When Ginkgo Bioworks launched more than a decade ago, the field of synthetic biology had seemingly convinced investors that fuels derived from algae could one day upend the oil and gas industry.

Those ill-fated biofuel efforts fizzled after it became clear that they were unlikely to ever be cheaper than oil. In the fallout, several upstarts like Amyris and LanzaTech survived and pivoted toward higher-margin products like fragrances and sweeteners made with biological processes.

For Ginkgo, the vision was always bigger than biofuels. Instead, it aimed to create a platform—akin to Amazon Web Services or the Apple app store—to manufacture cells for all industries.

The Boston-based company's patience recently paid off: Last month, Ginkgo landed a blank-check deal that valued the company at $15 billion, more than triple what it was worth last year, according to PitchBook data. Its rival Zymergen also took a platform-first approach to biomanufacturing and rode it to an IPO in April at a roughly $3 billion valuation.

"The financial successes of both [Zymergen and Ginkgo] really help show the world that more money should be coming into this arena," said Matt Ocko, a managing partner and co-founder at venture capital firm DCVC, which invested in the two companies.

Luring investors—and LPs

In addition to winning fans on Wall Street, synthetic biology startups have enjoyed rapidly falling costs and fresh demand from clients in emerging tech fields ranging from agriculture to drug discovery. All of this has helped to spark fresh venture capital interest.

Among the buzziest applications for biological products are microbes that feed nitrogen to the roots of cornstalks, proteins that are custom-made to mimic dairy, and a new generation of cell and gene therapies. Although relatively few synthetic biology products are on the market, many venture capitalists say that the field is primed to see financial rewards within the not-so-distant future.

"I think in 10 years we will probably look back and will recognize that this is the most important technological revolution of our time," said Siraj Khaliq, a partner at London-based VC firm Atomico.

It could take a decade or more to create the building blocks for significant innovations, Khaliq said, but once they are in place, revenue-generating products spring up rapidly. One example he cited is computer vision, which after a long time in the making suddenly unleashed a host of applications like self-driving cars and facial recognition.

And now investors are signaling their belief in the field's massive growth opportunity, judging by Ginkgo Bioworks' and Zymergen's exit valuations, which are each more than 100 times the companies' 2020 revenue.

"I think in 10 years we will probably look back and will recognize that this is the most important technological revolution of our time."—Siraj Khaliq, Atomico

The past decade brought wave after wave of biotech innovation that has slashed the costs of biological production methods. Chief among these are the means to cheaply manufacture and sequence DNA, as well as improvements to small-scale robotics and machine learning algorithms.

"Zymergen could not have existed 10 years ago," said Mark Cupta, a managing director at Prelude Ventures who invested in Zymergen, as well as synthetic biology startups Pivot Bio and GreenLight Biosciences.

Ginkgo's innovations have reduced the cost to produce a cell strain by 50% annually since 2015, according to an SEC filing.

To be sure, significant technical hurdles remain. For one, the science and technology at the heart of synthetic biology companies are so complex that investors without a specific technical background may risk being duped by a company like Theranos, said Cain McClary, a managing partner at KdT Ventures, a computational biology-focused firm.

He said notable firms with expertise in the field include Andreessen Horowitz via its bio fund series, Lux Capital, General Catalyst, Obvious Ventures and Section 32. The field has also piqued the interest of some large limited partners that invest in VC funds.

"LPs are starting to understand that biology now is like technology was in the 70s," McClary said.

Moreover, synthetic biology companies satisfy LPs' ESG investment requirements. DCVC's Ocko said that some companies in the field are working on technologies that could help reverse or mitigate climate change.

"One of the most exciting things about the intersection of synthetic and computational biology is you really can have your cake and eat it too," Ocko said.

Engineering cells, from pesticides to therapeutics

In recent years, the traditionally slow-to-change food and agriculture industries have become a breeding ground for synthetic biology applications.

Plant-based meat pioneer Impossible Foods created an iron-rich compound called heme by fermenting genetically engineered yeast, giving its ground "beef" the blood-like color of real meat. Ginkgo spun out Motif FoodWorks, which aims to create plant-based meats with marbleized fat and plant-based cheese that has the ability to stretch and bubble like its dairy-based counterpart. Last year, food startup Apeel raised $250 million to fund its biological coating that helps keep fruits fresh.

In farm fields, the use of engineered cells is also expanding rapidly. Pivot Bio has created a microbe-based product that bonds to the roots of corn plants, where it pulls nitrogen from the air into the soil. The method mimics naturally occurring microbes that are found near the roots of legumes.

Last year, Pivot Bio raised $100 million in Series C funding co-led by Breakthrough Energy Ventures and Temasek at a $410 million valuation, according to PitchBook data. Already, the company's alternative to traditional nitrogen fertilizer can be found on millions of acres of farmland.

Nitrogen fertilizers are a major source of greenhouse gas emissions and water pollution, but Pivot Bio's appeal is also financial. The company aims for its microbes to reproduce in the soil during the growing season and, unlike nitrogen fertilizer, they don't wash away in the rain, qualities that can reduce both cost and risk.

Elsewhere in agtech, Benson Hill is using synthetic biology to create seeds of plants with higher protein or healthier fat content. And GreenLight Biosciences is developing a pesticide that can genetically target pests using RNA.

GreenLight's RNA pesticide is initially being developed to fight the Colorado potato beetle. Because of its genetic coding, the pesticide won't harm other insects, including beneficial ones like ladybugs. The company raised $102 million led by Morningside Ventures last year.

"LPs are starting to understand that biology now is like technology was in the 70s."—Cain McClary, KdT Ventures

But it is the human body where synthetic biology could make the biggest difference by helping cure disease and eventually extending lifespan. Yet the applications in biotech are also the most scientifically challenging.

"I think the real potential of this is in medicine, whether it is engineering live medicines using synthetic logic or programming microbes in the body to express only what needs to be," said Vas Bailey, a senior partner at Artis Ventures, a firm focused on investing at the intersection of biology and tech.

Artis-backed Outpace Bio aims to solve the problem of toxicity in cell and gene therapies for incurable diseases like cancer. The company's platform designs proteins to function with synthetic logic to be able to turn on and off depending on how the body responds to chemotherapy.

Other startups developing therapies via synthetic biology techniques include Senti Bio, which has raised nearly $160 million in venture funding to date for oncology treatments, according to PitchBook data, and Gro Biosciences, a developer of synthetic insulin that can last longer in humans.

Bailey said that some therapies will begin human clinical trials in the next two to three years and there will be a number of FDA-approved medicines within a decade.

R&D as a service

While many startups target individual industries, the horizontal business models of Ginkgo and Zymergen allow them to serve a range of industries—essentially offering synthetic biology R&D as a service.

Both Zymergen and Ginkgo have trumpeted the future royalties they stand to make on the products that they produce for clients. To date, however, neither have demonstrated significant sales in this arena.

Ginkgo believes that its growing code base of cell strains will be a long-term competitive advantage—for example, by yielding cells that are particularly good at creating lots of proteins.

"Our platform is not about picking the winner," said Anna Marie Wagner, senior vice president of corporate development at Ginkgo Bioworks. "We are about broad enablement of biotechnology."

This story was originally featured in PitchBook. Read the full story here: https://pitchbook.com/news/articles/wall-street-wins-signal-the-start-of-a-synthetic-biology-revolution?sourceType=NEWSLETTER