In wake of Amyris IPO, projected winners and losers in biofuels

Biofuels company Amyris had its IPO last week, and the results were considered a decent exit for some of its investors (mostly its early-stage ones). But don’t expect that to have any effect on fellow biomaterials IPO hopefuls Gevo and PetroAlgae or to give a lift to the lesser-known and struggling Butalco or Bioalgene.

“I think we’re starting to see the wheat be separated from the chaff in terms of the companies in this space that have a legitimately good technology and a good business model,” said Mark Bünger, research director for Lux Research.

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One example of so-called chaff may well be PetroAlgae (pictured below), which filed in August for a much-derided $200 million IPO despite having no history of revenues, ever. The company is expected to withdraw or see the IPO flop big-time. Gevo is looking to raise $150 million, and its chances may be a little better — Bünger says the company “has a plan and technology that can work … but they’re also a little early and trying to raise a lot of money.”

As planned IPOs approach for some companies and funding begins to run out for others, consider it a reckoning of sorts for the biofuels and biomaterials industry. Despite government incentives (like the recently passed $1.01 per gallon tax credit for algae fuel makers) and billions invested, biofuels and biomaterials companies have been slow to make a dent in the market — perhaps in part because of the capital-intensive nature of the industry. According to a recent report by Lux Research, global biofuel capacity represents only three percent of petroleum fuels, while bio-based materials have only grabbed one percent of the market from plastics.

Biofuels and biomaterials companies face both risks and opportunity. The cleantech IPO market is less than ideal: Biofuels player Codexis IPO’d in April at the low end of its range, raising $78 million, far short of its $100 million goal. Battery startup A123 systems had a superstar IPO last September, ending its first day of trading at $20 a share, but now trades in the $8 range. Trony Solar and Solyndra both recently pulled their IPOs.

But there’s hope. Biofuels are expected to grow 7.8 percent each year to hit 52 billion gallons by 2015, and biomaterials will grow at 17.7 per year to reach 8.1 million tons by 2015. Last week, Amyris and smart meter maker Elster both IPO’d below their forecasted ranges, but both companies have held steady in trading. And a year ago, Amyris likely would have struggled with going public at all. Despite okay-not-stellar debuts, Amyris and Codexis seem to have a solid shot at success.

“Amyris and Codexis actually have legitimate business models,” Bünger said. “If the stars align oil prices with the environment they can be phenomenally well positioned not just to be profitable but to be landmark companies in the way Google and Microsoft defined that age.”

Over the next few years, it looks like the sector will become more defined — companies will have to show they can weather the struggle to scale to commercialization and grow, or fall victim to lack of funding. Here’s a look at the winners and losers, according to Lux Research:

Winners

• Coskata and Enerkem, which specialize in technologies that convert waste feedstocks into ethanol. Enerkem just opened a plant in Canada and earlier this year got a $51.5 million infusion of cash from Waste Management.
• Solazyme, which has an R&D deal with Unilever and raised $52 million in August. The company’s outlook is good, said Lux research associate Andrew Soare, “thanks to strong partnerships and technology that circumvents the costly dewatering step that precludes other algae companies from cost parity.”
• Virent, which is trying to commercialize a process that turns sugar into the hydrocarbons that can be blended into fuel. It, too, has strong partnerships with companies like Cargill, Honda and Shell.

Losers

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• Butalco, which makes technology that genetically optimizes yeast to improve biofuel yields. It lags competitors in terms of scale, which, Soare says, “may prove crippling.”
• Bioalgene, an algae-based biofuels company based in Seattle. The company has a “serious need” for cash and may be forced to make other algal products that are higher-value — similar to what Aurora Algae is attempting to do in a rebranding that ditched its “Aurora Biofuels” moniker.
• Syntec Biofuel, which, like Enerkem and Coskata, plays in the waste-to-ethanol business. However, it has been struggling to get funding for over a year, and the benefits of its technology are not clear.

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