New sugar substitute comes by way of Mars

Down to earth: An unusual conglomerate's latest bid for fortune is a sweetener that stems from the CEO's experiments to find life on Mars.

February 24, 2002|By Julie Bell | Julie Bell,SUN STAFF

Spherix Inc. traces its origins to outer space and its future fortunes, in part, to manure. So it isn't surprising that company President David Affeldt has learned to brace himself for wisecracks.

"Are you guys as far up in orbit as Mars?" one smart aleck recently asked him as the two talked business.

It doesn't help that its product offerings, while down to earth, can seem a wacky combination. At one end of Spherix's Beltsville headquarters, headset-wearing employees staff a call center, handling everything from questions about drugs for pharmaceutical companies to a state child-support hot line.

At the other end, product manager Shawnee Vasquez sits under a "Beef: It's what's for dinner" sign, pondering how to peddle the company's new maggot pesticide. One big potential customer base: Cattle yards. Maggots like to snuggle in manure.

But it's the company's low-calorie sugar substitute that has Spherix's shareholders dreaming of sweet rewards. Tagatose, poised to hit the market by early 2003, not only tastes and looks like sugar but has bulk, too. Enough to bake a cake. NutraSweet can't do that.

Theoretically, Tagatose could be America's Holy Grail. In a weight-obsessed but diet-challenged nation, it promises desserts, chocolates and cereal that would not add to the collective waistline. Tagatose, a naturally occurring variation of fructose, has less than 40 percent of sugar's calories. And, unlike sugar, it doesn't appear to cause tooth decay.

By one estimate, the world consumes more than 260 billion pounds of sugar a year. If Tagatose takes even a small bite out of that, Spherix's profits of $591,070 in 2000 would skyrocket.

Getting Tagatose on the market would cap Spherix's decades-long quest to develop a sweetener. Its first one, in the works since the 1960s, turned out to be too expensive to make.

Tagatose was patented in 1988, but a decade later, the company was only just beginning the wait for Food and Drug Administration approval to market it for food and beverages. A FDA expert panel found the substance safe in April. In October, the agency said it had no outstanding questions about the product, clearing the way.

Spherix has licensed the sweetener for use in food to Arla Foods. The Danish dairy giant will use the whey that is a byproduct of its cheese manufacturing to make Tagatose. No major food or candy maker has publicly announced that it will use the sweetener.

Spherix hasn't disclosed what percentage of sales it will get, but the company said it designed the royalties to get about a third of Arla's Tagatose profits. Arla already has paid Spherix a $1 million advance on royalties.

The little company also is laying plans to market Tagatose for nonfood uses, such as sweetening cough syrup or mouthwash.

Spherix would never have come up with what could be the biggest low-calorie sweetener since aspartame if it hadn't been for the Mars research of Chief Executive Officer Gilbert V. Levin.

Still, the sugar substitute's success isn't assured.

Investors, burned by the previous Spherix sweetener that failed, seem to have their doubts. The company's shares trade around $8.

Lincoln Werden of H.G. Wellington & Co., one of the few analysts who consistently follows the company, says investors bought in mainly because of Tagatose. But he calls Spherix a "speculative stock that tries one's patience."

By all rights, it is Levin - the company's biggest shareholder besides his wife - who should be running out of patience.

Levin, who has a doctorate in environmental engineering from the Johns Hopkins University, founded what was then called BioSpherics in 1967. He wanted to produce products for health and the environment. Levin brought with him ideas from experiments he had begun in 1959 to look for life on Mars. The experiments were aimed at supplying "food" that alien microorganisms would eat, giving off detectable gas.

Levin, an experimenter with NASA's 1976 unmanned Viking mission, still uses Spherix to promote his disputed conclusion that the experiments found living Martian microorganisms. Its Web site includes a link to "Research on Mars."

The experiments led to byproducts, including Tagatose. FlyCracker, Spherix's safe-for-humans maggot killer made of citric acid, was another result. But while Spherix's biotech innovations grew, most were financial flops.

The company has licensed its Oil Sentry product - designed to detect excessive oil in the bilge water discharged by ships - but Levin said annual royalties now amount to only about $5,000 to $8,000.

The patents to its PhoStrip phosphorus remover for wastewater treatment plants expired before the technology was widely adopted. Levin estimates that PhoStrip is used at several hundred plants worldwide, though Spherix doesn't get a cent.

Lev-O-Cal was the name of the company's failed first attempt at a sugar substitute.

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