Arzeda Gets Federal Grant to Make Renewable Enzyme for Tires, Sidesteps VC Funding Model

12/8/09Follow @xconomy

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just a couple of potential uses of designer enzymes with multi-billion dollar potential.

The reason to avoid them is simple. Martino, a former biopharmaceutical executive at Bothell, WA-based Sonus Pharmaceuticals, knows that it takes a decade or more, and hundreds of millions of dollars, to develop a new drug before it can reach the marketplace. New biofuels also look like they are long way from reaching the marketplace, and the space is “crowded” with competitors and has no clear leader, Martino says.

But if Arzeda can create a nifty synthetic enzyme to turn biomass into a key ingredient in rubber tires, that could be just three to four years away from reaching commercial scale, he says. The ag biotech applications are similarly closer to market reality, he says.

Some of this sharpening focus has been born of necessity. Back in February, I reported on how Arzeda had recruited Martino as CEO, was working to license its technology from the UW, and that it expected to close a $12 million Series A financing round in a couple months. WRF Capital and OVP Venture Partners had committed to lead the way, while it sought a third backer, Martino said.

Turns out that round didn’t come together quite as planned. WRF Capital provided the company with an undisclosed bridge loan, Martino says, while OVP didn’t invest. “We’re still friendly with them,” Martino says. By mid-July, the Pioneer deal provided some industry validation to what Arzeda was doing, and enough upfront capital to pay the salaries of the five-person staff, get set up in office space, and put critical infrastructure in place. It also set up some concrete goals for milestone payments and product royalties in the future, Martino says.

Interestingly, Martino says the team went back to the drawing board on its business model and found it didn’t really need the full $12 million at this stage anyway. Instead of buying expensive servers and paying for security, power, and data backup to do all its enzyme computational work, it now relies on cloud computing. That essentially means it rents server space from Microsoft and Amazon Web Services at a fraction of the cost of what it would take to buy the capital equipment and operate it on its own, Martino says.

If Arzeda can do what it told the NSF it intends to do, then the company will be able to apply for a second-phase grant worth another $500,000, Martino says. The company is also likely to do an equity financing “in the near future,” Martino says, although it will likely be smaller than what was envisioned before. But that doesn’t mean the company has reined in its ambitions for what it can do with designer enzymes. It’s really about how to accomplish something big in the reality of an economic downturn.

“We’ve figured out how to be smarter with our money,” Martino says.

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