At the end of last year, fermentation startup Ardra Bio found itself in trouble. The startup is working to develop ingredients for the natural flavours, perfume, and cosmetics industries by fermenting natural sugars. Ardra says these are free of the harmful residues found in standard petroleum-derived synthetic ingredients. Sounds like a win, right?
But one of Ardra’s manufacturing partners had gone bust, taking a large cash deposit with them. Its second-choice manufacturer was slowed due to a COVID-19 wave in China. And the broader venture market looked to be brewing up a pronounced downturn.
“[Precision fermentation] is going to change manufacturing.”
—Pratish Gawand, Ardra
Yet Pratish Gawand, co-founder and CEO of the Toronto-based company, remains optimistic that Ardra can turn things around, and that good things can happen if you just give them enough time to mature.
Still, the challenges were many. Fermenters are in short supply globally, which is why the Toronto-based startup found itself dealing with a fermentation company in the Netherlands.
Gawand explained to BetaKit that for the startup to even book a batch for fermentation, it had to plan four to six months in advance. And if something went wrong with that one batch, they wouldn’t be able to do anything again for months. “Smaller companies just don’t have that liberty to wait it out,” Gawand said.
Ardra had scheduled a fermentation batch for November 2022, but the week before the run, the Dutch company filed for insolvency. “We had no idea they were going through financial strain,” Gawand said, sounding still shocked. “They did not tell us.”
Ardra had extended the money for the test batch, and lost the advance in the bankruptcy. One batch costs $100,000, Gawand said. “We’re talking about big numbers here, at least from a startup point of view.”
Despite the setback, Gawand is optimistic. By his own admission, the startup has run into a series of unfortunate events that has caused it to miss milestones and potentially weaken investor confidence.
The startup has lost a substantial amount of its capital, and while it recently gained a new contract manufacturer to aid it in producing its next batch of precision fermentation, it’s not a partnership kindly looked upon by everyone.
But if private capital has proven wary of the company, the federal government and one of the provinces has embraced its core idea.
As Ardra has navigated the pitfalls of a technology startup, Ontario Genomics, an innovation not-for-profit organization, and the federal NRC Industrial Research Assistance Program (IRAP) have stepped in to provide some badly needed support in a number of different ways. IRAP has even moved beyond its mandate to assist Ardra.
While Ardra’s story is unique, it also points to some of the structural challenges in the emerging precision-fermentation space.
Founded in 2016 and currently employing 11 people, Ardra aims to use technology to help cure companies of their dependence on petroleum, which currently forms the dominant base for such things as food ingredients and textiles.
“It’s going to change manufacturing,” Gawand said.
With that in mind, Ardra forged ahead and found a Chinese partner company to work with on a test batch. This time, Ardra didn’t have to wait six months to get a batch done, but some challenges persisted.
Ardra began work with its Chinese partner in December 2022, but as a COVID-19 wave engulfed China, the country and all of its businesses ground to a stop, posing logistical challenges.
“We could not go visit [or] do our due diligence on them,” Gawand recalled. He noted that communication was also challenging as well.
Working with a Chinese company came with another risk: investors looking askance at Ardra’s choice of partner. Precision fermentation is new enough that not too many investors understand the technology, according to Gawand. He pointed out that relatively few Canadians are involved in manufacturing businesses in the startup space.
“Investors here typically follow, they don’t lead,” Gawand opined. “They don’t understand the technology and the business.” Rather, the Canadian investors prefer to follow other investors who understand the business, and those tend to be in the United States, he added.
But Ardra found buy-in from US investors difficult to attract.
[Canadian] investors typically follow, they don’t lead.
—Pratish Gawand, Ardra
Gawand noted that when it came to manufacturing in China, political aspects also came into play. He said US investors would rather support manufacturing in the US, so they won’t buy into Ardra because it’s dealing with China. Then it becomes difficult to find investors in Canada, because they look to invest after Americans do.
“Eyebrows go up when we say we’re manufacturing in China, and that’s why,” Gawand said.
According to the firm, Ardra creates its ingredients by fermenting natural sugars, which are free of the harmful residues found in petroleum-derived synthetic ingredients. The products the startup is developing include leaf-aldehyde, a flavor and fragrance ingredient that is naturally present in many plants. Leaf-aldehyde has a spicy odour, but in small concentrations it smells and tastes like green apple. Leaf-aldehyde is used in flavour formulations to recreate green apple, berry and citrus flavours.
Another Ardra product is butylene glycol, a widely used ingredient in moisturizers, face masks, acne creams, shaving gels and more. It has excellent moisturizing properties, and helps other active ingredients absorb into the skin.
Ardra’s technology is based on the emerging field of synthetic biology. The startup designs and recreates biochemical pathways within benign industrial microorganisms, and cultivates these microorganisms in controlled fermenters to produce ingredients using sugars as raw materials.
Ardra claims its products offer a significant cost and sustainability advantage. Additionally, since the ingredients do not use botanical raw materials, their supply is stable and devoid of seasonal variations.
To develop fermentation processes, Ardra uses proprietary tools and techniques including computational algorithms to predict and design biochemical pathways and purification techniques to ascertain that the ingredients to consistently meet industry standards.
All that sounds good and fine, but when it came time to scale up, Ardra began to run into problems. When it comes to research and development, startups use fermenters that hold between five and 10 litres. But as they grow, they need to scale up the process, Gawand explained, and larger fermenters are needed.
The cost of fermentation grows along with the size of the fermentation tanks. Fermenters at breweries or wineries are typically 1,000 to 5,000 litres. Commercial-scale fermenters can reach 100,000 litres, or more depending on the product.
For a small startup like Ardra, the challenges can begin to look insurmountable.
“A lot of different types of investors cannot support it,” Gawand said.
Even so, Gawand said Ardra’s focus is on scaling up, and that it wants to produce enough to demonstrate that its process works at scale. But given that Ardra was supposed to have proven that last year, there’s a lot of strain on the startup, Gawand admitted, because the milestones are missed and he’s not able to demonstrate to investors that the company’s goals are achievable.
“It’s a tough challenge,” he said. “A tough time to raise financing. The reason we missed the timeline is because we relied on these external contract manufacturers. We could not have anticipated they would go bankrupt.”
To date, Ardra has raised between $3.5 million and $4 million. The startup characterizes its first round as an accelerator round, and the second as a pre-seed. Currently, Ardra is working toward a seed round. Largely, the money has gone towards supporting the development of its work.
However, Gawand said Ardra is concentrating on scaling up one particular product at the moment, and out of the last round of investment, formed a strategic partnership with a US-based company. This company is supporting the development work, and will become global distributor of the yet-to-be-disclosed product once it’s fully commercialized.
But when Gawand names Ardra’s biggest supporters, he points to the public sector, including Ontario Genomics and IRAP. Despite IRAP’s mandate to support work within Canada, when Ardra explained the company needed to look further afield for manufacturers, “They were open to [supporting] our work abroad, and that really helped us,” Gawand said.
The Next Generation Manufacturing Canada cluster also provided pilot funding, and, according to Gawand, provides one of the few grants that supports capital purchases, enabling the startup to buy equipment.
This helps make Ardra independent of the contract research groups it’s had to deal with, and moves things along more swiftly while protecting the startup’s intellectual property, he said.
Over at Ontario Genomics, Bettina Hamelin, president and CEO, told BetaKit that her organization provided Ardra over $350,000 in non-dilutive funding through a number of different vehicles.
Beyond that, though, Ontario Genomics has hosted the startup at its national conference every year, and in the last month, took Ardra along on a trade mission to the Netherlands. “We’ve invested a lot in Ardra,” Hamelin said.
Hamelin called Ardra a “perfect fit” with the agency’s vision and mission. Ontario Genomics leads the application of genomics and synthetic biology-based solutions across key sectors of the economy. She acknowledged that more infrastructure is needed, and said a gap exists when it comes to the bio-manufacturing for non-health applications.
“That’s where we’ve been pushing government and industry to invest more,” Hamelin said.
During the trade mission to Holland, Hamelin said she learned that Canada is not alone when it comes to scaling up precision fermentation. She called it a global challenge and a global opportunity. “I just think it’s so important that we do this, so that we can really lead the economy in that regard,” Hamelin said.
At the National Research Council of Canada Industrial Research Assistance Program (NRC IRAP) Louis Gorgenyi, the bioproducts sector team lead, called fermentation an emerging space much like AI. He noted that Ardra is an IRAP client, but declined to state the exact amount IRAP had provided.
Gorgenyi did say that a number of individual companies are looking at fermentation, and that those were some of the spaces where IRAP was looking for interest in collaborators setting up research facilities, or engaging with Canadian small and medium-sized enterprises (SMEs) to develop technologies or scale up.
For its part, as Ardra has evolved its various fermentation projects, it’s cobbled together a patchwork of funding from whatever it can get. It received over $149,000 in 2022, for example, to develop a synthetic process to generate an iron-rich, complex molecule called heme, which is found in animal blood. Heme provides a core element of the taste of meat.
Ardra was able to produce animal-free heme by precision fermentation, and claimed to have active requests for larger sample amounts from several major flavour companies. With funding from AcCELLerate-ON, a regional agriculture competition supported by Ontario Genomics, Ardra planned to reach pilot-scale for heme production, validation of their key ingredients by these potential customers, and to establish a clear path to market.
A couple of months later, Ardra raised another $250,000 from Next Generation Manufacturing Canada (NGen), the industry-led organization behind Canada’s Global Innovation Cluster for Advanced Manufacturing. The money was in support of a $500,000 project led by Mediphage Bioceuticals, Inc. in collaboration with Ardra.
The partners will develop engineered industrial microorganism platform strains aimed to support both companies’ proprietary biomanufacturing processes, including Ardra’s natural ingredients used in the food industry.
As Ardra continues its almost quixotic quest to develop its fermentation technology, Gawand said new companies in the sector are springing up, and interest in the field has grown in the last couple of years.
Previously, a handful of companies pursued fermentation. As of 2022, according to the Good Food Institute’s 2022 Fermentation State of the Industry Report, the number of companies focused on fermentation of alternative proteins had reached 136.
As well, in early 2023, nine precision fermentation companies co-founded the Precision Fermentation Alliance, which will focus on regulatory engagement and consumer messaging.
And investment in fermentation reached $842 million across 89 deals, according to the Good Food report.
Given the continuing rise in fermentation, the question remains: Is Ardra’s troubled journey unique, or has Canada failed to see the opportunity in the technology?
But Gawand, ever hopeful, said that generally in the industry, there’s momentum.
“I’m optimistic,” he said, “Things will move forward.”