Blog: A Bumpy, Slow Transformation to Biomaterials?
8:32 AM MDT | October 18, 2010 | By ALEX SCOTT
Although it is widely accepted that one day cheap oil will run out, even in a world of seemingly generous government funding some biomaterial technology providers are struggling to deliver the solutions while maintaining profitability.
Verenium (Cambridge, MA), a biotech firm, could be one such company: Laurence Alexander, an analyst with investment bank Jefferies and Company (New York), in a recent report, downgraded forecast 2010 earnings per share for Verenium from $0.35 to a loss of $2.2. Alexander doesn’t opt for a positive stance in 2011 either; predicting that Verenium in 2011 will post a loss per share of $1.1, down from its earlier prediction of $0.05/share.
Verenium in July of this year sold its biofuels business to BP. That move has given the company cash and the ability to pay down debt but narrowed its options from meeting the needs of the potentially lucrative cellulosic fuels and enzymes markets to being an enzymes pure play.
As Alexander says, Verenium’s divestment was not so much a strategic move, as a way “to allay near-term liquidity concerns.”
The path for profitability for Verenium, among other biotechnology firms, is not necessarily straight forward despite it being an enzymes pure play.
Even for other biomaterials start-ups, such as Genomatica (San Diego, CA), that have a clear long term strategy in place there are still high hurdles to jump. Genomatica is in good shape financially and technologically, and says its processes are not only greener but can save chemical companies significant amounts of money. Nevertheless, Genomatica has to go through the rigmarole of undertaking pilot testing and even building a pilot plant to test its breakthrough processes before chemical firms will consider bringing its technologies on board.
Yes the transformation is starting to happen, but companies such as Verenium are having to focus their cash on the delivery of shorter term objectives. Other biotechs such as Genomatica are being drawn into the time-consuming process of demonstrating their technologies at scale. Further question marks remain as to how to cost effectively collect the large volumes of non-food biomass required for making next-generation bio-based chemicals.
The most likely outlook for now is that the transformation to a biomaterials industry will feature many bumps along the way. Unless industry can manage the bottlenecks of introducing innovation to the market it will also be a journey that is slow.
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