INDUSTRIAL BIOTECHNOLOGY:Cyanotech Corp. is a global leader in the algae-based products industry, with a remarkable track record that spans several decades. As an overview, what does your company produce and how?
Gerald R. Cysewski: Cyanotech is a microalgae company. We came to Hawaii in 1984 and started with five acres, and now we have 90 acres in production. We produce two microalga—Spirulina and Haematococcus. They are both sold into the nutritional supplement industry. Spirulina is a whole cell microalgae product; it is harvested, washed and dried. Haematococcus goes through an extraction process using super critical carbon dioxide to extract an astaxanthin rich oleoresin which is then used in soft gel capsules.
IB:IB likes to share with its readers the human side of innovation and innovators. What were the insights (science, technology, market, regulatory) you had during the company's founding in 1983 that drove you to establish a microalgae company? What are two or three elements that, in retrospect, were critical to your successful decision making? (location, innovations, team, etc)? Did you have a mentor that inspired your innovations?
Cysewski: I began my work with microalgae when I was teaching at UC Santa Barbara and spent a summer in the library looking for a new research area. I came across microalgae as organisms that produce a wide variety of specialty compounds, yet no engineering solutions had been applied to their efficient production. So moving forward, we came across a product that was entering the US health market called Spirulina. This was in the late 70s, early 80s, and it was a product that had a wonderful nutritional profile but also was imported from Mexico. Although the product nutritionally was very good, it was a dirty product—it was high in heavy metals and had high microbial loading. So we had an opportunity: A microalgal product that has an established and growing market in the US, and that we can produce with the high nutritional profile but cleaner and of higher quality than being imported from Mexico. So with that idea, we got into the Spirulina market. In terms of successful marketing experience, looking back on it, the location here in Hawaii was a wonderful choice, it's probably the best place in the world to grow microalgae. We get more sunlight than any other coastal location in the US, and very little rain falls here. We produce some of our products in open ponds, and we also have access to cold deep sea water from depths of 2,000 feet which has been great for providing a source of trace minerals and nutrients. The cold deep sea water is also a very economical source of cooling. Another important thing is that we focused on quality from Day 1. We also had a focus on treating our stakeholders well and with respect. This includes our employees, customers, vendors, and local community.
IB:Quite a few algae companies around the world today started out in biofuels during the early to mid 2000s, before turning to the nutritional supplements market. Did Cyanotech set out to produce human food and dietary supplements from the outset?
Cysewski: We have always been focused on high-value products for microalgae. Spirulina was our first product. We did look into beta carotene production, which didn't pan out. We also looked at nitrogen fixing algae as a fertilizer source and even a microalgae based mosquitocide. But our focus has always been on high-value products. My opinion is that [algae] biofuels is a long shot. I don't think it will ever become practical for at least the next 20 years, and we never had an interest in it. In the early to mid-2000's, when the biofuel movement was taking place, we would get calls once or twice a week from companies asking to work together, which we respectfully declined and we made our focus on high-value products.
IB:When did Nutrex come into the picture and what do they do for Cyanotech? Is this an unusual arrangement for your company compared to others in your same markets?
Cysewski: Cyanotech produces bulk raw materials and sells them to the nutrition industry. Nutrex produces finished consumer products and sells them to the retail market. We founded Nutrex in 1990 because we wanted to be opaque that Cyanotech was going to compete with its own customers. Nutrex was founded because we wanted to increase revenue and profit, and used it as a screen to not let Cyanotech customers know. Since then, we have been transparent that indeed Nutrex is a wholly owned subsidiary of Cyanotech.
IB:When did Cyanotech go public? Are there other publically traded algae companies that you know of?
Cysewski: We went public when we were founded in 1983. We merged with an inactive public shell corporation. When we did this merger, we weren't after public status, we were after the money that the inactive shell had in the bank. The public status came along with the merger. So we never had an IPO, but we did do a public offering in 1996, and raised $10.6 million. That allowed us to complete the build out of the Spirulina production system and also establish our Haematococcus production system.
IB:Let's talk about one of your major products, astaxanthin from Haematococcus pluvialis, known to consumers in the US as Bioastin Hawaiian Astaxanthin. Recently the astaxanthin market size was estimated to exceed $2.5 Billion by 2025; is this for both natural (currently at about 3% of the astaxanthin markets) and synthesized astaxanthin (currently about 97% of the astaxanthin markets), or just the natural markets? With oil prices expected to stay quite low, how can we expect the natural product to compete with fossil-fuel derived astaxanthin? For example, synthetic beta-carotene far outsells natural beta-carotene in the human supplements market. What is unique or commercially sustainable about the algae-based astaxanthin compared to the chemical analog synthesized from petroleum?
Cysewski: The market for global astaxanthin is $250 million. The majority of that is synthetic astaxanthin used in the aquaculture industry to color the flesh of salmon pink. The synthetic version of astaxanthin has not significantly entered the human nutrition market which is primarily dominated by natural astaxanthin and derived from microalgae. And I expect it to remain that way because people who are into supplements are very interested in natural products. Natural astaxanthin from microalgae is substantially different than synthetic astaxanthin. Natural astaxanthin contains an SS chiral from of astaxanthin. Only 25% of synthetic astaxanthin is the same as the natural. As far as antioxidant potential, studies show that natural astaxanthin is many times stronger than synthetic astaxanthin. There have also been clinical studies that show natural is more advantageous in addressing health effects. So we think there will be a very good market for natural even if it is at a higher price. The bulk of synthetic astaxanthin goes into the aquaculture industry which is forecasted to have good growth. There is also the possibility that synthetic astaxanthin could go into food coloring.
IB:Due to natural astaxanthin's documented potent antioxidant activity, benefitting cardiovascular, inflammatory, immune, and neurodegenerative diseases, and its current purification using supercritical fluid technology, do you ever envision it being sold into the pharmaceutical industry, similar to what has happened with another algae product, the omega-3 fatty acids?
Cysewski: I don't think it's a good possibility because to be sold as a pharmaceutical, it requires hundreds of millions of dollars for clinical trials.
IB:Your other major product is Spirulina Pacifica from the cyanobacteria Arthrospira. Was Cyanotech one of the first producers of this as a whole-cell product? Many consider it a super food. Do you think it needs to ‘graduate’ from being used just in bars and drinks, to become a true superfood? There don't seem to be as many new companies producing Spirulina as there are producing astaxanthin. Why is this? Is there room for innovation in any parts of the Spirulina products value chain?
Cysewski: Spirulina is a unique ingredient and it has a wide range of nutrients, and that's why it's known as a superfood. We have seen rapid growth in the market for spirulina, we're actually having trouble keeping up with demand for spirulina products. I think why other companies didn't get onto this earlier is because financially it's not as attractive as producing astaxanthin.
IB:What are the top two or three challenges facing Cyanotech's effort to continue to be a successful major player in the natural algae products bioeconomy?
Cysewski: Growing consistent and reliable product (Spirulina and astaxanthin). We've gotten good at it, but it's still a potential problem. The other thing is we are constantly looking for new products. Every product has a finite market life and we want to constantly come into the market with quality algae products.
IB:Could you identify a couple of key factors (i.e., technology-, policy-, regulatory-, or IP-related) that are inhibiting/slowing progress in the algae bioproducts/biofuels industry at present, what would those be and what is needed to overcome them?
Cysewski: What is limiting algal bioproducts/biofuels development is consistent, reliable production and the high cost of producing microalgae. Algae production is really farming—it's at the mercy of the weather.
IB:Looking into the future, do you see government regulations or global resource issues (including climate change) impacting the proliferation/expansion of the USA or other regional in functional foods (nutritional supplements)?
Cysewski: The US probably has one of the most reasonable regulations regarding human supplements. Other countries are stricter. We sell into thirty other countries, and we had to work with companies in those countries to register our products to establish sales. It was a bit difficult, but we were always successful.
IB:What are the top two or three new technical or business opportunities that you believe that Cyanotech should seize on? Are there innovations or developments in these areas that you could share with us? For example, supporting Hawaii's efforts towards food self-sufficiency.?
Cysewski: One thing we are looking at is an improved cultivation method to minimize environmental factors in our production. We are also looking at improved harvesting techniques. In terms of sustainability, we used carbon dioxide produced locally to increase growth of our microalgae. This carbon dioxide would otherwise be emitted to the atmosphere. Currently, however, we do bring in mineral nutrient sources from off the island. We also have a 684 Kw photovoltaic system that supplies all our power during sunlight hours. We recycle most of the water used to culture microalgae. We also air-condition many of our buildings with cold seawater which saves electricity and finally were awarded the Corporate Audubon award in 2001 for our work with an endangered species of bird the Hawaiian Still—that work continues today.
