Texas nutrition company bets big on algae source of omega-3 | Crain's

Texas nutrition company bets big on algae source of omega-3

Texas native Rebecca White spent the early part of her career growing algae as an alternative fuel. The microbiology Ph.D. from Texas A&M is now growing it for an entirely different purpose: to go into capsules for health-conscious consumers who want to add omega-3 fatty acids to their diets.

White is vice president of operations at Houston-based Qualitas Health, which she joined in 2015 after seven years at Sapphire Energy. Like a few dozen other companies in the last decade, Sapphire was chasing the nascent algae-based biofuels market with a $100 million investment from billionaire Bill Gates’ Cascade Investment, Arch Venture Partners and others.

But that proposition proved to be uneconomic, especially after oil prices began to slide in 2014, which made alternative fuels less competitive with conventional fuels. That led many biofuels producers to struggle, including Sapphire, which ended up selling its algae farm in southern New Mexico to Green Stream Farms for an undisclosed sum.

White is now back at that facility after Qualitas signed a deal with Green Stream in May to grow algae for the omega-3 market at the site. “It’s the one I brought into production and ran [for Sapphire],” she said. “It’s been great to be back. I’m having a lot of fun.”

The facility is the second for Qualitas, which also operates an algae farm in West Texas. The new facility will triple Qualitas’ production, which it says will give it the critical mass to become a sustainable, alternative omega-3 provider worldwide on a commercial scale.

Qualitas already has several products on retail shelves under the brand alGeepa, having signed agreements with Texas supermarket titan H-E-B in March followed by Midwest hypermarket chain Meijer in May.

That’s been the work of CEO Miguel Calatayud, who joined the company last year after managing food-related companies in Spain and the U.S. He already had contacts at H-E-B, as the grocery store chain buys skillet-ready meals from his last venture, Blencor, a Sealy, Texas, joint venture between the Virto Group of Spain and IQF of Peru.

Calatayud thinks Qualitas will revolutionize the way people think about food. “This is the new super-crop,” he said. “And we are the new farmers.”

Calatayud is a part-owner of the company along with other members of the management team, some Israeli shareholders who founded it back in 2011 and a few public and private companies, none of which he would name.

Qualitas is focusing mainly on its omega-3 product, a vegan alternative to supplements made out of fish and krill. “One-tenth of millennials are vegan and most Indians are vegetarian, and they don’t have an alternative for omega-3,” Calatayud said.

The omega-3 market is sizable and growing, as more and more studies find it can help everything from high cholesterol to arthritis to attention deficit disorder to Alzheimer’s disease. According to the trade group Global Organization of EPA and DHA Omega-3s, or GOED, the omega-3 market worldwide reached $31.4 billion in 2015 and should expand by 5 percent per year.

The North American market for algae omega-3 ingredients is expected to grow faster – by 10 percent per year between now and 2022, according to market report purveyor Research & Markets. The reason? The products’ lack of off-odor or aftertaste compared with their fish-based competitors. And while algae-based products are more expensive due to higher downstream processing costs, the firm said the passing of time and technological advancement should reduce those costs, making it a highly competitive market.

Qualitas is also blending its algae with other ingredients for the joint and cardio market, which Calatayud claims amounts to $150 billion. Next up: a protein supplement based on algae, which the company says can produce 300 times more protein per acre than peas. “We have an amazing value proposition,” he said.

The company has some competition in the algae-based supplement market. Matt Carr, executive director of the Algae Biomass Organization, said Dutch health and nutrition giant DSM entered the business several years ago when it bought Martek Biosciences Corp. for $1.1 billion. More recently, Alltech of Kentucky and TerraVia of San Francisco have jumped in, as have agriculture giant Archer Daniels Midland Co. and several smaller producers.

But Carr notes that those companies grow their algae “heterotrophically” – in steel tanks in the presence of sugar – versus Qualitas, which is the first to his knowledge to do algal omega-3 oils on a large scale photosynthetically. He said a few smaller players such as FeedMe Algae are also growing algae for omega-3 production photosynthetically, but in enclosed systems using LED light.

Carr said he doesn’t have a good handle on volumes being produced to date but that it's a tiny fraction of the overall marine omega-3 market, almost all of which comes from fish. “But with big players like ADM and others getting into the algae game, the landscape is shifting,” he said.

Calatayud acknowledges that Qualitas is a new player in a nascent market, but he’s determined. Based on his expansion plans, which includes more retail outlets to sell the products, he expects the company to up its employee base by 50 percent to 50 people and break even sometime next year. Said Calatayud: “I see this company being a game changer for the food and nutrition industry.”

June 13, 2017 - 2:23pm