For employees at Clara Foods, the coronavirus outbreak has pulled them away from their labs where they have spent the better part of five years developing its animal-free eggs to the confines of their own homes. The move is already changing the direction of the San Francisco-based upstart as it slows down its research efforts and potentially delays partnerships with CPGs.
Just over two weeks ago, San Francisco and five other Bay Area counties became among the first in the U.S. to require people to leave their restaurants, work sites, shopping centers and other places and find new ways to do their work from home. More than 6 million self-quarantined themselves to stop the spread of the virus, unless they were deemed essential.
At Clara Foods, the mandate forced the company to abandon its labs in San Francisco, which have been crucial to helping create chicken-free egg whites using fermentation. The retreat comes as the California ingredients maker expects to see its animal-free product used by other manufacturers in protein drinks and supplements later this year — the first market launches in its history — before rolling out an egg replacer in 2021.
"Time actually affords us the ability for our scientists and our team leaders to really breathe a little bit and really be critical and reflect on how we've been doing things in the past," Arturo Elizondo, Clara Foods' CEO, told Food Dive. "This actually gives us a big opportunity for reflection of our processes and just how will we come back and be much leaner and meaner when it comes to just how we run our day-to-day, which we've never really had an actual forced break to say 'Okay, hit the pause button."
The reset has already forced Clara Foods to not only suspend its lab work but prompted the company to narrow down where it will focus its research in the future. For now, the food biotech company will prioritize its core research initiatives and getting its upcoming products to market; less attention will be given in the near term to building out its pipeline three or more years down the road with new proteins.
"Time actually affords us the ability for our scientists and our team leaders to really breathe a little bit and really be critical and reflect on how we've been doing things in the past."
Arturo Elizondo
CEO, Clara Foods
Even efforts to commercialize its egg white substitute with customers or to attract new users of the ingredient have been slowed by the coronavirus outbreak.
"Most companies, at least right now in this period of uncertainty, companies are definitely, I think, still in the process of putting out their fires," he said. "So there has been delays in terms of responses of being able to test products, test samples."
One potential upside: Companies dealing with supply chain instability now, or that in the past were impacted by animal diseases such as bird flu, could be more attracted to Clara Foods' technology and its ability to safely and reliably make its products.
"I think that that's been a huge advantage for us in that most of the egg products that we're developing are direct replacements for animal products and animal protein specifically," he said. "And I think this is actually a really good opportunity for us to not just highlight the consumer benefits of our products, which is really what's been driving the trend so far, and actually be able to turn on and really highlight the less consumer-focused identities of these products and more so the industry angle — the less sexy part of products."
'A really big moment'
Clara Foods' work has attracted the interest of big players in the food and ingredients space. Last year, it closed on a $40 million funding deal. Investors included B37 — a strategic partner of bakery giant Grupo Bimbo — and Ingredion, which will work with Clara to develop, market and distribute highly functional protein ingredients.
The timely fundraising will enable Clara Foods to further develop its core projects, and use the funds to continue operations and manufacture and commercialize its products. Elizondo said his company has roughly 12 to 24 months of cash on hand, which he estimated is the norm for venture-backed startups. While he remained confident that it could survive the pandemic, he noted a lot will depend on how long the coronavirus outbreak lasts.
Other companies may not be so fortunate as some businesses may run out of money and be unable to tap into investors for additional funding, he said.
"This is a really big moment in the space ... I think it will be a moment of reckoning for some of the smaller companies in our space," Elizondo said. He noted that by nature, startups are limited and dependent on investor capital, and it will only get harder for them as the markets tighten during the next few months.
"I think it will force the space as a whole to be a lot more pointed in the customer segments that we're tackling and what the real value of our products are," he said.
The shift away from the office has had a lesser impact because Elizondo and the company's leadership team can continue to do the lion's share of their work by phone or computer.
But the change is especially challenging for Clara Foods' scientists who are researching ways to replicate other parts of the egg similar to what they have done with egg whites. To create its animal-free product, Clara Foods uses yeast to make proteins that have the same genetic profile as what is found in an egg. This creates an ingredient that has the same texture, taste and functionality as its animal-based counterpart.
With scientists and researchers away from their usual setting, teams are doing more data analysis, designing new experiments and planning out the next several months at the company.
Those employees now have more time to comb through volumes of research being published in their rapidly changing field that they may not have previously had time to look at before. Elizondo said the knowledge they amass could pay dividends later on — food, he noted, is defined by low margins and high volumes, placing the impetus on companies like his to create technologies that are really efficient and cost effective.
"I think it's a little helpful for the team to take a step back and actually focus more attention and resources to thinking through experiments and the data analysis that will hopefully reap benefits down the road," he said. "It's definitely very challenging because so much of what we do relies on being in there and doing the science."
Ultimately, Elizondo said the time away from its normal operations will be less about redefining the direction executives want to take the company and more about improving its focus.
"For us and many of the startups, I think it's really about what needs to happen now and what can wait and how do we stagger milestones for the company so that we can actually adapt much more quickly to how the situation evolves," he said. "With having so much of our team in the lab there will be some delays, but I'm excited that, for the most part, our plans are still moving forward."
