De-Risking the U.S. Bioeconomy by Establishing Financial Mechanisms to Drive Growth and Innovation
The bioeconomy is a pivotal economic sector driving national growth, technological innovation, and global competitiveness. However, the biotechnology innovation and biomanufacturing sector faces significant challenges, particularly in scaling technologies and overcoming long development timelines that don’t align with short-term return expectations from investors. These extended timelines and the inherent risks involved lead to funding gaps that hinder the successful commercialization of technologies and bio-based products. If obstacles like the ‘Valleys of Death, a lack of capital at crucial development junctures, that companies and technology struggle to overcome are not addressed, this could result in economic stagnation and the U.S. losing its competitive edge in the global bioeconomy.
Government programs like SBIR and STTR lessen the financial gap inherent in the U.S. bioeconomy, but existing financial mechanisms have proven insufficient to fully de-risk the sector and attract the necessary private investment. In FY24, the National Defense Authorization Act established the Office of Strategic Capital within the Department of Defense to provide financial and technical support for its 31 ‘Covered Technology Categories’, which includes biotechnology and biomanufacturing. To address the challenges associated with de-risking biotechnology and biomanufacturing within the U.S. bioeconomy, the Office of Strategic Capital within the Department of Defense should house a Bioeconomy Finance Program. This program would offer tailored financial incentives such as loans, tax credits, and volume guarantees, targeting both short-term and long-term scale-up needs in biomanufacturing and biotechnology.
By providing these essential funding mechanisms, the Bioeconomy Finance Program will reduce the risks inherent in biotechnology innovation, encouraging more private sector investment. In parallel, states and regions across the country should develop regional specific strategies, like investing in necessary infrastructure, and fostering public-private partnerships, to complement the federal government’s initiatives to de-risk the sector. Together, these coordinated efforts will create a sustainable, competitive bioeconomy that supports economic growth, and strengthens U.S. national security.
Challenge & Opportunity
The U.S. bioeconomy encompasses economic activity derived from the life sciences, particularly in biotechnology and biomanufacturing. The sector plays an important role in driving national growth and innovation. Given its broad reach across industries, impact on job creation, potential for technological advancements, and requirement for global competitiveness, the U.S. bioeconomy is a critical sector for U.S. policymakers to support. With continued development and growth, the U.S. bioeconomy promises not only economic benefits, but also strengthens national security, health outcomes, and environmental sustainability for the country.
Ongoing advancements in biotechnology, including artificial intelligence and automation, have accelerated the growth of the bioeconomy, making the sector both globally competitive and an important domestic economic sector. In 2023, the U.S. bioeconomy supported nearly 644,000 domestic jobs, contributed $210 billion to the GDP, and generated $49 billion in wages. Biomanufactured products within the bioeconomy span multiple categories (Figure 1). Growth here will drive future economic development and address societal challenges, making the bioeconomy a key priority for government investment and strategic focus.
Biomanufactured products span a wide range of categories, from pharmaceuticals and chemicals, which require small volumes of biomass but yield high-value products, to energy and heat, which require larger volumes of biomass but result in lower-value products. Additionally, there are common infrastructure synergies, bioprocesses, and complementary input-output relationships that facilitate a circular bioeconomy within bioproduct manufacturing. Source: https://edepot.wur.nl/407896
An important driving force for the U.S. bioeconomy is biotechnology and biomanufacturing innovation. However, bringing biotechnologies to market requires substantial investment, capital, and most importantly, time. Unlike other technology sectors which see returns on investment within a short period of time, often, there is a misalignment between scientific and capitalistic expectations. Many biotechnology based companies rely on venture capital, a form of private equity investments, to finance their operations. However, venture capitalists (VCs) typically operate on short return on investment timelines, which may not align with the longer development cycles characteristic of the biotechnology sector (Figure 2). Additionally, the need for large-scale and the high capital expenditures (CAPEX) required for commercially profitable production, along with the low-profit margins in high-volume commodity production, create further barriers to obtaining investment. While this misalignment is not universal, it remains a challenge for many biotech startups.
The U.S. government has implemented several programs to address the financing void that often arises during the biotechnology innovation process. These include the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, which provide phased funding across all Technology Readiness Levels (TRLs); the DOE Loan Program Office, which offers debt financing for energy-related innovations; the DOE Office of Clean Energy Demonstrations which provides funding for demonstration-scale projects that provide proof of concept; and the newly established Office of Strategic Capital (OSC) within the DOD (as outlined in the FY24 National Defense Authorization Act), which is tasked with issuing loans and loan guarantees to stimulate private investment in critical technologies. An example is the office’s new Equipment Loan Financing through OSC’s Credit Program.
Biotechnology development timelines typically take around ~10+ years to complete and reach the market due to longer R&D and Demonstration & Scale-Up phases, while non-biotechnology development timelines are generally much shorter, averaging around ~5+ years.
While these efforts are important, they are insufficient on their own to de-risk the sector to the degree which is needed to realize the full potential of the U.S. bioeconomy. To effectively support the biotechnology innovation pipeline at critical stages, the government must explore and implement additional financial mechanisms that attract more private investment and mitigate the inherent risks associated with biotechnology innovation. Building on existing resources like the Regional Technology and Innovation Hubs, NSF Regional Innovation Engines, and Manufacturing USA Institutes, help stimulate private sector investment and are crucial for strengthening the nation’s economic competitiveness.
The newly established Office of Strategic Capital (OSC) within the DOD is well-positioned to enhance resilience in critical sectors for national security, including biotechnology and biomanufacturing, through large-scale investments. Biotechnology and biomanufacturing inherently require significant CAPEX, expenses related to the purchase, upgrade, or maintenance of physical assets. This requires substantial amounts of strategic and concessional capital to de-risk and accelerate the biomanufacturing process. By creating, implementing, and leveraging various financial incentives and resources, the Office of Strategic Capital can help build the robust infrastructure necessary for private sector engagement.
To achieve this, the U.S. government should create the Bioeconomy Finance Program (BFP) within the OSC, specifically tasked with enabling and de-risking the biotechnology and biomanufacturing sectors through financial incentives and programs. The BFP should focus on different levels of funding based on the time required to scale, addressing potential ‘Valleys of Death’ that occur during the biomanufacturing and biotechnology innovation process. These funding levels would target short-term (1-2 years) scale-up hurdles to accelerate the biotechnology and biomanufacturing process, as well as long-term (3-5 years) scale-up challenges, providing transformative funding mechanisms that could either make or break entire sectors.
In addition to the federal programs within the BFP to de-risk the sector, states and regions must also make substantial investments and collaborate with federal efforts to accelerate biomanufacturing and biotechnology ecosystems within their own areas. While the federal government can provide a top-down strategy, regional efforts are critical for supporting the sector with bottom-up strategies that complement and align with federal investments and programs, ultimately enabling a sustainable and competitive biotechnology and biomanufacturing industry regionally. To facilitate this, regions should develop and implement state-wide investment initiatives like resource analysis, infrastructure programs, and a cohesive, long-term strategy focused on public-private partnerships. The federal government can encourage these regional efforts by ensuring continued funding for biotechnology hubs and creating additional opportunities for federal investment in the future.
Plan of Action
To strengthen and increase the competitiveness of the U.S. bioeconomy, a coordinated approach is needed that combines federal leadership with state-level action. This includes establishing a dedicated Bioeconomy Finance Program within the Office of Strategic Capital to create targeted financial mechanisms, such as loan programs, tax incentives, and volume guarantees. Additionally, states must be empowered to support commercial-scale biomanufacturing and infrastructure development, leveraging tech hubs, cross-regional partnerships, and building public-private partnerships to build capacity and foster innovation nationwide.
Recommendation 1. Establish and Fund a Bioeconomy Finance Program
Congress, in the next National Defense Authorization Act, should codify the Office of Strategic Capital (OSC) within DOD and authorize the creation of a Bioeconomy Finance Program (BFP) within the OSC to provide centralized federal structure for addressing financial gaps in the bioeconomy, thereby increasing productivity and competitiveness globally. In 2024, Congress expanded the OSCs mission to offer financial and technical support to entities within its 31 ‘Covered Technology Categories,’ including biotechnology and biomanufacturing. Additionally, in order to build resilience in the sector and maintain a competitive advantage globally while also strengthening national security, these substantial expenditures should be housed within the OSC. Establishing the BFP within the OSC at the DOD would allow for a targeted focus on these critical sectors, ensuring long-term stability and resilience against political shifts.
The DOD and OSC should leverage its own funding as well as its existing partnership with the Small Business Administration to direct $1 billion to set up the BFP to create and implement initiatives aimed at de-risking the U.S. bioeconomy. The Bioeconomy Finance Program should work closely with relevant federal agencies, such as the DOE, Department of Agriculture (USDA), and the Department of Commerce (DOC), to ensure a long-term cohesive strategy for financing bioeconomy innovation and biomanufacturing capacity.
Recommendation 2. Task the Bioeconomy Finance Program with Key Initiatives
A key element of the OSC’s mission and investment strategy is to provide financial incentives and support to entities within its 31 ‘Core Technology Categories’. By having BFP design and manage these financial initiatives for the biotechnology and biomanufacturing sectors, the OSC can leverage lessons from similar programs, such as the DOE’s loan program, to address the unique needs of these critical industries, which are essential for national security and economic growth.
Currently, the OSC has launched a credit program for equipment financing. While this is a necessary first step in fulfilling the office’s mission, the program is open to all 31 ‘Core Technology Categories’, resulting in broad, dilutive funding. To accelerate the bioeconomy and reduce risks in biotechnology and biomanufacturing, it is crucial to allocate resources specifically to these sectors. Therefore, BFP should take the lead in several key financial initiatives to support the growth of the bioeconomy, including:
Loan Programs
The BFP should develop specific biotechnology enabling loan programs, in addition to the new equipment loan financing program run by the OSC. These loan programs should be modeled after those in the DOE LPO, focusing on biomanufacturing scale-up, technology transfer, and overcoming financing gaps that hinder commercialization.
Example loan programs:
- DOE Title 17 Clean Energy Financing Program
- USDA Business & Industry Loan Guarantee
- Solar Foods EU Grant/Loan
Tax Incentives
The BFP office should create tax incentives tailored to the bioeconomy, such as, transferable investment and production tax credits. For example, the 45V tax credit for production of clean hydrogen could serve as a model for similar incentives aimed at other bioproducts.
Example tax incentives:
- The Inflation Reduction Act’s transferable tax credits are the gold standard for this category.
Volume Guarantees & Procurement Support
To mitigate risks in biomanufacturing, the office should establish volume guarantees for various bioproducts, offering financial assurance to manufacturers and encouraging private sector investment. An initial assessment should be conducted to identify which bioproducts are best suited for such guarantees. Additionally, the office should explore the possibility of procurement programs to increase government demand for bio-based products, further incentivizing industry growth and innovation. This effort should be undertaken in coordination with the USDA’s BioPreferred Program to minimize redundancy and to create a cohesive procurement strategy. In addition, the BFP should look to the procurement innovations promoted by the Office of Federal Procurement Policy to find solutions for forward funding to create a functioning market.
Example Volume Guarantees & Procurement Support:
- Heavy Forging Press Infrastructure Lease Agreement
- NASA and USAF buying Fairchild semiconductors in advance of needing them, and overbought performance
- Advance Market Commitments
- Joint Venture Partnerships
- Other Transaction Authorities
Recommendation 3. Develop Pipeline Programs to Address Financial and Time Horizon Needs
Utilizing the key initiatives highlighted above, the BFP should create a two-tiered financial mechanisms pipeline and program to address both the short-term and long-term financial needs. The different financial levels could potentially include:
- Level 1 – Short Term Scale-Up (1-2 years) Programs
- Subsidized cost of electricity and other utilities (waste, wastewater treatment, natural gas, energy, etc.)
- Funding for demonstration-scale projects and early-stage engineering development. Similar to the DOEs Office of Clean Energy Demonstrations or the DODs’ Defense Industrial Base Consortium round one $1-2M engineering grants)
- Tax holidays for corporate taxes and property taxes
- Allowing accelerated depreciation to reduce tax liabilities
- Land grants or subsidies for manufacturing assets
- Fast-track permitting and site preparation to avoid long waits
- Labor and workforce subsidies
- Removal of export duties on products created in the U.S. and shipped overseas
- Level 2 – Long Term Scale-Up (3-5 years) Programs
- Large-scale transferable tax credits (either production or investment tax credits) for manufacturing. Similar to the tax credits seen in the Inflation Reduction Act for clean energy.
- Large-scale manufacturing grants
- Large-scale, low-interest manufacturing loans and loan guarantees
- Government procurement contracts or commitment for offtake, such as partial/full volume guarantees
- Government direct or indirect equity investments in biomanufacturing and biotechnology innovations
Recommendation 4. State-Level Initiatives, Infrastructure Development, and Public-Private Partnerships
While federal efforts are crucial, a bottom-up approach is needed to support biomanufacturing and the bioeconomy at the state level. The federal government can support these regional activities by providing targeted funding, policy guidance, and financial incentives that align with regional priorities, ensuring a coordinated effort toward industry growth. States should be encouraged to complement federal initiatives by developing programs that support commercial-scale biomanufacturing. Key actions include:
- State-Level Bioeconomy Resource Analysis: Each state and region should conduct their own analysis to understand the bioeconomy resources at their disposal and determine what relevant resources they would need to establish or strengthen state or regional bioeconomies. Identifying these resources will help the nation understand its true bioeconomic potential by understanding where certain biomass is contained, what facilities are available and needed to develop an economically sustainable bioeconomy, and create data to better understand the economic return on investment.
- Once the analysis is completed, States should collaborate with federal agencies like the DOE, DOC, and Economic Development Administration (EDA) to create and apply for specialized grants for commercial-scale biomanufacturing facilities based off of these analyses. Grants should prioritize non-pharmaceutical biomanufacturing to expand the scope of bioeconomy growth beyond traditional sectors.
- Utility Infrastructure Grants: Another critical area is the creation of utility infrastructure needed to support biomanufacturing, such as wastewater treatment and electricity infrastructure. States should receive targeted funding for these infrastructure projects, which are essential for scaling up production. States should take these targeted funds and establish their own granting mechanism to build necessary, regional infrastructure that is needed long-term to support the U.S. bioeconomy.
- Tech Hub Partnerships: States should leverage existing tech hubs to serve as centers for innovation in bioeconomy technologies. These hubs, which are already positioned in regions with high technological readiness, can be incentivized to partner with other regions that may not yet have robust tech ecosystems. The goal is to create a collaborative, cross-regional network that fosters knowledge-sharing and builds capacity across the country.
- Foster Public-Private Partnerships (PPP): To ensure the success and sustainability of these initiatives, states should actively foster PPPs that bring together government, industry leaders, and academic institutions. These partnerships can help align private sector investment with public goals, enhance resource sharing, and accelerate the commercialization of bioeconomy technologies. By engaging in collaborative R&D, sharing infrastructure costs, and co-developing new biotechnologies, PPPs will play a crucial role in driving innovation and economic growth in the bioeconomy sector. In addition to fostering PPPs, regions should proactively work on creating models that enable these partnerships to become self-sustaining, helping to mitigate potential financial pitfalls if partners drop out of the partnership. By not only creating PPPs, but also ensuring they become fully independent over time, the associated risks with PPPs decrease significantly.
By addressing these steps at both the federal and state levels, the U.S. can create a robust, scalable framework for financing biomanufacturing and the broader bioeconomy, supporting the transition from early-stage innovation to commercial success and ensuring long-term economic competitiveness. A good example of how this approach works is the DOE Loan Program Office, which collaborates with state energy financing institutions. This partnership has successfully supported various projects by leveraging both federal and state resources to accelerate innovation and drive economic growth. This model makes sense for biomanufacturing and biotechnology within the BFP in the OSC, as it ensures coordination between federal and state efforts, de-risks the sector, and facilitates the scaling of transformative technologies.
Conclusion
Biotechnology innovation and biomanufacturing are critical components of the U.S. bioeconomy which drives innovation, economic growth, and global competitiveness, but these sectors face significant challenges due to the misalignment of development timelines and investment cycles. The sector’s inherent risks and long development processes create funding gaps, hindering the commercialization of vital biotechnologies and products. These challenges, including the ‘Valleys of Death,’ could stifle innovation, slow down progress, and result in the U.S. losing its global leadership in biotechnology if left unaddressed.
To overcome these obstacles, a coordinated and comprehensive approach to de-risk the sector is necessary. The establishment of the Bioeconomy Finance Program (BFP) within the DOD’s Office of Strategic Capital (OSC) offers a robust solution by providing targeted financial incentives, such as loans, tax credits, and volume guarantees, designed to de-risk the sector and attract private investment. These financial mechanisms would address both short-term and long-term scale-up needs, helping to bridge funding gaps and accelerate the transition from innovation to commercialization. Furthermore, building on existing government resources, alongside fostering state-level initiatives such as infrastructure development, and public-private partnerships, will create a holistic ecosystem that supports biotechnology and biomanufacturing at every stage and will substantially de-risk the sector. By empowering regions to develop their own bioeconomy strategies and leverage local federal government programs, like the EDA Tech Hubs, the U.S. can create a sustainable, scalable framework for growth. By taking these steps, the U.S. can strengthen both its economic position but also lead the world in development of transformative biotechnologies.
BioMADE, a Manufacturing Innovation Institute sponsored by the U.S. Department of Defense, plays an important role in advancing and developing the U.S. bioeconomy. Yet, BioMADE currently funds pilot to intermediate-scale projects, rather than commercial-scale projects. This leaves a significant funding gap, creating a distinct and significant challenge for the bioeconomy.. By contrast, the BFP within OSC would complement existing efforts by specifically targeting and mitigating risks in the biotechnology and biomanufacturing pipeline that current programs do not address. Furthermore, given that BioMADE is also funded by the DOD, enhanced coordination between these programs willenable a more robust and cohesive strategy to accelerate the growth of the U.S. bioeconomy.
While Private-Public Partnerships (PPPs) are already embedded in some federal regional programs, such as the EDA Tech Hubs, not all states or regions have access to these initiatives or funding. To ensure equitable growth and fully harness the economic potential of the bioeconomy across the nation, it will be important for regions and states to actively seek additional partnerships beyond federally-driven programs. This will empower them to build their own regional bioeconomies, or microbioeconomies, by tapping into regional strengths, resources, and expertise to drive localized innovation. Moreover, federal programs like EDA Tech Hubs are often focused on advancing existing technologies, rather than fostering the development of new ones. By expanding PPPs across the biotech sector, states and regions can spur broader economic growth and innovation by holistically developing all areas of biotechnology and biomanufacturing, enhancing the overall bioeconomy.
While the U.S. has made significant advancements and remained a global leader in biotechnology over the past decade, the next four years will be critical in determining whether it can sustain that leadership.
It’s paramount to balance both innovation capabilities and risk as we work towards ensuring that the U.S. bioeconomy is a priority area for both the Nation and for National Security.
To understand the range of governmental priorities for the bioeconomy, we spoke with key agencies represented on the National Bioeconomy Board to collect their perspectives.
We sat down with Congressman Jake Auchincloss to get a better understanding of how Congress and the Select Committee on the CCP view the need for standards for the bioeconomy.