By Sam Nejame, Special to the Digest
Early last month I travelled to San Francisco for a conference. Over the weekend I and some old college friends cycled through Marin. In rain and fog we spun up long steady climbs then bombed hairy twisting descents through the famed redwoods. When my borrowed bicycle needed a little tweaking I lubricated the chain with oil I “borrowed” from the conference – the oil was mundane on one hand, but on the other, it was perhaps the world’s strangest and most costly bicycle oil in human history. San Francisco real estate expensive, a cool billion-dollars-expensive… and a long time coming.
As I lubed the chain on a drizzly mountainside, I was reminded of another rainy day five years ago. In late September 2010, I had lunch with Neil Renninger, then CTO of Amyris Biotechnologies. It was the day after AMRS had IPOed, bringing the company’s total raise to a half billion dollars give or take a few. Clearly, Amyris had come a long way from their Gates Foundation grant and the anti-malarial, artemisinin.
Of course, other Industrial Biotechnology companies had gone public, but Amyris had the most intriguing story and the biggest buzz. Synthetic Biology tools used to make pharmaceuticals were now cheap enough to make renewable chemicals, biofuels and lubricants. Cool, very cool.
We met at the Harvard Alumni Club, where Neil spoke to a packed room, running quickly over numbers and studiously pocketing his presentation on a thumb drive. As I waited for fanboys to leave, I thought to myself – smart guy, good guy, and possibly the most disinterested presenter I’d ever seen.
Neil was recently out of Jay Keisling’s lab at Berkeley. He was young and haggard, could do sick math in his head and wore the face of someone, who relished his time on the MIT blackjack team. Between rain drops we walked over to Café Pamplona – throwback to the days when biologists like Nabokov and EO Wilson, roamed The Square.
Inside we discussed the 70 odd road show presentations leading up to the IPO and what it felt like riding the rocket, which raised all that money. Then talk turned to the merits of Vegas casinos, New York investment banks, Vinod Khosla and Kleiner Perkins – that is to say all things finance… those that took the risk and others that passed.
In a moment of geekery, I told him I was impressed with how much carbon they jammed through the isoprenoid pathway. Yet, the maximum theoretical yield was not good and the rumored productivity numbers were even worse. We talked about separations, which he assured me would be “decanting with a two horsepower pump.” As for the Synthetic Biology, their goal was, “too make it simple enough that (CEO) John Mello could do it.” Of everything we talked about that rainy day in Cambridge, that line struck me as the most intriguing.
Not long after talking with Neil, I started tracking S-1 filings. Some say S-1s and the IPOs they can lead to are just another form of financing, but really they are much more. For venture capitalists and founders a float represents the moment when the risk they’ve taken turns into cash. Often large amounts of cash. IPOs also can herald the emergence of a new industry. In this case Industrial Biotechnology.
After the successful Amyris public offering there was an explosion in investment banking activity. Over the next few years there were probably more, but I counted 30 filings and two dozen participating banks. Most active were Piper Jaffray, Goldman Sachs and UBS in that order. And deals sought to raise between $100MM and $150MM. Theoretically these represented the most investment worthy companies from a universe of hundreds of start ups. Ibanks hired name brand consultants like Nexant, McKinsey and the Boston Consulting Group to perform due diligence and assess risk.
At the same time investors saw the rapid expansion in infrastructure that was the ethanol biofuels rollout. At the pump consumers faced $100+ per barrel oil and nearly $4 gasoline. The DOE was dealing with national security issues and EPA’s renewable fuels program mandated years of expansion. Huge investments in steel and concrete were being turned into billions of gallons of ethanol. To this day, I don’t think people appreciate how fast that infrastructure got financed and built or how important it’s going to be going forward. Midwest farmers made a mint. Next generation biofuels and renewable chemicals seemed like a slam dunk. Then reality struck.
In the intervening five years oil has crashed… twice. Amyris has raised more money, but the stock and quest for profits has not gone well. Most large Strategics have exited the renewable chemicals/biofuels sector all together or fled to Brazil like Ronald Biggs. Many small players have dispersed and everyone else with skin still in the game is scratching their heads.
A Bad First Semester Report Card
Looking back at the approximately 30 Industrial Biotechnology companies that filed S-1s with the SEC, there were 15 successful floats. Of those two retained most of their IPO value (BIOA, REGI), six are treading water, two were acquired and the rest are penny stocks. At this point I feel a bit like Dean Wormer in the movie Animal House. “I’ve got their disciplinary files right here… Who dropped a whole truckload of fizzies into the varsity swim meet? Who delivered the medical school cadavers to the alumni dinner? Every Halloween, the trees are filled with underwear. Every spring, the toilets explode.”
Whoops, wrong scene. Rewind. Let’s try again…
At this point I feel a bit like Dean Wormer in the movie Animal House. “Here are your grade point averages. Mr. Kroger: two C’s, two D’s and an F. That’s a 1.2. Congratulations, Kroger. You’re at the top of the Delta pledge class.”
Fact: The oil crash and lack of performance burned Industrial Biotechnology stocks like California hillside. Poor returns for investors for sure, but are the performances markedly different than historically related stocks? Not really.
If you were to look at the performance of bio-pharma equities circa 1990, arguably a similar relative era to today’s Industrial Biotechnology development, you would see something interesting. In fact, for the first 30 years of bio-pharma, that industry burned more money than it made. And if you remove the two superstars (Genentech and Amgen) the numbers look much much worse.
Given this history why should we expect Industrial Biotechnology to look any different? I’d take that a step further and say, given the success of biotechnology since 2007 and the important drugs that continue to emerge from that research and investment, it would be hard to argue it wasn’t worth the pain and suffering. In reality the results have been amazing, it just took longer than expected. And that’s why people continue to invest.
All this is to say, that going forward we will see success. It might take longer than expected and in the end it might even look mundane. I think maybe success looks a bit like what I hold in my hand on the side of Mt. Tam – a plastic vial labeled “novvi Bicycle Chain Oil.” Novvi being the Amyris-Cosan JV. Maybe we should just call it “higher value branded product” or how about “unicorn oil?”
Today, the word “unicorn” has become Silicon Valley jargon for startups with billion dollar valuations. To me Amyris represented that kind of promise. Not just for big big money, but for products that would displace petroleum, cut GHGs and eventually save the planet. They were our Zuckerbergs and our FaceBook and they were doing miraculous things. And to an extent they succeeded. The technology works. We’re just not going to use it to make fuel anytime soon.
In the end, founders Neil Renninger and Kinkead Reiling maybe walked out of Amyris with a handful of million dollars each, not bad, but paling tragically to the money that came out of Search and Social Networking. No doubt, janitors and secretaries at FB did better. Sustainability it appears is the slow road to wealth. And from an investors’ point of view it’s not been a good place to be on the risk/reward continuum.
So, can we say software is “soft” and Industrial Biotechnology is “hard”? Or put another way, you can’t just lock a bunch of code jockeys in a room with boxes of flatbread pizza and do biology… or can you?
Industrial Biotechnology 2.0
No doubt about it, there were some glum faces at the Advanced Bio-economy Leadership Conference in San Francisco in November, but there were bright spots too. Beyond the fact we’re starting to see products reach the marketplace, there is a growing movement to outsource the biology.
We’re back to pick and shovel platform technologies. In this case companies that will make your production strain better or build you a bug from scratch. In Silico organism design, robotics, and high throughput strain development are standardizing operations and dramatically dropping costs and development time.
Perhaps unsurprisingly these companies are not being sold as cleantech or biotechnology, nor are its investors primarily biotechnology investors. This time around it’s “big data.” It’s “software.” It’s “Information Technology.” It’s also less capital intensive.
In Emeryville, just down the street from Amyris, sits that company’s former strain development team. Call it “Amyris 2.0” or call it Zymergen. Whatever you call it, it didn’t land far from the Keisling tree. And there are others doing this work too: Intrexon, Ginkgo BioWorks, enEvolv, to name a few. If they can do what they claim, it’s worth the upfront fees plus royalties. In the last year or so Ginkgo BioWorks raised $54MM and Zymergen $45MM. And although I’m not sure I’d be investing at current valuation, publically traded Intrexon, with the ambitious ticker XON, has a $3.2B market cap. Clearly, venture capital is flowing again and the investment banks are circling. Are those baby unicorns in our rose garden?
Meanwhile, back on Mount Tam. I oil my bicycle chain until it leaves clean golden marks across my fingers. If you ride in a group then crisp shifting can be the difference between keeping your buddies upright in a tight pace line or sprawled in a ditch. It’s banal, but it’s important. A chain after all is made up of hundreds of moving parts that need to be clean, lubricated and happy. Rain and time work against you, stripping an oil’s light ends and leaving black heavy gunk. That mess wears out your drive train and makes shifting a bear.
Bikes are nice, bikes are cute. In America, the best way to kill someone and get away with it is to put them on a bicycle and run them over. Take care of your equipment. Makes it easier to stay alive.
As for myself and my kitted out MAMIL (Middle Age Men In Lycra) friends, it was a great day in the saddle. From Equator Coffee and over the seven sisters we laughed about college indiscretions and the success that brought them early retirement and beautiful children in a beautiful place. No one grumbled about real estate or the looming stock market bubble. On the return we hit Punjabi Burritos and I couriered a cinderblock of gluten free bread back to the ranch. Nothing remarkable. The skies cleared. It was literally a once in a lifetime ride.
And of course, it felt great to beat my friends up those hills. Remind me to post the pictures to FaceBook. They’ve got to be worth a billion. At least they are to me.
Sam Nejame is CEO of Promotum, a management consulting firm focused on technology commercialization. He can be reached at [email protected].
This articles was originally posted at: http://www.biofuelsdigest.com/bdigest/2015/12/22/the-next-wave-of-industrial-biotechnology-with-bicycles-unicorns-rainbows/ on