BioWorld International Correspondent

Direvo Biotech AG raised €12 million (US$17.1 million) in a Series C round intended to support the company's new strategy of establishing independent businesses around its individual lines of activity.

Signaling a break with its past, the new investment round was accompanied by the sale to certain Series C investors of shares previously held by the company's founders, including Hamburg, Germany-based Evotec AG, and its former management.

Cologne, Germany-based Direvo was established in 2000 as a spin-out from the Max Planck Institute for Biophysical Chemistry in Göttingen, Germany, and Evotec AG, from which it licensed confocal imaging technology. Evotec had developed the technology for screening small molecules, a concept which Direvo applied to screening proteins.

It combined this with gene mutagenesis technologies developed in the lab of Nobel laureate Manfred Eigen at the Max Planck Institute, to form a directed evolution platform capable of screening about 100,000 unique samples per day. Moreover, it can follow several parameters simultaneously, rather than sequentially.

Direvo is applying the platform to the development of optimized biologic drugs, to the development of novel enzymes for use in the food and animal feed sectors and to the development of enzymes used in the production of cellulosic ethanol and other biomass-based fuel sources.

It also is looking to enter a fourth business area, such as personal care, nutraceuticals or biocatalysis, although CEO Thomas von Rüden remains skeptical about the latter field. "I have not yet seen the compelling business case for that," he told BioWorld International.

Direvo has entered alliances with several large companies, including Danisco A/S, of Copenhagen, Denmark and Novozymes A/S, of Bagsvaerd, Denmark. These will yield "significant revenue" this year and next year, von Rüden said, and the company's first product royalties will start to flow from around the year end.

However, von Rüden wants to crank up the company's deal-making activity, which had been under-performing historically. "There was a lot of innovation in here, with not a lot of visible commercial success." Several new agreements are in the offing, although the company is still "far from breaking even", he said.

Direvo eventually plans to spin off its individual lines of business into wholly owned subsidiaries that would develop independently, either through additional financing or through M&A activity. The biopharmaceutical business is most advanced in this respect. It will be ready to spin off by the year end, von Rüden said.

The company aims to develop its 'biorefinery' business by partnering with similarly sized firms with adjacent technologies. "Up to now, Direvo has focused very much on hydrolysis [of cellulose]," he said. However, the supply of cellulase enzymes is a high-volume, low-margin business, and Direvo wants to create a more complete biorefinery process by integrating its enzyme technologies with third party pre-treatment and fermentation technologies.

Bankhaus Wölbern, of Hamburg, and existing investor TVM Capital, of Munich, jointly led the latest round, which brings the company's total equity funding to EUR31.25 million. NRW.BANK, the Düsseldorf-based state development bank of North Rhine-Westphalia also joined as a new investor. The company's previous institutional investors, including Danisco Venture A/S, also participated, as did several private investors, including Manfred Eigen and the company's management.