Matrix Genetics is one of those startups that never really got off the ground in its early days, but never died, either. While the Seattle-based company lived on fumes at various points over the past four years, it saw other contenders in the algae biofuel business rise, and fall.
Now Matrix has stayed in the game long enough to get its first real shot. Over the next several years, the company will see if it can succeed where nobody else has, in turning fast-dividing algae into oil-producing workhorses.
Matrix has closed on a Series A venture financing round that has enabled it to build a team of about 20 scientists, Xconomy has learned. This financing amount isn’t being disclosed, and no record of it has been filed with the Securities and Exchange Commission. But the deal includes Spokane, WA-based Avista Development, wealthy individuals, and an unnamed “major international energy company” that has also formed a strategic partnership with Matrix, according to CEO Margaret McCormick. The collaborator’s interest is big enough that it has enticed Jim Roberts, a former Howard Hughes Medical Institute investigator and director of basic sciences at the Fred Hutchinson Cancer Research Center, to dive in full-time as chief scientific officer of Matrix.
The company has already extended 18 job offers to scientific staff, and the first 17 accepted while one last candidate is still considering, Roberts says. The next step for Matrix will be to get labs in the South Lake Union area up and running by a target date of July 1, he says. About half of the scientific staff has been recruited from outside Seattle to join the company, Roberts says.
“The first reason I’m doing this is we’re talking about absolutely fascinating biology. I wouldn’t be doing it if I didn’t really enjoy it,” Roberts says. “The second reason is that startup biotech companies do much, much better when the founder and the principal scientist is there 100 percent of the time. It usually doesn’t work when the principal scientist views it as a hobby. These are really deep biological problems that need to be solved to make this work, and we think we know how to do it.”
Matrix, which I first wrote about here in May 2011, started out about five years ago as a skunkworks project inside Seattle-based Targeted Growth, which was primarily focused at the time on making biofuels from camelina seeds. The idea was that while camelina might make sense as a first-generation source of renewable biofuels, the ultimate prize would be in using algae to produce the oil, because it’s so much more efficient.
Matrix had as many as a dozen people working on its ideas for engineering strains of single-cell algae, known as cyanobacteria, to make them much better at producing oil than the kinds of strains found in nature. It sought to raise $10 million to $15 million to pursue this idea, but when the checks didn’t arrive, it slimmed down to just two people at one point, McCormick says. Things picked back up again last August, when Avista Development got interested enough to provide a small amount of debt financing to restart the work, and there has been enough progress since then for Avista to convert its debt into an equity stake as part of this Series A deal, McCormick says.
While Matrix spent its time in the wilderness, many earlier generation biofuel companies have either gotten out of the business or switched priorities, daunted by the scientific, financial, engineering, and market-based challenges in turning algae into a realistic alternative source of fuel. South San Francisco-based Solazyme (NASDAQ: SZYM), its neighbor LS9, and Berkeley, CA-based Amyris (NASDAQ: AMRS) have all offered tantalizing visions of making biofuels at scale, but all of them fundamentally depend on finding cheap and abundant sources of sugar to run their processes, and none have disrupted the fossil fuel industry.
Matrix Genetics, in contrast, is focusing strictly on the biology of engineering cyanobacteria strains that can efficiently produce oil in open ponds, with no need for sugar feedstocks. Algae has long been attractive to fuel researchers because it grows and divides far faster than traditional root crops like corn, meaning its oils can be harvested far faster. It also shouldn’t take up nearly the amount of acreage that’s required to grow root crops like corn and soybeans, and doesn’t need to live in prime agricultural land that is currently used for growing food.
The two main ingredients are energy from the sun, and carbon dioxide from the atmosphere, which the cyanobacteria should use to convert into oils. Matrix has no aspiration to become a vertically integrated energy company, Roberts says. It only wants to focus on the biological part of the problem, while its partner will focus on engineering problems like how you develop open ponds that don’t get overrun by opportunistic species; how you efficiently harvest the oils; and how the oils get refined, distributed, marketed, and sold in a cost-competitive way with fossil fuels.
“Our strategic partner is totally committed to developing an algal biofuel industry,” Roberts says. “The nature of the relationship is ideal for us. They are engineers. They understand about digging ponds, and harvesting and refining. They understand the engineering problems, which we’re not capable of addressing, and we don’t have the money to address. We’re good at the biology, which they desperately need. It’s a natural partnership, which we hope will for the first time provide what the algal biofuel industry is missing—an actual demonstration that biofuels can be grown and produced at scale in a commercially competitive way.”
Matrix’s biology-only strategy distinguishes it from a competitor like San Diego-based Sapphire Energy, which has raised big sums of money from Arch Venture Partners and Bill Gates and others, in a quest to hold onto a larger piece of the biofuel value chain. San Diego-based Synthetic Genomics struck a heralded $600 million partnership in 2009 with energy giant Exxon Mobil, but that collaboration didn’t last long, and Exxon CEO Rex Tillerson recently told Bloomberg News that he thinks Exxon is still 25 years away from making fuel from algae.
A few other companies have made progress in algae engineering over the past couple of years, including Bonita Springs, FL-based Algenol Biofuels, Omaha, NB-based Bioprocess Algae, and San Diego-based General Atomics, McCormick says.
Here are the basics of what Matrix is setting out to do, based on my conversations with McCormick and Roberts:
First, Matrix Genetics will seek to optimize biological pathways in different cyanobacteria that will allow the algae to accumulate oils—triglycerides and wax esters that are high in energy density—inside cells. This is different from others that have sought to coax algae to secrete oils. How the intracellular oils ultimately get harvested from the algae organism is part of the engineering challenge facing Matrix’s partner, Roberts says. One mode of extraction, known as hydrothermal liquefaction, in which the organisms get heated up under pressure, is currently popular in the industry, he says.
By making algae that accumulate oils inside their cells—just like humans accumulate fat inside fat cells—Matrix hopes to gain the advantage of making algae that can stay alive, so it can keep on producing oil, and having it harvested on an almost daily basis from an open pond, Roberts says. Matrix Genetics recently received an issued patent on its technology for an engineered cyanobacteria strain that accumulates such triglycerides, which he says was an accomplishment that helped attract the new round of financing.
“We have viable lipid-producing organisms,” Roberts says.
Still, huge amounts of work remain. Speaking generally, McCormick says that “we’re at about version 2.0” with the current engineered cyanobacteria, and need to get to “version 4.0 or version 5.0” to start talking seriously about making oil from algae at commercial scale.
One of the challenges will be to work on coaxing the cyanobacteria to make larger amounts of oils, and not spend too much energy toward duplication and growth of the cyanobacteria itself, Roberts says. Once that lipid biosynthesis work is optimized, then the only way to further increase the efficiency of oil production will be to increase the amount of carbon that goes through the pathway, he says. Doing that in an open natural environment, without the benefit of cost-prohibitive controlled industrial vats that could inject extra CO2 in the environment, is going to take “some rather creative biological engineering,” Roberts says.
If all goes well, Matrix should be in position to raise a Series B financing in about 24 months, McCormick says. The company could be in a position then to license its modified cyanobacteria to other energy companies, and to reap rewards from its work as a small technology provider to the big boys of the oil business.
“We never thought we could solve all the problems ourselves that need to be solved to make the algal biofuel industry successful,” Roberts says. “If there’s been a mistake made in the industry it’s that the companies that have gotten started have taken it upon themselves to be integrated. To develop the biology, to do the scale-up, the harvesting technology, the refining technology. I don’t think it’s possible for a single company to be successful at every step. The problems are too difficult.”
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