Industry Giants Join Forces to Fast Track the Commercialization of 100% Bio-Based PET

Last week, industry giants Coca-Cola, Ford Motor, Heinz, Nike, and Proctor & Gamble formed a partnership agreement designed to integrate 100% plant-based polyethylene terepthalate (PET) into their product lines at commercial scale. This news rides on the coattails of Coca-Cola’s announcement to partner with Virent, Gevo (Client registration required.), and Avantium (Client registration required.) to accelerate development of their current 30% plant-based monoethylene glycol (MEG) PlantBottle (Client registration required.). To date, purely bio-based PET technologies exist. In fact, there are many plant-based routes to terepthalic acid (TPA), which can then be converted to PET. These include both fermentation and catalytic processes that are currently too expensive at commercial scale.

Coca-Cola’s goal is to convert all petroleum-based PET products to plant-based PET, which represents 52% of the total packaging within the company. Heinz licensed the MEG PlantBottle technology from Coca-Cola, and hopes to achieve similar goals. Furthermore, Ford shifted from using petroleum-based PET to currently use 25% soy-based polyols for seat cushions, recycled resins for underbody systems, post-industrial recycled yarns for seat fabrics, and repurposed nylon to make cylinder head covers in its bio-based portfolio. Considered a drop-in solution, bio-based PET replicates the mechanical and chemical properties of petroleum-based PET. Therefore, the 100% plant-based PET can potentially be used for all of these end products.

This consortium acts as a catalyst to grow the bio-based PET industry to produce plastic bottles, clothing, shoes, automotive carpets, and other furnishings, and essentially any product made from traditional PET. These industry behemoths will inevitably commercialize the technology due to their current R&D partnerships, access to suppliers, collaborations with universities, and extensive monetary resources. Furthermore, this will enhance the strength of the bio-based materials and chemicals industry by promoting collaboration along the entire supply chain, especially as the rate of forged partnerships is expected to slow in 2012. (See the report “Solving the Bio-Based Chemicals Partnership Puzzle.” Client registration required.)

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.”

* Client registration required.

Billion-dollar bio-based chemicals IPO window is open, as Solazyme IPOs and Myriant files

Solazyme’s much-anticipated initial public offering (IPO) finally happened last Friday, selling about 11 million shares at $18 – raising $198 million in total, twice what it expected when it filed (see the March 29, 2011 LRMCJ – client registration required). Today the stock is trading up 20% at about $22, for a valuation of $1.3 billion.

While that dwarfs Gevo (trading at 30% above its IPO price, valuation at $475 million), it’s comparable to Amyris (trading at twice its IPO price, valuation at $1.3 billion). All of this bodes well for the next bio-based chemicals IPO, Myriant, which which announced its filing last week and is looking to raise $125 million. Myriant recently took in $60 million from PTT Chemicals and started constructing a plant in Louisiana, due to open in 2013 (see the  January 13, 2011 LRMCJ and the January 27, 2011 LRMCJ – client registration required). Among the notable data in the filing is a memorandum with China National BlueStar Group for a “jointly-owned, 220-million-pound biosuccinic acid plant in Nanjing, China, and an agreement for the exclusive supply of biosuccinic acid to BlueStar.”

We’ve noted the importance of startups’ “social network” of partnerships (see the report “Green Materials’ Social Networks”), and clients might rightly compare the soaring valuations of bio-based fuels and chemicals with the increasingly frenzied valuations of actual social networking companies of LinkedIn (post-IPO valuation of $7.3 billion), Skype (bought by Microsoft for $8.5 billion), and Facebook (valued at $50 billion in its last round of fundraising). There is undeniable hype driving both fields today, and investors should take a cautious stance based on the companies’ partnerships, plants, and future plans. While bio-based chemical and fuel companies have long-term contracts and hard assets that social networking sites don’t, the real long-term driver of their success will be the difference between their feedstock and manufacturing costs and oil prices; the former are declining predictably with scale and the latter looks to rise for some time to come.

Solazyme files for IPO

As we mentioned in an earlier post, Solazyme recently filed for an initial public offering (IPO) targeting $100 million. This wasn’t a surprise: Just as we had seen Amyris form multiple strong partnerships in the months leading up to its IPO (see the July 6, 2010 LRBJ*), Solazyme’s been revving up its own stable of new partnerships. It’s been forging partnerships in fuels and chemicals more intensely in recent months than it has throughout its lifetime. Since September, the company has inked deals with Bunge, Unilever, and Roquette (see the September 14, 2010 LRBJ* and the November 9, 2010 LRBJ*) on top of existing relationships with companies like Chevron, Honeywell, Abengoa, and Virgin (see the August 17, 2010 LRBJ*), and a joint development agreement with Dow announced last week.

Some highlights from the company’s S-1 include the company’s claims that it has already achieved “attractive margins when utilizing partner and contract manufacturing for the nutrition and skin and personal care markets,” and that it believes it can undercut fuels “when we commence production in larger-scale, built-for-purpose commercial manufacturing facilities utilizing sugarcane feedstock,” citing oils at a cost below $1,000 per metric ton, $3.44 per gallon, or $0.91 per liter.

Solazyme also notes that its Roquette JV will fund an approximately 50,000 metric-ton-per-year facility for nutrition products, which would be the first serious challenge to DSM-owned Martek (see the January 13, 2011 LRMCJ*). The company also mentioned a deal with Colombia’s national oil company (NOC), Ecopetrol, and a Brazilian letter of intent to form a JV that would add capacity of 400,000 metric tons of oil per year – nearly a thousandfold increase over the 455 metric tons the company produced in 2010.

But for all its strengths, Solazyme still lost $16 million last year on $39 million in revenue. By comparison, Amyris brought in $65 million in 2009, the year before its IPO.

While there are always reasons to be cautious when a loss-making company files for an IPO, one of the biggest challenges Solazyme will face is the public market’s mistaken association of its technology with older technologies like corn ethanol or dodgy algae developers. Solazyme is indeed an algae company. But it is wholly different from certain competitors, whose reliance on hype rather than commercially viable technologies poison the pond (pun intended) for legitimate players like Solazyme, Phycal, and Algenol (see the November 13, 2010 LRBJ*, the August 17, 2010 LRBJ*, and the March 10, 2009 LRBJ*). Gevo and Amyris represent better comparisons for Solazyme, and both had relatively successful IPOs (see the October 12, 2010 LRBJ* and the February 10, 2011 LRMCJ*). 

* Client registration required.

Biofuels: Synthetic biology leads in investment dollars, but will it deliver?

Biofuels: Synthetic biology leads in investment dollars, but will it deliver?Although synthetic biology companies trail other biofuel firms in terms of commercialization and scale, their flashy claims of spinning custom-built microbes into complex chemicals and drop-in fuels have captured the attention and dollars of investors. Last year, we saw LS9 and Solazyme, among others, secure large funding rounds. Additionally, Amyris Biotechnologies successfully launched the market segment’s first IPO. Gevo followed suit with a February IPO, in which it raised $107 million. And, just last week, Solazyme filed its own plans for public launch, with aims to raise $100 million.

As our Lux Innovative Grid for synbio indicates, many competitors land in the Undistinguished and Long-shot quadrants – although plenty of potential contenders join Amyris, Gevo and Solazyme in the Dominant quadrant.

In addition to its spot in the Dominant quadrant here, relative newcomer BioAmber occupies a similar position in our Grid for the Fermentation segment of biofuels. While it’s focused on the production of succinic acid – a flavoring agent, plasticizer, and coating, among other things – the firm’s genetic modification technology also applies to the fermentation of adipic acid, which was the focus of a recently signed licensing agreement. Its position in the Dominant quadrant here stems from a high business execution score due, in part, to strong partnerships with Mitsui, Samsung Ventures, and Greenfield Ethanol.

Metabolix and LS9, both of which modify microbes to convert sugar to fuels and chemicals, round out the Dominant quadrant. Metabolix’s main efforts are through a joint venture with ADM to produce polyhydroxyalkanoate (PHA), which is at commercial scale today. Its PHA is used for agricultural mulch film, a polypropylene replacement in consumer products applications, and for packaging applications. LS9’s strong partner list and technology to produce alkanes in single-celled organisms (see the August 3, 2010 LRBJ – client registration required) positions the company among the leaders in the group.

Source: Lux Research report “Today’s Top Technologies in Bioplastics and Biofuels.”

Will PetroAlgae and Gevo poison the IPO pond for other biofuel and biomaterial developers?

In early August, PetroAlgae filed for an immodest $200 million IPO with the U.S. Securities and Exchange Commission (SEC). The filing contains a number of aspects that warrant closer scrutiny.

The company grows “selectively bred” strains of an aquatic algae-like plant called duckweed in open ponds. PetroAlgae claims its process yields up to 14,000 gallons of oil per acre per year (see the March 24, 2009 LRBJ – client registration required), and that its production is “economical versus $20/barrel oil.” Its prospective yield compares favorably with competitors’ claims, like Solix’s 2,200 gallons of oil per acre per year. But unlike Solix, PetroAlgae has had no success producing oil.

According to the company’s S-1 filing, it experienced net losses of $8.3 million, $20 million, and $30.3 million in 2007, 2008, and 2009, respectively, on zero dollars in revenue, ever. Even firms with much more significant product revenues have struggled in the current market. Solyndra withdrew its filing (see the June 24, 2010 LRSJ*), A123Systems’ stock is off over 60% from its initial pricing, and Codexis has shed 40% of its IPO value in just four months. So accompany with no revenue to date and very uncertain prospects for producing an economically competitive product is unlikely to be a winner. Despite its lofty claims, expect PetroAlgae to either withdraw its IPO, or flop mightily.

Gevo, which also filed for an IPO in early August, is looking to raise $150 million. Underwriters include UBS, Goldman Sachs, and Piper Jaffray. Gevo develops yeast to ferment corn, cane, or cellulose-derived sugars in order to produce butanol and isobutanol (see the August 11, 2009 LRBJ*). This filing does not come as a surprise, as we heard from our network several months ago that a Q3 filing was forthcoming (see the April 27, 2010 LRBJ*). This news comes only a few days after Gevo announced the acquisition of a Minnesota ethanol facility it planned to retrofit into an isobutanol production plant. The retrofit will cost $17 million, and will produce 18 MGY of isobutanol when complete in Q1 2012. According to Gevo’s S-1 filing, its net accumulated deficit is $50.3 million, with a net loss of $8 million in Q1 2010 alone. 

Although Gevo’s (relatively) capital light business model is a reason for praise, its S-1 indicates that it will need to invest another $17 million in the Minnesota plant to retrofit. That’s in addition to the $20.7 million for the plant itself – a steep bill to foot with no revenues in sight for almost two more years, even if all goes as planned. In its filing, Gevo reports it “expects our relationships with customers such as Total Petrochemicals, Lanxess, Toray Industries, and United Airlines to contribute to the development of chemical and fuel market applications of our isobutanol.” The relationships that Gevo develops with these companies (and other commercial chemical and fuel companies) will make or break the company – but the large losses and long time to revenue its asking investors to stomach might be enough to sink this IPO.

Both offerings are indeed risky in this environment, as we have seen Codexis shares drop from $13 per share at IPO to about $8 currently. Clients should maintain some healthy skepticism as these two firms prepare for risky and uncertain public offerings. Although Gevo has a better chance of success than PetroAlgae, both firms have the potential to poison the biofuels and biomaterials pond for years to come. On the heels of Codexis’s shaky debut, it won’t take much more bad news for investors to sour on the biofuels space. What’s more, with other recent IPOs like Tesla (see the June 23, 2010 LRPJ*) and IPO candidates like Bloom Energy (see the June 30, 2010 LRPJ*) looking uncertain, on top of disappointments like A123 and debacles like Solyndra, the “cleantech” theme risks ending its run as a Wall Street darling.

*Client registration required

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.