Renewables Aren’t Just for Biofuels: Microbia Makes Industrial Chemicals a Bit Greener

2/23/09Follow @xconomy

Microbia envisions a future in which specialty chemicals we take for granted, like the beta-carotene that goes in dietary supplements, will come from renewable sources instead of the usual petrochemicals. It won’t wean the world off oil, but it could enable this Lexington, MA-based company and its partners to claim they’re helping to green up the planet, all the while pursuing a $200 million market opportunity.

I heard the Microbia story last week during a conversation with CEO Richard Bailey. It’s kind of a twisting tale that begins with basic research at the Whitehead Institute for Biomedical Research in Cambridge and gave birth to a couple different companies along the way.

Before diving into all that, here’s the gist: Microbia now fashions itself as an industrial biotech company that has found ways to finesse yeast, bacteria and other fermentation materials into pumping out big-time yields of special chemicals. These new versions of carotenoid chemicals, like beta-carotene and canthaxanthin (used to make cheese look orange and salmon look pink, among other things), come from renewable sources instead of petrochemical derivatives.

The first two renewable products could arrive on the market in 2010 and generate as much as $200 million in revenue within the next three years, Bailey says. And he thinks Microbia can do it more cheaply, as long as oil is $50 a barrel or higher. (The price dipped to $39 a barrel a couple days after we talked.)

“Petroleum won’t be here forever,” Bailey says. “Green chemistry does sell, but it has to come at price parity,” to the existing methods.

How Microbia has gotten itself into this position is an interesting story about how science can lead down unpredictable paths. It was started in 1998 by scientists at the Whitehead Institute. The early work was heavy on how yeast strains become pathogenic, or diseased. This led to insights into how to turn yeast into a cheap, effective factory for all sorts of chemicals, Bailey says. The company put that knowledge to work via fee-based contracts with other companies, which reduced its cash burn for years, while another side of Microbia focused on using the knowledge to develop its own drugs.

Bailey, a veteran of Monsanto’s nutrition division, came on board as general manager to run the industrial side of the company back in 2002. At that time, the place had great science but needed some business strategy, in his view. “There was a lot of work on science; I’d argue too much,” Bailey says.

By 2006, as the drug development programs approached the hugely expensive pivotal trial stage, the industrial contracts couldn’t pay the bills anymore. “Even if we got paid by the wheelbarrow of cash every day, it wouldn’t be sufficient,” Bailey says. So management decided to split the company into two separate entities. Microbia Precision Engineering (later shortened to the original name Microbia) would take care of the industrial applications, including carotenoid chemicals, and Ironwood Pharmaceuticals would continue to work on the drugs. (Ironwood went on to raise $50 million from Morgan Stanley last October for tests of its experimental drug for constipation, bringing its total financing since inception to $281 million.)

That same year, Microbia partnered with Tate & Lyle, the London-based maker of Splenda sweetener and other food and industrial ingredients. Tate & Lyle invested $7 million to acquire a 15 percent stake in the newly spun off company and agreed to provide $13.75 million more over five years. Tate & Lyle hopes to get new products on the market faster through the deal, and in return, Microbia gets a share of the profits of any products it helps develop for the British firm. The deal has enabled Microbia to grow from about 15 to 50 employees and get the two carotenoid products primed for the marketplace next year, Bailey says.

A lot of things obviously still need to happen before Microbia will start making a big impact in the market with its own products. But it’s clearly not a science project anymore. In the past few months the company hired three people with experience on the business side of the specialty-chemical industry to fill top commercialization roles.

“These people really add to our credibility, our knowledge of the distribution channel, our customers, and the competitive aspects,” Bailey says. “We now are in pretty good shape.”

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