Michigan investors note AlgiSys' potential

Cain's Detroit Business

Mayfield Heights company wants to produce in-demand acids, biomass

By CHUCK SODER January 16, 2012

A Mayfield Heights company aims to use the $5 million it just raised to build a pilot plant where the company will grow algae to produce a nutrient that has become a hot commodity.

It is unclear, however, whether the company will remain in Northeast Ohio.

AlgiSys LLC has received a $5 million investment commitment from investors in Michigan, according to CEO Michael LoPresti, who would not identify them.

The state of Michigan also has indicated it will provide the company with a “generous, aggressive loan package” if it moves to Michigan, Mr. LoPresti said, adding that AlgiSys plans to seek incentives from counties and cities in the state as well.

AlgiSys, which employs three people full time and five part time, would like to stay in Northeast Ohio, Mr. LoPresti said. However, when the company has inquired about incentives offered by the state of Ohio, it usually is directed toward the Ohio Third Frontier program. And though the economic development program provides financing for technology companies, AlgiSys wouldn't fit easily into the sectors it targets, he said.

The company has received other types of support from organizations in Ohio. For instance, it received in 2010 a $40,000 loan from the Cuyahoga County New Product Development and Entrepreneurship Loan Fund and paid it back a year later, freeing the company from an obligation to manufacture in the county.

AlgiSys also has received grant money from the Center for Innovative Food Technology in Toledo and an investment of a few hundred thousand dollars from two principals at Tower Wealth Management LLC in Beachwood and a handful of their clients. In addition, AlgiSys has received assistance services from the Akron Global Business Accelerator, the University of Akron Research Foundation and BioEnterprise Corp. in Cleveland.

The company aims to grow algae to produce both omega-3 fatty acids and high-protein biomass.

There is particularly high demand for omega-3s, which are believed to have a variety of health benefits. Studies have shown that they can reduce the risk of heart disease and stroke and can be used to treat depression, rheumatoid arthritis and high blood pressure.

The omega-3 that AlgiSys wants to produce — known as eicosapentaenoic acid, or EPA — commonly

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is found in fish oil. That's because fish eat algae, said Charles Roe, who founded the company with Mr. LoPresti in 2009 after the two men left a Florida firm that aimed to make fuel from algae.

AlgiSys looks to produce EPA as a food additive or a supplement, Dr. Roe said. AlgiSys plans to sell the high-protein biomass as a food additive as well, he said.

“The food ... play is a more near-term market,” said Dr. Roe, the company's chief technology officer.

Birth of a revolution

Other companies already produce food additives and other products from algae. Martek Biosciences Corp. of Columbia, Md., which last February was acquired for more than $1 billion by Royal DSM N.V. of Heerlen, Netherlands, produces different omega-3s that are available in food products.

Another company, Solazyme Inc. of South San Francisco, Calif., which harvests algae oils for food and other uses, went public on the Nasdaq stock exchange last May, raising nearly $200 million.

Dr. Roe cited several other companies that, like AlgiSys, are using fermentation instead of photosynthesis to get micro-organisms to produce various chemicals.

“I think we are at the very beginning of a revolution,” Dr. Roe said.

AlgiSys relies on a patented technology licensed from Virginia Tech, but Mr. LoPresti said he would not provide details about it for competitive reasons. The pilot plant to grow the algae would require 10 to 12 acres under its current design, he said.

An official from the Michigan Economic Development Corp. said AlgiSys has not been approved to receive incentives from the state, but added that it's possible the parties are in conversations about them. Mr. LoPresti did not respond to a phone message and an email requesting additional information.

Companies that receive product development loans from Cuyahoga County are required to make the product in the county for at least seven years, but not if they repay the loan, said Greg Krizman, senior director of marketing for Magnet, a manufacturing advocacy and consulting group that administers the program.

Mr. Krizman said he isn't too worried about lots of loan recipients leaving the county. The loans are designed to be repaid over 10 years. He said eight or 10 of the 70 companies that have received loans over the past five years have paid them back ahead of time.

“It's not like a lot of people are paying them back early,” he said.

AlgiSys could end up staying in Northeast Ohio, but the company can't ignore the benefits of moving to Michigan, Mr. LoPresti said.

“We have to go where there is private investment as well as public support,” he said.

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