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Well-known but still young biofuel company Sapphire Energy has more than doubled its funding to more than $100 million for its “green crude,” a fuel it says will mimic the best characteristics of the oil we drill for today.

Sapphire’s plan, which I covered in depth back in May, is to grow tailored strains of algae on waste water. Algae is criticized because it often uses open pools of water, which evaporate quickly in hot climes, wasting a precious resource. So Sapphire will genetically modify algae to subsist on water that is useless to humans.

But few new details have come out since Sapphire emerged in May. Developing a process like Sapphire’s takes a long time, and the company estimates that it will need three to five years to reach 10,000 barrels a day of production — a nice revenue line for a startup, but a relatively tiny amount of fuel. And problems with the algae can occur at any point in that time window, delaying or halting progress.

If Sapphire is successful, it make a substance it calls “green crude,” which can be run through existing oil refineries to produce gasoline, jet fuel and other petroleum derivatives. Most algal biofuel startups, like Greenfuel and SequesCO, plan to make biodiesel, which is roughly the same as today’s diesel fuel.

One confusing point about Sapphire’s growing funding is that the company is unwilling to break down the numbers. It says it has raised “substantially more than” $100 million, and in May said it had taken $50 million. So its funding has at least doubled since then. However, reports that it has taken a $50 million second round may be inaccurate.

The new investor in this round, officially the second, is Cascade Investment, which is owned by Bill Gates. The other investors are ARCH Venture Partners, Wellcome Trust and Venrock. Sapphire is based in San Diego, Calif.

Another algal biofuel company has emerged from stealth mode, and this one has the biggest story yet, at least according to the estimation of its investors.

Only a year old, Sapphire Energy is a San Diego startup that has lab-developed an algae that it says can create a substance akin to crude oil that can be processed by existing refineries, transported through existing infrastructure and burned without difficulty by today’s vehicles.

Sapphire has raised over $50 million from three investors, including Arch Venture Partners, whose Kristina Burow helped co-found the company. Burow told me in an interview yesterday that Arch, along with Venrock and UK-based medical research charity The Wellcome Trust, has given Sapphire an “open checkbook” not based on the usual venture model of set rounds and valuations, from which the company can draw as much capital as necessary to commercialize the technology as rapidly as possible.

The excitement of Sapphire’s investors and founders over its technology stems in part from the size of its plans. CEO Jason Pyle says that where other biofuels can only promise to replace a small fraction of the oil use in the United States, the algae that Sapphire is working on could replace all of it.

How is that possible? Well, where fuels like ethanol and biodiesel rely on grown feedstocks — corn, sugar, switchgrass, trees — Sapphire’s algae requires no feedstock at all, just water and sunlight. Pyle claims that the requirement to grow without relying on a food crop was one of the company’s founding principles.

The two other requirements, that the algae cultivation not take useful land or use fresh, potable water, should quell many environmental concerns. Instead, Sapphire plans to use non-potable water like agricultural runoff and salt water.

One of the distinguishing factors of algae startups is that they tend to dream, and talk, rather large, and Sapphire is no exception. Like other companies, its algae has yet to be proven at commercial scales — a step that has foiled initial attempts by other companies, most famously Greenfuel Technologies, whose first large algae project grew so rapidly it choked itself out. But when I pointed that out to Pyle, both he and the two VCs I spoke to on a conference call (the other being Arch co-founder Robert Nelson) shrugged off the objection.

“The ability to produce this organism and use it is well understood at scale … the attempts of biofuel companies do not represent the best attempts at scaling these systems,” Pyle said. And although Sapphire won’t reveal where or how it intends to initially cultivate its algae, Pyle says it is specially developed to fit a particular niche in the ecosystem, which will both keep it from escaping into the wild, and keep wild algae from invading and damaging production, a significant problem for many algae startups.

However, despite the implicit criticism Sapphire has for its competitors, Pyle believes that there will be many winners in the algal biofuel space. “In a trillion dollar market, it’s hard to believe in a winner take all strategy,” he said.

While algae currently accounts for an almost negligible amount of the fuel market, in any country, it may take less time to commercialize than other technologies. Sapphire plans to move forward next with pilot testing, going from production of 100 barrels of “green crude” per day, to 1,000, all the way up to 10,000 per day.

If that model turns out to be the right one, the future of the biofuel industry looks fairly straightforward. Cultivation ponds drawing water from farms, waste-streams, tainted reservoirs, the ocean and other sources would be dotted thickly throughout the southern half of the United States, each producing three to four million gallons per year. To replace the entire crude oil usage of the country, it would take between two and three thousand of these ponds, according to my back-of-the-envelope calculations.

That scenario is a long way off, though: Sapphire plans to have its first commercial production plant in about three years, after which it would require billions of dollars in project financing to build up production. And how quickly that project financing comes through will depend almost entirely on the price of the finished product versus the crude oil prices at the time.

TODAY’S HEADLINES

• Cantimer takes in $2M for dehydration diagnostics (VentureWire)
• Recodagen launches, takes aim at cancer (release)
• Juniper Diagnostics spins out of ChemSensing (VentureWire)

Cantimer takes in $2M for dehydration diagnostics –The mystery of Menlo Park, Calif.-based Cantimer has resolved a bit. We wrote about this stealthy company back in December and reached the conclusion that the company was developing a particular type of nanosensor intended to identify water levels in human tissue.

Now VentureWire reports that Cantimer is doing just that, using a polymer-based sensor for measuring dehydration in saliva. The company plans to market the device in sports medicine and pediatric and elderly care as well as to hospitals and emergency rooms.

The startup also just raised $2 million in a first funding round. AWT Private Investments and angel investors provided the cash.

Recodagen launches, takes aim at cancer – Recodagen (no Web site), a newly launched Seattle biotech working on new cancer drugs, raised an undisclosed sum in a first funding round. The sum falls in the $2 million to $5 million range, according to John Cook’s blog.

Investors included Alexandria Real Estate Equities, Amgen Ventures, ARCH Venture Partners, OVP Venture Partners and WRF Capital.

Recodagen was incubated by Seattle’s Accelerator. The company’s technology originated at Washington State University.

Juniper Diagnostics spins out of ChemSensing with new funding– ChemSensing, a Champaign, Ill., developer of sensor arrays, is spinning out Juniper Diagnostics to commercialize its technology for detecting bacteria via breath, VentureWire reports. The new startup will launch with a multi-million-dollar funding round provided by Mariner Equity Management and ChemSensing.

Juniper’s technology involves panels of reactive dyes that change color in response to chemical exposure — in this case, to gases emitted by certain classes of bacteria in the breath of patients with tuberculosis or pneumonia. The company expects that FDA approval of the device may take 18 months to two years.

TODAY’S HEADLINES:

• RNAi developer PhaseRx gets $4M of a pledged $19M (Seattle Times)
• TyRx Pharma, drug-device combo maker, raises $25M (release)
• Agennix aims at $40M for cancer drugs (VentureWire)
• Starr Life Sciences goes after $1.6M for small-animal vital-signs scanner (VW)
• CardioNet sets IPO terms, aims to raise $96M (IPOhome)

RNAi developer PhaseRx gets $4M of a pledged $19M – Investor interest in RNA interference, an ancient cellular mechanism for silencing dangerous genes, continues apace. PhaseRx, a Seattle biotech, has raised $4 million of a pledged $19 million first funding round, the Seattle Times reports.

Investors included ARCH Venture Partners, 5AM Ventures and Versant Ventures. PhaseRx will draw down the rest of the cash as it achieves various milestones.

The company seems to have neither a Web site nor a press release, and the newspaper story isn’t particularly illuminating on the subject of what PhaseRx intends to do. This Seattle Post-Intelligencer article has more details, however; apparently PhaseRx plans to use some form of synthetic polymer to help RNAi molecules cross into cells. (It’s unclear whether the polymer would also help stabilize RNAi molecules, which are fragile and prone to disintegrate before reaching their targets.)

TyRx Pharma, drug-device combo maker, raises $25M – Monmouth Junction, N.J., medical device maker TyRx Pharma raised $25 million in a new financing round. Investors included Clarus Ventures and Pappas Ventures.

TyRx focuses on implantable polymer-mesh bags meshes that have been coated with drugs of some kind. Its first product, the succinctly named AIGISrx CRMD Anti-Bacterial Envelope contains two antibiotics and is intended as an enclosure for implantable defibrillators designed to prevent infection. (UPDATE: The AEGISrx is actually the company’s most recent product. It also sells the Pivit, a similar polymer-mesh pouch for hernia surgeries. Also, the current financing round is the company’s fifth, according to VentureWire.)

Agennix aims at $40M for cancer drugs – Houston’s Agennix, a biotech developing drugs for cancer and other conditions, hopes to raise $40 million in a late-stage round to fund clinical trials, VentureWire reports. The company hopes to close the round by mid-year. Agennix is developing a bioengineered version of a human protein called talactoferrin that plays an important role in regulating the immune system. Agennix plans to use the funding to fund two late-stage, phase III trials of the drug in lung cancer.

CardioNet sets IPO terms, aims to raise $96M – San Diego’s CardioNet, a maker of wireless cardiac-monitoring devices that hopes to buck the recent trend of IPO collapses, set terms of its proposed IPO and now hopes to raise as much as $95.8 million.

The overall IPO, however, would be much larger — as large as $182.2 million, in fact — because existing CardioNet investors plan to sell more shares than the company itself. While there’s certainly precedent for this sort of thing — Masimo, another Southern California diagnostic-equipment maker, raised nearly a quarter of a million dollars in its IPO last August, the vast majority of which went to selling shareholders, conditions now are far worse than they were six months ago.

CardioNet plans to price its shares between $22 and $24 apiece. Its IPO, it turns out, is part of a complex financial arrangement whereby its last round of funding — $110 million raised last spring — didn’t put a valuation on the company. Instead, those investors received a promise of common stock in the form of shares that convert on the eve of the IPO. The down side here is that if the IPO doesn’t go well, those investors may be hosed. See here for more details.

Featured companies: Fate Therapeutics, Medgenics, Satoris

UPDATED: Expanded items on Fate Therapeutics and Medgenics. The Satoris item is now a standalone post here.

Fate Therapeutics launches regenerative-medicine quest with $12M — In one of the splashiest launches in recent memory, Seattle’s Fate Therapeutics launched a new regenerative-medicine quest and raised $12 million to help it along. The company aims to develop drugs that redirect fundamental cell biology in ways that mimic the regenerative powers of stem cells, either by “reprogramming” normal cells into stem cells or by directing existing “adult” stem cells in the body to activate their regenerative powers.

I mentioned the hype, right? Fate’s release — and its Web site — prominently quotes one of its scientific advisors saying the company’s approach amounts to “the dawn of a new day in medicine,” so it seems safe to say that the company doesn’t lack for self-confidence. Fate also arranged a slew of positive press coverage timed to its announcement, including this story in Forbes.

Fate has assembled a team of scientific stem-cell luminaries — see the release for details — and the potential of this sort of approach is certainly huge. At the moment, most stem-cell companies are trying to use transplanted cells themselves to regenerate damaged or diseased tissues, still an unproven approach with a number of shortcomings — among them, the likelihood that patients receiving cell transplants will have to take immunosuppressive drugs to prevent transplant rejection.

By contrast, targeted drugs that can push existing cells back into a primordial, regenerative state could open up entirely new forms of medical treatment. Assuming, that is, that everything works — and that’s a big if at this point. Understanding of cells’ natural regenerative mechanisms remains in its infancy, so it’s probably worth taking Fate’s grander claims with a grain of salt until the company proves that it can do what it claims it can.

Here’s Forbes on what Fate has in store for us:

Already, Fate Therapeutics has treatments in clinical trials to improve the potency of cord-blood stem cells and to treat myelodysplastic syndromes, anemias that strike 10,000 Americans a year. Another drug program might help reduce the impact of the genetic disorder that causes Down syndrome. Other treatments could affect the same litany of diseases touted as targets for stem cell therapy: Alzheimer’s, osteoporosis and Parkinson’s, to name a few. Because tumors are caused by stem cells run amok, drugs to turn down their activity might be potent cancer medicines.

Fate, of course, isn’t alone in this quest. Plasticell, a fairly new U.K. biotech with a much lower profile than Fate, is also looking for non-invasive ways to tap cellular regeneration; see our coverage here.

Investors in the funding include Arch Venture Partners, Polaris Venture Partners, Venrock and OVP.

Medgenics raises £3.3M in London IPO — Vienna, Va.-based Medgenics, a biotech that aims to help patients produce genetically modified protein drugs within their own bodies, raised £3.3 million ($6.8 million) in an initial offering associated with its listing on the AIM market of the London Stock Exchange, VentureWire reports (subscription required). The company is developing “Biopumps,” which are tiny protein “factories” made from a patients’ own tissue that are designed to provide lasting drug treatment for chronic conditions such as anemia or hepatitis.

Featured companies: Allozyne, Arteriocyte Medical Systems, Arthrosurface, Bay City Capital, EnteroMedics, OncoVista, Novotech, Power Medical Interventions, Reliant Technologies

UPDATED: Expanded items on Allozyne, Reliant Tech, Power Medical and Bay City Capital.
UPDATE REDUX: Added item on EnteroMedics IPO.

Seattle’s Allozyne draws $30M for new interferon — Allozyne, a Seattle biotech focused on tweaking existing protein-based drugs to improve their properties, raised $30 million in a second round of financing. Investors included MPM Capital, OVP Venture Partners, Amgen Ventures, ARCH Venture Partners and Alexandria Real Estate Equities.

Allozyne’s twist on improving protein-based drugs — i.e., most biotech drugs — is to substitute “non-natural” amino acids into the proteins themselves. (Recall that a protein is essentially just a long chain of amino acids.) By swapping out natural amino acids with synthetic versions at key points in the protein, Allozyne hopes to improve the effectiveness and safety of protein drugs. The company’s description of it’s approach is here.

The company’s first drug candidate is a modified version of interferon beta, which is currently used to treat multiple sclerosis. The funding will support the first early-stage human trials of the drug, and will also “accelerate” development of a second candidate.

In addition, Allozyne will prepare to exit Accelerator, a Seattle biotech incubator connected with the Institute for Systems Biology. We previously wrote about Accelerator here.

Med-device maker Reliant Tech sets IPO terms, aims for $86M take — Not to be confused with Reliant Pharmaceuticals, which set its IPO terms yesterday, Mountain View, Calif.-based Reliant Technologies set its price range today and now hopes to raise up to $86.5 million in an offering of as many as 5.4 million shares. Reliant hopes to price those shares between $14 and $16 apiece.

Reliant makes medical lasers for “skin rejuvenation” treatments. Our previous coverage of the company is here.

Power Medical IPO falls short, raises up to $49M for robotic-surgery systems — Power Medical Interventions, a Langhorne, Pa., maker of computer- and power-assisted surgery tools, fell short of its IPO hopes and now stands to raise no more than $49 million from its offering. Its latest SEC filing is here.

The company priced its shares at $11 apiece, well under the $12 to $14 range it previously established. (Our coverage is here.) Power Medical could sell as many as 4.4 million shares in the offering.

The result is a sharp disappointment for Power Medical, which had originally hoped to raise as much as $100 million in its offering. The company’s lackluster start contrasts with the soaring welcome spinal-implant maker TranS1 received earlier this month (our coverage here). If it’s any consolation, though, Power Medical shares staged an early recovery, rising 60 cents, or 5.5 percent, to $11.60 in early trading today.

Bay City Capital closes $500M life-science fund — The San Francisco-based VC firm Bay City Capital, which focuses on life-science investments, closed a $500 million fifth fund, VentureWire reports (subscription required). The fund is significantly larger than its predecessor, which closed at $350 million in 2004.

Bay City intends to back 15 to 20 biotech, medical-device and diagnostics companies with the fund, which suggests it will tend to favor later-stage deals — now a long-standing VC trend. The firm told VentureWire that it will invest at all stages, including “seed-stage bets on start-ups launched in-house and structured investments in publicly traded companies.”

EnteroMedics sets IPO terms, looks for $92M to support obesity-control implants — St. Paul, Minn.-based EnteroMedics, a device company developing a neuromodulation implant designed to regulate appetite, set its IPO terms and now aims to offer up to 5.75 million shares at a price of $14 to $16 apiece. The offering could value the company at as much as $261 million while raising up to $92 million.

EnteroMedics is one of several companies angling to introduce new obesity treatments that don’t rely on drugs or invasive surgery. Although its technology is still being tested to assess its effectiveness, EnteroMedics has launched a spiffy new Web site with lots of pictures and animations to illustrate how it believes its implant will work. For our previous coverage of the company, see here and here.

OTHER HEADLINES OF NOTE:

• Arteriocyte Medical Systems spins out, gets $10M for med devices(release)
• Arthrosurface raising $5M for knee implants (VW)
• Contract researcher Novotech raises $8M for expansion(release)
• OncoVista goes public via reverse merger (release)

Innovalight, a Silicon Valley company that says it has come up with new solar cell with nano-particles of silicon, has raised a large $28 million round of capital and said it plans to open a 30,000 square foot manufacturing facility next year.Innovalight is still being very vague on the details of its technology, and it’s very late to the game. There are already more than a dozen other large companies and start-ups that are developing new solar energy modules.

Innovalight’s claim to differentiation is that it won’t use silicon in its costly, inflexible crystalline wafer state. It will reduce the silicon to nanosize crystal dots (see our earlier coverage), so that it can be used as a sort of ink, where it can be painted onto surfaces. At this point, though, being late may not matter as much as getting it right. The market for solar is expected to be huge (the market is predicted by some to more than double to $36 billion by 2010), as long as the price of the product can get low enough to be competitive with competing sources of energy.

The company hopes to take the efficiency properties of silicon and outperform other start-ups companies that are working on flexible, ink technologies based on materials other than silicon, such as CIGS. These companies include Konarka, Nanosolar, Miasole, Solyndra, SoloPower and Heliovolt. Many of these companies have made promises about their technology, but have failed to deliver on their declared time frame. They’ve also been soaking up engineering talent in the sector, making it harder for late companies such as Innovalight to hire the people they need.

It is the Sunnvale, Calif. company’s third round of funding, and it was led by Norway-based investor, Convexa Capital and supported by Scatec AS. Existing investors Apax Partners, ARCH Venture Partners, Harris & Harris Group, Sevin Rosen Funds and Triton Ventures also participated in this financing. The company, founded in 2002, previously raised $14 million.
CEO Conrad Burke wrote a guest column for VentureBeat in March.

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