The chemical industry, which converts raw materials into chemicals used as building blocks for many of the items people use daily, supports more than 25% of the total US GDP and is a $486 billion market. As the second largest chemical producer worldwide, the US is responsible for producing 13% of the world’s chemicals. 96% of US goods produced in the US use chemical sector products in their manufacturing process. The chemical industry also plays an important role in making available many of the hallmarks of modern life, including safe drinking water, abundant food, plentiful energy, accessible medicine, and more. For example, hydrogen peroxide, a commonly manufactured chemical, is used to produce bleach (clothes, textiles, hair, etc.), rocket fuel, foam rubber (i.e. yoga mats), organic chemicals, medicinal products (i.e. antiseptics for skin), and other cleaning agents used in toothpaste and household cleaners.

However, chemical products also have their downsides. The chemicals industry is responsible for 10% of global energy consumption and 30% of industrial energy demand. It is also the third largest source of global emissions, accounting for 20% of all industrial greenhouse gas emissions. For perspective, that’s about 1.5x as much emissions as all the world’s cars, trucks, ships, trains, and planes combined. This quantity of energy is required for chemical manufacturing due to the conditions needed to convert raw materials into chemical products since most chemicals are part of a petroleum-based supply chain. High temperatures, pressures, and water must be applied to the feedstock (usually a fossil fuel) to turn it into a chemical for making goods.

Solugen’s goal is to change all this by creating what it calls “the world’s first clean molecule factory.” Solugen is a company with a carbon-negative molecule factory that replaces petroleum-based products with plant-derived substitutes. Solugen's patented bioforge processes produce chemicals from bio-based feedstocks based on synthetic biology, metal catalyst engineering, and modular plant design developments. It aspires to reimagine the chemistry of everyday life with enzymes found in nature and wants to make chemicals better, faster, and cheaper while eliminating the need for fossil fuels in chemical manufacture.

Source: CNBC

Solugen was founded in 2016 by Gaurab Chakrabarti (CEO) and Sean Hunt (CTO). While pursuing a Ph.D. and M.D. from UT Southwestern (Dallas) from 2010-2017, Chakrabarti worked in a cancer biology lab to understand why cancer cells create considerably more reactive oxygen species (i.e., hydrogen peroxide) than normal cells, causing damage.

While working to develop a drug to prevent such damage, Chakrabarti discovered the enzyme responsible for this increased production of hydrogen peroxide. He later found a way to fabricate the enzyme and mimic the process in cancer cells. Chakrabarti’s research proved that cancer cells produce profound quantities of commercially viable chemicals by converting sugar to hydrogen peroxide via an enzyme. Meanwhile, Hunt was pursuing a Ph.D. at MIT in chemical engineering. Hunt’s research was focused on the scaled production of hydrogen peroxide using metal catalysts.

Charkrabarti and Hunt were therefore unknowingly focused on the same problem, scaling hydrogen peroxide production using different methods: cancer cells and metal catalysts. The pair met when Hunt’s then-girlfriend, now wife, who was Chakrabarti’s dissection lab partner, introduced them over a poker game. Despite Hunt’s poor poker skills, Hunt and Chakrabarti began comparing research notes. After a petrochemical plant explosion in Dallas, the two saw an opportunity to combine their research to make hydrogen peroxide without flammable chemicals.

In 2016 Chakrabarti and Hunt were finalists in the MIT Launch program, adding the first $10K to the balance sheet of their new venture. Possible customers were in attendance at the MIT pitch competition who essentially told the co-founders, “If you make it, we’ll buy it,” so Hunt rushed to Home Depot to buy parts for their first reactor. This $7K PVC pipe reactor assembled in a ramshackle lab behind the Dallas Love Field Airport cost $150/month and was capable of producing 5 gallons of hydrogen peroxide per day. Initially, the pair loaded buckets of the cleaning solution in the back of Hunt’s Subaru and drove to the float spa and other customers they found by contacting businesses on Facebook.

Solugen joined the Y Combinator’s winter 2017 batch. Later that year, Solugen signed a deal with wet-wipe manufacturer Diamond Wipes and launched a new brand called Ode to Clean. Diamond Wipes manufactured the wipes, and Solugen provided hydrogen peroxide and marketing. After a few weeks of producing Ode to Clean at $4-5 per pack, Solugen was scheduled to generate more than $4 million from wipes in its first year. Many questioned the decision to focus on cleaning wipes first, but it made sense to Chakrabarti and Hunt. Not only is hydrogen peroxide the main ingredient in the antiseptic, but its production burns a lot of fossil fuel; a person could fly from Earth to the moon and back 18K times per year with the amount of petroleum used to make cleaning wipes in the US alone. Diamond Wipes acquired Ode to Clean in 2018, but Chakrabarti credits this initial partnership for Solugen’s entry into industrial manufacturing.

Solugen sells plant-based chemicals to product manufacturers for a variety of purposes, though it one day hopes to sell reactors and enzymes for producers to make their own chemicals. Ode to Clean functioned as a proof of concept, but Solugen has since produced chemical ingredients for goods rather than goods themselves. Here’s how its production process works:

1. Plant sugars (a tank with 10 million calories worth of corn syrup), deionized water, and compressed air are combined to create feedstock.

2. The feedstock is pumped (using 100% wind energy) into an enzyme reactor where the conversion process creates the intermediary product.

3. The intermediary product is then pumped into processing tanks where compressed air pushes it across metal catalysts (primarily engineered gold), converting it into the final product.

4. Excess water is evaporated from the final product to churn out a liquid concentrate for shipping. This mechanical vapor recompression evaporator is 10x more efficient than burning natural gas to create steam.

5. Stored in an inert nitrogen atmosphere, the final product is kept free of contaminants in storage tanks, awaiting shipment. If customers prefer a solid final product over a liquid concentrate, the substance is run through a crystallizer.

Source: The Century of Biology

Solugen is able to engineer enzymes genetically to function as catalysts to help its chemical production process. The challenge for Solugen is discovering new enzymes to perform new tasks (create new products) and figuring out how to feed and scale them. To do this, Solugen uses the CRISPR-Cas9 genome editing tool, which can add, remove, or alter sections of a DNA sequence faster, cheaper, and more accurately than previous tools.

Through yeast cell modification, Solugen has found transcription factors that function as accelerants to generate the desired enzyme more rapidly. By overwhelming the typical functions of the cell with messenger ribonucleic acid, the cell is coerced into directing most of its activities toward enzyme production. Algorithms run calculations through a Solugen server in Germany to figure out how to optimize the enzymes. Finally, the company collaborates with a contract research organization to manufacture the enzyme on a large scale at a low cost.

The combination of metal catalysts and enzymes theoretically should allow Solugen to make almost any product (plastics, gasoline, etc.) depending on the catalyst used, of which there are hundreds. The hard part is finding the correct combinations based on customer desires. Solugen’s 20K square-foot Bioforge in Houston, completed in 2022, can produce 10K metric tons of chemicals annually.

Source: Chemical & Engineering News

Advantages of Bio-Based Chemical Production

Solugen co-founder Sean Hunt has said that “the entire purpose of the chemicals industry is to purchase a low-cost feedstock and convert it into a high-value product as efficiently as possible”. According to Solugen, its bio-based process is able to accomplish this better than traditional alternatives across four dimensions: scale, safety, cost, and carbon emissions.

Source: Solugen

1. Scale: Unlike large plants which are immobile, large, and expensive, Solugen’s plants are small and modular. The Bioforge can go from 400 microliter well plates to a 40K liter enzymatic reactor in months, whereas a traditional plant takes decades to do the same.

2. Safety: Because no fossil fuels are used in the reactor, large explosions and employee injuries may be more easily avoided. Additionally, instead of storing and transporting dangerous chemicals across long distances, micro-manufacturing units can be stood up near production facilities. This could also reduce costs and emissions associated with shipping.

3. Cost: Solugen’s plants use less energy and produce less waste product than traditional plants, and achieve yields higher than alternative methods, producing one ton of product per ton of feedstock. Most petrochemicals in the US are shipped from China, so the combination of lower waste and low or no shipment costs (if mini units are co-located) can make Solugen chemicals cheaper than competitors. Using Solugen, most customers can operate profitability at levels below 10K tons per year, while petrochemical plants usually reach profitability somewhere around 100K tons per year. In addition, instead of enzymes costing $1k per kg, Solugen’s cost $1-10.

4. Carbon Emissions: Solugen’s goal is to remove 10 million tons of CO2 from the atmosphere. There are two popular methods: (1) fermentation, which harvests half of the sugar while converting the other half into CO2, and (2) petrochemical reactors, which require a temperature of 1K degrees Fahrenheit. The result is a lot of burnt fossil fuels, emissions, and wastewater. Solugen claims its process produces 3x fewer emissions than alternatives, and that every 1K tons of product it replaces saves enough energy to power 200 homes per year. The company’s calculations state that each ton of Solugen chemicals removes six tons of carbon from the atmosphere. With wind power as its fuel and a carbon sink as its feedstock, Solugen believes its process is actually carbon negative in the end.

Customer

Solugen produces about 10K metric tons of product annually from its Bioforge facility, a plant in Texas. It sells to over 30 customers in industries like agricultural and personal care products and the Defense Department. As of 2023, Solugen offers chemicals to the following industries: agriculture, cleaning materials, food additives, water treatment, concrete production, and oil and gas. Solugen believes its Bioforge facility can ultimately be used to produce 90% of the chemicals in the chemicals industry as R&D continues.

Market Size

The US chemical industry is a $486 billion enterprise. It supports 25% of the US GDP. 13% of the world's chemicals come from the US. Chemicals and related products make up 10 cents of every $1 of US exports. The market for hydrogen peroxide was valued at $4 billion in 2018. Solugen is part of the market for synthetic biology, “a field of science that involves redesigning organisms for useful purposes by engineering them to have new abilities.” This market has a potential valuation of $1.2 trillion.

Ginkgo Bioworks: Ginkgo Bioworks, founded in 2008, designs custom microbes for various applications, including the production of pharmaceuticals, agriculture, water treatment, and industrial chemical production. It uses genetic engineering and fermentation to produce sustainable chemicals. After raising a Series F in 2020, the company went public in 2021. As of April 2023, its market cap is ~$2.8 billion. In 2022, Ginkgo Bioworks acquired Zymergen, an ML/AI company studying and modifying microbes that produce chemicals, primarily for consumer goods and pharmaceuticals. After disclosing that it had difficulties scaling manufacturing and expanding sales, Zymergen’s stock had fallen almost 70% prior to its acquisition by Gingko Bioworks.

Monolith Materials: Founded in 2012, Monolith Materials is a clean energy and chemicals company whose main product focuses include carbon black (in all car tires), black plastic, inks, batteries, and clean hydrogen (common in products such as fertilizers). It has raised ~$365 million in funding. Monolith Materials is the world's largest producer of clean hydrogen, a substance used in products such as fertilizer that has the potential to be used as an energy source in the not-too-distant future. In mid-2022, Monolith Materials’ $1 billion manufacturing expansion broke ground. Its process uses traditional or renewable natural gas or biogas as the feedstock, which is superheated by renewable electricity to produce goods without CO2 emissions.

Mango Materials: Founded in 2010, Mango Materials is a biotechnology company that produces biodegradable plastics from waste methane gas, an abundant gas with few scaled uses. Methane is fed to bacteria which produces a biopolymer for harvesting. Because its plastics are biodegradable, Mango Material products will not contribute to plastic pollution. The biopolymer is sold to plastic producers for final good production.

Novomer: Founded in 2010, Novomer has raised $50 million and creates sustainable chemicals from waste carbon dioxide through proprietary catalyst technology for biodegradable products such as packaging, materials, adhesives, and metal coatings.

Terramera: Founded in 2010 and focused on agriculture, Terramera develops plant-based products to replace chemical-based fertilizers and pest repellants. It combines robotics, targeted plant cells, and machine learning models to increase the efficacy of its insecticides, fungicides, and plant health products. It has raised nearly $97 million in funding.

A year after the Houston plant opened, Solugen CEO Gaurab Chakrabarti mentioned in a 2022 interview that Solugens generates “software-like margins” of nearly 60% for most products. The company does not disclose its pricing publicly.

In 2019, Solugen’s revenue reached $12 million, the bulk of which came from energy and industrial customers in Texas that were using Solugen’s wastewater treatment chemicals. In October 2022, CEO Gaurab Chakrabarti said Solugen was on track for over $100 million in revenue that year. The company sells to over 30 customers in industries like agricultural and personal care products and the Defense Department. At the end of 2022, the company commented on the prospect of an economic downturn, saying demand for its product had never been higher and continued to rise. It stated that its “first Bioforge has been operating for a year, and Solugen is running a nearly nine-figure business with high margins selling commodity and specialty chemicals.”

Solugen announced a $200 million Series D in October 2022, bringing total funding to just over $642 million. At the time of the raise led by Kennevik, Lowercarbon Capital, and Refactor Capital, Solugen was valued at over $2 billion. Other investors include Temasek, Baillie Gifford, GIC, BlackRock, Founders Fund, Y Combinator, Fifty Years, Social Capital, Founders Club, and Carbon Direct.

Distributed Biomanufacturing

Solugen’s end target is to license its micromanufacturing technology to other chemical corporations for their own hydrogen peroxide production. Such a system would aid Solugen’s plan to scale operations. Chakrabarti: “We use enzyme technologies to create chemical mini-mills [and] each mini-mill can do 5K tons of products.” Though chemical plants can produce 50K tons per year at just 2.5K square feet, companies can create networks of mini-mills to manufacture chemicals that could be orders of magnitude less expensive. This distributed network of plants could be built within a 10-hour radius of where chemicals are used, which would decrease costs since shipments would be much shorter in duration.

Retrofitting Abandoned Factories

By building the Houston Bioforge on a previously exploded wax distillery, Solugen received large tax credits and is able to operate at higher margins. Since the idea for Solugen was hatched after seeing multiple factories explode in Texas, there are ample opportunities to retrofit factories worldwide. When asked about such projects, Chakrabarti said:

Repurposing factories could have multiple benefits including helping Solugen maintain high margins, bringing jobs to cities, and strengthening the company’s sustainability mission by avoiding the need to build costly new infrastructure.

Different Feedstocks

Corn syrup, the feedstock for Bioforge, is not the only available option for Solugen’s enzyme reactors. Sugars, alcohols, and vegetable oils are all viable options as feedstocks; even recycled cardboard boxes could be viable. Through carbon removal, it may even be possible to use carbon dioxide as a feedstock. Solugen’s reactors already remove a lot of CO2 from the environment; every 10K tons of product removes 30K tons of CO2. The company believes a greater impact can be achieved. In a 2022 interview, Chakrabarti said that the company is working on ways to suck CO2 from the air and use it as fuel for reactors to make products people use. Direct air capture, using fans to extract CO2 from the air and store it elsewhere (usually underground), is already a proven technology. If it can be used as a feedstock for Solugen, the company will be able to turn a waste material into a source of value.

Government Pressure

Responsible for nearly 30% of global emissions, the industrial sector has been under scrutiny to reduce environmental impact for some time. As the largest contributor to industrial emissions, bulk chemicals have the largest opportunity to contribute to this objective. Around the world, governments are attempting to force industries to reduce their emissions through carbon pricing, renewable energy incentives, emission standards, R&D funding, sustainable procurement policies, green building standards, and more. The U.S. Department of Energy released the Industrial Decarbonization Roadmap in 2022, which lays out plans to reduce emissions across iron and steel, chemicals, food and beverage, petroleum refining, and cement production. If positioned well, Solugen may be able to ride the tailwinds of government regulation targeted at chemical producers and consumers (those using the chemicals), which may have the effect of increasing demand for Solugen’s offerings.

Market Conditions

Matthew Larew, a life sciences analyst with William Blair, has commented about the biochemical industry “It’s been a very choppy road because of the capital investment required… This is a very nascent industry.” Large fluctuations in the energy and chemical markets, including changing gas and oil prices, foreign trade policies, and government regulations which change yearly can make the market dangerously unpredictable. To avoid harm from market volatility, Solugen has purposely focused on specialty products to avoid competing with large companies which can make much cheaper products due to scale. But unforeseen market forces pose a real risk for the company, just as with others in the space.

Intellectual Property

Solugen’s future growth depends on its R&D team, the innovation it drives, and its patents for using specific metal catalysts and enzymes. As with any company that depends on intellectual property, Solugen is vulnerable to infringement, appropriation, or disruption by competitors or third parties. Additionally, as new competitors enter the market and attempt to copy Solugen’s model, patents on new processes and combinations may be made, possibly preventing Solugen from using certain feedstocks or developing new products.

Solugen is on a mission to “de-fossilize the chemicals industry”, and has found early success using plant enzymes and metal catalysts to create specialty chemicals. Co-founder Sean Hunt believed enzymes were unreliable but, through machine learning, Solugen has been able to extend the lifespan of the enzymes it uses from minutes to weeks. Chakrabarti claims that the tech to efficiently produce these enzymes at a low computing cost was not possible in the early 2010s, so similar chemistries have not been observed at scale in the past. When asked about the future of Solugen and the ethics of the company possibly becoming a monopoly, Chakrabarti made the following comment which encapsulates Solugen’s aspirations:

As Solugen’s model shifts from that of a chemical manufacturer and seller to a chemical plant producer and licensor, time will tell if early successes translate to future growth.