Until recently, it has been difficult to see how or when advanced biofuels would reach customers. Here are two companies whose go-to-market strategies have made notable progress in the past few months: Gevo, Inc. (NASDAQ: GEVO) & Amyris Inc. (NASDAQ: AMRS).
Tomorrow I’ll outline two other companies with different go-to-market strategies for advanced biofuels.
The progress of advanced biofuel development in the U.S. has been discouraging. Congress passed the Energy Independence and Security Act of 2007 mandating that 25 per cent of U.S. gasoline consumption be displaced by biofuels by 2022. The plan is that 20 billion gallons per year will come from advanced biofuels, 15 billion gallons from corn ethanol and one billion gallons from biodiesel.
Ethanol and biodiesel will easily meet the goal, but development of advanced biofuels has been so slow that the U.S. Environmental Protection Agency, appointed by Congress as the quarterback of the plan, last fall announced it had no choice but to reduce the 2011 interim target for advanced biofuels to 6.6 million gallons from the previous 2011 target of 250 million gallons.
Much advanced biofuel development is a combination of hype and science fiction, but these companies have practical business plans, near-term commercial objectives and the financial resources to get across or near the goal line.
The business plans of Gevo, Inc. and Amyris, Inc. have many striking similarities: Both have filed recent initial public offerings (IPOs) and have experienced significant share price appreciation post-IPO despite little prospects of generating profits in the near term. Most of the outstanding shares of both companies are still held by private-stage shareholders and some of these shareholders have holdings in both companies. Both companies have similar technologies targeted to help ethanol producers convert to non-food feedstocks, but that also yield products suitable for the chemical industry. Both rely heavily on revenue from production and sale of conventional ethanol in the near term.
Gevo, Inc., based in Englewood, Colorado, completed an initial public offering (IPO) at $15 per share February 8, 2011 and closed last Friday at $19.84 (market cap $489 million). The company’s technology uses proprietary yeast biocatalysts which convert sugar from multiple renewable feedstocks into isobutanol, a form of alcohol with a higher energy density than ethanol and broad market applications as a gasoline blendstock.
Gevo’s business plan is to offer existing conventional ethanol producers retrofit technology to convert from conventional corn ethanol production to isobutanol production. Last fall, the company purchased an 22-million-gallons-per-year (MGpy) conventional ethanol plant at Luverne, Minnesota where Gevo will begin producing isobutanol beginning in 2012. By 2015, Gevo expects to be producing more than 350 MGpy at Luverne and other locations.
Gevo is not putting all its eggs in the advanced fuel basket. Isobutanol can also be processed using well-known chemical processes into jet fuel and feedstocks for the production of synthetic rubber, plastics and polyesters.
In the meantime, Gevo’s conventional ethanol production at Luverne is the company’s only commercial operation. The company’s pro forma financial results for the first nine months of 2010 to September 30 showed the Luverne operation would have brought $31.5 million in revenue to Gevo during the nine months, compared with $2.3 million in revenue without Luverne. Gevo had a net loss of $33.6 million for the nine months, with or without Luverne.
According to Gevo’s IPO prospectus, venture capitalists own 60% of the company (Khosla Ventures, 26.8%; Virgin Green Fund, 10.5%; Total Energy Ventures International, 9.2%; Burrill & Company Life Sciences, 7.1%; Malaysia Life Sciences, 6.3%) and Lanxess Corporation owns 4.7%. Lanxess, the world’s largest synthetic rubber producer, announced after the IPO that it increased its position to 9.2%. Total Energy Ventures is the VC arm of French oil multinational Total S.A. (NYSE: TOT). Gevo management and directors own 22.7%.
Amyris Inc. (NASDAQ: AMRS), based in Emeryville, California, completed its IPO September 28, 2010 priced at $16. Shares have trended higher since the IPO, doubling the issue price on January 14, 2011, and closing at $30.28 on Friday (market cap $1.33 billion).
The company’s technology produces cellulosic ethanol by modifying microorganisms, primarily yeast, to convert plant-sourced sugars into potentially thousands of target molecules. The company’s first commercialization efforts have been focused on a molecule called farnesene, which forms the basis for a wide range of products varying from specialty chemical applications to transportation fuels, such as diesel.
While the company’s platform is able to use a wide variety of feedstocks, Amyris has focused initially on Brazilian sugarcane. The company intends to secure access to this feedstock and to expand its production capacity by working with existing sugar and ethanol mill owners to build new, adjacent bolt-on facilities at their existing mills in return for a share of the higher gross margin Amyris believes it will realize from the sale of its renewable products.
Amyris has a collaboration with a U.S. subsidiary of Total S.A. to develop biofuel products. Total paid $133.2 million to own 22% of Amyris’s common shares. Four venture capital/private equity firms still own about 30% of the company’s shares: Kleiner Perkins Caufield & Byers, 8.5%; Khosla Ventures, 7.6%; TPG Group Holdings, 7.4%; and Singapore-based Temasek Holdings, 6.2%.
Amyris will release its 2010 financial results February 28. For nine months to September 30, 2010, the company had a net loss of $57 million on revenues of $50.6 million, compared with a net loss of $44.5 million on revenues of $46.6 million for the first nine months of 2009.
The increase in revenues from 2009 to 2010 came primarily from a $6.7 million grant from the U.S. DoE.
Despite its plan to produce renewable cellulosic ethanol in the future, Amyris today gets the bulk of its revenues from its business as a reseller and distributor of conventional ethanol and reformulated ethanol-blended gasoline.
Photo credit: Amyris, Inc.
DISCLOSURE: The writer has no positions in, or professional connections with, these companies.
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