via Hagai Amit, Haaretz
It took a full hour and a half for Morflora's Dotan Peleg and Miri Lapidot, who were giving lengthy explanations about genetic sequences, proteins and chromosomes, to manage to convey just why they believe their company is on course to change the face of global agriculture - and earn untold profits.
"In this day and age, when you get a flu shot, it is thanks to the field of immunology that was developed 100 years ago," explains Peleg, Morflora's CEO. Immunization, he says, "is founded on the idea of using a weakened or dead virus. There is a distant parallel to this in the plant world, but the vulnerability of plants to pests is much greater. To make them resistant to disease, their DNA has to be modified, either by way of the classical breeding tools of cultivation or by genetic engineering. We are apparently the first company in history to succeed in applying the immunization revolution in plants. There's no equivalent to our technology anywhere in the world.
In the fields of Moshav Sharsheret, from left: Morflora's Hervew Huet, Miri Lapidot and Dotan Peleg.
Morflora has developed a universal tool that is said to be effective in the manipulation of every plant or species, in the case of every gene. To introduce it to the market, the company still needs to successfully complete testing of the new technology, pass the regulatory hurdles set by a variety of different governments, address people's concerns about consuming genetically altered food products - and above all, should all the other conditions be met, to succeed in what is now shaping up to be the Achilles' heel of the company: developing an implementable business model that will maximize financial benefit from these discoveries.
We met with Peleg and Lapidot, who is Morflora's director of R&D, and several colleagues at the headquarters of the startup, at Moshav Sharsheret, a few kilometers from Netivot. Their offices are located amid the private homes of the moshav, which was founded by immigrants from Tunisia in 1950. In midday the only people walking around outside are older women in traditional dress.
Approximately 60 families live here, in a community whose name is an odd wordplay on the name of Moshe Sharett, who at the time of the moshav's establishment was Israel's foreign minister. The startup, which aspires to change the way that the world does agriculture, needs direct access to greenhouses. It found its way to the veteran moshav, which belongs to the Hapoel Hamizrahi religious moshav movement, through one of the company's founders.
"When it comes to know-how, inventions, patents and commercialization of genes," says Peleg, "Hebrew University's Robert H. Smith Faculty of Agriculture, Food and Environment in Rehovot is considered one of the world's five best agricultural institutions."
The proof of this claim lies in the success of several seed companies founded over the past few decades, such as Zeraim Gedera and Hazera Genetics, both of which were bought out by international conglomerates that control the world seed market, and which kept much of those companies' original research and development operations in Israel.
Peleg says that initial work on their system lasted for three years, and was funded by private investors: "As soon as we were satisfied with the results, we presented it for evaluation to the U.S. Department of Agriculture, in order to ascertain that it was implementable - and we concluded that it was 'ripe.'"
The ripeness Peleg is referring to can be seen in a small bag, with a small quantity of material - similar to a handful of sand. This is dried genetic material, and it is sufficient for the treatment of 500,000 seeds. Peleg declines to say what the precise price of such bags will be. But he is certain that "it's going to earn us a great deal of money. The difference between the manufacturing cost and the price we can charge a large-scale grower starts at thousands of dollars per bag."
Moshe Amar owns the land on which the company's greenhouses are built, and also owns shares in Morflora. He grows millions of seedlings in his own 75-dunam (1 dunam = .25 acre ) plant nursery, as well as in hothouses covering another 600 dunams, in which he grows tomatoes and peppers.
"In 2010," Amar says, "my seeds were hit by a bacteria called Xanthomonas, which caused me NIS 13 million in damage. I might have inventory worth NIS 10 million in the seed room at my nursery. A bag of seeds can cost NIS 20,000-30,000, and if it's infected by bacteria in that bag, it can cause hundreds of thousands of shekels' worth of damage. There have been times when I pulled up 50 dunams of tomatoes, after they were hit by a virus. We understand that the solution to this can only be genetic [chemical treatments are not effective after a virus has infected a plant]. But with the genetic engineering method, it takes 10-14 years before you produce your first fruits. Here [in genetic engineering companies], you have the genes in a cabinet. You open it, take out the bag with gene X or Y, and add it to the seeds."
How much pesticide can this manipulation save you?
Amar: "For 600 dunams of crops, I spend NIS 6 million of pesticides a year. If I have a NIS 30 million turnover, that constitutes 20 percent. It's not only the money, but also the harm that you might do to people in this country with NIS 6 million of chemicals ... Anyone who eats vegetables is also consuming a lot of harmful chemicals. The farmers put in immense quantities of pesticides, enough that sometimes the guy doing the growing won't eat his own vegetables. Even if our technology has only an 80-percent success rate, the good news it would bring to the world would be nothing short of incredible."
The Morflora story began about 15 years ago with Prof. Ilan Sela, from the Hebrew University's agriculture faculty, who was studying molecular structural changes in viruses. Sela describes Bio-Oz, a company founded in 1996, as "the grandmother of Morflora" - and Miri Lapidot makes sure to give it credit for being the first company to develop immunization for plants, even if it was not implementable. Bio-Oz operated for a decade, but eventually shut down due to differences of opinion between its shareholders.
The entrepreneur behind Bio-Oz, Dr. Gal Yarden, carried on that company's research with two new firms. One was Morflora, and the other was Beeologics, a company that developed genetic means of protecting bees from viruses and other pests.
Morflora was founded in 2008 - together with Lapidot and Herve Huet, a virologist who had worked with Sela. A short time later, Yarden had to choose between the two new companies, and opted for Beeologics; he was replaced as CEO of Morflora by Dotan Peleg, a high-tech entrepreneur who had been CEO of HyNEX, a company that was sold to Cisco in the early 2000's for $130 million.
"A few years ago," recalls Peleg, "a friend who grows peppers in the Arava [in the southern Negev], said to me, 'You have to come down and take a look; there's an interesting company here.' I feel I am realizing a dream: starting a company that will do something good for the world."
Peleg says that even though he didn't come from the world of biotech, he understood that Morflora's research could lead to technology "that didn't exist anywhere else in the world." He understood too that this was research that could be adopted by every seed company in the world. And there are some very large companies in this field: Companies like Monsanto have the R&D budgets of entire countries."
Peleg continues: "Twenty-five percent of the global food supply is destroyed annually due to crop damage from pests and diseases. It's inconceivable. Sure, in Africa, with the primitive agriculture, but I am also talking about the United States and Europe. There are diseases that attack the fruit even when it is stored under optimal conditions, for example, fungi that develop during shipping. All it takes is for a single seed to be infected by bacteria, and it can destroy an entire greenhouse in the space of within a few days."
Because of the high cost of pesticides, and the health and environmental damage they can cause, he says, "It is clear to everyone that the solution has to come from the genetic direction."
To date, Morflora has raised only $4 million worth of investments. Its list of shareholders includes Peleg, Lapidot and Huet; Haim Rabinowitch and Ilan Sela, both emeritus professors at the Hebrew University's Faculty of Agriculture (Rabinowitch, a world-renowned investigator in the field of seeds, is also a former rector of the Hebrew University ); the Yissum Research Development Company, an arm of the university; and several private investors.
Morflora's staff includes six scientists, three of them with PhDs. Their work is conducted in parallel with research carried out in the laboratories of Rabinowitch and Sela in Jerusalem; other studies are conducted in a collaborative arrangement with the Ministry of Agriculture's Volcani Institute and its counterpart in the U.S. Department of Agriculture facility in Florida.
'Scratching the surface'
Today, Peleg comes to Sharsheret twice a week, from his home in Tivon, but notes that in the coming year, "the company's CEO will spend his time primarily on airplanes." He is convinced that Morflora "could change the world." To date, their research is "only scratching the surface of its capability. Which is why we are not interested in selling the company, because our value will only accumulate in years to come. My dream is to bring this company to an I.P.O., due to its applicability to numerous sectors of agriculture. I would like to exploit this potential in all of the target markets."
How will you do that?
Peleg: "It may be that we will enter strategic agreements, or that we will sell segments to large partners. We want to be a global player that maintains its independence; alternately, we may bring in the public and issue shares within five years." He adds that Morflora "is constantly fielding offers. We are in the middle of negotiations with seed companies and with other companies in the industry over cooperative ventures, and we have set up a strategic team."
At the moment, then, the company finds itself in a dangerous zone - without a clear, unequivocal strategy and with an amorphous business model. It is not certain that choosing to form partnerships instead of raising capital and launching an aggressive development phase is the right choice.
Peleg says he and his participants anticipate Morflora being "extremely profitable, for several reasons." The first, as noted, is the price differential between cost of production and the price of a bag of the company's seeds. "Second, the operational method of manufacturing the material while granting franchises to companies in the field, while living off the royalties on the seed sales, while building up a relatively small company in terms of personnel, may carry us a great distance ... As far as we're concerned, it may be that we will not need to raise any more money at all."
With seven patents registered in 25 countries, it is not easy for everyone to gain a clear picture of the operations of Morflora.
Lapidot says that "the basic idea is to use parts of a virus as 'Lego blocks' in order to introduce traits into the plants." A virus, she explains, "is a genome, consisting of DNA or RNA molecules that are coated with a sheath of protein or fat. It penetrates an organism and manipulates its cellular system."
The consequences, Lapidot continues, "can be virulent symptoms, whether they affect a person or a plant, although in the history of viruses, there have also instances like that of the tulip, in which a virus that was not harmful to the flower was used to make it even more beautiful."
But a virus causes temporary change. A trait constitutes a permanent change.
Lapidot: "That's how it is in people, because, fortunately, we have an immune system that protects us, but when the virus enters a plant, we don't know how to get rid of it. For the farmer, when a plant contracts a virulent virus, he just has to throw it out. Incidentally, even among people there are cases in which the virus remains in the body, such as with herpes, whose symptoms will break out periodically."
Morflora's molecular engineers take a viral segment, remove from it the "safety catch," as Lapidot describes it - in other words, the genes that are harmful to the plant - and introduce other genes in their place. They use the viruses' traits of propagation, which cause all of us to come down with diseases, for a positive objective: to spread the genes they are interested in.
How did you create a technology that is not restricted to certain species, but is generic?
Peleg: "The world of science still has a great deal more to investigate vis-a-vis the interaction between viruses and their hosting plants. We identified a molecular sequence that was initially isolated from the virus and that acts universally on all of the plants. We expanded the boundaries of scientific knowledge in all aspects related to interactions between plants and the genes of viruses. I do not profess to be able to explain to you the science of how it works, and may not be able to even in another five or 10 years. There is material for dozens of doctoral dissertations here, if not more."
You discovered something, and you don't 100 percent understand how it works.
Lapidot: "Not even 90 percent. After we pulled out all sorts of pieces and we pulled out the safety catch and started to play with sequences of the virus, a carrier formed that is not a virus, but DNA. We inserted into a plant a circular piece of molecular sequence that replicates itself. These are double-stranded and wind around each other, connecting and closing like a zipper, and that is what we introduce into the plant. Once it is introduced into a cell, it makes its way on its own."
On the wall are photographs of this circular double strand of DNA that replicates within a cell independent of the chromosomal DNA. It is called TraitUP Plasmid, and it is Morflora's first company secret.
In order to better understand the revolution that the firm professes to foment, we went to the laboratories at Hebrew University in Rehovot, where Profs. Sela and Rabinowitch work.
"You have to think of it like the trailer behind a pick-up truck," explains Rabinowitch. "We can place something on this trailer, a gene or a cluster of genes, but you still won't be able to move it until you start up the pick-up truck and start driving."
Did you invent the "pick-up truck?"
Rabinowitch: "And the trailer, too. Ilan succeeded in causing the plant to act like a trailer that is capable of producing a protein and another protein and another protein. Previously, a specific cell would produce the protein until it died, but we have succeeded in causing this trait to be expressed in the majority of the plant's cells."
Adds Sela: "The biggest innovation is that our platform can include and express very long genes, and even systems of several genes. There are such vectors in the world, but all are considered engineered viruses, and they cannot contain the quantities of genetic information that we can deliver. Our vector, on the other hand, is a plasmid [the ring-like structure of DNA molecules created from the virus]."
Sela patented the plasmid he discovered, calling it the "IL60" - as it is an Israeli strain of the virus, with 60 bases of its genetic sequence having been removed.
For his part, Rabinowitch said he would take on himself the task of cracking the paradigm - meaning trying to find a way in which a seed will adopt certain genetic traits simply by being put in a liquid which contains plasmids.
"Today, when you want to introduce a gene into a plant, you can do it in either of two ways," explains Peleg. "One way is sexual, in which case the fruit will produces seeds that have the gene. The second way is through genetic engineering, by shooting the genes into the cell's nucleus. We found a way to introduce very efficiently the gene of interest directly at the seed level."
Peleg: "In a process in which we soak the seeds."
So that's your secret?
Lapidot: "It's not such a big secret. We have a patent on it, and anyone who wants to can read it. In general terms, our process links into what is now being done in the agricultural industry when they prepare seeds for planting, making them swell so as to facilitate uniform germination. At the start, everyone we talked with said there was no way we would succeed in introducing desired genetic materials into seeds, because earlier attempts with different types of virus vector failed. But our molecule is different.