The first gas fermentation technology to come to the public
markets: Coskata files its $100 million IPO.
Here’s our 10-minute version of the filing, with a translation
of the risks into English.
In Illinois, Coskata has filed an S-1 registration statement for a
proposed $100 million initial public offering. The number of shares
to be offered in the proposed offering and the price range for the
offering have not yet been determined. The lead book-running
managers for the offering are Citigroup, Barclays and Piper Jaffray.
The company is currently ranked #17 in the world in the 50 Hottest
Companies in Bioenergy. The rankings recognize innovation and
achievement in fuels and are based on votes from a panel of invited
international selectors, and votes from Digest subscribers.
Coskata, which in the past year lost $28.7 million while recording
$250K in revenues becomes the 14th company to file for an IPO in the
industrial biotech boom, which began with a successful listing on
the NASDAQ by Codexis
in 2010. IPOs by Amyris
, and KiOR
have followed. In recent months, PetroAlgae
Myriant, Ceres, Genomatica, Mascoma
have also filed S-1 registrations for proposed IPOs.
Here’s the S-1 registration, in a conveniently downsized 10-minute
Digest version – with some commentary along the way as to what is
driving value in the Coskata model, opportunities for the intrepid
investor, and some risks which we have translated from the ancient
and original SEC into modern English.
From the S-1: “We are a technology leader in renewable fuels and
bio-based chemicals. Our low-cost, proprietary process converts a
wide variety of abundant feedstocks, such as woody biomass,
agricultural residues, municipal wastes, natural gas and other
carbon-containing materials, into fuels and chemicals. We have
combined…synthesis gas production and cleaning…with our molecular
biology and process engineering capabilities to create a synthesis
gas fermentation platform.
“We operated a production facility at demonstration-scale for more
than two years where we achieved what we believe to be the highest
yield of cellulosic ethanol per bone dry ton of feedstock
demonstrated at this scale. In 2012 we expect to begin constructing
our first commercial-scale cellulosic ethanol production facility.
“At our demonstration-scale facility in Madison, Pennsylvania, which
we refer to as Lighthouse, we operated our technology platform to
produce ethanol for over 15,000 hours. At this facility we converted
a wide variety of feedstocks, including wood chips, wood waste,
sorted municipal solid waste, and natural gas, into ethanol.”
Historically, there were two widely-recognized conversion methods
for the production of cellulosic ethanol: biochemical and
thermochemical. The platform utilizes a hybrid process which
combines key elements of the biochemical and thermochemical methods.
The process is not dependent on sugar-based feedstocks or the use of
enzymes and catalysts. Our integrated platform encompasses all
aspects of the production process, from feedstock handling to
The high yields and low cost are driven primarily by four factors in
our production process:
• the conversion of feedstock into synthesis gas, or syngas, which
makes more of the carbon in the feedstocks available for conversion;
• the use of proprietary micro-organisms that ferment syngas with a
high degree of target end-product selectivity, minimizing production
of less-valuable by-products;
• the elimination of chemical catalysts and enzymes; and
• the use of an integrated platform design that allows for a
continuous production process.
Fuel-grade ethanol is an established fuel blendstock, representing a
23 billion gallon global market in 2010, and has drop-in
compatibility with existing infrastructure. Ethanol is the most
common biofuel, with the United States consuming 13 billion gallons
in 2010. At a December 9, 2011 market price of $2.71 per gallon,
this represents a $35 billion market.
RFS2, a U.S. government incentive program, currently mandates that
21 billion gallons of advanced biofuels be produced by 2022, with at
least 16 billion gallons derived from cellulosic biofuels.
Our technology platform can also produce cost competitive chemical
intermediates that can be converted into propylene and ethylene,
which represented $100 billion and $140 billion global markets.
The Risks, Translated from SEC-speak
Among the lowlights of reading S-1 registrations are the endless
pages of risk disclosures couched in an alloy of SECspeak and
We offer these excerpts from the original S-1, and a translation
into English, prepared by our Digest lexicologists.
In SECSpeak: “In place of the plasma gasifier that
we used at our Lighthouse facility, we expect to integrate an
indirect biomass gasifier with our syngas cleaning technology,
which have never been tested together for fuels production. While
biomass gasifiers are a proven technology, they have only been
used commercially on a limited basis and have experienced
operational reliability issues.”
Uh, we didn’t
actually use our proposed gasification machine, a/k/a/ Old
Unreliable, because in the demonstration that we did, we decided to
demonstrate something else.
In SECSpeak: “We have entered into an MOU with a
lender for $87.9 million of debt financing to fund a portion of
the cost of constructing Phase I of our planned Flagship facility.
We have also received a conditional commitment from the USDA
relating to a 90% guarantee of such debt financing…The process for
finalizing the definitive documentation with the lender and the
USDA may take longer than expected or may not happen at all.”
dollars may become, er, marooned (i.e “into the Valley of Death rode
the six hundred”), if we don’t close this loan.
In SECSpeak: “There has been a substantial
increase in ethanol production in recent years, but increases in
the demand for ethanol may be limited because of market resistance
to ethanol. At current consumption levels, the industry is
approaching saturation of the 10% blend level market.”
And now, the
Talking Heads with their classic hit, “Road to Nowhere.”
In SECSpeak: “A disruption in our supply chain for
components of our proprietary nutrient package could materially
disrupt or impair our ability to produce renewable fuels and
Rumplestilskin the Magic Coskata Microorganism doesn’t get his
vitamins, he won’t spin our straw into gold.
In SECSpeak: “Our planned Flagship facility will
be located in Boligee, Alabama, which is an area exposed to and
affected by hurricanes. Our other future commercial production
facilities may also be located in areas susceptible to natural
disasters, such as hurricanes, wildfires, earthquakes and floods.”
In English: “Brownie, you are doing a heck of a job down there with
In SECSpeak: “Our management team has worked
together for only a limited period of time and has a limited track
record of executing our business plan as a team. We have recently
filled a number of positions in our senior management and finance
and accounting staff. Additionally, certain key personnel have
only recently assumed the duties and responsibilities they are now
that’s your name, you are doing a heck of a job, whatever it is that
you do, down there with that, what do you call it, that Flaghouse
project in Alaskabama. I think. (Pause) Oh, shoot, I dialed the
wrong number. How do you get an outside line here?”
In SECSpeak: “Our commercial success depends on
our ability to operate without infringing the patents and
proprietary rights of other parties and without breaching any
agreements to which we become a party. We are aware of other
parties applying various technologies, including Ineos Bio and
LanzaTech NZ Ltd.”
Yep, we’re aware
of INEOS Bio. They are, like, suing the heck out of us.
In SECSpeak: “Although we currently intend to use
the net proceeds from this offering in the manner described in
“Use of Proceeds,” we will have broad discretion in the
application of the net proceeds.”
If we spend all
this money on, say, golf memberships, the only ethanol we’ll see
will be at the 19th Hole.
From the S-1:
“Build our first commercial-scale facility.
Expand through a flexible, capital-efficient business model.
Be a full service solution provider.
Commercialize production of bio-based chemicals.
Identify attractive global market opportunities.
Maintain technology leadership through ongoing investment in
The Commercialization Plan
From the S-1: “Our first commercial facility will be built in
Boligee, Alabama. The initial production capacity of this facility,
which we refer to as Flagship, will be [Phase I] 16 million gallons
of ethanol per year, and [Phase II] to achieve total production
capacity of 78 million gallons of ethanol per year…at an
unsubsidized cash operating cost of less than $1.50 per gallon, net
of co-product sales, assuming a feedstock cost of $64 per bone dry
ton of softwood.
“Phase I of Flagship will be financed by a portion of the proceeds
of this offering, cash on hand and $87.9 million of debt financing
supported by a 90% loan guarantee through the USDA’s 9003
Biorefinery Assistance Program.
“We expect Phase I and Phase II to be completed in 2013 and 2015,
“We expect to use a wide variety of other feedstocks, in addition to
woody biomass, for subsequent facilities, including municipal solid
waste, agricultural residues, energy crops and fossil fuel
sources…We also believe that corn ethanol producers can expand their
capacity by co-locating our technology at their existing ethanol
production facilities, since it would allow them to convert
agricultural residue into cellulosic ethanol.
“Our proprietary technology platform can produce valuable bio-based
chemicals in addition to renewable fuels like cellulosic ethanol. We
are currently collaborating with Total Petrochemicals to develop a
unique micro-organism-based technology that produces
propanol…coupling our propanol technology with proprietary
technology to dehydrate alcohol into alkenes, including propanol
“In addition to building and operating facilities, we plan to enter
into joint ventures for the co-ownership of facilities and to
license our technology platform to third parties.”
Coskata as it sees itself: 6 Competitive Strengths
Proprietary technology platform. As of November 30, 2011, we had six
patents issued and 28 patent applications pending on key elements of
our technology platform, including syngas cleanup, micro-organisms
and continuous anaerobic fermentation. At Lighthouse, our
demonstration-scale facility, [we have] over 15,000 hours of run
Low cost production with high yields. Based on demonstration runs at
Lighthouse, we expect to achieve yields of 100 gallons of ethanol
per bone dry ton of softwood at Flagship, with unsubsidized cash
operating costs of less than $1.50 per gallon.
Significant feedstock flexibility. Our process can utilize a wide
variety of carbon-containing feedstocks, including wood chips, wood
waste, municipal solid waste, agricultural residue such as corn
stover and bagasse, energy crops and fossil fuel sources such as
natural gas, coal and petroleum coke.
Multiple end products targeting large existing markets. Our first
commercial product will be fuel-grade cellulosic ethanol. Our
technology platform can also produce cost competitive chemical
intermediates that can be converted into propylene and ethylene. In
addition, we have demonstrated in a laboratory setting the
production of butanol, butanediol, hexanol, organic acids and
certain fatty acids.
Fully-integrated process solution that enables rapid
commercialization. Our technology platform is a complete,
fully-integrated process solution that can be delivered to our
future wholly-owned facilities, as well as to our joint venture
projects and licensees.
Experienced management team. We have assembled strong management,
scientific and engineering teams with deep knowledge in research and
development, new product development, capital project execution,
feedstock procurement, plant operations and business plan execution.
Financing to date
Coskata has incurred substantial net losses since its inception,
including net losses of $28.7 million for the year ended December
31, 2010 and $23.3 million for the nine months ended September 30,
2011. They expect these losses to continue for the foreseeable
future. As of September 30, 2011, they had an accumulated deficit of
The bottom line
The really good news here is that a sygas-to-biofuels technology is
now available to investors. Of all the processing technologies, it’s
been among the most promising for quite some time, but all the
companies have been privately held. With syngas, you get more carbon
to work with, and you can work more easily with ultra-low cost
feedstocks like MSW.
Even better, in maintaining their $1.50 per gallon or better
projection on operating costs, Coskata is signaling that it has
cracked the technology problem, from a process point of view. That’s
Now, for the tough love, in five parts:
1. The USDA loan has not closed.
2. There’s no really, really significant strategic partner with skin
in the game, here, whose presence says “our engineers have looked at
the technology, and we believe” to the investor.
3. There’s a potentially damaging, unresolved lawsuit with INEOS
Bio, how damaging, we don’t know.
4. Who knows exactly what will happen when the project switches from
plasma gasification to a biomass gasifier.
5. The CAPEX looks like around $12 per gallon for the Phase I, and
we’re not sure how fast that will come down in Phase II, as down it
So, there are reasons why, to the retail investor, confidence may be
low. If #1 and #3 are resolved and #4 and #5 are explained between
the time of the filing and the road show, that will make for an
easier time for CEO Bill Roe and team. As with Mascoma’s IPO, it
would definitely strengthen the offering and confidence, if a major
strategic came on board in a stunningly material way, as Total did
with Amyris. It happened with Valero and Mascoma, and that added
zing and magic to a good package.
It’s a good package that could well be a great package by the time
the offer prices. Stay closely tuned to Coskata’s news stream.
The complete S-1 registration statement.
All 180-or-so pages in all their glory. The complete
S-1 registration statement is here.
Jim Lane is editor and publisher
of Biofuels Digest where this
article was originally published. Biofuels Digest is the most widely read Biofuels
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