Two Thumbs Up for Solazyme: AkzoNobel deal, new technology for structured oils

May 9, 2013 |

two-thumbs-upThe sector’s perennial hottest company strikes again — with “potentially disruptive” new technology to change the positioning and performance of triglyceride oils.

In California, Solazyme and AkzoNobel announced an agreement targeting the development of advanced tailored triglyceride oils and commercial sales for near-term product supply. The agreement focuses on supply for the chemical giant’s Surface Chemistry and Decorative Paints businesses.

Commercial supply of multi-thousand ton quantities of highly sustainable algal oil is expected to originate from the Solazyme Bunge Renewable Oils Joint Venture oil manufacturing plant in Brazil. Sales of product are anticipated to commence in 2014, with pricing to be competitive and based upon Solazyme’s cost of manufacturing.

In addition, Solazyme announced a new technology for structured oils — which analysts termed “potentially disruptive” and opens up a number of possibilities in the $2500+ per ton triglyceride oil price range.

What exactly is a structuring capacity in triglyceride oils?

solazyme

As you might expect from the “tri” in triglyceride oil — essentially it is a glycerol hand with three fatty acid fingers sticking out of it — though they are generally described as fatty acid chains.

Now, as you can imagine if you were re-engineering a hand — you’d want to work with three properties that might be interesting. One, finger length. Two, the finger’s musculature. Three, the position of the fingers along the hand.

Roughly speaking, these correspond to fatty acid chain length, saturation (the number of double bonds), and positioning. Each of those factors contribute to the performance of triglycerides — just as they do with fingers.

The latest Solazyme news is that — having previously demonstrated technology to manipulate – chain length and saturation — it now has the third, positioning.

Imagine, for example, reengineering your hand to give yourself thumb and forefinger capabilities down towards the pinky end of the hand — that’s more performance.

Moreover, it’s optionality — and in the world of oils for everything from nutrition to paints, options give you performance benefits. In this case, by reengineering essentially the same basic algae fermentation process — rather than laying a layer of expensive process chemistry steps to get from one target molecule to another.

Since with petroleum oil (or traditional plant oils) you are working with a defined feedstock that you cannot change – the more process steps it takes to get from feedstock to a desired target — or the rarity of the target molecule in the mix of natural oils — well, that’s a sweet spot for synthetic biology companies.

It’s the difference, in layman terms, of owning a piano and knowing how to play it — instead of owning one of those self-playing pianolas that operate the piano via pre-programmed perforated paper or metallic rolls.

What does that mean in terms of everyday applications?

In nutritionals, there is the potential to eliminate trans fats in food but retain texture. Where oil profiles have benefits of animal fat without “bad” cholesterol

In industrials and personal care, it offers the potential for product formulations with sharp
melting at desired temperatures, and creamy textures with consistent, long lasting results.

Financial results for Q1

At the same time, Solazyme announced revenues of $6.7 million for Q1 2013 and a GAAP net loss of $26.5 million, compared to a loss of $16.8 million for Q1 2013.

Building capacity

“We are off to an excellent start in 2013 executing on our three primary focus areas: completing capacity projects on schedule; developing our portfolio of tailored oils; and bringing our tailored oils to market,” said Solazyme CEO Jonathan Wolfson. “In addition to the newly announced agreement with AkzoNobel, the first quarter included several important milestones such as our Mitsui partnership, our technology breakthrough that allows us to develop new structuring oils, and key financing achievements that support a clear path to commercialization. We remain on target to be in commercial production in multiple facilities by early 2014.

Cowen and Company analysts Rob Stone and James Medvedeff commented, “Q1:13 loss per share was in-line and full-year guidance was unchanged. A new partnership with AkzoNobel should contribute R&D funding this year and product sales in 2014. Unique, new structuring oil capability should open high-value product opportunities. Capacity expansion is on track. We see 70% upside relative to the market in a year. Reiterate Outperform.”

According to Nasdaq.com, Solazyme is currently rated a strong buy by 8 of the 10 equity research firms offering coverage of the stock. One rates the company a “Buy,” and one gives the company a “sell” rating.

The AkzoNobel agreement

Compared to some of its peers, which have maintained a relatively splashy posture n the green chemistry space, AkzoNobel — the largest global paints and coatings company and a leader in specialty chemicals — has been in a stealthy mode. It makes the agreement with Solazyme its most high-profile to date.

However, stealth does not mean non-activity ‘Last year we worked on a road map for AkzoNobel’s green chemistry,’ Jos Keurentjes, Director of Technology in AkzoNobel told Biobased Society. “We have already reached a level of 9% renewables in our feedstock. That is exceptionally high, chemical industry’s average is at 3%.”

To date, AkzoNobel’s work has largely been in the substitution of feedstocks — especially surfactants and cellulose derivatives — with renewable content in the coatings businesses on the rise.

The Paints business, at AkzoNobel, is big business — and paints consist of pigments, solvents and binding agents. Last year, the company tipped that it was investigating the use of algae in producing binding agents with a lowr carbon footprint.

As Keurentjes indicated to BioBased Society, “Sustainability issues now constitute our ‘license to operate’. Our customers request sustainability, and from the demand side the whole chain is becoming greener.”

Back in 2011, AkzoNobel acquired China’s Boxing Oleochemicals, which was integrated into AkzoNobel’s Surface Chemistry unit.  The unit manufactures bio-polymer and synthetic additives with uses ranging from home and personal care to asphalt road paving.  The company also acquired Integrated Botanical Technologies’ patented Zeta Fraction technology, which makes it possible to harvest and separate constituent parts of a living cell from any plant or marine source without requiring any solvents.

Reaction from Solazyme and AkzoNobel

“AkzoNobel’s leadership in specialty chemicals and sustainability makes them a natural partner for us to work with,” said Jean-Marc Rotsaert, Chief Operating Officer, Solazyme. “Akzo’s significant product sales and growth strategy in the Americas also overlaps well with our manufacturing footprint.”

“We think the tailored triglycerides developed by Solazyme can offer valuable new technology for our Surface Chemistry and Decorative Paints businesses, and we are excited about our partnership with such an innovative, promising new business” said Graeme Armstrong, Corporate Director for Research, Development and Innovation, AkzoNobel. Added Peter Nieuwenhuizen, Director Future-proof Supply Chains “We look forward to a multi-faceted alliance with Solazyme, including supply in the Americas region, and joint research and development to drive new functionality alongside improved sustainability.”

Product development efforts are anticipated to begin in the second half of 2013, and are focused on a number of AkzoNobel’s end market applications, specifically surfactants and paints and coatings.

A dissident voice

Over at Piper Jaffray, analyst Mike Ritzenthaler remains a Solazyme bear, terming the AkzoNobel announce “Another ambiguous, non-binding agreement,” and advocating “a cautious approach to shares into the commercial ramp – a process fraught with stumbling blocks.” Ritzenthaler added that “the commercialization phase will likely bring with it several stumbling blocks, no matter how well prepared the company may appear. Additionally, production costs of less than $1000/MT continue to be far too optimistic in our view.”

More on the story.

You can read the transcript of the quarterly earnings call here — and follow the quarterly investor presentation here.

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