The Intrepid Investor: How are biofuels IPOs performing and why?

February 9, 2012 |


In this two-part series, we look at the IPO market for industrial biotech stocks.

Who’s up, who’s down, who’s in the queue, and where might all this take us? Plus, an important update from Coskata.

In Part I, today, we look at the performance of the six IPOs to date in the aftermarket, the Ceres IPO which is ready to price its IPO tonight, and look towards the IPO queue at important changes in Coskata’s recent filings.

In Part II, tomorrow, we look at how Ceres performed, we’ll have an update on Amyris, and we’ll look at the other companies in the IPO pipeline – Myriant, PetroAlgae, BioAmber, Elevance, Genomatica, Enerkem, Mascoma, and Fulcrum Bioenergy.

Who should care about IPOs and company performance? Well, investors, without question. But other producers too – as ‘news you can use’ and also because strong IPOs mean strong investor interest in venture funds. Policymakers, too – strong IPOs make viable companies and drive commercialization and balance sheets that lead to scale. Plus, the R&D community – IPOs offer indicators of the direction research will take, as well as making strong collaborative partners.

For the intrepid retail investor, IPOs have been running hot, performing cold.  Though many early-stage venture capital investors can still realize returns on their investments in companies such as Codexis, Amyris, Solazyme, KiOR, REG or Gevo – for the average small investor, it has been a rough ride.

In the IPO window that opened in April 2010 with Codexis’ successful IPO, six companies in the biofuels and renewable chemicals sector have gone public, and as a class they are between 8 and 61 percent off their IPO price.

Crushed in the aftermarket

It wasn’t always so. Last spring, as Gevo and Solazyme were going public, the stocks were flying off the shelf, and investors pushed stocks like AMRS as high as $33.85, SZYM up to $27.47, and GEVO up to $26.36.

IPO Date  IPO Price Post IPO Hi Low Today Change Market cap ($M)
Codexis 4/21/10 13 14.10 3.91 5.05 -61% 181
Amyris 9/28/10 16 33.85 8.77 9.02 -44% 410
Gevo  2/8/11 15 26.36 5.18 9.4 -37% 243
Solazyme 5/27/11 18 27.47 7.68 11.78 -35% 702
KiOR 6/24/11 15 23.85 8.67 13.01 -13% 1330
Renewable Energy Group 1/19/12 10 10.29 8.56 9.24 -8% 264
Ceres (expected) 2/9/12 16.5 16.50 16.5 16.5 0% 3

Since then, most of the companies have stayed entirely in line with their original plans, as expressed to their investors in there pre-IPO road shows and beyond, and most have stayed in line with their technical and economic targets and on their growth curve. Market reaction? They got crushed.

Accordingly, we can see the current price environment as more of a measure of the public’s appetite for risk (like, about zero), than as a verdict on the technologies and companies themselves. The stocks went through dizzying declines that pushed the Biofuels Digest Index by almost 15 percent in six months, and individual stocks lost as much as 75 percent of their value.

The Recovery

Generally, the six (REGI, being only three weeks in the public markets, doesn’t factor much in to the aftermarket analysis), have recovered off their lows. Gevo has rebounded 80 percent from its $5.04 low, Solazyme (SZYM) has recovered 53 percent to $11.78, and KIOR is up 50 percent to $13.01.

But market caps tell a story about the expectations of the market, in a different way than price does – who is expected to go big? There. we see a lot of differentiation. Pyrolysis rules – KIOR, with its $1.3 billion market cap, leads the way. The remainder, with the exception of REG, are fermentation technologies. There, Solazyme is in the $700 million range, Amyris trails at $400 million, and the rest are in the $180 million to $243 million range.

REG, which focuses on transesterification of veggie and waste oils into biodiesel, is at the top of the trailing class, at $264 million.

Opportunity? GEVO, KiOR and SZYM are trading close to their most recent $9, $14 and $13 targets (respectively, as projected by Raymond James analyst Pavel Molchanov), while AMRS has a pretty good upside, with a target price of $20, as of December.

The Ceres IPO

Ceres is expected to price tonight, and has dramatically cut its expected price range to $16-$17, down from the $21-$23 range expected just a few weeks ago.

It’s been a common theme. Amyris struggled on price at the gate, as well as Codexis and KiOR, and more recently, Renewable Energy Group. Gevo and Solazyme performed better in the IPO itself, but of course have fallen off substantially since.

Now, Ceres is the first of the biotechnology feedstock plays to come to market. It’s upside? Potentially, there are a lot of customers for energy cane, switchgrass and sweet sorghum, among the crops targeted by the company, which focuses on improving traits such as salt tolerance, drought-resistance and works on yield enhancement.

Coskata, INEOS Bio settle lawsuit: Coskata revises S-1

Moving over to Coskata, the company recently revised its IPO documentation to reflect a settlement of its lawsuit with INEOS Bio, which reflected a trade secret dispute.

From the revised S-1: “On January 12, 2012, the parties signed a settlement agreement in which they agreed to dismiss all claims. Pursuant to the settlement, Ineos will receive from us a $2.5 million cash payment and 2,125,000 shares of Series D preferred stock, after which all the asserted claims will be dismissed, and a mutual release of future claims will become effective.

“However, the release does not preclude Ineos from bringing claims against us arising out of conduct occurring after the effective date of the settlement agreement, or from bringing certain claims against us arising out of conduct prior to the effective date of the settlement agreement.

“In addition, Ineos has the right to receive 2.5% of future ethanol royalties and license fees received by us from third parties who license our technology, subject to a cap with a net present value of $20 million, which will be increased based on future interest rates.”

Bottom line for INEOS? Validation, broadly speaking, of their claims of harm, and some potentially valuable relief through participation in Coskata’s upside. For Coskata, the company has more freedom to operate, and can offer a far greater degree of certainty on IP risk to its investors in the IPO process

Other Coskata IPO updates? Shutdown of the demo plant; aiming at natural gas and biomass mix?

The most striking update is that the company quietly shut down its Lighthouse demonstration unit in Madison, Pennsylvania.

The company explains: “We suspended continuous operations at Lighthouse due to the considerable costs associated with such operations and because our key objectives for operating the facility had been met. These objectives included confirming commercial design metrics, testing commercial-ready microbial strains and demonstrating the conversion of multiple feedstocks into ethanol. Most of Lighthouse’s personnel were relocated to the research facility at our headquarters in Warrenville, Illinois. Our Lighthouse facility is available to be restarted as new micro-organisms are ready for evaluation at this scale and the site lease is extended.”

Another update? Coskata might well be joining the group of XTL technologies. This is a group of technologies that are working on a broader set of feedstocks than biomass (BTL), including natural gas (GTL) and in some cases coal-to-liquid (CTL). In its revised filing, Coskata has signaled its interest in working with natural gas, which itself has attracted increasing attention from the Obama Administration and the Congress as a base for enhancing energy security.

The company explains:  “We plan to install a natural gas reformer to ensure a continuous supply of syngas. Consistent with operations at our Lighthouse facility, we expect to operate this reformer on a nearly continuous basis. It is therefore likely that a portion of the ethanol produced at Phase I will not be considered renewable.”

The bottom line for Coskata: freedom to operate, and conserving cash through shutdown of the demonstration unit, which after 15,000 hours had likely yielded up all the engineering data needed for the first commercial plant. Its tough not to be able to work on demonstrating other feedstocks, but Coskata’s focus is clearly on the first commercial facility, and taking on other challenges later. Tough business decisions, and a transformative technology: two reasons why Coskata has quietly emerged as a favorite among analysts looking at the IPO pipeline.

In part II, tomorrow, we will look at the Ceres IPO pricing, an update from Amyris, and the other eight companies working their way through the IPO process.

Print Friendly

Tags: , , , , , ,

Category: News Analysis, Top Stories

Comments are closed.