Arzeda, Maker of Designer Enzymes, Prepares to Leave UW Roots with New Leader and VC Bucks

2/27/09Follow @xconomy

One of the biggest startup ideas at the University of Washington is getting ready to leave the academic nest. Arzeda, which designs custom-built enzymes on computers that can do things Mother Nature never could, has recruited Michael Martino as its CEO and secured commitments from OVP Venture Partners and WRF Capital to anchor its founding $12 million Series A financing round, Xconomy has learned. (The deal hasn’t closed yet, but that’s expected in April, Martino says.)

I caught up with the company’s three scientific founders—Eric Althoff, Daniela Grabs, and Alexandre Zanghellini—earlier this week at their temp digs in the UW TechTransfer office. They were eager to tell me all about the company they are building, and why it has enticed an experienced public company CEO like Martino (formerly of Bothell, WA-based Sonus Pharmaceuticals) as well as the investors to get on board.

The first thing to know is that Arzeda (Ar-ZAY-duh)  is all about enzymes. These complex protein molecules do all sorts of essential jobs in the human body, and are found everywhere in nature. Enzymes in your stomach chop up the steak you eat for dinner, and break down drugs like aspirin in the liver. Scientists have manipulated these handy molecules for all sorts of industrial uses, from cleaning up oil spills to detergent ingredients. Denmark-based Novozymes is one example of a dominant player in the industrial market, while Cambridge, MA-based Genzyme has become one of the world’s biggest biotech companies by making engineered copies of important enzymes for people who suffer from hereditary deficiencies, like the one that causes Gaucher’s disease.

What those companies have in common is that they start from a cookbook dictated by Mother Nature, from which they can make incremental tweaks. But after a decade of research in the UW lab of biochemist David Baker, supported by supercomputers, the Arzeda trio has found a way to design custom enzymes on a computer screen, with all sorts of ideal properties beyond the scope of other companies that essentially start with an enzyme from nature. They have shown it can be done in publications in Science and Nature, and the next step will be to do this in a larger scale commercial setting.

“We don’t need a starting point with an enzyme. We don’t need to improve on the starting point. We design the starting point,” Grabs says. Zanghellini adds, “We are expanding on what nature does.”

Lots of things still need to fall into place before Arzeda can really start humming to execute on this vision. For starters, it is getting a license from the UW to an academic software program called Rosetta that has been modified for commercial use, as well as a few catalytic components for enzyme reactions, plus some full-blown patented enzymes the founders worked on with Baker at the university.

Then comes the financing. Besides OVP and WRF, Martino said he is still courting a third and maybe fourth investor to fill out the Series A round. The first tranche will be worth about $3 million to $4 million, which Martino said he expects to arrive in April. The money should provide the fuel needed to hire a team of about 16 or 17 people, and operate the business to achieve its next milestones in nine to 12 months, when it expects the rest of the Series A round to kick in, Martino says.

Once the first tranche of money arrives, Arzeda will look to move into some space for wet labs, and to house more than $1 million worth of computing equipment. The computers are key for designing the enzymes, and the wet labs will have to be intimately involved in proving whether the new molecules really behave in the lab dish as expected, Althoff says.

The market opportunity is pretty amorphous at this point, since the company still has lots of different options it can pursue. As the business plan morphs into shape, Martino said he envisions three distinct kinds of early opportunities that offer low, medium, and high technical risk.

—The first, low-risk opportunity involves designing new enzymes to protect crops from herbicides, sort of like the way Monsanto’s Roundup Ready corn is made to stand up to its Roundup weed-killer. Arzeda’s opportunity (which he wouldn’t describe in any specifics) is likely to attract the company’s first important partnership with an agricultural biotech company, Martino says.

—The medium-risk shot involves making enzymes that can be the building blocks for biodegradable plastics that could replace petrochemical-derived plastics. (This idea would compete with Cambridge, MA-based Metabolix.)

—The really high-risk, swing-for-the-fence opportunity is to break down lignin from plants into much smaller molecules, to make cellulosic biofuels a commercial reality, Grabs says. This is the sort of technology that Silicon Valley venture capitalist Vinod Khosla has been touting for some time, because it holds the potential to make efficient use of whole plants as raw material for biofuels, not just the harvested corn or beans.

What all of those opportunities have in common is they involve a much shorter and easier path to the marketplace than his former line of work, pharmaceuticals. Still, Martino says he wouldn’t rule out pharmaceutical applications in the future, because it’s possible that Arzeda could design enzymes that speed up the expensive and time-consuming process of biotech drug manufacturing.

Of course, these are still early days for Arzeda, and the markets are far in the future. If the company can reach its goals over the next year, it will end up securing the full $12 million, enough to run 30 months, Martino says. That should be enough time to build up a lot more valuable technology to show investors and partners. “There’s a significant opportunity here to make an impact in an area that’s ripe for growth,” Martino says.

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