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Australasian Biotechnology (backfiles)
AusBiotech
ISSN: 1036-7128
Vol. 10, Num. 3, 2000, pp. 18
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Untitled Document
Australasian Biotechnology, Vol. 10 No. 3, 2000, pp. 19-23
PLANT BIOTECHNOLOGY- The growth of Australias algal b-carotene
industry
Cyril Curtain
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:
- strategic research push;
- entrepreneurial pull and process development;
- floating of public company;
- early technical difficulties, leading to merger that provided more expertise
and capital;
- technical maturity and challenges of penetrating overseas markets; and
- takeover by a foreign multinational.
Strategic Research
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.
Other contenders
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.
Conclusion
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.
- Dr Cyril Curtain was Leader of the Biosynthetic Technology Programme of
the then CSIRO Division of Chemical Technology in South Melbourne from 1975
to 1982 where he made the main scientific contribution to the beta-carotene
separation process. Dr Curtain was a Chief Research Scientist in CSIRO, retiring
in 1993. His principal research interests are still the function and structure
of biological membranes which he pursues at Monash Physics where he is a Research
Associate. He is Secretary of the Australian Society for Biophysics and, in
his spare time, he is involved with the National Trust, maritime history and
sailing.
Copyright 2000 - Australasian Biotechnology
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