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Saturday, Jul 20, 2024

Appetite For Algae

Sapphire Energy Inc., once a promising player in the biofuel industry, has officially dropped clean energy from its pipeline and shifted focus to the more profitable vitamin supplement market.

The move out of biofuel isn’t a novel one in the region’s biotech sector; other San Diego firms have backpedaled their way out of the now-lifeless biofuel industry, too. The sector’s demise was predicted early on by La Jolla’s prominent geneticist J. Craig Venter when he declared biofuels dead back in 2012.

“It doesn’t matter what the scientific breakthroughs are, there’s no way to beat oil,” he said at an investor forum. `

This revelation hit hard here at home, as San Diego is a mecca for algae-based biotech companies and biofuel research. Most (if not all) of those companies have now diversified their product lines — or completely abandoned biofuel altogether — in pursuit of a more profitable pipeline. General Atomics and Cellana Inc., both once leaders in the local biofuel industry, have joined Sapphire in shifting their focus from clean energy to nutritional products.

Sapphire announced its divergence from biofuel back in 2014, when the company brought on James Levine as CEO.

“I was tasked with looking for non-biofuels applications for the technology,” Levine said. “I was not optimistic about biofuel, and wanted to diversify.”

Levine analyzed Sapphire’s core technologies: growing algae biomass and converting that biomass to green crude for fuel. The latter, he decided, wasn’t as valuable as the former. He cut the company’s conversion technology from Sapphire’s business model and reduced the staff accordingly. Now the company’s new strategy is taking root as Levine settles into his role.

The company’s algae-growing technology is valuable as a platform, Levine said, as Sapphire has the ability to grow large quantities of algae on land not suitable for farming, using seawater not suitable for drinking or agriculture. The company’s ability to make good use of otherwise untapped resources allows Sapphire to make its algae biomass at an “effective cost.” And algae biomass has endless applications, from animal feed to eco-friendly plastics to nutritional supplements for human health. It was difficult to hone in on one.

Low Barriers

Sapphire is starting in the supplement market, which has a friendly regulatory environment and a low barrier to entry. The company is developing Omega oils derived from algae, which will be concentrated into a gel capsule pill and sold in vitamin stores. Existing omega oil products are often derived from fisheries and sold in stores as the popular “fish oil” supplement. Levine said Sapphire can uphold its legacy as a sustainable “green” company by sourcing the popular supplement from a renewable plant source instead of the aggressively fished waters of the South Pacific.

The company is developing a particular strain of Omega 3 that may treat inflammation in the body, and an Omega 7 oil with benefits in the cholesterol space.

The Omega 3 market alone is booming, with one market research firm estimating its global value at nearly $2 billion in 2014. Some reports estimate the global market at $13 billion when including Omega 3 applications in beauty and pet products.

Levine said the company has not disclosed potential sales projections of the supplements, but Steve Mayfield, an original founder of Sapphire Energy and the director of the California Center for Algae at the University of California, San Diego, said it makes good sense to develop high-value Omega oils instead of biofuels.

“Gasoline today sells for about $0.40 a pound, and biofuel would need to be competitive to that,” said Mayfield, who’s no longer affiliated with Sapphire. “Omega 3 oils, in contrast, sell for about $150 per pound.” It’s a no brainer.

VC Funding

Sapphire recently received a widely reported $92 million round of venture financing, which came from a Chinese investment fund. Levine said that round was slightly misunderstood by the public as “new cash” into the company.

“While that number is accurate, that wasn’t entirely new cash coming into the company,” Levine said. Instead, the round was largely retiring debt in exchange for equity.

That same Chinese firm has expressed much interest in supporting Sapphire as it grows, Levine said, and Sapphire now has plans to build its next production facility in China.

“It was challenging to raise capital in the U.S. market, but we were able to raise capital in China because there’s a developing market there for nutritional products,” Levine said.

The company is working now to export its technology to China. Once the agreements are finalized with the Chinese company, Levine said, Sapphire will be able to disclose annual sales estimates for its products.


CEO: James (Jamie) Levine

Revenue: Pre-revenue

No. of local employees: Not disclosed

Investors: Undisclosed Chinese investment fund

Headquarters: UTC

Year founded: 2007

Company description: Company developing algae-based products for health and nutrition

Key factors for success: Low barrier to entry in vitamin supplement market


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