Perspective: Precision Fermentation

An Introduction to Precision Fermentation

One of the emerging areas in nutrition that we have some interest in exploring, and have spent some time developing deal pipeline in, is in the area of Precision Fermentation. Precision Fermentation is in pricinple not new. It is the process of using micro-organisms (typically specialized yeast or bacteria) to convert a feedstock (typically a carbohydrate heavy one such as sugar) into other ingredients (such as proteins or lipids/fats/oils) in a bio-reactor or fermenter. As an example, it should soon be possible to, at scale, produce milk that is bio similar to milk from a cow, through a Precision Fermentation process, using grains such corn or sugar beets.

Beer production is of course a wide and well-established use of traditional fermentation processes at industrial scale to convert carbohydrates into alcohol, and bacterial fermentation is used to produce amino acids such as lysine for animal feed. What is new in Precision Fermentation is the evolution of these processes, selecting and modifying micro-organisms to create an ability to produce specific, highly complex ingredients on demand, and on-site. A significant breakthrough was achieved 40 years ago in the production of human insulin from modified yeast, dramatically disrupting the market (which historically sourced insulin from animals) and rapidly generating share of over 80% of the market within 10 years, and 99% today.

However today Precision Fermentation is being shaped by 3 emerging trends:

• Novel organisms are being created and optimised for food-grade components as a result of Crispr engineering and the rapidly reducing cost of Crispr is driving down development costs and speeding up innovation.
• The potential to achieve cost parity / advantages vs. crop or animal derived production is now foreseeable in the short-term which opens up tremendous and rapid switching opportunities.
• Industry pain-points as a result of environmental impact concerns and animal-free consumer demands are creating substantial B2B and B2C market demand.

The cost of production from Precision Fermentation is dropping on a log curve basis. Where Precision Fermentation was previously only cost effective in the production of higher value medicines, and then more recently cosmetics, the cost point is beginning to shift into applicability in food: “The cost of producing a single molecule by PF has fallen from $1m/kg in 2000 to about $100/kg today. We expect the cost to fall below $10/kg by 2025.” – RethinkX. At below $10/kg, production begins to become competitive with traditional animal-based and even some premium plant-based food production. E.g. today casein protein (dairy proteins in milk used for cheese production) trade for $11-$13/kg.

Consequently, we see emerging applications in a wide range of food substrates in proteins, lipids (fats and oils) and amino acids. High price point products are the most interesting as they remain the most vulnerable to switching. Both B2C and B2B applications exist, but we are most interested in B2B propositions as being highly scalable with little consumer education or adoption required. There are a wide range of propositions in early-stage development, with a number of them in Europe: from various proteins such as dairy proteins, to oils such as palm oil replacements, to chocolates. We also expect  to see a rise in various supporting industries to the sector, across software, cell lines, hardware and ingredients.

The application of Precision Fermentation potentially solves a number of industry challenges, and has the potential to be extremely disruptive to legacy farming and production processes. Firstly, the efficiency of production, and the ability to produce locally, has the potential to significantly reduce space requirements and CO₂ emissions from the production and logistics supply chain. Precision Fermentation has a feedstock conversion to protein efficiency of 10x – 20x that of dairy cows for example. As a result, significant productive land used for the cattle, as well as the crops used to feed them, can be released for other uses. The CO₂ and methane impact from cattle, and the transport and logistics of feedstock and final products can be significantly reduced with this higher efficiency, with Precision Fermentation also allowing for the production of the relevant proteins directly at points of production and sale.  Today concerns regarding nitrogen concentrations in waterways from farm manure, as well as the high carbon emissions, are placing significant constraints on traditional dairy production in Europe through regulation and compliance costs, with some cooperatives expecting a 30% reduction in output over the coming 5-10 years. Precision Fermentation offers an alternative path to provide the food ingredients required by society. Lastly Precision Fermentation provides high flexibility in customizing products (such as lactose-free milk), or creating new functional ingredients, to cater for a wide variety of consumer demands.

There is still significant work to be done to bring many Precision Fermentation applications to market. Principally the cost of production is the most critical driver, and solving that requires identifying, modifying and successfully cultivating the most efficient micro-organism candidates in laboratory environments, and then scaling that successfully into industrial scale processes, with the most cost-effective feedstock and operating conditions. These are living systems that can be temperamental, and often downstream extraction processes can be challenging to extract the target ingredient from a biological “soup”. Regulatory approval is required to take Precision Fermentation products to market for human consumption – globally this process is still slow, with different requirements in the US and Europe, but it is improving. There is also limited contract manufacturing capacity currently available for Precision Fermentation, so pioneers in this space often need to build their own capacity, or seek to partner with a large customer. This is leading to some large raises at early-stage companies in the sector.  Lastly there is a relatively small pool of talent able to scale and operate plants, and for the industry to grow the talent pool will need to expand.

Overall there is significant IP to be created in this space. We have also seen significant demand from large food groups who are looking to source suppliers, or acquire, solutions in this space. Winning propositions that can solve the full package have the potential to massively disrupt very large markets.