Profile in Commercialization: OPX Biotechnologies

This past April, ARPA-E announced a new grant round, and the largest single award in the round, $6 million, went to a group led by OPX Biotechnologies, in partnership with the National Renewable Energy Laboratory and Johnson-Matthey.

The project is the kind of far-out advanced technology that ARPA-E intends to become known for – in this case, a process and a magic bug for converting CO2 and renewable hydrogen to fatty acid esters – known to thee and me as biodiesel.

Ah, an advanced path to biodiesel – where you get the same, great fuel, and a superior cost performance by not having to work through a high-priced commodity biomass like soybean oil to get it. It’s a three-year research program that commenced this month, and by 2013 we’ll see where we are in that game.

But it all makes sense. Except, er, OPX who?

You would be forgiven for not knowing the company. A number of high-value Silicon Valley startups are so serious about operating in “stealth mode” that the Digest wouldn’t be a bit surprised if they blackened their windows, worked out of offices built in mine shafts, or had budgets developed through secret appropriations out of the Defense Department. OPXBIO is a little more visible than some, but deserves a wider fame.

Here’s what they do – they have developed what they describe (quietly) as a “breakthrough microbial engineering platform”, that is, they have a magic factory to build magic bugs.  It’s called the EDGE Platform. More about that after this commercial message.

Here’s the commercial strategy. They plan to make low cost bioacrylic acid, and later biodiesel. To do so, they use sugar (in this case, dextrose, a/k/a d-glucose), or a combination of CO2 and hydrogen as a feedstock.

The Acrylic acid market totals $8 billion globally, with a 4 percent growth, and the product is currently produced by a 2-step catalytic oxidation of propylene. The current market price runs between $1.00 and $1.20 per pound for the roughly 8 billion pounds of annual demand.

The OPX model is modeled for superior returns as it intends to produce bioacrylic at a cost of 50 cents per pound using dextrose at a price of 14 cents per pound. If dextrose holds to its 10-year average price of 11 cents per pound, OPX would lower its costs even further to 45 cents a pound. Meanwhile, the existing fossil feedstock, propylene, is trading currently in the 60 cent range which results in a 55 cent cost to produce acrylic from petroleum.

So, for those doing the Silicon Valley VC box checking exercise we have a large addressable and growing market, distress in the traditional model, a disruptive technology, and superior returns even at feedstocks prices 30 percent over the 10-year average. Check, check, check, check.

OK, back to the science.

The EDGE Platform (Efficiency Directed Genome Engineering), defines microbe metabolic networks and causative genes, and develops targeted microbes in “months vs years”.  The microbe in this case synthesizes bioacrylic acid from dextrose (or carbon dioxide and hydrogen).

To achieve the production goals that hit the commercial targets, the company needs a 100 grams per liter titer, 2 grams per liter per hour productivity, 65 percent grams per gram yield from the feedstock, and an 85 percent recovery of materials.

At pilot, the company is ahead of its commercial targets on the last three; only titer is trailing. the company has achieved 92 percent of its overall cost reduction goal since July 2009 – 8 percent to go in its demo and first commercial plants.

Check.

Now, let’s look at scaling, and the path to commercialization.

Here, we are looking at some relatively elongated timelines, with the pilot opening this year, demonstration in 2012, and 1st commercial plant in 2014.

Overall, the company has moved from 100 ml lab scale in 2008 to 5,000 pounds per year in the pilot. The demonstration scale set for 2011/2012 targets 350,000 pounds, and full commercial scale plants are  expected to “weigh in” at 110 million pounds per year. That’s roughly $120 million in revenue for the first commercial plant. The company expects to build additional plants as the market demand increases for its renewable bioacrylic product and expects to capture a bulk of the growth in the acrylic market resulting in significant market share.

Financing

The company has raised $22.4 million through its seed, Series A and Series B rounds, raised in 2007-2009 from Braemar Energy Ventures, Altira Group, Mohr Davidow, and X/Seed. The big round, $50 million to build the company’s demonstration plant as well as R&D in support of the 2013 commercialization timelines, is underway now.

Competition

In this market, the major players are BASF, DOW, Arkema and Shokubai – not wilting flowers known for love of their competitors. Certainly, OPXBIO has armed itself with strong research partners in the likes of NREL, and ARPA-E’s blessing puts an exclamation point on this.

Commercial partners are not yet disclosed – though the company proclaims a “capital light” strategy based on joint venture commercialization to leverage partner capabilities and capital. It is suggestive of bolt-ons, leased fermenter units, or co-location. It may well suggest a partnership with a low-cost sugar supplier, for favorable terms or secure access to supply. It also suggest a strong interest in the acrylic acid platform. Hmmm – round up the usual suspects. Fascinating to see where this one goes.

People

Leading the company, a veteran crew. CEO Chas Eggert was most recently president of the specialty polymers unit of Akzo Nobel, Steve Toon (late of Verenium and Cargill) heads up engineering while Mike Lynch is the technology’s inventor and CSO. Rounding out the senior team, Dan Muehl as CFO and Mike Rosenberg in Busines Development, both deeply experienced in biopharma and bioenergy.

Recently, the Digest caught up with the OPXBIO management at BIO in DC.

“Usually, the strain is the strain, and it takes months of testing to achieve material improvement,” reflected Eggert. “How do you solve that problem of scale up? In a traditional set up, the engineers have to wait for the bug, and then you figure out scale. But how do you capture that systematic gain in knowledge, as you work with the bug, without constantly restarting your work?”

Of course, Eggert is pointing to a central dilemma of biotech or of any design process. When, and how, do you leave it alone, and proceed to scale? EDGE, as a “comprehensive, rational strategy for microbe re- engineering,” appears to address the process development issue head-on.

Check.

The Digest’s Take

In short, its early days with OPXBIO, but you can see why there’s so many checks on this company’s venture sheet that it feels like we’re in the Czech Republic. $50 million is a big ask in today’s venture environment, and a strategic may well prove to be a solid add in this round, given that the commercialization partnership box is as yet unchecked (or simply as yet unannounced).

The biodiesel angle may be an odd one for the strategics interested in the chemicals market, but veggie oil and corn starch trading companies may well see the fit. Braziliand Indians look less viable because glucose is typically obtained from starch.

In any case, as the company moves into its Series C funding round, we’ll be fascinated to see who steps up to the plate, but not hugely surprised if it happened quickly, and if one of the ABCDs (Archer, Bunge, Cargill, Dreyfus) stepped into the mix.

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