After Re-Engineering Itself, Verdezyne Sets Course to Develop Biofuels and “Green” Industrial Chemicals

After Carlsbad, CA-based Verdezyne disclosed last month that it plans to raise more than $15 million in venture funding, I arranged to sit down with Damien Perriman, the company’s vice president of business development.

As it turns out, the startup that was founded in 2005 as CODA Genomics has essentially re-engineered itself over the past 18 months. The company overhauled its core business strategy, recruited a new CEO, E. William Radany, along with a new management team, changed its name, and moved its headquarters from Orange County to Carlsbad, CA, about 28 miles north of San Diego. In changing its name to Verdezyne, the company created an identity that is better aligned with its revised focus on the “green design” of biofuels and industrial chemicals.

The company initially was focused on technology spun out from UC Irvine that used specialized computer algorithms to design synthetic DNA. The company offered its services in Computationally Optimized DNA Assembly, or CODA, to help drug discovery teams at pharmaceutical customers like Eli Lilly and Genentech design synthetic genes that could be used to maximize the production of certain proteins for their biotech drug manufacturing processes.

Perriman, who joined Verdezyne in February, tells me, “Our investors made a decision in 2008 that we could make a lot more money by doing the production ourselves.”

With its extensive experience in computational biology and bioinformatics, Verdezyne saw the value in creating high-diversity libraries of genes, so that various genes could be inserted into fast-dividing yeast cells (and other micro-organisms), essentially programming the microbes to produce enzymes it would not otherwise produce. Verdezyne landed a federal grant last month to help build out its genomic library.

“We prefer to work with yeast,” Perriman says, “but we can work with any fungi or bacterial organism.”

The company, which now has 26 employees, has identified three primary markets for its technology.

The first and most obvious target is an industrial strain of yeast that has been used in alcohol fermentation for thousands of years. In its natural state, the yeast processes the glucose found in plant materials to produce ethanol, but it does not contain the necessary enzymes to process other types of plant sugars. Verdezyne saw how it was possible to insert new genes to produce the necessary enzymes, re-engineering the yeast so that it would more efficiently process a variety of plant sugars—and produce a higher percentage yield of ethanol for each manufactured batch. Perriman didn’t say how much Verdezyne’s technology would boost ethanol yields, but by one estimate, it could be as much as 12 percent.

That could make a crucial difference for ethanol producers that have been struggling to remain solvent. “All of them are very enthusiastic about anyone who can increase their yield,” Perriman says.

In addition to the ethanol biofuels industry, Perriman says Verdezyne has identified a secondary market for its technology in the production of industrial chemicals. While the petrochemical industry is accustomed to working with feedstock chemicals derived from crude oil, Perriman says yeast and other micro-organisms can be genetically engineered to produce the same chemical feedstocks—using biotechnology production methods that are more sustainable and less environmentally hazardous (and therefore “greener”) than the existing petrochemical industry. What Perriman calls sustainable, or renewable, chemistry also is not subjected to the enormous price swings of feedstocks derived from crude oil.

“Even with oil at $60 or $70 a barrel, I still believe renewable chemistry can achieve a 20 percent cost savings” in producing certain petrochemical feedstocks, Perriman says. “It’s also going to be a lot less volatile that the petroleum market.”

The Verdezyne executive says that while many in the petrochemical industry are not interested in ‘green’ production practices, “Their customers are interested in differentiating their products. We’ve been doing a lot of research on the green consumer that shows they’re will pay from 15 to 20 percent more for a ‘green’ product.”

A third target for Verdezyne is what Perriman describes as the market among prospective pharmaceutical customers and others for novel biological chemicals “that don’t exist in nature today.”

Perriman says Verdezyne has been in discussions to establish a strategic collaboration with a major ethanol producer as well as a petrochemical industry partner. “Our funding now is split 50-50 between our immediate and near-term market opportunities,” he explains. Some of that funding is coming from the $3 million the company disclosed last month that it has received in a current venture round that’s intended to raise $15.2 million for the company.

Verdezyne’s existing investors include California’s Monitor Ventures, Seattle-based OVP Venture Partners, Southern California’s Tech Coast Angels, the Life Science Angels, and other individual investors. Because of the company’s revised focus, Perriman says the current venture round is more like an early stage financing. Still, he says, the company’s longtime investors are returning and they are “voting with their wallets.”

Bruce V. Bigelow was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Follow @bvbigelow

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