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Avista Corp. (AVA), a U.S. energy holding company, provided backing to help Matrix Genetics LLC complete its spinoff from the biotechnology company Targeted Growth Inc.

Targeted Growth, which also created the biofuel companies AltAir Fuels LLC and Sustainable Oils Inc., is refocusing on its core agricultural business, and “the spinout of Matrix is
part of that strategy,” Matrix spokesmanJohn Williams said today by e-mail.

Matrix, based in Seattle, is developing renewable fuels and chemicals from blue-green algae, and Avista’s funding will also support research into new strains that will be easier to cultivate and boost output, according to a statement today that didn’t say how much Avista invested.

Blue-green algae, or cyanobacteria, are “the most abundant, diverse and robust micro-algae on Earth,” according to the statement. Matrix is modifying its genes to create proprietary strains that yield larger quantities of oil or have other optimal traits for fuels or chemical production.

Seattle-based Matrix Genetics is spinning out of Targeted Growth and launching its business of developing biofuels made from algae.

By: Karl Baker
Seattle Times business reporter

Roger Woodworth is confident in his company’s investment in Seattle biotech firm Matrix Genetics.

Woodworth, chief strategy officer at Spokane-based Avista, said the venture-capital arm of his energy company financed Matrix Genetics because it had an established list of patents and a reputable research team, one that is developing new strains of blue-green algae for use as a substitute to fossil fuels and petrochemicals.

“As much of a longshot as many think it is, there is some merit,” said Woodworth.

Although the companies declined to disclose the amount of the investment, which they will announce Wednesday, Matrix Chief Executive Margaret McCormick said it would allow her company to spin out from agricultural biotech firm Targeted Growth and continue research well into the next year.

“It gives us plenty of time to develop our story, to get the collaborations in place, to raise a large amount of financing in probably the next 12 to 18 months,” she said.

Although now a separate company, Targeted Growth is still the majority owner of Matrix Genetics, which has five employees and plans to add 10 more with these new funds.

Avista will earn a positive return on investment if Matrix Genetics can find enough customers to use algae derived using the patents it owns. This will happen as the industry develops, said McCormick.

“It’s a play on intellectual property,” said Woodworth.

The prospect of algae as a biofuel is gaining popularity because it is relatively simple to grow and, unlike corn and soy-based fuels, it doesn’t compete with consumer usage in the food market.

Robert Hebner, director of the Center for Electromechanics at the University of Texas, researches algae as a fuel source. He says the microorganism can produce 2,000 to 3,000 gallons of oil per acre per year. Corn, in contrast, produces approximately 400 to 450 gallons per acre per year.

Additionally, a report from the Pacific Northwest National Laboratory last year said algae has the potential to replace 17 percent of the oil the U.S. imports, if grown in the hot humid climates of the Southeast and the Great Lakes region.

Matrix technology is trying to do even better. Senior director Mike Carleton said the company’s research involves manipulating algae genes in order to increase oil content. One way Carleton’s team does this is by replacing a sugar-producing gene with one that makes lipids.

McCormick said Matrix’s research is essentially reproducing what happens under the Earth’s surface in the creation of crude oil.

“We’re like a synthetic diamond,” she said.

Despite the large oil-output levels of algae, a major challenge is the cost of large-scale production. While the sector has grown sharply in the past five years to approximately 200 algae companies in the U.S., economic viability remains elusive.

“The challenge is to find a cost-effective way to find key elements and a cost-effective way to find water,” said Hebner. Expensive ingredients like phosphorus and nitrogen drive up the costs of production, he said.

To help this cost equation, McCormick said Congress should put algae production on a level playing field with cellulosic biofuels created from inedible plant materials. Producers of those fuels are eligible for a tax incentive of up to $1.01 per gallon, according to the Department of Energy.

The Senate Finance Committee this month approved a bill to extend this credit to algae fuels.

The algae industry has one particularly influential supporter promoting its cause: Boeing.

The company is “helping set the policy stage to make the case for these types of renewable feedstocks,” McCormick said. “They’ve put in place different aviation fuel users groups.”

Boeing officials are expected at Wednesday’s announcement to convey its interest in this type of fuel.

“What’s great about the biofuel industry is that you’ve got the customer base that’s helping to push the development of these technologies,” McCormick said.

Matrix Genetics is pursuing the dream of turning algae into the workhorses of oil production, and now it has gotten some financing to go after it.

The Seattle-based startup, led by Margaret McCormick, said today it has secured an investment from Avista Development, the venture arm of Spokane, WA-based energy company Avista (NYSE: AVA). The amount of the investment isn’t being disclosed, but it’s enough for Matrix to spin out of its parent company, Targeted Growth, and to find new labs in South Lake Union with room for about 15 employees. Seattle-based Targeted Growth remains the majority owner of Matrix Genetics, although it is in discussions about that stake with strategic partners and investors, says John Williams, a spokesman for Matrix.

Matrix, which I first profiled here in May 2011, had a goal at that time of raising $10 million to $15 million, according to McCormick. The company is focusing on cyanobacteria, a simple and abundant form of algae that can use energy from the sun to turn carbon dioxide into oils. The hope is that fast-dividing algae like these will make for a more efficient source of fuel than corn-based ethanol or other plant-based raw materials. This quest puts Matrix in competition with some well-financed competitors like Synthetic Genomics and Sapphire Energy.

“We appreciate the need to find alternatives to petroleum for a sustainable future, and we are excited by the progress and the promise of Matrix’s approach,” said Roger Woodworth, vice president and chief strategy officer at Avista, in a statement.

For more on the company, see a story in today’s Seattle Times.

A Texas AgriLife Research scientist, Dr. Tryon Wickersham, and graduate student, Merritt Drewery, have been conducting feeding trials of algae leftover products (after oil extraction, in powdered form) on Angus steers. Two of the three phases of the trials are currently complete and the third phase is slated for completion in June, according to researchers.

Their research is part of an overall bioenergy research program led by AgriLife Research and is supported by the Department of Energy as a component of the National Alliance for Advanced Biofuel and Bio-Products. “The first project tested palatability,” Drewery said. “We offered 12 different supplements with different levels of algae inclusion. We measured how long they took to completely finish the allotted supplement.”

The experiment used 13 percent crude protein hay and 2.2 pounds of supplement offered daily. The algae co-product, which is 20 percent crude protein, was blended with dried distiller’s grains at 31 percent crude protein or cottonseed meal at 52 percent crude protein. The co-product was introduced at 0 percent, 20 percent, 40 percent, 60 percent and 100 percent blends. Additionally, a commercial liquid supplement was also blended with algae.

“The algae could be blended up to 60 percent with distiller’s grains or cottonseed meal, but as a liquid supplement or alone, intake was markedly reduced,” Drewery said. “The study results show a 54 percent completion rate and lower rate of consumption when the algal co-product was offered alone.
“For the second project we used raw algae. We compared this to cottonseed meal supplementation and found forage intake and utilization was stimulated to a similar extent when algae was used.”

This experiment used Angus steers that had free choice to low-quality hay with 4 percent crude protein, and supplements were administered ruminally. “We would administer the supplement in the morning just prior to feeding hay,” Drewery said. “Supplementation rate was based on steer body weight.”

Steers were initially offered the supplement for one hour in the first experiment, but when offered supplements containing 100 percent algae for the whole day during the third experiment, they would completely finish it. “We were worried they wouldn’t eat all of it this time around, but there haven’t been issues with supplement refusals,” Drewery said.

in visual observations, the steers would eat half the supplement within 10 minutes and then finish the rest sometime during afternoon hours. “They would also eat hay and drink a lot of water,” she noted.

Wickersham said they were also attempting to get the algae in a form that was “easily deliverable to cattle. We are trying to identify the best processing method to feed it to grazing cattle. The algae co-product is high in salt, as the algae is a saltwater product.”

Wickersham said there are still questions to be answered, such as how much would the beef cattle industry pay for this product compared to distiller’s grains and cottonseed meal, a common ingredient found in cattle feed today. “Crude protein is 20 percent, but half of the chemical composition is ash,” he said. “In comparison to cottonseed meal, you have to feed twice as much algae to get the same effect. Additional research is required to fully explore the value of feeding algae to grazing cattle.”

Wickersham said the algae feed “performed much better than expected compared to cottonseed.”

“This is very novel (research) and there’s not much out there,” Drewery added