify the actual costs associated with the system as it is described. These costs come in two flavors.

First, there are capital costs. Working backwards from the process diagram, what are all of the pieces of required equipment, and what are their prices? What will the cost of the land be where the facility is constructed? How much will the construction cost? These are all of the upfront costs that can be paid back across the full lifecycle of production once things are up and running.

Second, there are operating costs. How much will the inputs into each step cost in total? This includes human inputs—the labor required to run the process. Even seemingly small details like waste removal matter. Everything needs to be accounted for.

With a more detailed description of a technology—and the costs associated with it—an important question needs to be answered. Will this new process compete in the market?

A new bioproduct realistically needs to be able to compete on performance and price. Consumers and investors are both wary of “green premiums.” Achieving viability on both fronts is a nontrivial task. A good TEA model can serve as a debugger for doing so.

First, TEA helps you realize your starting point. It’s important to know the costs of your process to the highest possible degree of accuracy. If you aren’t cost competitive at a first pass, the model should help point you to the knobs worth tuning. Where can the greatest amount of economic leverage be gained through improvement?

TEA also provides a basis for economic creativity. With an entire process described in as much detail as possible, it’s possible to start to reimagine it. One company is trying to do this for fermentation at large.

Changing the economics of fermentation

Tool building is great. People building tools for you is even better. I’ve been obsessed with building Web tools for biologists for quite a while. One of my ideas for my PhD project was to build a simple and effective tool for synthetic biologists to quickly gauge the economic viability of their inventions. I was excited to see that a company called Synonym had already done this—and that they had done a better job than I could have on my own.

The tool is called Scaler. With a small set of form inputs, Scaler generates a reasonable base TEA to gauge feasibility. Information can be progressively layered on to the base model for greater accuracy. Many of the complex details of getting a TEA right are abstracted away and handled for the user.

How is this abstraction possible?

The central assumption is that many bioprocesses are quite similar. Many synthetic biology products use fermentation—the conversion of feedstock into products via microbial metabolism—as the means of production. Synonym views fermentation as the “platform technology of the Bioeconomy.”

Fermentation as the means of production. Source: Synonym

If everybody is using the same platform, why should each company painstakingly model the unit economics of a fermentation facility in gory detail? Just refine the parameters that are specific to your project.

Synonym takes things a step farther. Scaler is one part of a broader effort to make fermented products economically viable. The team is also working to modularize facility design and make infrastructure more reusable across projects. They also want to make it possible for multiple companies to share the same facilities—further spreading costs and increasing margins.

All of these improvements play a part in a larger goal: changing the financing structure of synthetic biology.

So far, many companies have exclusively relied on VC funding. This is dilutive, because it involves selling company equity. In financial terms, this cost is borne on the balance sheet of the company. Investors are wary of this right now too—I’ve heard many say they “won’t finance high tech infrastructure that produces commodities.”²

In other words, it’s an expensive financing method for companies, and it is difficult for venture capitalists to get a sufficient return on their investment.

But what if several companies share reusable infrastructure? What if each product has a viable TEA thanks to Scaler? This could start to look like an appealing investment for other sources of capital—like project finance—that have different return expectations. Facilities could start to be built off of companies balance sheets.³

This is a big idea.

It’s an attempt to fund biomanufacturing infrastructure in a similar way to how we fund solar panel installation.

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The goal of TEA is to help new bioproducts win in big markets.

Guided by TEA, Synonym is attempting to reimagine the economics of fermentation. Other companies like Solugen—which is built upon a strange and beautiful marriage of chemical engineering and synthetic biology—developed their own TEA models to validate the feasibility of their ideas. Additional approaches beyond fermentation may also radically shift the economics of bioproduction.

It’s hard to overstate the scale of the opportunity here. We’re talking about moving the world away from fossil fuels and animal farming, while truly disrupting the multi-trillion dollar markets that Pat Brown described.

But doing so requires technology and economics.

It requires spilling the TEA.

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Thanks for reading this essay on the importance of techno-economic analysis.

Thanks to the Synonym crew—including Edward, Joshua, Brentan, and Crystal—for their conversations during my research. As always, this wasn’t a sponsored post, and I’m not an investor in Synonym. If I was, I would tell you!

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1. I don’t mean to be overly disparaging of Impossible Foods, and I don’t know their answers to these questions. Personally, I find deep satisfaction in the occasional Impossible Whopper, paired with a Diet Coke. Better living through science!

2. Obviously, not all bioproducts are commodities. Perhaps that’s a topic for another day.

3. If this happened, it would also have the added benefit of making early-stage synthetic biology investing much more appealing to venture capitalists, who are also sensitive to the amount of downstream equity financing required.