Biotechnology has come a long way since 1978, when Herbert Boyer successfully demonstrated that human insulin could be produced from bacteria engineered with recombinant DNA. The breakthrough technology pushed a little-known company called Genentech into the spotlight and forever changed the world. Genentech was acquired by Roche for $46.8 billion in 2009, the American bioeconomy -- biotech crops, biochemicals, and biologic drugs -- generated an estimated $324 billion of gross domestic product in 2012, and millions of people worldwide today rely on insulin and other biologic drugs daily.
You could argue that recombinant DNA was the first Holy Grail technology delivered by the field. Several more have followed. In fact, we've recently been treated to the development and ongoing commercialization of the gene-editing technology known as CRISPR -- a true game-changer for the biotech ecosystem. Headache-inducing legal entanglements aside, CRISPR promises to help synthetic biology deliver on its enormous potential and could even be an integral tool needed to produce several other world-changing Holy Grails. Some are closer to reality than investors may think.
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1. Clean meat
You're not supposed to count your chickens before they hatch, but once they do, the number may shock you. Humans raise billions of animals every year -- breeding, feeding, housing, and sometimes slaughtering them -- for food products. In fact, nine American states have more cattle than people. Globally, livestock production is one of the single largest (if not the single largest) producers of greenhouse gases, consumer of antibiotics, user of land, and source of environmental waste on the planet. But livestock also provide delicious foods humans don't want to live without. So we've mostly shrugged and kept the status quo of industrial farming in place.
Biotech wants to change that by providing the same (or better) foods without animals. There are various types of animal-free technologies in the works, but the one with perhaps the largest potential is clean meat. It involves growing animal cells in bioreactors to produce animal meat -- whether from a turkey, chicken, cattle, or even shrimp -- but with 90% or greater reductions in energy requirements, antibiotic consumption, greenhouse gas emissions, and land use.
Once clean meat production is optimized, we could manufacture food products identical to those grown from animals. The only difference is that instead of needing an entire cow to serve as the vessel for growing cow cells, we could mass produce the same cells in a controlled environment. It may sound impossible or unlikely to catch on, but the technology is progressing swiftly. And capturing even 1% of a multitrillion market is still a lot of money.
A slew of start-ups have been formed to develop the required technology. China has agreed to purchase $300 million of clean meat from Israel. And Tyson Foods (TSN -0.17%) is throwing its weight behind the idea. The country's largest livestock producer -- with market shares of 21% for poultry, 24% for beef, and 18% for pork -- has a venture capital fund to expedite innovation in the relatively new space. That would also help it to stay ahead of the technology curve by adapting to new realities, instead of clinging to animal domestication technology that may soon prove to be past its prime.
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2. Nitrogen-fixing plants
The $80 billion global market for synthetic nitrogen fertilizer -- which accounts for 3% of global greenhouse gas emissions -- only exists because most agricultural plants are incapable of acquiring naturally occurring forms of nitrogen through a process called nitrogen fixation. Instead, most plants are completely dependent on nitrogen-fixing soil microbes living on and near their root systems to transfer the existential nutrient.
That plants are lazy when it comes to acquiring nitrogen isn't lost on agricultural companies, with a few industry leaders developing tools to help our photosynthesizing friends. Years ago Monsanto (MON) and Novozymes committed $600 million to form the BioAg alliance. The first products are plant seeds coated with super-efficient nitrogen-fixing soil microbes, which reduce the amount of nitrogen fertilizer required while simultaneously providing a growth boost. Think of it as a probiotic, but for plants.
Early field trials achieved double-digit yield increases, although the first products available to farmers today provide mid- to high-single-digit yield advantages over traditional crops. Bayer and field-leading start-up Ginkgo Bioworks recently created a joint venture to deliver on the same promise, albeit with the goal of mostly or completely eliminating the need for nitrogen applications in agriculture. If successful, these efforts could rapidly result in a new normal for agriculture -- and devastate nitrogen fertilizer companies.
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3. Gas fermentation
Industrial fermentation has proven valuable for civilization, yielding products such as alcoholic beverages, fuel ethanol, and various food ingredients. Synthetic biology wants to do even more. Yet while it's technically possible to engineer microbes to produce most petrochemicals in a renewable fashion, doing so in an economically competitive process is almost impossible. Why? Feedstocks.
The main inputs to petrochemical processes are petroleum and natural gas, which will be cheap or even free for the next several decades at least in the United States. Meanwhile, the main inputs for traditional fermentation processes are agricultural sugars, which are prohibitively expensive feedstocks for manufacturing most commodity chemicals. Positive gross margins, let alone competing head-to-head with fossil fuels, will be all but impossible outside of a handful of chemicals.
So why not combine the best of both worlds? Several companies are developing industrial fermentation processes that feed microbes cheap methane from natural gas instead of expensive agricultural sugars, therefore exchanging the economic risk of sugar feedstocks for the technical risk of gas fermentation processes. On one hand, we have a lot of experience with traditional fermentation processes, but know that sugar is expensive. On the other, we have very little experience with gas fermentation processes, but know that methane and carbon dioxide will almost always be cheaper than agricultural sugars.
It won't be easy to commercialize, but Intrexon (PGEN -7.58%) is engineering bacteria that eat methane and convert it into a variety of chemicals. The company thinks that gas feedstocks are cheap enough to enable healthy double-digit gross margins -- even on commodity chemicals -- so long as technical hurdles surrounding the overall process are addressed. It's about to design and build its first demonstration-scale facility, which could pave the way for the first commercial-scale facility. If it works as advertised, then it could be a true game-changer for global chemical production.
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4. Genetic vaccinations
The development of the first vaccine (all the way back in 1796) led to incredible advances in public health that we're still reaping today. Thanks to vaccines, we've functionally eradicated over one dozen diseases that previously killed millions of people each year. By the end of 21st century, we'll likely take that power to the next level.
Although they're still in the earliest stages of development today, gene-editing technologies such as CRISPR should allow us to literally cut out and replace genetic mutations that cause a host of hereditary diseases. The first proposed treatments -- some of which are nearing clinical trials -- will target rare diseases with "simple" genetic variations that are caused by a single mutation, such as Friedreich's ataxia and sickle cell anemia.
These therapies should pave the way for genetic vaccinations of more complex diseases. On paper, it will be possible to correct genetic mutations in human embryos that cause or make resulting individuals susceptible to various cancers, type 2 diabetes, heart disease, and other ailments. These genetic vaccines may sound controversial today, but ethical discussions evolve with time and technology. By the end of this century, I would expect genetic vaccinations to be as commonplace as traditional vaccinations are today.
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5. Self-replicating cell-free systems
Synthetic biologists often refer to cells as microfactories. Metabolic processes are assembly lines, and enzymes are robotic hands that keep production humming along. We feed sugar into the microfactory and it churns out a specialized chemical product. It's a suitable metaphor, but microfactories have limitations.
For instance, a lot of energy is spent in processes not directly related to producing the chemical we want. Cells need to divide, defend against predators, and run other processes necessary for life. We accept these limitations because cells provide one incredible advantage over traditional chemical processes: They self-replicate. If you have one microfactory, then you can coax it to make billions and billions of copies of itself.
But some scientists want to go even further. What if we could isolate only the assembly line and robotic hands directly related to the task at hand to increase efficiency and yield with a smaller footprint? The technology is called cell-free. While making waves today as an research and development tool, these systems are difficult to create and maintain and don't self-replicate. Therefore, they aren't close to ready for prime time, although several labs are attempting to address those drawbacks.
If they succeed, then our world will look quite a bit different. On paper, a self-replicating cell-free system designed for manufacturing would allow us to produce renewable chemicals at unimaginable yields, costs, and volumes. It may be the only way to produce renewable fuels at costs that compete or beat petroleum, which explains the sudden interest from the U.S. Department of Energy. It may also be pretty valuable for producing foods and materials on, say, Mars.
The technology is over 10 years away, but it could become an important tool -- or the tool -- for industrial biotech companies that must today rely on microbial cells. Several companies are toying around with the technology, although there are many advances that need to be made before it becomes a reality.
What does it all mean for investors?
Using biology as technology has provided human civilization with everything from food to beer to T-shirts to cutting-edge pharmaceuticals. But the pace of advancement continues to accelerate. After all, CRISPR went from non-existent 10 years ago to having already been used in several products on the market today, while the technology ecosystem continues to gain strength. That will serve as a positive feedback loop that enables more start-ups to achieve more accomplishments, faster. It also hints that the rate of breakthroughs, and perhaps the delivery of several Holy Grails, could increase in the near future. It's going to be a wild ride.
