From Burgers to Utensils: More Products Embrace Synthetic Biology

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00:11 - 00:42

Welcome to On Purpose. I'm your host, Travis Allen, Senior Investment Strategist and National Director of Purpose Driven Strategies at Bernstein. The revolutionary technology of synthetic biology is poised to make a profound impact on the way that many products are manufactured, from lab grown meat to cosmetics to biodegradable packaging. Today, I'm glad to be joined by Ed Bryan, a senior research analyst on our Sustainable Thematic Equities team, which is part of our Purpose Driven platform. Ed, welcome to the podcast.

00:42 - 00:44

Hi. Thanks for having me, Travis.

00:44 - 00:49

Ed, I thought we might start by having you share a little bit about your tenure and your role on the team.

00:50 - 01:23

Yeah, sure. So I joined AllianceBernstein back in 2007, and this was my first job out of college, and I started in our institutional sales group in New York working with our public pension plan clients. And then in 2010, I moved over to a role on our buy side equity trading group as a desk analyst, but wasn't there for very long until a position opened up on our sustainable thematic research team, which I joined in 2011. And I've been on the team since then with the healthcare sector as my primary research coverage.

01:23 - 01:56

And you and the team recently published a research paper on synthetic biology, which might sound like science fiction to a lot of people. But in reality, it's already with us, right, in our homes and in many of the products we are already using. So perhaps you can explain what synthetic biology is and some of the applications that consumers might not recognize are already again, in our bathroom, you know, medicine cabinets, and perhaps even moving into our kitchen cabinets as well.

01:56 - 02:30

Yeah. So from my perspective, the story of synthetic biology starts in the 1970s. That's when Genentech, which was just a startup then, discovered a way to insert a human gene into a yeast cell, a humble bacteria. That yeast cell then used those genetic instructions to make insulin. This was a lifesaving discovery for diabetics who until then relied on insulin harvested from the pancreases of pigs and cows to treat their disease. But this also kicked off the entire biotechnology industry.

02:30 - 02:33

Wow. And exactly how did that work, if you don't mind?

02:34 - 03:26

Yeah, just a brief bit of science here. Every cell in your body contains a genome, a set of genetic instructions. Practically speaking, your genome is a long string of DNA, just think of these as letters, A, C, T and G. And those are organized into genes like the gene for a hair color, for instance. DNA, the genetic instructions are transcribed into RNA, basically a carbon copy of DNA, and then translated into proteins. And proteins go on to perform all sorts of functions in your body. Right. Proteins are antibodies, like the ones that recognize the COVID virus, those are proteins. So this is the basic process behind synthetic biology. DNA is inserted into a cell, which is fed and kept comfortable in a fermenter. And the result are biotechnology drugs, which address a wide range of diseases.

03:27 - 03:53

Ed, just for a second, so I think most people, when they think about DNA, they're thinking like, you know, 23 & Me and those types of tests and not the process of manufacturing proteins to actually create products. And you actually mentioned there that there's the use of something called a fermenter. So maybe you can explain a little bit more about...like how that actually works.

03:53 - 04:40

Yeah. So if I think about DNA as essentially the instruction manual or the programming language, and cells as the production factory, so in your body, right, when you read your DNA, you sequence it, you understand what the instructions are, that's sort of the information in a 23 & Me report, is understanding how the genetic instructions in the cells in your body lead to health outcomes. How this translates into synthetic biology is you can insert your own instructions, your own sort of programming, to use sort of software and hardware language, and have other cell types then create what would normally be happening in your body, and that can take place in a fermenter.

04:40 - 04:48

So what are some of the applications that, you know, many of us may not realize are already in products that we use every day?

04:48 - 05:17

There's a recent startup named New Light Technologies that does all the process of using a cell, a different type of cell, in this case, a type of coral that's on the ocean that takes in CO2 and methane right from the air to produce a plastic like resin that can be formed then into utensils like forks and knives, which are totally biodegradable and would decompose like a leaf in your backyard. And as you described it, Travis, this isn't science fiction. You can buy them at Target.

05:17 - 06:11

Another example is squalene, a moisturizer ingredient that's found in cosmetics. Your skin naturally produces squalene, but this production slows down as you age. Traditionally, this ingredient of cosmetics is harvested from the livers of sharks. Millions of deep sea sharks were harvested a year to produce enough squalene for cosmetics like face cream. Wow. But a company in California named Amyris discovered a way to program yeast cells, to use DNA and program yeast cells to produce squalene, which is now used in an increasing number of cosmetics products. So those are just a few examples of how synthetic biology is used in everyday products. And McKinsey has estimated that 60% of the physical inputs in our economy can be produced using synthetic biology. And I think that's an underestimation.

06:12 - 06:36

Wow. 60% of products. What's interesting about what you've shared so far is that obviously in the past, many of these inputs were produced in really unsustainable ways or harmful ways to the environment. So the ability to to mass produce these inputs using synthetic biology, you know, really seems like a big step forward in terms of producing many of these products more sustainably.

06:37 - 06:57

Now, one of the questions I'm sure listeners will have is how synthetic biology may differ from some of the other things that people are hearing about, like plant based meat, for example. Is this similar or related to plant based meat? Because that's one of the products that, again, people are becoming increasingly comfortable weaving into their daily lives.

06:57 - 07:50

Mm hmm. Yeah. So plant based meat, I mean, as its name would suggest, is based on using protein harvested from plants to develop a product that has the same look and taste and texture and so forth as animal protein, as meat. In the case of plant based meat, oftentimes pea or soy plant protein is used. And companies like Beyond Meat and Possible and so forth have found that if you load up a pea based protein patty with enough fats and salt and other flavors, it can taste somewhat like a burger. And Travis, as someone who eats quite a lot of plant based meat, I can tell you it's not meat. Right? It doesn't, it doesn't taste or feel like meat. In fact, there was a post going on Twitter a while back comparing the ingredients in plant based meat to dried dog food. And they were almost identical.

07:50 - 08:42

So what's happening using synthetic biology is companies are working on what's called cell culture protein. So using this synthetic biology fermentation process to grow real meat cells genetically identical to an animal protein cell. So instead of having your meat grown on the body of an animal, it's grown in a lab. And historically, it's been prohibitively expensive to do this. But the costs are coming down dramatically and reaching levels that are more affordable, more comparable to the animal based meat. And companies are pouring hundreds of millions of dollars into production capacity to bring these to market. And in fact, the world's first cell cultured meat product is already on the market in Singapore. It's a chicken nugget. So I think consumers are about to hear a lot more about cell cultured meat. So watch this space.

08:42 - 09:04

And one of the other things that a lot of consumers have become aware of is the controversy around GMOs. I think especially for responsible investors. Right. They tend to have, oftentimes have strong opinions on GMOs. And so how does this new technology relate to something like GMOs, which tends to be a trigger, again, for a lot of responsible investors?

09:05 - 09:34

Mm hmm. Yeah. So for thousands of years, people have been breeding plants and animals to achieve desired traits. So the result is that the plants and crops that we grow and eat are vastly different than they were hundreds of years ago. But there was a faster, more precise way using genetic techniques. So rather than breeding the same plant with the good traits, you can take DNA from another species and insert that into the plant's DNA.

09:34 - 10:24

So, for instance, there's a totally hypothetical example. You can take a gene that provides drought resistance in a wheat plant. Okay. And insert that into the DNA of a tomato plant. So you yield a step change in the drought resistance of the tomatoes. This had been going on for decades using old genetic technology. And as far as I can tell, there are two concerns here. Firstly, you've made some pretty dramatic changes to the genome of the plant that you're eating, the tomato. Is that dangerous? Secondly, you're planting the seeds in the environment. So could there be dangerous outcomes if they overrun the natural ecosystem, affect other plants and bugs and so forth? So those are, as far as I can tell, two concerns with what are referred to as genetically modified organisms or GMOs.

10:24 - 10:59

So if you go back to synthetic biology for a minute, as I described earlier, the cells, so they take the yeast cell, right that produce products like biotechnology drugs, and squalene. Those products are harvested from these vats, from the ferments, from the fermenters. You don't consume those cells, the cells are just making the product that you want. And additionally, the process itself is taking place in an enclosed environment. The fermentation tanks. Right. This isn't being let loose in nature. It's very contained.

11:00 - 11:44

So I think those are two important distinctions relative to GMOs. I mean, I think if I take a step back, the field of synthetic biology has learned quite a lot from the controversy around GMOs and in my view, has taken responsible steps toward developing guidelines around how the technology is used, making sure that it's used in a safe way, and then gathering input from stakeholders as the technology has advanced. So as I think like many other technologies, you know, different societies will make different cultural and ethical choices about how to adopt synthetic biology. But as investor, I can see many applications in areas where synthetic biology is and can be used without raising these ethical questions about GMOs.

11:44 - 12:18

That's really helpful. I mean, both of those examples, you know, plant based meat and GMOs and how this is different, I think will be really important for people to understand as synthetic biology becomes more widely understood and applied, right, throughout the economy. Maybe give us a sense for why you mentioned in your example with Genentech and the insulin production, that this technology has been available, right, For a long time and understood as a possibility. Why is synthetic biology gathering so much steam now?

12:18 - 13:14

What we see happening right now is a confluence of technologies that are accelerating progress in the field, pushing the price of synthetic biology down to levels where it's increasingly competitive relative to traditional manufacturing methods. And so I tend to think about the addressable markets for synthetic biology as being on a cost curve. Okay. So at the top, you have very expensive, very small volume products like biotechnology drugs, biotechnology drugs cost thousands of dollars for a tiny little vial of medicine. Moving down the cost curve, you have slightly higher volume products, niche ingredients and materials, so squalane and [...]. And then at the bottom you have high volume cheap products like cell cultured meat, plastics, fabrics and so on. So as synthetic biology gets cheaper, more of those markets...

13:15 - 13:17

So why are costs going down?

13:17 - 14:08

What's driving the cost down are three main technologies. Firstly, the cost of reading DNA referred to as DNA sequencing is plummeting faster than even computing costs. Right. It's declined by a million-fold over the past 20 years. And DNA sequencing, reading DNA is a foundational technology for understanding what genes and DNA does and what changes in differences mean. Secondly, the cost and ease of making new DNA, called DNA synthesis, is also declining. Going back to the Genentech example, making insulin or squalene, you need to make the genes and DNA itself to put it into a cell to make something. Thirdly, we have this great new technology called gene editing, right, which is kind of like the copy and paste function in Microsoft Word. So if we add this up,

14:09 - 14:32

Genomics is becoming more of an engineering discipline. So for the first time now, researchers can make their own targeted changes to DNA, see what happens, and then iterate. This has turbocharged our ability to harness DNA and the factory of cells to make things, to use biology to make things that we need and use in our daily lives. And all of this, Travis, is underpinned by advances in AI.

14:33 - 14:38

Explain that connection, because I didn't really understand, even after reading your piece, the connection to AI.

14:38 - 15:26

Yeah. So if you printed all of the individual pieces of DNA in the human genome in a book, it would take you a hundred years to read it. Okay, this is a perfect application for AI and machine learning. DNA sequencing generates so much data that it would be pointless to have all of this technology without big data analytics like AI and machine learning to make sense of all of the data that's coming out of the DNA sequencing, DNA reading process. So as thematic investors who were drawn to areas like this where you have exponential price declines that are accelerating new markets, which are growth opportunities for some companies and big disruption for others, and we believe typically these can be underappreciated by the market and under-researched.

15:27 - 15:44

So this is actually a perfect segue way to my next question for you, which is going back to where we started. You know, you are one of the senior members of the sustainable thematic team. So how does this relate back to sustainable investing?

15:44 - 16:22

One of the biggest challenges we face is how to ensure a good quality of life for everyone while being good stewards of our natural resources of our planet. If I go back to the first application of synthetic biology that I mentioned, insulin. It used to be harvested from animals. You needed thousands of animals to make small amounts of insulin. So many, in fact, that if we still use the same manufacturing methods to make insulin that was discovered back in the early 1900s, we need more than the entire landmass of the Planet of Earth for raising animals just to treat diabetics. Right? So this was a sustainability challenge.

16:24 - 16:57

So put simply, you know, synthetic biology is crucial for ensuring a sustainable society in the future. And it's not surprising that a manufacturing process that's based on nature would be better for the environment. Many traditional chemical and material manufacturing processes involve bashing molecules together or splitting them apart at extremely high temperatures, which takes a lot of energy to do. And a lot of products that we make today are difficult to recycle, whereas synthetic biology products can be designed to be completely biodegradable.

16:57 - 16:59

Completely biodegradable. That's amazing.

16:59 - 17:04

So perhaps you can give our listeners some industry examples.

17:04 - 17:41

So concrete, 8% of global CO2 emissions go into making concrete. Companies now are discovering ways to essentially grow concrete like coral, using calcium producing bacteria that could be self-healing. Another example is ammonia based fertilizer, a material percentage of all of this global CO2 emissions. And there's efforts underway to design microbes that can improve the nutrients in soil and help plants grow as a way to be a much more sustainable replacement for fertilizers.

17:41 - 17:53

So those are really great examples. Another element of sustainability and synthetic biology that I think is relevant is how it relates to supply chains. So can you speak to that a little bit?

17:53 - 18:52

? Right. So definitely a topic that is top of mind today. Using synthetic biology, you could put the manufacturing where it's needed. Anywhere on earth where you could put a fermenter and have access to feedstock, you can make synthetic biology products. We've been able to actually leverage AllianceBernstein relationship with Columbia to speak with professors that are using synthetic biology to develop new ways to improve the environment. One example is using synthetic biology to design microbes for wastewater treatment or design of bacteria that can help with the mining process. So you can design a bacteria that helps leach some of the valuable materials in a much more sustainable way to extract some of those materials that we need. So those are a lot of examples, I think, as synthetic biology going to fundamentally change the way we make things, it can do so in a much more sustainable way.

18:52 - 19:50

You know, you mentioned Columbia University, obviously referring to our relationship and the curriculum we developed some time ago in 2019 with what is now a formalized climate school at Columbia University. You know, what strikes me about all of those examples that you shared is just the breadth of potential applications is so wide. And yet it feels like we're in the very early days of, you know, seeing synthetic biology impact our economy in more meaningful ways. And so, you know, what should investors consider or weigh in terms of the opportunities and risks as they look at this space, which I think from everything I've gathered, from what you said, you expect to continue to grow pretty rapidly in the years ahead. So what are some of the opportunities and risks?

19:50 - 20:16

Yeah, I think approaching an area like synthetic biology necessitates an active investment approach grounded in fundamental research because the opportunities change over time. Right. So think about computing and the Internet. You know, the early winners were the sort of microprocessors and then the physical infrastructure companies and cloud computing and now to apps and software.

20:16 - 20:16

Sure.

20:17 - 20:42

So it's not just about buying the most exposed names at any price. Valuation matters. Right. So finding companies where the opportunities are not fully reflected in the stock price, that's something that we do as part of our fundamental research process. So after conducting some research in the synthetic biology space over the past several years, a couple of different conclusions stand out.

20:43 - 20:45

Yeah. Please tell us more about that. Share your conclusions.

20:46 - 21:34

Firstly, having a broad sector view is crucial here. Right. So the technology started in biotech and is now moving into other industries like the consumer space. So analysts and investors that are interested in biotech, the consumer sector is new for them, totally foreign, whereas consumer analysts don't understand biotech. So there's been examples, one of which we mentioned in the paper, where companies are using biotech processes to make consumer products. And that's leading to quite a lot of misunderstanding and difficulty with projections for those companies. When we approach a technology like synthetic biology, we on the sustainable thematic team, we leverage a multi sector view from analysts on the same team across sectors that accompany ideas together.

21:34 - 21:56

Secondly, as the biology spreads to other industries, there's a gold rush to discover new materials and ingredients. And the picks and shovels, as we call it, will benefit. So these are companies that sell the critical automation tools, the DNA sequencers, the equipment used to analyze the whole process of synthetic biology.

21:57 - 21:57

Well, that's interesting.

21:58 - 22:26

The third area is thinking through the impact on the materials sector. And the metaphor, an analogy that I would use here is what's happened, the way that synthetic biology has disrupted the pharmaceutical industry, where we went from sort of big blockbuster drugs that supported these large pharmaceutical companies to more designer drugs, personalized medicine that was highly disruptive for the business model of pharmaceutical companies.

22:26 - 23:11

Then the next step for synthetic biology is moving into niche materials and ingredients and additives. And so what you're seeing now is the price is opening up more of those markets. One example is vitamin E that was used to be produced chemically, chemically synthesized, is now being produced using synthetic biology. So once the price point for some of these materials for synthetic biology is cheaper than traditional, then the market flips and starts using synthetic biology to make those. Once that happens, then those materials companies can then iterate it and make, design those to be better suited for the specific products and uses. Right. So you kind of move from personalized medicines like personalized materials, personalized everything.

23:11 - 24:01

I was just going to say it also sounds like not only can you reduce waste by having, you know, the inputs be in terms of volume, right, tailored to the manufacturing process. But it sounds like there may be an ability to tailor the inputs so that they are easier to use and better to use in the manufacturing capacity. Right. So right now, what happens is people find the best fit, the right input and try to squeeze it into their manufacturing process. But to to the extent that they need a very specific type of material, it sounds like they'll be able to perhaps use synthetic biology, again, reduce waste rate, reduce the energy it costs to produce products. So it's really amazing the impact that this may have on, you know, today, traditional manufacturing processes.

24:01 - 24:02

Yeah, that's a great point.

24:02 - 24:48

Well, look, this is this is really been fascinating. What I very much appreciate about both the paper, which we'll have a link to in the description of this episode, but also the conversation today is that we discussed a lot of science without making it super scientific. Right. Without going way deeper on the science. But the explanations were really, really helpful. And so I have a somewhat selfish question for you, because you mentioned that we are already producing, not broadly, but producing chicken nuggets by using synthetic biology. So what are some limitations? When will I be able to have, say, you know, a steak, regular fillet produced by synthetic biology?

24:48 - 25:20

Yeah. I mean, I would say there's sort of two risks. You know, as an investor, when I think about the industry and the promise of synthetic biology, this comes to mind first. Consumer adoption, right. Not everybody is going to rush to buy a cell cultured steak. Right. There's just going to be some sort of hesitancy. Right. There's a new technology. I sort of compare it to driverless cars. Right. Where if you were to kind of go back ten years ago and put somebody into a driverless car, you know, you'd be hanging on to your seatbelt with

25:20 - 25:52

Right. There's just going to be some sort of hesitancy. Right. There's a new technology. I sort of compare it to driverless cars. Right. Where if you were to kind of go back ten years ago and put somebody into a driverless car, you know, you'd be hanging on to your seatbelt with white I mean, that would be really scary. But what's what sort of happened, we're seeing is you add cruise control, lane assist, you know, self-parking and then ultimately, you know, people are going to wake up, I don't know, ten, 20, however long years from now and realize, I'm not driving at all. Right. And so it'll be this sort of steady progress. And I think we're sort of going through that with synthetic biology where there are ingredients and products we use every day that are based on synthetic biology. So that's just going to help people get more accustomed to it.

25:52 - 26:36

And then also, what's happened with synthetic biology is as, and we've seen this with new technologies as well, once the large consumer companies start to adopt it, they are the ones that are experts at telling the story, about promoting it, about getting consumers interested in it. And I think that's something I mean, we actually heard this very directly from Adidas. They are trying to promote their story about sustainability and try to educate consumers about these new materials, new, more sustainable materials that they're using in shoes. And so that process of consumer education can start to happen. And so that will help to get consumers along the curve there.

26:36 - 27:21

Secondly would be regulatory risks, right? I mean, there are regulatory agencies that haven't approved cell cultured steaks. You know, Singapore is very early in approving the chicken nugget. And what we see is that there are countries that want to, I mean, every 190 countries around the world signed on to the Sustainable Development Goals. There's clear, broad interests alignment in those targets. But then the question is how are they going to do that? And increasingly, what we're seeing is that countries realize that synthetic biology is a way to do that. So you see countries like Singapore that have gotten ahead of this that are being more forward looking in terms of approving these end bioproducts.

27:21 - 28:12

And we see this with other types of technology. So drones, driverless cars, cryptocurrencies, you know, there's these new technologies. And some countries say, well, you know, we got to take it very slowly. We don't know the impacts these are going to have, where other countries, other municipalities say, you know what, we want to promote those technologies. We want to attract companies with these high paying jobs. We want to see, to kind of lead the field. And so we're seeing some some areas, some countries and municipalities do that with synthetic biology. So the bottom line is, I guess, from an investor perspective, we see the consumer attitudes improving over time related to synthetic biology. And we think that there are ways to invest in the space without taking on a lot of regulatory risk.

28:12 - 28:26

Thank you. This has been, you know, again, a fascinating conversation and maybe we'll have you back, you know, to give us an update in the future, right, as this space continues to develop. But again, this was a very informative conversation.

28:27 - 28:27

Thanks, Travis.

28:28 - 28:47

This has been On Purpose. Thanks for joining us. And remember, we all have values we hold dear. Now you can ensure your investments reflect them. You can reach me on LinkedIn. If you've enjoyed the podcast, please rate us on Apple Podcasts, Spotify, or your podcast service of choice and be sure to subscribe.