Australasian Biotechnology, Vol. 10 No. 3, 2000, pp. 19-23
PLANT BIOTECHNOLOGY- The growth of Australias algal b-carotene industry
Department of Physics, Monash University
Code Number: au00032
Australia produces over 80% of the worlds natural b-carotene. It is almost entirely made by Betatene Ltd, which extracts the carotene from open brine pond cultures of the halotolerant alga Dunaliella salina in South Australia and Western Australia. The history of this industry is worth recording as it contains lessons that are still relevant to the development of innovative industries here today. This history can be divided into a number of stages characterised as:
During the 1970s, biotechnology in the conservation of natural resources was a hot topic. There was much interest in looking at Australias comparative advantages and disadvantages to set directions for strategic research. This was going on against the background perception of the ultimate fossil fuel crunch - spurred by the early success of the OPEC cartel and by awakening concerns about the greenhouse gas problem. An Australian advantage was lots of sunshine, in places. One noticeable disadvantage was our lack of fresh water, coupled with increasing salinisation of our lands and waterways. There was also the unusual availability of extensive coastal flats that had already given rise to a low-cost solar salt industry. The Biosaline Concept pioneered in Israel, therefore, attracted much attention. Briefly, this concept sought to exploit organisms adapted to arid, saline environments. The rise of molecular genetics promised the ability to modify these organisms to increase their productivity or diversity of products and to isolate the genes for their saline resistance and transfer them to other organisms.
Don Weiss, then Chief of the CSIRO Division of Chemical Technology, was greatly impressed by the potential of organisms growing in hypersaline environments to produce cheap chemicals. Consequently, he established a biosynthetic technology program in 1976 to carry out strategic research into the biosynthesis of fuels and useful chemicals. A great deal of attention was paid to micro-algae in this program and laboratory work and a techno-economic study was carried out by Denis Regan and Geoff Gartside on the possibility of their large-scale cultivation (DL Regan and G Gartside, Liquid fuels from microalgae, CSIRO, Melbourne: 1983). A basic research component of the program was the study of the plasma membrane of the b-carotene-producing halophyte Duniella salina. This organism is unique in the plant kingdom in that it is a naked protoplast, lacking a cell wall, and yet able to grow in brine and tolerate substantial osmotic shocks. The study had two objectives. One was to contribute to the understanding of the biophysics of the membrane of D. salina and of halophytes generally. Clearly, the membrane had unusual properties that enabled the cell to live in brine solution and to tolerate rapid changes in osmotic pressure occurring when the saline ponds it inhabited were diluted by rain. It was found that the osmotic tolerance was a consequence of a rapid shift to the plasma membrane of lipid from internal membranes in the cell, accommodating the increase in cell surface area as the cell swelled under osmotic stress. This finding was duly published and not pursued any further, as it was considered that this mechanism might be unique to D. salina with its lack of a rigid cell wall (CC Curtain, FD Looney, DL Regan, NM Ivancic, Biochem J. 213, 131-6: 1983). The second objective was to find out if the membrane had any properties that might assist in the harvesting of the cells, because the b-carotene that they produced was judged commercially valuable. In common with all microalgae, D. salina cultures are dilute because growth is limited by self-shading as the cell concentration rises. All the methods of raising this limit, such as stirring or the use of thin film reactors, are energy and/or capital intensive. On the other hand, harvesting from dilute suspension also has costs if centrifugation or filtration are used. Therefore, methods depending on surface properties, such as flocculation, flotation or adsorption are attractive. In the event, it was noticed that the cell membrane was relatively hydrophobic in brine (5.5M NaCl) and much less so at 3M NaCl. This finding suggested that it might be possible to harvest the cells from dilute culture by either flocculating them with a hydrophobic flocculant or by passing the culture through a column of hydrophobic material. It was found that the cells could be adsorbed by columns of silane-treated glass wool or polypropylene granules. The b-carotene could be recovered by eluting with a non-polar solvent, such as hexane, and the columns could be regenerated by washing with distilled water to remove cell debris. It was also observed that the cells could be adsorbed to a blanket of air bubbles produced by forcing air through a sintered glass filter, although this approach was dismissed as too energy intensive and likely to lead to oxidative damage to the b-carotene. Halobacterium halobium, which also occurs in natural brine cultures, was not adsorbed to hydrophobic surfaces. A detailed account of the science underlying the harvesting concept has been published earlier in this journal (CC Curtain, SM West, L Schipalius, Aust. J. Biotech. 1, 51-57: 1987).
Entrepreneurial pull and process development
At the stage when the concept was developed, CSIRO had limited capacity for bioprocess development. Although the need to develop such a capacity was recognised in some quarters, staff ceilings and other constraints imposed from the mid-70s made it impossible to do so. The only feasible approach was to seek an external partner who would be interested in developing the concept. At this stage, there was a nascent interest in algal b-carotene production among several major players in Australia. The most advanced was Roche, which had a research program on D. salina at its marine pharmacology laboratories at Dee Why. Roche was the worlds major producer of synthetic b-carotene and its interest in its algal production might have arisen from either a judgement that the biosynthetic route could produce a cheaper product or from a perception that a section of the market was showing a preference for natural over synthetic products. CRA and ICI were also interested in D. salina culture. Both had extensive salt fields and b-carotene could be an attractive by-product. Further, the presence of D. salina in the brine of the evaporating pans increased the amount of solar energy absorbed and, hence, the rate of evaporation. We had discussions with all three potential partners, which came to nothing for a variety of reasons. However, common to all three was their failure to see that a low-cost harvesting method was critical to the economics of algal b-carotene production and that increasing the yield of b-carotene which Roche, in particular, was pursuing vigorously, was of secondary importance.
Following these rebuffs the concept was shelved, until 1980 when we were approached by Simon West, who being aware of our studies on algal biotechnology, expressed an interest in developing a process for the manufacture of natural b-carotene. He was attracted by the harvesting concept and agreed with our view that low-cost recovery was the key to the economics of producing the pigment from algae. He was also convinced that the market would pay a considerable premium for a product if the process were natural from beginning to end, i.e. avoided organic solvents or other perceived nasties. Subsequently, Simon West, through his company D&S Investments, supplied venture capital to develop the concept sufficiently to justify investment in a pilot plant to assess the commercial feasibility of the process. The initial work gave rise to a patent covering many aspects of a hydrophobic contacting process for recovering b-carotene from D. salina in brine culture (CC Curtain and H Snook, Method for harvesting algae, Australian Patent 5490541: 1982, US Patent 4,554,390: 1982). The pilot plant development was undertaken by a new entity, Cockajemmy Pty Ltd, financed by approximately $250,000 of private equity. With an equal amount of funding from the Commonwealth Governments Grants for Industrial Research and Development scheme, a pilot plant, capable of treating up to 400 litres of brine culture per day, was built in 1982. The saline Lake Cockajemmy was used as the source of the culture because it was argued that it would provide conditions similar to those under which a large-scale plant would be expected to operate. These included the presence of H. halobium and clay, both of which might be expected to interfere with the adsorption process. The lake, near Willaura in Western Victoria, was explored and its water sampled by Sir Thomas Mitchell in 1834. It has the distinction of having its water first analysed by Michael Faraday, to whom Mitchell had sent a sample (T. Mitchell, Three Expeditions into the Interior of Eastern Australia 2nd Ed., Vol II p 268, T&W Boone, London 1839. The values obtained by Faraday for Na, K and Mg were very close to those obtained nearly 150 years later, suggesting that the lake would provide a stable culture medium.
A public company is floated
With the successful completion of the pilot plant trials, all of the ongoing development of the b-carotene project was acquired by Betatene Ltd in April 1985. Earlier in the year, a lease had been negotiated with BHP Ltd for part of its salt fields at Whyalla, SA and the necessary earthworks and pumping plant had been installed to supply culture to a larger pilot plant. Previously, two other salt lake sites in SA had been explored near Miningie and Port Broughton. Whyalla, aside from the advantage of ready-made infrastructure, had an ample supply of pure nitrogen available as a by-product of BHPs basic oxygen steel plant. The nitrogen was to prove important in the full-scale process as a means of preventing the oxidation of the carotene. Betatene, with an authorised capital of $20 million, was admitted to the official list of the Second Board Market of the Melbourne Stock Exchange on July 4th 1985. The directors were George IAnson, Malcolm Taylor, Simon West, Harvey Snook and Harry Rosen. Initially, 1 million shares at $1 had been placed for cash with a further 9 million vendor shares to be issued and quoted in 3 million tranches over the next three years, the timing subject to certain benchmarks such as commencement of commercial production. Like many initial public offerings at the time, the shares were tightly held (80% of issued capital by 20 shareholders) and in a booming Second Board Market their price rapidly moved up to over $6. The high share price, enabled a further issue of shares at $4.50 and took the companys capitalisation to over $10 million, the Main Board threshold, by the time it was one year old. It was the first Second Board company to join the Main Board. The first anniversary of the companys float also saw the release of the first tranche of 3 million vendor shares from escrow. More than 1 million of these changed hands at $6, realising a handsome profit for the people who had provided private equity for the Cockajemmy startup.
The objectives of the company were to produce natural b-carotene for the health food industry and algal meal for stock feed. Further down the track, it was envisioned that other algal by-products could be marketed. These included tetraterpene oils and highly unsaturated lipids. Some of the latter, such as eicosapentaenoic acid, were emerging as valuable cardioprotective agents.
By June 1986, the company had completed its full-scale processing plant at Whyalla at a cost of $1.4 million. This plant was capable of processing 24 megalitres of brine culture a day. Betatene had also acquired a factory in the Melbourne suburb of Cheltenham where the b-carotene-containing concentrate from the Whyalla plant could be processed and packaged according to good manufacturing practice standards. The Cheltenham facility eventually acquired a Therapeutic Goods Administration licence. Such further downstream processing had clearly emerged as the most significant value-adding step after the problems of separating the algae from the culture had been sorted out.
Unfortunately, a series of problems with the culture ponds initially prevented the company from meeting its production targets of 50-80,000 kg per year. The problems were partly caused by poor summer weather. Low temperatures, lack of sunlight and dilution of the ponds by heavy rainfall were a reminder that the enterprise was dependent on a natural resource. These difficulties were gradually overcome by paying attention to optimising algal growth, even under adverse conditions, and to careful design of the ponds. An encouraging event during this period was the winning of the 1988 Australian Institute of Food Science and Technology Food Innovation Award. In the citation, the company was commended for making a significant development to a process and an ingredient that had achieved successful commercial application in the Australian food industry.
The merger with Denehurst
By 1987, another development occurred that was to have a very significant bearing on the future of Betatene. This was the formation of a mining company, Denehurst, by the scientists and businessmen associated with Betatene. Inspired by the potential applicability to mineral processing of the surface chemistry concepts involved in algal harvesting, they had developed a new method for the recovery of minerals from oxidised or partially oxidised ores and mine tailings. A $30 million float was launched just before the 1987 stockmarket crash. Of this, $11 million was paid to CRA for the Woodlawn base metals mine near Canberra, where $11.5 million was to be spent on a one million tonne-a-year plant using the new process to produce zinc metal and a combined silver-lead concentrate.
To outside observers this venture appeared to be a dangerous diversion of attention from Betatene, which was struggling to meet its production targets. With one or two exceptions, both firms shared the same board members and senior scientific staff. In the long term, however, it was to prove Betatenes salvation. Although by 1989 both production and sales were increasing strongly, the company was still burning capital and not yet fulfilling its promise of high profitability. In that year, it was bought by Denehurst for $9 million, mainly in scrip-for-scrip offer. Aside from giving Betatene access to more capital, the takeover also gave it access to the production engineering skills that Denehurst had at its command through its ownership of the Woodlawn mine.
Success and takeover by a foreign multinational
Betatene began to flourish in its new environment and established a number of agreements with overseas corporations to market its increasing production. One of these was the Henkel Corporation Nutritional and Health Group, the US arm of the German chemical giant Henkel. In 1993, Henkel purchased a 40% share in Betatene for $10 million. Finally, in 1995 Denehurst, battered by continued low metal prices, sold the rest of its interest to Henkel for $50 million. At the end of 1999, Henkel reorganised and created a raw materials division, Cognis. The Betatene operations are now managed by Cognis (Australia).
The firm has continued its growth as a highly successful producer of natural b-carotene. It is the worlds largest producer, and it also operates the worlds most extensive algal cultivation system. It employs 50 staff at its Cheltenham, Whyalla and Hutt Lagoon sites and is turning over approximately $25 million p.a. By 1997 it had made the Top 500 Exporters List, the only CSIRO spin-off to have done so at the time. In 1999 it won the Export Award for Agribusiness.
As might have been expected, there have been a number of other attempts to exploit D. salina culture commercially. Koor Foods in Israel announced in 1982 that it was going to produce and market algal b-carotene, but the project was later dropped. This was surprising, since the company had links with a group at the Weizmann Institute who were doing excellent fundamental research into the physiology and biochemistry of D. salina. There have been three other serious efforts in Australia, aside from Betatene. B Carotene Industries Pty Ltd, a contemporary of Cockajemmy and Betatene, was established in WA, using 100 hectares of Spencer Lake near Esperance. Its process seemed to involve microfiltration of the algal culture and then extracting with an organic solvent. The firm quietly folded, possibly because it was unable to jump the natural extraction hurdle and the cost of the microfiltration step. A more recent contender is Aquacarotene Ltd, which was listed on the Australian Stock Exchange last year. It is too early yet to evaluate the firm or its process.
The third, and most significant, b-carotene effort was that initiated by Hoffman-La Roche. It was a substantial project, involving some good science with a respectable commercial outcome, and it had an extremely interesting trajectory. After Roche closed its Institute of Marine Biotechnology at Dee Why, NSW, it kept its algal biotechnology program going. In 1980, it had set up a D. salina culture facility at Hutt Lagoon, between Geraldton and Kalbarri in WA. After spending approximately $1.5 million, Roche abandoned the project in 1983, selling the Hutt lagoon facility to the Australian Government for $20,000. The following year Wesfarmers Ltd won a contract to continue with the research as a public interest research project. The contract was worth $6.75 million, although only $4.5 million was actually spent. In 1986, Western Biotechnology Ltd acquired the project from Wesfarmers for $400,000 before the Government funding ended in May that year. Western Biotechnology also had the first right of refusal to buy the projects physical property and two patents relating to harvesting the algae and extracting b-carotene from the Australian Government. Betatene objected strenuously to Western Biotechnology having exclusive rights to intellectual property developed using public interest money. Consequently, this was released into the public domain, while Western Biotechnology paid the Australian Government $251,000 for the physical plant. By 1987, commercial production of b-carotene had started at Hutt Lagoon. Sales, mainly to Japan, were reported to be approximately worth $200,000, compared with Betatenes sales of approximately $750,000 in that year. On October 15th 1987, Roche came back into the picture, making an ultimately successful offer of $12.14 million for all of Western Biotechnologys 17,343,024 fully paid ordinary shares, just before the stockmarket crash. In 1992, Roche sold out to Coogee Chemicals, a Western Australian firm; then, in 1997, Henkel bought the 250-hectare Hutt Lagoon facility and processing plant for an undisclosed amount. With modifications to the Hutt Lagoon plant and process, Betatene was able to double its total production capacity. The acquisition also diversified its climatic base, since unfavourable weather was unlikely to occur simultaneously at both the Hutt Lagoon and Whyalla sites.
At first glance, this story seems to follow todays familiar sequence of new concept ® private equity-financed startup ® float ® soaring share price ® early failures and burning capital ® depressed share price ® technical success ® merger ® takeover by big brother. It departed, however, in a significant way in which the startup was financed in that private investors funds were placed at risk right at the beginning to be rewarded by a substantial tax-free gain on success.
A relatively small amount of public money was spent on the development of the main stream of the industry, represented by Betatene. The idea of using hydrophobic contacting arose from curiosity-driven research carried out within a strategic framework in CSIRO. This kind of work, which may have a range of possible outcomes, is very difficult to cost. A crude measure, and it can only be that, is to take the amount of time spent at the prevailing hourly rate. This calculation would indicate that, approximately, the CSIRO contribution was worth $50,000. With the $250,000 GIRD grant to Betatene plus some other moneys from the teaching firm scheme, $350,000 would be a generous estimate of the amount of public assistance to the project. Later on, once it was making a profit the firm was eligible for the R&D taxation concession, like other innovating companies. The private equity in Cockajemmy and the public float of Betatene were placed before the advent of the capital gains tax. It could be argued that the tax-free capital gain available to the pioneer investors, compared with the penalties faced by similar investors in post-1985 startups, was a form of public subsidy. Compared with other grants and subsidies, there was the advantage that failure would have cost the public nothing beyond the GIRD grant. In addition, the decision whether to invest in and stay with project was entirely up to the investors. They had to evaluate its technical and commercial prospects, not a granting committee or a licensed funds manager.
In a way, the current industry did benefit from a large amount of public money in the direct support given to the Wesfarmers project. The way this project was handled and its initial lack of clear objectives were heavily criticised by the Bureau of Industry Economics in its 1985 evaluation of the Public Interest IR & D Program. The Bureau was also concerned that a public interest grant had been made in an area where at least two other privately financed firms were already operating. In the event, the grant led to the placing of intellectual property in the public domain and the WA assets eventually became the property of Betatene. One the other hand, it is clear that Betatene would have been perfectly capable of developing its own facility in North Western Australia. The desirability of such a move would have been evident after the inclement SA summer of 1987-88, if not before.
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