PhyloTech, Corey Goodman’s First Environmental Health Startup, Raises $1.2M in Seed Capital

7/6/10Follow @xconomy

Corey Goodman, the prominent biotech entrepreneur, looked at the view from his home at Tomales Bay in Marin County, CA one day in the late ’90s, and was stunned by what he saw. Officials were taking water samples, looking for bacterial contamination that was making people sick. It was all a big mystery where it came from, and what to do.

“I remember thinking, here we are in the Bay Area, in the era of molecular biology and genomics technology, and we’re using technology to sample water that was about 100 years old, literally from the 19th century,” Goodman says. “You could watch public policy being made, and they were doing it blind. I figured there has to be a better way.”

It took a long time to find, but Goodman is betting he’s found the answer now in a startup called PhyloTech. This is Goodman’s first foray into environmental health, after a long and decorated career in academia, as the co-founder of such medical biotech companies as Exelixis (NASDAQ: EXEL), and Renovis, and as president of Pfizer’s Biotherapeutics and Bioinnovation Center. Now he’s the chairman of PhyloTech, and one of the angel investors who have pumped in $1.2 million in seed financing, along with Seraph Capital and Wavepoint Ventures.

The new company is led by Thane Kreiner, a former senior vice president at Affymetrix and a Goodman protégé. The science comes from the lab of Gary Andersen at the Lawrence Berkeley National Lab in Berkeley, CA. The vision is to perform the first-ever comprehensive, and highly selective analysis of all 55,000 known forms of bacteria in nature, what’s known as the “microbiome.” It’s possible to hunt for certain bacteria based on their genomic signature with next-generation sequencers or RT-PCR machines, but it costs too much, takes too long, and can only look for a limited number of varieties of bacteria in a sample. No technology until now has been designed to tackle something as broad as the full microbiome, Kreiner says.

Corey Goodman

Corey Goodman

PhyloTech’s method, licensed from Lawrence Berkeley, uses a gene chip it calls the “PhyloChip,” paired with bioinformatics software, that can spot specific signatures of all the bacteria in a sample of food or water, Kreiner says. By hiring a contract lab in North Carolina, and saving money on servers by renting space through a cloud computing vendor, PhyloTech has found a way to run these comprehensive tests for customers for less than $1,000 per sample and send back the results in a few weeks. This structure made it so the company could pursue a variety of hundred-million-dollar plus markets, like water testing, food safety, and even possibly diagnostic uses to look for clues into why people get allergic reactions, for example.

Based on PhyloTech’s lean cost structure, and the demand it sees from customers who have been coming to Andersen’s lab, Kreiner says it’s possible for the company to become profitable as soon as the end of 2011.

“The sky’s really the limit for our potential,” Kreiner says. “There could be multiple subsidiaries, spinoffs, and joint ventures over time.”

Besides Goodman and Kreiner, Janet Warrington is one of the co-founders and key architects who will help decide which opportunities to pursue first. She worked alongside Kreiner for 12 years at gene chipmaker Affymetrix (NASDAQ: AFFX), where she was the vice president of research and development.

The story about where this technology comes from is pretty interesting. Goodman, as mentioned above, was flabbergasted that state and federal environmental officials in the 1990s were using coliform tubes to capture bacterial samples. This method was basically able to collect a lot of different kinds of bacteria, which might or might not be harmful. Officials couldn’t tell where the bacteria came from—whether it was from human, cattle, or bird feces. That obviously can make a big difference in how the government might respond to a bacterial contamination, and tells scientists a lot about its potential severity.

During the early part of the last decade, Goodman pursued this environmental sampling dilemma as “a little hobby,” he says. He testified before the state water quality board, and contributed to reports commissioned by the U.S. Environmental Protection Agency and the National Academy of Sciences. The tools of molecular biology were fast becoming more powerful and cheaper, but he saw that it still took months to ask about a specific type of bacteria in a sample, and cost several hundred thousand dollars, Goodman says.

Not much progress seemed to be happening toward his vision of a fast, accurate, affordable technology for identifying bacteria in food and water. But in early 2007, Goodman got a call from his friend John Hulls, the leader of the State Water Resources Control Board’s “PhyloChip Project,” funded under the Clean Beaches Act.

“He said, ‘Corey, you’ve got to go over to the LBNL (Lawrence Berkeley National Lab),” Goodman recalls. Hulls told him, “You’ll be blown away.”

Goodman, you could say, hit it off with Andersen. “It was obvious within two or three minutes of talking to Gary that it was clear. This was it.”

Back then, the PhyloChip was still in a second-generation form that was only able to detect signatures of 8,000 different known bacteria. But even in that lesser form, “my head was spinning” with the potential use of the tool for detecting bacteria in water and food. Later on, he started thinking about human health applications. And the ideas kept coming, as Andersen mentioned “nonchalantly” that NASA and the Jet Propulsion Laboratory had shown interest, along with oil companies looking for bacteria in oil.

Despite the early promise, and demand from Andersen’s academic peers to use the technology in their experiments, Goodman wanted to see the technology get better. The ideal chip would have to get broader, with capability to detect all 55,000 known bacteria, with room for more as more organisms are discovered. But even before that happened, the word was out. PhyloChip picked up some helpful buzz, winning a 2008 Technology Innovation Award from the Wall Street Journal in the environmental category. By 2009, about 30 different academic labs were using the technology, and publishing a string of papers enabled by the technology, Goodman says.

Thane Kreiner

Thane Kreiner

Goodman figured it was time to start tapping his Rolodex in May 2009, to turn this idea into a company. He called Kreiner to tell him about the opportunity, and Kreiner interrupted him mid-sentence. “Corey, you’re talking about Gary Andersen’s work, aren’t you,” Kreiner interjected.

Then it was a matter of finding the right intellectual property attorney, negotiating for the license from Lawrence Berkeley, recruiting Warrington, crafting the business plan, and recruiting investors. Goodman kept working the recruiting side of things. He proudly noted that he attracted Peter Gleick, an internationally-known water expert based in Oakland, CA, and a recipient of a MacArthur “genius grant” for his work in the field. Matt Winkler, the founder of Ambion, a molecular biology tool company, brought more instrument and startup experience to the board, as well as some of his own money to invest.

The first close of the angel round came in April. The development of the technology was done, and PhyloTech is ready to offer the service to customers, Kreiner says. Warrington and Kreiner have set this up so that a customer ships samples to the contract lab, PhyloTech gets the raw data back, analyzes it, stores it for two years with its cloud computing vendor, and serves up a secure web link to the customer. Clients also get a graphical representation that makes it easier for a biologist to interpret the data without help from a bioinformatics specialist.

Early on, the focus will be on serving academic customers. Part of the challenge will be in keeping the company focused on what those customers need. At the beginning, most of them want a comprehensive “multi-plexed” tool to look at the microbiome. But when I asked about more narrow uses, like testing for certain forms of E.coli that might contaminate a spinach field, Kreiner suggested that market might be better addressed by a lower-cost, customized chip. Such custom chips might be useful for specific human health applications, like spotting bacteria in the gut that could be related to, say, colorectal cancer, or chronic obstructive pulmonary disease. But those are markets PhyloTech won’t be pursuing from the very beginning.

“We almost have too many opportunities,” Kreiner says. “There are so many out there, we will need to prioritize.”

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