26 Nov 2018 --- Scot Bio, a Scottish-based biotech business offering spirulina extract, has successfully closed a second, oversubscribed funding round with investment syndicate Kelvin Capital, Investing Women, Oghma Partners and private investors in the UK and US. With over £2 million (US$2.56 million) in new private funding promised, this makes it one of the largest private investment rounds in Scotland this year. The news is being hailed as “a vote of confidence in the ambitious prospects of the company.”
Based in BioCity Glasgow, the biotech incubator located just outside Glasgow, Scot Bio has developed a patented, reactor-based process to respond to the worldwide demand for clean labels and products free of artificial colors by providing FMCG’s with traceable, natural blue and green colorants.
The company, which uses a bioreactor process to grow spirulina for extraction rather than the more commonly seen pond grown system, will use the funding to dramatically upscale production in the next twelve months.
Click to EnlargeDavid Van Alstyne, Chief Executive Officer at Scot Bio
“We are currently just producing a matter of kilos right now. We now have a 16,000-kilo facility at BioCity. This money will help us scale to a 1.5 million liter plant in Scotland,” David Van Alstyne, Chief Executive Officer at Scot Bio tells FoodIngredientsFirst.
He stresses that this jump is not as “frightening” as it sounds. “It may be a hundred-fold scale, but really what we found is that the scale from milliliters to liters was a massive jump, but as you start going up the scaling becomes fairly easy. What we are doing is moving from eight 2,000 liter reactors and going to thirty 50,000 liter reactors. We already have the site location,” he adds.
The first round of funding supported the first upscaling and this second one will take it to a more commercial level. “Our output will be 4 tons per year of the pure molecule. Depending on the color hue and the bulking agents, this equates to anywhere between 6 and 10 tons of finished product,” he explains.
Ambitious targets for expansion are therefore being touted. “We want to have 4 factories in operation worldwide in the next 3 to 5 years. We want to capture 35 to 40 percent of the market for this and we think that we are in a position to do that. I think the market for blue and green colors has the potential to be worth around US$350 million a year and is largely unserved. So there is a huge opportunity,” he notes.
Brexit is a significant concern for the company, as with a lack of clarity and a March 29, 2019 exit date on the horizon, a shift in strategy may be required. “Depending on how Brexit turns out the factory may be smaller than 1.5 million liters. It may make us look more to the continent for production as a result. We will certainly stay mobile to see how it plays out. We have made sure that we have an option on the real estate to backpedal on the scale if required,” Van Alstyne admits.
Natural blues and greens are produced using phycocyanin, an algae-derived pigment which received international regulatory approval in 2013. Phycocyanin rich algae are traditionally grown in pond systems, which are seasonal and subject to environmental contamination but through academic collaborations with Newcastle University and The University of Edinburgh, Scot Bio has developed systems that are modular, scalable and capable of meeting the demand from global food manufacturers.
Van Alstyne explains that the company grows spirulina under unusual conditions which causes it to overproduce molecules of phycocyanin. “Although anthocyanin, which comes from things like black carrots and grape skins, is very good for reds and purples, and pumpkin extract is very good for yellows and oranges; blues and greens are very difficult to produce. Anthocyanin is not a good molecule for blues and greens. So we are really addressing that market,” he adds.
The company has been involved in this particular space for about 6 years. “We sponsored a PhD student who came up with a novel way of growing spirulina in bioreactors under a strange spectrum of red light, which caused it to produce five times more phycocyanin. We have been selling that platform technology for the last six years. A year afterward it received FDA approval, so a lot of it came down to luck,” he adds.
Click to EnlargeFirkin Blue Gin with spirulina extract.
Currently, the spirulina supply is dominated by one major supplier (DIC), which uses a pond grown system. Van Alstyne claims that their bioreactor system offers an advantage. “Almost all the spirulina in the world is grown in ponds, a method which is subject to contamination and quality issues. So the big FMCG companies are looking for predictable and stable supplies all-year round. Our reactor based system offers that,” he adds.
The higher output is key to making it market competitive. “If it wasn’t for the higher output of phycocyanin in the reactors, a reactor-based system simply wouldn’t stack up from a business model standpoint. You really have to be getting higher productivity out of the spirulina in order to justify the business case of growing in reactors,” he says.
A wider range of blue hues is possible too, as are combinations with bulking agents. “We are able to offer any bulking agent with our molecules. We are even able to spray-dry and freeze-dry the molecule and can create a very deep blue,” he notes.
Estimates are that 75-80 percent of the market is currently unserved for natural blue colorants. But it goes beyond this sector, with a whole opportunity existing for natural greens too, where spirulina extract can be combined with turmeric. “To a greater extent, having a stable green is a major challenge. In order to have it, FMCG companies want to combine phycocyanin with turmeric to get a natural color that it stable. It is a significant market,” he adds.
Following Kelvin Capital’s and Investing Women’s first-round investment in 2017, the company successfully scaled up to 16,000 liters of production and developed multiple product samples and formulation solutions to major FMCG companies worldwide. They also brought their first commercial product to market in collaboration with Leith based Firkin Gin to create Firkin Blue. “It was a good exercise, as it made sure that we were complying with international regulations. It really got us geared up and ready to take on the world,” says Van Alstyne. He admits that it was interesting that their product is stable in alcohol applications. “There is a limit of a certain alcohol percentage, but it certainly worked in this application,” he explains.
As for other applications, confectionery and children’s breakfast cereals look like the most obvious platforms. For example, Nestlé Smarties uses spirulina in their blues, while the Oreos brand now has a Mint Oreo that is colored with spirulina.
“A lot of FMCG’s want some flexibility on this light blue color. We can definitely achieve a more intense blue. The main differentiation is that we can scale out and plan to scale out to other countries,” says Van Alstyne. “We have made sure that after scaling up, it is repeatable in other territories. So scaling out is part of our long-term plan and that will allow us to design a factory that has all of the shelf equipment. The only thing that is bespoke in our production process is the lights that go into the container. Everything else is off the shelf,” he adds.
Scot Bio will supply spirulina extract to color houses, with the only current major one operating in the spirulina space itself being GNT. Van Alystyne is clearly full of admiration for them in a call-out for a collaboration. “GNT has done remarkable things for anthocyanin products such as black carrots. They have traceability right back to the farm. They are the only reliable supplier of phycocyanins out there and they are buying in dried spirulina and extracting the phycocyanins. But there is fluctuation in the quality of the material and a 7-month growing season. So they have to stockpile a lot of materials. We would see GNT as someone we would actually be supplying or collaborating with in the future,” he notes.
But Scot Bio will likely not stop as spirulina extract as a sole ingredient, with vast potential existing for high-value ingredients from spirulina biomass. “We recently won a knowledge transfer award with two years of funding that lets us look into extracting other high-value ingredients from spirulina, or at least test them. It is a source of protein and other vitamins and minerals. There is lutein for eye care and hyaluronic acid which could be used for skin creams,” Van Alstyne concludes.
This major news in the natural colors space may offer further acceleration in the clean label dynamic of the market, as another potential source for spirulina comes to the fore.
By Robin Wyers
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