Solazyme’s twisted path to an algae-based future

Two Steps Forward

Solazyme’s twisted path to an algae-based future

A funny thing happened on the road to disrupting the market for petroleum-based fuels: A San Francisco-area biotech startup found itself in the food, cosmetics and specialty chemicals business. And while its sights are still focused squarely on revolutionizing the way we power internal-combustion engines, it finds itself holding the solutions to a number of global environmental and social challenges.

Solazyme recently celebrated its tenth year in business. It’s been an interesting decade. Co-founders Jonathan Wolfson and Harrison Dillon — college friends from Emory University — started the company in a California garage, growing microalgae in test tubes and re-engineering them to create “renewable oil.” It was an audacious goal.

And an elusive one. Ten years later, the path to creating commercial fuels from algae profitably is still ahead of them, though the company has advanced the science to the point where it is ready to scale. Solazyme fuels already have powered a Boeing 737-800 aircraft flight from Houston to Chicago using a blend of algae-derived biofuel and conventional jet kerosene. The U.S. Navy powered one of its frigate ships from Everett, Wash. to San Diego, Calif. using a blend of Solazyme’s marine diesel fuel and conventional petroleum-based diesel. The trip was part of the Navy’s campaign to create a “Great Green Fleet” by 2016 and to source half of its energy from renewable fuels by 2020, making it a prime market for Solazyme.

But along the way, and to generate revenue while Solazyme pursued its bold dream, Wolfson and Dillon developed what they believe is a nearly perfect and sustainable raw material for a variety of uses.

That’s the story that interested me as I talked with the company’s co-founders and visited its headquarters, a proverbial stone’s throw from San Francisco International Airport and on the cusp of Silicon Valley. Can algae, I wondered, truly be a game-changer?

Algae is the name given to hundreds of thousands of uni- and multi-cellular organisms that perform photosynthesis. They occupy the lowest and most fundamental level in the ecosystems of oceans, rivers and lakes. Algae contain many unsaturated fatty acids (like omega-3 and omega-6), antioxidants, some essential amino acids and other substances that we humans associate with a healthy diet. Over 15,000 novel compounds originating from algal biomass have been chemically determined, capable of producing unique products like carotenoids, enzymes, fatty acids, peptides, polymers and sterols. In short, pretty useful stuff. Solazyme feeds sugar to algae, gorging and manipulating them to the point that the organisms efficiently yield oils tailor-made to a specific purpose.

Indeed, a growing number of researchers view algae as a potential high-value “crop” that, when harvested, has almost unlimited potential to replace conventional ingredients across a wide range of products.

Double duty for algae

That’s the almost-accidental success story at Solazyme to date. The company has created a line of cosmetics with age-defying claims; food ingredients that replace butter, eggs and oil; a variety of specialty chemicals; and algae-derived ingredients for soaps and other personal care products. These, in turn, have led to partnerships with some of the world’s largest companies. And, by all accounts, they’re just getting going.

“Our original technology was to grow algae in open ponds and photobioreactors using direct sunlight and direct photosynthetic conversion to make oil,” Wolfson, Solazyme’s CEO, explained to me recently. “The conclusion very quickly, within maybe a year and a half of starting the company, was that this technology is not going to work in a commercially reasonable timeframe, meaning we were not going to be able to produce oils and fuels at high enough volume and low enough cost to enter the fuels markets in any kind of commercial timeline that matters.”

But amid all the experimentation came a realization. “We had always thought that when you put algae in the sun and asked it to make oil, you're really asking it to do one thing,” says Wolfson. “The reality is you're asking it to do two things. The first is conversion of sunlight and carbon dioxide into simple sugars, just like any plant. The second is the biological conversion of those simple sugars into oil.”

Wolfson and Dillon had been maniacally focused on the second of those — the idea of “renewable oil.” But they soon saw the opportunities to create products — and generate much-needed revenue — by turning algae into other healthful and sustainable products.

Chasing multiple markets

From a business perspective, cosmetics have a nearly opposite set of business factors from fuels, explains Wolfson, who holds JD and MBA degrees from the New York University. Fuels have low margins (they’re inexpensive to buy), almost unlimited market demand (there’s no shortage of need) and low risk (assuming you can create a fuel that competes favorably with the incumbent), though they require high capitalization costs (setting up a refinery can cost hundreds of millions of dollars). Cosmetics, in contrast, are “completely inverted,” says Wolfson: the market size is small (it’s a luxury good), margins are very high (they can sell for $50 to $200 an ounce), the capital expenses are low (you can use contract manufacturers) and market risk extremely high (it can be hard to break through the hundreds of competitors).

Just below cosmetics, in terms of risks and rewards, are nutritional supplements, followed by chemicals and specialty food oils, and then bulk chemicals and bulk food oils. Finally, there’s fuel. As you move from one to the next, the markets grow, along with the capital expenses, while the risks and margins decrease. Those are the markets Solazyme is pursuing.

At first blush, chasing all of these markets simultaneously seems a fool’s errand: How on earth can you execute in all them successfully? Wolfson and Dillon have been finding a path, partnering in most cases but also seizing opportunities to create and market their own brands.

Take Algenist, Solazyme’s cosmetics line. Introduced in 2011, the line of products is marketed as a “breakthrough skincare collection that offers never-before-seen technology for rejuvenated, younger-looking skin at any age.” True, that sounds like the come-on for every cosmetics brand, from Clairol to Cartier, but Algenist claims inspiration from one of nature’s recipes for resilience. Algae, it turns out, have microscopic coatings of polysaccharides, which protect them from desiccation (drying) and mechanical stress (like temperature changes and chemical exposure) — both of which, in human cells, lead to aging. Under favorable conditions, polysaccharides allow algae cells to germinate, divide and regenerate. That’s what protects them in oceans, as they are buffeted by sudden changes in salinity, temperature and acidity, sometimes in a matter of minutes.

It’s unclear whether Algenist’s products represent a sea change in anti-aging cosmetics. Claims for “cosmeceutical” products do not require the kinds of testing, review and approval processes required for prescription drugs, and the U.S. Food and Drug Administration does not recognize their therapeutic claims. Solazyme’s studies on Algenist have not been peer-reviewed.

Still, they are finding a market. The Sephora retail chain began a limited distribution of Algenist products, as has QVC. This week, Solazyme is launching a facial oil under the Algenist brand — the first consumer packaged good made from pure algal oil that’s available at retail, through Sephora.

Muffins and mouthfeel

And then there’s the food side of the business — a veritable cafeteria of products and ingredients with environmental and nutritional benefits. Solazyme offers algae-derived food ingredients boasting improved nutrition and functionality while reducing costs for food processing companies. And it offers a glimpse into how we might feed nine billion hungry bellies in the coming decades.

Solazyme has harnessed its algae technology to cost-effectively produce replacements for eggs, milk and butter. Its scientists are able to design tailored oils unable to be made elsewhere, meeting the unique formulations of an almost unlimited number of supermarket products.

During a visit to the company’s headquarters last week, I was given a tour of the company’s labs — from the strain development lab (where scientists engineer algae to make novel oils tailored to specific purposes) to the fermentation lab (where rows of algae are grown at laboratory scale) to the pilot plant (where algae strains are grown at much larger scale to show how they scale up effectively).

The tour ended in the food lab, where Ken Plasse, vice president of business development, gave me a tasting tour. “The oil profile is very similar to olive oil,” he explained about his company’s algae-based alternatives. “You essentially have that outer protein and fiber cell next to a very efficient fat that can replace eggs, oil and butter, and dramatically reduce the fat as well as improve the fiber and protein. But the beauty of it is that you keep an amazing mouthfeel, more like full-fat ingredients, while you're reducing the fat. That probably is the biggest breakthrough.”

The tasting began with a sample of the dried algae itself — it has the look and consistency of dry mustard, but tasteless. Then came a series of foods prepared with algae-based products.

'The best pond-scum cookie'

First up, a brioche — “Probably the most decadent bread available,” says Plasse. “It’s full of egg, full of oil. What we've tried to do is remove all of the egg and oil and replaced it with algal flour.” Without egg and oil, it should have been rock hard and bone dry. It wasn’t — far from it. Adding the algal flour allowed the recipe to remove 70 percent of the fat and 25 percent of the calories, but keep the muffin's essential taste and texture.

Next, high-protein snack crackers with the appearance of Pepperidge Farm’s iconic Goldfish; a chocolate chip cookie, with 47 percent less fat and 23 percent fewer calories; a nonfat chocolate milk re-designed with a small amount of algae to yield a rich and creamy taste; and vanilla ice cream with only 4 percent fat — about half that of typical ice cream.

It was all quite edible and tasty. A Time magazine reporter, who apparently experienced a similar tasting at Solazyme, dubbed it “The best pond-scum cookie you'll ever taste.” I'm hardpressed to improve on that review.

"This is revolutionary food technology,” says Plasse, who’s clearly enjoying his job. “It's not incremental,” adding: “One of our dreams is to improve the school lunch program.” With protein-laden crackers and low-fat, rich-tasting chocolate milk, there’s huge opportunity for making a dent in childhood obesity.

Solazyme has no plans to market cookies, crackers or anything else directly to consumers. Instead, it will manufacture and sell the ingredients to food manufacturers. Already, the company’s ingredients have garnered high interest. “Name a big food company and they probably have our stuff in their lab right now, testing it on their various food products,” Dillon told me.

“You don't appreciate the public health implications of this technology," Plasse chimes in. “There are no GMOs. It’s non-allergenic, vegan, natural. It hits the sweet spots of a lot of our developers.”

There are also environmental benefits. “If we're making a palm oil substitute, you don't have to go ripping out rainforests in Indonesia in order to do that,” says Dillon, who holds a PhD in microbial genetics. “You can do it in a place with far less environmental impact.”

Little of the commercial production of Solazyme products takes place on the company’s premises, though the company operates a modest biorefinery in Illinois. Most production takes place in plants owned by its partners. For example, Archer Daniels Midland, the food-processing and commodities-trading giant, operates a plant in Iowa where Solazyme is gearing up to produce of 20,000 metric tons of oil a year starting in 2014. With Bunge, another agribusiness behemoth, Solazyme operates a renewable oils plant in Brazil. Solazyme has partnerships with an impressive list of other companies, including Chevron, Qantas and Unilever.

It’s still early days for Solazyme. Despite going public in 2011, it’s a long way from profitability. But the potential to transform foods, fuels and other things remains enormous, as does the opportunity to sustainably address the planet’s energy and nutritional challenges.

In the end, Dillon boiled it down for me: “Oil is very useful stuff. It has a lot of energy in it. It's a very versatile building block for different materials. Whether it's petroleum or plant oil, people for the last 200 years people have taken it from its natural source and spent lots and lots of money to build factories to process it and enrich it and distill it to come up with the right materials to make a product, whether it's a plastic or a salad dressing.

“We can make oils that don't require all of that. They're better and require less processing to get there. We're taking the currency of the industrial economy and optimizing it in an unprecedented way."