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Why the Business of Beauty Ingredients Is So Hard to Crack

Calls for more sustainable alternatives have created opportunities for makers, but the capital-intensive, often lengthy process of bringing new materials to market represents a huge challenge — especially when consumer-facing brand ambitions are involved.
Debut products in the works.
Debut products in the works. (Debut)

Key insights

  • Most major beauty conglomerates have made commitments to sustainability and investments in new ingredients companies, signalling a ripe opportunity for makers.
  • In line with the Amyris model, many companies are looking to launch their own lines while they simultaneously grow their core business.
  • But building a buzzy beauty brand is a different challenge than developing effective ingredients.

Just two years ago, things looked rosy for Amyris, the biofuels-maker-turned-beauty-brand incubator. It spun its squalane (a skin barrier-strengthening alternative to increasingly out-of-favour squalene, derived from shark liver) into a successful brand, Biossance, and rolled out lines with model Rosie Huntington Whiteley and hair stylist and “Queer Eye” star Jonathan Van Ness. Amyris appeared to have leveraged its sugarcane-derived ingredient toward a goal of becoming the first sustainable beauty conglomerate.

Then, it all fell apart. In August, after Amyris sold its squalane to Givaudan at a lower-than-expected price, longtime chief executive John Melo departed and the company filed for bankruptcy.

Much of Amyris’ downfall can be chalked up to mismanagement: it racked up debt and lost sight of its biomanufacturing strengths in favour of chasing consumer brand margins. But the Amyris story is also indicative of the challenges in the business of bringing new ingredients to market.

Turning new ingredients — whether plant-based, brewed or biotech — into successful products is complicated and capital-intensive. It’s hard to grow through just licensing, and companies often have to multitask. For some, that means following the Amyris model: launching a brand to grow margins, funnel money back into the business and help advertise an ingredient to prospective buyers. But building a successful beauty brand is often more art than science.

Recently, though, ingredient-makers have been energised. Nearly every major beauty conglomerate has set ambitious sustainability targets for 2030 and invested in new projects this year. Perhaps most notable, L’Oréal joined Unilever and Japanese cosmetics company Kao in investing in a partnership with biotech firm Geno, aimed at scaling up a palm oil (another popular beauty ingredient) replacement. Oddity Tech acquired AI molecule discovery firm Revela for $76 million in April. In July, Shiseido invested in biotech firm Chitose’s microalgae-focused Matsuri project.

Even as demand for more sustainable alternatives reaches a fever pitch and well-funded, leaner makers come to market, the savvy of operators and their priorities are being tested and much remains to be seen about how the space will evolve. The right partnerships can make or break the business, which runs on scale.

“You don’t sustain a company in the ingredient business on a single ingredient. The economics are not there,” said Kevin Gallagher, a consultant and former personal care president at chemical company Croda.

A Front Heavy Proposition

A number of new ingredients companies aimed at fuelling a transition away from animal and petrochemical-derived keratins, collagens and butanols, and deforestation-linked ingredients — have cropped up in the past decade. (The chemical behemoths behind the scenes, including Croda, BASF, Evonik and Givaudan own most of the market, and snap up proven entities, like Givaudan did with Amyris’ portfolio in February).

Not all new ingredient makers are the same. Geno targets the whole market with high-volume ingredients used in most products it sees as easier to scale; while L’Oréal BOLD Venture Fund-backed Debut plays in prestige actives it sees as less capital intensive to make and potentially more exciting to consumers. Debut and Arcaea, backed by Chanel and founded by Jasmina Aganovic, set sights on becoming brand powerhouses alongside their sale of ingredients.

Finding and developing new ingredients is capital intensive: it requires up-front investment and has long lead times. Debut and Arcaea, which launched in 2019 and 2021, have raised $60 million and $78 million, respectively. That’s prior to releasing consumer-facing product.

After an ingredient launches, it can take around three years to see any sort of meaningful commercial success, said Gallagher.

To build market share, companies need to be able to ramp up production, which makes efficient manufacturing crucial. Consumers also aren’t likely to pay a premium for greener products, so companies have the added challenge of finding price parity nearly at launch, said Steven Mah, managing director, Cowen life sciences.

Partners, whether on the manufacturing, commercialisation or brand side help with that.

For Geno, which worked with industrial and chemical companies for years, the Unilever, Kao, L’Oréal partnership gives it access to commercialisation expertise and a landing spot for its ingredients. The partnership could help the company work more strategically and quickly towards consumer needs, said Sasha Calder, vice president of impact at Geno.

“There’s high risk … Do you have a big stable of validating partners? Are they increasing the scope of their engagement with you?” said Mah.

Building Brands and Making Partners

Even top partners and funding won’t guarantee success. Fashion knows as much: much hyped leather-alternative maker Bolt Threads (which also produces a skin care ingredient alternative) paused operations on its flagship product Mylo earlier this year after struggling to raise capital. The company had engaged top brands including Stella McCartney, Adidas and luxury conglomerate Kering.

While potentially less complex, just licensing ingredients can be risky: if they don’t trickle into formulations, the company doesn’t get royalties. Running a new ingredients business requires multitasking.

Some companies are opting to launch their own consumer brands to grow margins, speed up the development of the market for the ingredient and appeal to potential partners and buyers, which Amyris did off the back of Biossance’s success. Debut’s first brand, set to drop at the end of the year, will help prove out its new ingredient’s potential and attract demand from partners, said Joshua Britton, founder of Debut.

But building a brand represents a separate challenge for operators. Product isn’t necessarily in an ingredient manufacturer’s wheelhouse.

“It’s two different muscles,” said Jean-Marie Gianni, Oppenheimer & Co.’s consumer managing director.

While ingredients can be a powerful branding and storytelling device, a single ingredient isn’t always enough to make consumers pick a product off a shelf, said Rebecca Bartlett, a branding consultant who worked on Biossance’s early rebrand and Debut’s look. Companies have to find a way to showcase their ingredients to potential partners, while also exciting consumers.

“[Just forefronting ingredients] doesn’t have meaning to a consumer,” said Bartlett. “You have to deliver storytelling in a super easy way and articulate what’s special about your R&D process in a headline people remember.”

Further Reading

The manufacturer-turned-incubator has filed for Chapter 11 bankruptcy and put its consumer businesses, including lines from Jonathan Van Ness and Rosie Huntington-Whiteley, up for sale.

The bankrupt biotech manufacturer-turned-beauty conglomerate has put Biossance, Jonathan Van Ness’ JVN and other lines up for sale. Is anyone buying?

The company closed a Series C funding round, led by Teachers’ Venture Growth (TVG), the late-stage venture arm of the Ontario Teachers’ Pension Plan Board, and Senator Investment Group. Several existing investors, including Chanel and Mousse Partners, also participated in the round.

About the author
Joan Kennedy
Joan Kennedy

Joan Kennedy is Editorial Associate at The Business of Fashion. She is based in New York and covers beauty and marketing.

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