The space economy over the past decade has resembled two types of businesses: sending things up (rockets and infrastructure) and selling signals back from space (satellite communications). Morgan Stanley has pushed the perspective forward: as reusable rockets bring down the &#34;cost of going to space,&#34; commercial opportunities may expand from &#34;transportation&#34; to &#34;production,&#34; with pharmaceuticals being the most promising sector to emerge first.
According to Wind Information, Morgan Stanley analyst Adam Jonas stated in a recent report that space pharmaceutical manufacturing has begun to be commercially viable due to reusable rockets reducing launch costs by about tenfold. Varda Space is a pioneer in this field—it designs and launches spacecraft to manufacture drugs in low Earth orbit, utilizing the microgravity environment to produce high-purity drug crystals that cannot be achieved on Earth.
The report indicates that the logic of space pharmaceuticals is straightforward: in a microgravity environment, drug crystals grow more uniformly, have fewer defects, and are of higher purity. In 1998, the insulin crystals cultivated during the Space Shuttle STS-95 mission had an average volume 34 times larger than those on Earth, with a sevenfold reduction in defects.
Varda successfully completed its first commercial mission in 2024, bringing back crystals of the HIV drug Ritonavir from orbit. Varda has raised $328 million, with the latest round led by Natural Capital and Shrug Capital, and investors including Peter Thiel and Founders Fund. The company plans to achieve near-monthly return frequencies by the end of 2028 and has completed five missions, with the sixth mission scheduled for March this year.
However, this path is still fraught with obstacles: the FDA has yet to establish an approval process for space pharmaceuticals, the unit economic model has not been validated, and commercial mass production requires weekly or even daily launch rhythms.
<h2>The premise for space manufacturing to become an industry is that &#34;elevators&#34; continue to get cheaper</h2>
The report provides a very engineering-based reason for &#34;why talk about space manufacturing now&#34;: reusable rockets are akin to elevators, having reduced launch costs per kilogram by about tenfold (Falcon 9 is approximately $2,000-$4,000 per kilogram).
If larger and more thoroughly reusable next-generation launch vehicles continue to improve their economics, it will push &#34;doing something in space&#34; from research demonstrations to commercially viable activities—not just pharmaceuticals, but also materials, computing power, energy, mining, defense, and a range of other directions.
However, the report also clearly delineates the boundaries: even if launches become cheaper, much space manufacturing remains hindered by regulatory complexity, process control, recovery chains, and demand validation; its lack of commercialization over decades is not due to a lack of interest, but rather because the chain is too long and the steps too numerous.
<h2>Why pharmaceuticals may emerge first: microgravity has a clear impact on &#34;crystal quality&#34;</h2>
Varda does not develop new drugs or create new drug molecules. Its business model is to manufacture high-purity, high-density versions of existing drugs for large pharmaceutical clients.
The Morgan Stanley report points out:
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Most drugs, especially tablets, are made from tiny drug crystals. The shape and quality of the crystals directly affect the drug's dissolution rate, absorption efficiency, stability, and manufacturability. On Earth, gravity-driven convection, sedimentation, and mixing can disrupt the crystal growth environment, leading to uneven crystal sizes and high defect densities
The microgravity environment in low Earth orbit nearly eliminates convection and sedimentation, allowing for more orderly crystal growth. Research by Merck at the International Space Station shows that crystals of the cancer drug pembrolizumab (Keytruda) cultivated in space may allow for a shift from intravenous administration to simple injection. Some drugs can trap impurities in their lattice structure during crystallization, posing a risk of toxic side effects, while the slower and more uniform crystallization process in space can more easily separate impurities.
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This logic corresponds to three potential benefits in the report: first, enhancing the purity and density of APIs; second, improving drug stability, shelf life, and bioavailability; third, pushing certain dosage forms/routes of administration towards new options.
<h2>Winnebago spacecraft: A space factory with a one-meter diameter</h2>
Varda's method for screening candidate drugs involves using a hypergravity crystallization platform (a large centrifuge device) on Earth to alter effective gravity, observing how changes in gravity affect nucleation and crystal growth behavior, thereby quickly identifying drug molecules sensitive to gravity.
The Morgan Stanley report details Varda's W series (nicknamed &#34;Winnebago&#34;), which is a free-flying orbital processing and return system. Weighing approximately 300 kilograms, mission durations range from a few weeks to several months, designed to withstand re-entry speeds exceeding Mach 25.
The system consists of two parts: a one-meter diameter re-entry capsule that houses the manufacturing payload and returns to land under a parachute; and a satellite bus that provides on-orbit power, communication, attitude control, and propulsion capabilities, including deorbit positioning before re-entry.
Why so small? Because it only manufactures active pharmaceutical ingredients (APIs), which typically constitute a small portion of the final drug delivered to patients. Producing APIs in space does not require a large volume to achieve commercial relevance. Smaller batches also allow pharmaceutical clients to optimize production through iterative processes. The compact design also enables the spacecraft to ride-share on Falcon 9 missions, which is crucial for reducing launch costs and achieving high-frequency flights.
<h2>Five missions, from validation to acceleration</h2>
The progress outlined in the report resembles &#34;smoothing the closed loop&#34; rather than &#34;the drug is on the market.&#34;
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W-1 (2023/6–2024/2): On-orbit crystallization of Ritonavir and recovery, a key validation point for the business model; the return capsule lands at a testing site in Utah, USA.
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W-2, W-3 (2025): In addition to the manufacturing payload, overlaying hypersonic/re-entry-related payloads from the Air Force Research Laboratory, with recovery locations including the Koonibba testing site in Australia.
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W-4 (starting June 2025): Begin using a self-developed satellite platform for longer-duration manufacturing experiments in orbit (drugs and semiconductor processes).
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W-5 (2025/11–2026/1): Complete re-entry recovery on January 29, 2026, achieving the first full process of &#34;from on-orbit operation to return capsule recovery&#34; using its vertically integrated satellite platform.
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<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/cc1be76b-c390-42f4-93b9-b1303bf0a9ab.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/cc1be76b-c390-42f4-93b9-b1303bf0a9ab.png"/>
On the regulatory front, the report mentions that Varda has obtained FAA Part 450 re-entry permission (expanded to an operational license until 2029), allowing it to execute return missions more routinely; the company has also publicly stated its goal to achieve a near &#34;once a month&#34; re-entry cadence by the end of 2028, with long-term targets being even more aggressive (weekly or even daily), with the next W-6 mission tentatively scheduled for March 2026.
<h2>The Real Challenges: Unit Economics, Launch Frequency, Process Stability, and How the FDA Inspects Factories</h2>
The report lists &#34;four major hard constraints for commercialization&#34; that are almost all related to logistics and compliance:
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Uncertain Unit Economics: The cost per kilogram for launch, in-orbit operations, and re-entry recovery remains high, relying on &#34;high-value density&#34; products to cover costs; whether it can reach a profitable scale has yet to be proven, and significant capital investment may be required before substantial revenue appears.
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Dependence on High-Frequency Launches: The revenue of such companies is strongly tied to &#34;how much physical output can be brought back each time&#34;; to scale up, a high-frequency, reliable launch and recovery cadence is necessary.
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Difficulty in Process Control: Vacuum, temperature differences, radiation, and microgravity make process stability and repeatability more challenging; even if experiments succeed, they require repeated iterations to resemble industrial production.
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Unresolved Issues with FDA Approval and CGMP Inspections: The report clearly states that there are currently no completed FDA approval cases for &#34;space manufacturing&#34; for human medications. According to existing logic, it still needs to follow standard paths like NDA, proving safety and efficacy with clinical data; how CGMP inspections are executed after &#34;the factory is in orbit&#34; is complex, with legal experts speculating that it may require remote assessments similar to those used during the pandemic, but for Varda's model of &#34;recovering after weeks/months in orbit,&#34; it may need entirely new methods.
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The core message of the report is quite simple: the space economy does not necessarily only sell &#34;sending things up&#34; and &#34;bringing signals down.&#34; Once launches become cheaper, recoveries more routine, and regulatory pathways feasible, pharmaceuticals may be one of the first industries to write &#34;space manufacturing&#34; from a research story into commercial reports; and Varda is currently the fastest example running this closed loop

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Morgan Stanley stated that reusable rockets can reduce launch costs by 90%, and the pharmaceutical industry may be the first to establish a commercial closed loop. In a microgravity environment, the purity of drug crystals is higher and defects are fewer, with insulin crystal volumes reaching 34 times that on Earth. Industry pioneer Varda has completed the space crystallization recovery of HIV drugs and is currently financing $328 million, aiming for a monthly return frequency by 2028. However, the lack of FDA approvals and unverified unit economics mean that commercialization requires a weekly launch rhythm for support

- The space economy is evolving with a focus on two main businesses: launching payloads and selling signals from space.  
- A Morgan Stanley report indicates that reusable rockets are making space pharmaceutical manufacturing commercially viable, with Varda Space leading the way by creating high-purity drugs in microgravity.  
- Despite the potential, challenges like regulatory approval and economic viability remain, hindering the speed of commercialization in this innovative sector.

Space Pharmaceuticals - The "New Scene" of Commercial Spaceflight