Forget space tourism. This company wants to make drug manufacturing the next big extraterrestrial business

CNN, CNN BUSINESS

Story by Jackie Wattles and Video by Moss Cohen, CNN

El Segundo, California (CNN) — For years, the private sector has envisioned an illustrious future in space — an extraterrestrial playground with tourists flying to and from orbiting hotels and the occasional trip to Mars being as easy as a transatlantic flight.

But if the space economy is to become a $1 trillion sector by 2040, as one Citigroup report suggested, not all of its enterprises will be so grandiose.

One California-based startup, Varda Space Industries, is betting that big business will lie in relatively unassuming satellites that will spend days or months in Earth’s orbit quietly carrying out pharmaceutical development. Its research, company officials hope, could lead to better, more effective drugs — and hefty profits.

“It’s not as sexy a human-interest story as tourism when it comes to commercialization of the cosmos,” said Will Bruey, Varda’s CEO and cofounder. “But the bet that we’re making at Varda is that manufacturing is actually the next big industry that gets commercialized.”

Varda launched its first test mission Monday aboard a SpaceX rocket, which took off from Vandenberg Space Force Base in California just after 2:30 pm PT. The company then confirmed in a tweet that its satellite successfully separated from the rocket.

On board the rocket, tucked among a bevy of other satellites, was the company’s first creation: a 200-pound (90-kilogram) capsule designed to carry drug research into microgravity.

If successful, Varda hopes to scale its business rapidly, sending regular flights of satellites into orbit stuffed with experiments on behalf of pharmaceutical companies. Eventually, the firm hopes that research will yield a golden ticket drug, one that proves to be better when manufactured in space and can return royalties to Varda for years to come.

The core of this idea — manufacturing pharmaceuticals in microgravity — builds on experiments carried out on the International Space Station, which is operated by astronauts but hosts experiments from a range of private companies and research institutions. Big pharma firms, including Merck and Bristol Myers Squibb, have sent experiments there, working with the ISS National Laboratory. And some of this work may lead to changes in the drugs that people on Earth take today.

But whether Varda’s ambitious business plan is viable will depend on numerous technological and financial questions.

How it works

Varda’s vision is straightforward: The company’s capsule will launch with an experiment already on board. Once in orbit, the capsule detaches and begins flying through space attached to what’s called a satellite bus, a structure that will provide the power, propulsion and communications necessary to navigate the vacuum of space. (For Varda’s first few missions, the satellite bus will be provided by another commercial space company, Rocket Lab.)

Then the experiment begins, carried out by simple on-board machines. The goal is to create key components of pharmaceuticals while in microgravity. In this weightless environment, such experiments aren’t bogged down by Earth’s pull.

Research has already established that protein crystals grown in space can form more perfect structures compared with those grown on Earth. These space-formed crystals can then be used to create pharmaceuticals that the human body could more easily absorb — or overall better-performing drugs.

One key example, from research Merck carried out on the International Space Station, is the active ingredient pembrolizumab used in the cancer drug Keytruda. Scientists found that using crystals formed in space could create a more stable drug, one that could be administered by a shot rather than the time-consuming intravenous injection currently used. (Merck used that research to inform other Earth-based studies, but the findings have not yet been applied to drugs on the market, the company told CNN on Friday.)

Varda’s first mission will focus on research around ritonavir, a drug traditionally used to treat HIV but more recently included in the antiviral medication Paxlovid to fight Covid-19.

After Varda’s experiment is finished, engineers on the ground will evaluate if the capsule is ready for return. If they give a final “go,” the satellite bus will push the capsule back toward Earth. The capsule then will plummet into Earth’s atmosphere and parachute to a gentle landing, where the pharmaceutical materials can be recovered.

This mission won’t be easy. Varda will have to prove its robotics can carry out these experiments remotely. On the space station, astronauts with keen eyes and dexterous hands have overseen such research. These robotics will also have to survive the jolting forces of a rocket launch.

The return home will be difficult as well: Blazing back into the Earth’s atmosphere at roughly 18,000 miles per hour will create extreme heat and a buildup of plasma. It’s widely considered the most dangerous leg of any journey to space.

The odds of success on this first attempt?

“Probably less than 90%, but better than a coin flip,” said Bruey, Varda’s CEO. “And I think that’s probably the most honest answer.”

Varda’s roadmap

By space industry standards, Varda’s path to the launchpad has been exceptionally quick. Founded less than three years ago, Varda has gone from an idea to a company with more than $100 million in seed funding and grants, a 68,000-square-foot factory, and a satellite in space. Its workforce has grown to nearly 100 employees.

In its favor, the firm has not had to design any step of this process — launch to landing — from scratch.

SpaceX’s rockets routinely fly to orbit, and the company has made booking a ride to space for a satellite practically as easy as chartering a jet. A payload of Varda’s size — weighing in at about 300 kilograms (660 pounds) altogether — costs less than $2 million, according to SpaceX’s website.

Varda also has agreements with NASA, signed in August, that allow the company to leverage expertise and even purchase materials from the space agency.

Company executives often say they’re standing on the shoulders of giants — borrowing technology that’s been developed elsewhere.

“Every piece of the puzzle at Varda has been done before,” Bruey said. “Reentry has been done before. The in-space manufacturing has been done on the (International Space Station) before.”

Bruey has played a role in that progress. He spent about six years at SpaceX, including working on the company’s Dragon capsule, which now regularly flies humans and cargo to and from orbit.

Delian Asparouhov, Varda’s cofounder and president, credited Bruey’s experience as the reason for approaching him to form this new company.

Asparouhov is a partner at Founders Fund, the venture capital outfit started by PayPal cofounder and Elon Musk ally Peter Thiel.

“I’ve been thinking about this idea around microgravity manufacturing for almost a decade,” Asparouhov said.

And in 2020, Asparouhov said he was searching for someone to team up with on that business. SpaceX’s Falcon rockets were launching at a rapid clip. Getting a satellite to space was quicker and cheaper than ever. (Citigroup’s recent report estimates the price of launching a satellite is now 30 times lower than it was in the 1980s.)

That made the moment ripe for taking the plunge on this new venture, Asparouhov said.

“I reached out to a handful of people that worked at SpaceX, actually asking them, ‘Hey, who’s got really great leadership experience, worked on Crew and Cargo Dragon’ — given that we need to build our own reentry capsules,” he said. “Bruey’s name kept being top of the list.”

Varda was formed shortly after the two met in the summer of 2020.

Initially, Asparouhov’s vision was much broader than pharmaceuticals. He pictured other products — such as fiber optics and semiconductors — being manufactured in space, yielding better quality materials than those made terrestrially.

But those business plans were left on the cutting room floor — at least for now.

Pharmaceuticals “are the most valuable chemicals per unit mass,” Bruey said. “And they also have a large market on Earth.”

Asparouhov added: “You’re not going to see Varda do anything other than pharmaceuticals for the next minimum of six, seven years.”

Fortune and the future

Asparouhov said Varda has spent about $40 million on development so far. And the company has enough cash to fund at least its first four missions, even if they fail.

Bruey and Asparouhov said they are hopeful it won’t take more than that to figure out how to get Varda’s technology to work.

“I think if we don’t have a successful mission in the first four, we quite frankly don’t deserve to have a space company any longer,” Bruey said.

The company does have some high-profile backers. Asparouhov’s other employer, Founders Fund, has added to the $52 million the company has raised thus far. And the US Air Force has given the company a deal worth up to $60 million, hoping the military can leverage Varda’s research on the reentry process. (Varda is not currently raising additional funds, Asparouhov noted.)

Once a success is notched, the company will look for ways to evolve. It will also consider what hardware may be reused from one flight to another, which could save copious amounts of cash.

“The ultimate manifestation (of Varda’s vision) is that we have frequent flights going up and down,” said Nicholas Cialdella, Varda’s head of vehicles and another former SpaceX employee. “In order to achieve that — a big piece of that will be reusability. And so that will actually be one of the things that we learn from doing this test flight is that (we find out what) things are reusable.”

One day, the company hopes Varda flights will be so common that its capsules will blaze across the night sky every evening, like shooting stars to those on the ground who catch a glimpse.

From there, Varda could even look to develop a research platform on a private space station, where pharma researchers could travel themselves.

“The big inflection point of success will be when we put a human being in orbit,” Bruey said, “and they come back with more value or generate more value while they’re up there than it cost to put them up.”

Now that the first test vehicle is in space, Varda will be watching it like a hawk. The first goal is to make contact with the satellite bus, which will need to deploy its solar panels and provide power to the Varda capsule. Then the experiments can begin.

The capsule will then be sent on its return trip home, likely in mid-July. The company aims to land the vehicle within a 50-mile (80-kilometer) plot of land in the Utah Test and Training Range, about a two-hour drive from Salt Lake City.

Drugs in space

Much of the legwork for Varda’s drug experimentation can be done on the ground. Leading up to launch, materials that will go to space are put through a series of ground tests.

“We run it through vibration testing, thermal testing, shock testing, vacuum testing,” said Jon Barr, the company’s chief operating officer. “Most of the work the company has put in basically the last eight months has been taking those components, redesigning them, ruggedized them, and then running through a whole slate of tests to make sure that they can survive both the vehicle launch and the vehicle reentry.”

Varda executives declined to comment on whether the company had officially signed on any clients or name any firms with which it might be working.

“We are primarily focused on the top 20 pharma for clients,” said Mark Herbert, the company’s vice president of biopharma business development, who comes from the pharma world — not the space world. “Across those companies, there’s actively about 2,000 drugs being worked on.”

Ultimately, pharma companies are concerned with finding the best, most effective drugs, said Eric Lasker, Varda’s head of business development and government relations. And whether the research happens in microgravity or on Earth is irrelevant, which is why Varda needs to show results if it wants to attract interest.

“At the end of the day, pharmaceutical companies don’t care that we’re going up to space,” Lasker said. “They just care about the results on the other side of it. And so, to them, we are a unique ingredient that we can put in.”

In that sense, Varda isn’t a space company, per se. It’s just another platform or tool within the $100 billion-plus-per-year pharmaceutical research industry.

Paul Reichert, a research fellow at Merck, said that he met with the company last week. Though Merck hasn’t signed a contract with Varda, Reichert said he was impressed with its business plan but wants to see the company’s technology proven before his firm considers flying an experiment.

Right now, access to microgravity research — even on the International Space Station — is limited by how few and far between flights to space are offered. Varda’s platform could offer that opportunity at lower price points and at more frequent increments if the company delivers on its promises, Reichert added.

“That is very appealing to me,” he said.

And that research could expand beyond just protein crystals, perhaps branching into new territories such as how nanoparticles — used in vaccines — can be formed, Reichert said.

Looking ahead

The average research and development cost for every new drug that enters the market is $1 billion to $2 billion, according to US Congressional Budget Office data.

The exorbitant price tag of drug research is often passed on to consumers in the form of eye-popping prices, which frequently draws critical headlines.

Herbert said that, down the line, conducting research on Varda’s platform shouldn’t add too much to that research price.

“As the platform develops and as the space industry matures, we expect the cost to drop to get more aligned with traditional solid state formulation studies that our clients would do on the ground today,” he said.

Varda will also be looking for drugs far along in the development pipeline, if not already on the market. The goal is to improve those drugs, Asparouhov said, making them more effective.

He said that Varda’s deals with pharma companies will be based on receiving royalties in the future: If Varda research yields a better result, the company can then collect funds on sales of that drug indefinitely.

So much of this plan remains to be seen: Can Varda’s platform work? Can it survive the return from space? Will it be more cost-effective than sending the same research to the International Space Station? Will big pharma bite?

Time will tell. But in the meantime, Bruey and his employees are forging ahead, banking on the future of space to be rich with business opportunities.

“You’ll see like this entire ecosystem coming up to create this fertile ground for commercialization of space,” Bruey said. “It’s exciting to be able to build atop of that environment.”

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