Tag Archives: Codexis

What Are the Major Alternative Fuels Interests of Oil Majors?

As the alternative fuels industry diversifies and scales up, financing is always the key to technology commercialization. While several sources of financing drive the whole industry forward, we investigate the trends of corporate financing from oil majors, based on a non-exhaustive database of over 1,000 deals and partnership engagements from 2000 through September 2014. With the focus on financial engagement, we only look into the private placement, equity stake, joint venture (JV), mergers and acquisitions (M&A), other than general partnerships. For example, we counted BP’s bioethanol JV plant with British Sugar, but we didn’t include BP’s research work with the Energy Biosciences Institute. We then drew a graph based on the investment counts (rather than invested companies) of the seven most activate oil majors in our database, namely, Shell, BP, Total, Valero, Chevron, Petrobras and Reliance. Particularly, repeated investment activities on the same company would be counted as multiple. We further sorted the investment by six core technology families – algae, biomass to sugar, catalysis, crop development, fermentation (and enzyme development), and pyrolysis/gasification.

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From our analysis of their activities in the alternative fuels industry, we find that:

  • BP leads the investment frequency in a variety of technology families. Particularly, it has a strong focus on the crop development by transgenics and breeding, with repeated investments made to Chromatin (client registration required) and Mendel Biotechnology (client registration required). It also continues investing on biomass to sugar technology including to handle cellulosic biomass, such as REAC Fuel (client registration required).
  • Shell is not a fan of crop development, but has a wide coverage on other technologies. For example, it invested on multiple rounds and formed a JV with Iogen (client registration required), but terminated the JV in 2012. Then the oil giant formed partnerships and JVs with Codexis (client registration required), Cosan, and Novozymes to continue its interests in cellulosic ethanol. Shell shifted its shares in Codexis to Raizen, its ethanol JV with Cosan and “formed the largest sugar and ethanol company in the world”. It also partnered with Virent (client registration required) on the biomass catalytic conversion to produce renewable gasoline, and Cellana (HR BioPetroleum) on algae biofuel. Moreover, Shell Foundation also funded Husk Power System (client registration required) on gasification development.
  • Total and Chevron are the most active corporate investors in the fermentation domain. Total did the private placement on the IPO of Gevo (client registration required) and formed a JV with Amyris (client registration required) with both focusing on corn and sugar cane feedstocks. Gevo is focusing on isobutanol fermentation and Amyris is doing the bioconversion to produce isoprenoids. On the other hand, Chevron invested in Codexis (client registration required) and LS9 (client registration required) with its concentration on the genetic engineering, while LS9 was acquired by Renewable Energy Group in early 2014 (client registration required). All invested companies by these two giants are diversifying their revenue streams with drop-in fuels, specialty chemicals, and/or drugs in downstream markets.
  • Velero has a strong focus on the drop-in fuel production either by bioconversion or catalysis. Valero owns 10 facilities in the U.S. with over 1,000 MGY corn ethanol capacity. However, it is also interested in cellulosic ethanol with its funding of Qteros, Mascoma Corporation (client registration required), and Enerkem (client registration required). Additionally, the focus on waste feedstock can be reflected by its investments in the ill-fated Terrabon (client registration required), which was focused on wet waste-to-gasoline.
  • Investments of oil majors in developing countries are more constrained by local resources and policy drivers. For example, Reliance is investing the algae technology developers such as Algae.Tec (client registration required), Aurora Algae (client registration required), and Algenol Biofuels. Petrobras is concerned with fuel production from sugar cane or bagasse, such as BTG-BTL (client registration required) and BIOecon, which combine the feedstock advantage and local policy driver. Other oil majors not listed in the graph, such as Chinese oil majors, Sinopec and PetroChina (CNPC), are shifting their focuses from food ethanol to cellulosic ethanol and coal-to-ethanol, which is responding to the call of the Chinese government to discourage the food ethanol industry (see the report “Fueling China’s Vehicle Market with Advanced and Coal-based Ethanol” — client registration required.)
  • Less active oil majors in this space include ExxonMobil and ConocoPhillips. They only made sporadic investments – such as Synthetic Genomics (client registration required) by ExxonMobil and ADM by ConocoPhilips. Additionally, ExxonMobil mobile recently teamed up with Iowa State University to research pyrolysis.

Terrabon files for bankruptcy, as strategic investors re-evaluate portfolios

Waste-to-fuels company Terrabon filed for Chapter 7 bankruptcy protection in September. Terrabon CEO Gary Luce said that the firm was “unable to obtain additional funding,” and approximately 60 employees were laid off. The company had a history of missing key milestones, and we flagged this nearly one year ago in our last profile of the company (client registration required.) Two years ago, the company was expecting a $25 million funding (client registration required) round in the first half of 2011.

Terrabon was developing a multi-step process to convert wet waste into drop-in gasoline and jet fuel. The process features bacteria fermentation, pyrolysis, then a catalytic conversion into gasoline. In this multi-step process, yield loss was a significant factor, and Terrabon expected a yield of 70 gallons per ton of dry feedstock, much lower than fellow waste convertors like Enerkem (90 gallon/ton) and Fulcrum (120 gallon/ton). Terrabon, however, was targeting different feedstocks than most other waste convertors, focusing on wet waste. Terrabon focused on a mix of municipal solid waste (MSW), sludge, and biomass, and its feedstock was 30% solids, much lower than that of its competitors.

Among its investors, Waste Management and Valero decided not to give out the big dollars necessary to keep the company afloat and build its first commercial facility. Looking first at Valero’s portfolio, it becomes clear the rocky track record Valero has in this space. First and foremost, Valero is the third largest ethanol producer in the U.S. (client registration required) behind POET and ADM, though recently it idled a 110 MGY facility in Nebraska (client registration required.) Valero also invested in biofuel failure Qteros (client registration required), behind-schedule producers Enerkem and Mascoma, and cellulosic ethanol company ZeaChem. Beyond cellulosic ethanol, Valero is scaling up a renewable diesel facility in a joint venture called Diamond Green Diesel.

Terrabon’s other strategic investor, Waste Management, similarly has several waste-to-fuel companies in its portfolio (client registration required), including Enerkem, Fulcrum, and Agilyx. Most recently, WM invested in pretreatment company Renmatix, capping off its $75 million Series C. While the recent Renmatix investment (and investment in Genomatica before that) shows that WM isn’t pulling out of the fuels space altogether, we do expect to see strategic investors like WM continue to pare down portfolios. This doesn’t mean that strategic investment will go away, or even decrease, just that new companies and technologies may take the place of current investments. Oil giant Shell, for example, significantly downsized its relationships with Iogen and Codexis (client registration required) this year.

Corporate investment in this space boomed in 2007 and 2008, see the report “Hedging Bets with Flexibility in Alternative Fuels” (client registration required), and the partnering web expanded most rapidly in 2008 and 2009, see the report “Mapping Empires, Goldmines, and Landmines in the Alternative Fuels Network” (client registration required.) Over the past four to five years, strategics funded innovation at these start-ups, and now these producers need to perform commercially. Missing technical and project scale milestones won’t cut it anymore, and the corporate parents are kicking their kids out of the house, to sink or swim on their own. Expect to see more relationships falter in this space, but even more form as innovative companies continue to emerge, promising new sources of fuels and novel conversions, and new types of organizations partner their way into the alternative fuels arena.

The boom in bio-based materials and chemicals is really a boom in synthetic biology

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.”

Will PetroAlgae and Gevo poison the IPO pond for other biofuel and biomaterial developers?

In early August, PetroAlgae filed for an immodest $200 million IPO with the U.S. Securities and Exchange Commission (SEC). The filing contains a number of aspects that warrant closer scrutiny.

The company grows “selectively bred” strains of an aquatic algae-like plant called duckweed in open ponds. PetroAlgae claims its process yields up to 14,000 gallons of oil per acre per year (see the March 24, 2009 LRBJ – client registration required), and that its production is “economical versus $20/barrel oil.” Its prospective yield compares favorably with competitors’ claims, like Solix’s 2,200 gallons of oil per acre per year. But unlike Solix, PetroAlgae has had no success producing oil.

According to the company’s S-1 filing, it experienced net losses of $8.3 million, $20 million, and $30.3 million in 2007, 2008, and 2009, respectively, on zero dollars in revenue, ever. Even firms with much more significant product revenues have struggled in the current market. Solyndra withdrew its filing (see the June 24, 2010 LRSJ*), A123Systems’ stock is off over 60% from its initial pricing, and Codexis has shed 40% of its IPO value in just four months. So accompany with no revenue to date and very uncertain prospects for producing an economically competitive product is unlikely to be a winner. Despite its lofty claims, expect PetroAlgae to either withdraw its IPO, or flop mightily.

Gevo, which also filed for an IPO in early August, is looking to raise $150 million. Underwriters include UBS, Goldman Sachs, and Piper Jaffray. Gevo develops yeast to ferment corn, cane, or cellulose-derived sugars in order to produce butanol and isobutanol (see the August 11, 2009 LRBJ*). This filing does not come as a surprise, as we heard from our network several months ago that a Q3 filing was forthcoming (see the April 27, 2010 LRBJ*). This news comes only a few days after Gevo announced the acquisition of a Minnesota ethanol facility it planned to retrofit into an isobutanol production plant. The retrofit will cost $17 million, and will produce 18 MGY of isobutanol when complete in Q1 2012. According to Gevo’s S-1 filing, its net accumulated deficit is $50.3 million, with a net loss of $8 million in Q1 2010 alone. 

Although Gevo’s (relatively) capital light business model is a reason for praise, its S-1 indicates that it will need to invest another $17 million in the Minnesota plant to retrofit. That’s in addition to the $20.7 million for the plant itself – a steep bill to foot with no revenues in sight for almost two more years, even if all goes as planned. In its filing, Gevo reports it “expects our relationships with customers such as Total Petrochemicals, Lanxess, Toray Industries, and United Airlines to contribute to the development of chemical and fuel market applications of our isobutanol.” The relationships that Gevo develops with these companies (and other commercial chemical and fuel companies) will make or break the company – but the large losses and long time to revenue its asking investors to stomach might be enough to sink this IPO.

Both offerings are indeed risky in this environment, as we have seen Codexis shares drop from $13 per share at IPO to about $8 currently. Clients should maintain some healthy skepticism as these two firms prepare for risky and uncertain public offerings. Although Gevo has a better chance of success than PetroAlgae, both firms have the potential to poison the biofuels and biomaterials pond for years to come. On the heels of Codexis’s shaky debut, it won’t take much more bad news for investors to sour on the biofuels space. What’s more, with other recent IPOs like Tesla (see the June 23, 2010 LRPJ*) and IPO candidates like Bloom Energy (see the June 30, 2010 LRPJ*) looking uncertain, on top of disappointments like A123 and debacles like Solyndra, the “cleantech” theme risks ending its run as a Wall Street darling.

*Client registration required

Original syn: debate over definition of first synthetic life presages commercial and IP battles

Last month, scientists at the J. Craig Venter Institute (JCVI) announced the creation of a replicating “synthetic” bacterial cell – or, in other words, they may have created the world’s first synthetic life form.
 
The team synthesized a modified Mycoplasma mycoides genome about 1 million base pairs (bp) long from about 1,000 fragments that were each some 1,000 bp in length. Gene foundry Blue Heron fabricated the genome from basic biochemicals based on digital sequences, and assembled it in an Escherichia coli cell. The team then transplanted the genome into a third organism, Mycoplasma capricolum, the DNA of which was destroyed in the experiment. The cells began multiplying in culture, expressing the genes encoded only in the synthetic DNA – signifying what could arguably be synthetic life.
 
And argument is what ensued – predictably, since the achievement was pre-announced less than a year ago (see the September 1, 2009 LRBJ*), and foreseeable from the time the program was launched in 2007. So when Nature asked eight synthetic-biology experts about the implications for science and society, rival scientists sniffed that the synthetic cell “does not quite constitute a ‘synthetic cell’ by my definition” (Steen Rasmussen, Professor of Physics, University of Southern Denmark). At the same time, bioethicists fretted that “Nobody can be sure about the consequences of making new forms of life, and we must expect the unexpected and the unintended” (Mark Bedau, Professor of Philosophy and Humanities, Reed College, Oregon).
 
Friends of the Earth called for a stop to research until regulations are in place, and ETC Group (which cleverly named the then-uncreated organism “Synthia” in 2007) warned that “Craig Venter is handing this powerful technology to the world’s most irresponsible and environmentally damaging industry by partnering with the likes of BP and Exxon” (see the June 23, 2009 LRBJ*). The Vatican viewed the results as “positive,” before pointedly adding an injunction to “never forget that there is only one creator” (hint: not Venter). Meanwhile the White House called for a commission to study the implications.
 
Venter himself deflected the question, telling CNN it was a “living self-replicating cell” with “no genetic ancestors… whose DNA was made chemically and designed in the computer.” CNN’s response – “Some critics suggest you shouldn’t make life from a computer” – helped illustrate the profound vacuity of mainstream media on this topic.
 
So, did the JCVI create life? While the question is a philosophical and linguistic morass, for what it’s worth, we’d say the answer is yes. Although the first step was a cell with a synthetic genome rather than a “synthetic cell,” all of its progeny sprung from lab chemicals. Even if the initial M. capricolum cell was once alive, it was certainly not living with its DNA destroyed. And the synthetic DNA was not alive before it was patched into sequence by Blue Heron and the JCVI team. By combining two collections of non-living biomolecules and creating something capable of metabolism and self-replication, the JCVI set in motion a process that must die to end. However, as monumental as JCVI’s achievement is, it will soon be yesterday’s news. In practical terms, it may have manufactured life but did not even attempt to “design” or “control” life, as the genome it used has only cosmetic differences from M. mycoides’ natural genetic code. But designing novel genes is already common, and designer genes will certainly be put into future synthetic cells. In sum, this achievement represents both the culmination of many incremental steps (and the first of many more) on a spectrum of human-created life that will almost certainly advance beyond the point of dispute in coming years, and many people will always regard this as the watershed moment.
 
So what will the reception and impact of this work be? “Living” technologies ranging from organic chemistry to in-vitro fertilization have met huge initial ethical opposition, but ultimately lived or died on their merits (see the April 28, 2009 LRBJ*). Synthetic biology’s value will be determined by the benefit brought by products like biofuels and medicines from Synthetic Genomics, Gevo, Codexis, Amyris, and dozens of other firms using the technology (see the December 8, 2009 LRBJ*). Today’s “Synthia” cost $30 million to create. But the history of past technologies indicates that she will seem quaintly simple and exorbitantly expensive when costs plummet (see the February 10, 2009 LRBJ*), finance soars (see the August 25, 2009 LRBJ*), patenting battles begin (see the June 23, 2009 LRBJ*), and commercial success is widespread (see the report “Synthetic Biology’s Commercial Roadmap”) a few years hence.
 
* Client registration required.