Nowadays, the chemicals and materials industry faces significant challenges in energy, feedstock, resource disruption, the sustainability imperative, and the rising demand for customization from consumers. Often, with the lack of truly disruptive new materials that could create big new growth opportunities, the industry has largely turned to M&A to survive, not thrive. On the other hand, as a long-lasting megatrend, digital transformation (DT) has become an imperative for all physical industries – the chemicals and materials industry is no exception. While hype does exist and contribute to some blind digital crushes, DT does have the promise of enabling innovations in materials discovery, manufacturing processes, and applications, as well as new business models for sales.
As we look back on 2020, we provide a breakdown of the most important developments and trends with regard to digital transformation in materials:
- Schrödinger went public after raising a lifetime total of $110 million. With its Materials Science division started in 2012, it has become the first public company that has its core business in chemical and materials informatics. While materials informatics has been proven to accelerate the R&D timeline, there certainly has been a dose of hype. Schrödinger's performance now can be a good indicator of market faith in MI.
- While many Lux clients indicate strong interest in MI, especially in polymer-based formulations, most startups didn't raise any additional funding (Kebotix and Phaseshift are two exceptions, but even Kebotix did not raise the expected amount). This indicates a gap between proof of concept (PoC) and scale-up. Most startups are in the PoC process, and that alone usually cannot convince clients for scale-up deployment.
- There was a focus shift from analytics to data infrastructure. A few startups, such as Citrine Informatics, Uncountable, Aionics, and new ones like Polymerize and AI Materia, have built platforms with new infrastructures that enable an easier path toward scale-up, and this trend will continue in the next three to five years.
- More companies set MI strategies, with Japanese companies most open to the consortium model. Lux had conversations around MI strategy with many global companies in 2020, and there is a clear trend that many more global companies have formed or are in the process of forming an MI strategy. Key efforts include partnerships with startups and academia, building internal centralized R&D databases and infrastructures, data mining from public sources, and hiring more talent. In terms of business model exploration, Japanese companies are leading the efforts of building consortia.
- NTopology secured two rounds of funding in a row, only two months apart. It has clearly passed the early-stage phase, which is often considered as an acquisition target (Frustum by PTC, Within by Autodesk). According to the CEO, COVID-19 has accelerated nTopology's growth – and with sufficient funding, its independent platform could be the key to potentially taking the company public in 2021.
- Autodesk acquired Spacemarker, which operates in the architecture space. Its acquisition further indicates our take: Many GD companies' tools depend on the major CAD providers; thus, an acquisition is the best-case scenario. NTopology is the only example of how to be stand-alone. In addition, expanding the capability to design for traditional manufacturing and materials is necessary.
- Desktop Metal joined this year's SPAC craze and went public in December 2020. As a result, it received $580 million at a valuation of $2.5 billion. Its software products, in particular, make it well-positioned to grow within the metal 3D printing market, which itself continues to grow at more than 20% annually. That said, it is unclear whether that growth will be sufficient to justify the current valuation.
- Stratasys acquired Origin for $100 million. Stratasys has gotten an unfavorable profile as the opposite of innovation within the 3D printing community. It has missed the first wave of many trends, technology developments, and business models. With the acquisition, the company hopes to bring back the focus on polymers, but it will likely take much longer to build the synergy than anticipated.
- 3D printing demonstrated flexibility during the initial global outbreak of COVID-19. Many companies, labs, and hobbyists have stepped up to address key needs during the pandemic using 3D printing. While we caution against some of these activities as bringing risks of contamination, they have demonstrated 3D printing as a flexible production tool.
- Molbase, a leading Chinese digital sales platform (DSP) for chemical trading, went public. Molbase has built a broad network of buyers, sellers, and distributors, but its low margins on its marketplace revenue stream suggest the immaturity of the DSP space. Many DSP companies are testing various business models, and one or two of them will emerge as winning models in the next three to five years.
- Dow's DSP for polyurethanes was announced in August, creating a customer web portal that provides technical and product development support and allows customers to navigate the entire process, from product search to the final delivery. While many other DSPs have been launched by global chemical companies, this platform potentially integrates other digital technologies across Dow's operation activities. More company-level digital technology integrations will take place in the next five to seven years.
- Evonik launched Coatino, an MI-powered recommendation engine for coating formulations. This tool blurs the lines between digital sales platforms and informatics. The assistant is free to access, so Evonik is likely planning to use it to build customer relationships, provide easier access to its own products, and build up its own data lake further with customer inputs. While how well this particular effort succeeds in driving commercial results remains to be seen, clients should expect such digital sales platforms to play a more critical role in the industry in the future and move quickly to build their own capabilities.
In addition, the Lux Materials Team curated the following "Analysts' Choice" for further reading on the Materials and Digital Transformation theme.
- Our "Digital Transformation of Chemicals and Materials" report dives into the operational aspects of digital transformation, identifying both near-term gains and long-term transformational opportunities.
- Materials and manufacturing are linked; "Alternative Manufacturing Methods" explores those links and how they are being changed by digital technologies.
- One of the most common questions we get in materials informatics is whether to work with a startup or build your own team. We dig into that problem in this insight.
This blog is part of the Lux Materials Team's Year in Review series examining the highlights and key developments of the materials industry in 2020. For an overview of the other storylines in the accelerating materials innovation program, keep an eye out for our upcoming blogs and subscribe to our newsletter.