The next great economic revolution is at hand: Technological advances in biology, synthetic biology, and life sciences are beginning to transform multiple sectors of the economy. In this paper, we describe how the biorevolution is unfolding and how to understand potential investment winners.
- Biologically based processes and products are already emerging and having impact.
- Businesses stand to benefit in three ways — driving incremental demand, creating new products and markets, and reducing sustainability risks.
- We have identified three categories of companies that have the potential to benefit — technology enablers, biology companies, and incumbents in many industries — and built a dynamic framework to analyze these opportunities as they develop.
Defining the biorevolution
We trace the roots of the biorevolution in the health care sector to 1978, when Genentech was able to manufacture recombinant human insulin using E. coli. The building blocks of biology have generated significantly greater innovations since then.
Key technological advances create opportunities for businesses to understand, engineer, and manufacture biology in ways never done before. Examples include sequencing DNA (determining the sequence of its chemical components), proteomics (the analysis of proteins produced in living organisms), and gene editing (changing the sequence of DNA or CRISPR).
The potential of this biorevolution is significant and far reaching. In May 2020, McKinsey estimated the impact of the existing pipeline of biology innovations to be ~$4 trillion over the next 10–20 years.1 More recently, BCG estimated synthetic biology (synbio) could be used in industries that account for roughly $30 trillion of global GDP.2 As the transformation moves forward, these innovations will reshape many industry sectors. Within the GIC industry sectors, we believe most investment opportunities will manifest in health care, consumer staples, consumer discretionary, and materials.
How the biorevolution harnesses the power of life
Katherine Collins, CFA, MTS, Head of Sustainable Investing
If the business model for the 20th century was the factory, the model for the 21st century is a garden.
Over the course of the past century, several major arcs of development took hold. Advances in chemistry created products ranging from life-saving chemotherapy agents to crop-protecting insecticides. New approaches to engineering accelerated access and use of products from hydrocarbons to avocados. These developments have contributed to important human, social, and economic advances, and they have also created serious side effects and systemic costs. Because they focus on harvesting, extraction, and/or targeted destruction, many of these solutions — and the businesses built around them — are ultimately limited by the health of the systems they impact.
In contrast, biological solutions build upon the growth-related functions of existing systems. Immunotherapy uses the power of the body's own immune system to fight cancer. Biological crop treatments use microbes and fungi to protect crops without widespread use of toxic chemicals. Inputs for food, fuel, and consumer products can increasingly be grown as needed, instead of being harvested from irreplaceable sources.
Many biological solutions are at an early stage of development, with risks and uncertainties involving science, finances, and ethics. Their success is dependent on how well we can understand and align with the powers of the systems at hand — from human biology to ecosystems to enzymatic product functions. If and when these solutions prove effective, the potential returns on investment — both financial and nonfinancial — could be significant.
How businesses stand to benefit
We see three ways that businesses can benefit from the biorevolution:
- Creating new products and driving incremental demand
- Reducing operational risks
- Solving sustainability challenges
Creating new products and driving incremental demand
We believe product innovation will spread from the health care sector to industries such as food and agriculture. In recent years, traditional biological drugs such as monoclonal antibodies have been among the largest drugs nationally in terms of revenues. In 2017 the FDA approved the very first gene therapy, and today more than 20 cell and gene therapies are approved.3 The success of mRNA vaccines for SARS-CoV-2 highlights the potential opportunity for that technology. Increased understanding of human biology will lead to new treatments or improve current practices. We believe this can create significant economic opportunities for companies across the value chain in the health care industry. Companies that could potentially benefit include technology and material providers as well as diagnostic firms and even medical devices.
Food and agriculture actually represent one of the oldest areas of biotechnology. For centuries, farmers have been engineering biology by selecting and breeding certain crops with desired traits such as high yields and resistance to environmental stresses. From these origins, the process of innovation and discovery continues on a more industrial and intentional scale. One of the great trends is the use of genetically engineered seeds, which is helping to feed the world's growing population, aided by further advancements in biological science.
As companies create new products, they are also aligning themselves with consumer preferences. Consumers increasingly prefer, and are willing to pay more for, sustainable products.4 This trend will have consequences for companies selling end products as well as for upstream suppliers who make materials. Companies that can adopt these technologies faster than competitors may see reduced risk to their operations, or increased demand for their products, and the potential for improved performance versus peers.
Reducing operational risks
Companies are attempting to shift key materials in their supply chain to bio-based products, where possible, to help reduce operational business risk.
Specialty chemical companies in the flavor and fragrance space as well as cosmetic companies are sourcing key ingredients through synthetic biology. Bio-based engineering can help source rare ingredients or develop custom ingredients not found naturally, making their supply chains more resilient. For example, squalene, a material used in moisturizers, is a rare ingredient. Historically, it was sourced from shark livers, but today it is predominantly produced through synthetic biology.5 Similarly, engineered fungus can be used to make flavorings and custom flavors with bio-based materials.
A range of consumer companies will be able to reduce the amount of petroleum-based materials used in products from clothing to packaging, cell phones, deodorant, shampoo, vitamin capsules, and golf balls.6 The materials contribute significantly to greenhouse gas (GHG) emissions and waste.
Solving sustainability challenges
The biorevolution can also help companies reduce GHG emissions and support sustainable agriculture, ecosystem health, and supply chain resiliency.
Agriculture, when defined broadly, is the second-largest source of GHG emissions. The raising of animal livestock, for example, generates more methane — a greenhouse gas more potent than carbon — than oil and gas or coal activities in the United States. It constitutes 27% of total methane emissions.7 Farming also creates additional environmental issues through the runoff of fertilizers and pesticides into waterways.8 The biorevolution can help solve these key issues by enabling the production of plant-based or cultured meat and by developing new seeds or pesticides that reduce or eliminate the need for toxic chemicals.
In the area of chemicals, traditional agriculture firms are working on ways to reduce their environmental impact. Bayer, a global life sciences company, is collaborating with synbio company Ginkgo Bioworks to develop nitrogen-fixation microbes that could reduce the need for nitrogen fertilizer by 40%–50%.9 Corteva Agriscience is also working with Ginkgo to develop innovative crop protection technologies.10
We believe the biorevolution is likely to impact broad areas of the economy at different times and in different degrees in coming years; it will not be a linear transition.
Given this outlook, we have developed a framework to evaluate companies — our biorevolution map — which illustrates how we define the opportunities and where we believe they will manifest.
Along the left side of the map, you can see the ways that businesses can benefit from the biorevolution as discussed in the previous section. Across the top of the map, you see the three categories of companies based on how we believe they can participate in the ongoing biorevolution. Below the map, we describe each type of company and offer examples. The color markings reflect current scoring of where the most relevant and important opportunities are manifesting.
The biorevolution investment map
A dynamic framework for evaluating investment opportunities
As of March 2023.
Tech enablers are businesses whose products help in the research, development, production, diagnosis, and treatment of biology.
We think the biorevolution will benefit technology enablers primarily from a demand perspective. Consider the following sources of demand:
- Increased funding for biomedical research with the NIH, and the creation of ARPA-H for advanced disease research11
- Inclusion of bioeconomy research and development in the recently passed CHIPS act12
- Anticipated market share growth of biologics in the pharma market13
- Increased revenue opportunity from new markets like synbio14
- Massive potential total addressable markets, upwards of $100 billion15
The increased ability to analyze biology has led to greater funding for life science research, and the accelerating development of biological products has increased the need for bioproduction equipment.
|Stock||Accelerated growth opportunity|
|Thermo Fisher Scientific (TMO)||Instruments such as DNA sequencers, mass spectrometers, electron microscopes, and PCR technology enable advances in the fields of genomics, proteomics, and cell research|
|Danaher (DHR)||Bioproduction equipment like bioreactors and filtration sets for producing biological drugs|
Biology companies are businesses whose core products are biology or synthetic biology. We believe the biorevolution will drive revenue opportunities for these companies over time by enabling new products and new markets. Perhaps the greatest evidence of this is the example set by the development of mRNA vaccines during the Covid-19 pandemic.
What is synthetic biology?
Synthetic biology is a discipline within biology that aims to redesign or create biological components and systems that do not naturally exist. In recent years, the advent of core technologies like DNA sequencing and synthesis has led to dramatic progress across multiple sectors. Synbio companies have delivered products that have touched aspects of our daily lives, such as bio-based alternative meat, fertilizers, clothing fabric, chemicals, and personal care products.
Venture capital investment in synbio firms has increased significantly as technology matures and the commercial viability of a growing set of applications increases.16 Over time, we believe we are likely to see a massive potential market opportunity for traditional biotech and startup synbio companies alike.
Biotech also reaches into the agriculture space, where companies use genetic engineering to improve and optimize seed strains. Companies are using biology to engineer crops17 and to pursue ways to replace crop protection chemicals and fertilizers with bio-based products.18
|Stock||New product and market opportunities|
|Ginkgo Bioworks (DNA)||
Incumbents are businesses that could realize operational, environmental, or marketing benefits through biology and bio-based products. This is the broadest category of companies, as it captures all those who could be part of the multitrillion-dollar economic disruption McKinsey and BCG cited. Generally, we believe incumbents will be able to improve their operational and manufacturing processes, reduce their environmental risk, and achieve better alignment with consumer preferences. Risk reduction and early capture of shifting consumer preferences can create compounding benefits over time versus peers.
Bio-based products can help source rare ingredients for personal care products, create novel food and flavor ingredients, replace environmentally damaging materials in clothing, and reduce both food product emissions and packaging waste. Taking these changes together, businesses can increase supply chain resiliency, cut input costs, or lower an environmental footprint. Companies can also increase demand by aligning products with consumer preferences.
|Stock||Sustainability improvement/risk-reduction potential|
|Chipotle Mexican Grill (CMG)||Increasing use of plant- or cell-based meat to reduce costs of traditional meat, reduce carbon emissions, strengthen supply chain resilience, and attract sustainability-oriented customers|
|Lululemon (LULU)||Partnering with startups to develop bio-based nylon to reduce climate change and supply chain risks21|
A broad and integrated transformation
We are not alone in recognizing the potential of the biorevolution. But we differ from many in our belief that its effects will be broader yet interconnected. Health care, materials, agriculture, and consumer staples and discretionary sectors are all poised for change. We also believe this will not be a steady, uniform process but will have fits and starts, with periods of rapid change and slower progress in different sectors. Companies will have different types of opportunities — the chance to accelerate growth, to create new products or markets, or to better manage risk. Some will recognize them and act, while others might miss out. Investors will want to differentiate between potential winners and losers and may consider a well-conceived, active, and dynamic framework to navigate this long-term transformation.
Biology revolution companies face intense competition and potentially rapid product obsolescence. Biology revolution companies may be adversely affected by the loss or impairment of intellectual property rights and other proprietary information or changes in government regulations. The potential for an increased amount of required disclosure or lack of access to proprietary scientific information could negatively impact the performance of these companies.
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- 1 McKinsey Global Institute, "The Bio Revolution: Innovations transforming economies, societies, and our lives," May 2020.
- 2 BCG/BCG Henderson Institute, "Synthetic Biology Is About to Disrupt Your Industry," February 2022.
- 3 U.S. Food & Drug Administration, Approved Cellular and Gene Therapy Products web page, accessed 12/16/22.
- 4 Businesswire.com, "Recent Study Reveals More Than a Third of Global Consumers Are Willing to Pay More for Sustainability as Demand Grows for Environmentally-Friendly Alternatives," October 14, 2021.
- 5 Desiree Ho, "Synthetic Biology, A Tool for Marine Conservation?," SynBioBeta, accessed 3/8/23.
- 6 U.S. Department of Energy, Products Made from Oil and Natural Gas infographic, 2019.
- 7 wsj.com, "In Clampdown on U.S. Methane Emissions, Belching Cattle Get a Pass," February 12, 2022.
- 8 Karthish Manthiram, Ph.D., with Elizabeth Gribkoff, "Fertilizer and Climate Change," MIT Climate Portal, July 15, 2021.
- 9 Bayer, Traits to Strengthen Farmer Productivity & Quality web page, accessed 3/8/23.
- 10 Corteva Agriscience, Biologicals web page, accessed 3/8/23.
- 11 National Institutes of Health, Advanced Research Projects Agency for Health (ARPA-H) web page, accessed 3/8/23.
- 12 U.S. Senate Committee on Commerce, Science, and Transportation, CHIPS and Science Act of 2022.
- 13 Sartorius AG, Sartorius & Sartorius Stedim Biotech Virtual Capital Markets Day 2021 presentation, May 20, 2021.
- 14 Twist Bioscience, Writing the Future presentation, August 2022.
- 15 Illumina President and CEO Francis deSouza, 40th Annual J.P. Morgan Healthcare Conference presentation, January 10, 2022.
- 16 builtwithbiology.com (a SynBioBeta company), 4Q 2021 Synthetic Biology Venture Investment Report, February 9, 2022.
- 17 Bayer, Traits to Strengthen Farmer Productivity & Quality web page, accessed 3/8/23.
- 18 Corteva Agriscience, Biologicals web page, accessed 3/8/23.
- 19 Bayer, "Bayer to create Ag Biologicals Powerhouse Partnership with Ginkgo Bioworks, Advancing Joyn Bio Technology Platforms," April 22, 2022; and agweb.com, "Joyn Bio Eyes Nitrogen Fixation Product To Be a 'Must Have' For Farmers," August 23, 2021.
- 20 Cision PR Newswire, "Corteva Agriscience Collaborates with Ginkgo Bioworks to Bolster Crop Protection," April 1, 2021.
- 21 Genomatica press release, "lululemon partners with Genomatica on plant-based nylon," August 18, 2021.