A Seattle tissue culture company spun off from Washington State University has ceased operations and entered receivership, leaving growers across the country waiting on tree orders that now hang in the balance of bankruptcy proceedings.

Phytelligence, founded by a WSU professor in 2011 to commercialize a tree micropropagation method, simply overextended itself, said its court-appointed receiver.

“Their cash and their timeline just didn’t match up,” said Kern Gillette of Revitalization Partners, a Seattle company appointed by King County Superior Court to manage the company’s assets. “It’s not an uncommon problem for a startup.”

The company was one of the few tissue culture labs making trees for the tree fruit industry, which often views the technology as a ray of hope to speed production. From the outset, Phytelligence promised technology that would incorporate genetic fingerprinting into propagation, reducing the risk of mistaken identities (see “Mistaken identity” on Page 30) in addition to reducing costs and wait times for trees.

“I actually think that’s the wave of the future,” said Scott McDougall, president of McDougall & Sons in Wenatchee, Washington, who is among the many growers still waiting for trees from Phytelligence.

Phytelligence still has hope, Gillette said. There is a chance a third party could buy the company and its assets and rebuild. If not, creditors, customers and vendors would receive payment in an order of priority based on Washington law.

Phytelligence filed for receivership on Sept. 30.

In court documents, Phytelligence lists debts totaling $22.4 million, including $1.7 million to about 30 growers.

On the assets of the ledger, the company listed roughly $13.6 million, including 1.5 million trees that were scheduled for delivery in 2019, 2020 and 2021 and valued at a total of $6 million in Burien, Washington, and Portland, Oregon. Gillette is using company assets to pay 10 employees to tend to the trees during the receivership process.

Phytelligence delivered New Royal Bluff Orchards’ 2019 trees, but they were too small, so the orchard company is finishing them in its own nursery, said Jim Jackson, CEO of New Royal Bluff Orchards in Royal City, Washington. He was one of the early supporters of Phytelligence and has been a member of the board of directors for two years.

The orchard is still waiting for its 2020 and 2021 orders, for which it has paid the full cost, not just a deposit, Jackson said. But the orchard company is not waiting for those trees to move forward on its ambitious expansion plans, said Jackson, who just purchased from elsewhere.

Amit Dhingra, the founder of the company and a professor of plant genomics and biotechnology in WSU’s horticulture department, declined to comment for this story.

In 2018, Phytelligence entered dueling lawsuits with WSU over the rights to commercially propagate WA 38, the apple bred by WSU and marketed under the trade name Cosmic Crisp. In July this year, a federal judge ruled in WSU’s favor.

That did not sink Phytelligence, Gillette said.

“I don’t think the WSU suit was causal,” he said. “It didn’t help, but it wasn’t a causal factor.” •

by Ross Courtney

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