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OPX Biotechnologies, a biotech firm that focuses on engineering microorganisms to better break down organic products into cost-effective fuel sources, just closed its second round of funding at $17.5 million. The money will go toward construction of a demonstration plant slated to open in 2011 — laying the groundwork for broader commercialization a little over a year later.

This isn’t your standard ethanol or biodeisel production. OPX is altering the DNA of bacteria and fungi that emit usable fuel when they digest organic material. The changes being made are intended to fix some of the problems inherent in using microorganisms to produce fuel. For example, some very fine DNA modifications could allow bacteria to produce the fuel biproduct in much higher volumes. VentureBeat’s Chris Morrison described the copious challenges associated with this methodology in past coverage.

But those challenges don’t seem to have deterred OPX, which claims it can experiment with different genetic conditions much more quickly than its competitors can — sometimes, up to a thousand times faster, chief executive Robert Chess has said. The proprietary procedures the Boulder, Colo. company uses to do so are pretty well guarded. After all, they’re the only thing separating it from its much older and more advanced competitors like Amyris and LS9.

A lot of the company’s confidence comes from its ability to create (and eventually sell) biofuels and other chemical products much more cheaply — music to many consumers’ ears in this economic climate. For example, it says it could generate bioacrylic — a material that could be used in everything from fake nails to paint — for up to 50 percent less from basic sugar than it costs to make it with petroleum.

The recent round of financing was led by Braemar Energy Ventures and included Altira Group, Mohr Davidow Ventures and X/Seed Capital Management. OPX previously raised $3.6 million in its first round of funding in December 2007.

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