We do have the world's first manufacturing satellite flying a 525km above us.
This is a device to process pharmaceutical active ingredients and change their crystal structure.
Basically, our first proof-of-concept payload for our future pharmaceutical manufacturing and pharmaceutical
R&D missions.
In-space manufacturing may sound like science fiction, but it's happening already, albeit on a very small
scale. It's a fledging market that analysts and a number of startups think is ready to take off.
The next industrial revolution will be in space.
If you look at pharma, semiconductors, beauty and health products and
potentially food, in the sense of like new crops, we estimated the market to be above
$10 billion at some point in 2030, depending on the speed of maturation.
Space offers a unique environment for research and development because its higher levels of radiation,
microgravity and near vacuum-less state allow companies to come up with new manufacturing methods or
materials that are not possible on Earth.
In-space manufacturing is not entirely new.
The International Space Station has hosted a number of experiments from academics, government agencies and
commercial customers for things like growing human tissue, making pure semiconductors and developing new
or better drugs. In the 2024 fiscal year budget, President Biden even set aside $5 million for
NASA to pursue cancer-related research on the ISS.
But access to the ISS has always been competitive and interest continues to grow.
When you look at what has historically happened on the International Space Station, you see that there's a
huge queue and backlog of people wanting to use the Space Station
to run experiments to see how you can manufacture and so on.
And one interesting leading indicator we've looked into, it's the number of patents
which refer to microgravity, which has increased tenfold per year
between 2010 and 2020.
On top of that, the ISS is due to retire in a few years.
So a number of space startups see an opportunity to fill this gap for in-space manufacturing demand using
compact space factories.
CNBC spoke with two such companies, California-based Varda Space Industries and UK-based Space Forge
to see how the startups hope to make manufacturing in space a profitable business.
Nestled in El Segundo, California, Varda Space Industries has grown quickly since its inception in
2020, with over 70 people now working at the company's 61,000-square-foot headquarters.
Varda's mission: to help pharmaceutical companies improve their drugs or come up with new drug therapies
by taking advantage of the unique properties of space and then return those materials back to Earth.
If you look on it at a per-unit-mass basis, pharmaceuticals are just the highest revenue producing
product on the entire planet.
To do this, Varda will use a spacecraft made of three main components, a heat shield protected reentry
capsule, a payload module that holds the customers materials inside the capsule and a satellite bus, which
provides the capsule with power, communication capabilities and propulsion.
The entire apparatus is launched on a rocket.
Once in space, the system is able to autonomously manipulate the materials on board before returning to
Earth with the finished product.
When you think about automation, this isn't like six degrees of freedom, like robot arms moving around super
complex. Think of it as like mixing certain fluids, heating, cooling them, crystallizing them.
This stuff is like very, very sort of simple in terms of like the mechanisms that are on board.
While Varda makes the capsule and payload module in-house, some of the company's platform comes from
off-the-shelf hardware.
Rocket Lab's Photon spacecraft serves as Varda's satellite bus and under a partnership signed last year,
Varda is using NASA-developed tech for its heat shield.
Varda also plans to launch its first four missions on SpaceX's Falcon 9 Rockets.
Every piece of the puzzle of Varda has been done before.
We're only novel in the aggregate.
Key to Varda's business proposition is a phenomenon known as protein crystallization.
This occurs when supersaturated protein solutions are essentially evaporated to form a solid so that
scientists can study a protein's structure.
Understanding the crystal structure of a protein can help scientists get a better idea of disease
mechanisms, identify drug targets, and optimize drug design.
Think drugs that have less side effects, are more effective or can withstand a greater array of
conditions such as not needing to be refrigerated.
We take drugs that already exist and just improve the formulation because we're able to manipulate that
chemical in a different way fundamentally than you can on Earth.
Years of research have shown that protein crystals grown in space are much higher quality than those grown
on Earth. Drug makers that have experimented with protein crystallization in space include Bristol-Myers
Squibb and Merck and Company.
In the case of Merck, the company has been experimenting with pembrolizumab, the active ingredient
in Merck's bestselling oncology drug Keytruda.
This allowed us to come up with an improved pembrolizumab formulation
that we're in long-term testing for stability right now.
A lot of drugs like Keytruda are difficult to deliver and they start off
being delivered as IV infusions.
So a patient and their caregiver go to this, usually a hospital, and they
spend time there for five hours or so going through this infusion process.
So what we're looking at to see if we can translate that into a
subcutaneous injection that could be given in a doctor's office.
Merck's new Keytruda formulation is not on the market yet, but if successful, it could not only make drug
delivery to the patient much easier, but may also prove valuable in retaining Merck's patent for the
drug. In Q2 2023, Merck reported worldwide sales of $15
billion, with over $6 billion coming from sales of Keytruda.
Oncology drug has an overall value creation over time, over $1 billion.
Therefore, the value of doing some research, which either accelerates the timeline of the
development of such a drug or improves its performance by a few percentage points, that has
a huge financial return.
Asparouhov says that Varda would not be manufacturing a huge amount of material in space, only what is known as
the primary active pharmaceutical ingredient.
The rest of the manufacturing process will be done in traditional facilities on Earth.
You're not going to see us like making penicillin or ibuprofen or these types of very generic
mass-consumption targets.
Given the amount of crystalline you need to create is far beyond our current capabilities.
But there is a wide set of drugs that do billions and billions of dollars a year of revenue that are actively
fit within the manufacturing size that we can do even on our current manufacturing facility.
If you look at the entire United States consumption in 2021 and 2022 of the Pfizer Covid vaccine, even though
there were hundreds of millions of doses, the actual total amount of consumable primary pharmaceutical
ingredient of the actual crystalline mRNA, it effectively was less than two milk gallon jugs.
Though Varda has not announced any customers publicly, Asparouhov says they've been in discussions with a
number of biopharma companies.
Varda has a few notable investors, including Founders Fund, where Asparouhov serves as a partner, and Khosla
Ventures.
We raised a $54 million Series A in the middle of 2021.
Since then, we've also closed a couple of contracts with the Department of Defense, a $60 million STRATFI
program. So we have enough runway for four flights roughly around three years.
Varda's business plan is to not only charge customers for the service of in-space manufacturing, but also
share in the profits of any drugs developed off world in the form of royalties.
Meanwhile, under the $60 million Department of Defense contract, the Air Force will use Varda's space capsule,
which will reenter the Earth at speeds of over 19,000mph, as a hypersonic testbed.
Engines full power and lift off.
In June, Varda launched its first test mission upon a SpaceX rocket.
The goal is to test out its manufacturing mechanism using a sample of Ritonavir, the main ingredient in
antiviral Paxlovid, which has been used to fight Covid 19.
Varda says the mission has been running smoothly so far and hopes to retrieve the capsule within the next
few weeks. Three additional missions are also planned.
The fundamental metric of success for us at Varda is cadence.
We plan on launching every six months.
For the first four. We kind of set that up as the initial framework when we raised the money and planned
the business. If we can't have a successful mission in the first four attempts, then, quite frankly, we don't
deserve to have a space company anymore.
Across the Atlantic in Cardiff, Wales, Space Forge is working on designing its own in-space factory to
manufacture next generation semiconductors.
We chose to focus on semiconductors, really, because that's where our expertise as a company is.
We're about 50% advanced materials and about 50% spacecraft engineering.
Western co-founded Space Forge in 2018.
The company now has about 50 employees and has raised over $15 million, with the European Space Agency
serving as its largest customer.
Space Forge's goal is to make semiconductor substrates using materials other than silicon to manufacture more
efficient, higher-performing chips.
Two of which are spoken of a lot at the moment are gallium nitride and silicon carbide.
Both are much more difficult to produce than your traditional silicon.
In the example of something like gallium nitride, you find that in a lot of power-dense, high-value
infrastructure like 5G cell towers.
So if you were to try and use silicon in a 5G cell tower, it would run at about 3% efficiency.
What I mean by that is 97% of the energy you dump into the silicon is lost as heat.
In today's gallium nitride, it runs at only about 8% efficiency.
With space-made gallium nitride, we think we can actually get that to above 25%.
This next generation of materials is going to allow us to create an efficiency that we've
never seen before. We're talking about 10 to 100 X improvement in semiconductor performance.
Analysts estimate that the global market for such advanced semiconductors could reach $73 billion by
2032. Just like with pharmaceuticals, the secret sauce to achieving this type of performance improvement in
semiconductors lies in creating the perfect crystals in space.
Experiments dating back to the 1970s conducted aboard the United States' first space station, Skylab,
have proved the concept.
A combination of the microgravity and the naturally high purity vacuum that you find in space
creates a much better manufacturing environment for this process.
What that allows you to do is to create larger single crystal structures that can be achieved on Earth, which
makes it easier for heat to escape and electrons to move across.
Being able to dissipate heat is key since the hotter a semiconductor gets, the worse it performs.
Our first process and the one we've spent the most time working on and really perfecting
as we move into space is what we call PECVD.
It's a really fancy way of saying growing crystals with
ever thinner layers of chemical film.
What you essentially do is you heat up a hot ball of plasma pump in your precursor gases
and metal into a chamber known as a reactor, and you deposit it literally atom by atom, layer by
layer onto what we call a substrate.
And you build the wafer up.
This mini manufacturing lab will sit inside of Space Forge's proprietary spacecraft ForgeStar.
Missions will last anywhere from two weeks to six months before the vehicle returns to Earth with the
finished material protected by a heat shield that the company calls Pridwen.
The entire system will be captured by a contraption that looks like a giant net to minimize impact.
Once we've created these crystals in space, we can bring them back down to the ground and we can
effectively replicate their growth on Earth.
So we don't need to go to space countless times to build up pretty good scale operating with our partners
and customers on the ground.
The company's first vehicle, ForgeStar 1-A will be able to produce enough material for about 500 chips per
flight, says Western. But Space Forge hopes to scale up significantly in the future.
You don't need a lot of material to build an awful lot of semiconductors.
We're expecting that each mission will produce enough material to produce
anywhere from 750,000 to 1.25 million
semiconductors.
Eventually, Space Forge plans to target markets beyond semiconductors.
The chemical process that we undertake to grow semiconductors is useful for a whole range of other
material classes.
Solar cells and photovoltaic production, carbon nanotubes, graphene composites.
We've even looked at some platinum-based compounds to allow you to replace lithium in battery supply chains.
So we chose that because it provided us with a whole product family from day one that we could go and
explore.
Western says Space Forge hopes to launch its first mission by the end of the year.
This after an initial launch in January on Virgin Orbits' LauncherOne rocket failed.
Back in April, the company also announced plans to build a manufacturing headquarters in the US.
There's no question that in-space manufacturing is still a very nascent market, but experts think that
could change.
As a company, we are convinced that space is broadly going to
disrupt in a positive way all industries.
Close to any company should have a space strategy.
Aside from Varda and Space Forge, a number of other companies, including Space Tango and Redwire, which
acquired Made in Space, are also exploring in-space manufacturing.
But all these companies face a steep path forward.
You're talking about a combination of showing these pharmaceutical partners that you have basically the
cadence and the reliability that they expect from their terrestrial partners.
You also have to get over the hurdles of both reentry approval with like live pharmaceutical compounds as
well as FDA approval, of getting GMP compliance so that they actually are comfortable with you being a
part of the manufacturing chain and supply chain of this particular sort of drug candidate.
It's a hard problem. And Varda expects that its initial profit won't come from manufacturing at all.
We expect to be profitable in a few years when we are standard operation on our hypersonic test bed.
Drug development takes a long time, so even when the formulation is complete, you're still a few years out
from clinical trials.
Even for non-pharmaceutical manufacturing, many questions around regulation remain.
If I build the platform in the UK, I launch it from America and I land
it in Portugal, was it an export to the US?
Did I export from the US to Portugal or because the value was generated in space, and we're one of the very
few platforms in space that comes back more valuable than when it departed, do I have to pay import duties
and customs tax?
Still, the success of companies like Varda and Space Forge could have implications far beyond manufacturing.
Start off with very small, fully automated manufacturing satellites.
But over time, as those satellites get larger, you have justification for having humans on board.
And that's how you eventually build an industrial park in low earth orbit.
The only way to make humanity a multiplanetary species, in my opinion, isn't just big rockets, but
it's having sort of sustained economic activity in space.