Quantum leap for the Q Microbe: Qteros closes $22 million in new financing; global partnership with Praj
In Massachusetts and India, Qteros and Praj Industries announced a strategic partnership to accelerate commercialization efforts for industrial-scale cellulosic ethanol production.
Under the agreement, Qteros and Praj will collaborate on a highly focused, multi-year development program with the objective of rapidly developing and commercializing Process Design Packages (PDPs) that enable cellulosic ethanol production using Qteros’ Q Microbe-enabled CBP platform and Praj’s technology and expertise in the conversion of biomass to ethanol.
This unique licensing model serves to provide both a highly efficient and low-cost solution to the market, while also allowing Qteros and Praj to deploy their capital in an efficient and leveraged manner. Importantly, the companies plan to retrofit Praj’s existing pilot plant in Pune, India with Qteros’ technology platform, which will then become the foundation for accelerated production scaling as part of its commercial planning.
Initially, the companies will focus their efforts on developing PDPs for feedstocks that include sugarcane, corn and wheat residuals with the goal of achieving commercial-readiness by the end of 2012. The companies believe that their initial commercial plans will focus on Praj’s existing broad base of ethanol customers seeking to add co-located cellulosic ethanol facilities to their existing ethanol infrastructure. Based on the achievement of certain development and commercialization milestones, Qteros and Praj may elect to broaden the partnership to incorporate additional feedstocks, and potentially other biochemical products to be derived from Qteros’ unique microorganism-based platform.
At the same time, Qteros announced that it has closed the initial $22 million tranche in its Series C financing, with an undisclosed group of new and existing investors. The completion of this $22M financing is expected to provide sufficient funding to accelerate the Company’s development and commercialization plans.
This week, Praj CEO Pramod Chaudhary and Qteros CEO John McCarthy both took time to brief the Digest on the deal.
Qteros CEO John McCarthy
BD: On the new financing. Did all existing investors participate – who is new?
JM: There has been a lot of interest in Series C. One thing was clear – for some partners, we needed have the validating partnership or one of the potential strategics before we closed on financing, so we have closed with some participants, but with others the process will move forward now that we have finalized the partnership with Praj. In the announcement, we haven’t named the Series C investors, because we didn’t want to disaggregate the participants. The first half of the year will be active for us – closing on discussion on strategy. But overall, we do expect to have all our existing investors participate in this round. We have a greta group of investors, and there are plenty of deep pockets. But as the company makes progress – one challenge for all companies in this space as we make continuous progress – is to broaden the investor base.
BD: $22 million takes you to where – all the way to break-even on a cash flow basis?
JM: I would say the complete series C, which will be complete I expect by Q2 or Q3 next year is the last round – before we get to cash break even. The overall number will increase from the $22 million we announced, but it’s not double that number. We’re a relatively small company.
BD: Praj and Qteros. Tell us about the formation of that partnership – what were the milestones along the way?
JM: I joined Qteros almost exactly a year ago, and then we added people like Sue Hager and Mick Sawka. The first couple of months were all about developing a coherent strategy. The company had a great technology, but really no had strategy – it was directional at best . What we focused on was: 1) scale the platform to commercially relevant levels, and 2) get partners on board that will get us commercial as quickly as possible. As we explored the partnership opportunities, we began working with Praj on a testing basis with their Pune labs. We were getting good results, and discussions began to develop out of that. So we had perhaps 9-10 months in early development work, and the partnership discussions started in earnest around six months ago.
BD: There are a lot of potential partners out there – why Praj?
JM: A top quality management team for one – and the fact that they have built 450 plants around the world. No one has more expertise, especially in India, and SE Asia – which is a region of the world that, frankly, is moving more quickly and in more interesting ways in this space than the US.
Praj is not your basic EPC firm. When they started in the late 80s, they concluded that in order to differentiate themselves, they had to get in the R&D side. The Praj Matrix center in Pune is a world class R&D facility. As they began the technical deep dive – having seen every conversion platform – they concluded that the Qteros platform could be the lowest cost solution. On our side, we saw this as a way to partner with a company that had the expertise and customer base to get us into the kind of discussions about getting commercial, and not be dependent on, for example, on DOE loan guarantees.
BD: To what extent is this an exclusive agreement?
JM: It’s exclusive in a practical sense – because this is a joint development, and we will have jointly developed process development packages that are jointly owned – and to some extent, there’s a practical bandwidth limit in the extent to which we could develop other designs with other firms. But we both have the opportunity to work with others, for example in Brazil and the US, so there’s no absolute dependency. But if the partnership is working well, then we have a preferred partner in Praj.
BD: Brazil. How important do you think that market will be for next-generation biofuels and Qteros?
JM: When I first came to Qteros – we weren’t developed enough to take on Brazil. Now we are.Brazil is extremely important, and we have a large investor in Soros who is a player in Brazil. My takeaways from experiences with Verenium and other stops in my career, in terms of Brazil? It’s a complicated market. You have got to be working with one of right big 5 or 6 players. You got to create a very compelling economic argument with bagasse in terms of its conversion to fuel instead of power. The argument is a bit of a push right now. If you are one of the 80 percent of the plants who are not connected to the grid – its more of a no brainer – but that’s a fragmented market, mostly consisting of the older mills. We’ve been talking with the newer players who not connected to the grid.
BD: How does the Praj partnership connect to your milestones going forward toward commercialization?
JM: We have cost-based milestones working on with Praj – our main milestone is to reach, on a cash based opex level, the $1.50 per gallon level by mid year. By 2013, our goal is to reach $1 or less per gallon. The technology will be fully integrated in Pune – they will retrofit their pilot plant with Qteros technology. That will be platform for design and scaling of the Process development Packages.
Praj Industries CEO Pramod Chaudhari
BD: Praj has worked with a ton of companies. What led you to choose Qteros?
PC: Consolidated bioprocessing has been on our agenda in lignocellulosic conversion for quite a while, but we have been working step by step very meticulously. At the same time, we have been looking at technologies that would give us the low cost conversion. Sun Ethanol formed in Boston and we first met back then, and we found the microbe interesting then, and kept track of its development. We though that now the time was right. There’s an inflection point in this space, and we believe that this collaborative approach will give us an advantage in the market.
BD: There are the energy canes and grasses, and waste feedstocks, in a big assortment of potential feedstocks to work with in next-generation technologies. Tell us about the kind of feedstocks that you have been working with and will focus on?
PC: We have started with residues from sugar cane, not only the bagasse but the trash – and we have looked at corn residues like stover which are widely available in the US but also we have production here in India. Those three residues are the one we have started with, but we have looked closely at, for example, sweet sorghum as a dedicated energy crop, and over a period of time we expect to address the wider range.
BD: What are the milestones as you see them in taking this partnership forward to commercial success?
PC: This year is crucial, we’d like to stabilize the process at our desktop bench level, and then fully introduce it in our pilot. In the next 18-24 months, we hope to have this in the demo plant.
BD: Do you see this as an opportunity for Praj to take this to its customer base in India and South East Asia, or as a global opportunity.
PC: Global. We are the only company that has developed ethanol plants in all five continents, and we have developed the project management skills, we believe, to make this a global play for us.
BD: How do you see the global market for cellulosic ethanol developing – is interest accelerating?
PC: The interest in cellulosic ethanol has increased in all corners, especially for those many countries who have gone for blending mandates. For us, we believe that the assets have yet to be created, the models that make it workable, and there are some challenging tasks ahead. But we believe that this kind of combination will make it workable.
More on Qteros
The uniqueness of Qteros’ CBP platform is centered on the Company’s naturally occuring and proprietary microorganism, the Q Microbe (Clostridium phytofermentans) – that produces virtually all enzymes required for biomass degradation into pentose and hexose sugars, while simultaneously co-fermenting all these sugars into ethanol as its natural metabolic end product. This highly streamlined engineering solution therefore results in significantly lower operating and capital costs of production for producers versus other competitive technology solutions. The Q Microbe is feedstock flexible, producing high yields of cellulosic ethanol from a broad range of non-food biomass materials, including, among others, sugarcane bagasse, corn stover and cobs, and a broad variety of energy crops.
More on Praj
Praj Matrix, the R & D division of Praj, has focused for more than five years on a unique and proprietary technology platform to pretreat a variety of lignocellulosic biomass to produce hemicellulosic and cellulosic derivatives in a highly efficient and cost-effective manner. Further, the laboratory and pilot plant facilities at Praj Matrix allow for the fully integrated development and demonstration of ethanol conversion technology.
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