How Codexis Aims to Stand Out from the Biofuels Startup Crowd
In the overcrowded biofuels business, it’s hard to tell the pretenders from the contenders.
Every company claims to possess breakthrough technology that is just about ready for commercialization. Just ask Algenol, Amyris, Bluefire Ethanol, Coskata, Genencor, Gevo, LS9, Mascoma, Novozymes, Range Fuels, Synthetic Genomics (which is funded by ExxonMobil) and Terrabon. In the last couple of years, I’ve taken a look at Poet, (See Poet, seeking patronage), Qteros (Qteros: Turning mud to big money) and Solazyme (Gee whiz, algae!), among others.
Today, I’ll turn my attention to Codexis, which, like its rivals, has a beautiful website, big ideas and very little in the way of commercial production of a biofuel not made from food. That’s the problem here -- a sustainable biofuel such as cellulosic ethanol, which is ethanol made from the wood, grasses or the non-edible parts of plants, always seems to be a few years away, despite the hopes of venture capitalists and politicians.
It was back in 2007, after all, when Congress mandated that the U.S. use 100 million gallons of cellulosic ethanol yearly by 2010, and 250 million gallons by 2011. Congress, alas, can’t mandate technological progress or persuade algae to grow faster, no matter how much money it throws at the problem, so neither target will be met, not by a long shot. For a skeptical view of the biofuels biz, see Robert Rapier’s blogpost, Cellulosic Ethanol Reality Begins to Set In. A former ConocoPhillips exec and a chemical engineer, Rapier doesn’t think that "large-scale commercialization of cellulosic ethanol will ever be viable."
And yet ... many scientists, investors and corporate executives, including some in the oil industry, believe strongly in biofuels, which brings us to Codexis. Shell has invested $350 to $400 million in Codexis, according to the company’s CEO, Alan Shaw (right), who spoke with me this week in Washington. “It’s the largest privately funded biofuels program in the world,” Shaw told me.
Codexis also has partnerships with Merck and Pfizer, because its enzymes can be engineered to produce pharmaceuticals, and with Alstom, which is using Codexis technology to capture carbon dioxide emissions from coal-fired power plants.
"Our model is to work with Big Brother," Shaw said.
Codexis (CDXS), which was spun out of a biotech firm called Maxygen in 2002, went public last April. The company reported $107 million in revenues in 2010, with most coming from Shell, which, in effect, is outsourcing its biofuels R&D to Codexis. The company isn’t making money yet and the stock’s down by about 20 percent since the IPO.
If I’d taken biology and chemistry in college, I might be able to explain Codexis’s technology in a sophisticated away. Here’s the best I can manage: In brief, the company rearranges the DNA of enzymes -- which are proteins that speed up or slow down chemical reactions -- in order to make new industrial processes possible and make existing processes faster, cleaner and more efficient than conventional methods.
In Codexis’s biofuels business, that means turning feedstocks like sugar cane bagasse and leaves, wheat straw, woody biomass, or waste from pulp and paper mills into sugars that can then be fermented into ethanol.
Shaw does not believe that using corn or sugar as feedstocks makes long-term sense for the biofuels business. He’s surely right about that. The environmental benefits of corn ethanol are questionable at best, and groups including the American Meat Institute, the American Jewish World Service, the Competitive Enterprise Institute and moveon.org (strange bedfellows!) all oppose further federal subsidies for corn ethanol.
Sugar, meanwhile, costs more than $700 a ton, which makes the economics of turning sugar cane into ethanol very challenging. Prices will only raise as the world’s population grows, Shaw says. Instead of turning sugar into ethanol, why not find ways to take biomass with no food value and turn it into sugar?
That’s Codexis’s approach, of course. In Canada, Codexis is working with Iogen, which has been making cellulosic ethanol from wheat straw in a small demonstration plant since 2004. In Brazil, Codexis is working with Cosan, the world’s largest sugar and ethanol company, and Royal Dutch Shell, which have formed a joint venture called Raizen. They’ll focus on sugar cane bagasse, leaves and stalks, none of which are edible.
Shaw told me that he expects to see Codexis’s technology used in pilot plants in Canada this year and Brazil next year.
And when will the technology be commercialized?
"You’re talking about hundreds of millions of dollars of investment," Shaw said. "Large scale, I think we’re looking at 2015."
In the long run, there ought to be a future for sustainable low-carbon biofuels. Even if the automakers electrify most or all of their cars, clean transportation fuels will be needed to power planes, trains and ships.
What’s more, no industry wants to be dependent on oil forever -- not even the oil industry.