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September 29, 2014
CRAIN’S DETROIT BUSINESS
Focus: University Research
Helping algae grow has become a growth industry for MSU spinoff BY TOM HENDERSON CRAIN’S DETROIT BUSINESS
With distributors now in place to cover major world markets, revenue should start spiking later this year for Phenometrics Inc., a Michigan State University spinoff that makes bioreactors for growing algae. “We’ve loaded the cannons and now we’re closing deals,” CEO Michael Chaperian said. “The plan a year ago was to take our reactors to global markets, and that’s what we’ve been up to.” Chaperian said the company, which was founded in 2010 and began operations in 2011, now has independent distributors for China, India, Australia, Europe and Canada. “We didn’t want to do direct sales. As a small company, that is very challenging,” he said. “We’ll still sell direct to the U.S. market, but that’s about it.” Phenometrics, which employs four, sells its reactors, which are about the size of a coffee maker, for $10,000 in the U.S. and for $14,950 in other countries. Chaperian said Phenometrics has no U.S. competitors, with its main competition a company in the Czech Republic named Photo Systems Instruments, whose reactors sell for $30,000 to $40,000. Phenometrics generated revenue of about $1 million last year and will exceed that a bit this year, with a sharp increase expected next year, Chaperian said. In February, the company hired Timothy Alavosus, a 17-year veteran of the biotech industry, as vice president of sales and marketing. Phenometrics’ photo bioreactors allow academic researchers and for-profit companies to test algae growth in the lab under the same conditions algae will face in large outdoor ponds. The reactors mimic such environmental or production conditions as temperature, light intensity, turbidity (clarity) and carbon dioxide through algae’s various growth phases to know what helps or hinders growth. Algae is used to make nutraceuticals — products deemed a cross between food and medicine — fish food and animal feed, cosmetics and biofuels. Algae is also used in waste removal and is an area of growing research and support through federal grants. “Asia and India, in particular, are huge markets for algae byproducts,” Chaperian said. He said nondisclosure agreements prohibit him from identifying some of his clients, but they include biofuel and aqua-farming companies in Europe and petrochemical and biofuel companies in Australia, India, Japan, Argentina, Israel, Singapore, China and Abu Dhabi. Another Israeli customer is using Phenometrics’ bioreactors to improve its processes for making fish food, Chaperian said. Phenometrics was licensed by
KEVIN W. FOWLER
How did testing algae become a business for Michael Chaperian, CEO of Phenometrics Inc.? Turns out algae helps make nutraceuticals, cosmetics and biofuels; helps with waste removal and is attracting federal grant money.
MSU Technologies to commercialize the work of David Kramer, the John A. Hannah Distinguished Professor in photosynthesis and bioenergetics in the department of biochemistry and molecular biology. Work was performed under a grant from the National Alliance for the Advancement of Biofuel and Biomass Consortium, which is funded by the U.S. Department of Energy. Kramer’s work at MSU was conducted in the DOE Plant Research Laboratory. His work has also been supported by the National Science Foundation, the National Institutes of Health and the U.S. Department of Agriculture. In 2012, Phenometrics got $50,000 through the Michigan Economic Development Corp.’s Michigan Microloan Fund Program, which is administered by Ann Arbor Spark. Since then, Phenometrics has been able to fund growth through sales — an enviable position for a tech startup. The company is profitable and hasn’t had to take on any equity capital, either in the form of angel or venture capital investments, Chaperian said. He jokes that after a career spent mostly with drug discovery startups, “I finally went to work for a for-profit company. In drug discovery, you can spend hundreds of millions of dollars and never get to market.” Chaperian began working with Phenometrics in 2012 as a consultant at Spartan Innovations, a nonprofit funded by the Michigan State University Foundation to help commercialize university research. Chaperian, who has a Ph.D. in biochemistry, was the director of biotechnology development at Arizona State University from 1997 to 2002. There he helped launch OmniScience Pharmaceuticals Inc. Chaperian then moved to Boston and helped a startup there, SelectX Pharmaceuticals Inc., raise $45 million in venture capital to develop antibiotics to fight hospital-based infections.
In 2010, the Michigan native moved back to the state and began consulting for Spartan Innovations. “Phenometrics was based on a great idea and had a very good prototype, and there was tremendous demand for its product, but it needed management experience,” said Chaperian, who officially joined the company as CEO in January 2013. Some of Phenometrics’ customers have been its best marketers, too. For example, Aurora Algae Inc., a Hayward, Calif., company that makes algae-based products for the pharmaceutical, nutrition, aquaculture and biofuels markets, conducted an internal study to document how using Phenometrics’ bioreactors in research labs actually helped the company’s field work. Aurora, which lists Phenometrics as a partner on its website, gave the company rave reviews and later let it use the results as part of a presentation in June at the annual International Conference on Algal Biomass, Biofuels & Bioproducts in Santa Fe, N.M. Among the conclusions Aurora reached were that Phenometics’ equipment “allows selection of the best-producing strain for production for a local environment, provides for rapid optimization of production conditions (and) provides a clear path to scale up, reducing capital expenditure, risk and time while optimizing growth, production and return on investment.” Peter Ralph, director of plant functional biology and climate change at the University of Technology, Sydney in Australia, uses a bank of Phenometrics reactors in the lab of the school’s Algal Biofuels Group. On a video on the UTS website, one of Ralph’s team members points to the reactors and describes them as “state-of-the-art technology.” Ralph said the bioreactors have helped his team “push the envelope of algae research.” Tom Henderson: (313) 446-0337, thenderson@crain.com. Twitter: @tomhenderson2