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Some of the most complex problems in healthcare and technology might not actually be solvable on earth… but they may be solvable in space. Solving diseases, constructing artificial hearts, and developing pure electronics may all soon be done in pods orbiting the earth in space.
In 2020, $8.9B in capital was allocated to space companies. Not all investment, however, is focused on building products on earth to be sent to space. Some products can be built in space, so we can benefit from them on earth.
Exhibit 1: The Varda vs. Competitors
Enter Varda Space: the future space logistics company, enabling orbital manufacturing.
Fun Sidenote: The Varda is named after the Queen of the Stars, known for creating new stars and constellations.
The Problem: The Limitations of Earth Manufacturing
Exhibit 2: Five example products
There are highly technical products under development that could revolutionize life on earth, but they require precision that cannot be accomplished on earth.
Exhibit 3: The description and examples of potential products
While there is a long list, we can look at five products that I believe are on the short list: ZBLAN fiber optic cable, Silicon wafers, Carbon Nanotubes, Artificial Organs, and Crystallized proteins.
On earth, there are two primary constraints:
Gravity – The gravitational pull of the earth can cause uneven distribution of solutions, sedimentation, and convection. It can cause fragile products (e.g., a 3D printed heart) to collapse before completion
Dust particles – It is impossible to remove all of the impurities in the air. Dust particles within these products can reduce electron flow and reduce product quality
We are very good at reducing the overall impact, but as long as these products are manufactured on earth, these constraints will continue to exist. While the disruptions are tiny, they can have large effects on the flow of electrons or the quality of an organ.
The Idea: Manufacturing In Space
Exhibit 4: The constraints of development on earth
Space can solve these constraints. Once an object enters earth’s orbit, a zero gravity environment is produced.
Space is almost a perfect vacuum. The air is more pure than even the most expensive, sophisticated clean rooms on earth.
By launching products to lower earth orbit (LEO), manufacturers can remove limitations and produce higher quality products.
Exhibit 5: Early successes in space manufacturing (Source: #1 & 2, #3)
As a matter of fact, people have been testing this for years, and early indications suggest it works.
In 2014, Nasa reported that bodily tissue (in this case tumors) that can be grown in space experienced 10X better tissue quality and size. Early indicators suggest hearts printed in space could avoid collapsing and experience similar benefits.
Those same studies observed the potential for producing ZBLAN in space, resulting in a 100X improvement compared to Silicon fibers.
The Wake Shield Project tested semiconductor manufacturing in space in the 90s and observed a 10,000 times better quality product than produced on earth.
In short, the theory of manufacturing in space works. Certain products are made possible by manufacturing in space, and it is important to note the level of improvement. 10X, 100X, and 10,000X are orders of magnitude better. These products are improving a nontrivial amount, and some of the products are not even possible on earth.
The Economics: Can This Even Work?
Exhibit 6: Four primary economic factors
There are four primary drivers of the space manufacturing economics seen in Exhibit 6:
Launch costs
Costs of self-sustained space factory
Payload optimization
Incremental value
Note: Raw materials, intellectual property, etc. are considerations for these highly sophisticated products, but as we think of space manufacturing specifically, they are excluded.
Launch costs have been the limiting factor for years, but SpaceX has driven launch costs to unfathomably low levels.
Exhibit 7: The decrease in launch costs over time
As shown in Exhibit 7, SpaceX has reduced the cost to launch per kilogram by ~13X from 1980 to today. Varda’s co-founder, Delian Asparouhov, estimates launch costs could decrease to <$1,000 per kg, and in a bullish view, they could possibly drop as low as $50-100 per kg by 2025. Launch costs are no longer the limiting factor!
The second driver is the cost of the self-contained expendable space factory. When people think of a space factory, they may think of a massive manufacturing plant with astronauts building products. This is not how it would work. In reality, the raw materials will be launched in a pod. Once arriving in space, the pod will enter orbit and execute a series of simplified, automated tasks before returning to earth.
The third driver is payload optimization. Launch costs are based on the $/kg for the raw materials AND the self-contained space factory. If the pod is 90% machinery and only 10% materials, then that will be noticeably less efficient (and economically sustainable) than if the pod only accounts for 50% of the total launch weight.
The final driver is incremental value produced. As shown in Exhibit 4, early studies suggest there are orders of magnitude of value created. It is unproven, however, whether they can be commercially operationalized and continue to produce that level of incremental value at scale. Space manufacturing will be an incremental production step, so there will need to be a level of incremental value created associated.
Exhibit 8: The potential price per kg of select products (Source: ZBLAN, Printed Hearts, and Silicon Wafer)
Exhibit 5 and Exhibit 8 side-by-side suggest that there are select products that will have enough incremental value to make the economics work. These three products have significant increases in both quality and associated value (retail price), making them prime candidates
Varda is here to make it happen
The original manufacturers of these products likely do not have the expertise to launch to space. They need help. This is where Varda comes in. Varda becomes the “Foxconn of Space.” They are the space logistics experts that can help design the space manufacturing process that will produce the most efficient and secure manufacturing pod, optimize the payload, and drive the most incremental value.
Exhibit 9: Operationalizing and optimizing space manufacturing
In Exhibit 9, the effects of payload optimization can be clearly seen. If you solely look at launch costs, then we can see how the hurdle to profitability increases as optimization decreases. For example, if 10% of the payload is raw materials, then you need to drive ~$50k/kg in profit (assuming $5k per kg launch costs).
If the payload can be optimized to 50% raw materials, then the profit hurdle drops to $10k per kg. This excludes the cost to develop the pod and any waste, but you can still quickly see how important having an expert like Varda will be.
Exhibit 10: The step-by-step manufacturing process
Functionally, it will work like any other manufacturing partner. Companies will approach Varda with a product they would like to partially produce in space. They will provide product requirements, and Varda will design the pod to achieve this. (Note: in the early stages, Varda will likely have to custom produce, but long-term, it will need to be standardized, unless the company can guarantee a significant amount of volume)
Once the process is designed, Varda will then take the raw materials provided to them, and they will launch the materials to space in a self-contained expendable manufacturing pod (Note: Long-term, the goal would be for the pod to be reusable). The pod will enter orbit, and it will begin executing the automated steps required (e.g., applying heat, adding solution).
When the process has been completed, the pod will safely return to earth. Varda will then return the product to the original manufacturer for sales and distribution. In the end, Varda will be part of the supply chain, not the original manufacturer!
Investment score
Exhibit 11: The Varda Space investment score
The product has not been revealed yet, but they have assembled a team of stars, funded by the most ambitious moonshot investors in the world. The business model makes sense, and the competition is currently nonexistent.
Conclusion
Varda is one of the most exciting companies I have come across. While many companies are focused on space to extend beyond earth, Varda is focused on leveraging space to maximize our potential on earth. If Varda figures this out, they could significantly alter our lives, and they could be one of the most important geopolitical companies in the world!
Appendix
Problem statement
There are certain products that require:
A)Vacuum conditions - dust particles can disrupt the purity of products
B) Micro-gravity – gravity can cause products to collapse during development (e.g., organs) or unequal distribution in substances (e.g., Silicon wafers)
C)Both
In both cases, these adverse conditions effect the quality and purity of the product. Even the slightest impurities in Fiber Optic cable can reduce the flow of photons by a factor of 10.
Objects in low-earth orbit (LEO) experience neither of these conditions, making it the perfect location to solve these issues.
Market drivers
Growth
Decreasing launch costs will continue to lower the profitability hurdle for these products. As launch costs decrease, the number of products and market for Varda will continue to grow significantly
Improvements in relevant product fields. The products that qualify for this type of production are very new (e.g., artificial organs). Continued improvements in these fields, as well as further refinement, will help propel these markets forward, particularly in healthcare. For electronics, the limitations of earth will continue to be pushed, requiring pure vacuum and micro-gravity conditions to have a competitive edge
Uncertain Factors
Space regulation is a new field. Who has the power to regulate? Global decisions on launch regulation will have implications on the ability to operationalize at scale
Challenges
FDA regulation. A large area of opportunity will be healthcare (e.g., artificial organs). A large concern will be whether earthly regulatory bodies will be friendly to products produced in space, given how unproven the field is
Market sizing
ZBLAN fiber optic
Fiber optic cable market estimated to be ~$12B by 2025, growing at 11% (Source)
Silicon Wafers
Taiwan Semiconductor had ~$50B in wafer revenue in 2020 (Source)
Accounts for ~54% of global foundry revenue (Source)
Global Silicon Wafer Market estimated ~$93B in 2020
TSM growing at ~25% YoY
Semiconductor market is growing at ~5% YoY (Source)
Assuming ~10% growth YoY, the market would be ~$150B by 2025
Carbon Nanotube
Global Nanotube Market expected to reach ~$6B by 2025, growing by ~20% (Source)
Artificial Organs
~100,000 people in the US are on the waitlist annually to receive a life-saving transplant in Feb 2021 (Source)
Assume an estimated cost of $100K to $200K per organ
~$10-20B of US TAM annually, assuming no organs sold for non-life saving scenarios
Assume ~30% of Global share of demand is US
Estimate ~$30-60B in Global TAM in 2025 (assuming flat growth)
Crystallized Proteins
Size of actual crystallography and production was $1.1B in 2020 growing at 9% to ~$1.7B by 2025 (Source)
Market of potential proteins or solutions needed to fight diseases could be 10-20X that figure
Total of all five would be ~$200-230B in TAM in 2025. Assume a ~10-20% cut of value, and the potential opportunity would be ~$20-50B. Manufacturing semiconductors and organs in space would make the bulk of the value, and it is likely the most complicated of the products. There are also likely other markets that will be created by the Varda breakthrough. ZBLAN alone would be ~$1-2B in value, and that is very feasible.
Competition
Overall, the competition is very limited for Varda. Everybody is focused on building products for space, but very few, if any, are focused on using space to build products for earth (see Exhibit 1).
For this reason, there seem to be no direct competitors. There are only tangential players that could feasibly compete down the road. Directly, there are manufacturers like Relativity, Made In Space, and Hadrian that could try to compete, but that would be a significant pivot for them.
Finally, a launch player like SpaceX could compete. If Varda proved the economic feasibility of manufacturing products for earth, SpaceX could vertically integrate and begin offering self-contained expendable pod factories as a service. In my opinion, this risk is very low.
"Space is almost a perfect vacuum. The air is more pure than even the most expensive, sophisticated clean rooms on earth."
Can you elaborate on this? I know there are gases and some dust in space. I haven't heard that it also has air (O2, N, etc.) as we typically understand the term.
SpaceX has already proven it can vertically integrate ridesharing for various sat launchers. They are experts in reuseability, so what exactly makes you believe the risk of SpaceX verticalizing Varda's logistics approach? Seems to me that launch logistics operations is not a huge barrier to entry, esp. for a launch provider. Varda's main value prop is the hardware/infrastructure for manufacturing, and if they prove it viable, there's practically nothing stopping launch providers from crowding them out. What am I missing?