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AIM Interview: Sapphire Energy CEO James Levine

October 12, 2014, by David Schwartz
AlgaeIndustryMagazine.com

James Levine kicks off the 2014 Algae Biomass Summit with ABO Executive Director Matthew Carr (L) and San Diego Mayor Kevin Faulconer (R).

James Levine kicks off the 2014 Algae Biomass Summit with ABO Executive Director Matthew Carr (L) and San Diego Mayor Kevin Faulconer (R).

J dropcapames “Jamie” Levine took over the reigns at Sapphire Energy in July of this year as former President and CEO Cynthia “CJ” Warner stepped down, retaining her role as chairman of the company’s board of directors.

Levine was formerly president and CEO of Verenium Corp., a NASDAQ-listed industrial biotechnology company that develops commercial-scale enzyme solutions for industries worldwide. At Verenium, he fostered and managed the company’s most critical partnerships, including BP – which acquired the company’s cellulosic ethanol unit in 2010 – as well as DuPont, Royal DSM, Bunge North America, Cargill, Novus International Inc., Colgate-Palmolive Co. and others, enabling the application of Verenium’s technology in global food, fuels and animal nutrition markets. He led the company through its acquisition by BASF Corp. in late 2013. Prior to Verenium, he was a managing director in the global energy group at Goldman Sachs & Co.

At this year’s Algal Biomass Summit we sat down with Jamie to hear his vision for Sapphire’s next phase of development, and how his background will bring a new pallet of tools to this industry flagship.

What attracted you to Sapphire as your next career step?

There were probably three different levels of attraction for me to Sapphire, the first being the algae industry itself. Previously I had looked at another facet of industrial biotechnology in industrial enzymes. In thinking about the productivity of biology as a platform, industrial enzymes as catalysts could be incredibly powerful at small scale. With algae you don’t have that same catalyst-like power, but what you do have is a productivity basis that, compared to many other sources of potential biofuels or bioproducts, really unlocks a lot of opportunities. And it’s that productivity per acre that I think makes this industry attractive.

In terms of Sapphire, I think that their approach to the technology is really what attracted me to the company specifically. The focus that the company’s had from the start – that it was going to provide valuable products, whether that’s in fuel or whether that’s in other products, at a very low cost – I think that is the right focus for a technology development company to have. And the company never lost its focus on being a low-cost provider of algae biomass.

On the third level, my own skills really are about connecting technologies with enablers in the form of larger companies that we, the small technology company, work with to create products. As I think about the technology suite that Sapphire has, and the ability to connect that with prospective partners, it just makes sense on all levels, and I wanted to be part of that.

What was Sapphire looking for when they knocked on your door?

When Sapphire knocked on my door they recognized the development of the technology had progressed to a point where it was critical to identify the specific means of commercialization of that technology. That means not just developing technology in the hope that we will identify the right location, product mix, and specifications for a commercial plant; but actually getting us to the point where we can raise the capital that will enable us to progress our business, and achieve that goal of constructing the first commercial scale plant. The skills that I brought in, as more of a business person rather than a technology development person, I think suits that goal well – to form the types of relationships that are going to enable us to create that first commercial scale algae plant.

100 acres of ponds at Sapphire Energy's Green Crude Farm in Columbus, New Mexico

100 acres of ponds at Sapphire Energy’s Green Crude Farm in Columbus, New Mexico

As CEO, describe the day-to-day function you will be performing with the company?

At a small company I think the major description of a CEO is somebody who really has to be in touch with all aspects of the company. We’re a hundred people, and I feel that it’s important to have a connection to all of the different elements of what the company is doing.

At the next level down, in terms of what I spend the lion’s share of my time doing, it is in the traditional roles of either capital raising, or searching for the right partners to think about commercializing the technology with us.

What milestone, or stage of development, is Sapphire currently achieving?

When you look at our facility in Columbus, New Mexico, there are a hundred acres of lined ponds there. But it’s not just about being able to cultivate algae in the hundred acres, it’s about being able to do so year in and year out, throughout the seasonal variations. And that’s really the point that we’ve hit.

We’ve encountered challenges that occur in the winter that might not occur in the summer, and vice versa, and understanding that over a multi-year cycle is really the learning process and the technology development process that we’ve achieved to date.

Where we go from here is about continuing to increase scale. It’s about continuing to find ways to remove cost from the business. But fundamentally it’s also about finding the party that has the capital and the risk tolerance to approach a green crude manufacturing facility and consider actually implementing the technology on a commercial scale.

You mentioned this morning at the opening sessions (of ABS) more of a focus on products beyond fuel, than previous Sapphire keynotes have alluded to. What does that portfolio look like?

Internally at Sapphire there has been work going on since well before I arrived answering the fundamental question: where is the most valuable application of Sapphire’s technology?

We all believe that green crude has a place, but I think we also recognize that there are other possible ways to use the technologies. And I think that applies to both our low-cost production of algae biomass, as well as a separate technology of the conversion of biomass using our hydrothermal liquifaction process into green crude. And I think it’s important to recognize both of those have value together as a green crude machine, but also have value separately.

As we look at where we are headed, it really comes down to what any technology company realizes, which is, it’s about attracting partners who have the capital to build a commercial scale plant. And if we can find that capital within a green crude area, then we can pursue that. If we can find the capital and interest in other areas, whether animal feed, or higher value products, we’ll certainly pursue that as well. Once we have those identified I think is the point when we’ll start talking about them more specifically.

Sapphire's Las Cruces, NM, demonstration and research site

Sapphire’s Las Cruces, NM, demonstration and research site

The path that we are going down to get (to profitability) may be longer than traditionally you would see in a technology development company, but I think with the type of near term revenue we see in licensing our technology, and then the medium term opportunity we see through product sales, we see a path to profitability.

What is your long-term vision for the company, and how has that changed since the early years of Sapphire?

I think the world has changed since Jason’s (former CEO Jason Pyle) days of running Sapphire. Part of the job of the management of a company is thinking about the current environment in which we operate and saying, “We have our set of tools. Are we putting them to the best use?”

I think the dialog around fracking is changing. It felt a few years ago that that was going to be a radical change to the way that we think about the energy balance in the U.S. And I think that we’re now starting to hear more people looking a bit farther down the road and saying, “Is fracking going to solve all of our problems in ten or fifteen years, or should we be thinking again about some of these technologies like algae-based biofuels that actually can provide a solution ­– when, and if, fracking turns out not to be the long term solution people thought it might be a few years ago?

We’re not in the business of forecasting what the future of fracking is going to be, but we have a technology, and the broader vision for the company is saying if we want to diversify to reduce risk, that may be a very good business decision to make. And we’ll pursue other opportunities besides green crude while still thinking that green crude has a lot of potential as an outlet for our technology.

What about the algae industry excites you?

It’s about the number of potential challenges that can be addressed with algae as a platform. I think the concept: “There’s algae for that” is just a reflection of how diverse an algae platform can be. On the other hand, some of the warnings we’ve heard about the need to focus and the need for a drive to a concrete product and a commercial business is something any business person in the industry also needs to have clearly at the front of their mind.

So I think it’s really the productivity of algae, and the diversity of algae that, in the coming ten to twenty years, may start to solve all kinds of problems that we never expected as we sit here today in 2014. And being part of that, in the early days, is very exciting.

What are the greatest obstacles to this industry’s development at this time? and Sapphire’s?

A number of the players in the industry, and for Sapphire this is the case, have really overcome many of the technical hurdles that we were encountering in the development phase. As we have moved through our development of 2009, 2010, 2011, the challenges tended to be more inwardly focused – thinking about the process of cultivation, of crop protection, and of the design of facilities.

A one-acre pond, Sapphire style

A one-acre pond, Sapphire style

Now that that money has been invested, and the understanding we’ve achieved have come into clarity, the obstacles now seem to be more externally focused, such as:

  1. What are the regulatory regimes that we need to be concerned about if we’re producing a specific product?
  2. What are the key product specifications?
  3. What makes a product acceptable to the marketplace or not?
  4. Who would we want to partner with as we think about launching into a particular product area?

All of these are very product-focused challenges, and that means it’s a different skill set to understand. It means bringing in expertise that may not have existed within the company for the last seven years, and may not have been required. We need to make sure we understand what challenges we’re going to face in bringing a product through the whole value chain and into a customer’s hands, one who is willing to pay profitable dollars for it.

Finish this sentence: Sapphire will achieve its purpose for existing when…

…we are selling products derived from our technologies at a profit.

It’s motherhood and apple pie, but on the other hand it does guide a lot of important decisions that we, as a management team, are making right now. And there are many opportunities for distraction.

What I’m encouraged by in hearing other companies talk at this conference is really the diversity of the endpoints that people are looking to pursue with algae. That’s encouraging because I believe with the general sentiment that we want to see multiple successes within this industry. No one is rooting for anyone else’s failure. We recognize as an industry that the more success we have, the more established the industry will become, which benefits all of us. And I think the more product opportunities that people pursue the more opportunities there are for those successes.

Vice President of Corporate Affairs at Sapphire Energy, Tim Zenk

Vice President of Corporate Affairs at Sapphire Energy, Tim Zenk

Sapphire Energy’s Vice President of Corporate Affairs, Tim Zenk, joined in for some perspective of how Sapphire and the algae industry as a whole relate to governmental support or lack thereof…

What role would you now like to see the government play in the development of this industry, and for how long?

TZ: I see the government as a true partner in the development of technology that’s on the cutting edge of commercialization. The government has been very generous with their support for this industry. The Department of Energy has been instrumental in filling the gaps in capital and research and capacity. Not just capacity in terms of their technical support, but also capacity in terms of their endorsement of the technology that has really allowed them to leverage the dollars they’ve invested in us and other companies.

That’s the typical role government has played over the long hall in many technologies, whether semiconductors, or the development of stealth technology for aircraft, and that’s the appropriate role for them. So I’d like to see them continue that. I think they could do more and allow us to move quicker towards commercialization, and I think they’re considering that.

What level of pushback are we getting compared to what we were in the last couple of years?

I feel like there’s a thawing going on in terms of the pushback that we once had generally around the business of renewables, as well as algae. There is a lot more confidence today in the potential of what algae can really do. So, we’re not having to educate policy makers any longer about what the possibilities are with algae. The benefits are obvious to many in the Department of Energy, the USDA, the Department of Defense as well as in Congress. That’s a huge hurdle we’ve gotten over and it’s required a full-court press by the industry to do that.

How does the industry’s diversification relate to the level of support in Congress?

People in government want to see the industry diversify into profit-focused businesses, and co-products have always been part of the energy space. They are part of the traditional fossil energy space. A number of things are made from the total barrel of oil. And they want to see the biotech guys take that model and run with it. I think that proves that we are becoming a much more mature industry. And I think it builds credibility for us as an industry with those folks.

So the fuel aspect of it in Washington is not the only game?

It’s not the only game, though to some agencies it is. It’s a high priority for the Department of Defense, for example, and they’ve set some very aggressive goals. They would really like to see algae have a piece of that, particularly for the Navy.

Fuels and energy have always been strategic to any war fighter, and they see that there is strategic insecurity when they have to purchase fossil fuels from folks that may not like us too much. So the war planners think of that in terms of how it affects their ability to be effective war fighters. That’s why they are trying to diversify their fuel base and add additional capability.

But the other parts of the government think about it in terms of us taking advantage of the model that already exists in energy and applying it to our biotech products.

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