Enzyme catalyst and special-chemical producer Codexis had a tepid IPO last Thursday, pricing in at the lower range of the $13-$15 range set by underwriters. The company raised $78M -- less than the $100M expected by the company.
Now that a second-generation biofuel technology company has gone public in 2010, what are the prospects for more IPOs from advanced biofuel companies?
"Advanced biofuels" is an all-encompassing term that refers to technologies enabling the production of biofuel from non-food-based sources. There are only a handful of publicly traded pure-play second-generation cellulosic ethanol companies (BlueFire, Verenium), third-generation algae companies (OriginOil, PetroAlgae, PetroSun), and fourth-generation synthetic drop-in fuel producers (Rentech). (See Biofuels 2010: Spotting the Next Wave.)
Want to become a millionaire investing in publicly traded advanced biofuel stocks? One way would be to start as a multi-millionaire. For example, if you bought shares in cellulosic ethanol company BlueFire Ethanol in June 2007, your $6-per-share stock would be worth a cool $0.34 today. Verenium Corporation -- another second-generation biofuel and enzyme company backed by BP -- has gone from $120/share (on a split-adjusted basis) to $4.29/share today. Not exactly setting the market on fire.
Note that not all advanced biofuel companies would have driven you to poverty. Have you ever heard of PetroAlgae? It is the company with $4M in revenue, losses since inception, little remaining cash -- and a $2.77 billion dollar market capitalization.
What do all of these companies, including Codexis, have in common? Besides continually losing money, all have technologies that, if they could scale, could displace significant amounts of petroleum and petro-chemicals. Biofuels are already commercially produced and have long since attained "big business" status. In 2010, 12.5 billion gallons of corn ethanol will be produced domestically, displacing 6.5% of U.S. gasoline consumption, when accounting for differences in Btu content between ethanol and gasoline.
Yet, the U.S. will provide $5B in federal subsidies for a fuel that will consume 30% of its entire corn crop. Even if the U.S. utilized 100% of its corn crop for ethanol, we would not displace more than 20% of our gasoline -- which says nothing about the diesel or jet fuel markets. (See The True Cost of Corn Ethanol.)
While cellulosic ethanol utilizes a wide range of feedstocks including energy grasses, solid municipal waste, woody biomass, and agricultural residues, there are other technologies that produce "drop-in" fuels that have chemical characteristics that mimic petroleum. With drop-in fuels, you do not have to worry about whether your engine has been modified to handle the fuel. Additionally, there is no cognitive dissonance experienced in trying to be a good environmental steward while knowing that there are a billion starving people on the planet who would love a bite of the corn or soybeans you just used to fill the tank.
There are several hundred companies pursuing second-generation cellulosic ethanol, third-generation algae, and fourth-generation synthetic and/or designer biofuels. You might be asking yourself, who will be the next company to go public? Here is a run-down of some of the contenders and their likelihood of an IPO within the next 18 months, assuming stable market conditions:
Company: Amyris Biotechnologies
Technology: Fourth-generation drop-in diesel via bio-chemical methods
Why the company is a contender: Amyris utilizes advanced fermentation methods to produce diesel. The company intends to "bolt on" to existing ethanol refineries, resulting in lower capital costs. Amyris is also using sugarcane as a feedstock, which is less expensive than traditional oilseeds (soy, rapeseed, canola) or corn-based starch.
Why the company is a pretender: No commercial experience nor production agreements. As Eric Wesoff points out, Amyris declared in its recently filed S-1 that "we do not currently have definitive agreements with contract manufacturers that would provide the production capacity required to achieve commercialization of our products in 2011 at the volumes we intend, or at all." The company has also never generated revenue from the sale of any of their renewable products.
Bottom Line: Company has raised $170M to date, has key strategic partnerships with Bunge Limited, Cosan, and Acucar Guarani, produces drop-in fuels, and is expected to be competitive with petroleum at $80/bbl at commercial scale. IPO is a no-brainer, as the company has already filed to go public.
Odds of an IPO within 18 months: Very high
Technology: Third-generation algae jet fuel and diesel
Why the company is a contender: Heterotrophic fermentation is more scalable and less expensive than open ponds or photobioreactors. Solazyme will deliver 20,000 gallons of algae jet fuel to the U.S. Navy in 2010. Currently selling nutraceuticals, powdered oils, and oleochmeicals for $3-$10/lb and targeting $1.50-$2.00/gal levelized cost structure by 2012.
Why the company is a pretender: 20,000 gallons is 1/1000th the amount of what the DOE considers commercial scale. Solazyme has never divulged its extraction process so it is difficult to verify cost estimates.
Bottom line: Solayzme has raised more than $100M since inception and recently received an additional $22M for the DOE for a demonstration-scale facility. The fact that Solazyme is already producing tens of thousands of gallons of algae jet fuel places the company far ahead of competitors. Company is rumored to be in the early engineering stages of a 100MGY commercial facility expected to be opened in 2013.
Odds of an IPO within 18 months: Moderately High (50-75%)
Technology: Fourth-generation biobutanol
Why the company is a contender: Gevo metabolically engineers microbes to secrete isobutanol -- a fuel that serves as an alternative to gasoline with higher energy content than ethanol. The company will "bolt on" to pre-existing ethanol facilities at an estimated cap-ex cost of $0.30/gal -- significantly lower than building a biorefinery from scratch. Gevo expects production capacity of 1MGY in 2011 scaling to 400MGY in 2014.
Why the company is a pretender: Biobutanol is not as sexy as "green gasoline" and not as well known as ethanol. Initially, the company will use traditional starch (corn), making it largely susceptible to the economics of corn ethanol. No known revenues. Currently fundraising.
Bottom line: Gevo has raised more than $70M and is pursuing a strategic alliance with ICM to retrofit a fleet of existing ethanol plants. Biofuels Digest reports that Gevo is currently preparing its S-1 registration document for an IPO.
Odds of an IPO within 18 months: Break-even (50-50%)
Technology: Second-generation cellulosic ethanol via gasification
Why the company is a contender: Coskata transforms multiple feedstocks into synthesis gas and after clean up, the syngas is transformed into ethanol via proprietary microorganisms. The ability to be feedstock agnostic is a significant competitive advantage as Coskata is not feedstock constrained when choosing a facility's location. The company has raised $70M+ from Khosla Ventures and GM. Targeting $1/gal at commercial scale and 100 gallons per ton of feedstock.
Why the company is a pretender: Coskata currently operates a pilot-demonstration facility capable of producing 40,000 GPY. The company was behind schedule on opening that plant and has not disclosed the specifics of its intended 50-60 MGY facility that it expects to open in 2012. Some within the industry are skeptical whether $1/gal production costs are feasible.
Bottom line: One competitor that we spoke to claims that Coskata's gasification technology is "world class." The company has no revenues and has not disclosed concrete plans to commercialization. IPO seems immature until revenues occur.
Odds of an IPO within 18 months: Low (<25%)