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GERALD CYSEWSKI - CYANOTECH CORPORATION (CYAN)
CEO Interview - published 12/06/2004

DOCUMENT # ZAP606

GERALD R. CYSEWSKI is Chairman, President and Chief Executive Officer of
Cyanotech Corporation. He received a Bachelor of Science degree in
Chemical Engineering from the University of Washington in 1971 and a
Doctorate in Chemical Engineering from the University of California at
Berkeley in 1976. His doctoral thesis was in the area of bioengineering.
Dr. Cysewski began his work with microalgae in 1976 as Assistant
Professor in the department of Chemical and Nuclear Engineering at the
University of California at Santa Barbara. Dr. Cysewski worked with a
grant from the National Science Foundation to develop a culture system
for blue-green algae. He soon realized the immense potential of
microalgae for the manufacture of varied, high-value commercial
products. The challenge lay in developing a process to grow and harvest
microalgae products on a large commercial scale ' reliably, consistently
and with exceptional product quality. Over several years, he worked to
perfect the process including a period as group leader of microalgae
research at Battelle Northwest. Dr. Cysewski co-founded Cyanotech
Corporation in 1983 in Washington State. He initially served as the
company's Scientific Director and became President and CEO of Cyanotech
in 1990. As the company's Scientific Director, he sought the optimum
site to launch commercial production of microalgae and found the Kona
coast of Hawaii, a region with abundant sunlight virtually year-round, a
ready source of pure water from island aquifers, deep-ocean seawater
nearby to fuel a new patented chill-drying technology, access to
international transportation and skilled labor. Cyanotech's location
combined with its advanced technology makes it the premier producer of
microalgae in the world and a company with a bright future.

Sector: BIOTECHNOLOGY

TWST: Would you begin with a brief historical sketch of Cyanotech
Corporation and a picture of the things you're doing at the present
time?


Dr. Cysewski: Cyanotech Corporation was established in 1983 with a
vision to harness the immense power of microalgae. Cyanotech is a
microalgae company and all of our products and technology are based on
microscopic algae. Microalgae form a largely unexplored and unexploited
renewable natural resource. There is a tremendous potential for
microscopic algae because there are over 30,000 diverse species, with a
wide range of physiological and biochemical characteristics, and they
can produce anything from foods and feeds to pharmaceuticals. Microalgae
are extremely productive, sometimes growing 100 times faster than land
plants. In 1984 we located our production facility on the Kona Coast of
Hawaii. Since that time our facility has become a premier operation and
has grown to 90 acres. This move was of strategic importance because
Kona is the ideal place to grow microalgae and provides Cyanotech with a
competitive advantage ' an optimal manufacturing location. Favorable
growing conditions include a consistently warm temperature throughout
the year and very little rainfall. We get more sunlight than any other
coastal location in the United States. We also have access to a very
unique resource, cold deep seawater pumped up from a depth of 2,000
feet. We use this as a nutrient source in our cultures, as well as a
source of cooling in some of our processes. We have patents surrounding
the use of cold seawater. For instance, ocean chill drying allows us to
dry our microalgae products without any oxidative damage. Over the last
21 years, Cyanotech Corporation has established itself as a leader in
microalgae production technology. We are the largest commercial producer
of natural astaxanthin from microalgae. We have multiple product lines.
BioAstin', a natural astaxanthin product, is a powerful antioxidant with
expanding applications as a human nutraceutical. NatuRose', also a
natural astaxanthin, is used in the aquaculture market and the animal
feed industries. Spirulina Pacifica', which is a nutrient-rich dietary
supplement, was the company's first major product. In addition, we
produce natural phycobiliproteins, which are highly fluorescent pigments
used as tags or markers in many kinds of biological assays in the small
but stable immunological diagnostics market.

TWST: How big are microalgae?


Dr. Cysewski: The definition of microalgae is you need a microscope to
see the cells, so they're very small ' not discernible to the naked eye,
so to speak.

TWST: And how cold is cold deep seawater?


Dr. Cysewski: It's about 50§ Fahrenheit when it's pumped up.

TWST: What properties does it have that make it so useful?


Dr. Cysewski: It's very rich in nutrients compared to surface seawater.
For instance, its phosphate levels are about 10 times higher than
surface seawater. It's also a very good source of trace elements.
Essentially all of the 96 stable elements are found in the deep
seawater. In addition, the cold sea water is utilized in our patented
ocean chill drying process. It's also an extremely cost effective
cooling method.

TWST: Regarding the 30,000 kinds of algae, how many kinds have you
accessed to do what you're doing?


Dr. Cysewski: Commercially, we're currently culturing two species;
Spirulina, the nutrient-rich dietary supplement, and Haematococcus, from
which we produce astaxanthin. We're examining a number of other
microalgae for potential new products and applications. We see a market
expanding to include such areas as personal care products, cosmetics,
suncare products, general health supplements and sports nutrition.

TWST: Why did you pick the two that you did pick?


Dr. Cysewski: When we first entered the business in the 1980s, we
focused our initial efforts and resources on Spirulina, which had an
established health food and human nutraceutical application. At that
time, most of the Spirulina available was coming in from Mexico and was
a rather low quality product. We felt we could produce a much higher
quality product ' more efficiently and cost effectively ' which would
give us a competitive edge in the market place. Our strategy to develop
the culture process resulted in the production of a higher yielding,
higher quality strain of Spirulina and led to our development of
proprietary manufacturing processes. Our decision to focus our efforts
around the cultivation of Haematococcus was due to the large market for
astaxanthin in the aquaculture market. However, we soon learned that
natural astaxanthin is a very potent antioxidant and also has anti-
inflammatory properties. As a result, we saw a tremendous market
potential in the human nutraceutical industry. That potential is still
evident and is, in fact, growing.

TWST: Is Kona, Hawaii the only place, or simply the best place to do the
kind of work that you're doing?


Dr. Cysewski: Not only is it the best place, but the Kona Coast provides
a competitive advantage to Cyanotech ' a location uniquely suited to the
cultivation of microalgae on a year-round basis. Spirulina is currently
being cultured in Southern California and in a number of places in China
and in Taiwan. Haematococcus is being cultured in Israel and also, if
you can imagine, in Sweden. However, in Sweden they are using inside
fermenters with artificial light. Our innovative and proprietary
production and harvesting technologies utilize natural production
methods and resources wherever possible.

TWST: Is there a competitive landscape, and if so could you describe it?


Dr. Cysewski: There has been competition in the Spirulina market since
we established our production facility in 1984. In the mid-1990s a
number of operations began in China. They are producing a low-cost but
inferior grade of Spirulina. There is also some production that has
begun in India. Our biggest single competitor, Earthrise, is located in
Southern California, and is owned by a large Japanese company,
Dainnippon Ink & Chemical Company. It is a somewhat crowded playing
field in the Spirulina market; but, within that market we are the world
leader in production of the highest grade Spirulina product, Spirulina
Pacifica. As for the natural astaxanthin market, there is limited
competition. For example, NatuRose, our natural astaxanthin product for
the aquaculture and animal feed markets, primarily competes with
astaxanthin which is synthesized from petrochemicals. We have seen our
natural-based NatuRose product outperform synthetic astaxanthin in
efficacy in Japanese aquaculture feed programs. As for BioAstin, while
there are other companies producing natural astaxanthin from
Haematococcus, they all individually have limited production capacity.
Cyanotech by far has the largest production capacity and the lowest
production cost.

TWST: Could you outline your strategy for the next three years?


Dr. Cysewski: Our strategy for the next three years is first of all to
focus on business-to-business sales, working with large supplement and
animal feed companies in the US and throughout the world that will
incorporate our high quality products into their products. Our strategy
is to maintain our Spirulina market share, and although this is a rather
crowded marketplace, we have a reputation for the highest quality
Spirulina in the world. Where we're really making a push is in our
natural astaxanthin products ' our NatuRose product for incorporation
into animal feeds for farmers and producers of fish who want natural
products in their feeds, and then BioAstin, which is natural astaxanthin
for the human nutrition market. BioAstin is an emerging product with
emerging applications that has tremendous potential. Natural astaxanthin
has been scientifically shown to increase muscle endurance and we see
potential application in the sports nutrition market. America's
population is maturing and the Baby-Boom generation is looking for
natural, alternative products that can help them live healthier, longer
lives, perform better and to live free of pain. A growing body of
science supported by independent clinical trials demonstrates that
natural astaxanthin and Spirulina are the right products to serve the
needs of this population. Natural astaxanthin has been shown to be
beneficial for increasing muscle endurance and helping with the effects
of Rheumatoid Arthritis. Spirulina is a very rich source of mixed
carotenoids, such as beta carotene. In addition, Spirulina contains
potent anti-viral compounds, which have been linked to the reduced
incidence of certain cancers, and is a zeaxanthin, which is essential
for eye health. Our natural products are uniquely positioned to hit the
sweet spots of the nutritional supplement market Independent clinical
studies are validating what we have known all along. It takes time for
the science to support the theories and ultimately filter back to the
consumer markets. Natural astaxanthin is a relatively new consumer
product. In 1999, we were the first company to gain FDA clearance for
natural astaxanthin for sale of our BioAstin product into the human
supplement market. We believe that the base of consumers will continue
to grow as new applications are uncovered for this product. Over the
next few years, we will continue to support the science which validates
the applications for both natural astaxanthin and Spirulina. This is
something that we're very excited about, because at the end of the day,
it's the supporting science that promotes consumer demand which leads to
sustainable revenue growth over time.

TWST: Could you elaborate on what it is and what it could do for people?


Dr. Cysewski: BioAstin has three unique properties. First of all, it's a
very powerful antioxidant, and studies have shown that it's probably one
of the most potent natural antioxidants known. Second it has anti-
inflammatory properties, and third, it can cross the blood-brain barrier
and deliver these health benefits directly to the central nervous
system. Cyanotech has completed six clinical trials and through these
trials we have demonstrated that BioAstin is very effective in relieving
the symptoms of Rheumatoid Arthritis and Carpal Tunnel Syndrome. We also
completed a trial in which it was established that oral consumption of
BioAstin increased the skin's resistance to UV radiation. We hold
patents on the applications for UV protection and Carpal Tunnel
Syndrome. There have also been several other clinical studies on natural
astaxanthin completed by independent third parties. These have included
studies in which natural astaxanthin was found to enhance muscle
endurance, enhance the body's immune system and relieve ulcer
inflammation in the stomach that can lead to infection to ulcers caused
by bacteria known as helicobacter.

TWST: Are there any other algae that you'll be working on, or are the
two you're working on enough for a while?


Dr. Cysewski: Over the next couple of years we're going to be
concentrating on the potential applications for Haematococcus in
BioAstin and NatuRose. However, we do have other algal strains, as I
mentioned, that we're going to be examining intensely for some new
nutraceutical products. For competitive reasons we can't name the algae
specifically, but we see a market with broad potential. With over 30,000
diverse species of microalgae to work from, our expertise in microalgae
places us in good stead to determine which strains have potential. It
should be noted that we have developed the proprietary manufacturing
processes to culture microalgae in large quantities at profitable
levels. Most of our processes adapt easily to the culture of other
microalgae species.

TWST: With 30,000 types of algae out there, does this mean that we've
hardly tapped the potential?


Dr. Cysewski: Absolutely. We feel that microalgae represent the frontier
of an untapped natural resource and Cyanotech is pioneering the
technology to tap that resource. Not only is it possible to produce
nutraceuticals and feed supplements from microalgae, but we see a day
when even pharmaceuticals could be produced by microalgae. The
implications are vast.

TWST: Are there any dangers to them posed by all the well known
environmental problems that there are out there?


Dr. Cysewski: There are certainly dangers involved if you don't know
what you're doing or if you produce microalgae under less-than-strict
conditions. Cyanotech produces its microalgae under very strict quality
controlled parameters, with a registered quality system. In fact, we
were the first company to receive the ISO 9002 Registered Quality System
rating for microalgae production. Before anything leaves our facility it
goes through complete quality assurance testing. Microalgae are a little
bit like mushrooms. Most strains of microalgae can produce some very
beneficial, very healthful products. However there are a few species
that can actually produce toxins, just like mushrooms, so you have to be
very careful and know what you're doing and maintain what are called
uni-agricultures; i.e. grow only what you want to grow.  That's why, if
you look at wild harvests of microalgae, there is the potential for
problems. Some species with toxins, microcystins, can lead to liver
damage. There are some reported cases in which dogs inadvertently drank
water that had been infected with toxic strains of microalgae that led
to their death. You've likely heard of 'red tide' or shellfish
poisoning, which is attributable to wild microalgae. With proper
technology, such as that which Cyanotech has pioneered, we can produce
and culture the microalgae that have the sought after beneficial
effects.

TWST: Of the various things you're working on, where would you say the
greatest potential or opportunity lies?


Dr. Cysewski: Of our current products, the greatest potential lies with
the natural astaxanthin products. We feel we have a strong competitive
advantage there. And of the natural astaxanthin products, we feel that
BioAstin has the greatest potential for increasing revenues and profit.
Beyond that, we're looking at some other microalgae products that we
feel could have equal or greater potential than BioAstin.

TWST: What about problems and challenges? What might worry you or
concern you in the next few years?


Dr. Cysewski: While we feel that we have a competitive advantage with
our natural astaxanthin production, we are not na‹ve enough to think
that, moving forward, people will not develop technology that could
challenge us, so we're continually improving our production technology.
Also we are continually looking at new products. Products have a life
cycle and we intend to continue the development of products that will
give us a robust and varied product pipeline to keep the company moving
ahead and growing in revenue.

TWST: What are your thoughts on alliances, partnerships, mergers and
acquisitions?


Dr. Cysewski: As always, we will consider any business combination that
would potentially result in a strengthening of our profit potential and
return for our shareholders. In addition, we are always open to working
with other companies through alliances or joint ventures for the
production of various products from microalgae.

TWST: Do you visualize the company being acquired by another company at
some time?


Dr. Cysewski: Not at this point in time. We would, of course, entertain
any offers that are in the best interests of our shareholders and would
maximize shareholder value.

TWST: Where would you expect the company realistically to be three years
from now, and what would be the milestones possibly along the way for
investors to look for?


Dr. Cysewski: Right now we are very diligently working on the expansion
of our natural astaxanthin production by converting 10 of our Spirulina
culture ponds to astaxanthin production. Upon completion, the converted
ponds will increase our flexibility to adjust production as required to
respond to the varying demands of the marketplace. This conversion is
scheduled to be completed by the end of this calendar year. So that's
one milestone that's in the short-term. As we move forward, I would
expect that a greater proportion of our revenues would start to come
from our natural astaxanthin sales, in the form of a combination of
NatuRose and BioAstin, and then moving further I think investors could
look for a greater portion of our sales coming from our nutraceutical
astaxanthin product, BioAstin.

TWST: As a PhD who is running a company, do you still have time for
science?


Dr. Cysewski: Running a company takes a great deal of my time and
concentration, as I'm sure you're aware. But, I make it a practice to
stay abreast of the science and make contributions. I still attend
process improvement conferences and while I may lack the time to do any
of the detailed work, I feel I can make suggestions and guide the
science.

TWST: I believe you earned a PhD at Berkeley.


Dr. Cysewski: I did; in chemical engineering. My specialized research
was in the area of biochemical engineering. I developed large-scale
commercial processes to produce products from microorganisms.

TWST: So you were aware when you were doing that of the direction in
which you were headed.


Dr. Cysewski: When I first began my studies, I didn't really know about
microalgae. My work was concentrated on alcohol fermentation and
conversion of waste cellulose to sugars, and then fermenting to alcohol
as an alternative fuel. I taught for a few years at UC Santa Barbara,
and that's where I started doing work with microalgae.

TWST: Could you tell us about the other elements in your career that led
you to be doing what you're doing right now?


Dr. Cysewski: After I left Berkeley and alcohol fermentation, I was
somewhat tired of that general area. I didn't see where it had much
potential. I spent a summer in the library and encountered this class of
organisms, microalgae, and saw that little modern engineering technology
had been applied to producing products from microalgae. I saw potential
where no one else seemed to, at least at that point. I put together a
grant that was funded by the National Science Foundation and that was
the beginning of my career in working in microalgae. From the University
of California I was hired by a company called Battelle Northwest, a
division of The Battelle Memorial Institute, and headed up their
microalgae research group. In 1983 I decided that in order to harness
the immense power of microalgae, more resources than we had in the
research group were required ' it required the resources of a company.
Thus, Cyanotech was founded.

TWST: Could you tell us about the backgrounds and the expertise of a
couple of your colleagues?


Dr. Cysewski: We have put together a world class team of professionals.
Our Vice President of Operations, Glenn Jensen, has been with the
company for over 20 years. We hired him from a company in California
that was attempting to produce Spirulina, but didn't quite make it.
Glenn is the brains behind all of our process equipment. Not only has he
put them together, he keeps them running to maximize our facilities and
production. Jeff Sakamoto is our Vice President of Finance &
Administration and has been with the company for nine years. He served
as the company's corporate controller prior to his promotion to CFO and
has over 25 years in private industry accounting. His guidance to the
corporation is highly valued. Robert Capelli, our Vice President of
Sales, is rather new to the company, having been with us for three
years; but he is an industry veteran, with over 15 years' experience
with sales in the natural products industry. We are fortunate to have a
team with such depth.

TWST: How many people do you have on staff overall?


Dr. Cysewski: 65 people.

TWST: In general, in terms of recruiting the absolutely best people, is
being in Hawaii very much of an advantage to you?


Dr. Cysewski: It is and it isn't. One thing we find when we're
recruiting at higher levels is that we're always amazed to find out how
many people have moved to Hawaii and are under-employed. So when we're
looking for a biologist or a scientist, we find people who may be
waiting tables who have either a Bachelor's or a Master's degree and are
very grateful to have a job in which they can practice their science.
Certainly at the very senior levels we start here in Hawaii and then
advertise on the mainland. And although Hawaii is a very desirable place
to live, it tends to be a little bit expensive ' not expensive compared
to Southern California, but certainly expensive compared to some places
in the middle of the country or even on the East Coast.

TWST: But you've managed to attract a very capable group.


Dr. Cysewski: More than capable. Our management team and our employees
collectively comprise a competitive advantage. Collectively, we know
more about microalgae production than any of our competitors and we
operate in a unique location that provides us with yet another
competitive advantage.

TWST: Do you see any need to improve the company's capital structure?


Dr. Cysewski: Not at this time. We've been profitable for the last four
quarters. We are going through an expansion project, investing in our
production facilities, and all of that is currently being funded by
internal operating funds.

TWST: Have you gotten your message out to the investment community at
all?


Dr. Cysewski: Yes, we have. We have been largely focused over the last
year in returning our company to profitability. We have been successful
in this measure. We have partnered with an investor relations firm in
order to tap resources we otherwise might not have had access to. We are
looking at Wall Street conference opportunities that we can attend and
we plan to be on the road in the 2005 time frame. We utilize every
opportunity to speak with investors and believe firmly that investors
should take a closer look at our company, now rather than later.

TWST: What would be the three or four best reasons for the long-term
investor in particular to take a very good look at Cyanotech?


Dr. Cysewski: We have designed, developed and implemented proprietary
production and harvesting technologies, systems and processes that
position us with a compelling competitive advantage. We're a
commercially-operating company, making a profit. I believe that we have
the potential to grow both revenue and profit moving forward with our
natural astaxanthin products. The potential that I saw in the early
1980s for microalgae to produce a wide variety of products, and
ultimately develop a significant revenue base that is very large, has
not abated. Quite simply, as I mentioned earlier, our natural products
are uniquely positioned to hit the sweet spots of the nutritional
supplement market and address the varying needs of a population that
demands products that will help them alleviate pain, play longer and
enjoy all that life has to offer.

TWST: Is there anything you'd like to add, particularly with regard to
the company's long-term objectives or vision?


Dr. Cysewski: One thing that is very evident in today's market for
nutritional supplements is that science drives sales. Looking ahead, we
will be investing in more clinical trials and will continue the
development of a very sound, scientific basis for the efficacy of our
products. We have the budget to move ahead with future clinical trials
on natural astaxanthin, and we intend to continue this with the new
products that we introduce. The result, we believe, will be a solid
foundation of science to validate and support the sale of our products.
None of this happens overnight, but we are uniquely positioned to move
forward and capitalize on all that we have developed over the last 22
years. We are extremely excited by our prospects.

TWST: Thank you. (MC)


GERALD R. CYSEWSKI
 Chairman, President & CEO
 Cyanotech Corporation
 73-4460 Queen Kaahumanu Highway
 Suite 102
 Kailua-Kona 96740
 Hawaii
 (808) 326-1353
 www.cyanotech.com
 e-mail: info@cyanotech.com

Investor Relations Contact:
LAURA GUERRANT
 Guerrant Associates
 (808) 882-1467
 e-mail: lguerrant@guerrantir.com

Copyright 2004 The Wall Street Transcript Corporation
All Rights Reserved


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