Alternative Fuels: Rating Bioprocessing Companies on the Lux Innovative Grid

As the alternative fuels industry rapidly approaches maturity, reports of IPOs and commercialization have blended with headlines about spectacular failures and cheap acquisitions. The remaining players navigate a landscape of prospective partners, funding, and scale as well as serious uncertainty (read: opportunity).

A thorough examination of the field reveals contenders, dark horses, and long-shots within several technology classes, including pretreatment, bioprocessing, and gasification. While many of these companies appear similar on paper, we applied the Lux Innovation Grid in a recent report to rate them in three dimensions – business execution, technical value, and maturity. Drawn from that report, this week’s graphic reveals likely winners and losers among Alternative Fuel bioprocessing companies which, as a group, offer strategic flexibility in feedstock and end-products.

The crowded Dominant Quadrant is due in part to the successful IPOs of Amyris, Gevo, and Solazyme, as well as the impending commercial scale of companies like LS9, Cobalt, and LanzaTech. Aemetis edges into the Dominant Quadrant thanks on the technological potential of its Z microbe, which simultaneously breaks down cellulosic biomass and converts the sugars into isoprene. ZeaChem also lands in the Dominant Quadrant due to high partnership and momentum scores, fueled by a recent funding round and joint development agreement with P&G.

Cellulosic ethanol producers Qteros and Mascoma both claim low cost production and robust organisms, but both fall into the High Potential Quadrant due to sagging business execution scores. Qteros’ Q microbe could lead to more efficient processing of biomass; but it recently laid off most of its staff, including its CEO. Touting similar technology, Mascoma filed for an IPO* in September, but could see its public launch hindered by capital intensity and slowing momentum.

Lastly, OPXBiotechnologies shows some interesting potential for developing microbes for acrylic acid (with partner Dow) and diesel as part of the ARPA-E funded Electrofuels project: https://portal.luxresearchinc.com/research/tidbit/8436*. But, on the fuels side, it falls into the Long-Shot Quadrant due to a competitive landscape score of 2, and a partnership score of 2, with an overall Lux Take of “wait and see.” Joule, on the other hand, we rate as a “caution” thanks to a barrier to growth score of 1, no commercial partners, and wholly unproven claims.

Source: Lux Research report “Refining Alternative Fuels Innovators into Winners and Losers.”

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The boom in bio-based materials and chemicals is really a boom in synthetic biology

Venture capitalists (VCs) invested $3.1 billion in bio-based chemicals and materials developers since 2004. As many of those start-ups reach megaton scales and launch IPOs, Lux Research analysts sought to find which technologies venture investors favored. This week’s graphic comes from their just published report (client registration required), in which analysts tracked 177 venture transactions involving 79 companies operating in five technology categories – biocomposites, bioprocessing, thermochemical processes, crop modification, and algae. In short, they found:

Bioprocessing developers brewed up $1.89 billion in 96 deals. Bioprocessing developers – especially synthetic biology companies – landed more than half the total venture capital invested since 2004. Encompassing technologies like fermentation, phage display, natural breeding and synthetic biology, all bioprocessing platforms employ some sort of organism as a “factory” for creating products as diverse as sweeteners and catalyst supports. Intrinsically flexible, these platforms enable the likes of Amyris, Codexis, LS9, and Solazyme to produce multiple products from multiple feedstocks, thus ensuring a relatively low-cost route to high-value compounds and providing a hedge against feedstock and product price volatility.

Thermochemical technologies raked in $577.0 million in 31 deals. Thermochemical processing encompasses technologies like gasification (Enerkem), catalysis (Avantium, Inventure), and acid hydrolysis (HCL Cleantech, BlueFire) that sometimes convert biomass to an intermediate like sugars or syngas, and sometimes go all the way to an end product. (e.g. Virent’s paraxylene is used in Pepsi’s famed 100% bio-based PET bottle

Crop modification companies harvested $371.7 million in 28 deals. IPOs are less common fates for crop modification companies which, as you may have guessed, modify crops to be more amenable and economical for use in bio-based materials and chemicals. Instead, companies in this category, like Athenix and FuturaGene, usually end up being acquired by the likes of Syngenta, Monsanto, DowAgro, or Bayer CropScience.

Algae developers saw $190.5 million in 13 deals. Notably, that figure only encompasses start-ups developing algae strains, cultivation systems, and processing equipment for creating industrial chemicals. Representative developers include Bio Architecture Lab, a macroalgae developer, and Israel’s Rosetta Green, which had raised $1.5 million in venture funds, but more recently brought in almost $6 million in an IPO on the Tel Aviv TASE. Excluded from this category are companies primarily developing fuels (which we cover in our Alternative Fuels Intelligence service), and companies like Solazyme and Green Pacific Biologicals that use algae for fermentation (and, thus, are categorized in bioprocessing, above).

Biocomposites developers brought in $108.9 million in a mere nine transactions. This category includes bioplastic blends, some starch plastics, and bio-based foams, from the likes of Cereplast, EcoSynthetix, Ecovative Design, and Entropy Resins. Because of the relatively simple nature of these technologies, VCs often don’t see them as investment opportunities – forcing companies like SoyWorks and Biop Biopolymer to find other sources of funding.

Source: Lux Research report “Seeding Investment in the Next Crop of Bio-Based Materials and Chemicals.”

Materials suppliers follow consumer brand owners into synthetic biology

Consumer goods material suppliers continue to turn to synthetic biology for advanced products and delivery systems. A few months ago at the Metabolic Design summit, Steve He, who is responsible for acquisition of sustainability technologies at Henkel, said the company is collaborating with Arizona State University to see whether CO2-fed algae could synthesize high-value, renewable oils, and surfactants.

Elsewhere, Evolva’s Pascal Longchamps described the company’s synthetic biology platform, and how it’s applied for partners like Roche (cancer drugs), BASF, and the U.S. Army (antimicrobials). The company creates yeast artificial chromosomes (eYACs) that combine genes from “trees, from coral, from the brain” – apparently not meant as casual examples – into one new organism. For example, Evolva has developed a pathway for producing Stevia (a sweetener found in certain plants) in yeast. The company was collaborating with Abunda*, which it acquired in April.

We also spoke with Marcus Wyss of DSM Nutritional Products, which aims to become the cosmetic industry’s leading supplier by building a product portfolio with designed metabolic processes. The company is a sponsor of the BioFAB consortium based at SynBERC, and it is also contemplating agricultural waste as a feedstock for bio-based chemicals and materials. Also, Wyss specifically said DSM’s recent acquisition of Martek will bring “significant improvement” to its algal biotechnology abilities.

Lastly, we noted that Roquette’s partnership with Solazyme* has deepened into a JV, as successful partnerships often do (see the report: “Green Materials’ Social Networks”)*.

These examples of how bio-based materials and chemicals suppliers are supporting brand owners only appear cutting-edge. In reality, brand owners are leading the suppliers. Procter and Gamble has been using genomics and proteomics technology since the 1990s, even publishing papers on the subject. In the last twelve months, it struck a supply deal with Amyris, invested in personal genomics company Navigenics *, and opened a collaboration with the Institute for Systems Biology to study skin conditions ranging from aging to cancer. Similarly, Unilever has been acting like a drug company* for several years*. It is now using controlled-release biopolymers to deliver encapsulated lipids,* and investing* in its partner Solazyme*.

We expect to see more companies use biotechnology to improve food and cosmetics by blazing new routes to known and new substances, applying delivery technologies to improve substance benefits, and using their products as delivery technologies in and of themselves. These strategies are part of the broader trend of convergence of food, cosmetics, chemicals, and medicine, driven aggressively by BASF* and DSM*. Clients should note that these technologies are maturing at an opportune moment for companies looking to enter pharmaceuticals, as the collapse of drug majors clears the way for new entrants from delivery,* consumer products, and even the electronics industries*.

* Client registration required.

Tate & Lyle and Roquette take synthetic biology further into food, personal care, and agriculture

Not one, not two, but three synthetic biology food-related announcements recently hit the wires in short order. First there was Abunda Nutrition’s debut, and the company’s plan to use synthetic biology to produce ingredients like vanillin and nutritional fats and oils (see the November 2, 2010 LRTJ*) of a contract manufacturing agreement between Tate & Lyle and Amyris to produce farnesene, a set of compounds that includes, among other things, the scent of apples. And topping it off was the report of a joint venture between Roquette and Solazyme to make “oil-, protein-, and fiber-based products aimed at delivering improved performance with a superior health profile compared to ingredients in the market today.” According to the announcement, Roquette will fund and build a jointly owned, commercial-scale manufacturing plant at one of its corn wet mills. The plant’s annual production capacity will be on the order of tens of thousands of tons.

We’ve discussed the entrance of synthetic biology into food before, and these announcements naturally bolster that trend (see the June 29, 2010 LRBJ*). Likewise, we have mentioned the convergence of agriculture, energy, and chemicals in previous posts (see the September 15, 2009 LRBJ*). Adding public announcements to discussions we’ve had with companies in the space, we see an increasing flight in industrial biotech from fuels to other products. It remains to be seen whether those “other products” will be synthetic biology technologies such as these, or algae companies looking to secure revenues while they are at small scale. Either way, synthetic biology is no longer an activity that companies in food, personal care, or agriculture can watch from the sidelines. Like their peers in energy and chemicals already have done, clients in these industries should examine the likes of Amyris, Solazyme, LS9, and Blue Marble as strategic partners for future products.

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EPA’s 2011 blending mandates signal a wake-up call for cellulosic biofuels

Earlier this week, the U.S. Environmental Protection Agency (EPA) announced its proposed RFS2 renewable fuel blending mandates for 2011, a surprisingly pragmatic piece of regulatory action. The RFS2 is an expanded version of the Renewable Fuel Standard (RFS1) program modified by the Energy Independence and Security Act (EISA) of 2007, and it requires the EPA to set renewable fuel standards each November for the following year. 

While there is generally good news for biodiesel, the RFS2 is a veritable reality check for cellulosic biofuels cheerleaders.

Here are the blending mandates the recent regulatory action proposes: for cellulosic biofuel (0.015%), biomass-based diesel (0.68%), advanced biofuel (0.77%), and total renewable fuels (7.95%). All proposed mandates apply to any gasoline and diesel produced or imported in year 2011. In setting these targets, the EPA reaffirmed the scheduled advanced biofuels mandate of 1.35 billion gallons, as well as the 800-million-gallon blending mandate for biodiesel.

However, for the second year in a row, it had to dramatically slash the cellulosic biofuel mandate from RFS1 targets, this time from 250 million gallons to a 6-million-gallon to 25-million-gallon range. As a result, and because the EPA didn’t slash the overall mandate, blenders will now have to look elsewhere for 124 million to 144 million gallons of qualifying advanced biofuels to make up the portion of the advanced biofuels mandate not met by the cellulosic biofuel or biodiesel targets. Options include importing sugarcane ethanol, finding additional biofuel production, or buying appropriate Renewable Identification Number (RINs) credits to make up the difference. Clients should monitor companies like Dynamic Fuels (a joint-venture of Tyson Foods and Syntroleum Corporation), LS9, and INEOS to see if they can step up to the plate and provide this additional capacity.

The reception to this regulatory action has been mixed. While organizations like the Renewable Fuels Association (RFA) took offense with the downward correction of the cellulosic biofuel mandate, seeing in it the potential to further hamper investment, others thought the EPA was optimistic to anticipate 25 million gallons of cellulosic biofuel supply. However, everyone agrees that the EPA didn’t really have a choice but to stay true to market realities.

In determining the applicable standards, it is required by law to conduct an in-depth evaluation of how much qualifying biofuel can be made available in the following year. If the projected available volume is less than the required volume specified in the statute, it must lower the required volume to match the projected amount. In short, the EPA must match its mandates to available production capacity.

Cellulosic biofuels were done in by the sluggish pace of commercialization of developers like Range Fuels, Gevo, Iogen, Enerkem, and others who have all frequently missed milestones for maturity and commercial penetration. If the latest projections are to be believed, this capacity picture is unlikely to alter significantly for the next three years to four years, in which time competing technologies could blaze critical inroads into the market and make the outlook for cellulosic biofuels even more bleak. This news should come as a definite cause for concern for investors in and champions of cellulosic biofuels, whose only respite might be new loan guarantee programs from the U.S. Departments of Energy and Agriculture that are specifically engineered for cellulosic biofuels.

Meanwhile, as cellulosic biofuels grapple with this sobering reality, there are positives in the overall story for advanced biofuels in general. The EPA believes the overall mandate of 1.35 billion gallons of advanced biofuels in 2011 is enforceable, and we certainly agree. What is bad news for cellulosic biofuels might be good news for developers of other types of technology options like biodiesel or renewable diesel. Clients active in this domain should engage companies like Amyris, Solazyme, or Benefuel.

Original syn: debate over definition of first synthetic life presages commercial and IP battles

Last month, scientists at the J. Craig Venter Institute (JCVI) announced the creation of a replicating “synthetic” bacterial cell – or, in other words, they may have created the world’s first synthetic life form.
 
The team synthesized a modified Mycoplasma mycoides genome about 1 million base pairs (bp) long from about 1,000 fragments that were each some 1,000 bp in length. Gene foundry Blue Heron fabricated the genome from basic biochemicals based on digital sequences, and assembled it in an Escherichia coli cell. The team then transplanted the genome into a third organism, Mycoplasma capricolum, the DNA of which was destroyed in the experiment. The cells began multiplying in culture, expressing the genes encoded only in the synthetic DNA – signifying what could arguably be synthetic life.
 
And argument is what ensued – predictably, since the achievement was pre-announced less than a year ago (see the September 1, 2009 LRBJ*), and foreseeable from the time the program was launched in 2007. So when Nature asked eight synthetic-biology experts about the implications for science and society, rival scientists sniffed that the synthetic cell “does not quite constitute a ‘synthetic cell’ by my definition” (Steen Rasmussen, Professor of Physics, University of Southern Denmark). At the same time, bioethicists fretted that “Nobody can be sure about the consequences of making new forms of life, and we must expect the unexpected and the unintended” (Mark Bedau, Professor of Philosophy and Humanities, Reed College, Oregon).
 
Friends of the Earth called for a stop to research until regulations are in place, and ETC Group (which cleverly named the then-uncreated organism “Synthia” in 2007) warned that “Craig Venter is handing this powerful technology to the world’s most irresponsible and environmentally damaging industry by partnering with the likes of BP and Exxon” (see the June 23, 2009 LRBJ*). The Vatican viewed the results as “positive,” before pointedly adding an injunction to “never forget that there is only one creator” (hint: not Venter). Meanwhile the White House called for a commission to study the implications.
 
Venter himself deflected the question, telling CNN it was a “living self-replicating cell” with “no genetic ancestors… whose DNA was made chemically and designed in the computer.” CNN’s response – “Some critics suggest you shouldn’t make life from a computer” – helped illustrate the profound vacuity of mainstream media on this topic.
 
So, did the JCVI create life? While the question is a philosophical and linguistic morass, for what it’s worth, we’d say the answer is yes. Although the first step was a cell with a synthetic genome rather than a “synthetic cell,” all of its progeny sprung from lab chemicals. Even if the initial M. capricolum cell was once alive, it was certainly not living with its DNA destroyed. And the synthetic DNA was not alive before it was patched into sequence by Blue Heron and the JCVI team. By combining two collections of non-living biomolecules and creating something capable of metabolism and self-replication, the JCVI set in motion a process that must die to end. However, as monumental as JCVI’s achievement is, it will soon be yesterday’s news. In practical terms, it may have manufactured life but did not even attempt to “design” or “control” life, as the genome it used has only cosmetic differences from M. mycoides’ natural genetic code. But designing novel genes is already common, and designer genes will certainly be put into future synthetic cells. In sum, this achievement represents both the culmination of many incremental steps (and the first of many more) on a spectrum of human-created life that will almost certainly advance beyond the point of dispute in coming years, and many people will always regard this as the watershed moment.
 
So what will the reception and impact of this work be? “Living” technologies ranging from organic chemistry to in-vitro fertilization have met huge initial ethical opposition, but ultimately lived or died on their merits (see the April 28, 2009 LRBJ*). Synthetic biology’s value will be determined by the benefit brought by products like biofuels and medicines from Synthetic Genomics, Gevo, Codexis, Amyris, and dozens of other firms using the technology (see the December 8, 2009 LRBJ*). Today’s “Synthia” cost $30 million to create. But the history of past technologies indicates that she will seem quaintly simple and exorbitantly expensive when costs plummet (see the February 10, 2009 LRBJ*), finance soars (see the August 25, 2009 LRBJ*), patenting battles begin (see the June 23, 2009 LRBJ*), and commercial success is widespread (see the report “Synthetic Biology’s Commercial Roadmap”) a few years hence.
 
* Client registration required.