Dec. 5, 2022

How this Biotech Startup Plans to Solve the Infant Formula Shortage Crisis

$70 billion is spent every year on formula


The infant formula shortage has been a major ongoing crisis for millions of people in the U.S. A biotech startup is looking to transform a stagnant industry and remove the stigma around formula use. Live from Web Summit 2022, Nora sits down with Laura Katz, the founder and CEO of Helaina, which uses “precision fermentation” to reinvent infant formula with human milk proteins designed to provide the same health benefits of breast milk.  For more info on our presenting sponsor, check out https://purple.com

 

Host: Nora Ali

Producer: Raymond Luu   

Video Editors: Sebastian Vega and Evan Frolov 

Production, Mixing & Sound Design: Daniel Markus & Nick Torres

Music: Daniel Markus & Breakmaster Cylinder

Fact Checker: Kate Brandt 

Senior Producer: Katherine Milsop

 

Full transcripts for all Business Casual episodes available at https://businesscasual.fm

Transcript

Nora Ali: For Morning Brew, this is Business Casual, bringing you convos with people and some you may not know yet, to make business less intimidating. Because money talks, but it does not have to be dull. I'm your host, Nora Ali. Now let's get down to business.

I am so excited to bring you today's conversation directly from Web Summit in Lisbon, Portugal. Web Summit is the world's largest technology event, featuring speakers and leaders from some of the world's most established companies like Apple, Google, Amazon, to name a few, as well as some very exciting and dynamic startups. One of those startups is a company called Helaina, the first biotech company that uses what's called "precision fermentation" to reinvent infant formula with human milk proteins designed to provide the same health benefits of breast milk.

If you've paid attention to the news over the past six months, you know that the infant formula shortage has been a major crisis for millions of people in the US, and we're still feeling its effects. According to recent reporting from The New York Times, many large retailers remain out of stock of popular brands. The formula shortage happened due to the convergence of several problems: supply chain issues; contamination at the Abbott plant, which was shut down because bacteria was found at its site and led to an investigation by the FDA and CDC; and the fact that four companies make almost 90% of the American supply of formula.

Years before the shortage, Helaina founder and CEO Laura Katz saw an opportunity to disrupt a stagnant and lucrative industry. Approximately $70 billion is spent every year on formula, according to data from Lucile Packard Children's Hospital. Laura also founded Helaina on the belief that breastfeeding should not define the health of a child or the worth of a parent. We talked about the cultural ideas and stigma surrounding breastfeeding and formula, and the real-life impact that these ideas have on working parents. We also talked about Laura's mission as a food scientist and her predictions for the future of food and healthcare. All of that is next, after a quick break.

Laura, welcome to Business Casual here at Web Summit. I'm so excited to chat with you.

Laura Katz: Thanks so much, Nora. Happy to be here.

Nora Ali: Let's talk about the infant nutrition market. For those who, let's assume, have no knowledge of the market, give us a sense of who the big players are. What percent is formula versus breast milk; just an overview of that market.

Laura Katz: Absolutely. So there are, in the US, three big players. They take up over 75% of the market, and they sell most of the infant formula that babies eat in the US, and they actually sell quite globally. So the global infant formula market is taken up by just a couple people. And in the US it's recommended that parents provide breast milk exclusively to babies for the first six months of life. And that's not quite possible for everybody. In the US, we see 25% of parents going back to work two weeks after they give birth. And if you can think about what that means, it's very difficult to breastfeed. And for some people, they want to breastfeed and they choose not to, or they can't, for whatever reason, and they use infant formula. So most babies, by the time they're six months in the US, are going to be eating infant formula.

Nora Ali: Why is breast milk so highly recommended? Is it more nutritious than formula?

Laura Katz: There's all of these proteins and things in breast milk that help to build the immune system, and up until today, nobody's been able to replicate these and put them into infant formula. So the immune health of breastfed babies is much more advanced than infant formula-fed babies.

Nora Ali: And you're tackling that issue.

Laura Katz: We are exactly tackling that.

Nora Ali: Explain what that is. What is precision fermentation? What is the science behind what you're doing?

Laura Katz: So at Helaina, the company started when I realized that there was all of this technology pouring into alternative dairy and alternative meat. And this category wasn't seeing any innovation. And the big gap between breast milk and infant formula is the immunity that we can bring to babies with breast milk. So we are making proteins and they're human proteins found in breast milk, and we make them using fermentation. So we take yeast and we train our yeast, or we basically teach the yeast to become little cell factories that when they are fermented, just like making beer, you ferment yeast, they spit out proteins that are identical to those found in breast milk.

So we've created this really unique process that allows us to replicate the proteins in breast milk and actually the proteins found throughout the human body, and they help to build our immune system. So that's something we're super excited about because we can put them into formula, but we can actually put them into all kinds of foods and allow us to kind of change how we think about nutrition, from not just being calories, vitamins, and minerals, but to including immunity as well.

Nora Ali: What are the other applications then, besides breast milk?

Laura Katz: There are so many applications. We see this as a tool to improve early life to end of life nutrition. So nutrition throughout the human life cycle. Products like meal replacement beverages or dairy, yogurt, snacks, where people are turning to these things for their health properties. I like to compare what we're doing to probiotics. Maybe like 30, 40 years ago, probiotics weren't really in a lot of food, and now everybody knows what probiotics are; they're added to everything, and we can do the same with our proteins.

Nora Ali: So you mentioned that the applications are pretty far-reaching. Let's go back. You mentioned that there's just a few big players when it comes to infant formula. What are those big players, specifically, and are you aware that they're working on any similar technology?

Laura Katz: The big players in the US are Abbott Nutrition; Mead Johnson, which they were acquired by Reckitt Benckiser; and Gerber. Those are the three big players. And the products they make are Similac and Enfamil and Gerber products. They are not working on anything like this. What they do is rely on innovators like us to try to buy the technology if they can. And they're very risk-averse, I would say. So we're not seeing innovation come into the category because there's no benefit to them. They're really capital-driven, which makes sense. And they have high margins on the products and they're not looking to really advance things in the way that we do. And they're big companies, so they're going to move much slower than a startup. They're less nimble. They've been in this category for so long that their products are selling, they're going to continue to sell.

Nora Ali: It's not broken. So they're not trying to fix it for them.

Laura Katz: Well, I mean, now...

Nora Ali: From their perspective.

Laura Katz: From their perspective, it's not broken, but I think that consumers see it as broken, and that's where the opportunity is.

Nora Ali: We're going to take a quick break. More about why it's broken when we come back with Laura. Okay. I think the broken part of infant formula, infant nutrition, we've been hearing about over the last six months or so, because of the infant formula shortage. For context, what happened?

Laura Katz: What happened in the shortage is one of the main manufacturing facilities here in the US that is an Abbott facility had a contamination issue. And this facility supplies 25% of the US infant formula supply. So 25% of the supply completely wiped out. And that's huge. We're not changing the number of babies that need infant formula. And so without that supply, it's become increasingly difficult for parents to source infant formula, for there to be enough to feed babies. And that facility was down for several months. When you have a contamination issue like that, you have to go through and it's a pretty rigorous process to get back up and running. So that was really what happened.

And now we just saw an announcement that this company, Abbott, is investing half a billion dollars into building a new facility, because that facility that they have is very old. They don't have all of the checks and balances in place properly to ensure safety. And up until now and continuing, parents are really struggling to feed their babies.

Nora Ali: What does the landscape of startups and smaller players look like? Because I would imagine there's founders out there who realize, wow, this system is broken. Maybe it's a chance for me to disrupt in the way that you are, or perhaps a little differently. Are there others out there?

Laura Katz: There are. There are a handful of startups, and all of us in the startup ecosystem in infant formula started years ago. I don't know if anybody's starting out of the issues that we're seeing, because it just takes so long and perhaps there will be more. But the folks that we see in this category that are really doing something interesting are companies like us that are using really novel technology, not just to put new products on the market, but to really improve the efficacy for babies. So there are a few of us and we all know each other, which is great.

Nora Ali: That's awesome.

Laura Katz: Yeah.

Nora Ali: And you realized the need for innovation well before the shortage. This was 2019, pre-Covid. What was that instigating moment for you to want to launch Helaina?

Laura Katz: Years before that, actually. I was on the subway in New York City in 2016 listening to a podcast on the black market for breast milk.

Nora Ali: There's a black market for breast milk?

Laura Katz: There is a black market where parents go on the internet and buy breast milk from strangers.

Nora Ali: What?

Laura Katz: And they spend a lot of money doing this. And really the "why" behind why they do it is, infant formula doesn't have the properties that they're looking for, and maybe their babies can't drink formula for whatever reason. And listening to this, I remember so clearly this moment in my mind. I was like, "Why aren't we doing anything about this? Why are parents going on the internet and talking to strangers?" And a lot of them, a lot of it was fraud. So a parent would be desperate to buy breast milk and they would get in contact with somebody who would say, "Okay, send me $500 and I'll send you a hundred ounces." And they would never get the milk.

Nora Ali: Oh my gosh.

Laura Katz: And you can imagine scrambling as a parent, figuring out what to feed your baby. And so for me, it was at that moment, knowing as a food scientist that there's so much technology out there that we could be bringing to the category to make parents really confident about feeding their child formula. And so it took me a few years from 2016 to 2019 to save money so I could quit my day job. Living in New York City it's not so easy, but it was at that moment I knew I had to do something.

Nora Ali: This black market for breast milk, I had no idea. Are there legal markets for selling breast milk to folks?

Laura Katz: So there are. Donor milk: You can donate your breast milk to milk banks and they're highly controlled. There's a lot of testing involved, very safe, but the supply is not endless. It's parents who qualify and choose to donate their breast milk, which, there aren't that many parents that are producing that much more. And usually it goes to hospitals for low birth weight or premature babies. So that's the priority. And then whatever's left at the milk bank, you can go and purchase, but it's not a solution really for the whole population.

Nora Ali: So you said you quit your day job to focus on Helaina. So let's talk about what you were doing before then. You are a food scientist by trade. You've developed food products for Simulate, Plated, Dylan's Candy Bar. How did those experiences help inform how you approached Helaina in the first place?

Laura Katz: I would say my experience at Simulate really informed how I approached Helaina, because when I got there, in three months, I developed the product, which is where my focus is, is coming into a lab, making the product, figuring out what goes into it, and how we scale. But at that position, I found the manufacturer, I sourced all the ingredients, I did so much of the end to end. The regulatory work, you name it, I did it. And what I learned there is the sooner you figure out the regulatory landscape and where you're going to make the product, because at the end of the day, you're not a science experiment. You have to be a business and you have to be able to make it. And building manufacturing relationships takes time. It's a relationship. So that was a big learning for me. 

And so when I started Helaina, the first thing I did, I called the FDA, which I don't know if that was a good thing, but I was like, "Hey, I'm working on this thing." And I started looking for manufacturers and this was almost three years ago. And now that we're scaling, we have those partnerships in place as opposed to thinking about it now, and it takes time. So learning that and just working in startups. Plated was a startup. Learning about what it means to be VC-backed and how that impacts your day-to-day work was really big for me. So it was a lot of great experience I had. And there were also several things I did on the side helping different companies develop their products. So I got to see a wide range of things in my career.

Nora Ali: Given your career, it sounds like you're the exact right person to start a company like this. You could make those phone calls. You had the knowledge and the experience. Did that carry through when you were pitching to investors? And I imagine a lot of them are male investors who might not have exactly understood the issue. So what was that whole pitching experience like?

Laura Katz: When I started Helaina, I didn't know what a VC was. I didn't know anything. I knew this idea that investors would come and give you money to build a business, but that was the most I knew. So I went on Crunchbase and I looked up all of the different angel investors because I knew that's how I could start. I read it in a book and I just cold emailed probably 100 angel investors.

And it took a lot of grit and a lot of shameless work, what you have to have, early stage. But eventually I met the right people and the people who I met were men, but they have children. So they really understand the pain point and they saw their partner go through this, whether they breastfed or formula fed. And it's a very personal thing. We all eat or ate either breast milk or infant formula, every single person. And so we all can understand what that means. So that was something that was really powerful as I started fundraising. And also just putting yourself out there and really pushing your message and your story no matter what people say and how they respond. Because there's always going to be one yes for a hundred nos, so you just go for it.

Nora Ali: Can you estimate how many nos you got?

Laura Katz: Hundreds.

Nora Ali: Hundreds.

Laura Katz: Hundreds.

Nora Ali: Wow.

Laura Katz: Between when I started the company to now, we have hundreds of nos, because the thing I didn't realize when I started was people have their own investment thesis. So maybe they invest in SaaS or they invest in whatever it is, and I didn't understand that. So I would just go to anybody, be like, "Okay, you're an investor so you could give me money." And I learned that that's not the best approach, but it's all about figuring it out.

Nora Ali: Who are the types of investors, then, that did actually say yes to you? Maybe what categories and types of companies were they investing in?

Laura Katz: At the beginning, starting Helaina, the angel investors that I had the most luck with were people who invested more because of who you are as opposed to your business. And that's really, I think, the most success you can have at the beginning, because your business can pivot 100 times and they have to believe in you. So I would say they kind of weren't really about one category, but invest all over the place and are really founder-focused. And then as we've done more fundraising, it's been between tech and consumer funds and then people who are really focused on STEM. So people who care about the science, who really understand what we're doing and value the innovation behind Helaina.

Nora Ali: Since you are the one with the technical expertise and background, how did you think about bringing on people who maybe are more comfortable, familiar with the VC landscape, being more a salesperson. How did you think about who to bring on?

Laura Katz: The first business hire that we brought on, she's kind of my right hand. We do everything together. She was a VC, and that perspective has been really important for us as we go out to fundraise, is she comes from working in VC; she comes from working in banking. And so bringing that skill to the table has been invaluable for the business. And then bringing other folks who have been in consulting or in startups, but on the business side, has brought a wide range of knowledge to Helaina. So it's kind of filling in the gaps where you see it, but that first business hire that we brought on was pretty critical to our success today.

Nora Ali: That's awesome. We're going to take another quick break. More with Laura when we come back. So Laura, Helaina was founded on the belief that breastfeeding should not define the health of a child or the worth of a parent. And I've heard...you know, both of my sisters have kids and I've heard that there is a lot of shame and guilt around not breastfeeding. For those who aren't parents, haven't gone through this, explain why. What is the sentiment around it?

Laura Katz: There's this idea that "breast is best," and it's a pretty prolific statement. A lot of people know it. And that's because there are things in breast milk, not in infant formula. And these things are good for the baby. But infant formula to date has done its job. It feeds babies; it makes them grow. It's good and it works. And while we see opportunity to improve infant formula, it's still perfectly great if you can feed your child infant formula. The way we see this is "fed is best," not breast is best, and babies just need to eat. And the really kind of colloquial idea that breastfeeding is the best way is really difficult on parents, but it's also, it's difficult to breastfeed. We've been traveling and we've been visiting manufacturers and I have my baby with me. I have a three-month-old, and I've had to breastfeed in the weirdest places.

Nora Ali: I'm sure.

Laura Katz: And you get all of these looks and stares and it's not a great feeling, but you need to feed the baby. And it's really difficult on parents, especially if you're working, especially if you're traveling, and infant formula works. It's convenient and it's a great tool. So the way we really think about feeding babies is, feed the baby however it works for you.

Nora Ali: So let's zoom out a little bit and just talk about the future of food. Because you are a food scientist. There's increasing alternatives, plant-based meat products, for example. What are your top predictions for what food will look like in the next 10 or so years?

Laura Katz: Precision fermentation is going to lead as a technology, is my vision for the future. There's a lot that we can do with yeast, and training and teaching these little microbes how to make new and novel things. It's more sustainable. You're not relying on conventional agriculture as a tool to make food. And I think there's going to be increasing availability for manufacturing and distribution of these products. So that's my prediction for the future.

Nora Ali: And how do you think the relationship between the business of healthcare and food science will continue to evolve?

Laura Katz: I hope it evolves in the direction of using this technology to improve nutrition and food. Right now we see a lot of folks using precision fermentation to make ingredients for food that taste better. So we're seeing these ingredients focused on sensory properties, so flavor and texture.

The future, how we see it at Helaina is using this technology to make food ingredients that are better for our health. And that's what the consumer wants. They want food that's going to do something for their health, do something for their immune system, as opposed to just taste good. It has to taste good, but it needs to have better properties for our health. Food as medicine is really going to be the future.

Nora Ali: I'm really looking forward to seeing what else you do with Helaina. You're very impressive and this has been such a fun conversation. Thank you Laura, for joining us.

Laura Katz: Thanks so much, Nora. 

Nora Ali: This is Business Casual and I'm Nora Ali. You can follow me on Twitter @NoraKAli and I would love to hear from you. If you have ideas for episodes, comments, thoughts on episodes you loved, fun segment ideas, feel free to shoot me a DM, and I will do my very best to respond. You can also reach the BC team by emailing businesscasual@morningbrew.com, or call us. That number is 862-295-1135. And if you haven't already, be sure to subscribe to Business Casual on Spotify, Apple Podcasts, or wherever you listen. And if you like this show, please leave us a rating and a review. It really helps.

Business Casual is produced by Katherine Milsop and Raymond Luu. Additional production sound design and mixing by Daniel Markus, Rosemary Minkler, and Nick Torres. Kate Brandt is our fact checker, and AB Silver is our senior booking producer. Sebastian Vega and Evan Frolov edit our videos. Music in this episode from Daniel Markus and the Mysterious Breakmaster Cylinder. Thanks for listening to Business Casual. I'm Nora Ali. Keep it business, and keep it casual.