A Conversation with Christophe Schilling

OPEN IN VIEWER

Christophe Schilling

Genomatica (San Diego, CA) has mastered the art of adaptation, not only weathering the dramatic shifts in fortune industrial biotechnology has seen over the past 12 years, but emerging with multiple commercialized products in high-margin, diversified end markets, strong partnerships, and a bevy of interested brands.

The company has commercialized fermentation-based processes for 1,4-butanediol (BDO) and 1,3-butylene glycol and is advancing toward commercializing biobased nylon-6. In 2016, Novamont started up a 30,000 metric tons per year plant in Northeast Italy using Genomatica's process to manufacture BDO for downstream use in bioplastics. Commercial production of Genomatica's Brontide™ butylene glycol began in 2019, also at a Novamont facility in Italy. Late last year, Genomatica announced an agreement with nylon-6 producer Aquafil (Trento, Italy) to build a demonstration-scale biobased nylon-6 plant using Genomatica's biobased process to make nylon-6 precursor and nylon-6 pellets, yarns and film. Genomatica also has partnerships with Covestro, Cargill, ExxonMobil, Clariant, and BASF. Genomatica was recently a finalist in IHS Chemical Week's first-ever sustainability awards, and has been named to the ICIS Power Players list seven times.

Founder and CEO Christophe Schilling attributes Genomatica's success to strong science and a relentless spirit. He recently sat down (virtually) with Industrial Biotechnology to discuss the evolution of industrial biotechnology and why current trends point to an inflection point.

INDUSTRIAL BIOTECHNOLOGY: The push for sustainable solutions has revitalized interest in biobased products. Do you think the consumer pull will be strong enough to create more commercial successes like BDO or Brontide?

CHRISTOPHE SCHILLING: It has certainly been an interesting time. One of the things that has been surprising, and in a positive way, is the uplift in interest for sustainable products. It is very clear that the sustainability imperative has intensified, even amid a pandemic. I know for me personally, when the pandemic started, the world changed so visibly and quickly that it made you think a little bit more about the nature of crisis and how dramatically climate change could impact the world. Last summer, we released the results of a survey of 2,000 adults in the United States trying to gauge how the COVID-19 pandemic was affecting sustainability trends. We found that 56% of Americans want brands and government to prioritize sustainability even amid health and economic turmoil. It also showed that sustainability is now a top-of-mind issue, with an overwhelming majority (85%) of Americans reporting they've been thinking about sustainability the same amount or more during the COVID-19 pandemic, with those thinking about it more noticing less traffic (45%), cleaner air (42%) and more plastic waste (40%).

I think a couple of things are behind this renewed push for renewables. First, the consumer is demanding more sustainable solutions. And brand owners are trying to figure out how best to respond to it and where these sustainable solutions are going to come from. Brand owners today are far more likely to see a solution coming from a biotech player than in the past. When interest in biobased products had its first go-around in the late 2000s, brand owners went to their existing suppliers to see what they had, and the answer was: not much. At the time, there really weren't effective solutions at scale, volume or substance. Now they are looking more broadly and the products are there.

So, the kinds of conversations we have today with brand owners are substantively different than I think it would have been years back. There's been more demonstrations of success, feasibility has been proven, and maybe the questioning of how the existing supply chain is going to transform or whether we need new supply chains has begun.

That's on the consumer and product-maker side. On the investor side, many large institutional investors have Environmental, Sustainability, and Governance (ESG) mandates and are holding companies more accountable. So, now it's not just a customer base interested in meaningful sustainability objectives and solutions that brand owners previously could manage to some extent. Brand owners now have additional pressure from investors to take real action and deliver real solutions.

I think the third piece is regulation. In the EU, you have the European Green Deal, and now in the United States you have an administration that has been clear about driving more climate-forward policies.

So, when you combine the forces of customers, brands, investors, and government, you have conditions that weren't there before and will drive real change. If you look back to the first wave of biobased development in mid-2000s, it was all about rising crude oil prices and the push for energy security. The US was pumping so much money overseas to buy crude oil. Prices were going up, so the US was sending more and more money overseas. That drove a push to find alternatives, and characterized that first round of cleantech. And logically it was very sound—crude oil is going up, you have to find alternatives. But when those prices fell, it undermined everything.

Today, crude oil prices are what they are. But it doesn't change that consumers want what they want, investors want more sustainability stories, and governments are putting policies in place to drive sustainable developments. We are still the “alternative” feedstock, but the price of oil is less of a focal point. We don't get asked nearly as often, “At what price of crude oil are you competitive?” And back then, we were asked this constantly. The same goes for the existence or non-existence of the “green premium.” If you talked to a procurement person in the late 2000s about whether the public would pay a premium for a green product, the answer was a strong “no.” Today, we know people will pay more, maybe it's not a lot more, but if you look at the solutions available today, it doesn't have to be a lot more.

Genomatica's story has been interesting. We started with BDO many years ago, and our ability to prove that process at commercially relevant scale gave us a lot of credibility with the mainstream chemical industry. We landed a lot of partnerships, mostly in Europe. But, about four years ago, we decided to diversify and expand our portfolio. We have the ability to produce a lot of large-volume, BDO types of intermediates, and wanted to complement that with specialty chemicals. That led to the launch of our Brontide-brand butylene glycol business. That has been a terrific business for us from a number of perspectives, particularly in that we are delivering a product directly to brand owners. That dialogue has helped us understand what consumers are looking for. With BDO, we are four to five steps from the customer in the value chain. This more recent closeness to the customer is also giving us greater perspective on sustainability drivers. That decision to expand our portfolio also drove our first acquisition, or REG Life Sciences, which will enable us to deliver solutions in specialty and more widely-used chemicals.

In short, demand is growing, the opportunities are there, and we as an industry need to make sure that the technologies we are developing are accelerated and not held back by existing, entrenched interests in the value chain. I would say the industry is even more purpose-driven than before. For example, even though Genomatica is a biobased products company and everything we do is aimed at making entire value chains more sustainable, we just appointed our first Head of Sustainability. We wanted to bring in someone who had a consumer packaged goods background so we are not just providing a technology, we are delivering a broader sustainability story.

IB: How did interest in your products fare in 2020 amid the pandemic?

SCHILLING: From what we saw, what got put on hold was new product development. For a product like Brontide, from an ingredients list perspective, swapping butylene glycol for another product doesn't get much recognition from consumers. But if it's a new product, using a renewable ingredient instead of a petroleum-based one allows you to create new branding with a more sustainable story.

So, new products that were in the process of being developed, those got put on hold during the pandemic. Butylene glycol is a great story and the trends for renewable ingredients are particularly strong in personal care. It's not going to replace propylene glycol across the board, but it is a luxurious moisturizer and has great potential.

IB: Late last year you made a big announcement with Aquafil to build a demonstration-scale biobased nylon-6 plant to provide material for pre-commercial use. Can you discuss the project, and why you think there is a market need for renewable nylon?

SCHILLING: People know nylon, it's a household name. The feedback from brand owners has been great, and I think it's a product where people didn't know that literally the same thing could be made—in a market where there's millions of tons of product—except in a sustainable way. We're excited about how well the technology is progressing. And we have a great partnership with Aquafil, they are a terrific company to work with. Together, we found a quicker path to scale up and we're moving to a demo plant. There have been investments on our side, and investments on their side, and we put together a path for a plant that should be operational by the end of 2021.

IB: Has industry made meaningful advances to organisms to help make processes more economically viable? Are they cheaper and more efficient?

SCHILLING: Yes, all of the above. Our journey with BDO helped us understand our organisms and how quickly we could move forward. As part of that journey, we developed new modeling tools, particularly for small-scale experimentation and for scale-up/scale-down disciplines. I once had a team member ask if we should wait for an organism to hit a certain target before we began scaling up, and we don't have to anymore. If you go back and compare to BDO, with every step we are taking with nylon, we are farther along than when we took that same step with BDO. From an organism perspective, we actually took bolder steps with BDO. And notably, our organism and process continue to improve.

Another example that speeds development and reduces costs comes from the R&D synergy between many of our programs. For example, the metabolic engineering and pathway work we've done for our nylon-6 precursor carries over to multiple other C6 products that we're developing but haven't spoken about publicly. Similarly, advances we make while working on those other programs can improve the economics of our nylon-6 offerings.

IB: What's next for Genomatica?

SCHILLING: The first products we commercialized are for the four-carbon molecules BDO and butylene glycol, as part of what we call our C4 platform. These are commercialized, and we'll continue to grow these businesses and build more plants. The applications for Brontide are great and there's plenty of room to grow. We are also exploring potential nutrition applications. There is a purity grade of butylene glycol that serves the nutrition market and we're excited about where we can take that.

We also have in development two platforms in C6 chemistries and one in longer chains connected to our 2019 acquisition of REG Life Sciences, formerly LS9. This acquisition gave us a position in oleochemicals that could displace derivatives of widely used products like palm oil, palm kernel oil, and coconut oil, which are used in many cleaning and homecare products, for example. I think we've already made good progress since acquiring this platform, and there is a good chance this year we will be able to announce partners to work toward commercialization and scaling.

If I think about markets that are interesting to us today, a good example is BDO, because it gives us a position to reimagine single-use plastics through our partnership with Novamont. It's a great sustainability story. We like trends in health and wellness and personal care. When a product goes on you or in you, there is good consumer interest and demand for renewables. There is demand in the apparel sector for more sustainable solutions, and renewable nylon plays well into that. We also like home care and that's where our longer-chain platform ties in. So these are four very large markets that we really like. I would characterize them as sectors where there are strong consumer-driven sustainability demands. And we can deliver those solutions by partnering with mainstream industries and progressive brand owners looking to genuinely drive sustainability stories and bring solutions to consumers.

There's a long history in this industry and we have experienced a lot of ups and downs. But, I do feel like our time is now.

IB: Has the financing community begun to embrace the sector again?

SCHILLING: Absolutely. I think there have been a lot of lessons as the industry evolved. These markets will grow for sure, but if you look back over the last 5 or 10 years, what they got wrong was the costs to deliver. Some investors take that and say, ‘I'll invest at the same stage but be mindful of the cost and if the costs turn out to be a lot higher, does the deal still look good?’ Others will say, ‘let's invest later, once those costs are already worked out and people really know what they are in for.’

Nonetheless, the pool of capital coming into this space is very substantial. You also have the trend in public markets of capital being mobilized in these SPAC [special purpose acquisition company] instruments, and you also see big ESG impact funds being set up by major firms. So, money is flowing into the space. And those that are savvy, look back—because there's a lot to learn from the last 10 to 15 years—and are smart about it will be really well positioned.

IB: What got you through the tough times in the industry?

SCHILLING: When we were creating our core values in 2010, we asked our staff, “if Genomatica was a person, what adjectives would you use to describe him or her?” And they came up with real, innovative, united, and lastly, relentless. It was the employees who came up with it, I stayed out of the process. When “relentless” was suggested, I remember thinking it was maybe a little negative, and perhaps perseverance would be better. What came to mind was that “relentless” was synonymous with “dogged” or “stubborn.” But, in hindsight, looking at where we are today, I believe it is very apt. I think we have been true to those values. And I think you have to play a long game in this space. This isn't a market where you enter, play for three to four years, find success, and then move on to something else. So, I would say our relentless spirit got us through the tough times.