“Crop giant partners with algal biofuels pioneer.” That’s cool. But what are the Hidden Mickeys – what really is this partnership all about?
The news crossed the wires early enough yesterday to have spilled over a considerable portion of the twitterverse. Items like “Monsanto Backs Algae Startup Sapphire Energy,” and “Sapphire Energy Anticipates “Significant” Revenue Stream From Monsanto Alliance.”
The New York Times led with “Agriculture and genetics giant Monsanto has made its bet on algae. On Tuesday Monsanto announced that it has made an equity investment in, and developed a partnership with, algae startup Sapphire Energy.”
All of which bemused Sapphire Energy CEO Jason Pyle, who remarked “that’s not really what the collaboration is about.”
A couple of twitterati read the release a little more closely and focused on the research aspects. “Monsanto & Sapphire to Collaborate on Algae” or Monsanto and Sapphire Energy partner to ID stress and yield genes from algae” were amongst the twitter mix.
After its dramatic lead, the Times added that “Monsanto’s CTO Robb Fraley said in a release that algae is an “excellent discovery tool,” for agricultural genetic research, and that Monsanto wants access to Sapphire’s genetic research technology to use it for its own agricultural development.
The deal points, or lack thereof
OK, Monsanto signed with Sapphire, money changed hands, and unsurprisingly there was some equity involved. As befits a research agenda with considerable scope, the payments to Sapphire could be material if measured against the economics of algal biofuels start-ups. For the moment, lips are sealed on the exact numbers.
But let’s take this opportunity to really lock down an understanding of Sapphire. That will help reveal the motivations and opportunities in this deal. But also, in a larger sense, will help clarify the algal biofuels landscape. Let’s face it, there are some awfully “hot” algal biofuels plays out there. But only two companies using algae in any way have made the top 10 in the 50 Hottest Companies in Bioenergy three years running – Solazyme and Sapphire.
By now, the Solazyme story – the elegance of their approach and the commercial potential in applications ranging from fuel to fragrances have become increasingly clear.
Sapphire less so. They’ve been operating lately on a near-stealth basis, and been out of the headlines for long enough that journalists are down to interviewing coyotes in the New Mexico hills to get a sense of how the project is progressing.
The Sapphire backstory
Let’s review the basics. Founded in 2007 by ARCH Venture partners, and backed with more than $100 million in early-stage funding from the likes of Bill Gates’ investment arm, a Rockefeller family investment arm, and Wellcome Trust. Hired a series of rock-stars including Jason Pyle as CEO, CJ Warner from BP as chairman and president, Jim Lambright from the Ex-Im Bank as CFO. Landed a $50 million DOE grant for its proposed demonstration farm and biorefinery in New Mexico, and $100 million in loan guarantees from the USDA to help along.
Set a goal of 1 million gallon demonstration by 2014-15, a 100 million gallon first commercial facility by 2018, and a 10X growth to 1 billion gallons per year by 2025. Massive scale in biofuels terms.
There has been some envy, and some grumbling, and some rumbling that not all is perfect in Sapphireville, that there’s an alarmingly large burn rate, and that they are going to have to raise money soon, or scale some of the development back.
So, put some of the understanding of the Monsanto collaboration towards that rumor.
As Pyle put it, “the financial arrangement is the easiest way to understand, but consider the value of the technical association, with what has to be the most sophisticated company in the world of crop development. Consider also that we have no channel ourselves to capture the value of favorable traits we identify, outside of algae. Monsanto has a whole system to monetize favorable traits, and channels we would never have access to because of the broad portfolio of crops they work in.”
The Dark Lords of the Cornfields, and algae
But there’s something plainly more than that. Something different, unique, and deeply desired, has caught such a strong whiff of interest from Monsanto, the Dark Lords of the Cornfields?
Surely they have the resources to build out a lab and investigate algae, should they want to, or enter into an R&D collaboration with any one of a wide array of universities, who are more strapped for cash than ever in these nefarious times for state government finance. Few have historically resisted the check book that accompanies the Monsanto love call.
The Time Machine
Here’s our theory. Sapphire has built a time machine. Not the kind from Back to the Future where you go back 30 years and date your Mom. The kind where you, using the toolkit of synthetic biology, you blow through the work that would take generations for traditional plant breeding techniques in a couple of years.
You see, algae isn’t domesticated – not one bit. It’s a billion year old set of genes running around in the shape of one-celled, crazy-fast-growing wolves.
You can capture a wolf – catch it early enough and you might imprint on it, and make it accept you, and captivity. But its wolf pups will be just as wild as if the parents were raised by a wild pack in the Tundra. Domestication occurs at the nurture level, not the nature level.
By contrast, Sapphire is breeding dogs, working on domesticating algae by identifying, analyzing and downselecting favorable traits in the genome. One recent run began with 100 million designed variants – not randomly generated – generated by design. Jason Pyle theorized that this single run of downselection took in more variants than had been analyzed in the entire history of human agriculture to that time.
So that’s cool.
You see, Sapphire isn’t interested in picking out some promising strain of wild-a** algae out of a strain library, and popping it into a souped-up Monther-of-all-Photobioreactors, or into a pond where it can be subjected to the Mother-of-all-Oil-Extraction systems. Not that there’s anything wrong with that.
Sapphire is breeding, at a prolific pace not seen before, bringing along algae as a platform. Their goal is nothing less than a completely new agricultural crop platform, kinda like rice, but capable of supporting the same levels of R&D and development as corn, cotton, soy, rice or fava beans.
Back to Monsanto for a second – and to that question about why they didn;’t simply set up their own lab work. Also, while Sapphire’s effort is laudable in its scope and ambition, there are plenty of world-class labs working at express pace in terms of developing the synthetic biology toolkit, and applying same.
Those pesky metabolic pathways
Ah, which brings us to this neat thing about Sapphire’s synthetic biology, as it pertains to crop research. The really profound work, the heavy lifting, in synth bio, has been on fungi platforms like yeast, or bacterial platforms like e.coli.
But yeast doesn’t fix carbon, and bacteria doesn’t have the same metabolic pathways because they don’t have nuclei.
And what is Monsanto looking for? 300 bushels of corn per acre, says Monsanto of their yield targets for 2030 – an easy enough line to draw using extrapolation. But the hard fact is that, to do so, they will have to add more bushels per acre in the next 20 years than have been added in all of history of corn’s cultivation. Transformative increases in the rate of fixing carbon and building biomass are in order.
So, carbon fixing and profoundly similar metabolic pathways for carbon and biomass accumulation – that’s of high interest if you’re shooting for the stars, yield-wise.
I was surprised as anyone when Jason Pyle took me through the similarities between the carbon pathways of algae and terrestrial crops. My blind assumption was that every metabolic pathway had been completely transformed in the billion years of mutation and evolution that separates green algae from sophisticated terrestrial crops.
Turns out that the carbon fixing pathways – the part that accumulates biomass, the part that leads to yield – has remained profoundly unchanged, inexplicably conserved over a billion years.
Ah, now that makes an interesting domain for Monsanto. You get a path for analyzing yield traits, that is comparable on a grand level with the terrestrial crops that Monsanto is trying to take forward. You have the opportunity to speed up, thereby, the rate at which new traits build up in the company pipeline, and add meat to 300 bushel per acre story.
So its a time machine that works for Monsanto as well. And in the grand tradition of announcements, turns out that they have been working together for 18 months, going back to a series of patent apps from Sapphire that caught Monsanto’s eye.
Some Heft Validation
All of which suggests that Monsanto has had a good, long look at the quality of Sapphire’s time machine. Their formalization of the collaboration this week with the announced investment, does not in our view represent in any way a bet on algae, or an entry by Monsanto into the field (though it allows them to keep tabs, and watch the milestones tick by from an insider’s perspective.
It does represent a validation that Sapphire’s ambition to build out that time machine, that sped up system of bringing forward a domesticated new platform for oil crops, has legs, is valid as an approach.
“The biggest thing Monsanto brings,” said Pyle, is that it solidifies out hypothesis, that [in order to solve the problem of fossil fuels] you have to expand the resource base. It can’t be about simply changing one thing into another. You have to create a new commercial agriculture.”
“We have 800,000 hours on the pilot now,” Pyle added, bringing us up to speed on their progress, and are concluding all preconstruction work now on the demo. We should be starting here in 2011, to build it, test it. From then on the world changes. We will have moved this entire discussion about algae from “Can this happen?” to to “what are the actual features that will make it happen?”
Partners for Progress
Sapphire is not known for taking on so many partners – usually more of the ad-hoc kind seen in the tests of algal aviation biofuels that it participated in.
“Partners? We are open always to excellent strategic partners,” Pyle said. “We explored some, and didn’t go forward. What did Monsanto have that some others did not? Total technical excellence. We are not out to spin some hoopla, then dump and run. We are out to technically solve this problem, so we need others interested in that.”
The partner landscape? “There are a lot of incumbents are dabbling in new energy, but they don’t really care. A lot of them don’t really want the energy mix to change. And, to be with us, that is in the algae space, you have to have real vision. You have to be a partner who really does see how the energy mix can change.”
In Monsanto’s case, whether you think it was for good or bad, they have fundamentally shifted the landscape,” Pyle says. And he’s right. In an algal biofuels landscape filled with investors and technologists who have the aim of establishing an industrial biocrop with transformative impact and at global scale, Monsanto have actually done it.
That’s an interesting partner to stand with, during these early, perilous years as algal biofuels shifts out of the labs and into the big ponds, and the wild wolves give way slowly to docile pups.