Making bovine gold
Although it has grizzly beginnings in the blood and gore of the meatworks there's a fairytale element to the story of biomaterials company Southern Lights.
A little like the Brothers Grimm's goblin Rumpelstiltskin who spun straw into gold, the Napier-based company transforms cow byproducts which would otherwise be destined for pet food and fertiliser into extremely lucrative Type 1 polymeric collagen.
At around $50,000 a kilo it's not an exaggeration to say the polymeric collagen is worth its weight in gold - only a few thousand shy of the price of bullion.
Not to be confused with the collagen found in the lips of Hollywood, Southern Lights' highly-refined collagen is used in membranes for the medical healing of wounds.
Although it does take a fair bit of hocus pocus to extract the miracle collagen found in cow tissue, Southern Lights' managing director Geoffrey Bennett says he is more cowboy than alchemist.
"It's a very messy business that starts with killing a cow, but I think of it as gold mining. There's a lot of rocks you've got to go through before you get a nugget."
Canadian-born Bennett and his American business partner Peter Meyer set up Southern Lights in Napier in 2003, just as the North American biomedical industry turned into the Wild West following the discovery there of Bovine spongiform encephalopathy (BSE), or mad cow disease.
The aim was to export tissue from BSE-free New Zealand to US and Canadian biomedical companies making devices such as heart valves and healing membranes.
"At the time, Peter and I were initially in the venture development business, and were working on something else in regenerative medicine, a sheep product that wasn't going particularly well, so we were looking at other opportunities," Bennett says.
"We knew about the tight regulations around xenograph tissue - taking tissue from something that's not a human and putting it in a human - so we weren't deterred by all the barriers to entry.
"The company spent three years navigating the minefield of red tape imposed by the American regulatory bodies to gain the appropriate certification. Finally in 2006 Southern Lights exported its first shipment of bovine biomaterials including pericardium (the membrane on the outside of a cow heart) and tendons.
Despite getting it right with the authorities, the company made some large errors with customers in those early years. Incorrect paperwork, labelling and packaging of the tissue caused huge delays in their clients' production. But those first customers were forgiving because their need was so great, Bennett says.
A chartered accountant by trade with experience of managing a Canadian medical imaging technology firm, he jokes that he had to become the "boring guy" of the business, tightening the company's processes so it could comply with their customers' own quality systems.
"We hired a quality manager well ahead of when we could afford one so that everything we do in our facility and with the abattoirs we work with is under quality accreditation," he says.
It wasn't cheap - the quality system cost $400,000, compared with the $1 million cost of setting up the firm's processing facility at Marton in the lower North Island.
After three years of selling raw tissue Bennett started looking for additional ways to create revenue due to risk of incoming competition.
After talking to its customers about how to save them a step in the process, Southern Lights discovered some biomedical companies were willing to pay extra for it to crosslink its pericardium - a process in which the tissue is stabilised for implantation by removing DNA markers to avoid bad immune responses.
From there the company began investigating using cross-linked tissue to produce polymeric collagen."Collagen is tricky and expensive to make.
We thought there might be customers who didn't want to go to the trouble of creating it themselves," Bennett says."It was very difficult to get market data, so we just went on intuition that there was an opportunity, and there was.
"Southern Lights teamed up with biochemical engineer John Higgins and Massey University's Riddit Institute in 2009 to develop the technology, and exported its first batch of collagen in 2011.
"The original patents for making collagen expired long ago, but producing collagen is a black art," Bennett says. "They don't put in the patent the real tricks to making it."
When it got its product to market Southern Lights discovered it needed to vary its production based on each individual customer's requirements. It now enters into R&D partnership with each client and requires them to fund some of the research costs.
"One of the lessons we learned early on was we undervalued our own contribution to R&D and we didn't screen our customers properly.
"We spent a lot of money developing something, but when it came time for them to pony up (with) the money, their funding had fallen through. We changed our process to make sure they put skin in the game early on."
Along with its raw and processed tissue exports Southern Lights has the capacity to make 200 kilos of collagen a year, charging up to $70,000 per kilo depending on the processing involved and quantity ordered .
In the early days Southern Lights had difficulty finding abattoirs willing to change their production practices to work within their strict auditing processes, but now some meatworks are also trying to enter the lucrative industry.
"I don't worry about the collagen side of the business, they will never figure that out," Bennett says. "We have a $5 million head start on what they could do."
Southern Lights employs 11 staff and works with more than 20 biomedical companies in North America, Asia and Europe. Bennett estimates that in the next three to five years the company will triple in size.
It is also exploring exporting to Halal markets.
It's all pretty impressive, especially for Bennett who admits he still gets a little queasy every time he visits a meatworks.
"The first time I went into a meat plant I had never seen anything like it.
"There was nowhere I could look that wasn't grossing me out, but my business partner used to remind me to think of the money."