A tiny microbe found in the Chesapeake Bay is the focus of intense study for a biotech startup in College Park, MD. Zymetis has genetically modified a rare, cellulose-eating bacterium to break down and convert cellulose into sugars necessary to make ethanol, and it recently completed its first commercial-scale trial. Earlier this year, the company ran the modified microbe through a series of tests in large fermenters and found that it was able to convert one ton of cellulosic plant fiber into sugar in 72 hours. The trial, researchers say, illustrates the organism’s potential in helping to produce ethanol cheaply and efficiently at industrial scales. Zymetis is now raising the first round of venture capital to bring the technology to commercial applications.

Scott Laughlin, CEO of Zymetis, says that for the past two years the company’s scientists have worked to retool and pump up the tiny organism. The microbe’s main advantage is its ability to naturally combine two major steps in the ethanol process, which the company says could considerably slash the high costs of producing ethanol from cellulosic biomass like switchgrass, wood chips, and paper pulp. The company is running the organism through a series of trials to study how the system could be applied at an industrial scale.

Ethanol production from cellulosic sources is an expensive multistage process. The cellulosic feedstock is first pretreated with heat and chemicals to break down the material’s tough cell walls. Expensive manufactured enzymes are then added to the mix to convert purified cellulose into glucose, which is then treated with yeast that turns the sugars into ethanol. As a result, scientists and several startup companies are developing improved microbes that could accomplish several of these steps, thus making the resulting biofuels more competitive with fossil fuels.

Toward that goal, Laughlin says that the company has developed an ethanol-producing system that revolves around a microbe that quickly and efficiently combines the first two steps of the conventional ethanol process. “It has the ability to break down whole plant material, and it excretes enzymes that break down cellulose, [which works] very well in solution,” says Laughlin.

The microbe that the company is banking on is Saccharophagus degradans, a bacterium found in the marshes of the Chesapeake Bay that eats away at dead plant material and solid waste, breaking them down into glucose. In 2003, Steve Hutcheson, a professor of cell biology and molecular genetics at the University of Maryland, combed through the organism’s genome and discovered that it possessed a combination of enzymes that broke down the tough cell walls in dead plants and converted remaining cellulose into sugars–two valuable properties in producing cellulosic ethanol. In 2006, Hutcheson founded Zymetis in order to pump up the microbe’s performance to a commercial scale.

Since then, the company has been working with strains of S. degradans, identifying sets of enzymes responsible for breaking down a variety of material, from newspapers to dead plants to solid waste. Hutcheson and his colleagues switched on certain genes to increase the activity of these enzymes, and turned off other genes that controlled inhibitory behaviors of the microbe, such as those that tell it to stop feeding. As a result, the genetically modified organism pumps out significantly more enzymes than it normally would.

Laughlin and his colleagues recently ran the organism through a trial and found that the organism chewed through one ton of cellulosic plant fiber, converting the pulp into sugar within 72 hours–a process that normally takes years in the wild. “Right now, we’re working on a 24-to-72-hour timescale,” says Laughlin. “It’s more an economic question to make it faster, but at what cost? So we’re working on a whole host of protocols of processing across different timescales to figure out an optimum run.”

The company is pairing the microbe with a yeast strain that converts sugar into ethanol as the microbe breaks down cellulose. Zymetis’s goal is to develop manufacturing units able to produce around 10 million gallons of ethanol a year–a relatively modest output. But Laughlin says that thinking smaller could lead to more efficient, local production of ethanol, and he envisions partnering with paper mills and solid-waste facilities to produce ethanol on-site.

“If you look at a corn-ethanol plant, it’s this big hulking factory,” says Laughlin. “We’d rather locate smaller efficient plants in a distributed fashion at the locations where this waste fiber is available, and in so doing, we pick up a lot of efficiency, and can get to market faster, and don’t have to farm fiber.” Laughlin says that the company aims to set up a pilot co-location facility with an undisclosed partner by mid-2010.

Qteros, a biotechnology company located in Marlborough, MA, is using similar methods to scale up cellulosic-ethanol production. Researchers there are engineering a microbe that combines the last two stages of ethanol production: converting cellulose into sugar, and turning sugar into ethanol. William Frey, CEO of Qteros, says that Zymetis’s approach keys in on a major challenge in making cellulosic ethanol affordable.

“A big chunk of the cost is associated with pretreatment and also with enzyme hydrolysis,” says Frey. “The industry is looking for technologies that are economic and scalable, and microbial solutions have the ability to reduce the number of steps and cost, and that’s a big piece.”