Calysta’s Pivot: Another Green Energy Startup Demotes Fuel Projects
The pioneers of synthetic biology in the early 2000s held out an enticing vision of cutting-edge technology that would churn out renewable fuels made from plant sugars rather than petroleum. They bioengineered microbes such as yeast to eat the sugar and make the chemical building blocks of gasoline or other fuels. However, those early companies found that the high cost of sugar made it hard to compete with the entrenched fossil fuel industry.
Menlo Park, CA-based Calysta Energy, founded in 2011, was part of a second wave of companies that thought they had the solution to that problem. Rather than using sugar as a raw material, they planned to tap into the newly cheap supply of natural gas. A major component of natural gas is methane, and certain naturally occurring bacteria can feed off it. Calysta re-engineered genetic pathways in those bacteria, maximizing their enzymatic pathways to convert gaseous methane into liquid hydrocarbons—raw materials for the production of liquid fuels that are easy to transport.
But Calysta, like other members of synthetic biology’s second wave, is now moving away from its fuel focus to pursue other products that sell for higher prices. In this, they’re following a strategy that their green energy forerunners evolved: developing new methods of manufacturing industrial chemicals. Biofuels pioneer Amyris of Emeryville, CA, founded in 2003, has branched out into industrial lubricants, fragrances, and cosmetic ingredients. Calysta’s major projects now focus on the production of plastics and fish food.
“What’s happening at Calysta is indicative of what’s happening across the advanced biofuels space,” says Mackinnon Lawrence, research director at Navigant Research, which tracks the energy and chemicals industries.
Investors see gas-to-liquid biofuels plants as risky projects to fund, even though a methane feedstock may turn out to be less expensive than sugar, Lawrence says. Most of these new plants are starting at a small scale, he says. In the past five years, many startups that originally intended to make biofuels, like Calysta, have shifted toward higher-priced products, Lawrence says.
In May, Calysta Energy changed its name to Calysta to reflect its changing priorities. The pivot started in earnest in June 2013, when Calysta signed a research collaboration deal with NatureWorks of Minnetonka, MN, which makes plastic resins that can be molded into products.
NatureWorks signed that deal with the goal of breaking its own dependence on sugar, which is currently the sole feedstock for production of its plastic, Ingeo. The company uses microbes engineered to eat a form of sugar from cornstarch, and then to produce lactic acid, a subunit which is joined together to form long chains of plastic polymer.
NatureWorks sells Ingeo to companies that make all manner of products, from Dannon yogurt containers to blankets, from Coca-Cola cups to prototypes cranked out by 3-D printers. NatureWorks is owned by two parent companies: Minneapolis, MN-based Cargill, an international agricultural and industrial giant, and chemical company PTT Chemical of Bangkok, Thailand.
Calysta announced recently it had accomplished its first task under the NatureWorks partnership—to create methane-eating bacteria that could manufacture lactic acid. The two companies are betting that methane will remain a less costly raw material for plastic production than sugar. “Methane is cheap and abundant in the United States,” says Josh Silverman, chief technology officer and co-founder of Calysta.
Steve Davies, communications director for NatureWorks, says Calysta beat the target date to engineer the new bacteria.
“It’s the key first step,” Davies says. “But it’s still early days.” Calysta will need to scale up production to show that the technology can work efficiently in a commercial operation, he says. Meeting all goals of the partnership could take five years, Davies says. That jibes with the estimated timeline when the collaboration was announced last year.
Calysta’s scientists are now tweaking the bioengineered bacteria to increase the yield of lactic acid, Silverman says. “We believe it’s going to be economic,” he says.
If Calysta succeeds, NatureWorks would most likely license the technology and build its own plant—or retrofit an existing one—to use methane as a feedstock, Davies says. Though NatureWorks could simply tap into a natural gas pipeline, it might pursue an early idea of Calysta’s that could bring additional cost savings: capturing the waste methane gas that now wafts out of sites such as landfills and industrial farms. The companies operating those sites might be eager to sell that captured gas at low rates, Calysta has speculated, because they might otherwise face government penalties for allowing methane, a potent greenhouse gas, to escape into the air and contribute to global warming.
One possible provider of that captured gas is NatureWorks’ co-owner, Cargill, which operates feedlots for cattle and pigs, Davies says. Cargill is investing in methods to trap methane from those lots, he says.
Calysta will continue to pursue deals like the NatureWorks partnership, following a “capital-light” model of inventing technology and licensing it, says Calysta CEO Alan Shaw (pictured above). Calysta has been talking to a number of companies about chemicals other than lactic acid that could be produced from methane using its core technology, he says.
In December, the startup raised $3 million in a Series A financing round led by new investor Pangaea Ventures. The venture firm, based in Vancouver, BC, and Hillsborough, NJ, focuses on advanced materials across a range of industries from energy to agriculture. Its limited partners include German chemical corporations BASF and Evonik. In total, Calysta has raised less than $10 million since its founding, Shaw says.
Calysta has enough money to support its operations through this year, but will need to raise additional funds, Shaw says. And while the startup intends to follow its out-licensing model, it has also embarked on a second enterprise that will involve building its own plants.
In May, Calysta acquired BioProtein of Stavanger, Norway, a former producer of fishmeal for Norway’s fish-farming industry. Terms were not disclosed, but Shaw says the transaction was a “paper merger” that did not immediately lumber Calysta with substantial new costs. Through the deal, Calysta gained rights to the designs for BioProtein’s novel “loop reactor,” in which methane feeds the growth of bacteria that are harvested to make a protein-rich animal food. Silverman says the loop reactor will make Calysta’s own methane fermentation processes more efficient and cost-effective.
Calysta was able to acquire the technology on advantageous terms because BioProtein had fallen on hard times and its plant was dismantled, Shaw says. The BioProtein factory was built with as much as $350 million in financing from Statoil, an international oil and gas company based in Norway, as well as other entities, including chemical giant DuPont, he says. The plant in Tjeldbergodden, Norway, made up to 8,000-10,000 tons of fish food per year between 2000 and 2006, Silverman says. But in the mid-2000s, natural gas prices were high and fishmeal prices were low, leading Statoil to shut down the three-story facility.
But conditions have now flip-flopped, Shaw says. Natural gas prices have dropped, while fish meal prices have risen with increasing international demand among emerging middle classes for high-protein foods, such as salmon from Norway’s aquaculture industry, Shaw says. BioProtein’s manufacturing technology is now an entree to a $370 million market in fish and livestock food for Calysta, which plans to build its own plants by 2017, he says. The deal accelerates Calysta’s timeline to market its first products—a key goal, Shaw says.
“The acquisition is a game-changer for us,” Shaw says. “We’re definitely in growth mode.” The private company, which had 15 employees a year ago, now has a staff of at least 20 and is hiring, he says.
The capital outlays to reconstruct a new commercial-scale plant, based on the blueprints for BioProtein’s dismantled factory, would be substantial, costing “in the low hundreds of millions” of dollars, Silverman said in an e-mail exchange with Xconomy. Calysta will start first with a smaller plant making samples of the fish food to distribute to potential customers.
BioProtein’s now-defunct plant in Norway ran on natural gas from a pipeline—a reliable source, but one that made it vulnerable to price increases. Calysta may use pipeline gas, Silverman says, but it may also try to augment that supply with methane captured at a nearby landfill or other operation where the gas would otherwise become an air pollutant.
Calysta hasn’t entirely given up on biofuels. It’s still working on technology to convert captured methane into liquid fuel, though a partnership formed in January with Lawrence Livermore National Laboratory. The collaborators are testing small portable reactors lined with Calysta’s bioengineered enzymes, which would convert the methane into liquid methanol.
Shaw says Calysta’s fuel technology is promising, but it’s not the company’s best path toward marketable products at this point.
“I still think fuel is a tough nut to crack,” Shaw says.