Biochemicals Archives


November 20, 2014

Amyris' Date With Destiny: Better Late Than Never

Jim Lane amyris logo

Amyris was dismissed by the critics some time ago, but is ately continuing a big comeback.

We have become so accustomed to receiving obituaries of Amyris (AMRS) that recently I was inspired to re-read the Devotions of John Donne to discover if, in fact, he wrote, “Send not to know for Whom the Bell Tolls, it Tolls for Amyris.”

Amyris, we were recently assured by short-sellers, was as dead as a doornail, just as Jacob Marley was reputed to be in the opening stave of A Christmas Carol — and it is therefore enough to startle the angels when the quarterly earnings roll in and we read that not only is Amyris alive and well, sales are up 177% for Q3 (compared to Q3 2013), the company is expanding to a second molecule, and expects “cash payback on its Brotas plant” by 2016.

It is tempting to see the story of Amyris as one of unexpected redemption, a rescue from Hades effected by the miraculous intervention of Olympian gods, as if Orpheus had gone down to the underworld and rescued biobased farnesane from certain oblivion.

But it probably is more of a mundane case of Chicken Littles amongst industry observers— the plant was not ready for prime-time when first launched, a gigantic learning curve was embarked on in the harsh light of public company reporting, and what we are seeing is success delayed, rather than the deliverance of a soul from the underworld. Turns out that Chicken Little, in looking at the 10-Ks and declaring that the sky was falling in, was wrong yet again.

Now, if the company spent a considerable amount of time in the penalty box, that it understood — this market in these times is always happy to whack a technology stock that mistimes the forward projection of its arrival at break-even. There is little doubt that the Amyrisians up in Emeryville would like to have arrived in 2012 where they are today, and that they have been chopped up in the public markets for running the trains late — and running the trains on time, as we might recall, even propped up Mussolini’s reputation for a number of years. It is a virtue never to be discounted.

But there is indeed good news from Planet Amyris, and we are delighted to see it.

The New Molecule

On the molecule front, Amyris is now selling, via its global distributor network, a second renewable ingredient under its Neossance brand. Neossance Hemisqualane is a pure, plant-derived, light emollient with high spreadability and proven performance characteristics. Amyris touts that “this ingredient addresses the mid-price emollient market with better performance and competitive pricing compared to existing products in this large and growing market.”

Chief Business Officer Zanna McFerson adds: “Building on the success of our Neossance Squalane product, and after positive reaction from more than fifty customers who sampled our new hemisqualane product, we are expanding our Neossance portfolio of ingredients with another high performance solution for the cosmetics industry.”

What is hemisqualane, again?

If you have not quite yet mastered hemidemisemi, er, hemisqualane — you might not have memorized exactly what an emollient is, either, unless you have been spending more time with QVC or the Home Shopping Channel than might be good for you. An emollient is a moisturizing skin cream that softens and relaxes.

Back in the days when I was gainfully working at ELLE magazine, we would have regarded the arrival of a new, high-performing emollient right before Christmas as evidence that Santa Claus exists and that no hope for a year-end bonus is too outrageous as long as it is grounded in the desire of people to have youthful-looking skin well past the age of 115.

Amyris adds:

“Neossance Hemisqualane is a natural alternative to petroleum-based paraffins and silicone ingredients. Neossance emollients offer many high-performance properties that make them ideal ingredients across beauty categories including skin, hair, sun care, makeup and cleansing.

“In skin care, hemisqualane’s great sensorial profile and high spreadability create elegant and light textures with a non-tacky, non-greasy and smooth finish. Hemisqualane has a soft and silky after-feel with the ability to maintain a persistent emollience on the skin, making it a superior ingredient for many skin care products. In addition, its ability to dissolve crystalline UV filters makes it an ideal ingredient for sun care products.

“In makeup, hemisqualane facilitates a smooth and even application for lipsticks and foundations due to its high spreadability. It also demonstrates excellent cleansing properties for makeup removal applications including for waterproof formulations like mascara.

“For hair care, hemisqualane has good slip and a soft after-feel, which are critical attributes for products like conditioners and styling products.

Not surprisingly, Amyris touts: “We are very encouraged by the early response and demand we are experiencing from some of the leading brands in Japan, the Americas and Europe.”

Face vs fuel

Now, we’ve written much about food vs. fuel — who hasn’t? But there’s been less written about “face vs fuel” which is to say, why are companies like Amyris that were supposed to make jet fuels and diesels on the road to massive impact on bottom line and society, making emollients?

Keep in mind that squalane is a hydrocarbon, and a terpene — and if you visited ABLC Net this past week you would have received quite an earful regarding the bridge between flavorings, fragrances and high-performance fuels that exists in the world of terpenes. There must be more than 50,000 of them in nature — and when you are delighted by the fresh scent of Ponderosa Pine as you trek through California’s natural wonderlands, you are in fact getting a whiff of terpenes. They are advantaged hydrocarbons, as well, when it comes to super-dense fuels — and farnesane, which is Amyris’ primary pivot point, is already a source of fuels via its partnership with Total and we may well see some large-scale production of same before the end of the decade.

But for now, Amyris is all about generating business, and as most of us holiday shoppers have observed, fragrances are selling at just a teency bit of a premium over diesel. Like $100 for 3.5 ounces, vs $3.50 a gallon.

The financials

Accordingly, as Amyris ramps up production, the operating results of the company have a tremendous focus on the chemicals side.

Cowen & Company’s Jeff Osborne writes:

“Amyris reported strong operational improvements in 3Q. Product revenue of $11.5 mn was up 177% y/y due to strong fragrance strains; however jet fuel sales appear to be ramping slowly due to regulatory delays. The company now expects to be cash flow positive in 2015 versus late 2014, due to a change in collaboration inflows. Brotas appears to be running well and cash cost is targeted at below $3/L.

He added: “Amyris introduced a new farnesene strain at the Brotas refinery during the quarter, which should allow sub-$3/L production costs. We were pleased to see the company transition from making high ASP fragrance oil to farnesene without any issues or elongated downtime. The plant has run smoothly for 3 months, which should allay some investor fears after an up down initial 15 months out of the gates.”

Looking forward, Cowen & Co expects:

“About $30 million of renewable product sales in 2014 and a doubling of that in 2015, with a cadence of $10 mn per qtr in 1H15 and $20 mn per quarter in 2H15, as 6 new molecules ramp. Management reiterated that Brotas will have reached a cash payback by early 2016 as the company focuses on maintaining a total cash gross margin structure over 60%

Osborne warns: “We are keen to see how the company handles marketing 1 molecule in 1H14 to 2 currently to 8 by the end of next year. (aided by an ASP of ~$10/L with gross costs below $3/L).

Over at Raymond James, the always quotable Pavel Molchanov writes:

“After a period of retooling while in the “overpromise and underdeliver” penalty box, 2013-2014 have been Amyris’ first years with operations truly in commercial mode. There is visible scale-up progress, but the historical reliance on partner-based R&D payments makes quarterly financials choppy. In addition to updates on the production ramp-up at the Brotas plant, the market wants to see additional clarity on the pace at which Total will be scaling up its fuels joint venture with Amyris. We maintain our Market Perform rating.

Molchanov highlights that expectations were “on” for Amyris to reach break-even in late 2014 on a cash basis:

“The clear-cut aim was for cash flow to finally turn positive in 2H14. Following 3Q’s cash burn, the updated timeline is for this milestone to be reached not right away but rather on a full-year basis in 2015. Lower near-term collaboration inflows are the main culprit for the pushout.

He adds: “It’s worth noting that Amyris is deliberately running Brotas to avoid complications, particularly after the painful experience of 2011-2012. Margins are emphasized over volumes, and, as such, our model projects late 2015/early 2016 for achieving full nameplate capacity at Brotas.”

On the recent downturn of stocks in the sector: “The stock has, of course, shown weakness amid the oil price selloff – as have essentially all other companies in the broad category of petroleum substitutes. As a sentiment trade, it’s understandable, but as a practical matter, there is virtually no linkage between the prices of oil and farnesene/squalane. The current focus for Amyris – and plenty of others in the bioindustrial space – is high-value materials rather than commodity fuels, and until Amyris establishes a meaningful footprint in the fuel market – unlikely until 2017 at the earliest – the direct read-through from oil prices for production economics is minimal.”

The Bottom Line

A new molecule, pushed out financials but nothing that deters analysts from predicting imminent turn to cash-positive in 2015, and an outlook that pushes on into larger-volume products later in the decade, including fuels: that’s the welcome news from Amyris.

Turns out that the company was not as dead as once broadly thought — but rather something of a late bloomer, and that’s not always a bad thing — as Ronald Reagan’s many admirers will recall that he only entered elective politics at age 55. He said something else that might be well re-purposed to a discussion of the Advanced Bioeconomy: “You and I have a rendezvous with destiny. We will preserve for our children this, the last best hope of man on earth, or we will sentence them to take the first step into a thousand years of darkness. If we fail, at least let our children and our children’s children say of us we justified our brief moment here. We did all that could be done.”

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

November 11, 2014

Interview With Dan Oh, CEO Of Renewable Energy Group

Jim Lane REG logo

Leading a series this week, “The Strategics Speak", in which we’ll look at what a number of major strategic investors see in the landscape relating to industrial, energy and agricultural investment, Biofuels Digest visited with Dan Oh, CEO of Renewable Energy Group (REGI), which has long been the US’s leading independent biodiesel producer but in recent years has steadily diversified and expanded operations.

In many ways, REG is the entire industrial biotech business in a nutshelll. They’re fermentation (through REG Life Sciences), and thermocatalytic (through REG Geismar and their extensive biodiesel business). They use both sugars and lipids as feedstocks. They make both biodiesel and drop-in renewable diesel. They make fuels and an array of chemicals. They’re in the distribution and blending business — distributing their fuels blended with traditional fossil distillates. They have multiple plants and labs in the West, Midwest and Eastern sections of the country. They’re deep into some of the most exotic commercial synthetic biology out there.

In other ways, they achieve what others aspire to. Multi-feedstock, multi-product — it’s a reality, not a goal. Publicly traded after a successful IPO — a reality. Generating substantial cash flow — a reality. And don’t let the “aw, shucks” demeanor fool you for a moment — if they don’t “talk the talk” with the hyperbole of Silicon Valley, they “walk the walk” when it comes to building capacity, building revenues, and building reputation.

Dan OhThe Digest: The company has substantially diversified, in recent years, let’s start there.

Oh: That journey started in a practical sense in 2010, although we’ve always planned to be a broad energy & chemicals company. We’re grounded as a team in the lessons and disciplines of commodity agriculture, so we knew that we had to have to have a lot of options, more than just one raw material choice, adaptable technology, and many different products out of that.

So, we started with one feedstock and expand across the lipid spectrum, and in 2010 we started targeting other chemicals and fuels, beginning of a long we’ve of diversification. To date, we’ve invested almost $300m in diversification.

Lipids are a worldwide business as are sugars, and we are looking for base platforms that wecan grow and adapt, with a focus on the distillate area and the intermediate speciality chemicals. Right now, we’re building out biomass based diesel across North America, and ultimately taking it international, based on fundamental internal growth, M&A,plus technology upgrading and innovation. We’re generating great cash flow from advanced biofuels, and we have array of technology options out there, so we have got so many good choices that it is almost about what you’re not going to do rather than what you’re going to do.

The Digest: After a successful IPO, you now find yourself in a leading position when it comes to dialogue with Wall Street about industrial biotech. How do you talk about these advanced technologies there?

Oh: Money’s not brave. Wall Street want to see profitable companies, they want to see the downside protected and lots of upside. In our case, we are building an industrial business that happens to be green, and I think we’re getting credibility as an industrial company, with strong balance sheet, and looking backwards, over 100M in EBITDA each year on average. Our strategy is born from practical needs and experience, in the end, you’ve got to run a business, and be subject to standard finance practice just like everyone else, and let’s face it, all companies have a hard time raising money [at this stage].

The Digest: In the past year you acquired LS9, now known as REG Life Sciences, one of the hottest technology sets available. How it is going?

Oh: LS9 was a bit more like late stage private equity, there’s a body of work there that’s very good, now it’s time to move to commercialization and become profitable. We think the company will do better without, as a venture-backed company, worrying about about where the next round of finance is coming from, and not having to swing for the fences with a home-run product right away. The LS9 technology has the ability to iterate a lot of products, and on our side we have put together a platform of 500 people — and there are a lot of PhDs here, master degrees, these are not not minimum wage jobs here, this is a high talent business — when you combine out platform of people and logistics and distribution with a platform that can iterate a lot of products, you can see how to get that technology and those products into the market.

In many ways, these were two companies born of the same idea, both were originally designed to make biodiesel, we started with lipids, they started with sugars. The cool thing for us is that, from their earliest days until today, they continue to improve the tools, they are always innovating the science.

The Digest: The other major recent acquisition was the Dynamic Fuels / Syntroleum business. What’s the latest there?

Oh: We’re very pleased with the investment, and the transition from prior to current ownership, we’ve built from a lot of great decisions from the prior owners, and what we have been able to bring is a seamless commercialization team that understands refining, plus we have brought our feedstock pretreatment and refining technologies, and logistics system. It takes a total effort to make any plant work — you can’t just have a cool core technology. Now, as we have announced recently, we have achieved 90% utilization compared to nameplate capacity.

The Digest: For years now — whether it is the Renewable Fuel Standard, tax credits, or other aspects of energy policy, there’s been an extended dialogue with Washington DC about the advanced bioeconomy. Now, the midterm elections have swept Republicans to power int he Senate. How do you see that dialogue changing after the elections?

Oh: Advanced biofuels do have broad bipartisan support, in each region and state there are a body of politicians who see the benefits, and in general things come up on the “happy and satisfied” side of the scale when they look at the sector. we’ve talked wide and far to lots and lots of people,and we’re confident that that support is going to continue, and in fact the declining energy prices make it simpler for people to think about the good aspects of our energy policy in energy security, environment when there’s less extra cost pressure from energy, and it is a heck of a lot easier to absorb costs [from advanced technologies] into a low cost energy mix.

Our job is simple: we have to make quality fuel, we have to be affordable, we have to compete. But every gallon of biodiesel makes it easier to achieve the broader energy policy goals of diversifying the energy mix — and the benefit of biofuels on the agricultural sector are not difficult to see and there are more sectors that are benefitting from it, such as advanced manufacturing and high tech. Bottom line, you can be a hard core neoconservative, hard core environmentalist, or only interested in agriculture or some other industry, and you’ll find lots to like about advanced biofuels.

The Digest: There’s been quite a bit of expansion, yet you’ve spoken of international opportunities, should we expect to see more from REG? And if you target international expansion, will you be looking for advantaged feedstock, or a solid market, or what other factors might be on your mind?

Oh: We’re not done growing, that’s for sure! We’ve done something of consequence every quarter. We tend to be product and logistics focused when looking at a new market — right now we are long biomass based diesel, and the two biggest markets are the US and EU, and our strength in lipids might feed into a number of products there. But it’s not just a case of looking for a good market, there are lot of good technologies developed overseas, too. We look far and wide, we’ve not done anything but we do state that “we are actively looking”, and we will lead with things we do well, and we want to retain a fantastic group of people that we have built up.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

November 10, 2014

Ramp-Up Delay Sends Solazyme Stock Into Free-Fall

Jim Lane solazyme logo

Revenue and customer numbers are up at Solazyme (SZYM), 60% YOY growth from Q3 2013 to Q3 2014. But a slowdown in the rollout at Moema capacity leads to a spectacular 58% one-day drop in the stock price.

What happened?

Solazyme has been on a relatively steady downward trajectory for the past few quarters, dropping from the $11-$13 range and down into the $6-$8 range.

And then plunged a stunning 58 percent to $3.14 yesterday – amidst downgrades by Cowen & Company, Pacific Crest and Baird — generally to Market Perform or Neutral, and remains at “Underweight” over at Piper Jaffray. Target stock prices have come way down.

All this carnage, we might add, even after a signature partnership with Versalis was announced to commercialize Encapso dilling oils. Versalis said that its initial emphasis for Encapso will be oil and gas fields operated by its parent company Eni, which represent a significant amount of the world’s petroleum drilling activity. Encapso will be featured as part of the company’s recently launched Specialty Oilfield Chemicals product portfolio.

What exactly gives for San Francisco’s [advanced bioeconomy] Giants?

Here’s the news

Total revenue for the third quarter of 2014 was $17.6 million compared with $10.6 million in the third quarter of 2013, an increase of 65%. Third quarter GAAP net loss was $39.7 million, which compares with net loss of $30.7 million in the prior year period. On a non-GAAP basis, the net loss was $35.3 million for the third quarter of 2014, compared with net loss of $22.3 million in the prior year quarter. A reconciliation of GAAP to non-GAAP results are included below.

“Our Clinton/Galva and Peoria facilities are performing well,” said CEO Jonathan Wolfson.”

Good news, so far. Then this:

“Progress at Moema is more mixed with the upstream process operating as expected, while the downstream process will require continued work to establish consistent, fully integrated operations.”

Analysts would, as we’ll see later in this report, used this new guidance from Brazilian operations as a catalyst to downshift the revenue growth rate to around 15% for 2015, targeting $70M instead of $350M.

Then this, on the company’s strategy.

“Commercially, we’re continuing to establish our Encapso and AlgaVia products in the marketplace while focusing additional attention on the development of higher value specialty products,” Wolfson said. “Strategically, we’re moving to intensify our focus on our high-value specialty portfolio, a move that will alter the near-term trajectory of our production ramp but which we believe will ultimately drive greater value for the Company.”

CFO Tyler Painter summarized:

“Our near term focus is on bringing Moema to fully integrated operations and focusing commercial activity around our high-value specialty products. As we execute on these goals, we are emphasizing prudent management of our capital, optimizing our product mix and positioning our manufacturing assets to maximize returns.”

Analysts would use this shift in strategy as further reason to downshift revenue growth, push out the “reaching break-even date” and raise the specter of a dilutive capital raise in 2015 to ensure liquidity for the company on its elongated timeline.

In plain-spoken words

Moema’s delayed, the big volumes are now in 2016 or 2017, so we’re shifting to higher margin, lower-volume markets.

What the analysts say

Pavel Molchanov at Raymond James expressed “frustration” with Moema delay, but said the “strategy makes sense” and saw value with the stock so far down. He wrote:

Downstream issues at Moema: frustrating, but ubiquitous in the space. Production challenges based on downstream processes at the Moema plant in Brazil are the main factors behind the slower-than-expected production scale-up and move down the manufacturing cost curve. Early costs at Moema were both higher, and lasted longer, than originally anticipated. Choppy power and steam operations – yes, something as prosaic as that – are among the specific culprits. None of this, to be sure, pertains to the core of Solazyme’s technology platform, but it’s frustrating nonetheless.

Slow ramp spurs retooling of production strategy. The operational shortfalls at Moema have led to a rethink of the strategy for production expansion. The new mantra – and E&P investors will be very familiar with this – is “value not volume”. Solazyme will further narrow the product range (and thus the scope of customers served), leading to lower sales volumes but higher pricing and blended margins…All in all, we think the strategy makes sense, even though the market clearly does not like the top-line pushout (shares are down 20% pre-market), and we continue to recommend buying the stock, particularly on weakness today.

Jeffrey Osborne at Cowen & Company was rethinking the models. He wrote:

Solazyme reported sub-par results for Q314. Management’s shift from high volume capacity to lower volume / high margin sales comes as a surprise, in the wake of low ASPs in its popular oils. Encapso and AlgaVia progress was stressed, and 2015 sales were guided well below consensus. With the loss of Moema as a catalyst, we are lowering our rating to Market Perform, and our price target to $7

Management’s overhaul in business strategy follows negative margins in typically lower margin product areas. As a result, the company has guided for only a 15% increase in 2015 revenue

The shifted focus to low-volume, high margin sales, in tandem with operational benchmarks falling short, is inhibiting the company from consolidating Moema’s operations in 2015 financials. This accounts for the ~$70 million in 2015 revenue guidance falling drastically short from our and consensus estimates (we were at $350 million previously for 2015).

Management has noted that despite delays, it expects to fully bring Moema onto its balance sheet in 2016, albeit not producing at the previously intended annual capacity of 100k MT/yr. We expect the Moema run rate to fall short of 20k MT/yr by 2016, given the change in strategy, as well as a pause in the completion of the Clinton facility ramp. This could prove ultra conservative; however, we would rather set the bar low.

Meanwhile, Mike Ritzenthaler of Piper Jaffray was trying out for Les Miserables. He wrote:

Start-up & reliability issues, the slower pace of market adoption, and lower than expected ASPs have substantially delayed execution timelines; management used the conference call to reset investor expectations much lower. Even with the technology working as expected, the timeline needed to ramp the facilities (including Moema which is currently experiencing operational issues) is well beyond previous expectations. The business model shift toward value products versus volumes is not surprising, but we continue to see material risk from niche market development and a sizeable capacity overhang (new partner Versalis is targeting ~3k MT of Encapso sales, or ~2.5% of capacity). Further, we see a capital infusion in 1H15 as likely and no longer believe that cash break-even in FY15 is reasonable. We have made healthy cuts to estimates, which result in a lower price target (to $2 from $4) and we maintain our Underweight rating.

The anatomy of the stock’s free-fall

You can see it right here. The news came out last night, and there was a huge imbalance in the buy-sell. The stock was routed before trading started, opening at $3.85, and falling throughout the day to a intraday low of $2.98 before rebounding to $3.14 at the close.


We’ve seen it before. Pounding of earlier-stage stocks for any delays in the march to break-even. Doubtless we’ll see it again.

Those are timing issues for investors — and legitimate for their purposes, of course. But let’s focus on the larger story here — while significant ramp-up risk is out there for the long-term, investors have priced in almost zero revenue growth next year, at this stock price, if we take the Cowen & Company analysis which pegged a $4 target price to 15% growth.


Which makes this an opportunity for those who see in the Eni deal the means of revenue growth that investors have discounted for the near-term.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 19, 2014

Amyris Aims For Huge Second Half

Jim Lane amyris logo

The Pharaohs of Farnesene continue to pick up momentum.

In California, Amyris (AMRS) reported a net loss of $35.5M for the second quarter of 2014 on sales of $9.3M, with a 5.4 percent increase in sales over Q2 2013. Renewable product sales were $4.4M for the quarter, while “Recognized grants and collaborations revenues” reached $4.9M.

In announcing results, the company highlighted:

• End of quarter cash, cash equivalents and short-term investments balance of $90.2 million.
• Lowest farnesene production costs to date and successful start of fragrance molecule production.
• Addition of Braskem as a new collaboration partner for renewable isoprene and Natura for cosmetics sector.
• Produced and shipped jet grade farnesane, now in use in commercial flights at 10% blends with Jet A/A1.

In addition, the company affirmed guidance for doubling renewable product sales year-on-year and achieving cash flow positive from operations in second half of 2014. Specifically, Amyris expected for 2014:

Inflows. Renewable product sales to be over $32 million, doubling our 2013 renewable product sales, and to achieve positive cash margin from products. In addition, we continue to expect collaboration inflows, a non-GAAP measure, in the range of $60 million to $70 million by the end of the year.
Expenses. Cash operating expenses for R&D and SG&A in the range of $80 million to $85 million and capital expenditures less than $10 million in 2014.
Earnings. Positive cash flow from operations during the second half of the year and to achieve positive EBITDA in 2015.
Payback. Cash payback for our Brotas biorefinery in the next two years (following 2013 start-up year), based on plant cash contributions of $10 million to $15 million in 2014 and $40 million to $50 million in 2015.

“With two new collaboration partners, continued progress on renewable product sales, and our best operational performance to date, we’re well positioned to double our renewable product sales this year over 2013 and deliver positive operational cash flow in the second half of this year. In May, we completed a $75 million convertible note financing and, since quarter-end, increased our cash balance sheet with payments from our ongoing collaborations as well as additional inflows from new collaborations,”said John Melo, Amyris President & CEO.

“We rounded out our developing product portfolio for the tire industry when Braskem joined our collaboration to develop and produce renewable isoprene, and our expanded collaboration with Kuraray for liquid rubber. With TOTAL, we obtained industry certification for sales of our renewable jet fuel and have begun sales of jet fuel. We continue to experience strong demand for sustainable products that perform better than the alternative and are cost competitive, while solving the supply challenges our customers face in growing their business,” concluded Melo.

The analysts react:

Rob Stone and James Medvedeff, Cowen & Company

Q2 non-GAAP loss was 36c (vs. St. 30c) on $8.2MM (vs. St. $12.4MM). Product costs are improving, but COGS reflected higher-cost inventory. New collaborations and product segments are encouraging, raising our PT to $3.50 (vs. $3.00), but expected product sales for 2014 are heavily H2-weighted. Execution risk on a steep ramp and potential dilution from converts keep us at Market Perform (2).

Product revenue of $4.4MM missed our $7.0MM estimate. A new fragrance molecule was not yet shipping. Three new products should launch in 2015, and a total of 10 molecules supports expected growth.

Adjusting Our Model for Smaller 2015 Ramp, Slower Cost Reduction. We now project 2014-15E losses of $1.01 and $1.23, on sales of $76.3MM and $115MM, vs. prior ($0.64) and ($0.35) on $76.5MM and $196MM.

Pavel Molchanov, Raymond James & Company

After a period of retooling while in the “overpromise and underdeliver” penalty box, 2013 and 2014 have been Amyris’ first years with operations truly in commercial mode, and the outlook for the rest of 2014 (and beyond) is encouraging. There is visible commercialization progress, but the top line’s reliance (for now) on partner-based R&D revenue makes quarterly results very choppy. We maintain our Market Perform rating.

* Brotas: steady as she goes. The 50 million liter Brotas plant in Brazil made its first farnesene shipment over a year ago and is back online (following its 1Q downtime). Recall, as of last November, the initial 2014 target has been for product sales to at least double – likely conservative after last year’s shortfall. This target remains in place, and our current “guesstimate” for product sales is $38 million for 2014, up ~2.5x.

* $3.50/gal diesel: intriguing target, but we’ll believe it when we see it. It is on the Total front that the most interesting revelations came out of yesterday’s call. Amyris is working on a framework for producing renewable diesel in Europe – as part of the fuels JV with Total – with a long-term target cost of $1.00/liter, or $3.50/gallon. The feedstock is… to be disclosed later, so we can’t help but feel some skepticism. The working assumption is that the first large diesel plant will start up in 2017, with two or three by decade’s end. If true, this would solidify Total’s status as one of the most active strategics in bioindustrials.

Valuation. Consistent with peers, we apply a discounted cash flow approach to arrive at a DCF value of $2.90/share.

The Digest’s take

The analysts don’t see much upside in the stock for now — a ramp-up in price over the past year has absorbed most of the short-term potential. It’s highly intriguing that the company is targeting $3.50 diesel with a Total/Amyris plant as soon as 2017. That’s big news, if it materializes — but we would expect a move away from the spot Brazilian sugar market in order to facilitate this. Cellulosic sugars would be appropriate targets for anything sold in the aviation to avoid food vs fuel debates.

Jim Lane is editor and publisher of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

July 09, 2014

BioAmber Goes Ballistic

Jim Lane

Word arrived from Minnesota that BioAmber has signed a 210,000 ton per year take-or-pay contract for bio-based succinic acid with Vinmar International.

Explaining why BioAmber (BIOA) stock shot up nearly 17% in today’s trading despite a global equities pullback that affected almost everyone else in industrial biotech.

Under the terms of the 15-year agreement, Vinmar has committed to purchase and BioAmber Sarnia has committed to sell 10,000 tons of succinic acid per year from the 30,000 ton per year capacity plant that is currently under construction in Sarnia, Canada.

Bottom line, BioAmber continues to roll and roll. We looked at a number of the drivers in May, in “Why are all the traffic lights turning green for BioAmber?” There, we noted:

BioAmber is avowedly pursuing a strategy based in careful aggregation of strategic partners that bring investment and offtake as well as financing relationships, while building further applications for their molecules in work with R&D partners that could be expected to translate into commercial partners down the line. Which is to say, starting with an economically and environmentally advantaged molecule and then working in partnership with downstream customers to establish markets for that molecule.

“It’s very different than the conventional biobased fuels strategy, which has been to set mandates to create market certainty, and use that to create a favorable financing environment, and encourage engagement with incumbents.”

Expansion at Plant #2

As part of the new succinic acid master off-take agreement, this second plant will be expanded to an annual capacity of 100,000 tons of bio-BDO and 70,000 tons of bio-succinic acid. Vinmar plans to make a 10% or greater equity investment in the expanded plant and has committed to off-take and BioAmber has committed to sell a minimum of 50,000 tons per year of bio-succinic acid for 15 years following the plant’s start-up date. Vinmar also has the option to secure additional bio-succinic acid tonnage under the take-or-pay contract if BioAmber has not committed the remaining volume at the time the plant’s financing is secured.

Building a plant #3

Vinmar also committed to off-take and BioAmber committed to sell a minimum of 150,000 tons per year from a new, third plant following its financing, construction and commissioning. The plant would be dedicated to bio-succinic acid production and would have an annual capacity of 200,000 tons per year. Vinmar plans to invest at least 10% of the equity in this third plant, which BioAmber expects to start up in late 2020, based on the projected development of the succinic acid market.

Expanding the BDO deal

In a related announcement, BioAmber and Vinmar also broadened the scope of their previously announced 100,000 ton per year 1,4 butanediol (BDO) plant, which the parties currently plan to start up in late 2017. Under that agreement, following the financing, construction and commissioning of the BDO plant, Vinmar has committed to purchase and BioAmber has committed to sell 100% of the BDO produced for 15 years.

More than 100% of capacity sold out

The Vinmar take-or-pay contract, together with the take-or-pay agreement signed in April 2014 with PTTMCC Biochem (a joint venture between Mitsubishi Chemical and PTT of Thailand), guarantees the sale of 50% of Sarnia plant capacity during the first three years of operation and 33% of plant capacity for the following 12 years.

In addition, BioAmber has signed 19 supply and distribution agreements and seven MOUs to date, and the cumulative volume of these contracts exceeds the available capacity for sale in Sarnia. BioAmber has been selling bio-based succinic acid for over four years and to date 38 customers have qualified the company as a succinic acid supplier and purchased product from the existing production facility in France.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

June 02, 2014

Gevo Begins To Ship Missing Link For 100% Renewable Plastic Bottles

Jim Lane

From Colorado, news has arrived that Gevo (GEVO) is now selling paraxyleme to Toray (TRYIF), one of the world’s leading producers of fibers, plastics, films, and chemicals. It’s producing PX from isobutanol, one of its three molecules in production (the others are jet fuel and iso-ocrane) at its complex in Silsbee, Texas. Toray expects to produce fibers, yarns, and films from Gevo’s PX.

While any new molecule attached to a major customer relationship is always big news for any producer — this has special significance. Let’s review exactly why.

PX is the missing ingredient in the production of a highly-sought after material — 100% renewable plastic bottling.

What is plastic bottling? It is a material called PET (For you purists: polyethylene terephthalate. Say that three times real fast.) It’s a form of polyester that is see-through, and is an excellent barrier material. Not much gets through these little molecules.

Accordingly, it’s become the third most widely-produced polymer in the world, after polyethylene and polypropylene. PET makes up about 20 percent of the world’s polymer production, and about 30 percent of that PET goes into making plastic bottles. Global PET production is estimated at 20 million metric tons per year by ICIS — and is selling for right around $1500-$1600 per metric ton this year.

So, an $30B+ market. Wow.

In steps Coca-Cola

Seeing high customer demand for more eco-friendly product packaging, Coca-Cola (KO) introduced the first-generation Plant Bottle in 2009, with up to 30 percent renewable content. The company has now distributed more than 10 billion first-generation PlantBottle packages in 20 countries worldwide, and is bullish on reaction from customers.

Why the limit at 30% renewable content? That’s where PX comes in. It’s PET is produced from renewable MEG (ethylene glycol) and PTA (purified terephthalic acid). PTA in turn is produced from paraxylene (PX), which until now has not been available from renewable sources on a commercial basis.


If it can find or foster sources of renewable PX, Coke aims for 100 percent plant-based packaging, at scale, by mid-decade — and that means billions for the producers, and the key to it all is renewable PX. It’s also worth pointing out that according to ICIS and Nexant, the global PET market is facing huge overcapacity problems in the wake of large amounts of new PTA capacity coming on line in China. So — a good, solid market in renewable PET, safely protected from low operating rates, plant shutdowns, and bad margins — well, it’s not only big business, but great business.


The Toray relationship

The Toray “buy” is the culmination of a multi-year effort that first surfaced in 2012, when we reported that Toray signed an offtake agreement for renewable bio-paraxylene (bioPX) produced at Gevo’s (then) planned pilot plant. The agreement enabled Toray to carry out pilot-scale production of bioPET, and the company was able to offer samples to its business partners, last year. Using terephthalic acid synthesized from Gevo’s bioPX and commercially available renewable mono ethylene glycol (MEG), Toray had succeeded in lab-level PET polymerization to produce fibers and films samples in 2011.

Later came news that Coca-Cola was stepping forward to invest in pilot plants at Virent, Avantium and Gevo in pursuit of renewable plastic bottling — though Avantium, in its case, would by using its YXY chemical catalytic technology to produce an alternative molecule, PEF, that it believes can provide equal or better product performance to PET.

Why not just use, say, polyethylene?

Good news, Coke does, in Odwalla juice products. Works for juice in the fridge. Does not work for products outside of the fridge, especially carbonated ones.

Back to PX.

The PX was sold under a previously announced offtake agreement with Toray. Toray also provided funding assistance for the construction of Gevo’s PX demo plant at its biorefinery at South Hampton Resources, where Gevo also produces other hydrocarbon products such as renewable jet fuel and renewable iso-octane.

As a result of the shipment, Gevo will recognize revenue associated with both the sale of the PX, as well as the initial funding assistance provided by Toray for the project.

Gevo has also received support from The Coca-Cola Company for the development of its renewable PX technology. Research and development support was provided by The Coca-Cola Company under a previously announced Joint Development Agreement.

“We greatly appreciate the support that Toray and The Coca-Cola Company have provided Gevo in developing bio-PX. This is a groundbreaking achievement that we are very proud to have accomplished. This demonstrates that bio-isobutanol is truly a building block for the renewable chemicals industry,” said Gevo CEO Pat Gruber.

The business case

Here’s the good news, from our report on paraxylene and its opportunities:

“In the case of a Gevo-retrofitted plant, the biorefiner can produce biobutanol plus co-products, or paraxylene and the same co-products – to give one example. Turns out, in renewable fuels as well as elsewhere, it takes two (products) to tango. Pricing moves around in these volatile markets, but as a rule of thumb, paraxylene prices at around a 25 percent premium to ethanol (after taking into account the lower yields of isobutanol, per ton of feedstock). PET sells for roughly a 125 percent premium.”

Having trouble remembering all this?

Here’s a way to keep the supply chain in mind:

After buying some vinegar at the PX, Meg went to the PTA with her pet.

The bottom line

For Gevo, probably the good news couldn’t come too soon. Having gone through dilutive financing events to shore up the balance sheet, mired in an IP battle with Butamax, and having struggled with infections at Luverne that have kept the plant from a 100% shift-over to isobutanol production at or near nameplate capacity— well, the company can use good news, and this market is potentially huge for the comoaby in terms of volume and margins.

For Coca-Cola and Toray, it’s a sign that the strategic entry into renewable PX is showing signs of heading for commercial scale. Although 98% of global PX demand is for plastic bottling — it’s quite possible that Toray and others could open up other markets using bioPX as an ingredient.

But the advance towards 100% renewable Plant Bottle packaging is news of major import — and a sign that Gevo and some combination of partners may well proceed to build a commercial plant, if the product continues to perform as expected and the economics are in line.

Where might this go? Beyond Coca-Cola plastic, there’s already work going on a Sea World, Ford and Heinz to adopt the new technology — Coca-Cola has said on several occasions that it intends to foster broad demand for renewable plastics as part of its overall sustainability mission (and, not coincidentally, to ensure robust and affordable supply of the materials).


Some of that will remain dependent on corn dextrose pricing — since that’s Gevo’s fundamental feedstock. For now, prices have been good, if not historically great. Much will depend for the prices for the reainder of this year — on crucial corn reports due from USDA in July and August on crop conditions.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

May 12, 2014

Spring Blossoms: Amyris First Quarter Earnings

Jim Lane
Lily flowered tulip.jpg
Lily flowered tulip 'Maytime'

photo by Tom Konrad

In California, Amyris (AMRS) announced net income of $16.4M on revenues of $6.2M for Q1 2014, after reporting a $32.6M loss in Q1 2013 on revenues of $9.0M. The change in net income was primary due to a non-cash benefit relating to outstanding convertible notes, a result of a decrease in the Company’s stock price at 3/31/14 compared to the stock price at 12/31/13.

In a release accompanying the results, the company highlighted that it:

  • Achieved combined inflows from product sales and collaborations during the first quarter of $17.9 million on a non-GAAP basis. On a GAAP basis, total revenues of $6.0 million.
  • Validated the performance of renewable jet fuel with a third demonstration flight — by Etihad Airways on a Boeing 777 — and remain on track for ASTM validation in the coming weeks.
  • Expanded its product development pipeline for the commercial introduction of a new cosmetic emollient and a solvent product.
  • Resumption of production at the Brotas biorefinery following planned maintenance and facility upgrades to restart in conjunction with the sugarcane harvest period in Brazil.
  • First month of farnesene production achieved better performance from prior year’s quality manufacturing runs. Now, farnesene yield is reported at around 80% of theoretical maximum.
  • Validated downstream processes and quality systems for growing product pipeline being commercialized soon, including jet fuel.
  • Received Roundtable on Sustainable Biomaterials (RSB) certification, the first of its kind in Brazil.

“During the first quarter, we delivered strong collaboration inflows, continued our focused commercialization activities, and ended the quarter with a stronger cash balance. We achieved a cash gross margin of 73% on sales and collaboration inflows of nearly $18 million,” said John Melo, Amyris President & CEO.

“Since quarter end, we successfully resumed farnesene production at the Brotas biorefinery with first month’s performance superior to our best fermentation runs in 2013 and remain on track for our objective of becoming cash flow positive during the second half of this year and profitable in 2015,” Melo concluded.

Resuming forward guidance

In a highlight for investors, Amyris reiterated its prior guidance for 2014, which was as follows:

  • Inflows. We expect to achieve total cash inflows, which includes revenues from renewable product sales and inflows from collaborations, in the range of $100 to $115 million for 2014. Specifically, we expect (a) to double sales of renewable products over 2013 and achieve positive cash margin from products in the range of $10 to $15 million in 2014 and (b) maintain collaboration inflows in the range of $60 to $70 million.
  • Expenses. We expect cash operating expenses for R&D and SG&A in the range of $80 to $85 million and capital expenditures less than $10 million in 2014.
  • Earnings. We expect to achieve positive cash flow from operations during 2014, with positive non-GAAP EBITDA during the second half of 2014, and to become profitable in 2015.
  • Payback. We expect cash payback for our Brotas biorefinery in the next two years (following 2013 start-up year), based on plant cash contributions of $10 to $15 million in 2014 and $40 to $50 million in 2015.

The product set

Here’s what Amyris is producing:

  • arteminisic acid.
  • farnesene — including farnesene-based elastomers, in collaboration with Kururay.
  • patchouli fragrance.
  • Three more molecules are in development, and there are reported to be 20 in the pipleline, with primary funding coming from R&D partners.
  • The company is announcing two new products: hemi-squalane (with a 5-7x market size vs. squalane, but lower average selling price), and a new solvent for the d-limonene market, which has a 17 million liter market size. The company is also expecting to sell biojet fuel and liquid farnesene runner this year.

Commentary from analysts

Rob Stone and James Medvedeff, Cowen and Co

“On the operational front, Amyris is introducing two new molecules, both with first revenue expected by year-end. The first is a new solvent molecule, which will fall under the performance materials banner that is a major contributor to long-term product revenue mentioned earlier. The second new molecule is an emollient that targets the consumer care market, which is expected to have a price point in the $8-12/kg range. Finally, as it relates to biojet sales, discussions are underway with four potential buyers (including one active contract negotiation), and sales are expected by the end of this year. Worth noting, however, is that Amyris is not aiming to sell “commodity” jet fuel, but rather expects to be able to charge a meaningful “green premium,” with the explicit goal of securing better gross margins. Operational and commercialization progress is encouraging. Full year guidance was reiterated, but it appears heavily back-end loaded and visibility remains low. Maintain Market Perform (2) and cut PT to $3.00 from $3.50.”

Mike Ritzenthaler, Piper Jaffray

We maintain our Neutral rating on shares of AMRS. Sales (both product sales and collaboration revenue) were about half of our estimate and management stated on the call that 2Q would fall short of consensus. 2014 targets (for cash inflows, expenses, and positive EBITDA) were reiterated. Approximately half of product sales and collaboration funding included in the targets are firmly contracted, which exposes the story to disappointments should the year not play out as management has forecasted. Nonetheless, we are encouraged by the success on the technology and liquidity fronts, but at the same time we hesitate to fully endorse the ramp at this point given substantial gaps that have materialized in the past.

Pavel Molchanov, Raymond James & Company

After a period of retooling while in the “overpromise and underdeliver” penalty box, 2013 was Amyris’ first year with operations truly in commercial mode, and the outlook for 2014 (and beyond) is encouraging. There is visible commercialization progress, but the top line’s reliance (for now) on partner-based R&D revenue makes quarterly results very choppy. In addition to updates on the production ramp-up at the Brotas plant, the market wants to see additional clarity on the pace at which Total will be scaling up its fuels joint venture with Amyris. We maintain our Market Perform rating.

The Bottom Line

We’re seeing the product line-up unfold – the multiple molecules are starting to become an impressive set where the company is realizing its potential. An improvement in the larger-volume, low-margin markets will help move the company towards more substantial than its tasty but ultimately limited prospects in markets such as d-limonene. Bioject will be key.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

May 05, 2014

Why Traffic Lights Are Turning Green For BioAmber

Jim Lane
As many technologies pivot or delay, one train keeps chugging on its route to biosuccinic acid, and markets like BDO, resins and polyols.

What is it about the business model that keeps on working? What can every integrated biorefinery learn from its approach?

In Minneapolis, BioAmber (BIOA) just announced a contract to supply a minimum of 80% of PTTMCC Biochem’s total bio-succinic acid needs until the end of 2017.

PTTMCC Biochem is a joint venture established by Mitsubishi Chemical and PTT, Thailand’s largest oil and gas company, to produce and sell polybutylene succinate (PBS), a biodegradable plastic made from succinic acid and 1,4 butanediol (BDO). The JV partners are building a PBS plant in Map Ta Phut, Rayong, Thailand that will have an annual production capacity of 20,000 tons, and is expected to be operational in the first half of 2015.

Now, let’s put this in context. According to NNFCC last year, the global market for succinic acid is between 30,000 and 50,000 tonnes per year. If this were mobile phones, it’d be like coming out of the box with a billion hand-set order. A single offtake deal, with a take-or-pay component, for something like one-fifth of global capacity? Huge.

The PBS plant in Thailand will consume approximately 14,000 tons of succinic acid per year at full capacity — under the new agreement, BioAmber could supply a minimum of 11,200 tons of bioisuccinic acid if that PBS plant operates at full capacity. BioAmber plans to supply PTTMCC from its 30,000 ton per year plant under construction in Sarnia, Canada.

Putting BioAmber into a larger context

What is exactly so special about a company making roughly 65 million pounds of a little-known renewable chemical, with a historically tiny global market?

After all, that is roughly equivalent, by tonnage, to a 10 million gallon first-gen biofuels plant — the kind that generally closes down these days because of a lack of economies of scale.

There are two reasons that we are looking carefully at BioAmber.

First, as former DOE Biomass Program Manager Paul Bryan opined at ABLC this year: “Focus on the right products first.” Bryan keyed in on biosuccinic in his ABLC presentation, highlighting the opportunities and advantages relating to the utilizing the oxygen in biomass.


Second, BioAmber is avowedly pursuing a strategy based in careful aggregation of strategic partners that bring investment and offtake as well as financing relationships, while building further applications for their molecules in work with R&D partners that could be expected to translate into commercial partners down the line. Which is to say, starting with an economically and environmentally advantaged molecule and then working in partnership with downstream customers to establish markets for that molecule.

It’s very different than the conventional biobased fuels strategy, which has been to set mandates to create market certainty, and use that to create a favorable financing environment, and encourage engagement with incumbents.

BioAmber’s first commercial plant in Sarnia: construction

Moving back to BioAmber, let’s look at the construction timeline — which has shifted back 4-6 weeks. The company’s first commercial has slipped into early 2015 unless the company can make up some time, which it indicates it might.

BioAmber CEO Jean-François Huc reports: “We’ve completed over 60% of the detailed engineering and are now focused on completing the detailed piping and electrical instrumentation work…For most for equipment purchases and work packages…we’re seeing bids there are coming in on or slightly below budget…giving us an increasing confidence that we can bring the plant construction in on budget.”

“To date we’ve lost approximately eight work days due to extreme cold and snow. We’ve also identified the potential for delays in a few key equipment deliveries. The current trend suggests that if we do not recover the lost days due to weather moving forward and we’re not able to mitigate the risks around the equipment delivery dates, the project completion could be delayed by up to four to six weeks.”


The commissioning period is estimated at five months — meaning that the plant could be operating in steady-state as soon as the end of the first half of 2015 — and BioAmber’s sales projections for 2015 are in line with that.

Huc comments: “When you mechanically complete and you commission and startup your plant, realistically you anticipate a three to five month period, three months being aggressive and five months being more conservative…Our expectation is that the plant would be running in a continuous stable mode after five months and…we hope to sell about 45% of the nameplate capacity in the first year.

BioAmber’s first commercial: customers

The company, meanwhile, has been hard at work on bringing on customers. The combination of Vinmar and PTT contracts will tie up nearly two-thirds of the plant’s nameplate capacity in 2015, and the biosuccinic requirements of the Vinmar deal will more than use the full capacity of the Sarnia plant (though Sarnia can be expanded to as much as 50,000 metric tons).

Huc added: “We brought on 18 new customers in 2013 that will help to base load Sarnia and we worked with a number of companies to test our bio-succinic acid in new and emerging applications that offer the prospect of significant growth.

New applications and markets

The key for BioAmber to reach beyond the limited direct market for succinic acid is through the development of new markets — using low-cost biosuccinic.

Huc comments: “Over the past year we worked with a number of innovative companies that validated our Bio-SA in several new applications.

“For example, in artificial leather they demonstrated that the polyester polyol made with Bio-SA offers better aesthetics including softer touch than the polyols made with adipic acid. This market reportedly consumes 150,000 tonnes of adipic acid annually. Another example is in foams made with Bio-SA and recycled PET. The Bio-SA provided performance benefits to the polyols that were made from recycled PET, including reduced viscosity, increased density and tensile strength, reduced brittleness and improved stability in addition to increased renewable content. These foams have been developed for a number of applications including insulation panels and the near-term market is estimated at 15,000 to 20,000 tonnes per year but with significant growth potential.

“Several coatings companies have also demonstrated that resins and polyols made with the Bio-SA offer advantages over adipates in paints and coatings. These advantages include better gloss retention and higher renewable content. We now believe that the total addressable market for Bio-SA in coatings is approximately 600,000 tonnes per year.

“Our goal is to sign supplier agreements with market innovators in these emerging market segments and to announce product launches incorporating Bio-SA over the coming year.”

The future BDO plant

Let’s look at BDO in some detail.

As BioAmber explained at the time of its IPO: “Succinic acid can be used to manufacture a wide variety of products used every day, including plastics, food additives and personal care products, and can also be used as a building block for a number of derivative chemicals. Today, petroleum-derived succinic acid is not used in many potential applications because of its relatively high production costs and selling price. We believe that our low-cost production capability and our development of next-generation bio-succinic derived products including 1,4 BDO, which is used to produce polyesters, plastics, spandex and other products, will provide us with access to a more than $10 billion market opportunity.”

The Vinmar relationship. The BDO opportunity signaled in the IPO became more vivid early this year when Vinmar has committed to purchase, in a 15-year master off-take agreement, 100% of the BDO produced in a 100,000 ton per year capacity plant that BioAmber plans to build in North America and commission in 2017, Under the terms agreement, Vinmar also plans to invest in the BDO plant, taking a minority equity stake of at least 10%, and has a right of first refusal to invest in and secure 100% of the off-take from a second BDO plant.

More on Vinmar. Vinmar has been selling close to 50,000 tonnes of BDO per year for the past several years. Vinmar also has project development and financing expertise having helped several partners secure project financing by leveraging Vinmar’s banking relationships and the take-or-pay agreements that they sign.

Pricing: Huc reports: “At recent BDO prices and to give you a sense of those the global average price over the past three years was approximately $2,800 per metric tonne according Tecnon OrbiChem data, the annual sales from this plant would be approximately 280 million representing over 4 billion in revenues over the term of the contract.”

Execution risk. Producing BDO from succinic at scale, at commercially feasible rates — well, there’s work left to do. BioAmber reports that “we’re continuing to work with our exclusive partner Evonik to scale up and commercialize the catalysts we have licensed from DuPont (DD).”

The timeline: Huc comments, “We’ve begun the site selection process in North America, building on the site selection process we had run a few years ago for Sarnia a lot, as you can imagine the front-end of this BDO plant it’s just a big succinic acid plant, so most of our requirements in terms of site selection are identical to those we used in finally choosing Sarnia…in parallel we’ll be working to see what kind of government support we can secure for that project so, that has to dovetail with a toll manufacturing facility coming online in the U.S. and a successful startup of the Sarnia plant and ideally all those things come together in the summer of 2015 so that we’re in a position to move to a financial close with a group of lenders and equity partners.

Cash burn

The company reports: “Our goal is to keep our cash burn under 20 million in 2014 while spending more money on BDO development and engineering for the remainder of this year as we prepare to bring the BDO toll manufacturing facility online next year.” The company has $83.7 million cash in hand, after reporting a net loss for 2013 of $33M, after a $39M loss in 2012.

PTT and Myriant

We’ll be watching that 2017 date carefully, for another reason. It may well suggest a completion date for a biosuccinic acid plant that PTT has been investigating with Myriant. PTT has, since January 2011, been a high-visibility strategic investor in Myriant, putting $60M in the company a few years back — and avowedly the companies have been signaling interest in PBS.

Reaction from BioAmber on the PTT deal

“This first succinic acid take-or-pay agreement is an important milestone for BioAmber,” said Babette Pettersen, BioAmber’s Chief Commercial Officer. “This contract guarantees significant sales volume for our Sarnia plant during its first three years of operation. PTTMCC is a major new buyer of bio-succinic acid and locking up this substantial volume commitment will strengthen our market leadership,” she added.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

March 28, 2014

Solazyme Launches Biodegradable Encapsulated Lubricant For Drilling Market

Jim Lane

Enters oil & gas drilling market with world’s first encapsulated lubricant.
Solazyme: “Targeted delivery technology provides improved performance and sustainability.”

In California, Solazyme (SZYM) announced its entry into the oil and gas drilling fluids additive market. Building upon its proprietary platform of high performance, sustainable Tailored oils, Solazyme has introduced Encapso, the world’s first encapsulated biodegradable lubricant for drilling fluids designed to deliver high-grade lubricant precisely at the point of friction where and when needed most.

At the same time, the company announced its intent to offer $100M in aggregate principal notes due in 2019 and 5M shares of common stock. SZYM will also grant the underwriters a 30-day option to purchase up to $15M in notes and 750k shares of common stock.

“We expect the deal to be completed by the end of the week,” said RW Baird analysts Ben Kallo and Tyler Frank. “Although initially dilutive, it should provide sufficient capital to ramp production at its facilities and fund further R&D.” The analysts put a $18 price target in SZYM shares, which closed on March 25 at $13.09.

The drilling fluids markets

The global market for drilling fluids was valued at $7.2 billion in 2011 and is expected to reach $12.31 billion by 2018, according to a report released last summer by Transparency Market Research.

The rise in unconventionals and the growth in deep-sea exploration have driven up revenues for drilling fluids in recent months. One factor that has limited the use of conventional oilbased fluids (as opposed to water-based fluids) have been environmental and sustainability concerns associated with conventional oils.

According to Solazyme, Encapso’s efficacy has been demonstrated both in the lab and in the field in over a dozen commercial wells in a number of basins including the Williston Basin, Denver-Julesburg, and the Permian Basin. Encapso increases drilling speed and control, and protects valuable equipment.

The majority of work so far has been done in horizontal wells, helping demonstrate Encapso’s strong performance capabilities when it comes to “building the curve”—or the point where an unconventional well transitions from vertical to horizontal. This is often when drilling engineers find the most difficulty managing drilling friction. Improving the speed and efficiency of drilling translates directly to cost savings for well operators.

“The demand for energy continues to grow but new sources of fossil fuels are more difficult than ever to recover. As long as the oil and gas industry continues to extract fossil fuels, we at Solazyme view it as an imperative that it is done in a more sustainable way to protect the environment for generations to come,” said Solazyme CEO Jonathan Wolfson. “The drilling industry needs new high-performance and sustainable technologies to meet rising energy demand and increased drilling. Encapso’s unique targeted lubricant delivery system helps reduce the costs for the oil and gas exploration and production industry and provides improved drilling performance.”

Reaction from the customers

“After adding Encapso to the system we saw a rate of increase in our rate of penetration from two feet per hour to 40 feet per hour. Encapso is a game changer because you’re reducing your torque, reducing your drag, and reducing your coefficients of friction all at the same time,” said Philip Johnson, a senior drilling engineer who worked with Encapso on behalf of a major exploration and production company. “No other product on the market does that.”

”Our observation of the product is that it has consistently added value,” said David Cunningham, Regional Manager at Anchor Drilling Fluids, USA. “The biggest impact has come when we’ve seen increases in rate of penetration and reductions in torque.”

“When I learned that this lubricant was encapsulated and therefore would deliver a drilling lubricant in a more targeted way, I saw the tremendous potential benefits,” said Tony Rea, President of Arc Fluids. “I introduced Encapso to a few customers and worked with them on several wells that they were drilling. In all cases, we witnessed marked improvements in directional control.”

The Analysts on Encapso

“Entering into the oil and gas drilling fluids additive market provides SZYM another end market for its products,” write Ben Kallo and Tyler Frank at RW Baird. “This will be important as the company ramps production at its Clinton and Moema facilities. We believe SZYM should be able to secure offtake agreements for the Encapso product line after successfully testing the product in the Williston Basin, Denver-Julesburg, and the Permian Basin and receiving positive feedback from Anchor Drilling Fluids and Arc Fluids.”

The Bottom Line

Another market for Solazyme — and a large one — and one in which high-performance and high-sustainability are known factors for driving revenues. If the company gets real traction in this field, its planned capacity will have to be revised northwards. Towards which its pending cap raise will materially contribute.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

March 18, 2014

Gevo: Are We There Yet?

by Debra Fiakas CFA

The renewable chemicals and biofuel company Gevo, Inc. (GEVO:  Nasdaq) is scheduled to report fourth quarter 2013 financial results on March 25th.  Analysts have a couple of weeks to prepare questions for management during the earnings conference call.  Top on the list has to be got to be about Gevo’s recent agreement to license its novel isobutanol technology to Porta Hnos of Argentina.  Porta Hnos is a well established ethanol producer so if the license is consummated, it is expected that this partner has the ability to execute on plans to produce isobutanol for the South America market.

Isobutanol is popular as a solvent, but it has a plethora of applications across several industries.  It is used in paint solvents, varnish removers and automobile polish.  Importantly it is a building block for plastic bottles and synthetic textiles.  It even has a use in food production as a flavoring agent.  That all adds up to the kind ‘very large market opportunity” that generates strong sales and profits.

Gevo has already begun production for other markets and the company has several off-take agreements and supply agreements in place, including Sasol Chemical Industries and Land O’Lakes Purina Feed.  The company has also been diligent in putting together development agreements with high profile customers like Coca Cola and the U.S. Army to build the market for its isobutanol made from the fermentation of sorghum, barley wheat or corn.

In December 2013, Gevo announced successful test flights by the U.S. Army with a Black Hawk helicopter fueled up with a 50/50 blend of Gevo’s alcohol-to-jet fuel and conventional jet fuel.  The test was part of the Department of Defense program to get all of its craft certified to operate on alternative fuels.  Gevo already had agreed to supply up to 16,000 gallons to the U.S. Army for test purposes, but has yet to get a long-term supply contract.  Thus another great question for Gevo management is what visibility they have into the DOD’s plans for USING alternative jet fuel.

In the most recently reported twelve months Gevo claimed $8.5 million in total sales, resulting in a net loss of $62.6 million.  This is well below revenue levels in previous periods.  Indeed Gevo has had a fairly erratic track record as its isobutanol sales are still at an early stage and have not yet replaced the sale of ethanol that had previously been produced in the company’s Luverne, Minnesota plant.  The cash burn was nearly as discouraging.  Gevo used $52.5 million in cash in the most recently reported twelve months.

The logic of converting an ethanol plant to isobutanol production is understood.  Unfortunately, while we appreciate the route Gevo has mapped out, the journey seems to be taking some time.  What we really need to understand is “ARE WE THERE YET?”  In December 2013, the company raised about $25 million through the sale of common stock and warrants.  Some of the money will be used to ramp up production at the Luverne plant.

A review of recent trading patterns in GEVO has not been encouraging. Many of the technical formations in recent months point to continued bearish sentiment.  One source of concern for shareholders has been the suppressive effects of the recent common stock issuance on near-term trading.  Shareholders need to know if the pain of dilution is going to be worth it.
Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

February 02, 2014

Solazyme: Now, Express Yourself in the oils you choose.

Jim Lane solazyme logo

In an on-time arrival, Solazyme starts up at 500,000 liter scale in Clinton, Iowa. 

In California, Solazyme (SZYM) announced that commercial operations have commenced at both Archer Daniels Midland Company’s (ADM) Clinton, Iowa facility, and the downstream companion facility operated by American Natural Products in Galva, Iowa.

Highlighting the flexibility of Solazyme’s technology platform, Solazyme, ADM and ANP have successfully manufactured three distinct and unique tailored oil products at the facilities, and products are currently being sold and distributed in both the U.S. and Brazil.

Volumes shipped to Brazil are being utilized for market development activity in advance of the opening of the Solazyme Bunge (BG) Renewable Oils Moema facility. As stated previously, production at the ADM and ANP facilities is expected to ramp to a nameplate capacity of 20,000 MT/yr within 12-18 months, with targeted potential expansion to 100,000 MT/yr in subsequent years.

The company noted, in a release, that “truckloads of product are now shipping from the Iowa operations for use in applications including lubricants, metalworking and home and personal care. These shipments are being made pursuant to multiple supply agreements as well as spot purchases, and include reorders.”

Analyst reaction: The Bull perspective

Rob Stone and James Medvedeff at Cowen & Company write: “SZYM hit a major milestone with the first commercial volume deliveries from the Clinton, IA ADM plant and ANP downstream facility in Galva. Three different products are being sold via multiple supply agreements, spot purchases and reorders. Startup problems have hampered many peers, so this news should be a significant trigger. The Moema, Brazil plant is also expected to start this quarter.

“Applications for the three tailored oil products already shipping include lubricants, metalworking, and home and personal care. Moema Startup and More Customer/Product News Could Also Be Triggers

“[At Moema, Brazil] Startup was pushed out from the original Q4:13 target to make enhancements that will enable faster switching between food and industrial oils, more automation, and environmental controls to permit earlier work with new strains. Getting the second large-scale facility on-line this quarter should be another big trigger.”

Raymond James analyst Pavel Molchanov adds: “Positive cash flow is realistic in 2015. While the ramp-up of production will certainly not be linear – as is always the case in industrial biotech – we anticipate utilization rising to 50% in 4Q14. This translates into a four-fold increase in total revenue from 3Q13 to year-end 2014, with product sales jumping by an even larger amount (7x). To be clear, Solazyme can get to positive cash flow at the corporate level (in 2015) even before full utilization at either Clinton or Moema.”

Analyst reaction: The Bear perspective

Piper Jaffray’s Mike Ritzenthaler noted: “We maintain our Underweight rating and $4 price target on shares of SZYM following last night’s press release that both Clinton and Galva are producing commercial oil shipments. The market is clearly much more enthusiastic than we are about the news. Investors, it would seem, believe that operations have been totally de-risked now that commercial shipments have started. We do not share that opinion, however, and our continued caution is rooted in history and practical experience, our lack of comfort with the company’s stated production economics, and the dilutive nature of Clinton production to shareholders based on the tolling arrangement with ADM and associated stock payments. The fact that SZYM is a story stock is not lost on us, but even with lower estimates, perfection is priced in.”

The ADM agreement

In November 2012, Solazyme and ADM signed a series of strategic collaboration, manufacturing and market development agreements for production at the Clinton, Iowa plant. At the time, the companies said that Solazyme would initially target the production of 20,000 metric tons of oil in 2014, with an aim to increase production to 100,000 metric tons in subsequent years. Commercial production was expected to begin in early 2014, the companies said at the time — a prediction which proved right on the mark.

ADM’s wet mill, which is adjacent to the fermentation plant, is initially providing dextrose for the fermentation; and steam and power is being delivered from ADM’s cogeneration facility that is partially fired with renewable biomass.

Scale of operations

Back in December 2012, Solazyme completed multiple initial fermentations at the Clinton plant, conducted in approximately 500,000-liter vessels, or about four times the scale of the vessels in Solazyme’s Peoria facility. The scale achieved at ADM’s Clinton facility is comparable to the fermentation equipment currently under construction at the Solazyme Bunge Renewable Oils facility in Brazil.

The Bunge facility, initially expected to commence operations in Q4 2013, slid its scheduled start-up to Q1 2014, prompting some volatility in Solazyme’s stock late last year.

Nike vs Ford

If you’re under 30, or follow shoes — you are probably familiar with NIKEiD – allowing you to “personalize your performance, fine-tune your fit, and represent your style”. You get “your shoes, your style, made exactly the way you want to match your performance and style demands. You can “fine-tune your traction” as well as customize the look and feel.

It’s part of what drives Nike — footwear tailored to your needs, whether you choose from one of their hundreds of off-the-rak styles or go all-in on a NIKEiD tailored shoe.

At the other end of the spectrum was Henry Ford’s Model T, of which is was said “you can have it in any color you like, as long as that color is black.”

To date, the business of oils has been more on the Model T type — what’s in the barrel or plant is what’s in the barrel or plant. Generations of chemists and engineers have learned to work with the properties of given animal, plant or fossil oils. But here comes Solazyme with a “tailored oil” approach. Applications abound.

Reaction from Solazyme

“This is a critical milestone for Solazyme’s large scale commercial manufacturing capabilities. The Solazyme, ADM and ANP teams have done an excellent job bringing up commercial operations at the Iowa facilities with Solazyme’s TailoredTM oil production technology. We have already successfully produced three TailoredTM oil products at scale and have begun selling these products into the North American marketplace,” said Jonathan Wolfson, Solazyme’s CEO.

“Consistent with our stated plans, we are focused initially on ensuring consistent and reliable operations as we build customer trust. While we acknowledge that it is still early days, we look forward to the opportunity to expand our production volume and the slate of oil products available.”

The Bottom Line

As Cowen’s analysts note, “Startup problems have hampered many peers, so this news should be a significant trigger.” All eyes will now be on Moema. If that goes forward as well or better: well, as we opined a few years back in the case of Solayzyme: They Might Be Giants.

  Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 10, 2013

Solazyme Shares Soar On Sasol Deal

Jim Lane

Bioenergy’s #1 company surges on the exchanges after big Sasol, AkzoNobel partnership announcements.

In California, Solazyme (SZYM) announced a Q2 loss of $25.8M, compared to a Q2 2012 loss of $19.2M, on revenues of $11.2M, down from $13.2M for Q2 2012, as government funded revenues declined as expected. Excluding the government sector, sales jumped 28% year on year despite the lack of the big capacity that Moema and Clinton will represent when completed. Product gross margins were a very healthy 70%, in line with guidance.

Solazyme shares were up 12.95 percent today at market close.

“We are making great progress as we approach commencement of manufacturing at our commercial production facilities later this year,” said Jonathan Wolfson, CEO of Solazyme. “Capacity build-out at our Brazilian JV facility remains on target, and we are actually accelerating plans at the Clinton, Iowa facility, which should allow us to begin producing product for market and application development during the second half of this year.

sasol-logo.jpeg “Peoria is also being retrofitted to produce algal flour and protein products with availability of commercial development quantities also expected in the second half of this year. Tailored oil technology breakthroughs are continuing to open additional attractive end market opportunities, as evidenced by the announcement of the new high erucic tailored oil under development with Mitsui and the related commercial supply terms with Sasol (SSL).”

The White Hot News

Solazyme and Sasol Olefins & Surfactants have finalized commercial terms for the supply of an algal oil rich in erucic acid under development at Solazyme for production of downstream derivatives such as behenyl alcohol. Sasol O&S produces and sells C22 derivatives such as behenyl alcohol to serve a number of applications in markets that include the paper, water treatment, personal care, lubricants, oil and gas, and paints, inks, coatings and adhesives industries.

High erucic oil is the second oil in the suite of tailored oils being developed under the JDA with Mitsui, with myristic oil being the first. Erucic acid is commonly found in some rapeseed and mustard seed oils and is currently used mainly as an emulsifier in multiple industries including cosmetics and as a plastics additive.

In addition to the agreement on commercial supply terms, the companies also executed a letter of intent to investigate expanding to a broad collaboration, including joint manufacturing and marketing of multiple tailored oils.

Why Big? Solazyme, which has been highly focused on building capacity, has faced criticism for not developing enough binding offtake agreements. Here’s one, with a brand-name partner, though with volumes not disclosed it is not possible to relate this back to the supply vs demand questions.

Red Hot News

Speaking of capacity building, Moema remains on track (now 80% complete), and the facility in Clinton is accelerating and is expected to begin commissioning in late 2013 instead of early 2014.

Orange-hot news

Solazyme and AkzoNobel Enter into Joint Development Agreement. The partnership targets the development of advanced tailored oils and commercial sales for the specialty surfactants and paints and coatings markets. The agreement is centered on a shared commitment to the production of high-performance triglyceride-based products that improve upon the performance of plant oils and animal fats.

More orange-hot news: The Algenist sales jump. Algenist sales rose 21% over Q2 2012 — a big jump, and a nice confirmation that that remains a growth channel for now.

Warm but not hot news.

Solazyme is establishing new large-scale manufacturing capability for high protein and high lipid products that were previously part of the Solazyme Roquette Nutritionals joint venture. Production of both products is targeted to begin at Solazyme’s Peoria facility this year.
It could be hot.

Earlier this week, Solazyme and Twinlab announced the launch of Twinlab’s CleanSeries Veggie Protein Powder featuring Solazyme’s algal protein. In their annoucne, the partners noted that “whole algal protein is a vegan whole-food source, microalgae-derived, non-allergenic”, and contains “at least 50 percent protein by weight and 15-20 percent dietary fiber.” What we don’t know at this stage is the demand for the powder.

Analyst commentary

Rob Stone, Cowen & Company: ”Q2 was essentially in line and 2013 guidance maintained. Capacity build is on or ahead of schedule, including initial quantities for nutritionals. A new high-Erucic oil expands the Mitsui relationship and adds a supply deal with Sasol. The volume ramp should drive CF breakeven by Y.E. 2014.”

Pavel Molchanov, Raymond James: “The versatility of Solazyme’s algae-produced oils opens the door to wide-ranging opportunities across the fuel, chemical, personal care, and nutrition markets. While fully recognizing the inherent execution risks in early-stage industrial biotech, we are bullish on the roadmap to commercialization, with two major proof points within months. The balance sheet is also in great shape, with by far the largest cash balance in the peer group, virtually eliminating equity dilution risk over the next 12 months. We reiterate our Outperform rating.”

More on the story.

Q2 results here.

Q2 earnings call transcript here.

Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

May 13, 2013

Two Thumbs Up for Solazyme: AkzoNobel deal, new technology for structured oils

Jim Lane

solazyme logoThe sector’s perennial hottest company strikes again — with “potentially disruptive” new technology to change the positioning and performance of triglyceride oils.

In California, Solazyme (SZYM) and AkzoNobel announced an agreement targeting the development of advanced tailored triglyceride oils and commercial sales for near-term product supply. The agreement focuses on supply for the chemical giant’s Surface Chemistry and Decorative Paints businesses.

Commercial supply of multi-thousand ton quantities of highly sustainable algal oil is expected to originate from the Solazyme Bunge Renewable Oils Joint Venture oil manufacturing plant in Brazil. Sales of product are anticipated to commence in 2014, with pricing to be competitive and based upon Solazyme’s cost of manufacturing.

In addition, Solazyme announced a new technology for structured oils — which analysts termed “potentially disruptive” and opens up a number of possibilities in the $2500+ per ton triglyceride oil price range.

What exactly is a structuring capacity in triglyceride oils?


As you might expect from the “tri” in triglyceride oil — essentially it is a glycerol hand with three fatty acid fingers sticking out of it — though they are generally described as fatty acid chains.

Now, as you can imagine if you were re-engineering a hand — you’d want to work with three properties that might be interesting. One, finger length. Two, the finger’s musculature. Three, the position of the fingers along the hand.

Roughly speaking, these correspond to fatty acid chain length, saturation (the number of double bonds), and positioning. Each of those factors contribute to the performance of triglycerides — just as they do with fingers.

The latest Solazyme news is that — having previously demonstrated technology to manipulate – chain length and saturation — it now has the third, positioning.

Imagine, for example, reengineering your hand to give yourself thumb and forefinger capabilities down towards the pinky end of the hand — that’s more performance.

Moreover, it’s optionality — and in the world of oils for everything from nutrition to paints, options give you performance benefits. In this case, by reengineering essentially the same basic algae fermentation process — rather than laying a layer of expensive process chemistry steps to get from one target molecule to another.

Since with petroleum oil (or traditional plant oils) you are working with a defined feedstock that you cannot change – the more process steps it takes to get from feedstock to a desired target — or the rarity of the target molecule in the mix of natural oils — well, that’s a sweet spot for synthetic biology companies.

It’s the difference, in layman terms, of owning a piano and knowing how to play it — instead of owning one of those self-playing pianolas that operate the piano via pre-programmed perforated paper or metallic rolls.

What does that mean in terms of everyday applications?

In nutritionals, there is the potential to eliminate trans fats in food but retain texture. Where oil profiles have benefits of animal fat without “bad” cholesterol

In industrials and personal care, it offers the potential for product formulations with sharp
melting at desired temperatures, and creamy textures with consistent, long lasting results.

Financial results for Q1

At the same time, Solazyme announced revenues of $6.7 million for Q1 2013 and a GAAP net loss of $26.5 million, compared to a loss of $16.8 million for Q1 2013.

Building capacity

“We are off to an excellent start in 2013 executing on our three primary focus areas: completing capacity projects on schedule; developing our portfolio of tailored oils; and bringing our tailored oils to market,” said Solazyme CEO Jonathan Wolfson. “In addition to the newly announced agreement with AkzoNobel, the first quarter included several important milestones such as our Mitsui partnership, our technology breakthrough that allows us to develop new structuring oils, and key financing achievements that support a clear path to commercialization. We remain on target to be in commercial production in multiple facilities by early 2014.

Cowen and Company analysts Rob Stone and James Medvedeff commented, “Q1:13 loss per share was in-line and full-year guidance was unchanged. A new partnership with AkzoNobel should contribute R&D funding this year and product sales in 2014. Unique, new structuring oil capability should open high-value product opportunities. Capacity expansion is on track. We see 70% upside relative to the market in a year. Reiterate Outperform.”

According to, Solazyme is currently rated a strong buy by 8 of the 10 equity research firms offering coverage of the stock. One rates the company a “Buy,” and one gives the company a “sell” rating.

The AkzoNobel agreement

Compared to some of its peers, which have maintained a relatively splashy posture n the green chemistry space, AkzoNobel — the largest global paints and coatings company and a leader in specialty chemicals — has been in a stealthy mode. It makes the agreement with Solazyme its most high-profile to date.

However, stealth does not mean non-activity ‘Last year we worked on a road map for AkzoNobel’s green chemistry,’ Jos Keurentjes, Director of Technology in AkzoNobel told Biobased Society. “We have already reached a level of 9% renewables in our feedstock. That is exceptionally high, chemical industry’s average is at 3%.”

To date, AkzoNobel’s work has largely been in the substitution of feedstocks — especially surfactants and cellulose derivatives — with renewable content in the coatings businesses on the rise.

The Paints business, at AkzoNobel, is big business — and paints consist of pigments, solvents and binding agents. Last year, the company tipped that it was investigating the use of algae in producing binding agents with a lowr carbon footprint.

As Keurentjes indicated to BioBased Society, “Sustainability issues now constitute our ‘license to operate’. Our customers request sustainability, and from the demand side the whole chain is becoming greener.”

Back in 2011, AkzoNobel acquired China’s Boxing Oleochemicals, which was integrated into AkzoNobel’s Surface Chemistry unit.  The unit manufactures bio-polymer and synthetic additives with uses ranging from home and personal care to asphalt road paving.  The company also acquired Integrated Botanical Technologies’ patented Zeta Fraction technology, which makes it possible to harvest and separate constituent parts of a living cell from any plant or marine source without requiring any solvents.

Reaction from Solazyme and AkzoNobel

“AkzoNobel’s leadership in specialty chemicals and sustainability makes them a natural partner for us to work with,” said Jean-Marc Rotsaert, Chief Operating Officer, Solazyme. “Akzo’s significant product sales and growth strategy in the Americas also overlaps well with our manufacturing footprint.”

“We think the tailored triglycerides developed by Solazyme can offer valuable new technology for our Surface Chemistry and Decorative Paints businesses, and we are excited about our partnership with such an innovative, promising new business” said Graeme Armstrong, Corporate Director for Research, Development and Innovation, AkzoNobel. Added Peter Nieuwenhuizen, Director Future-proof Supply Chains “We look forward to a multi-faceted alliance with Solazyme, including supply in the Americas region, and joint research and development to drive new functionality alongside improved sustainability.”

Product development efforts are anticipated to begin in the second half of 2013, and are focused on a number of AkzoNobel’s end market applications, specifically surfactants and paints and coatings.

A dissident voice

Over at Piper Jaffray, analyst Mike Ritzenthaler remains a Solazyme bear, terming the AkzoNobel announce “Another ambiguous, non-binding agreement,” and advocating “a cautious approach to shares into the commercial ramp – a process fraught with stumbling blocks.” Ritzenthaler added that “the commercialization phase will likely bring with it several stumbling blocks, no matter how well prepared the company may appear. Additionally, production costs of less than $1000/MT continue to be far too optimistic in our view.”

More on the story.

You can read the transcript of the quarterly earnings call here — and follow the quarterly investor presentation here.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

May 12, 2013

BioAmber Completes IPO

Jim LaneBioamber logo

Raises $80M at $10 per share; becomes first new industrial biotech company to complete IPO in more than a year.
What went right and how? Is the IPO window re-opening?

In Minnesota, BioAmber announced the pricing of its initial public offering of 8 million units consisting of one share of common stock and one warrant to purchase half of one share of common stock at $10 per unit, before underwriting discounts and commissions. All units are being sold.

BioAmber has granted the underwriters an option for 30 days to purchase up to an additional 1.2 million units at the initial public offering price to cover over-allotments.

The units are expected to start trading on the New York Stock Exchange today under the symbol “BIOA-U”.  BioAmber also intends to list its common stock on the Professional Segment of the regulated market of NYSE Euronext in Paris under the symbol “BIOA.”

Credit Suisse, Barclays and Société Générale acted as joint book-running managers for the offering. Pacific Crest Securities was co-manager for the offering.

What went right: the structure

First and foremost, there’s the modesty factor.

The IPO is a relatively small one, raising $80M, compared to the nearly $200M hauled in by the likes of Solazyme and Gevo at the height of the IPO boomlet in 2011. Codexis had a similar result, in terms of overall cash raised, when it became the first company in this wave of next-gen technologies to complete an IPO in 2010. The overall company begins trading today with an $180 million market value — well below the billion dollar valuations that Solazyme and KiOR commanded at the time of their IPOs.

In terms of the structure of the offering — the late addition of warrant sweeteners could well have made the difference — providing that upside “kicker” for the investor that balanced more effectively against the perceived risk of an early-stage company.

In terms of market structure — we see that qualifying BioAmber as an “emerging growth company” under the terms of 2012′s JOBS Act ensured that the offering hasd more regulatory latitude – particularly in permitting more interaction between investors and BioAmber and its investment banking team between the original S-1 and the actual IPO.

We covered the impact of warrants and the JOBS Act this week in BioInvest Digest.

What went right: the company

Revenue-producing. In general terms, BioAmber came later to the market than some of its peers — although still a development-stage company that lost $39 million in 2012 and $30M in 2011, the company has been ramping up revenue and recorded $2.2 million in product sales for 2012, with a 24% margin. In all there were 227 tons of biosuccinic acid sold to 19 different customers — and BioAmber is the first to achieve biosuccinic sales on this scale.

Reduced scale-up risk. Though the IPO proceeds will, in part, be dedicated to the first commercial plant, BioAmber has been running at its demo plant for three years now in Pomacle, France at the 350,000 liter scale — far more progress towards scale-up than some of its peers.

Improvements in the first commercial design to increase margin. As BioAmber related in the S-1A, “We have incorporated numerous lessons learned and improvements gained from operating the facility in France into our engineering design for our planned manufacturing facility in Sarnia, Ontario. We expect to produce bio-succinic acid [without subsidy] cost-competitive with succinic acid produced from oil priced as low as $35 per barrel.”

Lower feedstock risk exposure. As BioAmber detailed in its last revised S-1A registration statement, “Our process requires less sugar than most other renewable products because 25% of the carbon in our bio-succinic acid originates from carbon dioxide as opposed to sugar. This makes our process less vulnerable to sugar price increases relative to other bio-based processes.”

Less policy risk. An advantage that the pure-play renewable chemical companies have over their fuel-only or “fuels and chems” peers? There was never any expectation of market subsidies or mandated usage — and the pure-plays have inherently less policy risk — a risk realm that has proven highly toxic to both public investors and project finance suppliers.

Biggest risk left?

The market for succinic acid itself is relatively small. The key to BioAmber (and other developers, like Myriant) is finding a market for biosuccinic as a “drop-in” replacement for other, incumbent petroleum-based chemicals, addressing what BioAmber termed “a more than $30 billion market opportunity.” That claim is yet to be proved — and the hard yards of commercialization lay ahead for the company to develop novel markets at scale.

But that, in many ways, is the market position of Solazyme — and we have seen the public markets more embracing of the risk of new markets. It has been fear of technology risk, feedstock risk, finance risk and policy risk that has been more notable in the drubbing handed out to several IPOs that happened earlier in the cycle.

Bottom line – is the IPO window re-opening?

Yep, it’s open again, but narrowly.

Lessons learned? Avoid as much technology risk (and the accompanying delays) as possible. Have a clear path for raising debt — fear of dilution is a share price-killer too. Manage that input cost exposure.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

Save 31% on BioAmber’s IPO

Jim LaneBioamber logo

Will BioAmber complete its IPO?
As the industry waits, fingers crossed, the biosuccinic developer sweetens the pot with warrants, lower share prices.

In Canada, BioAmber has reduced the proposed price range for its IPO to $10-$12 per share, down from a $15-$17 range — as it seeks to keep the initial public offering on track.

Overall, the company now proposes to raise between $80 million and $110.4 million in the offering, now scheduled for May 13th according to the latest calendar from NASDAQ.

At the offering’s midpoint — and excluding the sale of up to 1.2 million shares in over-allotments — the company would raise $88 million, or 31% less than its previous SEC filing.

The company’s common stock has been approved for listing on the New York Stock Exchange, where it would trade under the symbol “BIOA” and the company also intends to list the stock on the Professional Segment of NYSE Euronext in Paris.

Credit Suisse, Societe Generale and Barclays are acting as bookrunners on the deal.

With the revised S-1A filing with the SEC yesterday, which revealed the lower target and can be read in its entirety here, the company said that each share of common stock would be sold in combination with a warrant to purchase half of one share of common stock at an exercise price of $11.00 per whole share of common stock.


BioAmber Inc. is the first industrial biotech company to attempt an IPO, defined as an “emerging growth company” under the Jumpstart Our Business Startups (JOBS) Act of 2012. More than 75 percent of companies that completed IPOs in the past year elected that designation — which provides, among other benefits, a five-year phase-in until the company has to fully comply with Sarbanes-Oxley provisions.

Complete coverage

BioAmber’s IPO: The 10-Minute Version.

We’ll explore the impact of the JOBS Act on IPOs, plus the impact of the warrants provisions in the revised filing — what it means, and how those work — in BioInvest Digest, where you can find a special report on BioAmber.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

April 15, 2013

BioAmber Sets Price Range for IPO

BioAmber Logo.png Jim Lane

 8 million share offering at $15-$17 aims to raise $128 million.

“We are selling 8,000,000 shares of common stock,” begins BioAmber’s latest SEC update, written in IPO-legalese.

“The initial public offering price of our common stock is expected to be between $15.00 and $17.00 per share, which is the equivalent of €11.48 and €13.01 per share, based on an assumed Bloomberg BFIX Rate for USDEUR at the pricing of this offering.

If completed, it would be the first successful IPO in the sector since Ceres (CERE) and Renewable Energy Group (REGI) completed IPOs in 2012. In total, seven companies (Codexis (CDXS), Amyris (AMRS), Gevo (GEVO), Solazyme (SZYM), Ceres, Renewable Energy Group and KiOR (KIOR)) have completed IPOs in this wave. In recent months, Fulcrum BioEnergy, Genomatica, Enerkem and Mascoma have pulled planned IPOs, citing market conditions.

“We have applied to list our common stock on the New York Stock Exchange, where it will trade in U.S. dollars under the symbol “BIOA.” We have also applied to simultaneously list our common stock on the Professional Segment of NYSE Euronext in Paris, where it will trade in Euros under the symbol “BIOA.”

“The underwriters have an option to purchase a maximum of 1,200,000 additional shares to cover over-allotments of shares.”

Latest news from BioAmber

Last November, BioAmber reported that it will be the supplier of biobased succinic acid to the Faurecia-Mitsubishi Chemical partnership for the production of automotive plastics.  This is in response to environmental constraints associated with vehicle weight reduction and the regulations intended to increase the recyclability of materials used in the automotive industry (85% in Europe by 2015) call for increased use of new materials derived from natural resources, which will ultimately replace petroleum-based plastics.

Last October, the Sustainable Chemistry Alliance reported that BioAmber is expected to complete commissioning in 2014 of a new biosuccinic acid plant, now under development in Sarnia, Ontario. “The $80 million project is being constructed at the LANXESS Bio-Industrial Park in Sarnia. The site is located in a large petrochemical hub with existing infrastructure that facilitates access to utilities and certain raw materials and finished product shipment, including steam, electricity, hydrogen, water treatment and carbon dioxide,” the Sustainable Chemistry Alliance newsletter reported.

Financial activity

Last year, BioAmber raised $30 million in its Series C round of financing with $20 million invested in November by Naxos Capital, Sofinnova Partners, Mitsui & Co. Ltd. and the Cliffton Group, and a second tranche of $10 million on February 6th, 2012 closed with specialty chemicals company LANXESS. BioAmber and LANXESS are jointly developing phthalate-free plasticizers and expect to begin sampling succinic-based plasticizers in 2012.

The IPO filing: The Digest’s 10-Minute Guide

Can BioAmber translate a lead in succinic acid’s smallish market into leadership in a vast array of high-priced renewable chemicals? Here’s our 10-minute version of the BioAmber IPO, with a translation of the risks into English.

The latest as filed with the SEC

More on the story via the updates SEC filing, here.

Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest and BioInvest Digest where this article was originally published. Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations. Subscribe here.

February 04, 2013

Biobased and Biofuel Investments: A System

Jim Lane

A Biofuels and Biobased investment primer: An 18-combination, 8-character system for classifying bio investments
Here’s our investment primer on how to size up the risks and the rewards and tune them to meet your goals.
And, a system for organizing opportunities.

So, you’re thinking about investing in bio? Here’s the good news – you’re not alone. Here’s the bad news – you’re not alone.

There are retail, private equity, hedge fund, sovereign wealth, strategic, grower, VC and institutional investors snooping around too, and making active investments.

For one thing, carbon’s making a comeback as the economy recovers and the weather continues to get wilder, whackier and scarier. As DOE Deputy Chief of Staff Jeff Navin observed, “Just because the appetite to tackle it went away, didn’t mean the [climate change] problem went away”.

As investors are discovering, the whole world changes when the rain doesn’t fall where it used to fall.

Though there are hundreds of companies, you can parse it all down into some pretty simple categories – in order to measure the rewards (which, generally speaking, you’ll hear a lot about from the promoters) against the risks (er, less chatted up).

That’s what we’re going to cover today — with three broad strokes: stage, stream and degree of novelty. There are only 18 combinations. They are the first keys to unlocking opportunities.

3 Streams

There are lots of ways to sector out the biobased space. The most useful way is to divide it, like oil &gas, into upstream, midstream and downstream. The way these work are a little different, and here’s how.

Upstream. In a word, feedstocks – typically crops or residues. Could be anything as mainstream as year’s corn crop, to something as exotic as carbon monoxide and water or municipal solid waste and sludge. A seed company or a grower fits into this category. More exotically, an algae grower does too. Sometimes, a polluter does, if there’s a residue in the mix. If you’re invested in Syngenta, Monsanto or Ceres, you are right here.

Midstream. These are the processing technologies. Could be standard fermentation that has been used for centuries to make alcohols from grain – could be exotic technologies that make bio-oils and char. They could be owner-operators of projects, or technology licensors. If you are invested in Solazyme, Gevo, Renewable Energy Group or Amyris, you fit right here.

Downstream. These are the molecules themselves – their distribution into the marketplace.

2 degrees of novelty

There’s known, and there’s novel. For example, gasoline is known, ethanol is novel (though less so).

Known molecules cause no infrastructure change or change in other processes. Making renewable diesel or jet fuel is an example.

Novel molecules can be substitutes with new uses, such as using biofene as a lubricant— or known molecules that have never been feasible before (e.g. using adipic acid as an intermediate pre-cursor for nylon 6,6 – which wasn’t economically feasible before).

Known molecules have equivalent performance. Novel molecules can be varied – they can perform better, or worse.

3 investment stages

There’s early stage, mid-stage and late-stage. Now, everyone has a different definition – for instance, late-stage can mean “pre-IPO” for VC investors. SO, here’s how we look at it.

Early stage. The proof of concept phase. Not just proving that, for example, you can train an given organism to secrete a hydrocarbon. It means — from the first moment of the idea until the point where, at any scale, the process is shown to work and is feasible.

This assumes that results hold up during scale-up, the molecule performs as expected in an engine or in green chemistry, input and product prices hold, and that the process bolts into the rest of the field-to-wheels supply chain as expected).

Proof-stage. The point from proof of concept to proof of process.

Late-stage. Process is proven, economics are known. From here, it is a a matter of lining up location, customers and capital in an optimal way. For example, Shell’s Gas-to-Liquids project in Doha, Qatar.

OK, so you’re done. There are 18 different combinations – ranging from “Early-stage, novel, upstream” (e.g. a jatropha seed developer) to a “late-stage, known, downstream” (e.g. investing in a fuel marketer that is distributing, as an offtaker, renewable diesel from a producer’s sixth commercial plant).

You can use acronyms if you like. You use U, M or D for stream, E, P or L for stage, and K or N for novelty. In the examples cited above, you have ENU, and LND. There are just 18 combinations.

Assessing risk and opportunity

From that point, you can start to make some rational investment risk assessments. It’s helpful to line up opportunities within categories (like for like), and compare.

For example, early-stage investments tend to be smaller, and riskier – than later-stage. The “will it work?” factor looms large, early-on. Later, you have more certainty — and, as a result, less upside. The more you understand technology and market forces, the more you will like the early-stage.

Upstream technologies are more fully exposed to the biobased sector, than midstream and downstream, while the farther you move down the stream the more you are exposed to a market in a given molecule (downstream), or the arbitrage between the molecule price and feedstock price (midstream).

In terms of novelty — for sure, novel technologies have transformative economics on price as well as cost – known molecules tend to offer opportunities in terms of cost savings (cheaper production) or market share shifts (as customers adopt, for example, equally-priced molecules with attractive carbon attributes).

By contrast, novel technologies can have superior performance, or can eliminate a step in a chemistry – even if they cost more, they can offer customers amazing opportunities. But the more novel the molecule, feedstock or technology, the more important the IP protection is, and potentially devastating the loss of patent protection is — speed to market will matter in terms of producing ROI.

A real-world example

Let’s take a popular area for investment these days — adding technology to enable an existing ethanol plant to make biobutanol.

They are currently in proof-stage, making known molecules, and midstream. Call it a MPK.

So, there you have it. The biobased world of thousands of molecules, a hundred feedstocks and several dozen technologies, parsed down into 8 simple letters, and 18 combinations, that you can use to rate opportunities for risk and reward.

In the retail investing world, in debt-side investing, or in pre-IPO equity investing — there are companies of all combinations available. Parse away.

Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest and BioInvest Digest where this article was originally published. Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations. Subscribe here.

October 14, 2012

Solazyme's Detours on the Way to Algae Biofuel

by Debra Fiakas CFA

Solazyme logo.pngInvestors who took the time to read my last two posts on algae-based biofuel – “Algae Takes Flight” and “Emission Standards Driving Aviation Fuel Sourcing”  -   might have wondered why there was no mention of Solazyme, Inc. (SZYM:  Nasdaq).  California-based Solazyme has been pursuing algae-based oils for transportation since 2004, and managed to record its first product sales in 2011.  However, that revenue was not from biofuel.

On the long road to finding a scalable and efficient way to get renewable fuel from algae, Solazyme scientists found an interesting extract from the microalgae that settled in the filters of Solazyme’s culture tanks.  The extract appeared to increase cell regeneration and protect skin from ultra-violet rays.  Solazyme dubbed it “alguronic acid” and turned it into a line of anti-aging skincare products under the brand name Algenist.    They started distributing the skin care products in 2011 in Sephora stores in Europe, the Middle East and U.S.  Those product sales in 2011, totaled $7.2 million and were principally from its “algae skin creams.”

This was not the first time Solazyme had found a market for by-products of its processes that yield both oils and proteins from microalgae.  In 2010 the company launched a dietary supplement called Golden Chlorella, but recorded no revenue in that year.  Golden Chlorella is an alternative to standard protein sources such as soy or egg.  It is now available at Whole Foods and GNC stores.

 While Golden Chlorella is not likely to show up on a plate next to a steak, it has attracted the attention of Roquette, the French food ingredients conglomerate.  Solazyme entered into a joint venture with Roquette for the development and marketing of food products using algae proteins and oils.  The partners apparently have high hopes for a second food ingredient, “whole algalin flour.”  The flour was launched in 2012 at food trade shows under the brand name Almagine.  Solazyme sales reps offered chocolate chips cookies made with the novel flour to prove how tasty it is.

Skin care products using Solazyme’s microalgae extracts are already generating respectable revenue.  Solazyme’s oils and proteins are expected to show up in food products on store shelves as early as 2013.  That may disappoint some investors who thought Solazyme would turn the transport fuel market on its ear with an algae-based biofuel.

A funny thing seems to have happened on the way to high volumes of algae oil to power in cars and trucks.  Solazyme accumulated a vast knowledge base in microalgae and appears to have developed a new respect for algae’s full potential.  The company has not given up on its objective to produce oils that can be substituted for petroleum in chemicals and fuels.  However, a singular focus on one category would probably sell algae short.  Like petroleum there is opportunity for algae oils in pharmaceutical applications.  A bonus is that live algae present a third use in nutritional applications.

Just the same, investors might look at Solazyme and suggest that after nearly ten years in business with only nominal revenue and significant losses, the company is an abject failure.  (The same investors might be content to wait twice that long for a pharmaceutical company to bring a drug or market, but I will let that go for now.)  Particularly in this presidential election year when the incumbent president has been criticized for support of alternative energy, Solazyme might be a good whipping boy.  The company received $22 million in December 2009 from the Department of Energy that was used to develop biofuel production capabilities in Solazyme’s Peoria facility.

Before coming down to hard on Solazyme, it is important to note that pharmaceutical and nutritional applications can be satisfied with low volume production capacity.  Furthermore, products aimed at these market segments typically generate high margins.  It makes sense to target these markets first to support subsequent development of high volume production capacity required for transport fuel production.  I do not think Solazyme should be considered failure for pursuing what is just smart business.

To be fair, Solazyme has accumulated a deficit of $142.8 million.  Despite $78.9 million in revenue earned from research projects over the last six and a half years, the company has had a fairly hefty bill to pay for research and development.  Since the beginning of 2006, research and development spending has totaled $136.7 million.  After its initial public offering in 2011, the company geared up its R&D activities, spending over half of the total R&D or $79.4 million in the last eighteen months.

So far Solazyme’s R&D efforts have earned it four patents and adequate technology for another 150 patent applications (some are duplicates in the U.S. and foreign jurisdictions).  None of this intellectual property is represented on Solazyme’s balance sheet.  Indeed, its tangible assets are near $239 million, composed most of $185.5 million in cash and marketable securities.  The rest is principally property, plant and equipment and receivables.  On per share basis net tangible assets (net of total liabilities) are approximately $3.40 per share or nearly a third of the current stock price.  This suggests investors are valuing Solazyme’s intellectual property at around $7.10 per share.

On the surface that value might seem fair, or even a premium, if the investor has no confidence in Solazyme’s ability to launch a product into its primary target market for chemicals and fuels.  In the next post, we will take a closer look at Solazyme’s sugar-to-oil process and try to figure out the probability it can yield the volumes needed to bring a return to Solazyme shareholders.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

September 07, 2012

The Hocky-Stick Growth of Biobased Intermediates

Super-cali-thali-terpa-butyl-peta what?

Jim Lane

Super-cali-what?The new trend in biofuels is not a biofuel at all – it’s an (usually unpronounceable) intermediate that can be refined into an array of fuels, chemicals, flavors, fragrances, and construction or packaging materials.

Ptera-buta-thalic-what? We can hardly pronounce them, but we sure need to know about them.

Amyris (AMRS), KiOR (KIOR), Renmatix, Virdia, Blue Sugars, Proterro, Sucre Source, Sweetwater Energy, Genomatica – hot companies all, what do they have in common? Instead of making a finished end-product, they make an intermediate which is then upgraded to a finished product, typically by partners.

The range of intermediates is broad.

The hottest category is renewable sugars, which has attracted companies like Virdia, Blue Sugars, Proterro, Renmatix and Sweetwater Energy. Their challenge? Produce low-cost, high-performance renewable sugars that can be sold to synthetic biology companies like LS9, Virent, or Gevo (GEVO), who convert sugars into an array of useful end products ranging from surfactant alcohols, base chemicals like isobutanol, or diesel, jet or alcohol fuels.

Over at Amyris, they are producing biofene – essentially a known molecule that is too expensive to produce using conventional methods, and which they are marketing to partners as an excellent intermediate that can be used in the production of, for example, lubricants.

Over at KiOR, they are producing biocrude, using a pyrolysis process and Southern yellow pine as a feedstock. Their product, in turn, is sold to conventional oil refineries, that can upgrade that product, using fully conventional refinery processes, into a finished drop-in fuel.

At Genomatica, right now they are focused on a biobased BDO, or 1,4 butanediol, used as an intermediate in a host of products ranging from spandex fibers to solvents and printing inks.

One’s intermediate is another’s end-use product

Part of the reason for the trend has been the proliferation of biofuels strategy involving complex end-products, that are traditionally made from intermediates.

Take plastic bottles, for example. That’s PET, or poly(ethylene terephthalate).

(Try saying that three times real fast, and write me after you’ve figured out how to pronounce the “(” because poly(ethylene terephthalate) doesn’t really have any polyethylene in it. Sheesh.)

To make PET, you need monoethylene glycol, which is being made renewably around the world today. But you also need purified terephthalic acid (PTA), and to make that you need paraxylene. Until now, no one has figured out a way to make paraxylene, renewably and affordably – until Coke recently invested in Virent and Gevo, that are developing ways to do it.

In Gevo’s case, they are converting their biobased isobutanol to PX. Now, that isobutanol can also be used in its original form in green chemistry. Or, it can be burned in an internal combustion engine as a fuel molecule.

So you see, end products can be intermediates. And hopelessly confusing to the general interest reader at exactly the same moment that they are potentially transforming the way products are made that general interest readers use in everyday life.

Why intermediates, why now?

Intermediates have become a fashionable strategy for a couple of reasons.

One, the aforementioned complexity of renewable chemistry makes for a lot of intermediate demand in the everyday world of Big Chemicals.

Two, as companies like LS9 and Virent head for scale, they can use renewable sugar intermediates in place of, say, expensive corn syrup.

Three, feedstock companies can participate in the biobased economy without having to pick winners among the host of competing molecules. They don’t need to choose between ethanol, triglycerides, isobutanol, n-butanol, yada, yada, yada. They can make a renewable sugar, and sell it to a host of customers that make end products.

Is that why investing in intermediates companies is becoming more and more popular?

That’s a driving reason. Another is that the intermediate companies are getting better at what they do, and more of them are popping up. Take for instance, Waste Management (WM), which is now getting deeply involved with Renmatix and renewable sugars. That way, they don’t really have to worry as much about, for example, the fate of the Renewable Fuel Standard in their investment decisions. Because not all the customers are going to be making qualifying fuels.

Wait a minute – aren’t all fuel companies really just intermediate companies too, because can’t you make products like ethylene from ethanol?

Well, yep you can, if you have an affordable way to make that conversion, such as Dow has. Or ExxonMobil’s methanol-to-gasoline (MTG) process – and so on. You’ll find that a lot of the companies that are making cellulosic ethanol can make a lot of other products, too – they have focused on ethanol precisely because of the RFS, and because the vast demand for fuels creates assurances for investors that there will be a ready market for the product that is far more difficult to saturate than, for example, the market for succinic acid.

Speaking of succinic acid, isn’t it a big part of the strategy at companies like BioAmber and Myriant that they will be able to use their biosuccinic acid as an intermediate for other products?

Yep. In fact, BioAmber has licensed DuPont hydrogenation catalyst to make biobased 1,4 BDO from succinic acid. And from there, they can get into the same kind of markets that Genomatica is looking at with its direct-to-BDO process.

But aren’t intermediates really a story for biobased chemistry, rather than fuels?

Not at all. In fact, intermediates are a part of the story, to come extent, in the entire story of biofuels. With the exception of the 100% hydrous ethanol market in Brazil, all biofuels today are used in blends – and to an extent, blend ingredients are intermediates, although generally by intermediate we mean a product that will be further refined, rather than blended.

More than that, KiOR’s strategy is a sign of the times. Making affordable biocrude, and partnering with refineries to make finished fuels and chemicals from that point – why, that’s one way to make a the refining industry into happy supporters of instruments like the Renewable Fuel Standard. Remember, they generally oppose the RFS not because they think its bad for the planet, but because its bad for the refining business by cutting into their production volumes and creating all kinds of infrastructure demands on them at the same time. By contrast, they don’t really give a fig where your crude oil comes from – bio or fossil, they’ll happily take it all, if in-spec, and available at affordable prices and with .

Why hasn’t this been done all along the way? What are some of the down sides of intermediates?

A big issue is stability.

Biofuels are a little like wine and champagne – their chemistry can continue to evolve, and in 6 months after sitting in a tank, what you may not have is the same in-spec material you started with. (That’s why, for example, champagne pops when you pull out the cork – it has been fermenting in the bottle and that releases CO2, which is what causes the pressure build-up).

Some molecules attract water, some oxidize. With renewable sugars, there are fears that bacteria will have a field day and gobble up the product if you try and transport renewable sugars via a pipeline – and who knows what you’ll end up with at the other end.

Are intermediates inevitable? Is the integrated model dead?

Hardly. Solazyme (SZYM) is an outlier in this case, and happily so. They aim to make some intermediates – for example, they make an intermediate oil which is hydroprocessed with partners to make Solajet aviation fuels. They also will make ingredients – such as Whole Algalin Flour, that they are making in partnership with Roquette and which will be used in a whole range of food products.

But they are also making finished end products for customers – take for example, their partnership with Dow to make dielectric fluids, which are used in those big power transformers all over the world. They are also, for example, not only making end-use products, but selling them directly on the Home Shopping Network, as in the case of their Algenist line of skin care products.

And take Avantium’s PEF product line, for example. Avantium’s YXY (“icksy”) technology can produce PEF, or polyethylene furanoate, and they believe that can replace traditional clear plastic (PET) altogether. No need, ahem, to produce PX to get to PTA so you can add MEG and get PET.

Or take companies like Mascoma, for example – they see transformational economics in consolidated bioprocessing – extracting sugars and fermenting into products, all at the one time. But they, themselves, might very well be exploring the making of intermediates from their process, even if they are not a big customer for them.

The bottom line

Intermediates are a big trend.

Feedstock players like the optionality it gives them.

Processing technologies like the flexibility of buying intermediates from a host of suppliers, or the option to produce intermediates as well as end-products, in optimizing their production economics.

End-use customers – well, they don’t care except to the extent that they get parity-or-better performance and parity-or-better cost. But, of course, those are the very qualities that optionality are likely to give them.

Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 24, 2012

Jobs at Gevo

by Debra Fiakas CFA

Management teams at the helm of public companies often shade the realities of their competitive or strategic situation, alternately painting better circumstances or downplaying declining fortunes.  There are myriad ways of giving management’s guidance a reality check.  Renewable bio-chemicals developer Gevo, Inc. (GEVO:  Nasdaq) is on my “watch list” as one of the more interesting companies in the Beach Boys Index.
Gevo’s financial results missed the consensus estimate in both the March and June 2012 quarters, but management made claims of important victories.  Gevo has won important decisions in the disagreement between Gevo and Butamax Advanced Biofuels over process technologies related to the production of isobutanol.  Butamax had alleged infringement of its patents by Gevo and had attempted to halt Gevo’s continued progress through an injunction.  Gevo recently took the offensive, asking a federal court for a declaratory judgment on the validity of a Butamax patent. 

Gevo’s confidence extends beyond the court room.  The Company has continued to line up technology and distribution partners as well as customers for its renewable chemicals products.  Recent Gevo presentations include slides with a collection of impressive corporate logos  -  Sasol (SSL), Total, Toray, United Airlines and CocaCola among others.  

Management appears to be ready to put its money behind its public pronouncements.  The corporate web site lists several open positions for technicians, including molecular biologist, biochemist, analytical chemist and fermentation specialists.  All are ostensibly for Gevo’s homebase in Englewood, Colorado and all appear to be focused on development activities rather than commercial production.  It would be more comforting to see open positions for the type of activities that would lead directly to revenue.  Then perhaps we could dial in higher sales estimates than what is reflected in the current consensus estimate.  The bevy of research analysts currently covering Gevo think revenue is likely wind up at half the level last year.

Gevo is not immune to the unfolding economic reality for corn-based biofuels and chemicals.  That could be a problem.  Without a significant increase in sales volume or prices, Gevo may not be able to make a dent in its current cash burn rate near $12.0 million per quarter.  Given the $38.6 million on the balance sheet, Gevo appears to have only enough resources to last through the first quarter 2013.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  GEVO is included in Crystal Equity Research’s Beach Boys Index.

December 23, 2011

The "Jesus" Molecule: Paraxylene

Jim Lane

The Coca-Cola Company invests in Gevo, Virent and Avantium partnerships, in the race to develop renewable plastic bottling entirely from renewables.

There’s been an awful lot of press this week about progress in the search for the God particle. That’s the subatomic Higgs Boson — a key, but as yet undetected, anchor in the standard model of the universe.

Then there’s the Jesus molecule. As in, “Kind lord Jesus in Heaven, grant me an affordable way to make one of those.”

It’s renewable PX, also known as your friend, paraxylene — a key, but as yet undiscovered at affordable cost, anchor in the production of plastic bottles entirely from renewables. (“PX” also accidentally looks not entirely unlike the Chi-Rho, one of the earliest symbols for Jesus Christ.)

That’s the story for Main Street. Here’s the story for Wall Street. It’s the key molecule to unlocking a global market for renewables of 54 million metric tons, and an annual trade of $100 billion.

The search for renewable PX took a new twist yesterday in New York, when the Coca-Cola Company turned on the klieg lights to announce multi-million dollar investment and partnership agreements with Gevo (GEVO), Virent and Avantium. The goal? To accelerate development of the first commercial solutions for its next-generation PlantBottle packaging, using renewable PX.

Since introduced in 2009, the Company has already distributed more than 10 billion first-generation PlantBottle packages in 20 countries worldwide with up to 30 percent renewable content. With this announcement, Coke aims for 100 percent plant-based packaging, at scale, by mid-decade.

The goal with each of these three agreements is to ensure that the companies a) produce the materials that Coke needs, b) produce them in big quantities, and c) as soon as possible, please.

Coke and its 3 renewable PET shops

From left: Virent CEO Lee Edwards, Gevo CEO Pat Gruber, Coke VP Ron Frazier, and Avantium CEO Tom van Aken

What is Coke plastic bottling? It is a material called PET (For you Digest purists: polyethylene terephthalate. Say that three times real fast.) For now, key in on that polyethylene, then that ethylene. It’s a form of polyester that is see-through, and is an excellent barrier material. Not much gets through these little molecules.

Accordingly, it’s become the third most widely-produced polymer in the world, after polyethylene and polypropylene. PET makes up about 20 percent of the world’s polymer production, and about 30 percent of that PET goes into making plastic bottles.

In short, Coke and Pepsi have a big stake in a big game.

Over the past few years, both companies have been working flat-out to produce a plastic bottle made entirely from renewables. Two years ago, Coke came out with its first-gen PlantBottle technology.

Ok, here’s where the story will get a little technical, so grab a snack and a pencil.

To make a partially-renewable PET, Coke is using about 30 percent MEG (that is, mono-ethylene glycol), which it is making from biomass already. The other 70 percent comes from PTA (purified terephthalic acid.

In other words, MEG+PTA = plastic bottle.

To date, they still have been using traditional fossil materials for the PTA. That’s where Coke’s announcement makes waves.

OK, how do you make PTA from renewables?

Well, to make PTA, you have to make something called paraxylene, it’s the principal precursor. In the industry, it’s known as PX. And bottle production chews up about 98 percent of global paraxylene production each year. (Read this, and then forget it: Basically, it’s a benzene ring, with a pair of methyl molecules attached to it.)

What you need to know is that PX is a hydrocarbon.

Why not just use, say, polyethylene?

Good news, Coke does, in Odwalla juice products. Works for juice in the fridge. Does not work for products outside of the fridge, especially carbonated ones.

What about some other molecules?

Well, there’s PEF. That’s a new bio-plastic that Avantium makes, using its YXY chemical catalytic technology. Hence, Coke’s interest in Avantium.

First milestones in that agreement include the start-up of an Avantium PEF pilot plant, officially opened on December 8th in Geleen, the Netherlands. It is expected that other large co-development partners will join from early 2012.

Back to the PX, then. The tip-offs.

OK, turns out that, according to all of the 30 or so companies they looked at, Virent and Gevo had the best available technology (available for co-development, that is) that can make paraxylene.

That’s something that several astute Digest readers picked up at the time of Gevo’s last analyst presentation:

“Production ramp on pace. The retrofit of Gevo’s first commercial plant in Luverne remains on track for a 1H12 start-up.  The 500,000 liter/year plant at the South Hampton facility should come online by year-end, initially producing jet fuel, and later, gasoline and paraxylene (for PET applications) to support certification processes.  Gevo expects to receive ASTM certification for its jet fuel in 2013.  Management affirmed the target of 350 million gallons in 2015, unchanged from the IPO.”

In fact, back in March it has already announced a first paraxylene production deal.

Back in July, Virent tipped its hand as well:

“Virent says that producing PET from waste such as corn stover and pine residuals is more difficult than from sugars but that it can be done. The company makes paraxylene, a PET feedstock, from sugars.  Expectations are that its commercial scale facility will be online in late 2014.”

As far back as June, Digest readers had an early tip from Avantium:

“Avantium is building a pilot plant to demonstrate its YXY technology which enables the cost effective production of Furanics building blocks for green materials and fuels. This will facilitate the development and commercialization of Avantium’s next-generation polyester: PEF…Avantium has demonstrated that PEF has numerous superior properties when compared with PET, including lower permeability of oxygen, carbon-dioxide and water and an enhanced ability to withstand heat.”

The business case

Here’s the good news, from our report last June on paraxylene and its opportunities:

“In the case of a Gevo-retrofitted plant, the biorefiner can produce biobutanol plus co-products, or paraxylene and the same co-products – to give one example. Turns out, in renewable fuels as well as elsewhere, it takes two (products) to tango. Pricing moves around in these volatile markets, but as a rule of thumb, paraxylene prices at around a 25 percent premium to ethanol (after taking into account the lower yields of isobutanol, per ton of feedstock). PET sells for roughly a 125 percent premium.”

Botttom line, you can make good money in this market. Things, as it turns out, do go better with Coke.

What’s a Pepsi to do?

Well, over at Pepsi they haven’t tipped their hand, except that last March they declared that they had a solution in hand of their own to produce renewable PET. This week, they said they were planning a pilot run of up to 200,000 bottles using their new process, but no one is sure when this will reach commercial scale, or even if the Pepsi process will be commercially feasible.

In Coke’s case, it is looking like 2014-15.

Reaction from Gevo

“We are extremely gratified to have won the confidence of The Coca-Cola Company and are excited to support Coca-Cola’s sustainable packaging goals with this agreement to develop and commercialize technology to produce paraxylene from bio-based isobutanol,” said Patrick Gruber, CEO of Gevo. “New technologies need champions. The Coca-Cola Company is in a unique position to drive and influence change in the global packaging supply chain with this development. You cannot ask for a better champion than one of the most respected and admired consumer brands.”

Reaction from Avantium

“Our YXY solution for the packaging industry creates a new biobased plastic with exceptional functional properties at a competitive price. We believe it is economically viable and has a significantly reduced environmental footprint,” said Tom van Aken, CEO of Avantium. “We have produced PEF bottles with promising barrier and thermal properties and look forward to our work with Coca-Cola to further develop and commercialize PEF bottles. Our production process fits with existing supply and manufacturing chains and we are targeting commercial production in the next few years.”

Dutch research and technology company Avantium has developed a patented technology YXY to produce 100% biobased PEF bottles. Currently PET is the most widely used oil-based polyester. Based on the performance of the new PEF material, Avantium believes PEF will become the next-generation biobased polyester.

Reaction from Virent

“The company is targeting early 2015 for the opening of its first full-scale commercial plant. Virent’s long term agreements with The Coca-Cola Company are pioneering milestones in the commercialization of our technology to produce plant-based materials” said Virent CEO Lee Edwards. “Our patented technology features catalytic chemistry to convert plant-based sugars into a full range of products identical to those made from petroleum, including bio-based paraxylene – a key component needed to deliver 100% plant-based PET packaging.”

Reaction from Biofuels Digest

I’d like to buy the world a home
and make it very green
grow apple trees and honeybees
to make my bottles clean

I’d like to teach the world to synth
in perfect laboratories
I’d like to buy PX for Coke
from these three companies.

View Coca’ Cola’s actual “I’d like to teach the world to sing” commercial, in a 1970s holiday incarnation, here.

Jim Lane is editor and publisher of Biofuels Digest where this article was originally published.  Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations.  Subscribe here.

November 16, 2011

BioAmber’s $150 Million IPO: The 10-Minute Version

Jim LaneBioamber logo

A first-to-market leader in bio-succinic acid comes to the public markets with its IPO.

Can BioAmber translate a lead in succinic acid’s smallish market into leadership in a vast array of high-priced renewable chemicals?

Here’s our 10-minute version of the BioAmber IPO, with a translation of the risks into English.

In Minnesota, BioAmber has filed an S-1 registration statement for a proposed $150 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 Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC. The additional book-running manager is Barclays Capital. The co-managers are Stifel, Nicolaus & Company, Incorporated and Pacific Crest Securities LLC.

The company is currently ranked #143rd 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 Biofuels Digest subscribers.

BioAmber, which in the past year lost $12.41M while recording no revenues becomes the 13th company to file for an IPO in the industrial biotech boom, which began with a successful listing on the NASDAQ by Codexis (CDXS) in 2010. IPOs by Amyris (AMRS), Gevo (GEVO), Solazyme (SZYM), and KiOR (KIOR) have followed. In recent months, PetroAlgae (PALG.OB), Myriant, Ceres, Genomatica, Mascoma and Elevance Renewable Sciences and Fulcrum Bioenergy have also filed S-1 registrations for proposed IPOs. T

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 BioAmber model, opportunities for the intrepid investor, and some risks which we have translated from the ancient and original SEC into modern English.

Company Overview

From the S-1: “We are a next-generation chemicals company. Our proprietary technology platform combines industrial biotechnology, an innovative purification process and chemical catalysis to convert renewable feedstocks into chemicals that are cost-competitive replacements for petroleum-derived chemicals.

“We manufacture our bio-succinic acid in a facility using a commercial scale 350,000 liter fermenter in Pomacle, France…We have produced 487,000 pounds, or 221 metric tons, of bio-succinic acid at this facility…We believe we can produce bio-succinic acid that is cost-competitive with succinic acid produced from oil priced as low as $35 per barrel, based on management’s estimates of production costs at our planned facility in Sarnia, Ontario and an assumed corn price of $6.50 per bushel.

“We have secured funding to construct the initial phase of our next global-scale facility in Sarnia, Ontario and we intend to build and operate two additional facilities, one located in Thailand and the other located in either the United States or Brazil.

“We expect to begin recording revenue from commercial sales of our bio-succinic acid in the first quarter of 2012…We also intend to leverage our proprietary technology platform and expertise in the production of bio-succinic acid to target additional high value-added products, such as bio-BDO, PBS, de-icing solutions and plasticizers. In addition, we are also working to expand our product portfolio to additional building block chemicals, including adipic acid and caprolactam.

“Since our inception, we have raised an aggregate of $76.1 million from private placements of equity securities and convertible notes.”

The Technology

From the S-1: “Our proprietary technology platform combines industrial biotechnology, an innovative purification process and chemical catalysis to convert renewable feedstocks into chemicals that are cost-competitive replacements for petroleum-derived chemicals. The development of our current organism was originally funded by the DOE in the late 1990s, was further developed and scaled up, and optimized at the large-scale manufacturing facility in France.

“We believe our solution enables us to address multiple large chemical markets, including polyurethanes, plasticizers, personal care products, de-icing solutions, resins and coatings, food additives and lubricants, that are currently being served by petrochemicals.

3 Key Qualities

1. Cost-competitive, renewable chemical alternatives that offer equal or better performance;

2.. Using less feedstock per ton of output than most other sugar-based processes for biochemicals other than succinic acid; and

3. Significantly lower greenhouse gas emissions than the processes used to manufacture petroleum-based products by sequestering carbon dioxide in the process of producing bio-succinic acid.

The Market

From the S-1: “First, we intend to replace petroleum-based succinic acid in applications where it is currently in use, such as food additives, as well as expand into new applications, such as plasticizers, where bio-succinic acid has demonstrated superior performance or economics to incumbent petrochemicals.

“Second, we intend to convert bio-succinic acid to bio-BDO and THF, which are large volume chemical intermediates that are used to produce polyesters, plastics, spandex and other products.

“Third, we intend to use our bio-succinic acid in the production of PBS, which enables this polymer family to be partially renewable, and modified PBS, or mPBS, which provides these products with higher heat distortion temperature and improved strength.

“We believe that these three market opportunities for our bio-succinic acid platform provide us with access to a more than $10 billion market opportunity.”

Current applications for bio-succinic acid include:

Plasticizers. We believe the addressable market for plasticizers exceeds $1 billion.

.   We believe the addressable market for polyurethanes exceeds $1 billion.

Personal Care Products. We believe the addressable market for succinic acid and succinate esters in the personal care industry is approximately $500 million.

De-icing Solutions
. We believe the addressable market for de-icing solutions exceeds $500 million.

Resins and Coatings
. We believe the addressable market for resins and coatings exceeds $500 million.

Food Additives
. We believe the addressable market for food additives is approximately $200 million.

. We believe the addressable market for lubricants is approximately $100 million.

C6 Building Block Chemicals

From the S-1: “We expect to use our flexible technology platform, including our partnership with Celexion, to expand our product base to C6 building block chemicals, starting with bio-adipic acid, by leveraging our extensive experience developing, producing and marketing bio-succinic acid. We also plan to produce biobased caprolactam and biobased hexamethylenediamine (HMDA).  We believe the addressable market for adipic acid is approximately $6.5 billion.  We believe the addressable market for caprolactam is approximately $14.5 billion. We believe the addressable market for HMDA exceeds $3 billion.”

The Strategy

Rapidly Expand Our Global Manufacturing Capacity.
Target the Large and Established BDO Market.
Develop Next-Generation Succinic-Derived Products.
Continue to Reduce the Cost of Our Products.
Expand Product Platform to Additional Building Block Chemicals.

The Commercialization Plan

From the S-1: “In order to support our growth, we plan to rapidly expand our manufacturing capacity beyond the current production at the Pomacle, France facility. We have entered into a joint venture with Mitsui to finance, build and operate a manufacturing facility in Sarnia, Ontario through our Bluewater Biochemicals, Inc. subsidiary in which we own a 70% equity interest and Mitsui owns the remaining 30%. The joint venture agreement also establishes our intent to build and operate two additional facilities with Mitsui, one located in Thailand and the other located in either the United States or Brazil.

“For future facilities, we expect to enter into agreements with partners on terms similar to those in our agreement with Mitsui and we intend to partially finance these facilities with debt. We expect to use available cash and the proceeds of this offering to fund our initial facilities, as well as our commercial expansion and product development efforts. For additional future facilities, we currently expect to fund the construction of these facilities using internal cash flow and project financing.”

The Risks, Translated from SEC-speak

Among the lowlights of reading S-1 registrations are the endless pages of risk disclosures (in BioAmber’s case, 28 pages of them) couched in an alloy of SECspeak and legalese. We offer these excerpts from the original S-1, and a translation into English, prepared by our Digest lexicologists.

In SECspeak: ”We have a limited operating history, a history of losses, anticipate continuing to incur losses for a period of time, and may never achieve or sustain profitability.”

In English: “Our investors have grown tired of losing their money, and have encouraged this IPO in the hope of losing some of yours.”

In SECspeak: “We may not obtain the additional financing we need in order to grow our business, develop or enhance our products or respond to competitive pressures.”

In English: “Now that we are losing some of your money, you might run out.”

In SECspeak: “The funding, construction and operation of our future facilities involve significant risks, which may prevent us from executing our expansion strategy.”

In English: “The Titanic is, after all, practically unsinkable.”

In SECspeak: “Our prior success in developing bio-succinic acid may not be indicative of our ability to leverage our bio-succinic acid technology to develop and commercialize derivatives of bio-succinic acid and other bio-based building block chemicals.”

In English: “To make the real bucks, we got to make all that other stuff that we haven’t actually practiced making yet.”

In SECspeak: “Demand for our bio-succinic acid, bio-BDO and other bio-succinic acid derivatives may take longer to develop or become more costly to produce than we anticipate, and technological innovations in our industry may allow our competitors to produce them at a lower cost, which may reduce demand for our products.”

In English: “We may be kidding about everything in this IPO, except the bits about how tough this market is to crack.”

In SECspeak: “We are dependent on our relationships with strategic partners, licensors, collaborators and other third parties for research and development, the funding, construction and operation of our manufacturing facilities and the commercialization of our products and our failure to manage these relationships could delay or prevent us from developing and commercializing our products.”

In English: “Help, I need somebody, / Help, not just anybody, / Help, you know I need someone, / Help!”

In SECspeak: “Our inability to adequately protect and enforce our intellectual property, or to prevent the operation of our business from infringing the intellectual property of others, may make it difficult or cost prohibitive to carry on our business as currently planned.”

In English: “We bring knives to what may well become a gunfight.”

BioAmber as it sees itself:  7 Competitive Strengths

Proprietary Technology Platform that Addresses a Large Market Opportunity. We own or have exclusive rights to specific microorganisms, chemical catalysis technology and a unique, scalable and flexible purification process.

Selling Commercial Product Today.    We have sold bio-succinic acid to 12 customers in 2011. We believe we are the first and only company selling bio-succinic acid products in commercial quantities.

Proven Cost-Competitive Economics at Large Scale. We expect to produce bio-succinic acid at our planned facility in Sarnia, Ontario that is cost-competitive with succinic acid produced from oil priced as low as $35 per barrel.

Limited Exposure to the Availability and Price of Sugar. Our process requires less sugar than most other renewable products because 25% of the carbon in our biosuccinic acid originates from carbon dioxide.

Established, Diverse Customer Base. We have entered into supply agreements for the sale of over 84,000 metric tons of bio-succinic acid and its derivatives over the next five years.

Third-Party Commitments for Global Manufacturing Expansion. We have signed an agreement with Mitsui to jointly build a facility in Sarnia, Ontario…[and our] agreement with Mitsui contemplates the construction and operation of two additional facilities.

Experienced Management Team with Strong Track Record. Our management team consists of experienced professionals, possessing on average over 25 years of relevant experience in scaling up, manufacturing and commercializing chemicals, at Cargill, DuPont, INVISTA, Dow Corning, GE, Royal DSM and Genencor.

Financing to date

From the S-1: “We issued 11,659 shares of common stock, 33,655 shares of preferred stock and warrants to purchase 18,769 shares of common stock at exercise prices between $37.52 and $100.00.

“On February 6, 2009, we issued secured debentures and warrants for 18,760 shares of common stock at a per share cost of $50.00 for aggregate consideration of $938,000.

“On June 22, 2009, we issued in a private placement a secured convertible promissory note and warrants for 5,970 shares of common stock to FCPR Sofinnova Capital VI for gross proceeds of $4 million.

“On October 22, 2009, we issued in a private placement an aggregate of 59,702 shares of common stock at a per share cost of $201.00 for aggregate consideration of $12 million.

“On February 1, 2010, we issued 5,000 shares of common stock at a price of $201.00 per share to Shanghai KEQI and Sinoven LLC.

“On November 23, 2010, we issued secured convertible promissory notes in a private placement for gross proceeds of $4 million. The promissory notes were converted into 10,833 shares of common stock and warrants to purchase 2,707 shares of common stock at an exercise price of $369.14 with a ten-year term.

“On April 15, 2011, we issued in a private placement an aggregate of 121,904 shares of common stock and warrants for 2,707 shares of common stock at a per share cost of $369.14 for aggregate consideration of $44,999,643.”

“On November 4, 2011, we issued in a private placement an aggregate of 20,061 shares of common stock at a per share cost of $997.00 for aggregate consideration of $20 million to Naxamber S.A., FCPR Sofinnova Capital VI, Mitsui & Co., Ltd. and Clifton Equities Inc.”

The bottom line

Well, it really comes down to this. There isn’t much of a market in succinic acid. About 40,000 metric tons and $300 million. About the capacity of a standard ethanol plant – one.  So, you have to take it, on essentially BioAmber’s say-so, that they can use their low-cost succinic as a base from which to chase everyone’s else’s high-priced other stuff.

On the side of belief, there’s a range of management talent and expertise at BioAmber that Wyatt Earp would have been proud to lean on at the OK Corral. Plus, you have the say-so of Mitsui, a Japanese trading house of long lineage and a distinct “no dummies” hiring policy. And, there’s a nice first-mover advantage.

But then there are the risks. For one, that Verdezyne might wrap up bio-based adipic acid before BioAmber gets there, as Genomatica might wrap up BDO. The risk that BioAmber might not get to C6 building blocks as fast or cost effectively as they hope.

Outside of the C6 platforms, there’s $3.8 billion in addressable markets cited in the S-1. Figure 20 percent for the bio-based products in the near-term, that’s around $700 million. How much of that can BioAmber lock down in the near-ish term to provide meaningful cash flow to finance further expansion, and how much do they need to lock down to provide returns commensurate with a $150 million cash raise in the IPO?

So, it’s a bet – on a pre-revenue company with a hot technology and a meaningful market – if it can get there.  Like many IPOs in this space this past year, it’s a financing event for the company’s expansion, rather than a liquidity event for the current investors. The current investors – well, they’d like to spread the risk by broadening the investor base before the company pushes through to commercial scale. It’s an oft-told tale – nothing daunting in that, per se.

Like a first-mover advantage in succinct acid, one that may translate into a lead in some of the biggest markets that will come by in renewable chemicals? Here’s the train for you.

If the risks are high, the rewards will be high for the daring investor who throughly vets the opportunities in the market, as well as the aptitude of the magic bug for all the work ahead that BioAmber has scheduled it to do.

The complete S-1 registration statement.

All 200-or-so pages in all their glory. The complete S-1 registration statement is here.

Jim Lane is editor and publisher of Biofuels Digest.

September 25, 2011

Elevance’s $100M IPO: The 10-Minute Version

Jim Lane

Like to quickly understand the surge in renewable chemicals and one of the hottest companies in the hottest sector of the bioconomy?

Here’s our 10-minute version of the IPO from Elevance Renewable Sciences. Complete with the risks, translated into English from the original SEC-speak.

In Illinois, Elevance Renewable Sciences filed its S-1 registration statement relating to a proposed $100 million initial public offering. The number of shares to be offered and the price range for the offering have not yet been determined. The company indicated that it has apply to list the stock on NASDAQ under the ERSI symbol.

The company is currently ranked #15 in the world in the 2011-12 “30 Hottest Companies in Renewable Chemicals and Materials” rankings.  The rankings recognize innovation and achievement in fuels, and renewable chemicals or materials development, respectively, and are based on votes from a panel of invited international selectors, and votes from Digest subscribers.

With this filing, Elevance becomes the 11th 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 (AMRS), Gevo (GEVO), Solazyme (SZYM), and KiOR (KIOR) have followed. In recent months, PetroAlgae (PALG.OB), Myriant, Ceres, Genomatica and 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 Elevance model, some opportunities for the intrepid investor, and some risks which we have translated from the ancient and original SEC into modern English.

Elevance’s IPO: The 10-Minute Version

Based in Illinois, Elevance Renewable Sciences creates high value specialty chemicals from natural oils using a Nobel Prize winning technology. The company creates ingredients for use in personal care products, detergents, fuels and lubricants, among other applications.

Elevance’s proprietary patent-protected technologies transform renewable plant-based oils into specialty, high performance green chemical products without the environmental risks of traditional petrochemical solutions. Elevance’s innovative technology is based on the work of Nobel Laureate Dr. Robert H. Grubbs, who pioneered the olefin metathesis catalyst development at The California Institute of Technology.

Elevance was created on the premise that a high performance, renewable, capital  light, partnership-based business model will provide a unique market position based on a significant and sustainable advantage in the specialty chemicals market. The company has achieved rapid growth as a result and continues to focus on establishing unique partnerships and collaborations.

Markets: Specialty Chemicals

According to Datamonitor, the size of the global specialty chemical industry was approximately $706 billion in 2010. They currently estimate the addressable specialty chemical markets represent $176 billion in annual commercial opportunity. Specific targets include surfactants, lubricants and additives and polymers.

Markets: Intermediate Chemicals

They estimate that the total size of the oleochemical market was $38 billion in 2010. They estimate that the total size of the intermediate olefin market was $7 billion in 2008. This intermediate olefin market, on which they focus olefin production, consists of higher value olefins, specifically linear alpha olefins or linear internal olefins with ten or more carbon atoms.

The Technology

Their proprietary catalyst and process technology enables them to produce both unique specialty chemicals from biomass-based oils, including soybean, palm and rapeseed (canola) oil, with desirable functional attributes previously unavailable in the marketplace, as well as key intermediate chemicals that are in limited supply. These natural oils are available in liquid form in industrial quantities from a variety of geographic regions. These characteristics allow for low-cost transportation and storage compared to other renewable feedstocks such as industrial sugars, biomass and waste. Their ability to adjust inputs in real time allows them to take advantage of changes in feedstock prices and product demand.

Their specialty chemicals provide functional attributes that customers desire but that have not been commercially available at competitive prices.  Their intermediate chemicals are direct replacements for olefins and oleochemicals for which demand is growing and supply is constrained. Their ability to use a wide variety of natural oil feedstocks and to produce our intermediate chemicals in several regions can help our customers mitigate input cost volatility and reduce supply concerns.

The Strategy

Complete rapid deployment of multiple world-scale facilities. They expect to have three world-scale facilities by the end of 2014, with combined annual production capacity of approximately one million metric tonnes (2.2 billion pounds).

Develop new and existing market partnerships to accelerate growth and maximize profitability. To accelerate growth, they plan to continue cultivating strategic partnerships with: Cargill, one of the world’s largest agribusinesses; Clariant International, a leading global specialty chemicals company; Dow Corning, a global leader in silicone-based technology and innovation; Royal DSM, a global science-based company; Stepan, a leading producer of surfactants; and Wilmar. These partners provide Elevance with sales and marketing expertise, established distribution channels, technical know-how, product and application development expertise and manufacturing infrastructure.

Invest in research and development to enhance product performance characteristics. They intend to leverage the intellectual property portfolio to target solutions for customers demanding higher performance chemicals than those offered today. They plan to continue to develop new specialty chemicals with increased functional attributes, such as highly concentrated detergents and lubricants that enable better fuel economy.

Leverage feedstock flexibility to maximize margins. They continuously monitor the costs of various feedstock alternatives to take advantage of their imperfect price correlations to each other and to selling prices.

Green Discount, vs the Green Premium: Conversion Costs Compared to Alternative Routes to Comparative Products

Kerosene to N-Paraffin for Linear Alkyl Benzene Naphtha to Ethylene to Intermediate Olefins Elevance Process to Intermediate  Olefins

$/met. tonne $/met. tonne $/met. tonne
Utility $53 $164 $24
Direct labor $49 $74 $15
Fixed costs, excluding depreciation $42 $75 $24
Total conversion costs $144 $313 $63

The Near-term Commercialization Plan

Tolling. Their products are currently manufactured at commercial scale using tolling facilities, enabling them to validate their target cost of production for the biorefineries.

First commercial facility. Elevance is building an integrated biorefinery in Gresik, Indonesia, as part of a 50/50 joint venture with Wilmar International Limited, the largest global processor and merchandiser of palm, palm kernel and coconut oils. They plan to begin commercial operations at this facility by the second quarter of 2012. The Indonesia facility, at a total construction cost of approximately $30 million, is fully funded and currently under construction. The Indonesia facility will have an annual production capacity of 185,000 metric tonnes (400 million pounds), with an option to expand the annual production capacity to 370,000 metric tonnes (810 million pounds).

Second commercial facility. Elevance is repurposing an existing facility in Natchez, Mississippi into a 280,000 metric tonne (610 million pound)integrated biorefinery. The plan is to be operating in the second half of 2013.

Third commercial facility. By the end of 2014, they expect to be operating an additional world-scale facility in South America.

Overall, they expect construction of the first two facilities to cost $165 to $360 per metric tonne ($0.07 to $0.16 per pound) of annual production capacity compared to $920 to $2,300 per metric tonne ($0.42 to $1.04 per pound) of annual production capacity for conventional facilities.

Elevance as it sees itself:  8 Competitive Strengths

Proprietary technology. The proprietary metathesis technology platform is based on Nobel Prize-winning innovations in metathesis catalysis. The platform enables them to produce high-value specialty chemicals and direct replacement intermediate chemicals that are cost-advantaged compared to those available from conventional production methods.

High performance products. The specialty chemicals have unique and desirable functional attributes previously unavailable in the marketplace. They are currently commercializing products such as fuel additives and personal care products that have enhanced performance features. In addition, they have demonstrated our ability to secure a premium price for certain high performance specialty chemicals.

Low capital requirements. The biorefinery design requires less capital per unit of production than conventional technologies because of the following characteristics: (1) fewer major process steps; (2) lower operating temperatures and pressures; (3) limited production of hazardous and toxic by-products; and (4) the ability to integrate the process into existing industrial sites.

Low operating costs. Conversion using their process achieves lower unit-level production costs than alternative routes to comparable products because of the following characteristics: (1) more direct process, resulting in fewer conversion steps; (2) highly efficient and selective catalyst; (3) feedstock flexibility; and (4) lower operating temperatures and pressures, resulting in greater energy efficiency.

Established partnerships with industry leaders. They have developed strategic partnerships which provide us with sales and marketing expertise, established distribution channels, technical know-how, product and application development expertise and manufacturing infrastructure.

Feedstock flexibility. The primary feedstocks include palm, soy and rapeseed oils, though our technology has the flexibility to use many other natural oils. Their ability to adjust our inputs in real time allows them to take advantage of changes in feedstock prices and product demand.

Large and well-established end markets. The technology enables them to target a wide variety of end markets. They currently estimate the addressable specialty chemical markets represent $176 billion in annual commercial opportunity.

Rapid deployment of commercial production. They can rapidly deploy the technology because of: (1) an ability to repurpose or integrate into existing industrial sites; (2) a low capital requirement per unit of capacity; (3) existing and available large markets for the products; and (4) a relatively short engineering, procurement and construction cycle.

The Risks, Translated from SEC-speak

In SEC speak: We are an early stage company with a limited operating history and have incurred substantial net losses since our inception, including net losses attributable to our common stockholders of $14.9 million, $23.7 million and $33.6 million for the years ended December 31, 2008, 2009 and 2010, respectively. As of June 30, 2011, we had an accumulated deficit of $188.8 million. For the foreseeable future, we expect to incur additional costs and expenses related to the continued development and expansion of our business…anticipate continuing to incur losses for a period of time, and may never achieve or sustain profitability.”

In English: “We blew through nearly $200 million building either a transformative business or a money pit, we’re not 100% sure which.

In SEC speak: We have generated limited revenues from the sale of our products and we face significant challenges to developing our business.

In English: “Now that we think of it, not everyone in the world actually bought an Iridium sat-phone.”

In SEC speak: The specialty chemical markets in which we operate are subject to litigation regarding patents and other intellectual property rights. In addition, many companies in intellectual property-dependent industries, including the chemical industry, have employed intellectual property litigation as a means to gain an advantage over their competitors. Currently, Materia is defending against a lawsuit filed by Evonik Degussa, in which Evonik Degussa has alleged that Materia has infringed its U.S. patents relating to specific types of catalysts for olefin metathesis chemical reactions.

In English: “And now for the biotech fight song: Two, four, six, eight, litigate.”

In SEC speak: We may encounter significant delays, cost overruns, engineering problems, equipment supply constraints or other unexpected difficulties which could cause construction to cost more than we currently anticipate.

In English: “We may be just kidding about those low capital requirements.”

In SEC speak: We lack direct experience operating world-scale commercial biorefineries, and may encounter substantial difficulties operating such biorefineries or expanding our business. We have never operated a world-scale commercial biorefinery. We have only completed two commercial-scale toll production runs of specialty chemicals and intermediate chemicals utilizing our proprietary biorefinery technology using palm oil.

In English: “We hear that there’s a difference between running a lemonade stand and Minute-Maid.”

In SEC speak: The price and availability of our feedstocks may be influenced by general economic, market and regulatory factors and may be cyclical or volatile. The supply of feedstocks may be interrupted by growing season disruptions, low crop yields, crop disease, droughts, floods, infestations, natural disasters, farming decisions or governmental policies and subsidies. In particular, weather conditions have historically caused volatility in certain portions of the agricultural industry by causing crop failures or reduced harvests.

In English: “Any Biblical type events like you might expect from, say, global warming, could sink us.”

Financing to date

November 2007, sold to Cargill, 50,000 shares of our common stock and 843,645 shares of our Series A preferred stock in exchange for Cargill’s contribution of the NatureWax business and Cargill’s agreement to terminate certain license and other contractual rights it held under certain agreements between it and Materia; to Materia, 50,000 shares of our common stock and 843,645 shares of our Series A preferred stock in exchange for Materia’s assignment of all right, title and interest to the contributed NatureWax assets; and to each of the TPG Funds, 2,530,934 shares of our Series B preferred stock in exchange for approximately $45.0 million.

October 2009, March 2010 and August 2010, Elevance received $10.0 million in exchange for the issuance to the TPG Funds of $10.0 million in convertible promissory notes and warrants to purchase shares of our Series B preferred stock for $8.89 per share, for a total of $30.0 million in financing.

December 2010, issued 5,649,718 shares of Series C preferred stock in exchange for approximately $70.0 million in cash and $30 million in the conversion of long-term debt. Naxos Capital Partners S.C.A. SICAR, a Luxembourg-based private equity group, led the round with additional new investors including Total Energy Ventures International, the venture capital arm of French oil and gas company Total, joining TPG Star and TPG Biotech in the financing.

June 2011, investors purchased 2,556,238 shares of our Series D preferred stock in exchange for $50.0 million in cash. Naxos Capital Partners led the round which consisted of previous investors in the Company. In June 2011, the Company entered into an asset purchase agreement with Delta Biofuels, Inc. to acquire a biodiesel production facility in Natchez, Mississippi.

The bottom line

One of the best aspects of the renewable chemicals business is that companies like Genomatica and Elevance come to the public markets talking about green discounts, rather than a green premium. “Everyday low prices” is the ultimate in winning business strategies for a lot of companies – and they have rightly conceived of themselves as a refiner and partnered up with companies that have world-class sales & marketing capabilities for this sector.

Note the absence of the following in the Elevance business model: subsidy, tariff, mandate, incentive, tax credit, emerging market, or policy stability.

And there’s abounding evidence of the desire for green products in these established markets, from customers, so long as they cost and perform the same.

So, the are two big traunches of risk in this offering.

One, Elevance has filed its IPO before scale-up, and absent a major customer order. Scale-up itself poses a level of risk – not every industrial biotech process has performed at scale exactly as well as planned.

Two, there’s the feedstock risk. By working with palm, rapeseed and soybean oil, the company will be able to manage the arbitrage between the values in these segments, but it is exposed to long-term food sector demand for these oils, which may put the income statement substantially underwater should food oils become substantially de-linked from fossil crude oil, and result in unacceptably high prices for customers. Not to mention the potential for a continued de-linkage between natural gas and crude oil – and the chance that major discoveries in, say natural gas feedstocks, may put pressure on the pricing and margins.

Big concerns? Well, for the smaller investor, all concerns are big concerns because it’s tougher to hedge them out.  Fair to say that the big risks are relatively remote failure possibilities, that most renewables business have these sort of risks, and over time they diminish as peak oil, or peak natural gas, put more pressure on the petrochemical industry than the renewables industry.

The complete S-1 registration statement is here.

Jim Lane is the Editor and Publisher of Biofuels Digest.

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