Is evidence mounting that advanced biofuels companies need to tout their defensive schemes as much as their offense? Markets jitters suggest so.
Kevin Quon wrote recently in Seeking Alpha, “the most essential attribute to the fuels market is the ability to scale the technology to the desired level needed.”
Well put. In biofuels terms, that’s playing offense.
Now, making sure that you are making an environment that’s safe for your target molecules and organisms, and as hostile as possible for everything else? That’s playing defense.
Meanwhile, some evidence is piling up that advanced biofuels companies, especially those involved in fermentation systems, will need to be more articulate now, than in the past, in detailing their defensive schemes.
Heretofore, it’s generally been all about the offense, message-wise, all about path to scale, steel in the ground, about ‘getting there’. Less about staying there.
What can these pesky contaminating microvarmints do? They can eat your highly-engineered magic bug. Or, sugar hogs, they can eat all the food. They can slow down your process. Or, they can have so many children that they crowd out everyone else. Or, they can poison the well with a waste by-product that dilutes your critical titers and yields.
In the end, they can eat your company alive too, by causing companies to fall short of their scale-up production targets. Or, a problem in one company can become the presumed potential risk at another.
Hence, why we can expect a lot more interest – after years of “offense, baby, offense”, to see a lot more interest in who’s running the defense.
Jitters in the markets
Call it the Amyris (AMRS) effect – after the company that has struggled with the issues more than any other, in its pursuit of world-class scale. Why is it important? For one, poor post-IPO performance by the handful of companies that have made it through the IPO gate, is bound to impact the chances of others to come through later.
The decline in advanced biofuels share values, post-IPO, is a well-told story. But let’s look at it in some depth.
Here, you see the story. Collectively (though at different times) the seven companies that got out in this IPO wave started with a cumulative market cap of just under $5 billion, and quickly rose to a cumulative high-point of just over $7 billion. All good news. But then the rose came off the bloom, and a long slide started last summer, that has brought the collective value to well under $3 billion.
Hence a lot of questions amongst US institutional investors about whether advanced biofuels are ready, despite their impressive developmental record, for the public markets.
Let’s look at it in some depth though, by looking at the four fermentation stocks versus the three that are not fermentation based.
There, we see that the fermentation technologies had about 55 percent of that initial, IPO market cap. Today, they have just 42 percent share. So, there’s a sharper discount on the fermentation stocks than the non-fermentation equities.
One last chart.
Here, we see that, initially, amongst the fermentation stocks, that Solazyme (SZYM) at IPO had about 40 percent of the collective value. Today, that figure has risen to around 56 percent – increasingly, the fate of the sub-sector is hanging on the boys from South San Francisco.
Ask the leaders
There’s a meeting this week – part of the MIT Club’s “Energy & Clean Tech Series” that will be held tomorrow in Menlo Park, CA, that may well see a raftful of tough questions on the subject. On the program tomorrow evening – Amyris CEO John Melo, Solazyme CEO Jonathan Wolfson, Cobalt CEO Bob Mayer and LS9 Chairman Noubar Afeyan. Key intersecting point of those technologies – they’re hot, they’re fermentation-based, and all of them are on the march towards scale. It’s a $45 ticket for non-members – could be one of the hottest tickets this spring.
What about Solazyme and scale? In his Seeking Alpha note, Quon goes on to add, “Solazyme has been running at a commercial scale through contract manufacturers since 2007 reaching a level of 75,000-liter fermentation tanks. The company’s Peoria facility has 128,000-liter tanks. The company’s ramped-up production has thus far been linear across the 4 levels it’s achieved. The company is slated to eventually scale up to a range in the ballpark of 750,000-liter tanks.”
Then, the vital contention, “Most of the technology risk usually occurs at much earlier levels than what Solazyme (SZYM) has already achieved,” Quon wrote.
Is that true, for Solazyme or any fermentation technology?
Broadly put, that’s real – there are a hundred bombs that can sink a technology while still in the lab, only a handful that can plague it moving through that last critical 10X step-up from, say, 75,000 liter fermenters to 750,000.
A year ago last February, we reported an announcement on scale-up from Amyris (AMRS). They indicated that they had completed multiple runs of its fermentation process using its engineered yeast to produce renewable farnesene, in 100,000 and 200,000 liter capacity fermentors. These runs were completed through contract manufacturing operations in North America and Europe. The results of these fermentation runs, including yields, were consistent with previous runs at smaller scale.” The company had pointed towards the use of 600,00 liter fermenters in the future at its Usina São Martinho project.
By December of last year, though, problems with the ramp-up in capacity became highly apparent at Amyris, which struggled to reach its intended throughput volumes.
Worries about the scalability of fermentation-based technologies are beginning to circulate – a direct contamination of the space, based on the jitter effect created over at Amyris.
A friend of the Digest writes: “I was in Brazil last month and got an earful about that from a very high up there on [Amyris]. If their shiny high grade fermenter was not up to snuff they are really in trouble…having worked in nice university labs and clean room pharmaceuticals they did not know what was awaiting them in the down market dirty world of biofuel. You can’t make biofuels with anything you got to keep that clean.”
There are two polar views one can take of that comment: Panicked alarmism, or a lonely voice in the wilderness leading us back to real expectations. Perhaps
, and probably, the truth lies between those extremes.
But, regardless of merit, the comment can be taken as a general one that scrutiny is going to increase on technology risks inherent in the last few scale-up steps for fermentation technologies.
Contamination – that’s our educated guesstimate on what is going wrong at Amyris. The fermenters – or elsewhere in the tangle of pipes and liquids that form an integrated biorefinery – may well be able to start-up, and stay running for a while – but unanticipated critters make an appearance, and gain a foothold. Causing, at the least, yields to come down – in some cases, causing the crash of a system.
It’s a risk that is widely understood with outdoor, “open” systems, such as growing micro algae in ponds, at scale, and at costs that make sense for the fuel markets.
Opportunistic, invasive critters have been around for a long, long time. In macro-scale agriculture, they are called things like weeds or pests – and herbicides like Roundup have been deployed for years to control weed levels. At the micro-level, micro-agriculturists haven on the whole, a lot less experience in the Defense against the Dark Arts.
That’s proving worrisome for investors. It could well be the case that all this is a case of early-stage company shareholder jitters. But it does indicate that companies need to communicate, even more effectively than ever, how they are running their defensive schemes.
For example, in advanced biofuels companies – you see a lot of roles related to scale-up. VP, Manufacturing, VP, Business Development, CTO, and so on. But that’s changing quickly. Who specifically is the master of the Defense against the Dark Arts – and what and how are they doing? That might go a long way to calming investor jitters.