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.
The biofuels industry continues to receive backlash from the public as “food vs. fuel” pundits paint a misconceived picture that food crop-based biofuels diverts food away from our dining tables towards our vehicles (client registration required). While we do not agree with detractors that biofuels growth is the cause of rising food prices, we do agree the shift away from food crops is necessary as volatile prices drastically affect biofuel production costs. Cellulosic biomass became a popular choice as technology developers vied for position in the emerging market for next-generation biofuels. However, with misplaced feedstock expectations, companies felt the economic impact as feedstock cost remains the most significant aspect of biofuels production regardless of technology.
One solution is the use of energy crops, dedicated feedstocks cultivated specifically for biofuels production, either as a source of biomass or production of bio-oil. Energy crops range from miscanthus to jatropha and are typically characterized by high yields and require little to no maintenance. Additionally, companies developing energy crops are targeting non-arable lands to reduce competition with food crop production. While driven mostly by academic research, energy crops have emerged in recent years as well as crop development techniques to improve existing crops in the biofuels value chain through transgenic and non-transgenic approaches. In the following section, we analyze 19 companies on our Lux Innovation Grid (LIG), identifying key factors for successful growth and commonalities among laggards.
- Strong financial support driving growth and beginning to separate companies from the rest of the pack. Crop development for biofuels applications remains a nascent and niche market in the larger agriculture industry. It is even more imperative for companies to secure financial backing to carry its technology from the greenhouse to field trials and eventual commercial-scale production. SGB Inc. develops elite jatropha hybrids with six field trials across the globe and plans for an additional four field trials by the end of Q2 2015, consisting of over 2,500 acres. While a stigma remains around jatropha due to its headline failures in Africa (client registration required), SGB was able to secure $11 million in a Series C in July 2014. Flint Hills Resources is a major investor, strategically positioning itself with bio-oil energy crops to integrate into its existing biodiesel portfolio. NexSteppe develops sorghum strains enhanced for both biomass and cellulosic sugars and reported in April 2015 it sold 25,000 acres of its sorghum in Brazil this past growing season. It too, also recently raised $22 million in a Series C in September 2014 with investors including DuPont and Total, which is known for its shrewd investments along the entire bio-based value chain (client registration required).
- Companies struggling to gain footing in the immature space lack a focused business model. It is not surprising to find start-up companies developing various technologies for different applications. However, we have stressed in the past the importance of corporate leadership in guiding translational research positioned for commercialization(client registration required). Edenspace has faced the consequences for its lack of business model focus developing plant varieties for calcium biofortification, phytoremediation of groundwater, and cellulosic ethanol. Founded in 1998, the company has attempted to move all three businesses forward in parallel facing numerous challenges along the way resulting in minimal revenue, while any one of these arms could be viable on its own. Performance Plants on the other hand, has strengthened its business model through strategic corporate partnerships. Utilizing domestic expertise, it works with companies like Bayer CropScience and Stine Seed to navigate the regulatory hurdles surrounding genetically modified crops, through licensing agreements.
- Emergence of established pulp and paper players looking to play into the bioenergy space. Both SweTree Technologies and ArborGen have been around for 15 years, commercializing hybrid tree species primarily for the pulp and paper industry. However, in conversations with both companies within the last year, an interest in utilizing trees for bioenergy applications has emerged from its existing pulp and paper industry customers. Research on modified trees as a source of biomass for bioenergy has been ongoing at the academic level for several years, and major pulp and paper players can utilize its existing infrastructure to generate an additional revenue stream through dedicated trees for biomass. Trees are also advantageous from a cost perspective with relatively stable prices compared to commodity crops, with prices changing at most 6%, while corn and soybean faced price fluctuations with highs of up to 25% on a year-to-year basis. The stability in price is one of the major reasons why next-generation biofuels are shifting away from food crops, and with well understood logistics overall, biofuel production costs can potentially be reduced.
With the energy crop development space relatively young, many of the companies find themselves in the top-left high-potential quadrant. Major biofuels producers seeking value chain security and willing to invest in long-term research and development (R&D) find themselves with a variety of plant species and technological approaches. Through strategic partnerships, acquisition of strong IP, and utilizing existing logistics and infrastructure, corporations can quickly catapult any given company to the top of the energy crops space. Clients in the pulp and paper industry may seek near-term opportunities, as hybrid trees offer an alternate market in bioenergy that fits with existing infrastructure and business. For clients with long-term biofuels ambitions, energy crops offer a strategic play worth investigating as part of a fully integrated biofuels platform, in a space likely to face feedstock shortages in the future.
Venture capitalists (VCs) invested $3.1 billion in bio-based chemicals and materials developers since 2004. As many of those start-ups reach megaton scales and launch IPOs, Lux Research analysts sought to find which technologies venture investors favored. This week’s graphic comes from their just published report (client registration required), in which analysts tracked 177 venture transactions involving 79 companies operating in five technology categories – biocomposites, bioprocessing, thermochemical processes, crop modification, and algae. In short, they found:
Bioprocessing developers brewed up $1.89 billion in 96 deals. Bioprocessing developers – especially synthetic biology companies – landed more than half the total venture capital invested since 2004. Encompassing technologies like fermentation, phage display, natural breeding and synthetic biology, all bioprocessing platforms employ some sort of organism as a “factory” for creating products as diverse as sweeteners and catalyst supports. Intrinsically flexible, these platforms enable the likes of Amyris, Codexis, LS9, and Solazyme to produce multiple products from multiple feedstocks, thus ensuring a relatively low-cost route to high-value compounds and providing a hedge against feedstock and product price volatility.
Thermochemical technologies raked in $577.0 million in 31 deals. Thermochemical processing encompasses technologies like gasification (Enerkem), catalysis (Avantium, Inventure), and acid hydrolysis (HCL Cleantech, BlueFire) that sometimes convert biomass to an intermediate like sugars or syngas, and sometimes go all the way to an end product. (e.g. Virent’s paraxylene is used in Pepsi’s famed 100% bio-based PET bottle
Crop modification companies harvested $371.7 million in 28 deals. IPOs are less common fates for crop modification companies which, as you may have guessed, modify crops to be more amenable and economical for use in bio-based materials and chemicals. Instead, companies in this category, like Athenix and FuturaGene, usually end up being acquired by the likes of Syngenta, Monsanto, DowAgro, or Bayer CropScience.
Algae developers saw $190.5 million in 13 deals. Notably, that figure only encompasses start-ups developing algae strains, cultivation systems, and processing equipment for creating industrial chemicals. Representative developers include Bio Architecture Lab, a macroalgae developer, and Israel’s Rosetta Green, which had raised $1.5 million in venture funds, but more recently brought in almost $6 million in an IPO on the Tel Aviv TASE. Excluded from this category are companies primarily developing fuels (which we cover in our Alternative Fuels Intelligence service), and companies like Solazyme and Green Pacific Biologicals that use algae for fermentation (and, thus, are categorized in bioprocessing, above).
Biocomposites developers brought in $108.9 million in a mere nine transactions. This category includes bioplastic blends, some starch plastics, and bio-based foams, from the likes of Cereplast, EcoSynthetix, Ecovative Design, and Entropy Resins. Because of the relatively simple nature of these technologies, VCs often don’t see them as investment opportunities – forcing companies like SoyWorks and Biop Biopolymer to find other sources of funding.
Source: Lux Research report “Seeding Investment in the Next Crop of Bio-Based Materials and Chemicals.”