Gevo marching: GEVOgraphy expands to Malaysia; advantaGEVOus ruling in Butamax case

Gevo signs agreement for cellulosic biomass development in Malaysia, as the company secures a crucial win in preliminary injunction battle with Butamax over IP.

In Colorado, Gevo signed a collaborative agreement with the intent to site a cellulosic biomass isobutanol facility in Southeast Asia, with the Malaysian government’s East Coast Economic Region Development Council (ECERDC), Malaysian Biotechnology Corp (BiotechCorp) and the State Government of Terengganu.

The company is in the final stages of evaluating additional partners to complete the biomass to isobutanol value chain. The collaboration offers a diversified feedstock, organized approach and the opportunity to develop an economically advantaged business plan to meet this expanding market.

The current plan under consideration is to construct a fermentation facility to produce bio isobutanol made from cellulosic biomass. The proposed site is in the State of Terengganu at the Biorefinery Complex in Kerteh. Specific feedstocks were not disclosed by the parties – but palm waste opportunities abound in Malaysia, to name one option.

More on Malaysia

Kerteh, a small town on the northeast coast of Malaysia, is the base of operations for state oil giant Petronas in the state of Terrenganu, which itself has been lately revived through a combination of oil and gas discoveries offshore, and rising agricultural prices. Kerteh and nearby Paka have become petrochemical production hubs, and the Biorefinery Complex in Kerteh has become a signature effort in Malaysia’s integrated biotechnology strategy.

“The technology for a sustainable cellulosic feedstock is expected to be commercially viable this year, so now is the appropriate time to begin our cellulosic platform,” said Ryan. ” Our ambition is to move toward definitive agreements by the second half of 2012 with a target of having a cellulosic plant operational by late 2015 or early 2016.”

“The establishment of a Gevo facility in East Coast Economic Region Malaysia is further testament to investors’ confidence in the Region and we look forward to facilitating Gevo’s investment in Malaysia,” said Chief Executive Officer of the ECERDC, Jebasingam Issace John.

Key ruling in Gevo-Butamax IP dispute

In Delaware, last night a federal court judge denied a request by Butamax for a preliminary injunction in its IP dispute with Gevo.

In her ruling, Judge Sue L. Robinson, concluded “the court finds that irreparable harm would exist assuming defendant were infringing. Because, however, the court has concluded that plaintiff does not hold a valid patent, nor would the defendant infringe if it did, this factor is neutral.”

In the court opinion, Robinson concluded that The parties’ infringement dispute is, essentially, one of claim construction. The parties dispute the meaning of the term “acetohydroxy acid isomeroreductase enzyme,”also known as a “KARI,”4 the enzyme utilized in step two of claim 1.”

On the ‘889 patent originally issued to Butamax, Robinson wrote, “The court concludes, therefore, that defendant has raised a substantial question concerning the validity of claims 1 and 14…the fact that the ‘889 patent has been rejected on reexamination, combined with the finding by the court that plaintiffs likely claim construction is too narrow, demonstrate that defendant’s invalidity defenses do not lack substantial merit.”

Robinson adds: “In light of the court’s construction, and the fact that defendant uses an NADHdependent enzyme to catalyze its step two reaction, the court finds it unlikely that plaintiff will prevail on its claim of infringement.”

Butamax responds

Swiftly following the ruling, Butamax responded that “there are strong grounds for making this request”, and that the company “plans an immediate appeal.”

“The court’s decision is not a final determination of infringement or invalidity concerning the 188 and 889 patents as it is merely a determination that the extraordinary remedy of a preliminary injunction is not available at this time. This is an early step in a long and complex litigation process,” commented Paul Beckwith, Butamax CEO. “We remain highly confident in the ultimate outcome of this case and our other cases against Gevo.”

Butamax noted that request for the preliminary injunction was only based on a select number of claims of Butamax’s ‘889 patent. At trial, Butamax’s case on all the claims of both the ‘188 and ‘889 patents will be heard. Full trial in this case is scheduled for April, 2013. Additionally, Butamax has several other patents and patent applications it will seek to enforce as appropriate.

Analyst view

Piper Jaffray equity analyst Mike Ritzenthaler wrote, “Within the ruling that was posted this evening, the judge tested the conclusions of the Patent Office, and agreed that Butamax’s technology was obvious & non-novel, and therefore not worthy of protection.

“The ruling on the preliminary injunction is essentially a preview of the final resolution. We view the length of time the judge spent considering her ruling on the preliminary injunction as an indication that she was more or less considering the full case between Gevo and Butamax – including the various counter suits. We believe that the final ruling (from the April 2013 court date) will be consistent with the ruling on the preliminary injunction – Butamax does not have viable technology – and will add to it Butamax’s infringement on Gevo’s IP, essentially nullifying their largest competitor.

“We expect Butamax to appeal,” Ritzenthaler adds, “and to be clear there are several other turns left in this dispute – but this case was meticulously considered, and the 27 page ruling is an impressive amalgamation of science and patent language that confirms the outcome we had expected. We maintain our Overweight rating and $17 price target.”

Cowen & Company’s Rob Stone noted: “GEVO should be free to pursue R&D and sell any product to any customer, pending the trial next spring. New IP since the hearing could create key business advantages. Separately, GEVO plans to build a plant in Malaysia to process sugars from locally grown cellulosic materials. We see 40% upside rel to mkt in 12 months. Upgrading to Outperform from Neutral.

Stone added: “GEVO recently received patents on technology that cuts off isobutyrate, a material that renders the DDG co-product worthless. Selling DDG as animal feed lowers net cash cost by about 20%. Together with previous IP that increases yield by 20%, we believe GEVO has built a significant cost advantage.

On the Malaysia development, Stone noted: “Cost is preliminarily seen at $100-$150MM for a 20MGPY plant, with startup timing in late 2015/early 2016. The plan is to build/own, but use local operators.”

The bottom line

The trial, as Rob Stone said, could go either way, but Gevo’s rights to operate between now and the April 2013 trial date are cleared.

As Ritzenthaler says, the ruling is unexpectedly swift, given the issuance of a temporary ruling only last week, but Gevo has won this round, resoundingly. Though IP disputes are, like boxing, measured in rounds, and this is but one of several on the path towards final resolution.

As Butamax notes, “request for the preliminary injunction was only based on a select number of claims of Butamax’s ‘889 patent.” At trial, Butamax’s case on all the claims of both the ‘188 and ‘889 patents will be heard. So, there is far to go in this case.

Meanwhile, the announcement that Gevo will expand beyond corn starch fermentation to cellulosic, and now has a timeline in place to do so, dramatically expands the company’s potential scope of operation: to date, n-butanol developers such as Cobalt Technologies and Green Biologics have been the ones that have been more overtly focused on cellulosic biomass, while isobutanol developers such as Gevo and Butamax have been focused on corn starch.

Combined with the news on opening up opportunities with DDGs, Gevo has surely acquired Big Mo’ this quarter.