Long-Term Investing Ideas in a Volatile Market
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
Can synthetic biology break the chemical industry's reliance on fossil fuels? Industry veteran Joel Stone shares how industrial biotech is changing consumer brands, energy, agriculture, and more.
December 1, 2020 – By Simon Erickson
The chemical industry operates under massive economies of scale. Companies like Dow, BASF, and Bayer procure feedstocks and supply inputs in massive quantities, hoping to drive the greatest production and highest yields for their end products. That often means relying on non-renewable petroleum feedstocks.
[su_button url="/subscribe/" style="flat" background="#84c136" color="#ffffff" size="6" center="yes" radius="0" icon="" icon_color="#ffffff" desc="Get full access to our 7 best ideas in the stock market for only $49 a month."]Sign Up Today! [/su_button]
The 21st century presents unique opportunities and challenges to the chemical industry. Companies are eager to shift away from petroleum feedstocks, whether it’s Coca-Cola making plastic bottles from renewable chemicals or cosmetic brands eager to offer cleaner ingredient labels. Consumer preferences are also changing as more households begin to incorporate environmental factors into purchasing decisions, which is driving demand for animal-free proteins and biology-based products.
Industrial biotechnology is uniquely positioned to address the changing landscape. However, although it has been around for decades, industrial biotech has only filled a niche role in the chemicals industry to date. Can the emerging field of synthetic biology make industrial bioprocesses more scalable and cost-efficient?
To help us answer this question, we brought in an industry veteran.
Joel Stone is the founder and president of ConVergInce Advisers, which is a leader in growing renewable and bio-based companies. Joel has four decades of experience in this space, and he believes that changing industrial and consumer trends are reinventing the specialty and performance chemical industry.
In an exclusive interview with 7investing lead advisors Simon Erickson and Maxx Chatsko, Joel provides an overview of synthetic biology and industrial biotechnology and where each is gaining traction. He also describes several of the challenges involved with scaling from R&D to production and why certain markets are extremely attractive.
00:00 – Introduction to Joel and overview of Synthetic Biology
4:19 – The challenges of scaling from R&D to commercial production
8:47 – Is synthetic biology pivoting, from larger volume industrial applications to higher-margin, consumer-facing opportunities?
11:17 – Are unit economics prohibitive for synthetic biology in the energy industry?
19:30 – What’s driving the change for chemical companies to replace their existing feedstocks
23:10 – Intermediary chemical suppliers pivoting to consumer brands
33:45 – Innovative and futuristic capabilities for the alternative meat market and beyond
45:18 – What companies does Joel think are investing no brainers?
48:57 – Conclusion
Publicly-traded companies mentioned in this interview include Amryis, Beyond Meat, BioNTech, Chevron, Clorox, and Moderna. 7investing’s advisors and/or guests may have positions in the companies that are mentioned.
This interview was originally recorded on November 18, 2020 and was first published on December 1, 2020.
Simon Erickson 0:00
Hello, everyone, and welcome to our 7investing podcast. My name is Simon Erickson and here at 7investing, our mission is to empower you to invest in your future. And we’re going to be talking about some really futuristic things today. I’m joined on today’s podcast by Maxx Chatsko. We’ll be discussing synthetic biology and industrial biotechnology.
Simon Erickson 0:21
Fortunately, we have with us an expert in this space. Joel Stone is the president of ConVergInce Advisers and he joins us this afternoon. Hey, Joel, thanks for spending the time with 7investing!
Joel Stone 0:32
Thanks, Simon. Nice catching up with you again, after our last interview.
Simon Erickson 0:39
Yeah, we had a lot of fun with that one Joel. We were talking a couple of years ago about how synthetic biology is truly becoming disruptive to the chemical industry.
Simon Erickson 0:48
And so maybe we start this at the 10,000 foot level first. Joel, there’s a lot of R&D work going into these fields. And we’ve seen for a long time, people are using science to do really cool things, right? We harnessed Physics for civil engineers to build buildings. We’ve harnessed Chemistry for chemical engineers to build chemical plants. But synthetic biology is actually using biology to create feedstocks for the chemical industry and a whole bunch of different applications. Can you maybe start us off by talking about the R&D work, that’s kind of at the first phase of the fields that you look at?
Joel Stone 1:26
Certainly, Simon. You know that the interesting thing about synthetic biology, it’s really the crossroads of combining arithmetic algorithms, artificial intelligence, and biology and engineering. Just all of those converging in a single area to solve the problems that we would have never thought we could have solved before. On really calculating the modifications that we need to make the organisms, to have them make a particular product or particular material.
Joel Stone 2:05
Unlike what anyone has ever thought that’s really the magic of the artificial intelligence and computational techniques being shared with scientists and microbiologists and geneticists to be able to predict what vectors you need to change. But then DNA, or today even RNA, to have a particular certain kind of outcome. So much of the early stage development, which is now moving more into commercial stages, a great example is if you think, you know, just five to 10 years ago, how long it would take to develop a vaccine. And people said – people even early on this year said “There is no way we’re going to have a vaccine for COVID-19 developed within less than a year.” I said, “Oh, I think that’s perfectly possible. Because what used to take years, for 10s of years, can now be done in months or weeks. Or presently with some of the tech techniques and technologies, a matter of days and hours.” Which has allowed this massive transformation.
Joel Stone 3:20
And then taking that to the next step of moving it into the engineering and the scale up to actually produce on a larger scale. And how is that being done? Well, it’s really the R&D people working hand in hand with the engineers on the scale of people to actually begin designing the molecule and or the process at the big scale. So the scientists really start becoming on the leading edge of doing work with the bench, this scale down to the micro level, that we may have never been able been able to make could have been done years ago.
Joel Stone 3:56
I mean, what what is happening presently is what I dreamed that would be happening back when I got my master’s degree in Chemical and Biochemical Engineering. Back long ago, when nobody even knew what Biochemical Engineering was, nor did they even know what enzymes were. And now it’s like everyday language.
Maxx Chatsko 4:19
So we’ve seen, like you said, with the vaccine being developed in less than a year, a lot of companies in R&D, they’ll use this metric of “scientist years”, to develop a new ingredient and new organism. It’s pretty interesting. If you look even at the last five years, definitely in the 10 years, the amount of scientist years spent on an asset has dropped from a very long time measured in actual years to down to, you know, maybe months.
Maxx Chatsko 4:48
So, some of these bottlenecks are being removed from the R&D in the lab, you know, working through the the lower scales of development. But now it’s kind of pushing these bottlenecks further downstream. Closer to scale up and commercialization. So what are some of the bottlenecks that still exist, for moving this into actually commercializing it and getting it to the market?
Joel Stone 5:15
That is a very challenging question to answer. Because there’s different levels of scale. So let’s say if we’re, the best example is if we’re scaling up a vaccine, as is what is going to be done by Moderna and Pfizer. Who shortly — well, they already are — they’re already producing product to build up inventory. And then Johnson & Johnson. Likely, that order magnitude of scale is 10s or hundreds of liters in fermentation capacity.
Joel Stone 5:49
So what I would typically think in the chemical industry or even in the food industry, that would be pilot scale. And there are so much known by that scaling factor to go from, you know, a one liter or 250 milliliter or up to 100 liter fermentation vessel, and maybe a 500 liter fermentation vessel, is actually in my mind is pretty straightforward. Which is what’s allowing this to happen quickly.
Joel Stone 6:20
The challenges that come into play is when you’re moving to producing a food protein, like an Impossible Foods, or a mycoprotein. Many of these companies that are making, you know, artificial meats and proteins that would go into the food system. Because those are much larger fermentation vessels, 10s of thousands of liters or hundreds of thousands of liters.
Joel Stone 6:45
And then you take it to the extreme for renewable chemicals. You’re talking about the multiple hundreds of thousands of liters of capacity. And the challenge when you go for that level of scale becomes “How do you control the amount of cooling and the amount of airflow.” These aerobic organisms which are very dependent upon that for their metabolism and for the expression of the finished product. Whether it be a protein or a chemical or an intracellular aerial. And you’ve also got the mechanical challenges of how do you agitate these vessels. The difference between a 10 liter or 100 liter vessel and a 250,000 liter vessel is enormous. And that’s always been an engineering challenge. And it still is going to be. But with the onset of present day computerization and engineering design, a bridge that can be undertaken to figure out those scaling factors.
Joel Stone 7:49
It’s much easier now than say it was when we had to do it longhand, even just 10 years ago. So it’s really dependent upon whether it’s a pharma type of product, which is much smaller scale. And usually those are one use vessels. A lot of people don’t know this, but they don’t have a fermentation vessel that they’re using over and over again. This typically is a one use vessel to allow you to operate under very aseptic or sterile conditions to produce these bonds and materials as needed. We can’t quite have a once-through, throw-away fermenter when it’s 150,000 liter vessel. That’s got to be stainless steel, it’s got to be properly piped and equipped to be able to clean it and sterilize it between each batch or continuous cycle. Hopefully that answers your question Maxx.
Maxx Chatsko 8:47
Yeah, I was just I was coming more from the industrial side. So, you know, in the early days, we had like the Solazyme, Amyris, Codexis… Before it went back to pharma, they were working on these big, renewable bulk chemical markets.
Maxx Chatsko 9:02
So I mean, how close are those to being commercialized? Or it seems like the fields kind of pivoted to two different types of markets now, right? Higher profit margins, maybe more certainty. Rather than these markets like fuels or some of the bulk chemicals that require just massive scales to make work. Like, we still don’t have a very good handle on scaling up fermentation to those scales, for these highly engineered organisms, right?
Joel Stone 9:33
That is correct. That is correct. And there has been a significant pivot, you know, to food proteins surfactants, your higher value kinds of kinds of materials. Now you’ve got companies like Geltor that’s making collagen that’s going into the cosmetics industry, by having a fermentation derived material rather than have it be from animals. And then a lot of the proteins that are being developed for the food industry, you know, good value of views and things for food.
Joel Stone 10:04
And plus, when you look at the pivot that’s been made, it’s really consistent with next to climate change. Our next biggest issue between now and 2050 is how are we going to feed all the people in the world? How are we going to have enough protein to feed all these people and do it sustainably? Because you can’t raise enough animals to be able to provide enough protein. And you move closer to agriculture by taking the agricultural feedstocks and being able to move them very quickly to producing high value food products. Without the amount of waste that takes place, or typically for beef or poultry or swine, you know, a fraction of the protein actually ends up in the food chain for human beings. And that changes dramatically when you move into direct fermentation of products or producing aquaculture feeds, which fish are very efficient at converting into protein. So that’s why you see a big rise, a lot of interest in aquaculture as a way of of sustainably providing nutrition.
Simon Erickson 11:17
There were a couple other end markets we wanted to ask your perspective on Joel. One of them has been the energy industry. We’ve seen investment over the last couple of decades from big oil companies trying to figure out how to make biofuels how to use different feedstocks, whether it’s algae, whether it’s sugar, cane, whatever it is. But a lot of those have had kind of some some roadblocks and some hurdles in terms of the economics. Where do we stand in the energy industry for synthetic biology? Is it making progress there? Or is this still a really difficult market for them to crack?
Joel Stone 11:53
There really hasn’t been a lot of investment in synthetic biology as it relates to biofuels. I mean, you can look at, as an example, a couple of large yeast companies have developed better engineering yeast that can actually produce some of the enzymes. So that rather than having to make enzymes, you can actually have the yeast expressing the enzymes within the fermentation that improve yields. And producing ethanol, specifically, a lot of activity going on that doesn’t really require synthetic biology can just use traditional, readily-available microbes that are found in nature, in a process called anaerobic digestion. Which is basically taking any waste material, agricultural waste from animal and food produce waste, a lot of activity looking at all this food waste that we have from both grocery store chains and restaurants and people’s home waste, that can basically be converted into methane gas. And then that methane can then be converted into what we call renewable natural gas, which is pipeline-able.
Joel Stone 13:05
So a lot of a lot of companies are pursuing that most recently. Chevron did a joint venture deal with a company called Brightmark, and they’re basically located co locating next to beef and dairy farms throughout the US. In fact, they just announced a very large project down in Florida that’s going to be taking all the dairy waste from a large number of farms in Central Florida and converting it into renewable natural gas. That’ll make renewable natural gas available to the population centers of the southeast Florida, which is typically constrained, and not having much natural gas available, getting pipelines into those areas. And then you’ve got the renewable diesel. Again, that’s not necessarily using synthetic biology. But where I think we’re gonna see a pivot and see some things starting to occur is where synthetic biology can be deployed, is if you can produce microbes that can take ethanol and convert ethanol from existing ethanol refinery into higher value chemicals. Just like there’s there’s organisms that can take methanol and convert methanol into higher value, chemicals or proteins. So I think that that’s all done on a much larger scale. Again, it’s commodity. So right now, there’s so much focused on these higher value markets.
Joel Stone 14:34
But once that technology starts to become mature, and people understand, and I truly believe that when we look at the infrastructure that we have in place, with agriculture and moving into producing ethanol is the logical approach to replicate what happened in the early days of petroleum refineries when they pivoted to become chemical refineries. They’re gonna see ethanol refineries pivot to suddenly start becoming bio chemical refineries where they may take the existing feedstock of the conversion of corn and the corn sugars and be able to produce those to produce high value alcohols, whatever. Much like what I did at Green Biologics. We took an existing ethanol plant and we repurpose it to produce butanol and acetone, using our specially designed advanced fermentation and the Clostridium strain that we had selected. And we were on the cusp of using some of our own equivalents.
Joel Stone 15:40
CRISPR Cas 9, which was a technology called cleave where we were going to modify the Clostridium to be much more efficient at producing butanol as well as acetone. So I think there’s going to be circling back to that, as we as we start moving forward. And as petroleum companies become the pivot, which they’re already doing that announcements by BP, by Shell, by Chevron, all the majors have made announcements that they’re going to essentially be completely off of fossil fuels by 2050. That’s pretty remarkable, though. Of having something we’re evaluating approaching 2021. And they’re going to be pivoting away from the use of fossil fuels. Their only approach is going to be putting those investments rather than drilling holes in the ground, but placing those investments in synthetic biology that I think we’re going to see. We’re going to see that starting to change here between now and 2030. And then you also have companies like Unilever that recently made an announcement that they’re going to Unilever. It’s going to have all their products completely not using any more fossil based fuels or chemicals. By 2030. That’s only nine years away. For a company the size of Unilever, that’s pretty remarkable. Which means there’s got to be some massive amount of investment.
Maxx Chatsko 17:06
In sticking with energy real quick, just out of curiosity: I’ve always wondered whatever happened with butanol. It seems like a way better fuel additive to gasoline than ethanol. It’s got more energy density. It seemed like it was there was a you know…there were a couple of joint ventures, as you mentioned, at Green Biologics. And then it just kind of fizzled. And it doesn’t seem like there’s that much interested anymore. It seemed like he could also convert ethanol facilities to make butanol. So whatever happened there? Why did it lose a part of the industry…kind of lose interest in it?
Joel Stone 17:39
Some large, beautiful plants were built based on petroleum. And with the butanol prices being very much suppressed due to low oil prices, you had to have a much higher product, a much more valuable product. That’s why at Green Biologics, we started moving into branded products with our butanol. And I’m actually working with two different butanol companies now: One Celtic Renewables over in Scotland. And they’re building out their demonstration plant, which will be starting up in in late q1 of next year. And that’s a perfect technology, completely meeting the requirements of a circular economy, because they’re taking distillery waste from the scotch distilleries and converting it into performance butanol and acetone. That plant will be producing product in q2 of next year. So looking forward to seeing that. And then another company I’m familiar with and working with, we actually are doing a doing a presentation in Biofuels Digest tomorrow, is Catalyx. And Catalyx is a catalyst technology that allows ethanol to be converted into butanol, hexanol, and octanol. You know, the higher chain alcohols which are much higher value. So the lost (inaudible) and butanol for fuel. Because, you know, why produce a fuel and cell material as a fuel when you can make much higher value chemicals out of it.
Joel Stone 19:17
So that’s that’s why there was so much movement away from butanol. You know it’s because there is much higher value as a performance chemical with very low purity. Is it could go into making butyl esters that required high purity. Butyl esters are used in everything from cosmetics to food flavors and fragrances. So why not? Why not go that route versus selling them for its fuel value?
Simon Erickson 19:49
Hey Joel, what is the driver for for chemical companies or even consumer facing companies to make the switch on their feedstocks from what they’re using right now?
Simon Erickson 19:58
I mean, it seems like for a while there, it was all about the biodegradability. You know, Coca Cola is replacing hydrocarbons in its plastic bottles because they were biodegradable. And then it seems like there’s more of a focus on the yields recently. Just a more efficient process. Is there something that keeps coming up, at least for those chemical providers or those consumer facing companies, that’s really driving them to make the change right now?
Joel Stone 20:27
The most significant piece that’s driving that change is the branded product companies, the quick service restaurant industry, are all working towards ESG goals and sustainability goals. So they don’t want once through plastic anymore. They’re looking for biodegradability in those materials, and that’s really the key driver – producing plastic material that can be biodegradable. You know, we used to always think as I was growing up, “oh, we can do all this recycling, whatever.” But the problem with recycling is you’ve got to have pretty significant sorting. You just can’t take mixed use plastics out from a landfill – that is a whole domitian different things and convert them them back into naptha or olefins, typically, and then produce plastics out of them. So I think we’re going to see more and more activity. From a polymer science standpoint, really a combination of synthetic biology and catalysis, I don’t think, you know, it’s going to be very difficult to get to the ultimate end point, just using microbiology. Being a true believer in it, I’d like to say it, but it’s just so much more efficient to get part of the way there, or the majority of the way there, then use the the new technologies (that) are developing using nanotechnology and catalyst. That’s probably another from an R&D standpoint, another very big area of growth is nanotechnology to have very selective catalysts. So now you can take the organism, get a process quite a bit down the road, and getting close to what the finish valuable material is going to be, and then use catalysis to take it to that next level to end up with a finished product. So you’ve got the beauty of having a high purity material through biotechnology that can then be fed into catalytic chemistry, and the feeding high purity materials into photolysis, you now can have a great deal of selectivity. You’re not dealing with the issue of things in catalysis that you do when you’re dealing with a fossil based feedstock, you can be working with a fairly high purity material without having to worry about fouling up of the of the catalysis.
Simon Erickson 23:10
And then moving on just one other thing, Joel is we’ve seen a lot of these kind of chemical intermediary companies taking the next step forward integrating to be facing the consumers themselves. Whether they’re selling shampoos, whatever it is, they’re doing the marketing and selling the end products themselves. I mean, whether we’re in personal care products and cosmetics, or food or clothing, or whatever it might be, are you seeing companies that may be previously would define themselves as an intermediary chemical supplier, more and more taking the step to being a consumer brand, based on ESG based on consumer preferences, or whatever else it might be?
Joel Stone 23:55
Yeah, I mean, that’s, that’s sort of the metamorphosis in business cycles we tend to go through over and over again, you know. The large companies quite often do do not want to be the early movers. So, that forces the smaller size companies to formulate their own branded products. I mean, a good example is you have a company like Method that came out with you know, their, their biosurfactants and their soaps and detergents and whatever. And what happened? They reached a certain point and then they got gobbled up by one of the majors as soon as they got to a maturity level, and that actually ends up being their exit strategy. You get your product into a particular lifecycle, and branded to where there is name recognition, and then a large company like a Procter and Gamble or a Colgate or Palmolive or a Unilever or other branded companies swoop in and say, “hey, that’s a brand that we want to add in our portfolio.” And that has happened time and time again when you look back into the technology industry. Look at all the people that were producing computers and floppy disks, all the things that don’t exist today because they reached a certain point in their lifecycle that they ended up getting bought up by the larger companies that saw – that gave them a technical advantage. So that’s sort of the the the modern day upheaval that’s happening. There’s still The Innovators Dilemma. It’s still Clayton Christensen, where you have people who are innovating to have these disruptive technologies, but they’re a disruptive technology, not to ultimately be the survivor and be the big dog that to be acquired. And, and to provide their shareholder value by cashing out with the trade sale to a much larger company that can take them to the next level.
Maxx Chatsko 25:55
In addition to using that as an exit strategy, I think that I was wondering why more companies and they’re starting to now, but why they weren’t using that to kind of self fund themselves. So like, we’re kind of seeing Amyris a little late to the game, but they have issues with their bulk chemical business among other issues, but their consumer brands are actually pretty good. And they’re growing very quickly. There’s obviously a high profit margin there. So I always wonder why companies didn’t just start with consumer brands, and then use that to generate, you know, lots of gross profits, maybe even operating income, and then use that to help self fund and offset the costs of some of these more ambitious projects that need larger scales. You know, the industrial chemicals or things that maybe are less proven in the market, you know, cannabinoids, something like that. So do you see that? I mean, we see that with like Amryis as an example. And Ginkgo started their own JV and meat products, they kind of want to own a little bit more of the consumer aspect of that. You know like Bolt Threads in clothing, for instance. Do you see more and more of that happening as well from your perspective?
Joel Stone 27:02
Yes, I do. And when I talked when I did my consulting practice, when I talk to companies, and they are touting how great your technology is, and they have all these scientists, I said, well, that has no value. And then your IP has absolutely no value unless it becomes a commercial product. And I think companies through all the lessons learned of seeing the number of failures, they have all pivoted in their business strategies, not just looking at how cool their technology is their IP portfolio, but looking at, you know, strategic collaborations, like Amryis has done in the cosmetic industry with some of their products. They’ve now moved into CBD’s. You’ve got the Zymogen. The Hargreaves for their film technology with one of the Japanese firms to where you know, they’re looking at how can they have their technology ultimately orient them into having a branded product. We did the same thing at Green Biologics. We said “hey, if we’re going to just going to sell butanol and acetone, we’re not going to be able to survive.” So we we launched our own branded odorless and smokeless charcoal lighter fluid. And ultimately, that ended up being licensed to the big dog in the world, Clorox, you know, to have Eco Light, which was going to be a replacement for Kingsburg. So I think that’s going to be the ongoing the ongoing trend. You mentioned Gingko’s. Ginko is basically the technology company. But they’re spinning off companies like Motif, which is their food ingredient company, where they can bring in executives that aren’t focused on R&D, but they’re both focused on the commercialization. They know the branded product industry, they know how to they know how to figure how to raise money, to commercialize, whether it be can contract manufacturing, or raising money to do their own brick and mortar to build out their own facility. So I think, you know, in order to move synthetic biology forward, we’re going to see more and more and more of that happening. You know, Moderna had to partner with other companies to be able to have a manufacturing platform for their product. You look at Pfiz., Pfizer partnered with BioNTech over in Germany because they alone didn’t have the capability to commercialize their product. So I think, you know, that’s going to be that’s the wave of the future, as far as you know, this time the market because the burn rates, even though the significant cost reduction of using synthetic biology to get something done in a year that used to take 20 years to do. I mean, that’s saving billions and billions of dollars, but it’s still in the billions of things. However, is to still get a product to commercial stage. And, and nowadays with very limited contract manufacturing capability for the non farmer kind of products of food ingredients, that’s going to require some investment in bricks and mortar, new fermentation capacity here in North America specifically. There’s quite a bit in China, that’s available quite a bit in Europe, that when you look at fermentation capacity for scaling up so much of what’s being developed in North America, there was a big void of any kind of capacity to take those companies to the next level.
Maxx Chatsko 30:40
Yet, Simon and I were talking about that the other day, I’ve told him, I’m really waiting for a toll manufacturer who rather than going full vertical that some companies are kind of forced to do, you know, there’s a toll manufacturer comes out, and that’s their business, you know, they’re helping scale of manufacturing for, for these companies, whether it’s an industrial, chemical or brand. And that would be a very exciting business to me.
Joel Stone 31:03
Well back when Simon and I met at the bio conference, I spent two years before going back into my consulting, looking at doing just that – building up a very large contract manufacturing facility. But it was just very hard at that time, you know, to raise any money. Venture capital doesn’t invest in manufacturing capacity -they’re looking for it. Private equity and infrastructure funds, they want to invest in a big way but they want to be in control and own it. So you’re sort of in between, you’re sandwiched in between those who want things done one way and those want things done a different way. (So) you go, “okay, how could I just get a facility built?” I become an insurance policy for the VCs and the industrial and synthetic bio companies, they need a home to be able to produce their products, both develop them further, as well as the commercial manufacturing. And you need that commercial manufacturing, you know, you’re trying to beat the clock, you’ve got a product going to a branded product company, they’re not going to do a product launch within and change their labeling and change how they’re going to market their product unless they know that they’re going to have a sustainable supply. Because in in branded products, what you don’t want to do is you don’t want to fall start, you don’t want to make an announcement, we’re going to have all this, this whole new wonderful bio based product, and then people start buying it, that demand continues to increase, then you go, “oh, whoops, we can’t quite supply.” And that’s, that’s becoming some of the challenges with the food protein areas with some of the companies that are producing, you know, the replacement beef and chicken. How do they continue to ramp up to make that amount of product available? It’s created even more stress because they’ve all pivoted. They were sort of slowly ramping up because they could sell stuff through the restaurant chains. But guess what? There’s no restaurant chains. There’s no restaurant business left in North America. So they all had to pivot during COVID-19 (and) say, “how are we going to repackage our product?” I saw an interview Beyond Meat, and they said wow, we didn’t know how much of a challenge it was to pivot our entire business to have retail packaging and the logistics and moving stuff into retail stores to sell their product.
Simon Erickson 33:45
You know, the alternative meat industry is something that’s really catching on out there. And all the years that you’ve been doing this, I wanted to ask you, what are a couple of things that you find is really innovative and really futuristic? That are happening that are taking place in your industry?
Joel Stone 34:01
Right now, probably the most significant thing that has taken place within the industry is a combination of formulation and application capabilities in food ingredients. Because the biggest challenge in producing a food product is not just producing a protein, but producing something that has the appropriate texture and flavor profile. And that takes years and that’s flavor chemistry. Textural chemistry is really material science on steroids. So what these companies have done, they’ve been able to say well let’s let’s combine the biotech side with the food formulation and application all the way through to meeting certain flavor and textural profiles all the way through to having no chefs involved with testing product per se, (in order to say) yes, this tastes exactly like the animal type of product. Beyond Meat does a real good a job of that. Beyond Meat I don’t consider a synthetic bio company, except they’re using the best of the best as far as agricultural, protein, starches, whatever. The formulation of those materials to give the right texture and flavor profile -Impossible Foods is doing some of the same thing. Of course they’ve got their their magical fermentation product, but now you’ve got many of the many of the companies that are producing milk products, egg products, cheese products that are using synthetic biology. Those those guys are all on the leading edge. Whatever the the organism platform that they’ve selected, to be able to express these certain types of types of proteins, that, again, they end up in many cases, they get added in with other agricultural materials become a combination of synthetic biology breeding related products as well as agricultural products. And that’s probably going to be the trend within the food industry. Because it’s hard to really meet the textural properties. You know, with a fermentation drive material, probably the closest you can get to some of the micro protein products that are basically are fungi that have sort of certain fibrous types of properties that can offer texture, but even those they be up but they become a partial ingredient in a much larger picture using other other cultural materials to to really provide the entire package that is becomes very difficult for consumers to tell the difference between whether it’s beef, or artificial beef or chicken, or chicken Patty or real chicken or fake chicken, the same thing with sizes is just across the board. But you look at some of the you know, the new things being developed in the egg replacement milk replacement. Which are which are pretty significant. I find pretty interesting. But you know, within hearing the interviews of some of the founders and those companies, they very rarely say look, this is taken us five to six years to come up with the right formulation. We’ve been working to the formulation chemistry of this. And and now that’s becoming more predictive because you have you have ways that you can measure texture, you have ways that you can measure flavor. With new techniques, new technologies that were leading edge you’re about seven years ago, but now you’re with with artificial intelligence and data management, you can just manage massive amounts of data for measuring texture and flavor and say, okay, what’s what, what elements are really allowing us to deliver that appropriate texture that the appropriate flavor, and many, in many cases from a sensory standpoint, even smell? You know, when when I was working for up the food ingredients, we had a specially designed testing kitchen, where smell was just as important as flavor and texture to put the whole whole commission things together.
Maxx Chatsko 38:27
That must have been (inaudible)
Joel Stone 38:29
Yeah, it makes me feel old now because because the techniques they have today will make the stuff we were doing 10 years ago look like antiquity.
Maxx Chatsko 38:38
Sign me up to work in the smell kitchen. I’m all for that. That’s great.
Simon Erickson 38:42
Sounds like a fun job. I could go for that one.
Maxx Chatsko 38:44
Yeah. Yeah. So I think there’s a lot of really cool things going on in food. Remember, yeah, like you said years ago, I mean, some of these companies are still out like today’s called perfect day, but I think you’re used to be called mu free. They’re the ones working on, you know, milk. Yeah. I mean, that’s a cool product that has a lot of potential if that works. So outside of food, what what maybe what are some of the markets you think would be the first to have some more successes here and really kind of push this into, you know, the public conversation.
Joel Stone 39:17
I think the area of surfactants is very interesting. And that’s being pushed even harder with trying to come up with the with bio based or natural derived surfactants that can replace some of the fossil based practice and some of the surfactants which have some pretty unfriendly little attributes that are produced out from from Palm oil and palm oil extracts. So I think that’s an area high value areas something that is needed on the industrial institutional and home side of things when you look at that whole area of AI and AI is massive amount of this going on and and the announcement I made And earlier by you leave is going to push that probably a lot faster rate of people, you’re having the market needs someone who wants to, wants to include new and different types of materials in their household cleaners or institutional cleaners, and detergents that are also, you know, environmentally more friendly, as far as when they’re disposed, oh, how did they break down easier when they hit the wastewater treatment plants, etc. And then the other areas probably is, is, is, you know, human skincare, and the cosmetics area, you know, with, with things like when gel touristen with the collagen replacement to replace animal collagen with a fermentation drive material, I think there’s a lot of interesting things that’s going to go on with being able to take bio based chemistry bio based materials, and produce specially esters that presently have to probably be you extracted out of out of fruits, vegetables, or botanical kind of materials, high value material, not a lot of volume, but very high value, that when you produce those via fermentation and combine several different fermentation materials to produce a molecule that can still carry forward being able to have a natural Label Label, because it was produced naturally via fermentation. And then a lot of the human nutritional kinds of products, you know, the most notable that have become, you know, very, very popular recently kombu over the developed in Japan, you know, the fermentation drive, I can see it see bottles of all this, I go, who in the heck is paying $3 and 50 cents a bottle for this. But they are because it is a healthy kind of material. And, and, and use of synthetic biology, a lot of work sort of going on behind the scenes right now on on microbiome, your microbiome biome for human gut, a neutral nutrition and healthiness. And the studies that are being done, say the that many of the diseases, even including cancer that occur in human beings,
Joel Stone 42:22
many times starts in gut health, and being able to appropriately manage gut health, it also carries forward into animals, gut health in animals. And then you’ve got companies like like indigo and others that are that are making microbes that can return soil, return the microbial load back into the soil that got wiped out with all the overuse of herbicides and insecticides and, and fertilizers to really return the organic load that and healthy organics, which is produced by a lot of anaerobic bacteria that’s now being replaced in the help in the soil. And those are very important because those types of bacteria and the peptides that they produce, and in some cases organic acids, but they themselves accent or genetic synergistically with the root system of plants. So they can they’re actually finding that they can great greatly reduce the micronutrient that’s better added and fertilizer additions, because it allows the root uptake to be such much more efficient. So you have a lot less loss and runoff because the microbes, the microbes kind of fix nitrogen, they cannot fix phosphorus, you know, all these different components that used to we would just over Apply it on to the farmland and then we’d end up with all of the stream runoff. And when you look at the agricultural improvements that can be made that that is big business and you’ve got some of the some of the large companies, the buyers, the Syngenta has the Monsanto’s and others of the world that are investing in those so you’ve got companies like like RVM down in Raleigh, North Carolina that’s working a lot with with some of those organisms and also various kind of fungicides. You’ll naturally occurring material be placed on fruits and vegetables to reduce spoilage and some of the coding chemistry that I think was going to be developed. One of the fourth largest money raise, you know, last year was last year was known as the first half of 2020. The fourth largest money raised was $250 million by appeal. And appeal is a coating that allows shelf life of vegetables and and fruits to be sustained over a much longer period of time. Which is a pretty interesting a company like that. That raised that much money. So there’s in the likes of the Impossible Foods. And then but there is no, I mean $250 million for an early series raises. That’s a pretty good race. Joel,
Simon Erickson 45:18
We are three engineers that all have some kind of allegiance to the chemical industry here. So this is clearly another two beer conversation for the three of us sometime. But for our audience that is individual investors at 7investing here, are there are there a handful of companies, maybe just two or three companies that that you think are no brainers? From these trends that you see developing out there that are going to be big winners from everything we’ve discussed here on the podcast, public or private companies?
Joel Stone 45:49
You’re stretching my memory on that, because I was just I was just looking at the top list of public companies. There’s a fellow that has his own index that has sort of a listing of all the companies and some of those that are in there that are that that are public, of course, you got Moderna, that’s sort of a no brainer, with their COVID-19. I think Amryis is going to be on the upswing. Amryis is a public company. So it’s really a matter of you, I tend to focus on the industrial biotech, the non pharma companies as opposed to the pharma. But, but I could certainly I could shoot you over your list, post our session today, and that might be something we could have a follow up call and just discuss, you know, some of the some of the present companies that are in the public domain. And of course, there are opportunities. There are actually some pretty opportunities for those that want to really research and get involved in early stage would be looking at some of the companies that are very early stage that are doing crowdfunding. And there are some of the crowdfunding platforms which are strictly focused on ESG investing, and to some extent, industrial biotech. I mean, the company I’m working with, a client company I’m working with over in Scotland, in order to finish up the demonstration plant, we decided to do a crowdfunding round. And we went out with hopes of raising 1.75 million euros, and 21 days into the money raised with eight days left, we’re at over 3.2 million. So because people looked at it, they’ll go, “wow, this company is for real, they’re going to expand, they’re going to build additional facilities.” It’s a true circular economy ESG investor. And it’s pretty easy to sort of look at the investments that companies like BlackRock and other large funds are doing because they basically they pivoted to say they’re no longer going to do investing in the normal energy sectors. They’re moving to having a scorecard for ESG investing. But there’s a lot of resources, just look at ESG investing, which are the companies that probably need to be looked at, if that’s one of your criteria, that that’s becoming one of my criteria for investments is, you know, what’s the scorecard from an ESG standpoint?
Simon Erickson 48:31
It definitely is a trend that’s taking shape right now in our world. Maxx, any other final questions or thoughts for Joel to close this out here?
Joel Stone 48:40
Stop me. (Group laughs)
Maxx Chatsko 48:46
No, I’ll let him of easy. How about that? But it was a great talk. I appreciate it. I’m sure. we’ll have you back on a couple more times. Hopefully!
Joel Stone 48:57
It’s exciting to talk about this area. We are in this next 10 years with what we’ve seen going up, and COVID has sort of pushed us along with having the technology things to what we said we couldn’t do before, we’re proving it just like on our today’s session. We’re not doing this live face to face across the table. We’re doing it as a zoom conference. And that becomes enabling for collaborations across the board, but with companies that normally probably wouldn’t collaborate on very early stage R&D. Those collaborations is really what allowed so much of the things that are going on with COVID-19. It really sent a wake up call to say, “hey, guys, you’ve got to collaborate across platforms.” And there’s probably a lot more sharing of information on this messenger RNA being done with the companies that are being successful. You know, because there’s plenty of space for multiple companies. I mean, the market doesn’t need to be controlled by one company. We have so many problems to solve, you know, having more and more collaboration. So I think that’s going to be another thing – follow up that we’re going to see within the different companies going after surfactants, or food proteins. We’re going to see more and more of them probably cross platform and say “look, the sum of, if we add one and one together, we can end up with five, and then that five could end up being a public company that could be very successful.” I think that in that in my mind, and my vision, but I think we’re gonna see happening in the next between now and 2030. Maybe for any of the young people that are interested in industrial biotech, and synthetic biology, and the engineering that goes hand in hand with that. This is going to be a renaissance 10 years for people that really want to play a role in it. Which is, which is why I’m doing consulting, I’d say that this is helping younger people figure out what does it really take to build something because most most people never build anything. It’s one thing to say, Oh, I can build, I can build a tree for the backyard. It’s another thing to build $150 or $250 million fermentation facility. Let me tell you, it’s a lot of energy and effort. But it’s fun when you see it’s done. You just look at and go, “wow. Never thought I could do that.”
Simon Erickson 51:32
Absolutely, Joel. I’ll close it out with actually a quote from you here. You said that “we believe that the present industrial and consumer trends are resulting in a reinvention of the specialty performance chemical industry to deliver solutions using industrial biotechnology.” I think that wraps everything here together up very, very nicely. Once again, for everyone watching Joel Stone, the president of Convergence Advisors. Joel, thanks for joining me and Maxx at 7investing here this afternoon.
Joel Stone 52:03
Well, thanks for the invite Simon. And thanks Maxx as well, and look forward to having some more of these as time goes on to get the messaging out. It’s all about educating the masses. And thanks for using that quote, because I use that with people but it’s really about educating people about what is synthetic biology. I think people are going to grasp this more and go look, people, you know, early in the year we were saying there’s no way we could have a vaccine and lo and behold. Unless we have inhibitory matters from a political standpoint, inhibit the rollout we could very well have some of the first people having vaccines before Christmas. Which would be in my mind would be fantastic for not just North America, but pretty fantastic for the world.
Simon Erickson 52:58
I certainly agree with you on that one. Joel. Thanks again for joining Maxx and I. Thanks for everyone for tuning in. Once again, we are here to empower you to invest in your future. We are 7investing!
Related 7investing Content:
Will the Cannabis Industry Give Way to Biotech?
The Golden Age of Consumer Healthcare with LifeOmic CEO Donald Brown
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
Anirban and Matthew were joined by Alex Morris, creator of the TSOH Investment Research Service, to look at seven former market darlings that have taken severe dives from...
On episode 5 of No Limit, Krzysztof won’t let politics stand in the way of a good discussion - among many other topics!