TerraVia files for Chapter 11 and enters into competitive bidding process

TerraVia's algae-based product range includes lipid- and protein-rich powders, high oleic cooking oils, structured fats and long-chain omega-3s for the feed industry

After almost 15 years in business without generating a profit, algae ingredients pioneer TerraVia has filed for bankruptcy protection under Chapter 11 and subjected itself to a competitive bidding process, with ingredients supplier Corbion entering the fray with a $20m bid.

In a statement issued this morning, the San Francisco-based firm – which posted a net loss of $22.6m on revenues of $4.5m in the first quarter of 2017 - said it had entered into a ‘stalking horse’ stock and asset purchase agreement with Dutch ingredients supplier Corbion to acquire substantially all of TerraVia’s assets in a sale process under section 363 of the bankruptcy code.

The deal provides TerraVia with a binding bid of $20m in cash along with the assumption of certain liabilities, which is subject to higher or otherwise better offers.  

Stalking horse arrangements help to prevent low-bids from occurring and act as a stopgap to a downward value spiral by establishing a low-bid offer.

TerraVia intends to implement bidding procedures to allow other qualified bidders the opportunity to submit bids through a court-supervised process to purchase certain or all of the assets being sold, and anticipates that a sale will be completed in 60 to 90 days.

The chapter 11 cases and the sale process should have no material impact on TerraVia’s ability to fulfill its obligations to its customers and employees going forward, stressed the company, which runs an R&D center at its San Francisco HQ and operates two manufacturing facilities: one wholly-owned in Peoria, Illinois, and one in Brazil in a joint venture partner Bunge.  

What went wrong?

TerraVia (formerly known as Solazyme) – which has developed microalgae-based ingredients used in everything from food to industrial lubricants, soap and carpets - had originally hoped to make a splash in the alternative energy market, but gradually learned that food and super-premium face cream were better bets, making the strategic decision to focus exclusively on food, feed and personal care (rather than biofuel/industrial products) in 2016.

However, large food companies can move at glacial speeds, and TerraVia was bringing something new and potentially disruptive to the market, which takes time and money, said Jonathan Wolfson (CEO from 2003 to summer 2016 and now a board member) at the IFT show last year.

He told FoodNavigator-USA: “The platform we’re developing has the ability to redefine the future of food. Algae is the mother of all plants, the world’s original superfood. But it’s completely new to the food industry and true innovation takes time.”

To produce a batch of TerraVia's AlgaVia whole algal (high lipid) flour or whole algal (lower lipid) protein powder, frozen microalgae (a strain of chlorella) is thawed and used to inoculate a flask containing a broth rich in simple sugars and other nutrients, which the microalgae convert into high value oils or protein-rich whole food ingredients.

The mixture is then transferred into progressively larger fermentation vessels until the desired volume is reached.

Temperature, pH, agitation and aeration rates are controlled throughout the process, and when the batch is ready, the fermentation broth is harvested, concentrated, washed and/or disrupted, and then dried.

TerraVia's AlgaWise oils and structured fats, by contrast, are made from an oil-generating algae strain originally discovered in the sap of chestnut tree in Germany that has been genetically engineered to increase its productivity. 

‘Blockbuster’ ingredients?

Speaking on the company’s Q1 earnings call in May, former Mars Food North America president Apu Mody – who joined TerraVia last August as CEO - said he was focused on "restructuring our capital structure or selling all or a portion of the company," but added: 

"As we talk with various parties about our future opportunities, we believe one thing above all is clear. The value in our platform is real and substantial. We have no doubt the potential of our technology and our products will be realized." 

Meanwhile, significant progress had been made in food and feed, he said: “Our priority products include AlgaPrime DHA [long chain omega-3 fatty acid targeting the animal feed market] and AlgaPür [specialty oil targeting personal care markets].

"Our third product targeted for a 2018 launch is our structuring fat, which will be branded AlgaWise Algae Butter…. a product that has the potential to be a blockbuster…”

TerraVia’s culinary algae oil Thrive – which has a clean taste, high smoke point and high levels of monounsaturated fat, zero trans fat and low levels of saturated fat – “is gaining retail sales traction and we expect to be on the shelves of major retailers and new markets around the country in coming months, including in the North East and the South East,” added Mody.

As for the AlgaVia powders, the first food ingredients TerraVia brought to market, he said, “We are actively engaged in discussions around potential strategic partnerships and we are seeing broad interest.”

However, most of the call was devoted to the long-chain omega-3 fatty acid AlgaPrime DHA , which he said was “showing early signs of being a blockbuster new product that can become a vital feed ingredient for aquaculture and potentially other nutrition markets.”

Below:  Former CEO Jonathan Wolfson talks to FoodNavigator-USA at the 2016 IFT show in Chicago:

More to follow...

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