19 TAXA Biotechnologies Inc.: A Genetic Engineering Start-up

Case Study: Challenges faced by a synthetic biology start-up firm

By Rashmi Kurup

While watching Avatar, a 2009 American film, it seemed that glowing plants were yet another visual effect added to an epic science fiction film; but the truth is that it is not a fiction [2, 3, 23]. In 1986, scientists added Luciferase, a gene encoding the firefly enzyme, to a Tobacco plant and when a chemical substrate named Luciferin was sprayed on the plant, it glowed temporarily [2, 24]. In 2010, Krichevsky and colleagues from State University of New York used bacterial genes to genetically engineer a Tobacco plant and made it dimly glow [3, 14]. In the same year, scientists from the University of Cambridge used the genes involved in the bioluminescence pathways found in fireflies to create light-generating BioBricks which made bacteria produce both luciferase and luciferin and also glow continuously [3, 22]. Inspired by these researches on bioluminescence, a budding entrepreneur from San Francisco, California decided to manipulate these bacterial genes, insert them into plants, and make it glow [3].

In 2012, Antony Evans, CEO and founder of TAXA Biotechnologies Inc., abandoned his corporate career to become a technology entrepreneur as he strongly believed that Biology is the ultimate sustainable technology [23]. Evans started the Company with a vision to make new products using synthetic biology that would delight and inspire his customers [13]. He and his colleagues – Omri Amirav-Drory, founder of Genome Compiler in Berkeley, California, and Kyle Taylor, a graduate from Stanford University in California – conducted an experiment on Arabidopsis and successfully made it glow [3]. Excited by the outcome of their lab experiments, Evans decided to generate the initial funding for the Glowing Plant project using crowdfunding campaigns. In April 2013, Evans officially launched his 8 months old project at the NASA Ames Research Park in San Francisco Bay Area and this drew the attention of media and investors alike [3]. Evans and team organized their first Kickstarter campaign and gave away stickers and T-shirts depicting glowing plants and vases to keep his soon-to-be product, The Glowing Plant [3]. Although Evans’ initial fund-raising goal was only $65,0000, with support from 8,433 backers, he successfully raised $484,013 in pre-orders [9].

On 25th April 2013, Evans and team shared this good news with all his supporters, expressed his deepest gratitude, and celebrated the National DNA Day like never before [4, 28]. He informed his backers that the fund raised from Kickstarter campaign will be used for research and development activities and also to develop an open policy framework for DIY-Biowork involving recombinant DNA which would support their work [8, 9, 10]. Evans believed that this framework would provide guidelines to navigate the regulatory and social challenges, some recommendations to other DIY Bio enthusiasts, and also create an awareness about what kinds of projects were safe and what processes should be put in place for similar synthetic biology projects [8, 9, 10]. In 2013, along with the research and development of glowing plants, TAXA started working on another product, Fragment Moss in a Terrarium, which was named Orbella [13, 17, 20] [Refer Exhibit 1, 2]. The value propositions of Orbella were Natural Fragrance, Safe/Non-toxic, Zero Waste/Compostable Packaging, and Educational as it can inspire kids about science [17].  By the end of 2016, TAXA raised $752,807 from more than 500 investors through crowdfunding campaigns including Kickstarter, WeFunder, Y-Combinator, and SAFE agreements (Simple Agreement for Future Equity) with third parties [12, 18, 47, 61].

PUBLIC SAFETY AND REGULATORY COMPLIANCE

Evans announced that his backers will receive the seeds to grow a glowing plant at home and within no time, as expected in any GMO (Genetically Modified Organism) initiative, questions about public safety and regulatory compliance arose from various stakeholders [8, 9, 10, 42, 43]. According to George Church, the head of Genetics at Harvard Medical School, who works extensively on engineering biosafety, the glowing plant itself and their DIY Maker Kit [Refer Exhibit 3] were safe for public use [8, 9, 10, 42, 43].  Evans added that they will use non-pathogenic, non-toxic, and well-categorized genes and that their lab will comply with all NIH guidelines on recombinant DNA research; their work was graded at Biosafety Level 1, which was the lowest level of risk [8, 9, 10, 42, 43].

The glowing plant being a GMO product, TAXA needed to obtain a nod from three Regulatory Agencies in the United States before releasing their product to market. First, the USDA (United States Department of Agriculture), the U.S. federal executive department responsible for developing and executing federal laws related to farming, agriculture, forestry, and food and APHIS (Animal and Plant Health Inspection Service), the lead agency of USDA for collaboration with other agencies to protect U.S. agriculture from invasive pests and diseases [1, 25]. APHIS had established a strict set of guidelines on testing Genetically Engineered crops before releasing them to the environment [1, 7, 9]. APHIS had raised some concerns which were mainly related to the introduction of potential plant pests through TAXA’s products and they issued a mandatory instruction to use the gene-gun technique to transform their plants, instead of Agrobacterium; TAXA promised to comply with all the guidelines set by APHIS in order to safely release their glowing plants [8, 9, 10]. Second, the EPA (Environmental Protection Agency), the federal agency that regulates new uses of pesticides – many GMOs introduce pesticide and/or herbicide resistance to their plants (either as a selection agent or as an intended outcome) [8, 25, 26]. Evans informed his stakeholders that TAXA had opted not to introduce such resistance in their glowing plants and moreover since the glowing effect itself was a natural marker for this plant’s selection procedure, they do not need to go through EPA’s specific testing procedures [8, 9, 10]. Third, the FDA (Food and Drug Administration), the federal agency that regulates food and feedstock implications [6]. Since the glowing plant was an ornamental plant and not meant for consumption by humans or animals, TAXA was exempted from FDA’s regulatory compliance also [6, 8]. Hence, TAXA gave assurance to its stakeholders that they had to comply only with the USDA’s regulations before releasing their glowing plants to the market [8, 25].

FUNDING AND REVENUE

The TAXA Infrastructure

In 2015, Evans announced the launch of the TAXA Platform – a platform as a paid service that enabled other synthetic biology start-up firms to develop new consumer applications without having to invest in a sophisticated lab [19]. TAXA’s value proposition was to provide a platform with low cost and automated technologies and systems, access to expertise, cost-effective agile development, reusable DNA parts, multi-gene constructs, and biolistic methods to make unregulated products which can be sold and distributed in the United States without requiring regulatory review [16, 19, 20, 21]. The TAXA Platform was a technology stack with four components – Protein Engineering System, Automated DNA Assembly System, Transient Experiments, and Stable Transformation – from which the companies could pick and choose based on the specific experiments they needed to run in order to develop their specific applications [16, 19, 20, 21].

Collaborative Research Agreements

TAXA earned revenue from two streams: First, from Collaborative Research Agreements (CRA) wherein TAXA offered platform as a paid service to other companies for product development [13, 20]. Depending on the nature of the research goals these revenues were either milestone based or monthly recurring payments [13, 20]. By 2016, TAXA had signed three such CRAs and partnered with other companies for the development of some new products wherein TAXA took part in the research and development of new products [13, 20]. TAXA earned recurring revenues from the sale of products developed under Collaborative Research Agreement which included monthly recurring payments. This monthly recurring payment facilitated a steady cash flow for TAXA’s in-house product development and operations [13, 20]. For instance, the product Blue Rose for which TAXA had such a collaborative partnership with a spin-out from the University of Southern Illinois. Researchers from the University of Southern Illinois had found a novel pathway for producing blue cells in E.coli. The patent for the innovation was owned by the university and it was licensed to a small start-up firm which in turn paid TAXA to express that blue pathway in plants and confirm its feasibility in higher plants. Second, from the sale of in-house genetically engineered plants which were sold directly to consumers [13, 20]. Products that were developed in-house like the Glowing Plant typically had high gross margins (>90%) [13, 20]. In some instances where another party had a patent claim on part of their product, TAXA also paid out royalties to third parties [13, 20]. The sale of final products which were developed under a CRA helped to earn royalties of between 7.5% and 92% of revenues depending on the risk incurred by TAXA on those projects; however, TAXA had reduced costs and risks associated with such products as the partner handled the manufacturing of products as per the agreement [13, 20].

MARKET

In an interview, when asked about how big the market is, Evans responded that their growth strategy was to enter and lead a small market to start with and later to leverage that market power in order to expand in multiple segments [as cited in reference 12]. He added that, in the United States, consumers spend around $5 BN on home fragrances and $28 BN at florists [as cited in reference 12]. TAXA’s consumer products like Fragrant Moss and Blue Rose had a good market and they had planned for more such consumer products in their pipeline like the Ever Blooming Flowers [12].

As for Agricultural Sector, he added that plants contribute trillions of dollars to the global economy but only less than 14% of those have been engineered, leaving room for countless opportunities and improvements [as cited in reference 12]. The crop production has a market of $210 BN in the US and a global market of $2+ TN of which only 12% has a GMO presence [as cited in reference 12]. Evans strongly believed that with TAXA’s future products like Fast Growing Lettuce, Caffeinated Apples, Vitamin D Enhanced Greens etc. he can target the remaining market for engineered crops [12, 13, 20].

As for Energy and Industrial Chemical Markets, Evans said that “the fossil fuels are stored photosynthetic energy buried in the ground and it should be possible to use plants to make fuels and chemicals directly from sunlight, enabling a carbon-neutral economy” [as cited in reference 12]. Evans dreamt of using synthetic biology to make useful products like Lab Grown Meats, Self-Fertilizing Plants, and even Trees as Streetlights [13, 15, 20].

REGULATORY AND TECHNICAL CHALLENGES

In August 2013, Kickstarter changed its project guidelines to specifically exclude the offering of Genetically Modified Organisms [7, 42]. TAXA, along with their supporters, signed a petition requesting Kickstarter to reconsider their decision, however, that went in vain [42]. Kickstarter responded that the glowing plant project sparked a debate in the scientific community and triggered concerns from some scientists and anti-GMO advocates [42]. They decided to abstain from supporting GMO products since the scientific community was unsettled on the ethics and best practices for releasing genetically modified organisms into the world [7, 42]. Kickstarter, a funding platform for artistic and creative projects, continued to appreciate and verbally support TAXA and its “cool ideas”, however, they stood firm on their decision until the scientific community came to a consensus on GMOs [7, 42]. This was a huge hindrance to TAXA’s current and future business as they were largely dependent on external funding, however, TAXA continued to work on their existing in-house projects – the Glowing Plant and the Fragrant Moss.

In April 2014, the traditional software accelerator – Y-Combinator, expressed interest to invest in TAXA and by August 2014, TAXA raised around $120,000 [12, 18, 47, 61]. Considering the financial instability of the firm, funding from Y-Combinator was truly the need of the hour. TAXA geared up their work to make the glowing plant ready for shipment by December that year [48]. They faced some technical challenges in the development of plants which significantly delayed the shipment [49, 50]. By the end of the year, TAXA hired experienced resources to resolve the issues and expedite the development and shipment of finished products, but their attempts were not successful [50,51]. In April 2015,  after realizing that making the glowing plant was not possible with the chosen plant species, TAXA reached out to its backers and stakeholders to understand their views on changing the plant species [52]. TAXA had three species as options – Arabidopsis, Nicotiana benthamiana, and Petunia, each with its own pros and cons [52]. The original plant, Arabidopsis had two main issues; the first was low transformation efficiency and the second were challenges in growing them at home under short daylight conditions [52]. Nicotiana benthamiana, a close relative of tobacco (but does not produce nicotine), can be easily transformed to produce stable lines, however, the main issue with this species was that the seeds available in the USA were commonly grown only in the research labs and were not found in the wild [52]. The unavailability of seeds in the USA posed greater ecological uncertainties and potentially higher ecological risks, and according to TAXA, it was not a wise decision to select this species [52]. Moreover, TAXA feared that USDA may also raise some concerns around this [52]. For Petunia, a commonly grown plant with a life cycle that did fit with TAXA’s seed production timelines, transformation protocols were established and the team was confident to make it glow [52].

TAXA, being a small start-up firm, was highly dependent upon the retention and addition of highly skilled resources [52]. In May 2015, while the glowing plant project was entering from its research phase to development phase, one of the key resources who was with TAXA since the inception, decided to leave the firm and join academia as it better aligned with his career goals [52]. Although this resource attrition had a substantial impact on the ongoing projects, Dr. Jihyun Moon, who had nearly twenty years plant research experience, took up the scientific leadership role to make sure that the R&D functions continued without interruptions and met the extended milestone dates for the shipment of products [52].

On July 2nd 2015, the White House released a memo stating that the three main agencies which regulate GMOs in the United States – USDA, EPA, and FDA, should review the Coordinated Framework for the Regulation of Biotechnology, which defined a comprehensive federal regulatory policy to confirm the safety of biotechnology products [53]. Some of TAXA’s sources from Washington reported that this regulatory review was partly prompted by the Glowing Plant project and its Maker Kits [Refer Exhibit 3] were a topic of discussion in a meeting at the White House in early June [53]. Although the federal agencies had initially confirmed that TAXA’s products will not be regulated, after the invent of gene editing tool – CRISPR/CAS9, there was a change in regulations to regulate all GMO plant products [53]. These changes in the political and legal climate had a significantly high impact on TAXA’s business. The success of TAXA’s crowdfunding campaigns rested on the fact that USDA does not regulate non-pest plants and hence they don’t have any regulatory compliance costs [53]. However, the change in regulations coupled with technical, resource, and financial constraints had some extremely undesirable consequences on TAXA’s overall business [53].

The shipment of some batches of finished products got cancelled because the permits for shipment got rejected based on changes in regulations and the shipment of rest of the products got significantly delayed due to technical challenges faced during the development [54, 55, 56]. Meanwhile, TAXA conducted a survey to hear from its backers on which version of the glowing plant was their preferred choice and based on the survey over 95% of their supporters preferred  Lux v2 version of the plant which was still under research phase [57, 58]. In order to ensure customer satisfaction TAXA decided to suspend the work on other versions and started to focus on Lux v2 [57, 58]. Evans realized that this would require him to raise additional funds for the research activities [57, 58]. In February 2016, TAXA launched the business of ‘genetic engineering of plants as a service’ (the TAXA Platform) with an aim to attract equity investors and he launched a non-accredited investor fund-raise in May [58, 59].

Even though TAXA’s team were hit by setbacks one after the other Evans continued to keep his stakeholders and supporters informed of the status of all projects [60, 61]. He looked forward to raising funds through WeFunder campaigns and from the shipment of Fragrant Mosses [60, 61]. By July 2016, Evans and team had partly crossed the financial crisis point and raised just enough funds to get the Fragrant Mosses to market [60, 61]. He hoped that he could reinvest the money received from the sale of Fragrant Mosses to resolve the technical issues of the much awaited Glowing Plants [62]. In August 2016, James Anderson-Furgeson who holds a Ph.D. from UC Berkeley joined TAXA’s technical team [63]. For a period of eight months TAXA continued to work on various projects i.e. multiple versions of Fragrant Moss, Glowing Moss, and Glowing Plant, solving technical issues one after the other [64, 65].

In April 2017, while TAXA and its supporters hoped to have Fragrant Moss almost ready for shipment, unfortunately, Evans had a bad news waiting for his investors [66]. The production strain of Fragrant Moss that was ready for shipment got contaminated and there was no single step that could have been done to resolve the issue and continue with the shipment [66, 67]. Consequently, TAXA decided to downsize the team to ensure that they had enough financial runway to ship the moss [66, 67]. This translated to the fact that TAXA had to permanently stop working on their dream project ‘The Glowing Plant’ since Evans’ plan was to use the revenues from the moss to fund the ongoing glowing plant research [67].

After a rough sail for about a year and a half, in July 2017, TAXA started shipping their first product, Orbella – the Fragrant Moss in a glass terrarium [68][Refer Exhibit 1, 2]. They shipped around 400 unit in two months, in three different flavors – Patchouli, Linalool, and Geraniol [68]. To celebrate this milestone with his team and backers, Evans hosted an event in San Francisco on August 3rd, 2017 where he planned to have an exhibit of some of the other interesting consumer products he had in the pipeline [68]. Antony Evans, an ambitious and strong-minded entrepreneur, did not lose hope on his dream project and was still determined to use the profits from the sale of Fragrant Moss to restart working on the glowing plant project [68].

RISK FACTORS

As listed below, TAXA had identified all the risks associated with their business and notified their investors regarding the same through their Annual Reports [as cited in TAXA Biotechnologies 2016 Annual Report – 17].

• “The company is dependent upon the continued support and involvement of executive management, technical, and scientific resources.
• The company’s operations could be adversely affected by a regulatory change. Changes to Government regulation may reduce the volumes and/or values of the products that the company seeks to sell.
• The development of new products is a complex and lengthy process and may not be completed within anticipated timeframes.
• TAXA is dependent on consumer demand for its products.
• TAXA’s future revenues are dependent upon the successful development of products.
• TAXA had recorded net losses in prior years as it has looked to develop its products. While TAXA expects to generate increasing revenues from its products in the future, the company may not be able to generate a net profit, or if it does generate a net profit, to sustain profitability.
• The company operates in a sector where other participants create competition.
• The company has limited liquidity available to fund its business.
• Although TAXA monitors the possible infringement or misuse of its trademarks, it is possible that third parties may infringe upon its intellectual property rights and could harm its reputation or commercial interests. In addition, TAXA’s enforcement against infringers may be unduly expensive and time-consuming, or the outcome may be an inadequate remedy.
• TAXA also rely on trade secrets, including unpatented know-how, technology, and other proprietary information, to maintain its competitive position. TAXA seeks to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them. Despite these effort, in case of any breach of the agreement, TAXA may not be able to obtain adequate remedies.
• Some of TAXA’s products exist in areas where, due to novelty, there are no legal precedents for interpreting regulations. As a result, TAXA may misinterpret regulations, which could result in financial or operational penalties.
• TAXA will have significant flexibility in applying the net proceeds of the Offering. Investors in TAXA will not have an opportunity to evaluate for themselves the relevant economic, financial, and other information regarding any investment or business activity undertaken by TAXA after the Offering.
• After the cancellation of Glowing Plant in April 2017, for which TAXA has taken nearly $600k in pre-orders, backers may demand refunds or initiate litigation.” 

FUTURE OF TAXA BIOTECHNOLOGIES INC.

TAXA uses an old technology which can be easily adopted by any other biotechnology company with a better financial, research and development, operational and marketing capabilities. With the emergence of a powerful genome editing tool – CRISPR/Cas9, tools for DIY bio-engineering will have significantly less scope. Moreover, in December 2017, Researchers from Massachusetts Institute of Technology (one of the partners of Broad Institute which owns the CRISPR/Cas9 Patent) have already created a glowing plant [5]. In that case, does it make sense for TAXA to spend more in their glowing plant project?

TAXA’s business is dependent on consumer’s demand for its products and has no control or influence over the market demand for its customer products [17]. This demand can be adversely affected by various external factors, which in turn will have a huge impact on TAXA’s revenues and profitability. Their business is dependent on company’s ability to sell genetically engineered plants without going through a regulatory review and any adverse regulatory change can negatively impact its business prospects and financial stability.

TAXA has limited liquidity available to fund its business. The funding required for its operations were obtained primarily through Crowdfunding Campaigns and Collaborative Research Agreements. Even if TAXA considers funding its future business through a combination of debt and equity financing, is there an assurance that such additional financing can be obtained as and when needed?

To a significant extent, TAXA’s future depended on its ability to develop, manufacture and successfully commercialize new products in a timely manner [17]. The development of GMO products is inherently complex and risky and unfortunately, TAXA was not able to achieve it within the time and cost constraints or generate enough revenue to reinvest into their business. The future of glowing plants was completely dependent on customer’s response to TAXA’s first product – Orbella Fragrant Moss [Refer Exhibit 1, 2]. Does Fragrant Moss have a good market? Would the sale of Fragrant Moss help TAXA to generate revenue to support their future business? Considering the complexities and risks involved in the development of GMO products, does TAXA have a viable Business Model?