by David Schwartz
very year about this time we like to check in with Heliae’s Dan Simon, the highly motivated President and CEO in the driver’s seat of one of the most fascinating and exciting businesses in the algae arena. His disruptive technology organization was started by a few members of the Mars family “to unlock the value of algae for society and the planet,” Dan says, and for the past four years he has been examining and adjusting this giant small business – taking it to primetime, while ringing out the bottlenecks along the way.
We caught up with Dan at ABS a couple weeks back and he took some time to bring us up to speed on Heliae’s developments over the past year, most notably their launch into commercial operation.
The big changes for us over the past year were clearly designing, building and now operating our first commercial-scale plant. We have a big ramp-up going on right now. We’ve been at demonstration scale for the past three years, and now we are going to be sitting with an operating plant where we have orders from customers, guarantees on specs, on quality, on deliverables, consistent supply streams. So getting ready for that and delivering on it was a big move for us, about 60% of our man-hours in 2013.
What is the size of the plant?
It’s six-acres. Fuel-focused groups won’t be impressed by this scale, but we’re focused on the economics. For the products we make, like cosmetics and nutraceuticals, we’re very pleased with the size of this first plant because it’s both manageable and cashflow positive. We are at about 30% of capacity now but, once we get it to 100%, it’s stand-alone cash flow positive, which is a big target for us.
Can you give us a bit more detail on the Volaris process?
When we were talking last year, Volaris was already in process. We were developing it, but hadn’t gotten the IP around it yet. Volaris is a process, not any one piece of equipment. People want one solution… a mousetrap that just works for algae in general. Unfortunately, it’s not that simple. At Heliae, we’re working to tap the entire opportunity of more than 100,000 algae strains. To think that one static technology works for this diverse category of organisms has never made sense to us. So Volaris is Heliae’s flexible mixotrophy process to produce a range of algae strains at very high concentration and quality, on a small footprint in locations around the world.
What we are doing on an acre now is going to be comparable to what somebody may be producing on 1,000 acres someplace else. In our Gilbert location we’ve constructed Volaris to optimize algae production in a desert environment. When we expand to production sites in different regions with different strains, our plant will look slightly different. For algae production, you’ve got to match the technology and the biology to the environment where you’re located. If you don’t, you’ll end up fighting against the reality of your geography for the lifetime of your facility.
Are you planning to commercialize the platform itself?
Yes, I think in the long term we are going to morph into that platform technology style of company. In the front end, however, we are building our revenue off of products. So we are building plants utilizing our Volaris technology, and we’re going to do it in various regions around the world strategically, so that we can prove that the model works in various regions.
From there we’ll let others come to us and say, make a food product, or a feed product, or a nutritional product for Africa, or the Middle East, or Asia. As those times come, we will move more towards a technology provider model.
Have you gone through any production cycles yet for third parties?
We have. We are in multiple joint development agreements. We haven’t made any of those relationships public yet. But people from nutrition, agro-science, cosmetics, personal care and therapeutics have come to us and asked if we could design and produce products for them.
One partner I can talk about is The Clarecastle Group. They asked us to leverage our algae technology platform for the cosmetics/personal care markets. We’ve been developing and formulating with them quietly for almost two years and we plan to have three SKU’s coming out soon.
Here’s another model: Triton. I know Steve (Mayfield) and Jason (Pyle) and they own the molecular biology space around algae. I’ve been talking to Steve for years about the health benefits and the opportunities for algae on the health side. We knew they were leaders and as soon as I saw Jason leave (Sapphire Energy, where he was CEO until early 2013) we talked.
The product we are targeting first is an algae-based nutritional additive that contains MAA – Mammary Associated Amyloid – a protein found in mammalian colostrum. Colostrum in neonates has been proven to improve the health of the intestinal tract. In livestock, the economic benefits of this additive are enormous, and farmers should see better yields based on very small inclusion in their rations.
Colostrum is a well known material. It’s been fed to animals for many years, but they’ve been making it with much more expensive methods than simply growing it in algae. The differentiator – what Mayfield’s team has done – is taken this protein, put it in an algae cell and replicate it efficiently and economically. All you have to do is put the protein in the algae cell and let the algae do the rest. From there you can feed that protein directly to an animal or human. Encasing the protein in the algae cell offers a one-step delivery platform that provides quality algae nutrition while also providing MAA.
We are going through regulatory for animal feeding right now. It’s very exciting and our goal in 2014 is to have product in the market.
What is the market size for this protein product?
As we get through the full regulatory process for animals and humans, the market for this single product is enormous. You’re looking significantly improving animal health in a range of contexts and that’s not immaterial. But we’re starting with a laser focus on a few smaller livestock and companion animal markets as an initial phase. Within this first phase, the pet market is obviously the highest value.
Number two would be dairy and beef cattle. And three would be hogs, in terms of market value of the sellable product. We’re in the hundred million dollar plus market range. These aren’t billion dollar markets yet, but I think that as the cost comes down, this product and others like it will begin to be used in many more places. Obviously the human markets are enormous and we eventually will see the most significant impact there, both financially and from a societal perspective, but this is longer term.
You’ve invested $5 million into Triton. What is Heliae’s relationship with Triton, and how do you work together?
To start, we were talking to Jason and Steve about being their scaling commercialization partner. So, when we heard that they were getting the company up and going, we knew that they didn’t want to have to invest the money and the time and the capital required to build out their own production. So we said, “Let us do your scale-up.”
The relationship was purely commercial in the beginning. And then, as we started looking at these different proteins using their methods that could actually open up markets, we decided to buy a minority interest in the company. So we put in a $5 million investment.
There are two relationships there. One is the relationship as an investor, and the second as a strategic partner – a commercial relationship where we are a license holder of their technology to produce various products.
Will you be involved in production of their anti-malarial vaccine down the road?
We are still negotiating how we’ll handle that. That is very much a pharma-oriented product. So we may be interested from an investment standpoint, but not necessarily interested as a production company that is going to take it to market, unlike the MAA algae where we are literally taking it to the animal science markets. When it comes to malaria, it’s a bigger investment and probably more of a pharma giant that would be suited to commercializing a product like that. Ultimately it will be a strategic partner beyond us to make that work.
Can you say how big a piece of Triton Heliae owns?
We haven’t made that public, but you can probably figure it out if you figure we just spent $5 million for a minority share. And it’s not less than 20%.
Will you have representation in their offices and vice versa?
We do. I sit on their board and we have an exchange going between our people back and forth.
Must be pretty exciting.
It is. This opens a whole new avenue to algae. Everybody thinks about fuel, because it’s such a large market, and such a sexy place to be. I think that’s great because you attract global 100 companies all over the fuel side of algae. But think about what we can do in healthcare and protein and food and nutrition. It doesn’t get talked about a lot because most media and most consumers don’t understand where algae fit and what the story is. But the health and nutrition space – this pathway – is truly a differentiated and disruptive pathway to producing novel ingredients for humans and animals.
Are your product intentions more for universal distribution, or do you intend to introduce regional market-specific products? That is, do you target certain parts of the world for certain product lines?
If you go back to the beginning of why I joined the company, and why the Mars family started the company, it was to change the world. With that mission, our perspective is inherently global and we see our products and technology platform being used in different ways in different parts of the world.
For example, our MAA algae product will begin promoting healthy intestinal conditions for dairy calves in the US. But with success on that front, we can take future products and begin to address far larger societal issues, like diarrheal disease in the developing world. Diarrhea is the number one killer of children in developing world countries where access to clean water is still scarce. We can have an immediate impact there.
The big differentiating factor with an algae-based solution is that beneficial ingredient is provided as part of the whole algae. There is no toxic host to pull the ingredient from after production, and therefore your cost of production is maybe one one-hundredth of what it might be otherwise. This is one of the major advantages of working with algae.
Continuing on the world health front, Dr. Mayfield has published some parallel work with anti-malarial treatments that could have huge implications for the regions of the world that suffer from that severe disease.
What’s clear is that the product pipeline between Heliae and Triton is extremely robust. We focus on the products we’re launching now, but continue to be excited about what’s coming next.
Tell us a bit more about your new commercial facility.
It’s a six-acre facility that will do over ten tons a year. It’s not massive amounts, but we’re making nutraceutical and cosmetic products – high value products coming out the back end. We’re growing them today – we’ll have our first commercial products delivered to customers in December.
At Heliae we’ve just spent the last six months finalizing the shift from being a development-minded organization to a commercial-minded organization. It’s a powerful time in a company’s lifecycle. It’s a cultural shift that has to happen when you make this transition: you have to get your invoicing, you have to get your QA/QC programs right, your CGMP standards right, the production methods right. You have to make sure you’re consistent and you need to make sure your people are all trained and operate multiple shifts. And when somebody gets sick, you have somebody to back him up who knows how to operate the plant. You become customer-focused and this creates a new level of discipline.
As you continue to gear up over the next year, what kind of talent are you going to be looking for?
As a team, we’ve grown significantly, going from 84 to 112 employees in the last 12 months. But we are constantly looking for good people.
Engineering and biology are two areas where you are going to see us staff up in the next year. We have project management engineering teams to build. On the biology side we have a number of Joint Development Agreements (JDA) that have come in, and to deliver on the JDAs we’ll need a larger research and development staff – microbiological and reactor-oriented people.
The word has been so over used, but just the same, as you look back over this past year under your roof, what has come closest to being what you would consider a “breakthrough” in advancing the processing of algae?
Volaris is our breakthrough. And the Volaris process, to get it to this point, is all about debottlenecking. In places where we had trouble managing how quickly we were growing our algae, from the time it was inoculated until we had a finished product, there was a bottleneck there. There was a bottleneck in how we managed contamination and how we kept our algae growing. We worked through all that. There was a bottleneck on how expensive it is to build and operate our reactors. We’re not just creating our own technologies; we’re still integrating other’s technologies and licensing technologies where necessary to break through the bottlenecks. We’re constantly improving our technology and, with this type of business, I don’t see that continuous improvement ever stopping. You have to be diligent when working with a biological organism and Heliae’s innovation pipeline is not going to slow down.
What is the biggest challenge you are facing, and how do you think you will get through that?
Technically, it’s matching theoretical engineering with the realities of building – it’s the scale-up. And that leads to the second biggest challenge we have, which is continuing to raise money so that we can continue to scale up.
What do you think it will take to attract big money to the algae space?
Product is number one. Nobody cares about technology as long as it works, and scales, and the economics are captivating. What attracts large-scale investors and strategic partners are the new products we can make. I believe to open up markets we have to deliver consistent high-quality products.
Number two, you have to deliver them at current market values, not subsidized or tax benefitted. For those, I believe it’s CAPEX and OPEX. So until large-scale producers or large-scale potential investors see us delivering a reasonable CAPEX, a reasonable OPEX, they’re not going to come in. But on the high value markets, as you can see from what we are doing on the cosmetic side, the health and therapy side, agro-science and nutraceuticals…we’re there.
So how do you view this point in the development of the algae industry, from Heliae’s perspective?
Algae 2.0 has started. We’re in the second generation of algae development, and I believe that people are more realistic with their expectations. And I believe the technology has come far enough along where you’re going to see consistent high quality products coming out of the industry, which hasn’t happened before.
To get to Algae 2.0, the technology risk barrier had to come down. It has. Scale had to increase. It has. And the markets had to open up. It’s all happening.
I think it’s important for the world to recognize that this isn’t your old algae industry.