FocusUS bio-based chemical IPO window remains shut

10 January 2013 15:00  [Source: ICIS news]

US bio-based chemical IPO window remains shutBy Joseph Chang

NEW YORK (ICIS)--The extent of the stock price declines for bio-based chemical companies in the past year has made it difficult, if not impossible, for companies to go public.

As a result, the window for initial public offerings (IPOs) remains shut for the foreseeable future.

“I don’t think the IPO window will reopen anytime soon. There is no reason for companies to pursue raising money in public markets now,” said Andrew Soare, analyst with US-based consultancy Lux Research.

“However, companies have been able to get funds from venture capital and through some creative ways. Companies are not handcuffed to public markets,” he added.

Companies such as US-based firms Genomatica and Elevance Renewable Sciences pulled their planned IPOs in 2012, instead raising funds through alternative methods.

Genomatica, which is working on bio-butanediol (bio-BDO) and bio-butadiene (bio-BD), raised $41.5m (€31.5m) in equity financing last August from Italy-based chemical firm Versalis, along with existing venture capital shareholders.

In July 2012, Elevance Renewable Sciences, which is working on producing specialty chemicals from renewable oil feedstocks, raised $104m in equity financing from investors including Malaysia-based conglomerate Genting and France-based Total.

US-based Amyris, which aims to convert plant sugars into a range of chemicals and fuels, raised $42.25m in a private placement of common stock in late December 2012. The company is already publicly traded but chose to raise funds from private investors.

At the time it also announced the successful production of renewable farnesene at its industrial fermentation plant in Paraiso, Brazil. This building block hydrocarbon will be used in specialty chemical applications as well as fuel.

“Our own farnesene plant at Paraiso has been successfully commissioned, with initial farnesene production under way. We anticipate sales from this facility during the first quarter of 2013,” said president and CEO John Melo.

It has been an exceedingly difficult stretch for bio-based chemical companies in the past year as public valuations cratered. Operational hiccups, plant closures and an uncertain regulatory environment contributed to major stock price declines.

US-based companies Amyris, Gevo and Metabolix saw equity price declines of 70% or more in 2012, but have since recovered some of those losses in early 2013.

“There is a large gap between investor expectations of a smooth path to revenue generation and profitability and the reality of the time it takes to ramp up large-scale plants with new technologies,” said Lux Research's Soare.

While the extension of US government tax credits for alternative fuels and renewable energy in the partial deal to avert the US fiscal cliff gave a temporary boost to bio-based chemical and fuel stocks, investor concerns about the commercial viability and profit generation potential for many of these companies linger.

"The extension of tax credits was a relief to companies, but it won’t accelerate their ability to de-risk technologies and work out the kinks,” said Soare.

“Ultimately any government support is extremely uncertain and it is impossible to build a sustainable business model on this. It is not a long-term driver,” he added.

One bio-based chemical company thinks the selling has been overdone. In a rare move among start-up companies that have yet to generate positive cash flow, Gevo on 2 January announced a $15m stock buyback programme.

On the positive front, US-based Solazyme received a boost in mid-December 2012 after announcing it had successfully scaled up its sugar-to-oil fermentation process to 500,000 litres at US-based agribusiness Archer Daniels Midland's (ADM) plant in Clinton, Iowa.

Solazyme is initially targeting production of 20,000 tonnes/year of renewable oil from corn dextrose starting in early 2014 at the ADM facility, with targeted expansion to 100,000 tonnes/year.

The company is also constructing a 100,000 tonne/year renewable oils facility in Moema, Brazil, with US-based agribusiness Bunge, which is set to begin operations earlier in the fourth quarter of 2013.

“Confirmation of a successful initial trial run at the Clinton site comes earlier than expected and should help allay concerns about the scale-up of Solazyme’s sugar-to-oil conversion process,” said Laurence Alexander, analyst with US-based investment bank Jefferies in a research note in December.

“The company’s ability to scale up has been a key concern leading to higher discount rate being applied to the project pipeline,” he added.

Solazyme aims to transform a range of low-cost plant-based sugars into oils for the fuel and chemicals, nutrition and skin and personal care markets.

While Solazyme has demonstrated some operational success, there have been more high-profile setbacks in the past year, causing major blows to investor confidence.

In September 2012, Gevo halted production of bio-isobutanol at its Luverne, Minnesota, facility, temporarily shifting to ethanol production while making operational adjustments to improve bio-isobutanol production capabilities.

The company had just started commercial operations at Luverne in May, and had planned to ramp up production to a run rate of around 1m gal/month (3.8m litres/month) of bio-isobutanol by the end of 2012.

Gevo plans to resume isobutanol production some time in 2013.

In January 2012, US-based biopolymers company Metabolix announced the termination of its Telles joint venture with ADM to produce new PHA (polyhydroxyalkanoate) bioplastics at ADM’s site in Clinton, Iowa.

The venture was started in 2006 and aimed to gain traction for PHA bioplastics. However, there was ultimately not enough downstream demand to justify running the plant.

Metabolix is now working with partner Spain-based Antibioticos to produce PHA bioplastics. It expects Antibioticos to begin producing demonstration quantities of biopolymer resin in early 2013 and the companies plan to complete a contract manufacturing agreement that Metabolix expects will lead to commercial-scale production later in 2013.

“While [the Telles venture] was a big blow, it is not the end of novel biopolymers or bio-based chemicals,” said Lux Research’s Soare.

“Drop-in products are the better sell right now, but if you can bring improved performance and lower cost with a new molecule, it can ultimately be more valuable,” he added.

On this front, Netherlands-based Avantium is working with US-based beverage giant Coca-Cola and France-based consumer products company Danone to produce polyethylene-furanoate (PEF) bottles. These new biopolymer bottles made from plant sugars would be an alternative to traditional polyethylene terephthalate (PET) bottles.

STOCK PRICES OF BIO-BASED CHEMICAL AND FUEL COMPANIES

Company

3-Jan-12

2-Jan-13

% Change

Amyris

$12.27

$3.20

-74%

Gevo

$6.44

$1.82

-72%

Solazyme

$12.03

$8.32

-31%

Metabolix

$5.01

$1.51

-70%

Cereplast

$0.98

$0.02

-98%

Verenium

$2.30

$2.22

-3%

Codexis

$5.48

$2.55

-53%

Source: Yahoo! Finance

($1 = €0.76)


By: Joseph Chang
+1 713 525 2653



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