Synthetic biology and renewable oils manufacturer Solazyme Inc (NASDAQ:SZYM) announced that it successfully conducted multiple initial fermentations in 500,000 liter fermentors in December 2012. While it was a big step forward in the right direction, I think the announcement was a bit premature. By “multiple,” the company meant two and by “commercial scale production metrics,” the company meant that only partial data had been collected. By reading SEC filings, investors can learn that the company has yet to prove microbial productivity at volumes greater than 128,000 liters. Not at all a nail in the coffin, but since the company believes it needs to reach 625,000 liter fermentors to be profitable, it is clear that engineers have plenty of work ahead of them.
I imagine the company has made headway since its initial press release, especially with commissioning for its Moema, Brazil, biorefinery looming. When updates are given on commercial achievements in the months ahead, will you be able to digest the important information that affects your investments? Heading into the homestretch of the first wave of commercial buildout, it is crucially important to understand what Solazyme Inc (NASDAQ:SZYM), Gevo, Inc. (NASDAQ:GEVO), and Amyris Inc (NASDAQ:AMRS) spill in press releases — and the greater detail given in SEC filings.
In the next few weeks, I will try to give you more tools for your investing toolbox by explaining the basics of the industry. First up is a brief guide of how industrial biotech companies approach product commercialization and three terms you need to know.
Step 1: Find market. Step 2: Disrupt.
If only it were that easy. What exactly does product commercialization entail? A brief rundown in chronological order from whiteboard to fermentation scale up.
1). Identify suitable commercial products with defined markets.
2). Identify and manipulate biological pathways of microbes to create the product (molecule).
3). Optimize new microbe strains at lab and pilot scale to maximize product yield, microbe productivity, and titer (see below).
4). If preliminary operating metrics look favorable, then engineers move the project to larger volumes until ultimately reaching commercial scale.
Whether or not the fermentation product created in the final step is the end product depends on the application. Solazyme Inc (NASDAQ:SZYM) can create tailored oils during fermentation, which require minimal downstream processing and separation. Therefore, tailored oil commercialization would incorporate end-product specifications into the four steps above. Amyris Inc (NASDAQ:AMRS), on the other hand, will initially create a building block molecule called Biofene (farnesene) during fermentation, which can then be chemically synthesized into any number of end products independent of the platform. Gevo, Inc. (NASDAQ:GEVO)’s isobutanol will also be modified independently of its platform, although it doesn’t have quite the reach of Biofene. That is quite all right, as I believe the company has drawn up a formidable business strategy.
When Solazyme Inc (NASDAQ:SZYM) talks about product development with partners such as Mitsui, it takes care of the steps outlined above, while Mitsui helps define product specifications that are desired by customers. The same goes for Amyris and TOTAL S.A. (ADR) (NYSE:TOT) and Gevo and Toray as well as other commercialization partners for the companies. Additionally, Solazyme gets fermentation help from partner Archer Daniels Midland Company (NYSE:ADM), an important mentor for the developing company. The company is one of the leading ethanol producers in the country, so it has a wealth of knowledge in coaxing microbes into fermentation machines.
Know these terms!
Creating an economical process at commercial scale requires the optimization of three important metrics:
1). Yield: The amount of fermentation product created with a given amount of sugar. Simply put, efficient microbes reduce input costs.
2). Productivity: The rate at which product is created by microbes. Faster fermentation allows for enhanced process scheduling and more batches of product per year.
3). Titer: The concentration of product in the bioreactor. Filling up a 10,000 bioreactor every two weeks to only produce 100 liters of product won’t keep the lights on.
Additionally, engineers need to minimize the amount of product lost during recovery and synthesis (if needed) and process scheduling time. The latter can significantly improve a biorefinery’s capacity. Consider how slashing two to four days off of a bioreactor’s operating time — through microbial or mechanical improvements — can impact annual production.