Zydus Acquires 50% Stake in Sterling Biotech for Animal-Free Dairy Facility

Californian precision fermentation startup Perfect Day has agreed to sell 50% of its stake in Mumbai-based Sterling Biotech – a leading manufacturer of pharmaceutical gelatin and fermentation-derived ingredients – to Zydus Lifesciences for ₹550 crore ($66M), with the business now becoming a joint venture.

The move will give both companies equal representation on the board, and shift Sterling Biotech’s focus towards animal-free protein production, according to local media. Perfect Day and Zydus are now planning a dedicated precision fermentation facility to supply to global markets.

It comes two years after Perfect Day – which makes precision-fermented whey protein for use in animal-free dairy – bought Sterling Biotech from bankruptcy in a $78M deal. Zydus’s purchase comes at a 70% premium, on the back of record revenues for the manufacturer in 2023.

The joint venture “sends a strong signal to the broader biopharma sector”, according to Aiyanna Belliappa, senior innovation and entrepreneurship specialist at the Good Food Institute (GFI) India, who called Zydus’s strategic partnership with Perfect Day “extremely encouraging”.

“Aligning with the Indian government’s forward-thinking BioE3 policy, this development further solidifies India’s position as a global leader in biomanufacturing for healthcare, food, and nutrition,” he told Green Queen.

Perfect Day, Zydus look to tap India’s manufacturing prowess

Sterling Biotech, one of the world’s largest pharma gelatin producers, was admitted into insolvency in 2018, and went into liquidation a year later. After an auction process, Perfect Day emerged as the winning bidder, signalling its interest in India’s precision fermentation sector and manufacturing capabilities.

It gave Perfect Day access to two facilities in Gujarat and another in Tamil Nadu (which seems to have closed now). The new state-of-the-art factory as part of the joint venture will allow Sterling Biotech to speed up production of planet-friendly proteins and cater to the growing consumer demand for fermentation-based products and ethical nutrition, the announcement said.

The transaction marks Zydus’s entry into specialised biotech products for health and nutrition, meeting demand from consumers who “prefer animal-free protein or suffer from lactose intolerance”.

Nutrition and health are among the top purchase drivers for alternative proteins in India. The demand for animal-free proteins can be gauged from consumer sentiments on plant-based dairy: a 2023 report by GFI India revealed that 43% of Indians would try plant-based dairy products for their health benefits (second only to the importance of protein content).

The new structure of Sterling Biotech will enable Perfect Day to “significantly enhance” its tech capabilities in India as part of an emerging market growth strategy, while Zydus will continue to leverage its manufacturing and commercial expertise.

“We are dedicated to promoting growth through partnerships and are consistently exploring new collaborations to position India as a premier global supply chain hub,” said Zydus managing director Sharvil Patel. “We are excited to join forces with Perfect Day and create a win-win combination that leverages both our strengths and expertise to create value for the consumers.”

Highlighting India’s manufacturing prowess, Michal Klar, investor and funding partner at Better Bite Ventures, told GFI India in its report last year that the country is “uniquely positioned” to be an alternative protein innovation and manufacturing hub thanks to world-class talent and cost-efficient scale-up opportunities.

“This is especially relevant for technologies like precision fermentation that can benefit from talent and equipment currently used for biomedical research and production,” Klar added.

A rollercoaster year for Perfect Day

Whether the move accelerates Perfect Day’s interest in the Indian market remains to be seen – the startup already obtained premarket approval for its animal-free whey protein from the Food Safety Standards and Authority of India, following its purchase of Sterling Biotech.

“This partnership allows Perfect Day to significantly boost its capabilities to meet the demands of the fast-growing global market. We deeply value our collaboration with Zydus and believe this joint venture will allow both parties to benefit from each other’s expertise,” said TM Narayan, interim CEO of Perfect Day.

The premium valuation of its initial takeover – Perfect Day bought Sterling Biotech for $78M in 2022 ($83M after adjusting for inflation), and has sold half of it for $66M – represents a win in a topsy-turvy year for the Californian alternative protein player.

In July 2023, it laid off 15% of its workforce (134 employees) as it shifted focus to B2B and its tech-led offshoot Nth Bio. In line with that, it sold its D2C subsidiary The Urgent Company – which comprised Coolhaus, Brave Robot, Modern Kitchen and California Performance Co. – to food tech company Superlatus in September on a promissory note of $3.15M, according to SEC filings.

Then in January, it raised $90M in a Series E round – taking total funding to $840M since its inception in 2014 – but this coincided with the exit of founders Ryan Pandya and Peramul Gandhi (with Narayan taking over). And it was the subject of a $134M lawsuit in April by manufacturing partner Olon, which accused Perfect Day of a breach of contract. The dispute is ongoing.

Meanwhile, Perfect Day’s whey protein appeared in Unilever’s lactose-free chocolate ice cream under the Breyers brand; Strive Nutrition announced it’s developing products with Perfect Day and TurtleTree’s whey proteins; and Bored Cow – Tomorrow Farms’ animal-free milk range that uses Perfect Day’s protein – rolled out into Target stores across the US.

Nestlé also released a limited-edition animal-free whey protein powder under its Orgain brand, called Better Whey. While one Perfect Day employee seemed to confirm that Nestlé was using its whey, a spokesperson for the startup declined to confirm this on the record.

The premium valuation of Sterling Biotech worried analysts, however, with Zydus’ share price plummeting by 5.9% when the stock market opened on Monday. According to brokerage firm Nomura, Sterling Biotech recorded ₹450 crore ($53.6M) in revenue in 2023, with annual sales up by 10% since 2021.