CIRCA’s Landmark IPO: What does it mean for renewable chemicals, and the IPO market for bioindustrials?

March 15, 2021 |

Late last month, we reported that Circa Group had completed a €56 million (about USD$66 million) IPO and is now trading on the Euronext Growth Oslo exchange where it is trading roughly at the IPO price (16.75 NOK – about $1.98 per share), for the month it has traded in a 14.77-19.75 NOK range — in short, holding its value with some upside potential, clearly.

The Circa backstory: It Took a Village to build a Technology

Circa has a patented technology called Furacell for making the platform biomolecule Levoglucosenone (LGO) which is the base for a range of chemicals, including the green solvent Cyrene. Cyrene is a bio-solvent aimed at a more than 1,000,000 tonne market where four of the top five traditional products are under increasing regulatory pressure due to their toxicity.  Overall, LGO aims to be a platform molecule for the production of solvents, surfactants, flavors, agrochemicals and biopolymers.

Traditional dipolar aprotic solvents are under strong regulatory pressure due to their toxicity, harmfulness and negative environmental impact. Such solvents are currently used in thousands of manufacturing processes, and are used by the industry in excess of 1,000,0002 tonnes per year in aggregate. 

The four most traditional dipolar aprotic solvents are i) N-Methylpyrrolidone (NMP), ii) dichloromethane (DCM), iii) dimethylformide (DMF), and iv) dimethylacetamide (DMAc). All are considered toxic substances by the EU. This trend has been especially strong in Europe, where the European Parliament has enacted regulations for Registration, Authorization and Restriction of Chemicals (“REACh”). Similar regulations are either in place or developing in most jurisdictions around the world. REACh regulations indicate that the traditional dipolar aprotic solvents will be banned once suitable non-toxic alternatives become available in commercial quantities, of which Cyrene is one of very few viable alternatives.3 In October 2020 the European Commission adopted the EU Chemicals Strategy for Sustainability stating that “the transition to chemicals that are safe and sustainable by design is a societal urgency.”

The Cyrene Market

Cyrene belongs to a greater than 1,000,000 tonnes per annum solvent family of dipolar aprotic solvents. This market is estimated to be growing at 3% per annum and almost 80% of this market is made up of solvents labelled by the EU as SVHC’s (Substances of Very High Concern) and being regulated out of the market as alternatives (like Cyrene) become available. Examples are NMP, DMF and DMAc.

Cyrene trials are showing it outperforms traditional dipolar aprotic solvents in higher value applications, representing 20-30% of the total market (approximately 200,000-300,000 tonnes per year). Cyrene is marketed by the Group on “outperform” results and does not rely on just being a sustainable and nontoxic alternative to existing solvents.

The feedstocks

The process can use a range of waste biomass as feedstock, including sawdust, wood chip, bagasse, straw, and almost any other biomass containing cellulose.

The trials to date

In a joint venture with the Norske Skog Group, the FC5 Plant (the fifth scale-up prototype plant) was developed at Norske Skog Group’s Boyer mill in Tasmania. The FC5 Plant has supplied more than 1,000 Cyrene trials to over 500 academic and industrial customers in Europe, North America, China, Russia, Japan, Korea, India and elsewhere.

The first commercial plant

The Group’s fifth pilot plant was developed in a joint venture with the Norske Skog Group, and was built at the Norske Skog Group’s Boyer mill in Tasmania. Following successful commissioning in 2018, products produced at the FC5 Plant are now being used by researchers and companies across Europe, the US, China and Australia.

In 2020, the Group successfully lead a consortium to be awarded approximately EUR 11.6 million from the EU Horizon 2020 Flagship Grant to build a 1,000-tonne production plant (the “Resolute Plant”). The ReSolute Plant will be built on a repurposed refinery site owned by the oil and petrochemicals company Total, near Carling in Eastern France. The proceeds from the private placement will be used to build the 1,000 tonne ReSolute plant in France and to further develop the company’s portfolio of chemical derivatives. The capex for the ReSolute Plant is estimated at approximately EUR 32 million, of which approximately EUR 4-5 million will be financed from the EU grant.

The Business Model

The Group plans to build and operate LGO and Cyrene production plants, as well as generate revenues through future patent license agreements and royalty agreements for the production of LGO-based biochemicals globally. 

Cyrene is sold through distributors Merck and Will & Co to academic and industry participants in Europe, Asia and the United States, in order to undertake product research and process trials validate the use of Cyrene and other biochemicals. Will&Co is appointed as the exclusive distributor to sell the products in the Netherlands, Belgium and Luxembourg, subject to certain exceptions, such as customers with a revenue above EUR 500 million.

Molecules, now and Future

Existing molecules currently produced from petrochemicals-, such as butyrolactones, HBO, 1,6-hexanediol and many others can be made from LGO. 

One key opportunity relates to a high potency dairy flavoring, Laiscent, which is a nature-identical molecule (found naturally in dairy products) and has a sweet dairy taste that can be identified even when present in very small quantities. Currently it is only available from current manufacturers in kilogram quantities. The opportunity is to provide food and drink manufacturers with new opportunities to develop novel products and maintain dairy flavors where consumer health demands require a limited use of dairy products, or environmental demands limit the availability of milk products.

Apart from food flavorings, opportunities for LGO derivatives range across several industry sectors from specialty materials through to pharmaceutical intermediates exists, amongst others:

• HBO (a precursor of flavors, drugs and antiviral agents)

• Ribonolactone (a precursor for over 20 coronavirus therapeutics).

• 2HHBO (a polymer precursor for coatings)

• THFDM (a polymer precursor similar to existing diols in the market)

• PT139 (a new broad leafed herbicide)

Overall, Circa is developing molecules and apps for 

i) food manufacturers, including as an example a ‘dairy’-flavor biochemical;

ii) pharmaceutical manufacturers, including intermediates that can be used in the production of

pharmaceutical products for the therapeutic treatment of corona viruses;

iii) electronics manufacturers, including as a solvent in graphene-based printing inks used in organic electronic devices;

iv) recycling companies, including the recycling of lithium-ion battery components; and

v) manufacturers of paints and coatings, including wire coatings.

The IPO backstory

The IPO resulted from a private placement of 575 Norwegian Kroner (NOK) – approximately €56 million – in a transaction led by Pareto Securities and Sparebank 1 Markets in Oslo, at a post-money market valuation of approximately NOK 2 billion (approximately €194 million).  The private placement attracted strong interest from high-quality and global institutional investors and was more than 15 times oversubscribed (excluding pre-allocated shares). Cornerstone investors include BNP Paribas Energy Transition Fund, Delphi Fondene, DNB Asset Management, Handelsbanken Fonder, The Fourth Swedish National Pension Fund, Robeco Asset Management and Circa’s industrial partner Norske Skog ASA.

Reaction from the stakeholders

Tony Duncan, CEO and co-founder of Circa Group, said, “We are very appreciative of the incredible support shown towards Circa in our IPO. This has been a 15-year journey for a dedicated team and our partners. The Circa IPO initiates phase 3 of our development – the manufacture and commercialization of the levoglucosenone biomolecule platform for industry – and is a positive signpost for the biomaterials industry as a whole. It is clear that consumers want better, safer, more sustainable products and brand owners need to respond before the regulators do.”

The Digest’s Take: Performance Pays

It’s good news for Circa — proceeds are at hand to build the first commercial. A couple other items to note. 

First, shows a model for a renewable chemicals company to build a first commercial from a EU public-private partnership — the large public placement leverages off the substantial EU investment through EU Horizons. 

Second, shows the way forward, for now, for renewable chemicals. Find something that’s going to be banned or has severe sustainability challenges. Too many ventures have been built around exciting technologies that depended on $100 oil to be cost-competitive, and the sector has been plagued by a slowdown that began with the collapse in oil prices in 2014-15. But here’s this one, based not in beating the price but beating on performance — in this case, being safer to use. Until there is an economy-wide carbon standard where biobased technologies can monetize the benefits of reducing greenhouse gas emissions, producers will have to find the traditional benefits of better price or performance, and for now, performance pays.

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