White lightning: Ethanol and Iogen: Patrick Foody’s 20-year ethanol itch pays off. Finally

Pauline Tam
The Ottawa Citizen
March 19, 1998

It was an unremarkable concoction, this mealy mush of wood bits cooked in steam. Pulpy, brown bog was what it looked like. But the American scientist immediately understood the significance of Patrick Foody’s discovery.

Mr. Foody, a civil engineer and budding financier from Montreal, had stumbled upon a key step to making renewable energy.

The mystery was this: How could forestry and farm waste — essentially straw, grass or wood bits that would otherwise be useless — be turned into alcohol fuel for cars? Could this cheaper, cleaner fuel replace gasoline?

It was 1978 and scientists were racing to beat back global fears of an oil shortage. Ethanol made from waste fibres was seen as one possible solution, but most people were betting on the success of other fossil fuels, such as methanol made from coal. They were also counting on offshore and northern oil exploration to bolster fuel supplies.

Not Patrick Foody. After that first meeting with a leading U.S. energy researcher, he was convinced energy from waste fibres would be revolutionary, not just as fuel for cars, but as electrical power as well. The ethanol puzzle sparkled with the promise of a scientific challenge as well as a business opportunity. He decided to throw his innovation — and his millions –behind what he believed would be a sure and fast moneymaker. He called it “a major industrial opportunity.”

Twenty years later, Mr. Foody is still trying to prove himself right.

Today, Iogen Corporation, the biotechnology company in Ottawa that Mr. Foody founded, is a world leader in the sale of industrial enzymes, with annual revenues estimated at between $10 million and $20 million. The enzymes, a form of protein, have the look of dark apple juice when they are sold as a liquid, and a powder detergent when they are sold as a solid. They are used mainly in the pulp and paper sector to reduce the use of bleaching chemicals, and in the textile industry to “stonewash” blue jeans.

Together with waste fibres that have been cooked in steam, these enzymes can also be used to make ethanol cheaply, without adding pollutants to the environment. Corn and wheat are currently used to refine ethanol fuel, but they are more costly than waste fibres.

Last November, Iogen announced it was on the verge of mass producing ethanol from enzymes and waste fibres — something no one else in the world has yet been able to do. It has not been a cheap or easy venture. Of the $40 million Iogen has spent on ethanol research since the 1970s, more than half of the investment capital has come directly from Mr. Foody.

“It was something I thought was neat,” he explained recently, grinning often as he spoke. “It was an expensive hobby, but I always felt I could do it. I always felt I could win. Getting my six kids through the best schools was a bigger problem. I could stop and start this hobby of mine whenever I liked, but those kids had to get through school. One year, my university fees were a quarter of a million dollars.”

Chasing his hobby made more than a few people — including his wife — question Mr. Foody’s business instincts. He had other investment interests through his Montreal-based holdings company, Techcapital Group, and was one of the original financiers of the Ottawa high-tech firm, SHL Systemhouse Inc. Yet renewable energy remained Mr. Foody’s pet project.

Virtually all of Iogen’s enzymes are derived in some way from the knowledge the company accumulated while researching ethanol-related technology. But the goal of mass producing ethanol from waste has always been the company’s core ambition.

The privately-held firm on Hunt Club Road, which employs a staff of 65, is run by two of Mr. Foody’s six sons: 38-year-old Brian, Iogen’s president, who oversees all the company’s research efforts, and 36-year-old Patrick Jr., Iogen’s sales and general manager. “The battle is now in the hands of the next generation,” Patrick Sr. says with satisfaction.

While he has never run the company himself, Mr. Foody is, without a doubt, the guiding presence behind Iogen. The vigorous 68-year-old says he is trying, without much success, to retire from engineering, even as he continues to take an active interest in Iogen’s future.

Every week, he makes the 1 1/2-hour drive to Ottawa from his riverfront home in the tiny town of Hudson, west of Montreal, and spends three days at Iogen, overseeing the most critical expansion yet for the company.

On the fringes of the Ottawa airport, outside an old hangar that has been converted into Iogen offices, Patrick Foody surveys the scruffy lot in front of him and the gray fields stretching beyond it.

For now, the heart of Iogen’s enzyme operations is a three-acre site that holds a low-slung brick building with a barn-like annex painted white and green — the company colours. Five-storey distillery tanks squat next to the compound.

But a landmark deal with Petro-Canada, signed last November, will add at least 10 more acres to the Iogen property by 1999. On it will sit a $15-million to $30-million ethanol test plant, designed by Mr. Foody. The demonstration facility, funded almost equally by both firms, will represent the first known attempt at making alcohol fuel from converted waste fibres on an industrial scale.

“Iogen has European and American competitors when it comes to making industrial enzymes, but I haven’t heard of anyone else getting to the point where they’re going to build a demonstration plant for ethanol using the enzyme method,” said John Henning, an agricultural economist at McGill University.

If the demonstration plant is a success, Petro-Canada will have a licensing option to build a full-scale ethanol refinery.

It isn’t the first time Iogen has partnered with other oil or biotechnology firms in an attempt to commercialize their ethanol research. But energy analysts say Iogen’s enzymes are now so superior compared to those of their competitors, as well as those made 20 years ago, that the company has a good chance at mass production.

If that is the case, the Petro-Canada alliance could make the two companies leaders in the race to replace gasoline as transportation fuel. They may also arrive on the market in time to capitalize on increasing public and government interest in reducing greenhouse gases, caused mainly by burning fossil fuels, which can lead to climate changes.

“Other technologies could come along, but (Iogen and Petro-Canada) have a really good shot,” says Tom Adams, executive director of Energy Probe, a Toronto group that studies alternative energy sources. “There’s tremendous potential here because of three factors — the technology uses existing surplus materials, it doesn’t represent a big environmental problem, and it doesn’t require consumers to change their patterns of behaviour.”

On a recent afternoon, Mr. Foody, an affable man who speaks with a gentle Irish lilt, settled behind an office table with the engineering plans for the test plant unfurled before him.

Next to the plans were eight pages of simple flowcharts, diagrams and written descriptions neatly charting company findings over the years. Not all of it is original scholarship, and his company is by no means the only contributor to ethanol research. Still, when Mr. Foody first got interested in the field, converting waste fibres into something useful was a relatively new science.

The idea, born of a widespread belief that worldwide starvation was looming and global energy sources were running out, first nagged at Mr. Foody in 1973. If the world wasn’t producing enough grain or corn to feed both humans and animals, he figured, maybe food starch could be found somewhere else.

He compared the chemical fingerprints of wood and starch, and found remarkable similarities. What if the coarse, brittle fibres in surplus wood chips could be softened somehow and made into easily digestible animal feed?

When he wasn’t running Techtrol Limited, his successful Montreal engineering firm, Mr. Foody spent his spare time wrestling with this cryptic puzzle. His professional specialty was designing and building grain elevators, not biochemistry. But his farming clients in the U.S., and some American academics, were concerned that a worldwide population explosion, combined with limited crop yields, could spell mass famine.

Mr. Foody, a self-made man who had emigrated from Ireland in 1952, saw the animal-feed business as a potentially lucrative spinoff of his engineering empire. In 1974, he formed Iotech Corporation. (The name was a play on words: Techtrol Ltd., Mr. Foody’s engineering firm, was pressed into service as Iotech’s financier, hence “I owe Tech.”)

The company began with three employees working out of an industrial warehouse on Montreal Road, trying to solve the fibre problem.

Several years later, Iotech perfected a solution. In method, it was nothing more complicated than making popcorn. Wood chips were put in a vat and pressure-cooked with steam until the chips exploded. The trick was to control the temperature, pressure and acidity of the steaming process.

Yet the company never gave any thought to making alcohol fuel until 1978. That year, Mr. Foody met Henry Bungay, then head of a research program on alcohol fuel at the U.S. Department of Energy. Mr. Bungay was also a professor of chemical engineering at Rensselaer Polytechnic Institute in Troy, New York, where Mr. Foody’s second son studied.

On a Christmas visit home, Michael Foody had told his father about Mr. Bungay’s contact with American researchers who cultivated a tropical fungus. It was first discovered during the Second World War. American soldiers stationed in the Pacific jungle of Guam had noticed that their canvas tents and cotton uniforms were falling apart and rotting away.

The fungus, called trichoderma, gnawed on fibrous plants and secreted an enzyme that allowed it to break down logs, cotton, grass or lumber, converting it into useable sugar.

Mr. Bungay and other university researchers believed that if there was a way to make the fibres more easily digestible to the fungus, it would speed up what was basically a rotting process. Once the enzyme converted the fibres to sugar, it could be fermented with yeast and distilled into alcohol fuel. The world would have cheap ethanol for the first time.

When he heard about the fibre problem, Mr. Foody perked up. “I told Michael to go back down to school and tell them that his daddy knew how to do this,” he recalled.

Mr. Bungay recognized Mr. Foody’s innovation when he saw it. Iotech’s steam explosion method was efficient because it did not require heavily powered machines to break up the fibres. He quickly introduced Mr. Foody to the leading university researchers working in the enzyme field, as well as other U.S. oil and biotechnology companies investing in enzyme research. Mr. Bungay also offered Mr. Foody research money and scientific advice.

“He went rapidly from the industrial world to the academic world and I put him in touch with the best minds in the enzyme field,” said Mr. Bungay. “The Foodys are awfully good learners.”

As it turned out, university and government labs across North America were also trying to solve the ethanol puzzle. But the research into ethanol made from waste was far from complete.

Not enough was known about the habits and moods of the fungus that produced the enzyme, and caused the starchy rot. Making ethanol in a flask was one thing; making ethanol for gasbars was another. The idea was to speed up the rotting process so that what might normally take nature weeks or months to do could be done in days. For this to happen, researchers had to devise a complex, delicate equation for coaxing the fungus, a fuzzy green mold when it first begins life, to make more enzyme. Even with more lab work to do, Mr. Bungay believed ethanol made from the enzyme method was only three years away from reaching the marketplace.

Mr. Foody brought the microbe back to Ottawa. In 1982, he put his eldest son, Brian, in charge of a 12-member research team to examine the fungus and the enzyme it produced. For the next few years, the Foody team worked with leading scientists at several American universities. They learned to grow the fungus in large fermenters where they could control levels of acidity and temperature. They also began to genetically breed, select and alter the wood-rotting fungus.

“We looked at issues like how can we talk it into making more enzyme and making it faster? What are the decisions that it makes and what controls those decisions? Can we affect the way it makes its decisions?” Brian Foody explained.

“In a way, (the microbe) is like you or me. It breathes air. It needs carbohydrates, vitamins and minerals. And what you do is feed it in a way that causes it to do what you want. You want to give it just enough food so that when they’re on the brink of starvation, they make more enzyme.”

At the time he began researching enzymes, Brian was 23. Two years earlier, he had graduated from the Massachusetts Institute of Technology with two undergraduate degrees in civil and mechanical engineering, and one masters degree in mechanical engineering. He spent four years on the three degrees.

“I did very well in school. I’m from a pretty high-achieving family,” he says, grinning in the easy manner of his father. His brother, Michael — now 37 and head of the Montreal company, Visual Edge Software Ltd., another Foody family enterprise — also completed three degrees in four years, while Patrick Jr. earned two degrees over the same length of time.

In his modest, cluttered office, located in an old Transport Canada building about a kilometre east of Iogen’s enzyme plant, Brian Foody recalled the turbulent ’70s, when energy policy was a major political issue. In Canada, the federal government created Petro-Canada to boost oil and gas exploration, and later implemented the controversial National Energy Program to gain greater control of the Canadian energy industry.

During his student years at MIT, Brian felt the effects of a national gas-rationing policy in the U.S. The unprecedented rise in the world price of crude oil, particularly in 1979, had created a nationwide fuel shortage. “They had rules that you could only buy gas on odd or even days depending on whether your license plate ended in an odd or even number.”

Once, on a road trip from Washington, D.C. to Boston, he and some classmates ran out of gas on a day when filling up was illegal. They ended up draining fuel from a car belonging to a friend’s mother. “The world’s perception was that oil prices would rise forever, that we had a 10-year supply of oil and that life would have to change,” said Brian.

Even in such times, his father’s idea for an ethanol research business was not popular with investors, said Brian. “Probably 99.9 per cent of the world thought that he was crazy. Even today, pursuing renewable energy is hardly a mainstream business strategy.”

For that reason, said Mr. Foody, he never raised money publicly by listing Iogen on the stock market. “There wasn’t a public market at the time because nobody believed in it so I couldn’t have gone public even if I had wanted to.”

The company persisted, instead, with funding from Techtrol, Mr. Foody’s engineering firm. They also formed whatever strategic alliances they could with oil or other biotechnology companies. Most were in the U.S., where there was more interest in ethanol research.

In 1983, the Foodys unveiled a $7.8 million pilot plant that, on a small scale, demonstrated the complete process of making ethanol from waste. That included breaking down waste fibres using Mr. Foody’s patented steam explosion method; using enzymes to convert the fibres into sugar; fermenting the sugar with yeast; and, finally, distilling the ethanol. The project received $2.7 million from what is now Natural Resources Canada — the first time the Foodys received government funding in Canada.

Mr. Bungay recalls chartering a small airplane from Albany, New York, so that he and a U.S. public television crew could fly to Ottawa and tour the Foodys’ plant. “It was very exciting. After the story aired on public television, old girlfriends from all across the country called up the Foody boys.”

But a sharp reversal of fortune followed. In 1986, the world’s crude oil prices plummeted in the space of a week, and while car owners rejoiced at cheaper gas, government and corporations quickly withdrew their support of renewable energy research. Suddenly, the Foodys found themselves with a lot of know-how but no marketable product to sell.

“It came in an immediate, swift blow,” Brian remembers. “We ran out of money for what we were doing, we had to lay off half of our 20 or so staff and figure out how we could make something of what we had.” Iogen Corporation, still financed by Techtrol, eventually emerged from the remnants of Iotech. The new company worked quickly to secure government research contracts for possible industrial applications of the company’s enzyme technology.

“We looked at everything from glues for plywood to non-caloric sweeteners,” said Brian.

It wasn’t until six years later that Iogen introduced its first commercial product: a general-purpose enzyme that was sold to help clarify apple juice. By 1994, two other types of enzymes were developed: one to reduce the amount of bleaching chemicals used to whiten paper, another to soften the denim fabric of blue jeans. For a time, they also supplied European farmers with enzymes that made animal feed more easily digestible to pigs and chickens.

Iogen quickly made a name for itself as a leading supplier of enzymes for industrial uses, but it still hadn’t commercialized its ethanol work. On the other hand, the company was finally posting sales revenues — the first time since its predecessor, Iotech, was founded in 1974. That’s 20 years of R&D, sweat equity and personal investment.

“If you were to look at what I did from an investment point of view, it was dumb,” said Mr. Foody with a laugh. “It was really dumb, but it was my hobby. People play golf. It’s dumb but it’s their hobby.”

If you ask Patrick Foody why he continues to pour money into renewable energy after all these years, he will admit to a few stubborn, prickly views.

Mostly, they relate to what he believes has been government mismanagement of Canada’s energy policy over the last two decades. He contends that from an economic point of view, the government has largely ignored the considerable merits of renewable energy. Instead, he opines, the energy crisis of the ’70s and ’80s spawned ill-conceived mega-projects such as the Hibernia offshore exploration of oil, and nuclear power plants.

“There was a lot of very bad analysis done at the time. For instance, Canada didn’t have an energy policy. Canada had a nuclear policy, and an oil and gas policy. They never really looked at energy,” says Mr. Foody.

“In fact, the energy crisis was not an energy crisis. It was a shortage of transportation fuels. But when it happened, everyone jumped on the bandwagon and there was money thrown at nuclear, there was money thrown at coal, there was money thrown at gas. Stationary sources of energy like electricity were completely adequate, and yet the nukers were the ones that got an enormous amount of money when really, it was only transportation fuels that suffered a shortage.”

His is not a flippant claim. “When you compare the amount of government research money that went to renewable energy compared to the nuclear industry, it’s enough to make you cry,” said Mr. Henning, the agricultural economist at McGill University. “Pat and I have complained about this on a few occasions.”

In the 1980s, Mr. Foody went so far as to prepare a study on the future of Ontario Hydro, which he presented to what was then the federal Department of Energy, Mines and Resources. “I said if Ontario kept building nuclear power plants, it will go broke. It was completely predictable. They should have known. I demonstrated this with their own information. Then I brought it to EMR and they said, `Oh, you’re just anti-nuclear’,” he recalls, somewhat bemused.

Tom Adams, the Toronto-based analyst at Energy Probe and a frequent critic of the provincial utility, remembers helping Mr. Foody build his case.

“One day, I got this phone call from this weird guy with a strange name and he was giving me this lecture on how Ontario Hydro was going to go bankrupt. I said, `Yes, I already published that.’ It was very unusual for someone outside the moral argument surrounding the production of energy to be involved in this discussion.”

From then on, the two men corresponded regularly and met whenever Mr. Foody visited Toronto. “He would call me a couple of times a year, every time a great disaster happened to Ontario Hydro,” said Mr. Adams. “He’d call me up and say, `We were right, weren’t we?’ And I’d say, `Yeah, Pat, we were right.”’

At the time of his initial contact with Mr. Adams, Mr. Foody was convinced that if he could solve the ethanol puzzle, he could use converted waste fibres not just to make liquid fuel, but to sell electricity as well. His calculations are charted in company research. They show that once the fibres are broken down to mush by steam, the glue that holds the fibres together can be harvested. This glue, called lignin, can then be used not only to provide steam and electrical power for the rest of the ethanol-making process, but to generate surplus electricity as well

. “The Foodys were years ahead in terms of realizing that you sell everything you make and not just one thing,” said Mr. Bungay of Rensselaer Polytechnic Institute. “That’s the strategy behind all the research and development dollars they have put into Iogen.”

Today, Mr. Foody believes that producing enough electrical power from waste fibres for mass consumption is probably just another generation away.

That scenario could be bolstered by a waning public appetite for nuclear power, said Mr. Adams. “I think his instinct is right. I think we are going to a renewable energy future and he has sketched out a path that looks extremely attractive.”

This time, however, Mr. Foody is convinced the environmental risks of greenhouse gases such as carbon dioxide, and mounting public support to reduce such harmful emissions, will finally make ethanol a credible alternative.

From a conservation point of view, ethanol made from corn or wheat is not a long-term solution because they require fertilizers and production processes that use polluting fossil fuels. They also divert feed for humans and animals.

Ethanol from farm and wood waste, by comparison, would make production cheaper because it uses surplus materials. And because fibres are converted into sugar using steam and enzymes, there are no pollutants to worry about. As a result, when fibre-based ethanol is burned as fuel, it simply recycles carbon dioxide back into the atmosphere. Carbon dioxide is necessary for plants and trees to breathe, but dangerously high levels can trap heat and affect climate. The main advantage of ethanol from waste is that it does not produce any more carbon dioxide than nature can use.

Mr. Foody believes the green benefits of fibre-based ethanol, and its relatively low cost of production compared to gasoline, will make alcohol fuel attractive for consumers. Analysts estimate that while the production costs for conventional gasoline average 25 cents a litre, ethanol from waste and enzymes could cost about 10 cents a litre before taxes.

“The government is going to have to deal with how to make a level playing field for people who say to consumers, `you don’t have to cut back on fuel, you just have to change fuels,”’ said Mr. Foody. “That’s going to be the field that Brian fights on. The battle will be fought on the equality of opportunities to enter the market if you’re a new fuel.”

Characteristically, the Foodys are proceeding with restraint toward their goal of mass-producing ethanol, even though their multimillion deal with Petro-Canada represents their best chance yet.

A tour of the thriving, no-nonsense Iogen plant produces few signs of executive frills. Both Brian Foody and his father drive recent model Honda Accords. At the company’s corporate headquarters, the president’s office (drab, gray, concrete walls) competes for space with cramped research labs. Along with the construction of a demonstration plant, Patrick Foody has plans to build a large research centre and finally consolidate all of Iogen’s operations on a single site. But that is still more than a year away. Mr. Foody says he is also content to continue to keep Iogen a family concern, at least until the commercial success of ethanol is proven.

“It looks to me like the Foody family believes that having the trappings of success before you prove it is not the way to win the game,” said Mr. Adams. “The approach that they appear to take is you go through all these logical steps and you don’t skip steps. And they are sticking to this plan in defiance of most high-tech companies who go public and want immediate benefits. They (the Foodys) wanted to maintain control of this project, and going public would represent a loss of control.”

Mr. Foody is, as usual, more pragmatic. “It’s the wrong time (for an IPO). There will be a right time to go public, when the science is proven and the drums are beating.

“You get more money for the sizzle than you do for the steak. So we’re waiting for the sizzle.”


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