Biopesticides are en vogue in the world of agtech. Ever since Bayer acquired Agraquest for nearly half a billion dollars in 2012, start-ups have been raising significant money and jockeying for position as attractive partners and/or acquisition targets. The biopesticide market is still small – in the single-digit billions of dollars worldwide (see the Lux Research webinar “Planting Seeds for Future Success“) – but these products continue to take market share from the conventional pesticide market, which is worth more than $50 billion worldwide. While smaller companies like Marrone Bio Innovations and Stockton Agrimor have made headlines by developing promising biologicals, it’s really the world’s leading agrichemical companies that dominate the patent landscape for biopesticides (see figure below). Of the top 10 patent assigned in the biopesticide space, only five major companies and two smaller companies (Marrone and Qingdao Haolite) are represented. Notably absent from this group is Syngenta, a major player in the conventional agrichemical space.
As the Bio-based Materials and Chemicals industry enters 2016, we looked back on 2015 to see the effects of sustained low oil prices and how the industry responded, and considered what lies on the horizon in the coming year as a result. Despite a full year of low oil prices dampening perception of the bio-based materials and chemicals (BBMC) industry, in reality the space was still quite active, with over 28 noteworthy commercialization announcements, more than $428 million in major fundraisers, four major facilities coming online, and more than 84,000 MT of new capacity announced. The product launches, admittedly front-loaded in the year, were largely driven by large corporations with 15 of the 28 products coming from these entities and ranging from chemical intermediates (e.g., BASF’s new bio-based polyol, #23 in the figure), to polymer resins (e.g., Evonik’s new VESTAMID® polymer, #25), to components for finished goods (e.g., Toray’s Ecodear laminate, #10).
Of course, low cost oil has added some harsh reality in the BBMC space, in addition to just the challenges of perception. This has been most heavily felt by the start-ups in the space. Cobalt, Vertichem and Optinol all met their demise, while delays in funding directly affected at least a few start-ups, such as Micromidas and Avantium, which are worrisome for the scale-up plans of both companies. Three of the four production facilities that came online this year were start-up-driven projects as they have little choice but to soldier on, but the underlying fundamentals aren’t strong in all cases. For example, the 50,000 MT of isobutene capacity announced by Cristal Union and Global Bioenergies is a gamble. Global Bioenergies previously claimed it could compete with $85/bbl for chemical applications (e.g. synthetic rubber and PMMA) without any green premium, a far cry from today’s oil prices that have oscillated around $30/bbl in recent days.
Going into 2016, large companies’ ability to weather the storm creates opportunity, subject to their executives having a requisite level of strategic vision. Continue reading
Syngenta was the subject of breathless press coverage once again this week, with headlines about Monsanto’s takeover intentions capturing a significant portion of the coverage, and BASF’s newly revealed activities taking a close second. For those clients who are unaware of the ongoing posturing in the space, here’s a quick recap:
Monsanto has previously made multiple offers, over multiple years, to purchase Syngenta. These offers have carried varying valuations for Syngenta, with the most recent and seemingly serious proposal valuing Syngenta at $45 billion. Syngenta CEO Michael Mack has spoken up, calling the offers to date an undervaluation of the company, and that the anti-trust implications would be significant; additionally, Syngenta has posted promising growth figures recently, making it a poor time to consider offers. Meanwhile, Monsanto executives have been working in the background, claiming to have verbal support from various Syngenta shareholders. Very recently, BASF announced its intentions to block Monsanto’s efforts, stating that they had raised bridge funding for a potential takeover. Rather than take an active role, however, BASF intends to remain reactive and claims it will only advance its efforts in the event that Monsanto brings a formal proposal forward.
In light of these battling titans, Lux asks the question: What would the impact(s) on the agribusiness industry be if either titan is successful?
If Monsanto is successful in convincing Syngenta to accept its overtures, it will retain Syngenta’s chemicals businesses and divest the company’s seed businesses. Monsanto believes this will assuage concerns of anti-trust regulators, though it’s possible Monsanto will have to divest essentially all of its seed businesses and become a pure agrichemicals company to truly satisfy those demands. BASF will number among the would-be buyers for a portion of the seeds side. Based on comments in the press, Monsanto is likely to treat the transaction as a means to access Syngenta’s existing facilities and customer base, rather than its R&D pipeline. Current Syngenta R&D efforts may be shuttered in favor of ongoing Monsanto efforts.
Monsanto is likely to move its headquarters to Basel where Syngenta is already headquartered, thereby taking advantage of the more attractive corporate tax situation in Switzerland compared to the U.S., saving billions of dollars that it may well use to sweeten the deal for current Syngenta shareholders. Current dealers of Syngenta seeds and chemicals will lose out, likely to be forced to shift to Monsanto-branded products. Growers currently using Syngenta seeds may switch to other agrichemical providers rather than purchasing Monsanto products, a potential boon for the eventual purchaser of Syngenta’s current seeds business. Monsanto’s precision agriculture offerings will likely become more accessible to European growers (and will be marketed to them more aggressively), leading to an increased cost of production and increased yield for corn, soy, and wheat in Europe. Within five to eight years, European row crop farm incomes will be much more volatile. There will be little noticeable change for U.S. growers beyond the disappearance of the Syngenta brand from available options, and potential marketing pressure to switch to Monsanto-branded products.
BASF has said it will only make a formal offer as a defensive move in the event Monsanto follows through with a formal offer of its own. If BASF succeeds, it will be because it brought a more attractive offer to the table than Monsanto could. Anti-trust concerns would dominate the initial joining between these two as well, likely prompting sell-offs. As BASF has been much less vocal in the press about its intentions, it is harder to predict its strategy. Lux would expect BASF to focus on chemistry over seeds as well, perhaps making Syngenta’s seed business available for purchase. The potential tax implications are not so impressive in this case, and it is unlikely BASF would move its headquarters. The combined company would likely move quickly to dominate the European market, potentially at the expense of market share in the U.S. That could end up being a boon for Monsanto, which would likely intensify its focus on gaining U.S. market share. The long-term result of a BASF success would likely be increased regionality among the major agribusinesses.
In any event, if either attempt is successful, the result will be a even smaller group of leading companies in an already well-consolidated industry. Rather than the “Big Six” of agriculture to date, the new group will be the “Huge One and Big Four” going forward. A smaller number of major players can often stifle innovation in an industry, as it means fewer potential partners and licensees for startups trying to innovate. Either overtaking company should double down on open innovation to ensure that the long-term impacts of its actions don’t include a drought of novel ideas for agriculture.
Last week, Amoéba (client registration required) successfully completed an initial public offering for €13.2 million (about $14.5 million) on the Euronext Paris. The company, which sells a novel cooling tower biocide consisting of patented amoebas, braved less-than-ideal market conditions, including uncertainty about Greece’s future in the Eurozone and a stock market plunge in China. We spoke with Fabrice Plasson, co-founder and CEO of Amoéba, who said that the company needed a cash injection to finance the manufacturing facility it is building in Lyon, France, and it sought public funding because it was easier to secure than private capital. IPOs are few and far between in the water space, but it seems another company shared this sentiment about the French capital market: Orège (client registration required) priced a €20.1 million IPO in July 2013. Similarly, U.K. company Xeros (client registration required) raised £25.8 million in a 2014 IPO.
Like Orège and Xeros – which have partnered with Veolia and BASF, respectively – Amoéba benefits from strong relationships with larger companies, which helped build investor confidence in its stock. Its website includes video testimonials from users at Häagen Dazs, Arcelor Mittal, and Vitacuire. It has lined up distributors in France, where it has provisional approval to use the biocide product, and in the U.S., where it is working to gain Environmental Protection Agency approval by the end of 2016. However, the company also sees the IPO event as an opportunity to push for new international partnerships. Fabrice said Amoéba has received several commercial inquiries on the heels of this news.
The €13.2 million brings the company’s valuation to approximately €44.5 million, more than 10 times the amount it raised in Series A and B financing rounds. Clients should take this result as further evidence that water investments can pay back significantly – even in the first five years.
Butadiene is an important petrochemical with a market size of more than $40 billion, and around 60% of butadiene goes into synthetic rubber production. The relatively recent exploitation of shale gas has resulted in butadiene scarcity, since natural gas chemical feedstocks have fewer C4 hydrocarbons than oil feedstocks used in petrochemical production. This shortage translates into the continuous climb in the price of butadiene, which at $0.70/lb is currently more than 10% to 30% higher than it was last year.
The supply gap, which is projected to widen as shale gas exploitation intensifies, creates an incentive for technology developers to engineer novel butadiene production strategies that take in either biomass or natural gas as feedstock. For example, in June, BASF and Linde announced a collaboration for the development of on-purpose production of butadiene from butane. A similar announcement from Honeywell UOP came shortly thereafter, where the company licenses TPC Group’s OXO-D technology to convert butane to butadiene.
In addition to these more recent announcements, we have been closely following the progress of start-ups focusing on bio-based butadiene. Global Bioenergies, in partnership with Synthos, is pursuing a direct route to isobutadiene through genetically modified Escherichia coli. LanzaTech has ongoing projects with Invista and SK Innovation to produce butadiene either from LanzaTech’s carbon monoxide based 2,3-butanediol or through direct fermentation. Genomatica is collaborating with Versalis and Braskem to develop butadiene from renewable feedstocks (client registration required). Additionally, Braskem recently opened a research and development (R&D) center where one of its R&D projects is on renewable butadiene. Last year, Cobalt Technologies announced partnership agreements with two undisclosed Asian companies for the development of a biomass-to-butadiene solution, through Cobalt’s n-butanol production technology.
Chemical companies are not the only players in field of renewable butadiene, tire manufacturers looking to hedge against future feedstock scarcity are also investing in the field. For example, Michelin is collaborating with Axens and Tereos to convert biomass to butadiene.
The projected scarcity of butadiene for synthetic rubber production has created an incentive for tire and synthetic rubber productions to explore various alternative rubber production methods. Although renewable butadiene production receives most of the limelight, some companies are looking at other strategies, including exploring the use of natural rubber substitute (guayule or rice husk) and creating a newer version of synthetic rubber from bio-isoprene (client registration required).
In addition to the continued tightening of naphtha-derived butadiene supply, the demand growth for tires and polymers from emerging economies and the volatility of the natural rubber market will continue to drive efforts in renewable butadiene. At this stage, most of the leading developers in the field are already in developmental partnerships. To hedge against the projected butadiene scarcity, companies should secure supply agreements or collaborate with earlier-stage technology developers that have not yet secured exclusive partnerships.
The recent ruling by Health Canada, the Canadian equivalent of the US FDA charged with overseeing food and nutrition, that approves the claim that flax diet reduces cholesterol, is expected to drive the market for flax seed and flax seed oil. The ruling, coming after two years of study following a claim for allowance regarding therapeutic benefits, followed after a meta-study examination of eight clinical studies using an average 40 gram daily diet of ground flax seeds in hypercholesterolemic patients. The metastudy concluded that both total cholesterol and LDL cholesterol were lowered in pooling data from the eight studies.
The implications for market expansion for flax are significant since in its ruling Health Canada also noted that 39% of all Canadians between the ages of 6 to 79 have unhealthy cholesterol levels. Canada has a population of approximately 39 million people; assuming 90% of them fall within this age range and assuming a diet of 40 g per day as recommended, this would result in a potential 220,000 tons of annual demand within Canada for health and wellness reasons.
Flax as a source of essential oils has over the past 10 years been flagged as an alternative to fish oils, based on their availability, cost to produce, and potential for higher purity extracts. However, it has lagged behind fish-derived omega-3 oils in terms of claims and marketing. This new ruling will undoubtedly strengthen flax’s competitive positioning in the market place.
The fish oil nutraceutical market is now over $1B in annual sales. Companies such as BASF have increasingly raised the stakes and benchmarks for this market with its acquisition in 2012 of fish oil omega-3 producer Pronova for $844M, and its subsequent acquisition of Equatec, another concentrated fish oil omega-3 producer for an undisclosed sum in order to gain access to its novel chromatographic technology to produce ultrapure oils. These come after BASF’s initial foray into fish oils via its acquisition of Cognis in 2010 for €3B.
It is of interest to note that BASF stands at the threshold of the pharmaceutical industry, as Pronova is the primary producer of GlaxoSmithKlines’ blockbuster drug Lovaza for the treatment of hypertriglyceridemia. Thus the line between food and pharmaceuticals continues to blur as we’ve noted before. A leitmotif we expect to see increasingly in the future is food as pharmaceutical; evolving along the path of; food to extract to increasingly purified and therapeutically active extract to final purified active ingredient. The recent ruling on flaxseed oil will certainly give BASF and others in the chemical and pharmaceutical industries a run for their money.
Envia Systems, a high profile lithium-ion battery start-up, has become embroiled in a bitter and revealing set of lawsuits. The Superior Court of California published court documents detailing a wide range of accusations, which GigaOm summarized. Additional primary and secondary research by Lux Research – including interviews with Envia’s leadership and analysis of third party test data – paints a more nuanced picture of this start-up’s technology, IP strength, partnerships, and challenges:
Lawsuit claim: Envia is using stolen cathode IP from another start-up called NanoeXa Corporation.
What we think:
Envia’s technology is based on a high-voltage cathode material licensed from Argonne National Laboratory (ANL), which NanoeXa also briefly had rights to. ANL then terminated NanoeXa’s license after a legal fight that NanoeXa started and lost. Both NanoeXa and Envia had tried to improve upon ANL’s technology, but only Envia successfully patented this work. The courts will have to determine whether any stolen IP played into these developments, but it’s certainly not a given that NanoeXa’s claims are true.
Lawsuit claim: Envia confidentially bought anode technology from Shin-Etsu and passed it off as its own IP.
What we think:
Envia acknowledges it bought some raw material from Shin-Etsu that it made into its own silicon-based anode formulation; there is some IP in the raw material, and some in the anode formulation. Whether Envia misrepresented the source of the raw material to any of its partners is still a disputed allegation, but it’s not as relevant to its commercial prospects. Its work on silicon anodes is more of a side project, which the company admitted is not a differentiator – Envia will rise or fall based on its cathode technology.
Lawsuit claim: Envia could not replicate its key 400 Wh/kg technology and turn it into a product.
What we think:
Envia made a strategic mistake in aggressively marketing a technology development that is far from commercialization. The 400 Wh/kg cell was really only ever a lab demonstration – though Envia would hardly be the first start-up to overhype an early-stage technology. Its actual production-suitable cells only reach 215 Wh/kg, but even this lower figure would represent an impressive 43% improvement over current EV cells – though it’s still far from clear if Envia will be able to produce such cells economically.
Lawsuit claim: Envia lost its GM deal, under which the OEM would have licensed Envia’s technology and paid royalties.
What we think:
Envia claims that despite the lawsuits it still has a working relationship with GM, involving commercial terms. However, LG Chem, Toda Kogyo, BASF, and GM itself have also licensed the same cathode technology from ANL, so in any case Envia’s position as a GM partner is hardly secure.
Lawsuit claim: Samsung, LG and Asahi Kasei declined to buy Envia because they found problems with its technology.
What we think:
Though Envia is six years old and has spent about $30 million, there is still technology and process development work to do before its batteries reach mass production. It’s not necessarily surprising that leading players found a reason to pass on an acquisition for now, but Envia will need to find Li-ion giants as partners or licensees, if not acquirers, as it’s unlikely to make it to market on its own.
In summary, the allegations in the NanoeXa lawsuit, particularly around IP, will be damaging to Envia if true, though it would be a mistake to write off the firm this early. Potentially valuable technology still sits within Envia’s walls, so interested parties should take press sensationalism with a grain of salt, and engage the principal players directly to thoroughly evaluate the high-voltage cathode material’s cost, performance, and IP lineage. However, the lawsuits clearly add to Envia’s risks, and even if most or all of the lawsuits’ allegations are false, it faces a challenging road ahead, so Lux Research is downgrading its take on the firm.
Schneider is building a building systems integration and IoT play. Schneider Electric has some notable partnerships in the U.S. market, which differentiate it from the competition. The company boasts several technology partners in the energy-IT space, such as Cisco and Intel. Digging deeper, we find relationships with Verdiem and JouleX (now part of Cisco), companies that target energy efficiency of IT infrastructure and networks. In the same vein, partner Belden specializes in signal transmission, and HMS Industrial Networks and Niobara R&D are both playing in the Internet of Things (IoT) and communication of industrial equipment. In addition, the company has engaged start-up KGS Buildings (client registration required) to build its energy analytics software to allow in-depth analysis of building data in well-instrumented buildings. From this focused network, it is clear Schneider is making a play both in building energy data analytics – which can be a strong ECM-identification tool in its own right – and in the industrial segment.
Johnson Controls leverages its facility management position. Separate from its ESCO business, Johnson Controls operates Johnson Controls Global Workplace Solutions (GWS), a facilities management services company, which operates real estate assets totaling more than 1.8 billion ft2 in more than 75 countries.i Perhaps predictably, Johnson Controls has connections with Jones Lang Lasalle (JLL), a leading real estate services provider. In addition to the highly visible, deep retrofit of the Empire State Building in New York City, which involved Johnson Controls and JLL, the two companies have cooperated to help drive retrofits as part of the leasing and building-out cycle in commercial buildings. In addition, the company has partnered with VFA, which provides a facilities management and capital planning software tool. VFA has worked with organizations like the U.S. General Services Authority’s Public Buildings Service, which is the largest real estate company in the U.S. Such a partnership allows Johnson Controls to dovetail capital planning with energy efficiency upgrades to form differentiation in its facilities management capabilities. Not only would GWS have the ability to identify retrofit opportunities, but it could deliver them with its ESCO capability. Johnson Controls has also engaged start-ups Retroficiency, Optimum Energy (client registration required), and most recently BuildingIQ (client registration required). The BuildingIQ partnership actually allows this energy data analytics software to be made available through Johnson Controls’ new Panoptix building automation system. Here Johnson Controls has leveraged not only its facilities management, but hardware business lines to deliver ESCO services.
Building materials companies left out in the cold. One conspicuous absence in the U.S. ESCO partnership landscape is that of building materials suppliers. The Johnson Controls-BASF link on the map is misleading, because it is not related to building materials but rather facilities management. There are two notable relationships, however: those of Schneider Electric and Sage Electrochromics (now a part of Saint-Gobain Group), and Johnson Controls’ connection to Alpen Energy (a part of Serious Energy). While Johnson Controls and Schneider have led the pack with their engagement of start-ups for data analysis and even hardware for systems, we have not yet seen significant deals with materials companies to facilitate envelope retrofit activities; these two partnerships touch only on glazing, leaving room for other building envelope solution providers.
Source: Lux Research report “Partnering to Unlock the Trillion Dollar Opportunity in Energy Efficiency Retrofits” — client registration required.
Novaled (Client registration required) has filed with the U.S. Security and Exchange Commission (SEC) for its proposed initial public offering (IPO). The company is a developer of dopant and transport materials for organic light-emitting diode (OLED) displays and lighting. (For more on these markets see the reports “Sorting Hype From Reality in Printed, Organic, and Flexible Display Technologies” and “Finding the End of the Tunnel for OLED Lighting.” (Client registration required)
Novaled seeks to raise $200 million in its IPO, which will be listed on the New York Stock Exchange (NYSE) or NASDAQ. The company’s financial records, which it released with its filings, indicate revenues of €6.8 million and €17.4 million in 2010 and 2011 respectively, reaching profitability in 2011. This development primarily derives from its materials, produced by BASF, being incorporated into commercial Samsung Mobile Display (SMD) smartphone displays. SMD accounted for 59% of its 2011 revenue.
The application in SMD smartphones also indicates that Novaled has a validated product for improving OLED performance through power efficiency and lifetime enhancement.
Smartphones will be the dominant application for OLED displays through 2017 (see the report “Cutting Up the LCD Pie: Calculating the Billion-Dollar Slices from Display Innovation” (Client registration required). With this application market the power savings of the material is most important to extend battery life, while the short lifecycles of smartphones minimizes the impact of lifetime enhancement.
However, while 75% of Novaled’s revenue came from Korean firms, much of its remaining revenue came from Europe – indicating that it’s not doing much work with Japanese, Taiwanese, and Chinese OLED display developers such as AUO and Sony. These players will inevitably begin to take OLED display market share from SMD and LG Display.
In addition, Novaled’s work in Europe indicates that it believes that OLED lighting remains a viable market, as it claims in the SEC filing that the OLED lighting market will be at least $3.5 billion in 2018. By contrast, we project a $58 million 2020 market for OLED lighting (Client registration required). Novaled is well poised now for near-term growth through its supply of SMD and LG Display, but faces a rockier future if it continues to rest its hopes on significant revenue from OLED lighting and static OLED display market shares.
Li-ion batteries are the technology of choice for the first generation of all-electric and plug-in hybrid electric vehicles, and the subsequent hype has attracted an increasing number of competitors to an already crowded market. Soon, it will be impossible for all of these companies to survive, making strong partnerships a necessity. This week’s graphic illustrates how developers of Li-ion batteries compare on the Lux Innovation Grid, helping to identify which will make the strongest potential partners as the electric vehicle market matures.
LG Chem Power clearly leads the pack, standing out even amidst its competition in the graphic’s Dominant Quadrant. A subsidiary of LG Chemical, LG Chem owes its strong technical value to its high-energy lithium-manganese-spinel-based cells and strong cycle life, both of which come at costs that are among the most competitive in the market. Its multitude of supply partnerships with the likes of GM, Eaton, and Ford, however, justify the company’s strong business execution score.
Significant enhancements in specific energy and a commensurate reduction in cell costhas garnered Envia Systems the attention of major investors including GM, Asahi Glass, and Asahi Kasei. Yet serious competition remains for Envia in cathode materials, including two major corporations in BASF and Toda Kogyo licensing the same Argonne National Laboratory technology that Envia’s materials are based on.
China is home to a number of top contenders, thanks to the Chinese government’s desire to keep the electric vehicle value chain inside China’s borders (Client registration required.). But batteries from China BAK, BYD, and China Aviation Lithium Battery (CALB) are undifferentiated technologically, and may not share the quality of cells manufactured outside of China.
Source: Lux Research report “Using Partnerships to Stay Afloat in the Electric Vehicle Storm.”