Man of (someone else's) Steel: Genencor leads a wave of biofuels super-partnering

October 6, 2011 |

Genencor’s GNext initiative ups the partnering ante, as intercompany structures become a must-understand megatrend.

What new super-companies will emerge?

Earlier this year, Dupont acquired Danisco in a pricey and closely-watched acquisition, which valued Danisco at $6B.

Many observers felt that 2011 would be a lost year for Genencor and Dupont as they wen through the long series of of post-merger tasks. But the companies have begun to come out of stealth somewhat ahead of expectations, and announcements are expected as soon as this month. Those will clarify expectations, and indicate the kind of activities that Dupont will be emphasizing as it undertakes the task of earning back all those dollars that went to Danisco shareholders.

About GNext

The first major indicator is the launch of GNext.

The premise – an intensification of partner outreach. “If you are developing a new process or technology, and it involves an enzyme, protein or microbe – talk to us,” said Genencor CEO Tjerk de Ruiter.

Now, Genencor has done a fair amount of partnering – in fact, partnering with Dupont along similar lines with respect to Dupont Danisco Cellulosic Ethanol. But the intensity smacks not only of Genencor, but of Dupont, a company that has long prided itself for “having partnering in our DNA,” as former Dupont CEO Chad Holliday used to say.

What does that mean? A thinly veiled drive to increase the customer ranks? More JVs, more licensing?

“All options are on the table,” de Ruiter told the Digest this week on the sidelines of the California Industrial Biotech conference. Would the possibilities include investment or acquisition if the conditions were right. Yes, de Ruiter confirmed. The structure of relationships would reflect the urgency and importance of the market opportunity and the needs of the partners.

GNext, or D-Always?

It’s classic Dupont, in many ways. Focus on the company’s strengths and find complimentary partners around the globe in key markets, to accelerate growth. Tailor the structure of the partnership to the nature of the opportunity.

Would Genencor now be in a position to undertake bigger, more transformative investments that took more time and talent to unlock the value within? Absolutely, said de Ruiter – it was a major attraction of the Dupont-Danisco deal in the first place.

Will Genencor now focus more exclusively on the bigger partnerships to tackle the bigger opportunities?

Well, no, says de Ruiter. The essence of GNext is that companies both big and small are going to be welcome. “it’s determined less by the size of the partner,m than by the size of the market opportunity.”

3 makes a trend

The rule of thumb is that one instance makes an outlier, two map a phenomenon, and three instances make a trend. In recent weeks, we’ve also seen Rentech move in this direction, a sharp increase in attracting partners, based on utilizing the core Rentech technologies and its soon-to-be-completed integrated biorefinery in Colorado.

In Rentech’s case, ClearFuels is a good example. A smaller company with an interesting and complimentary technology appears on the horizon. A partnership develops which initially includes government support in the form of an integrated biorefinery grant from the DOE. Later, Rentech begins investing in ClearFuels, and eventually acquires a substantial majority interest.

In turn, the combination of Rentech’s F-T process, ClearFuels’ gasifier technology and the integrated biorefinery in Colorado opens up new partnership opportunities, especially if backed with the potential to bring the kind of financing that a public company balance sheet with $83 million on the books can bring.

It’s not completely hard to look at a collection of hot biorefining technologies to find one in need of a strong gasification technology to match with its own core back end process, that could also use an injection of capital to ease its transition from demonstration-scale to commercial-scale.

You really just have to fly in to Chicago, where you can pick up meetings with Coskata and LanzaTech in short order. INEOS Bio is right there as well – but it has no need for a financing partner in the same acute way that Coskata and LanzaTech do. And a certain degree of urgency on the part of Coskata’s investment group.

If the companies aren’t talking, they probably ought to be.

You see it also at Gevo. Now, here’s a company that has quickly used its IPO proceeds to acquire ethanol production capacity, and bolt its core technology onto the back end. It has less of the look of “friends with benefits” and more like a series of strategic acquisitions, but the impact is the same. Partner #1 acquires a site where it can scale up its technology without having to put steel in the ground. Partner #2 acquires a technology that adds value to its existing operation, without having to undertake either the R&D risk or expense.

Of course, in Gevo’s case, it is the hot technology company that brings the capital – as opposed too relying on finding a partner with a strong balance sheet

It’s there at LS9 as well, where the company has acquired a distressed fermenting facility in Okeechobee, FL for pennies on the dollar, and will execute a commercial demonstration of its technology at a fraction of the originally envisioned cost.

That’s the Amyris technique as well, partnering as they have all over the globe to obtain refining capacity without having to put any more steel in the ground than absolutely necessary.

Solazyme has been at it too. As CEO Jonathan Wolfson has said, “it was the knowledge that we could toll, and the next-to-zero capital cost, that made some of the smaller, but high margin, markets possible for us.”

BioProcess Algae and Green Plains Renewable Energy are up to much of the same in their partnership at the Green Plains plant in Shenandoah, Iowa.

7 makes a megatrend

It’s not entirely different from how Dupont VP John Raineri describes the key engineering breakthrough that made the Sorona bio-polymer business work for Dupont,. Facing a commercially unpalatable expense in building a first commercial-scale facility a few years back, for an exciting market opportunity in Bio-PDO that would potential revolutionize, among other markets, the flooring material business, Dupont was in a bind.

The break-through? Finding a partner in Tate & Lyle and adapting an existing wet mill to the Sorona process – taking the wet mill to the next level, de-risking the Sorona scale-up, and shaving months if not years off the development process.

Bringing us to Butamax

One of the more interesting companies out there in the biobutanol space is Butamax, a JV between Dupont and BP. Its technology is, in several respects, highly reminiscent of Gevo’s – in fact, the two companies are engaged in a fight over patent infringement, attempts at patent invalidation and so on.

But Butamax has been unable, to date, to announce a major partner. It could be that the licensing model that Butamax has outlined – where the partner brings the location and the capital, and Butamax contributes technology and the marketing muscle of BP – simply doesn’t work as well, or as fast, or has difficulty working in the absence of a full commercial demonstration of the technology. We wouldn’t be surprised to see one of BP’s biofuels plants – possibly one it owns in partnership with Dupont, like the Vivergo plant in the UK, adapted to the Butamax technology – to provide a kick-start top the Butamax business.

Is licensing dead? Genencor’s de Ruiter says “no, licensing will continue to be strong for us, but in our case we want to be open to whatever business relationship is needed to maximize the rate of commercial return.”

Something borrowed

One thing is sure – looking at the recent landscape of company activity, one of the best ways that we see companies getting down the road is not by putting steel in the ground, but using someone’s existing capacity.

That’s a remarkable extension of the idea of optimizing the value of low-value assets – which has been at the heart of waste-to-energy technologies like Enerkem, Terrabon and INEOS Bio. In this case, the capacity itself, not just the feedstock, is the residue of choice.

In these capital-challenged times, we expect to see a lot more deals like these. Genencor may have set the pace for now with a very broad, aggressive outreach effort in GNext, but we very much doubt that its competitors will leave the field alone to Dupont and its new high-priced baby.

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