Rising tide for $1 billion water startup

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Welcome back. With excitement — and trepidation — about the huge advances in AI building in recent months, so has the debate about what a responsible business approach to AI should look like. Can we trust companies to act ethically with this rapidly evolving technology, or do we need governments to lock them down as quickly as possible?

Sam Altman, CEO of ChatGPT creator OpenAI, was questioned yesterday by lawmakers on Capitol Hill and made a startling call for new regulation.

“We think regulatory intervention by governments will be key to mitigating the risks of increasingly powerful models,” Altman said, suggesting a combination of licensing and testing requirements. “If this technology goes wrong, it can go very badly,” he added. “We want to work with the government to prevent that from happening.”

This is set to become another hornet’s nest for responsible investors to grapple with, as if they don’t already have enough to worry about.

In today’s edition, I look at another area of ​​technology that is increasingly in the spotlight, as companies scramble to shore up their water supplies. And Kaori notes how investors are helping to address the threat of antimicrobial resistance. Thanks for reading. (Simon Mundy)

Water tech gets its first unicorn

Investor interest in water technology has been surging lately as concern about widespread shortages and contamination grows. But valuable startups in the space have been scarce on the ground.

So it is worth noting the latest fundraiser by the Boston-based company Gradiant, which has developed new ways to treat industrial wastewater. Today, it announced a $225 million funding round that values ​​the company at $1 billion, making it the water technology industry’s first unicorn. The round was led by New York family office BoltRock Holdings and Centaurus Capital, the investment vehicle of Enron trader turned hedge fund manager John Arnold.

Gradiant’s outstanding cash injection resonates with a new report from Jefferies analysts, arguing that “now is the time” for investors to look to companies working to deliver clean water.

For one thing, they note, businesses are getting increasingly nervous about water supplies, as climate change worsens. Government policy is starting to offer attractive financial incentives in this space – see, for example, the investment credits offered for some types of wastewater treatment in Joe Biden’s project Inflation Reduction Act. And companies with a bad record on water pollution are at an increasing risk of fines from regulators (witness the survey of large UK water companies).

Gradiant CEO Anurag Bajpayee told me the company was targeting the higher levels of the water pollution “pyramid.” The lower levels of that pyramid have contaminants like wastewater — high in volume, but relatively easy to deal with. At the higher levels are the industrial toxins which are released in smaller quantities, but can prove highly dangerous.

The company’s work builds on postgraduate work Bajpayee undertook at the Massachusetts Institute of Technology with his co-founder Prakash Govindan, with two key concepts underpinning Gradiant’s 250 patents. One aims to replicate the natural process by which water is purified and recycled, through evaporation and condensation. The second forces the brines through a succession of membranes at increasingly higher pressures.

Gradiant promises customers that its technology will allow them to purify and reuse greater amounts of water, reducing the amount they need to source externally. This has attracted customers from a range of industries, including chip makers such as TSMC and Micron; miners BHP and Rio Tinto; and automakers Hyundai and BMW.

The broad interest is in part a reflection of growing pressure on companies — from society and regulators — to take a responsible approach to their water use and avoid pollution, Bajpayee said. But it also reflects an increasingly real concern for one’s long-term water security. “If you can treat your wastewater as an opportunity,” she told me, “to a large extent you control your water source.” (Simon Mundy)

The next pandemic could be “silent”.

In recent weeks, the World Health Organization and the US government have declared an end to the Covid-19 pandemic.

But as one health crisis ends, another is on the horizon: the looming threat of antimicrobial resistance. And as we have discussed beforeinvestors are taking note.

So far, the emphasis has mostly been on the demand side of the antimicrobial value chain, such as large meat producers who allegedly overuse existing antibiotics and thus feed antimicrobial resistance. But pharmaceutical companies are now betting cautiously on startups that are developing technology to combat this menace.

The AMR Action Fund, a public-private partnership backed by the International Federation of Pharmaceutical Manufacturers & Associations, will invest $1 billion in start-ups with the goal of developing two to four new antibiotics by 2030 that target resistant bacteria to drugs. At the end of April, the fund invested in two start-ups, Vedanta Biosciences and Pattern Bioscience, bringing the total to five. The fund’s investments are on track to reach a total of $200 million by the end of this year.

Antimicrobial resistance “is a silent pandemic,” Thomas Cueni, director general of IFPMA, told me. There are “already 1.4 million people a year who die directly from antimicrobial resistance,” he says. But “the big pharmaceutical industry has resigned [investing in antibiotics] because there are no sustainable markets,” he said.

A Study 2017 showed that the cost of developing a new antibiotic was about $1.5 billion. In the meantime, a study of Duke University’s Margolis Center for Health Policy showed that just five of 16 new antibiotics approved between 2000 and 2017 generated annual sales exceeding $100 million.

Companies that have successfully developed new antibiotics targeting drug-resistant bacteria have also been forced to shut down. According to a Biotechnology Innovation Organization report.

This has scared investors and pharmaceutical companies from getting into the development of new antibiotics, which in turn makes us more and more vulnerable to drug-resistant bacteria.

Until now, pharmaceutical companies “have bailed out,” Sara Murphy, chief strategy officer of nonprofit group The Shareholder Commons, told me. Eventually, she said, investor campaigns will have to extend to the pharmaceutical industry as well. Future campaigns could require companies to publish data on AMR or ask them to separate sales agents’ base salary and bonuses from the volume of antimicrobials they sell.

On the demand side, investors are stepping up their campaigns. In the 2023 proxy season, Shareholder Commons, together with asset managers Amundi and LGIM, as well as Hesta, one of Australia’s largest pension funds, made proposals to shareholders of McDonald’s, Tyson Foods and Hormel Foods on antimicrobial resistance.

“As a diversified investor or universal owner, AMR will impact many of the industries in which we are shareholders,” said Maria Larsson Ortino, Senior Global ESG Manager at LGIM.

The proposals, which ask these companies to adhere to WHO guidelines on reducing antibiotic use, have so far secured 20.4% non-domestic support for Tyson and 13.3% for Hormel. Voting at McDonald’s is scheduled for May 25. If interest continues to grow, this could focus more attention on the pharmaceutical industry’s engagement.

Covid-19 “has shown us the cost of an incurable disease,” says Murphy, arguing that the next global health crisis could be driven by a drug-resistant pathogen. The coronavirus pandemic “was absolutely predictable and it was only a matter of time. I think it is the same [to antimicrobial resistance]”. (Kaori Yoshida, Nikkei)

Smart reading

While other institutions dropped their ties to the Sackler family, which presided over the aggressive marketing of the painkiller OxyContin, Oxford University allowed their name to remain on buildings and staff locations. Now has finally severed the tiesreports Antonia Cundy for the FT.

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