As Dyadic cashes out of industrial biotech and retains a C1
license for pharma, DSM and Syngenta also announce a partnership.
Companies are girding their loins for the long haul. The Digest
takes a look,
In Florida, DuPont (DD)
Industrial Biosciences will acquire substantially all of the
enzyme and technology assets Dyadic’s (DYAI)
Industrial Technology business for $75 million, including Dyadic’s
C1 platform, a technology for producing enzyme products used in a
broad range of industries.
DuPont has granted back to Dyadic co-exclusive rights to the C1
technology for use in human and animal pharmaceutical
applications, with exclusive ability to enter into sub-license
agreements in that field. DuPont will retain certain rights to
utilize the C1 technology for development and production of
pharmaceutical products, for which it will make royalty payments
to Dyadic upon commercialization.
The Agreement provides for $8 million of the purchase price to be
held in an escrow account for 18 months to ensure Dyadic’s
obligations with respect to certain indemnity claims and working
capital adjustments. Dyadic expects to utilize approximately $66
million of its net operating loss carryovers to substantially
offset the gain realized from this transaction. Closing is
expected by the end of 2015.
Bootom line, Dyadic has $5-$6M cash in the bank, this adds $75M,
debt is around $10M of which around $8.6 is convertible. Worst
case scenario — that is, none of the debt converts to equity —
we’re looking at a company with a lot of cash, a C1 license for
the pharma sector, and a lawsuit. In some ways, it feels like a
shell, until Dyadic ramps up in pharma.
To that end, we see in the official release on the transaction:
Dyadic also intends to continue its existing programs with Sanofi
Pasteur and its involvement within the EU-funded ZAPI program.
Dyadic plans to focus its research programs on the development and
manufacturing of human and animal vaccines, monoclonal antibodies,
biosimilars and/or biobetters, and other therapeutic proteins.
What’s that code for? “Hopefully., we’ll come up with something
amazing with Sanofi and they’ll buy us,” or possibly “we’ll come
up with amazing things elsewhere in pharma and someone else will
buy us”. In the interim, Dyadic retains the right to sub-licemse,
so stand by for more developments with the C1 platform.
Overall, a big win for DuPont even if not bad at all for Dyadic.
Dyadic, before it fell into the corporate tussle that prompted the
Greenberg Trairig lawsuit and some heft 7-figure settlements
already, was trading at $5.30 per share — based on today’s
shareholdings, that would be a market cap of $164 million.So,
DuPont picked up a nice bargain. It has the Abengoa license and
BASF to generate revemue right away, and DuPont is bound to take
the C1 platform to new heights.
How negative can investors get?
Overall, Dyadic took a big jump in trading, but way short of what
they should have received. Here’s a company that is going to have
$70M in free cash on its balance sheet, has a good lawsuit and a
license to a valuable technology, and has a market cap of $46M.
That’s a down in the dumps investor. By the same investment logic,
Facebook would be trading at $3.63 instead of $109.
Status of Professional Liability Litigation
The Agreement provides that Dyadic will retain all of the
potential rights and obligations associated with its ongoing
professional services liability litigation against the law firms
Greenberg, Traurigand Bilzin, Sumberg Baena Price and Axelrod. The
parties have voluntarily agreed to participate in non-binding
mediation on November 18, 2015.
On July 31, 2015, the Company reached a settlement with another
defendant law firm and on August 12, 2015, the Company received
full payment of this low seven-figure settlement, which is net of
fees and expenses which will be reported in the Company’s
consolidated statement of operations for the quarter ending
September 30, 2015.
DSM, Syngenta to develop biological solutions for agriculture
In the Netherlands, DSM and Syngenta announced an R&D
partnership to develop microbial-based agricultural solutions,
including bio-controls, bio-pesticides and bio-stimulants. The
companies aim to jointly commercialize solutions from their
The collaboration aims to accelerate the delivery of a broad
spectrum of products based on naturally occurring micro-organisms
for pre- and post-harvest application around the world. These
organisms can protect crops from pests and diseases, combat
resistance and enhance plant productivity and fertility.
DSM will contribute its unique microbial database, discovery
platform and decades of experience in scaling and manufacturing of
microbial products. Syngenta will complement this with its
specialized know-how in agronomic applications and plant
biotechnology, as well as its global market access and commercial
strength. Syngenta will also provide a dedicated R&D program
for the selection of relevant micro-organisms.
One-offs, or consolidation trend?
As we examined in our story on Merger Mania, we see this as a
strategic period of consolidation. We see Renewable Energy Group (REGI),
on the diesel side, and Green Plains (GPRE)
the ethanol side, also actively acquiring first-gen biofuels
technologies; meanwhie, there are rumored talks between DuPont,
Syngenta and Dow which may produce a super-combination in the
In the case of DSM and Syngenta, it’s a collaborative effort
rather than consolidative, but it provides fresh evidence that
companies are seeking to stretch or limit their investments
Under-capitalized technologies abound that are moving more slowly
than desired in the industrial biotechnology arena. Consider the
slow progress in driving down costs in advanced jet fuels as one
example; the slow progress in deploying blender pumps and other
infrastructure that has led to a pause at the EPA in growing the
renewable volume obligation on blenders.
The classic opportunities in consolidation are: 1) market share,
acquiring additional production capacity or new customers for an
established product; 2) efficiency, acquiring core or new
technologies that have enhanced performance; 3) expansion,
acquiring new technologies for growth, new market entry or
enhanced geography; or 4) vertical integration, resulting in a
stronger value proposition that commands a bigger chunk of the
end-customer dollar. Green Plains is active in #1, DuPont’s C1
acquisition fits in #2, Evolva’s Allylix acquisition as well as
BASF’s acquisition of Verenium assets; Cargill’s acquisition of
OPX technology fits in #3; REG’s Imperium acquisition works for
both #1 and, in its terminal assets, #4 as well.
The opportunities in vertical integration
Overall, we see vertical integration or collaboration to connect
supply and demand through renewable fuel distribution assets as a
major opportunity. Clearly, for example, every cellulosic ethanol
play has a value-crushing dependency on blender pump and retail
But the economics are tough on simply acquiring outlets. In
California, the introduction of blender pumps adds an average of
30,000 gallons of E85 that retail on average for $60,000, for an
intial investment of that generally ranges between
$50,000-$100,000 per station. That math is pretty solid, but
acquiring 33,000 outlets in order to expand the market by 1
billion gallons, that’s huge capital.
But, consider as an alternative that the industry doesn’t need
ownership of retail assets, it needs franchising and fuels
distribution agreements. A big brand. Something that Propel has
been developing, as well as Protec, and Minnoco. We’ll see how
those brands grow and whether they access the capital they need to
connect supply and demand for renewable fuels.
Clearly, there are technologies that are developing single
molecules that have overwhelming demands on them to also develop
financial, sales, marketing, and operations capabilities. Expect
there may be combinations through partnership, merger — or for
more acquisitinos by industry giants interested in distributing
high-performance molecules to their customers. Virent is an
example of a tasty target — intense interest in its capacity to
produce drop-in fuels and industrial molecules, from the likes of
Coca-Cola and Shell. Much the same could be said for Avantium and
its YXY platform. Someone might ultimately recognize that Solazyme
and Amyris are developing products in remarkably similar segments,
and that they have more to gain together than apart. Verdezyne is
a tempting target as it reaches for scale. Just to name a few.
Jim Lane is editor and publisher of Biofuels Digest where this
was originally published.
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